C A Blackwell (Contracts) Ltd v Gerling Allegemeine Verischerungs-Ag

This is a claim for payment under an insurance policy for damage to road construction works by rainfall. It raises four questions .

Is this an “all risks” policy?

If so did the damage have the necessary element of “fortuity”?

Did the assured commit wilful misconduct?

Is the insurer protected by an exclusion in the policy?

The claimant (“Blackwell”) is a contractor with particular expertise in earthworks involved in motorway construction. The defendant (“Gerling”) is the well known insurance company. The M60 is the outer ring road around Manchester. The final link in the ring was 9 kilometres known as Contract No. 3 from Medlock to Irk. Balfour Beatty won the contract to design and build this section and Blackwell were successful in the tender to carry out the earthworks aspects of it. The sub contract was on a priced lump sum basis and involved the following works:

First stage bulk earthworks

Trimming and rolling sub-formation/formation

Laying of capping material

Laying of imported stone piled raft

Stabilising capping material

Work started on 30 April 1998 and was due to finish on 25 June 2000. It is common ground that the works were to be constructed of the following layers after the initial earthworks creating the basic cuttings or embankments along which the motorway was to run. First there was the sub-formation. This was the level in the material in situ to which the claimant excavated or filled and which it then compacted and “profiled” to the same profile as specified for the finished surface. Secondly there was the formation. This was a level created by the spreading of imported material known as capping which Balfour Beatty brought in and which Blackwell spread, compacted and profiled as specified for the finished surface. Thirdly there was the sub-base. This was a level created by the spreading of the imported material of a different specification to the capping, brought in, spread and profiled by Balfour Beatty. Finally there were to be the asphalt layers, all three of which were to be the responsibility of Balfour Beatty.

Gerling places reliance on a risk analysis which Blackwell carried out at Balfour Beatty’s request when submitting a tender. This analysis applied a sum of 16.5% of the sub-contract price (i.e. £1,576,000 originally but reduced proportionately with the price) towards unforeseen ground condition and weather risk. Gerling say that this was a recognition by Blackwell that the works would be held up by weather from time to time. Responsibility for ensuring adequate temporary drainage for the earthworks lay with Blackwell and it took out a policy with Gerling for the years to 31 December 1998 and 1999.

During 1998 bad weather affected the works on several occasions and delayed the start to that year’s spring earth moving season until after Easter. By August 1999 there were concerns that it was extremely unlikely that the bulk earthworks could be fully completed as planned before the end of the 1999 season. There was further rain in September and then two incidents which caused damage to the capping layer and an area of sub-formation, the first between 29 September and 2 October and the second between 3 and 6 December. The second incident was far more significant as appears from the fact that the loss adjuster agreed £46,000 for the first loss and £488,975.15 for the second, in each case net of deductible.

But for the earlier delays the capping work being carried out into October and December would have taken place earlier in the year when conditions would have been easier. On 25 August 1999 the Highway Authority agreed to a request by Balfour Beatty for the use of shale as a capping material, after having advice from its own Consulting Engineers, Mouchel. Shale had been used in the area since January 1999 despite it being known to be a material which degrades as its moisture content decreases, eventually breaking down and turning to slurry.

Although the amount of the damage is agreed Gerling denies liability under the Policy and it is to that document which I now turn.

I am concerned of course with the Policy as a whole set in its context but I concentrate on the provisions most relevant to this action.

The Schedule to the Policy describes its type “CONTRACTORS ALL RISKS”. This is followed by the particular Schedule applicable to “Contractors Indemnity and Employers Liability Insurance” which provides for a maximum sum insured of £6,000,000 subject to some low excesses. The provisions most relevant to the issues raised in this case are:-

“...2) DAMAGE shall mean

Physical loss, Physical Destruction or Physical Damage....

4)

OCCURRENCE shall mean

Any circumstance or event of which the Insured shall become aware which might give rise to a claim under this Policy ...

5)

PROPERTY shall mean

Material Property ...

9)

THE WORKS shall mean (not applicable to Section 4)

The undertaking described in and which forms the subject matter of any Contract executed or in the course of execution by the Insured

...

10)

THE WORKS shall mean (applicable to Section 4)

All work executed or to be executed under a Relevant Contract “

Section One of the Policy provides;

ALL RISKS OF PHYSICAL LOSS OR DAMAGE

“OPERATIVE CLAUSE

To indemnify the Insured against all Damage (meaning Physical Loss, Physical Destruction or Physical Damage) of whatsoever nature sustained during the Period of Insurance to:

a)

The Works, whether permanent or temporary, materials incorporated or for incorporation therein property in the Insured’s care custody and control and any other property of whatsoever nature other than property insured by item (b) below, the property of the Insured or for which the Insured are responsible in respect of any Contract or Work undertaken whether such Contract or Work was commenced during the Period of Insurance or otherwise, including liability arising under the defects liability provisions of such Contract or Work...

PROVIDED that Insurers shall be under no liability in respect of Contracts originally scheduled to be of longer duration than three years (exclusive of the defects liability period)...

b)

Contractors’ plant tools and equipment, demountable and temporary buildings and/or caravans, and/or other items of a like nature and materials and/or stores and/or any other property of whatsoever nature for use in connection therewith the property of the Insured or for which the Insured are responsible.

The indemnity provided shall only apply to loss occurring within the Territorial Limits stated in the Schedule including whilst in transit therein but excluding transit by sea or air ...

Exclusion 4 provides;

4)

This Policy excludes loss of or Damage to and the cost necessary to replace repair or rectify.

a)

Property insured which is in a defective condition due to a defect in design plan specification materials or workmanship of such Property Insured or any part thereof

b)

Property insured lost or damaged to enable the replacement repair or rectification of Property insured excluded by a) above.

Exclusion a) above shall not apply to other Property insured which is free of the defective condition but is damaged in consequence thereof.

For the purpose of the Policy and not merely this Exclusion the Property insured shall not be regarded as lost or damaged solely by virtue of the existence of any defect in design plan specification materials or workmanship in the Property insured or any part thereof “

Before turning to the evidence I summarise briefly the position of the parties on the issues in dispute.

Blackwell accepts that English law imposes limits as part of the definition of all risks cover and that one of these limits, sometimes called an implied exception, is that loss must be fortuitous. Blackwell says that the wording of Section 1 does not amount to relevant “all risks” cover. Gerling disagrees pointing to the wording, to the description in the policy and to Blackwell’s own characterisation of the cover as being “all risks”.

Blackwell says that even if it is wrong on its first point the damage caused was fortuitous, as opposed to inevitable. Gerling says that all risk insurance is against risks of loss, not causes of loss. The damage here was inevitable given the knowledge and expectations of Blackwell and the likelihood of rainfall causing damage during the policy period.

Gerling says that any loss was caused by the wilful misconduct of Blackwell, in its operations as a whole and in those addressing temporary drainage in particular. Blackwell denies this and points to wilful misconduct as being a high test requiring Gerling to establish more than mere negligence.

The parties disagree about the effect of Exclusion 4 and whether Gerling can prove the facts necessary to invoke it.

The claimant relied on the evidence of Mr Steve Clarke, Blackwell’s Managing Director, Mr John Tuer, Deputy Managing and Commercial Director and Mr William Kettyle, the Blackwell Senior Executive responsible for this contract. Gerling called Mr Adekunle Adeyemo a Chartered Engineer who works in their Risk Control Group and Mr John Watson also a Chartered Engineer, the Divisional Director responsible for Highway engineering at Mouchel.

The parties each retained weather experts, Mr James Buckman of the Met Office and Dr Richard Wilde, of Weather Net. After exchange of reports and a meeting there was insufficient difference between the experts to justify calling either of them. They agreed “that the rainfall experienced in the Manchester area during the periods in question was not exceptional without precedent or unforeseeable. In climatological terms the rainfall return periods for each of the events can be described as ‘not significant”. It followed therefore that other materials and evidence assembled about the weather became redundant in particular an analysis carried out by Blackwell based on data later seen to be unrepresentative of the construction site.

The parties also had permission to produce evidence on the Civil Engineering aspects of the dispute. Gerling relied on the evidence of Mr W J Edwards a Chartered Engineer and partner in E C Harris LLP based in Leeds and Manchester. Mr Edwards has some thirty years experience in this area working for local and central government and then for Mouchel and its predecessors. Blackwell did not instruct an expert in this area relying on their own staff, Mr Kettyle in particular. Mr Reed objected to supplemental witness statements, in particular that of Mr Kettyle on the basis that these were almost entirely opinion evidence. He contrasts the evidence of Mr Edwards with that of Blackwell’s own employees who are he says plainly partisan and have signed no equivalent of a CPR Part 35 statement. I did not exclude these supplemental statements as it is difficult to distinguish expert opinion from the reply of a well qualified fact witness to an independent expert’s criticism of his professional work. I do however-bear in mind that Blackwell chose not to take the opportunity of putting forward an independent expert in this area.

There is much reference in the evidence to photographs. These are mainly to those taken by Balfour Beatty as work progressed, by Blackwell and by a witness, Mr Adeyemo.

I now refer in more detail to the evidence relevant to the issues.

Mr Clarke has twenty four years of experience of working for earthmoving contractors. He said that in planning the tender he had in mind the possibility of winter working and, in broad terms the frequency and amount of rainfall in the Manchester area. It has been Mr Clarke’s experience that it is not practicable to install any form of temporary drainage such as trenches, in order to keep water off the works once the capping layer and carriageway construction is underway. It was his view that “Dewatering” at that stage of the works needed to be carried out by grading the surfaces to form a water shed and by removing surface water to discharge points by means of pumps and mobile tankers. In view of the requirements of the client that surface water be removed as rapidly as possible close attention was given to this issue. Mr Clarke said that the methods adopted had been successful on many previous contracts including on the M60 before the problems of October and December 1999. The problem was not just the intensity of the rain on the two occasions but other factors such as the amount of work exposed, topography, ground conditions and the moisture content of the materials being used. A significant factor was the absence of fine weather ‘windows’ between downfalls of rain during which the pumping equipment could be deployed. Other witnesses dealt with the incidents giving rise to the claim in more detail.

Mr Clarke was cross examined about more general matters. It was suggested to him that the provision in the tender for bad weather was an unusually high percentage. He disagreed. It was suggested that the planning documents indicated first that work was never expected to continue into the Autumn of 1999, which Mr Clarke accepted as regards heavy works, and that everyone would have in mind the increased risk of rain when working into this period. Mr Clarke did not accept this pointing out that as a result of technological developments in recent years there was no longer an automatic shutdown in the Winter months when preparing earthworks of this kind. It was suggested the Blackwell should have used additional drainage methods given that fin drains (small pipes located between the verges and central reserve which are wrapped in a fabric membrane extending vertically to the surface) were not available for that purpose. Mr Clarke saw the use of the long and cross-section shape of the earthworks as assisting dewatering. Mr Clarke suggested that a weather provision of 16.5% was not unusually high for an earthworks contract. The view to the contrary formed by Mr Edwards, Gerling’s expert was not informed by close knowledge of tendering in this particular area. It was put to Mr Clarke that Blackwell must have realised that doing this work in October would be fraught with difficulties because of the likelihood of rain given the available statistics and concerns expressed in the papers in the bundles. Mr Clarke’s position was, broadly, that these problems were possible but not inevitable. In re-examination Mr Clarke explained that it was Blackwell’s aspiration to carry out bulk earthworks before the end of October. By bulk he meant those involving the use of heavy equipment to excavate the cuttings down to the first stage level.

I found Mr Clarke to be a completely straightforward and truthful witness. His detailed knowledge of the incident was, as he accepted, limited.

Mr Kettyle was present on site most days and he reported to Mr Clarke and to Mr Tuer. He said that he was well aware of the dewatering risks and that the methods used on the M60 were what one would expect. He produced a list of some fifteen sites, (compiled from his personal knowledge, by talking to colleagues and by looking at records) where similar methods had been used at the same point during the construction of earthworks. Temporary drainage involved more than the use of pumps and tankers. The strategy during bulk works consisted first of shaping earthworks laterally and longitudinally day to day so as to shed water to collection points prior to its discharge into adjacent streams. Where this was not possible “Sacrificial grips” (shallow temporary excavated channels which lead water to collection points) and trenches would be excavated to drain water. He said that once the final profile of the earthworks was reached there was a risk of rainwater collecting in the low points of the incomplete works and from that point the installation of temporary trenches would not be possible without causing damage to the permanent works. Water was shed laterally and longitudinally to the collection points in the vertical alignment. Grips were cut where necessary to assist the flow. At the collection points sumps were excavated where there was space. Pumps and tankers were in use only where direct discharge to collection points or silt traps was not possible because of the remoteness of the outfalls. He said that weather delays were experienced but these were initially not exceptional.

The rainfall which occurred at the time of the incident was of a level that had occurred during the previous year’s construction period but the consequences were then much less because of the earlier stage of the earthworks. Mr Kettyle gave examples of other projects where winter work on earthworks has been carried out in Central and Northern England by Blackwell. He accepted that the method of dewatering by forming watersheds where practicable and using mobile pumps and tankers proved inadequate to deal with the problems in October and December of 1999. He did not believe however that the works were undertaken negligently let alone recklessly.

Mr Kettyle’s second witness statement, to which Gerling objected on the grounds that it was disguised expert evidence also sought to respond to the witness statements of fact put forward by Gerling and to deal with a substantial number of photographs produced by Blackwell’s solicitor.

Mr Kettyle said that Blackwell were not involved with the change to specification which required the use of shale as the capping material but had worked with this satisfactorily on other projects accepting its vulnerability to water which can lead it to turn into slurry. Mr Kettyle challenged the conclusions reached by Mr Edwards from studying the photographs. (I say at once that I found it difficult to evaluate the accuracy and significance of particular features identified in what are literally ‘snapshots’ by both Mr Edwards and Mr Kettyle). Mr Kettyle also stated that the weather conditions in October and December, as experienced by him “was amongst the worst that I have ever encountered in my 37 years in this industry”. While saying that the meteorological debate is not one he sought to enter, Mr Kettyle gave emphatic evidence to suggest that as regards the relevant areas of the works the conclusion of the weather experts was wrong.

In cross examination Mr Kettyle confirmed that shale when wet can turn to slurry which then cannot be pumped and moved by tankers, the method approved and adopted by Blackwell. He stuck to his view that the rainfall was exceptional and denied that, even in general terms, inclement weather is more likely in the Winter than in the Summer months. (“I do not accept the view that there is more rainfall in the Winter than there is in the Summer”). It was suggested to him that the evidence of the photographs was that there were insufficient numbers of pumps and other drainage resources. He denied this. While accepting that the works were getting behind Mr Kettyle said that the primary responsibility under the contract and in fact was not that of Blackwell and extending works into the Autumn did not necessarily mean that the weather would get worse. He accepted that the longer water remains on the ground the greater is the likelihood of saturation and of damage. Blackwell’s weekly plant and labour returns were put to him and it was pointed out that while in the Summer there were six bowsers and three pumps, this had reduced by November and December to two bowsers. Mr Kettyle said that the reduction in resources mirrored the reduction in the scope of the work which was much narrower as the months went by. It was suggested to him that working outside the ordinary season with material which is susceptible to weather like shale increases the risk of damage. Mr Kettyle emphasised that the use of bowsers and pumps was part of a programme which controlled the other measures in place for controlling and shaping the carriageway. Mr Kettyle rejected other aspects of Mr Edward’s criticisms of Blackwell’s performance.

Mr Kettyle is clearly an honest person with a long record of experience and skill in this area. However at times in his evidence he appeared to be forcefully advocating his company’s case rather than assisting the court with his recollection. He declined to answer questions when asked to make a hypothetical assumption that the rainfall had not been exceptional. His insistence about weather conditions generally and on the site defied common sense. Furthermore, through no fault of his own, he could not be an adequate replacement for a more independent expert witness. That said I did not doubt the more direct technical and factual aspects of Mr Kettyle’s evidence concerning the operations for which he was actually responsible. I have no reason to doubt that the drainage measures he describes were indeed in place given that the incidents were caused by a variety of factors. I have no doubt that he believed that the measures in place were adequate and appropriate for the prevailing conditions.

Mr Tuer is midway in the hierarchy between Mr Clarke and Mr Kettyle. His witness statement, through no fault of his, adds little on the points which remained in issue at the trial to what was said on broader issues by Mr Clarke and on more specific ones by Mr Kettyle.

Mr Adeyemo visited the site in August 1998, March 1999 and on 26 January 2000. He has experience in the construction field and for two years was the site engineer on part of the M20. He provides risk assessment surveys. He was primarily concerned with reviewing the work done by Balfour Beatty but this included sub contracted work such as that done by Blackwell. As was clear from the documents to which he refers Mr Adeyemo was conscious of weather risks as were Balfour Beatty and by Spring 1999, with the project behind schedule, he was alert to the possibility. He was surprised to the extent to which the site had remained waterlogged for so long after the Winter of 1998/1999. He was concerned that with the project running behind there might be pressure to take risks which could lead to future claims. He said that it had never occurred to him in early 1999 that the earthworks would progress to the construction of the carriageway without adequate temporary drainage. Mr Adeyemo did not visit the site again until the end of January 2000. The Overview and Summary to his report at that point observed that weather conditions for the Winter had not been exceptionally poor but areas of the site remained waterlogged and he suggested steps to be taken to improve the situation. He said that his diplomatic words recorded a concern that there was no drainage provision at all for shedding rainfall from large sections of the carriageway pre-completion.

Mr Adeyemo examined the photographs and concluded that earthworks were still being carried out as late as 2 December which he believed to be late in the year and that conditions were still wet despite the fact that it appeared not to be raining. In his “History Sheet” accompanying the January 2000 report Mr Adeyemo recorded that it was “disappointing to note that the Insured are still experiencing problems with water damage on site, and they have just put in another water damage claim. I am not convinced that they have done their best to minimise the effects of rainfall. Whilst they were at pains to emphasise that they have done a lot of work to mitigate weather effects, it appears to me that their only priority is to maintain progress. They also appear to be carrying out a lot of works over the Winter period which is a generally unsuitable period for earthworks anyway”. These criticisms were not put to Blackwell at the time. When Mr Adeyemo was cross examined it was put to him that neither of the two reports preceding the incidents expressed any concerns about the manner in which draining was being dealt with. Mr Adeyemo accepted this but said that the question had arisen during discussions at those meetings. He was also asked questions about the respective roles of Balfour Beatty and Blackwell as the former was his direct responsibility. He was asked about the photographs and invited to qualify his conclusions. Mr Adeyemo is clearly an able professional engineer and I have no doubt that he was giving truthful and accurate evidence to the court. His direct experience of the events leading up the incidents was limited since he did not visit the site between the Spring of 1999 and January 2000. I do not doubt the genuineness of the reservations he felt about the adequacy of the dewatering arrangements that were in place. I cannot measure precisely how justified those concerns were but they were not clearly reported to Blackwell and so form no part of a case alleging recklessness. Mr Reed accepted that Mr Adeyemo’s evidence was of marginal importance.

Mr Watson gave evidence of the background to the sub contract between Balfour Beatty and Blackwell from his stand point as the Employer’s Site Representative. The 9 km of motorway involved the construction 3 km of slip roads, seven bridges, fourteen retaining walls and underpass, twenty seven sign/signal gantries and footpaths. The works also involved cut and fill amounting to some 2,000,000m3 of excavation and 1,800,000m3 of deposition. He explained that the decision to authorise the use of shale for capping originated in a request from Balfour Beatty in January 1999. He says that he was concerned that shale would exhibit insufficient strength and might swell following a moisture ingress but in the event the decision was taken to permit this. It was obvious to everybody that any significant rain could result in the need for replacement of the shale. He was not involved in the details of the drainage provisions taken by Blackwell although he accepted that some of the measures which he identified in his statement had been taken by that company. As he sees it the normal earthworks season in the UK runs until about the end of October with significant risks of inefficiencies and interruptions if work continues after that. It was not his agency’s role to interfere or intervene in points of detail on matters which were entirely a contractor’s responsibility. He suggested that since he had been unable to find in the progress reports evidence that Blackwell had reconsidered their strategy after the first incident he had the impression that the company had simply taken the decision to plough on to make up lost time on the contract. Having viewed the photographs he considered that while these demonstrate that it rained a lot they also showed the inadequacy of Blackwell’s temporary drainage measures. He accepted in cross examination that Blackwell had not been the subject of any scrutiny or criticism by his agency or, as far as he was aware, by Balfour Beatty.

I first apologise to Mr Edwards for failing to congratulate him at the hearing on the quality of his report. This comprehensive and lucid document is an admirable account of the technical issues in this case and of the relevant background. Mr Edwards concludes from the photographs that the effect of the rainfall on the works was significant. Accepting the meteorological opinion that the rainfall events were not unusual Mr Edwards concludes that the incidents were a result of:-

Quality of the capping material

Earthworks being undertaken out of season.

Consequential effects of the permanent work design

Temporary Drainage of the Site

Given the time of year and stage of construction adequate drainage becomes not impossible but commercially expensive. The frequency of temporary grips cut into the capping which would take water to the permanent drainage system would need to be increased and there would be a need for a temporary connection to each manhole to take water from the formation. The solution needed to be proactive not reactive as was the case with simply using tankers which Mr Edwards saw as shutting the stable door after the horse had bolted. A difficulty with pumps and bowsers was that there would always be a real risk that the machinery could not gain access until after there had been damage. If there was a prospect of incidents of damage such as those which had occurred in weather conditions that were not exceptional the nature of the permanent works, particularly at the construction of drainage channels, would create mini-dams which would restrict the shedding of water unless active continuous temporary drainage was employed. The evening before giving evidence Mr Edwards drew a plan showing how he would envisage a proactive system to work. This was a helpful and well intentioned step to take but his production of the plan so late in the proceedings necessarily caused difficulties to Blackwell.

Mr Edwards was cross examined. He accepted that his assumption that temporary drainage was simply the use of mobile pumps and tankers was mistaken given Mr Kettyle’s evidence. The drainage had involved the capping layer being sealed laid to the fall of the road, the water running off it into channels, with grips cut if there are obstructions and the water then taken to settling ponds to be pumped away. Mr Edwards said that although he would not go as far as saying that shale was unsuitable for the application in this case the decision to use it would have been “very marginal”. He adhered to his view that there was an additional risk in a scheme where the highway was being laid behind the capping layer- its surface was more impervious than that capping so water would tend to run off onto the capping. Mr Kettyle took the opposite view. Mr Edwards was asked about the drawing he had prepared to illustrate his view and said that it did not involve cutting into the capping, contrary to an indication from Gerling’s counsel about what he had been instructed. After being asked detailed questions about the practicability of the scheme and the plan Mr Edwards was asked whether he had ever seen anything like the scheme he had drawn. He answered “I have not seen it as such. What I have seen is using manholes as temporary outfalls and also gulleys as temporary outfalls, all I am demonstrating here is that it is not beyond the wit of man to remove the water”. In re-examination Mr Edwards was taken to passages in witness statements such as those of Mr Clarke which appear to indicate that pumps and bowsers are indeed the primary form of de- watering which Blackwell had in mind.

Mr Kettyle was recalled to deal with Mr Edwards’s plan. He said that he had never seen any arrangement of the kind outlined in it. He said it would create difficulties for the drainage contractor and with securing sufficient outfalls to cope with the water and made other criticisms.

Despite the opportunity given to Mr Kettyle to respond by giving further evidence the disclosure so late of a method which Gerling suggests that Blackwell should have adopted prevented a proper evaluation of its merits. It is no criticism of Mr Edwards for me to point out that if this alternative way of doing things was to be properly considered, it should have been disclosed much sooner so that Blackwell could have evaluated it and, if appropriate, sought expert evidence which would necessarily have carried more weight than Mr Kettyle’s immediate reactions. It is not open to Gerling to criticise Blackwell for not adopting a plan first heard of so late. The plan was however helpful as an illustration of the more general point Mr Edwards sought to make.

Mr Edwards produced a very detailed and well documented report and it was obvious from his oral evidence that his approach was appropriately objective. In general terms his views seemed to me more reliable and of course more objective than those of Mr Kettyle. Blackwell must live with the consequences of their choice not to instruct an expert. Mr Edwards’s appraisal of the factors that led to the incidents is one I accept both because of the weight of his evidence and because of its consistency with common sense. I accept Mr Edward’s evidence that an adequate temporary drainage system needs to have more to it than bringing in tankers and pumps after the event. But properly considered the evidence of Blackwell, which I accept, is that it did have a more ‘proactive’ system, which altered day by day as described by Mr Kettyle. Further whilst recognising the force of what Mr Edwards had to say about the use of shale his conclusion that disaster was inevitable with work continuing through October to December was based on the assumption, which he had been entitled to make from his instructions at the outset, that there was no proactive temporary drainage, nothing additional to the pumps and the bowsers.

I now turn to the competing positions of the parties on the issues which they have identified.

The starting point is usefully summarised in the following passage from Emden IV, 189 [685 to 690] as:

“Under a policy insuring specified risks it is the duty of the insured to prove that his loss was caused by an insured risk, failing which he will not be able to recover. An all risks policy, by contrast, removes from the insured the need to demonstrate the precise cause of his loss, even though such a policy does not literally cover all risks and will normally contain exceptions. However, the loss must be fortuitous. The effect of an all risks policy is, therefore, to place upon the insured the burden of proving that some loss or damage has occurred during the period covered by the policy and that such a loss or damage is, prima facie, the result of an accident or other fortuity. It is then for the insurer to prove either that the loss was not fortuitous or that the loss was caused by an excepted peril”.

Mr Walker QC for Blackwell points out that the policy wording indemnifies the claimant “against all Damage ... of whatsoever nature”. He points out that under the law of England, as opposed to that of some other jurisdictions, the requirement of fortuity arises from construction of the contract rather than public policy. He then contrasts the policy wording with “all risks of loss and damage” employed by Gerling in an all risks policy which arose for decision before Mr Justice Christopher Clarke in 2005. Mr Walker QC says that the heading “All Risks of Physical Loss of Damage “for Section 1 of the policy is irrelevant because of the breadth of other cover which it comprises. What matters is the insuring clause.

Mr Reed submits that this is clearly an all risks policy, as of course, the heading makes crystal clear. Whatever may be said about the heading it is plainly decisive if one should reach the stage of ambiguity in the meaning of the insuring clause. The parties demonstrably intended to enter into all risks cover and, he submits, that is exactly what they did.

In my judgment Mr Reed’s approach is correct and this is indeed an all risks policy. The factors which give rise to the obligation of fortuity derive from the nature of the risk insured rather than the precise words used. The fact that Gerling may have wording in other contracts which makes the point explicit does not assist Blackwell’s case. In reaching my own view I draw support from passages, which I mentioned to the parties, in the Second Edition of “Insurance Disputes” edited by Lord Mance, lain Goldrein, QC and Professor Robert Merkin which observes at 22.10 “the insuring clause in many so–called all risks property policies will not even refer to “all risks” but simply cover the insured for physical loss or damage to certain property as described in the rest of the policy, either by endorsement or schedule. Coverage is limited, however, by excluding a list of perils from the general coverage ... unfortunately, a cursory examination of such policies presently available in the London market will generally reveal a lack of consistency within policies”. So fortuity is required by the policy.

Mr Walker emphasises that foreseeability is nothing to do with fortuity and cites British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2AC 4 “it covers a risk not a certainty; it is something which happens to the subject-matter from without, not the natural behaviour of that subject-matter, being what it is in the circumstances”. Mr Walker perhaps understandably cites the following passage from the Speech of Viscount Finlay:-

“Of course, no one would contend that a policy of this kind would cover ordinary wear and tear or deterioration incidental to the transit of goods. There must be something in the nature of an accident to bring the policy into play. But I can find no justification for the contention which the appellants put forward at the bar of your Lordships’ House that in order to recover upon such a policy for damage resulting in the goods getting wet by rain it would be necessary to establish that there was an extraordinary or unusually heavy fall of rain. It would be quite enough if owing to some accidental circumstances the goods were left uncovered when rain was falling. This might happen by some want of care on the part of the men whose duty it was to keep the goods covered with the tarpaulins which were provided for the purpose. If, from any of the accidental circumstances which are incident to a journey, the goods are damaged by a risk covered by a policy, the element of casualty or accident is supplied”.

He submits therefore that all the factors which contribute to the cause of the damage must inevitably be going to occur concurrently with each other, as viewed at the commencement of the policy, in this case on 31 December 1998. Mr Walker points out that none of the factors causing the damage identified by Mr Edwards was inevitable and that it was their interaction which led to the incidents. The quality of the capping material, shale, was proposed and approved by others. The earthworks were being undertaken out of season because the programme was behind schedule. The consequential effects of the works design became more influential as these progressed. If there was a lack of positive or adequate temporary drainage that was a function of the day to day work carried out by Blackwell and varied with conditions found on the site.

Mr Walker says that as the damage was caused by rainfall, whether because it was an unexpected amount or because insufficient precautions were taken by Blackwell, the damage is covered. If Gerling had wished to restrict or exclude cover for rainfall or indeed for negligence it could have negotiated an appropriate exclusion. Mr Walker seeks to bolster the submissions by saying that the rainfall was not usual or inevitable and was particularly heavy.

The position of Gerling is more complex. Mr Reed first identifies the knowledge and expectations of Blackwell given the recognition in their risk analysis that 16.5% of the price would be attributable to unforeseen ground conditions and weather risk. Mr Reed submits that Gerling’s ability to reduce this risk to a percentage, 16.5% is an indication of certainty. The element of this sum due to damage to the works resulting from weather is a “certain event” because otherwise Blackwell would be paid twice in respect of the same damage. I say at once that that submission places too much weight upon what was after all an internal risk analysis and, if I understand the point, it is one some distance from the issue of fortuity. Mr Reed’s second point is that all is required is certainty of loss or damage to the works occurring during the period of the insurance, during the year expiring on the 31 December 1999. What matters is the certainty of the incidents happening during the policy year not necessarily on the particular days in September and December when they in fact occurred. Mr Reed’s submission was illustrated by a comparison with the law of reasonable notice in the context of an employment contract. This did not assist his argument. Gerling summarises its position on the issue by saying that the damage generally was sufficiently certain for it to be priced into the risk analysis, Blackwell knew from previous years rainfall that similar amounts would occur in 1999 and cause damage, its meteorological evidence would have led Blackwell to conclude that damage was certain and, on Gerling’s case, the drainage used must have been defective.

I conclude that Mr Walker is right. There was and could be nothing inevitable about incidents caused by what, on the evidence of Gerling’s own expert, is the coming together of different factors culminating in heavy (but not exceptional) falls of rain. Mr Reed’s approach to fortuity is too restricted and his assumptions about what was inevitable are not supported by the evidence. As to the extent of the rainfall Mr Walker is as I see it, stuck with the agreed meteorological evidence. However his case on this point does not require rainfall to be exceptionally heavy. It follows that the damage caused by the incidents was fortuitous.

It is common ground that an insured is not entitled to indemnity in respect of a casualty which he or it (as opposed to someone else) has brought about by wilful misconduct, the principle arising as a matter of public policy. Gerling says that wilful misconduct is established if the insured was reckless or grossly negligent or if the insured knew that he was involved in conduct which increased the risk of loss. Blackwell do not disagree. The approach to wilful misconduct is helpfully explained by Tuckey LJ in CP v Royal London Mutual Insurance [2006] 1 CLC576 at 580 albeit when considering an express clause.”...if the insured is aware that what he is about to do risks damage of the kind which gives rise to the claim or does not care whether there is such a risk or not, he will act recklessly if he goes ahead and does it ...I would equate a reckless act with a wilful act for this purpose” . Mr Reed relies on recklessness which Mr Walker points out involves a high test.

Gerling submits that wilful misconduct is established by five factors. First the use of pumps and bowsers by Blackwell is not appropriate drainage. Secondly these appliances were used for a number of operations and were inadequate for the works involved. Thirdly the change in capping material to a type known to degrade as the moisture content increases to break down and to turn to slurry necessitated significant additional measures which were not taken. Fourthly when the works became delayed and the season had come to an end works should have stopped until the following year or additional drainage methods had been added. Fifthly by 2 October Blackwell knew that its temporary drainage was inadequate and that this would lead to damage if there was any substantial rainfall. Nevertheless Blackwell continued to work on the site through the Winter.

Mr Walker submits that there is no evidence that drainage measures were limited to pumps and bowsers and this is contradicted by in effect all the witnesses. He says that the change in capping material necessitated additional measures but this was a result of an application by Balfour Beatty which the Highways Agency approved. The suggestion that work should have ceased at the end of the earthworks season without robust methods of drainage being added suffers from the fact that all witnesses agreed that work at least on some stages could be done out of season and no clear evidence was ever provided of an absence of appropriate drainage measures. The October incident was a relatively minor one as the difference in the two sums claimed reveals. There was no contemporaneous criticism of the claimant’s drainage arrangements and the defendant’s loss adjuster saw no reason why the claim should not be paid. Mr Walker submits that Blackwell provided a protective layer of drainage and dewatering that they felt would keep the works free of damage. They were successful for most of the contract. Drainage and dewatering on earthworks requires changes on a daily basis applied by the contractors on the ground. There is no evidence other than ambiguous photographs to show a lack of drainage.

In my judgement Gerling’s case on wilful misconduct fails. The five grounds on which it relies read more like allegations of negligence than of recklessness. There is no evidence that Blackwell knew of a risk and deliberately ran it without taking precautions. There is no sign that the fellow professionals with whom Blackwell were working ever sensed that Blackwell were deliberately running a risk. There is no sign in their previous record over many years that Blackwell are rash when it comes to matters of this kind. There is no hint in the loss adjusters reports in October and December 1999. The damage to the sub-formation was seen to be covered by the policy , there being no relevant exclusions. It is true however that the loss adjusters were under an impression, which they reported that they were taking steps to check, that there had been very heavy rainfall and storm conditions in respect of both incidents. I have no doubt that those at Blackwell who reported exceptional weather conditions genuinely believed that they had taken place even though it has taken some time and the parties considerable expense, to dispel that misunderstanding. The fact that Blackwell did attribute the incidents to extreme weather is itself an indication that but for something unexpected, the incidents should not have happened. That unexpected not having materialised it may be reasonable to infer that the incidents resulted from a want of care but that is no basis for claiming that what may have been a degree of negligence amounted to recklessness and thus to wilful misconduct invalidating the claim. We all expect our insurance to cover us, subject to any policy exclusions, against eventualities which are not wilful misconduct but which result from negligence in the legal sense.

For reasons which in the circumstances are understandable no steps were taken at the time of these incidents to capture and preserve precisely what steps Blackwell had and had not taken and measure them against the specific measures which it would have been reasonable for a contractor to have taken. These are earthworks that soon disappear. There is no machinery nor building which an inspector can examine later. The photographs of the site are inconclusive particularly in a context where the earthworks are constantly changing.

It is of course for Gerling to show that this clause defeats the claim. Mr Reed made submissions first about the meaning of the clause and then about the application of the facts. The issue here is that Gerling says that Exclusion 4 applies because all the works were in a defective condition as a result of the absence of effective temporary drainage. Blackwell says that the drainage, if defective, was separate from the damaged capping and sub formation, the Insured property under the Exclusion. The works themselves were “free of the defective condition and damaged in consequence thereof.”

Mr Reed submits that Exclusion 4 has two relevant elements. First there is an exclusion of loss or damage or replacement cost due to a defect in design plan specification materials or workmanship as regards Insured Property in defective condition. Secondly there is a limitation to that exclusion for Insured Property which is free from the defect but which is damaged as a result. He sought to support his approach to interpretation of the exception by reference to a decision of the Court of Appeal of New South Wales in Walker Civil Engineering Pty Limited v Sun Alliance & London Insurance plc (1999) 10ANZ Insurance Cases 61-418. The wording in that case was however a little different from that I have to consider here- ( “loss or damage directly caused by defective workmanship, construction or design...but this exclusion shall be limited to the part which is defective...’). He submits that the effect of this decision which applies, by parity of reasoning to exclusion 4 is this. The words “loss or damage” are very wide. In contrast the words of the Exclusion are narrow (but for the words “loss or damage”). The limitation to the Exclusion is limited to other insured property which is free from defect and does not apply to that which is lost or damaged. The words “in consequence thereof” refer to the earlier words of the clause “loss or damage (directly-in the clause in Walker) caused by defect in design, plan, specification, materials or workmanship”. Mr Reed says that in Exclusion 4 the natural inference is that all Blackwell’s property insured under Section 1 is excluded. “Property insured which is free of the defective condition” suggests this as do the words “Property Insured” in the exclusion and limitation which are broader than the clause in Walker which refers to “part”. The clause therefore refers to the same property and the limitation does not apply only to the part which was damaged but to the whole of Blackwell’s insured property. Walker explains another case Chalmers Leask which it is suggested is a good illustration- a case in which it was concluded that the defect was the whole coffer dam even though the defective part was a depression within the coffer dam. Mr Reed submits that this reasoning is consistent with the background and also with the categorisation of construction insurance to be found in the report of the Advanced Study Group of the Institute of Insurance. This reported on “DE” clauses generally which run from DE1 to DE5, the submission being that Blackwell were trying to present as a DE4 Exclusion one which was one in truth a DE3 providing, in general, less cover for less cost. The wording in this case is DE3. If Blackwell wanted cover which excluded only the cost of the defective items it should have bought DE4 which provides for this. Reliance is also placed on the decision of the Court of Appeal in Skanska v Egger [2002] EWCA Civ 310 particularly the references to attempts to divide the indivisible.

Mr Reed submits, applying the principle, that the temporary drainage was clearly defective (negligence being irrelevant). Unexceptional rainfall fell which temporary drainage should have been capable of coping with. He points out that Blackwell’s Reply supports his case at paragraph 15:

“the claimant had an arrangement for drainage, that was effective in usual conditions, which involved the use of pumps and tankers to remove excess water before any damage could occur. Such arrangements were effective until overwhelmed by the unusual quantity of water that resulted in the flooding and inundation which caused the damage”.

It must follow that the temporary drainage was defective given the absence of an unusual quantity of water. Mr Reed then makes similar submissions about the adequacy of the drainage to those deployed in support of his wilful misconduct case.

Mr Walker says first that Exclusion 4 refers to property which is “in a defective condition”. He says that this must mean something inherent in the material and in that defective condition before it is damaged. The defendant cannot prove that the capping material was in a defective condition because there was nothing wrong with it until the incidents. Even an absence of adequate precautions in place does not mean that the property itself is defective. He likens the situation to cargo on a vessel which is not defective but will become so if it rains but the required tarpaulin is not in place. Mr Walker’s case is that the temporary drainage arrangements are not “property” but if they are they are separate from the capping, so if defective, are protected by the limitation. He submits that to overcome such arguments the defendant has to contend that “Property Insured” which was damaged consists of the whole of the works and that the inadequacy of the temporary drainage arrangements put them all in a defective condition. A consequence would be that any defect in the works occurring perhaps kilometres away, however unrelated to the casualty, would take the whole of the property insured out of cover. Mr Reed responds that at a superficial level the definition does indeed cover the whole works with the consequence, albeit unlikely, outlined by Mr Walker. Mr Reed’s second answer is that the exercise requires one to examine the position on a case by case basis. One asks first what element of the loss and damage is under consideration. In this case it is the capping material, the preferred position of Mr Walker. This then leads Mr Reed to take the position that property for this purpose means, indivisibly, the capping and its drainage.

Mr Walker seeks to distinguish the cases cited by Mr Reed. Skanska is a case about property which was already defective before the casualty occurred. If shale capping is more susceptible to a casualty than some other material that makes it not defective but potentially more susceptible to becoming defective later on. It is not enough to suggest that the temporary drainage is somehow part of the capping. The case of Walker he submits is also distinct because Exclusion 4 does not exclude loss or damage due to defects in design but loss or damage to property which is already in a defective condition. The wording in Walker is different from Exclusion 4. If a bomb fell on the capping the Exclusion would not operate on the Walker wording because the loss or damage would not have been caused by defective workmanship. Exclusion 4 would operate in such conditions however if the property was defective in the first place. Exclusion 4 is addressed to the mischief of Insurers otherwise having to pay out for the cost of replacing defective property which would have had to have been replaced anyway at some point.

Mr Walker also maintains his case that the defendant has failed to prove that the temporary drainage was in a defective condition. Mr Edward’s scheme is not one that either he or Mr Kettyle have ever seen in practice. There is no evidence that anyone, let alone a prudent earthworks contractor would have taken these steps.

In my judgment Gerling fails to show that the Exclusion applies. The meaning of the clause is of course a question of construction and the persuasive guidance given by the Court of Appeal of New South Wales in Walker is limited by its particular context and the differences in wording in the relevant clauses identified by Mr Walker. He is also right to distinguish Skanska and this is another case in which different wording is examined against different facts. Similarly while the reliance by Mr Reed on the DE classifications is valuable for consistency of decision, if irrelevant to construction, this too is of limited help given the special nature of the property with which this case is concerned. What is the “Property Insured” for this purpose, defined as it is as “Material Property” in the definitions? It is, as both parties in a sense recognise, the capping and damaged sub- formation. The temporary drainage is not of itself property. It is a series of measures combining items like tankers with methods of doing things which include changes, such as cutting and channelling, to the capping which is part of the Insured Property. Some of these measures are protection for the capping and distinct from it. To this extent Mr Walker is right to separate drainage from capping so that if the exclusion is triggered that property falls within the limitation. So presumably would the sub-formation which is also part of the claim. However a failure to cut and channel the capping so as to make it reasonably proof against incidents such as those in this case, if demonstrated and material (which is not the case here), might well mean that the property is in a defective condition due to a defect in design or, say, materials. The difficulties identified in argument spring, as I see it, not from inadequacies in the wording but from the continuous, extensive, protean and eventually hidden nature of the insured property in this case.

On the facts I do not consider that Gerling has been able to establish that property was in a defective condition due to a relevant defect. It does not follow from the fact that the incidents occurred as a result of the coincidence of factors identified by Mr Edwards that there was, even if some negligence on the part of Blackwell were established, a defect in design, materials or workmanship. I have no reason, as I have said, to doubt that Blackwell were operating an essentially sound system of drainage to prevent incidents of the kind which did in fact occur. I return to the difficulties and obstacles which it seems to me lay in the way of Gerling in establishing their case on wilful misconduct. There is insufficient evidence available to warrant a conclusion that the property insured for which claims are made was in a defective condition within Exclusion 4.

It follows that there will be judgment for the Claimant. I shall be grateful if Counsel will let me have corrections of the usual kind, a draft order and a brief note setting out what further relief they seek and brief reasons for it. I am most grateful to Counsel and to the Solicitors for their able preparation and presentation of this case.