What is the Problem with Damage

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					What is the Problem with
Damage?

Victoria Sherratt

Barlow Lyde & Gilbert LLP

15 September 2009
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
Why is Damage important?

 The material damage proviso

 The indemnity period under the BI cover
Meaning of ‘Damage’

Damage has been defined in The Nukila as:

“a physical change in condition of the property”.
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
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.
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.
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.
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
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.
When does the Period of Indemnity start?

 From the date of damage?

 From the date of interference?

 See definition of “Indemnity Period”
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.”
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.”
Solution?

 Ask for period of indemnity to commence from date of
  interference

 Get extended indemnity period for 24 – 36 months for
  subsidence.
What is the Problem with
Damage?

Victoria Sherratt
Partner - CRR
Barlow Lyde & Gilbert LLP

15 September 2009