UK: Causation and Inherent Vice: Court of Appeal Dismisses Appeal in Ace European Group Ltd v Chartis Insurance UK Ltd [2013] EWCA Civ 224

    This case concerned which one of two insurers was liable for the losses caused by damage to economiser blocks which were to be incorporated in two boilers on a new energy-from-waste facility near Slough. The blocks were manufactured in Romania and transported by road or by road and sea. On installation at the facility, testing revealed cracking in the rows of tubing contained in the blocks.

    Chartis subscribed to a primary marine project cargo/delay in start up policy (the "Marine policy") covering loss and damage occurring to the blocks in transit. Chartis and Ace, together, also subscribed to an erection all risks, public liability and delay in start up insurance policy (the "EAR policy") covering loss and damage occurring once the equipment was on site. Both policies contained a "50/50" clause such that each would respond on a 50/50 basis if it could not be shown whether damage occurred exclusively in transit (to which the Marine policy would apply) or once the equipment was on site (to which the EAR policy would apply). The Marine policy, as is usual, excluded liability for damage caused by inherent vice.

    Claims were made on both insurance policies. Ace settled the claim for £4.6 million then sought to recover this from Chartis claiming it was wholly liable under the Marine policy. All parties accepted that the damage was caused by vibration and was fortuitous, but two issues arose in dispute: when did the damage occur (and which policy applied)? and, if it occurred during transit, was the loss caused by the excluded peril of inherent vice?

    On the evidence, Mr Justice Popplewell held that the damage occurred during transit due to missing or ineffective packing between the tubes. Therefore, the Marine policy applied and Chartis was liable for the full amount of the loss. Chartis then argued that the damage was caused by an inherent vice, in that the blocks had not been fit for transit, so the loss was excluded from the cover under the Marine policy. Popplewell J found no inherent vice on the facts because the blocks could reasonably have been expected to survive transit without cracking based on their condition when they left the factory. The judge also noted that there was no room for inherent vice to operate where it had already been found that the damage occurred due to another cause, namely the vibration. Since only the Marine policy applied, and the loss was not excluded, Chartis was liable for 100% of the loss.

    Chartis appealed and argued that the vibration during transit could not have caused the damage because the blocks had, in fact, been properly packed. It relied on photographic evidence of the packing at the Romanian factory, however the photographs had not been properly examined by either parties' experts at trial. The appellate court considered the photographs to be inconclusive in themselves and without such proper scrutiny, the court decided that it was not in a position to examine them as a judge at first instance could. Since there had been other evidence, besides the photographs, on which Popplewell J was entitled to rely in finding that the packing had been inadequate, it had been open to him to conclude that it was more likely than not that the damage occurred during transit and the appeal was dismissed.

    In those circumstances, the Court of Appeal upheld Popplewell J's decision in finding that the entire loss fell on the Marine policy.

    Click here to read our previous blog post on the first instance decision. 

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