| Date | 24 March 2004 |
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| Judgment | Amec Civil Engineering Limited v Norwich Union Fire Insurance Society Limited, TCC 12 June 2003 |
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| The Issue | The scope of contractor's all-risks policies of insurance. |
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| Implication |
Where a contractor carries out defective work, that work will not normally be said to have been 'damaged' in any sense and thus the contractor will generally not have recourse to its all-risks insurance policy to recover the costs of rectification. |
printIn 1993, Amec Civil Engineering was engaged by the States of Jersey to undertake land reclamation works. As part of the work, Amec was to construct a curved sea defence wall, comprising a large number of substantial reinforced concrete blocks. The front faces of the blocks were intended to be convex and to be so positioned that, at low tide they could provide seating for those visiting the seafront. Because of this use by the public, the colour and the quality of the exposed face of the concrete blocks was important to Jersey. Amec determined that the best way to achieve the specified standards was to cast the blocks upside down in stainless steel moulds. A steel reinforcement cage weighing some 160 kilograms would be placed in the mould and it was intended that asbestos spacer blocks would be used to ensure that the correct concrete cover was obtained around the reinforcement. About three cubic metres of concrete would then be placed in the mould. Each resultant block weighed about seven tonnes. In August 1993, after the moulds had been designed and constructed, the resident engineer appointed by the States of Jersey instructed that spacer blocks were not to be used on any exposed face of the blocks. He wished to avoid the outline of spacer blocks being visible on the surface of the blocks once they were placed in the wall. Since spacer blocks are a common feature of precast concrete construction, an instruction that they should not be used was unusual. It posed a problem to Amec as to how else to support the reinforcement cage within the mould during the pouring of the concrete. Amec undertook trials with the use of spacer blocks made out of the same concrete as the blocks. The engineer found this method unacceptable, and in the end Amec was obliged to discard the use of spacer blocks on the exposed face and instead incorporate a reinforcement support chair on the back of the block during casting. Once cast, the blocks were checked with a covermeter to determine whether the appropriate level of concrete cover had been obtained. The covermeter readings were generally unreliable, but it was nevertheless thought that with appropriate adjustment to allow for errors in the readings, the specified level of cover to the reinforcing steel was being obtained. Construction of the wall continued. At the beginning of March 1994 however, the clerk of works discovered rust staining on the face of two of the installed blocks. Clearly, this was an indication that the required concrete cover had not been obtained and that the reinforcement steel was too close to the surface of the block. By this stage, over 600 blocks had been manufactured and nearly 350 installed in the wall. A subsurface radar examination of the wall was undertaken which disclosed that the problem was fairly widespread. 104 blocks were identified as having an unacceptably low cover to the reinforcement. It was clear that the reinforcement cage placed in the mould had moved during the process of pouring the concrete. Amec agreed to take out and replace those blocks, the immediate cost of which came to over £500,000. Faced with this situation, Amec made a claim under its contractor's all-risks insurance policy with Norwich Union. In common with such insurances, Norwich Union undertook to indemnify Amec in respect of loss or damage to 'property' belonging to Amec, property including any permanent or temporary works which Amec might be engaged upon. The policy excluded loss or damage caused by negligent design, materials or workmanship. Amec contended that by having to remove and replace over 100 blocks, there was clearly loss or damage within the meaning of the insurance policy. Norwich Union's response was to say that its liability under the policy only arose where there was 'loss or physical damage' to the insured's property. The blocks were not lost or damaged, they were simply badly built. There was no damage to any other property belonging either to Amec or to third parties and the insurance policy therefore simply did not bite. His Honour Judge Richard Seymour QC concluded that it was quite plain on a proper reading of the insuring clause in the policy that it did not extend to providing to Amec an indemnity in respect of the cost of replacing the defectively manufactured blocks. Neither was Judge Seymour particularly impressed with Amec's argument that during the course of removal of the blocks, the blocks incurred damage which fell within the scope of the policy. He commented that it would indeed be a bizarre result if Amec could fail to perform its obligations to Jersey under the contract by manufacturing and installing defective blocks, an ordinary commercial risk of the type run by civil engineering companies in the course of their everyday business, and then claim the cost of necessary rectification work under the contractor's all-risks policy on the ground that the removal of the defective works itself involved damage to the defective work. Judge Seymour concluded that the blocks had not sustained loss or damage within the scope of the all risk insurance policy. Amec's claim against Norwich Union was therefore dismissed. It is interesting to note however, that Judge Seymour was at pains to record that at no stage had Amec been shown to be negligent in the manufacture of the blocks. Since Norwich Union had based almost the entirety of its defence upon groundless allegations of negligence on the part of Amec, that would require to be taken into account in determining liability for the costs of the litigation.
CJ-0412
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