Inherent Vice, Natural Deterioration And Associated Exclusions - What Is Inevitable - Part VI

The Gaunt Case was recently referred to in Kiev Construction Ltd

. v. Royal Insurance (UK) Ltd. and Others^ 30 Con LR 45. It was alleged that it was known or should have been known that certain temporary (but reusable) piles would be damaged in the course of construction as a result of ground conditions. Bowsher J accepted that the parties should have been aware that 5 per cent of the piles could not be saved but as to the balance decided there was no expectation of damage. The court appears to consider the question of inevitability from the viewpoint of the assured or at least from a subjective standpoint. It decided that there was nothing to show damage was due to wilful misconduct or damage to 95 per cent of the piles was due to wear and tear. In other words, if at the time of the purchase of the cover the parties did not expect the damage to occur then, even if objectively and with the benefit of hindsight the loss was inevitable, the loss was still an insurable loss.

Therefore, in summary, in the absence of specific exclusions:

- an English court will imply into an ARPI policy a term excluding inherent vice, latent defect, corrosion, rust etc.;

- it may be possible expressly to cover loss caused by such perils, but English courts are reluctant to find such cover exists;

- it is unclear as yet whether English courts will consider the meaning of fortuity from the subjective view of the assured or with the benefit of hindsight (although Kiev Construction Ltd. tends to suggest the former);

- it may be better to distinguish loss caused by inherent defects and physical processes such as rot or corrosion (which although superficially non-accidental may contain an element of risk both for the insurer and the insured in that resulting damage may not occur during the policy period) from inevitable loss caused by the actions of the assured and unlawful acts;

- if the concept of risk is seen through the eyes of the assured there is no public policy reason why such so called non-accidental damage cannot be insured expressly by an ARPI policy; and

- there are good public policy reasons which dictate that the wilful act of the assured and the coverage of unlawful acts should automatically be excluded from coverage by an ARPI policy.

Inherent Vice, Natural Deterioration And Associated Exclusions - What Is Inevitable - Part VI

By: Willis J. Watson

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