What is the Problem with Damage?

1. What is the Problem with Damage? Victoria Sherratt Barlow Lyde & Gilbert LLP 15 September 2009

2. Typical BI Insuring Clause • Damage to property used by the Insured for the purposes of the business; • Occurring during the policy period • Which causes interference or interruption of the business

3. Why is Damage important? • The material damage proviso • The indemnity period under the BI cover

4. Meaning of ‘Damage’ Damage has been defined in The Nukila as: “a physical change in condition of the property”.

5. The Nukila (1997) (1) • “damage… caused by any latent defect on the machinery or hull” • Latent defects to welding and small fractures developed during the policy period into large fractures • There was damage

6. The Nukila (1997) (2) – Points of Note: • Insurance did not cover damage which existed prior to date of inception. • Need a physical change in the condition of the property during the policy. • Whether damage had occurred was a matter of fact and evidence.

7. Pilkington v CGU [2004] • PL case • Whether cracked panels had caused ‘damage’ to the Eurostar terminal • The policy excluded the cost of replacing an item installed by the supplier when the liability arises from a defect in the item, so Pilkington lost.

8. When must the Damage occur? • Must prove on the balance of probabilities that damage occurred in the period of cover under the BI policy. • Difficult if there is sparse evidence, e.g. vandalism over a period of time or in cases involving progressive damage.

9. MMI v Sea Insurance (1998) • Cranes damaged by vandals between March 1987 and September 1988. • Court inferred damage probably continued at the same rate throughout the period

10. NU v Kelly (1989) • Two incidents of water leakage which caused heave. One prior to inception; one during policy. • Experts could not identify which damage was due to which leak. • Court found the Insured had not shown damage as a result of second leak.

11. When does the Period of Indemnity start? • From the date of damage? • From the date of interference? • See definition of “Indemnity Period”

12. Example 1: Typical UK BI Policy • Indemnity period: “the period beginning with the occurrence of Damage/of the incident and ending not later than the maximum indemnity period stated in the Schedule during which the results of the business shall be effected in consequence thereof.”

13. Example 2: Coromin • “The “Indemnity Period” shall be a period of up to 24 months, being the period during which the Business is or would have been interrupted or interfered with, for such length of time as would be required to rebuild, repair or replace the Property which has been lost, destroyed or damaged and to resolve the resulting interruption or interference, commencing with the date of Damage or interference and not limited by the date of expiration of this Policy.”

14. Solution? • Ask for period of indemnity to commence from date of interference • Get extended indemnity period for 24 – 36 months for subsidence.

15. What is the Problem with Damage? Victoria Sherratt Partner - CRR Barlow Lyde & Gilbert LLP 15 September 2009