When all risks insurance doesn't always cover all risks
A case between Leeds Beckett University and Travelers Insurance Company provides a reminder that all-risks insurance does not cover all eventualities.
All-risks insurance policies, despite the name, are subject to specific exclusions.
These exclusions, coupled with uncertainties surrounding the meaning of policy provisions, can pose problems when interpreting insurance policies.
Earlier this year, the TCC was faced with such problems in the case of Leeds Beckett University v Travelers Insurance Company Ltd Citation:  EWHC 558 (TCC).
Facts of the case
The university procured the design and construction of a new accommodation block in 1996. It was a difficult site to develop, as it was next to the Leeds-Liverpool canal and surveys had shown numerous wells and springs and a watercourse flowing into the canal.
In mid-2011, the university took out an all-risks insurance policy for the property with Travelers.
In December 2011, cracks appeared on some internal walls and ceilings on the eastern wall of the accommodation block. It was found that an area of concrete blockwork below ground level had turned to “mush”, resulting in the building having no structural strength.
The university made a claim under its insurance policy. However, Travelers sought to deny cover by arguing that:
- The relevant damage was not “accidental” and therefore not covered by the policy.
- It was covered by an exclusion clause which excluded damage caused by, among other things, “gradual deterioration” and “faulty/defective design”.
The TCC found that the policy did not cover the damage suffered.
The policy covered accidental damage but that was not the case in this situation. The damage was inevitable from the outset considering the design of the building in that environment. Even if this was incorrect, the exclusion clauses would apply.
Gradual deterioration could mean deterioration caused by an external source – here, the ground and the water that flowed against the building. Further, to demonstrate “faulty/defective design”, the insurer is not required to prove negligence or blame, only that the design was not fit for purpose.
What it means
Although this case related to a property all-risks policy, the court’s decision is helpful guidance should there be similar questions regarding the meaning of ‘accidental damage’ under a construction all-risks policy.
It also illustrates the major gap in such policies, namely that they do not cover damage caused by defective design or workmanship.
Employers and contractors should always consider how best to protect themselves against such situations. For example, a contractor could hold professional indemnity insurance to protect against claims for defective design and an employer could take out latent defects insurance to cover losses caused by certain types of defects.
However, parties should not assume their insurance will cover all types of claims, particularly their ‘all-risks’ cover.
This article first appeared in Construction News.
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