Gerling General Insurance Co & Ors v Canary Wharf Group Plc

In a project insurance policy, whether damage is imminent is assessed prospectively and objectively. The question is whether, on the facts then available, a reasonable person would regard the damage as sufficiently likely to occur sufficiently soon. A serious risk amounting to a real likelihood may suffice; virtual certainty is unnecessary. However, the cost of changing a construction method is not incurred to prevent imminent damage where damage would arise only if defective future construction occurred and the insured was taking reasonable precautions to prevent it. Costs caused by actual damage must be incurred to prevent or minimise resulting delay. Notice of the initial occurrence ordinarily satisfies a clause requiring notification of an occurrence giving rise to a claim.

A group of insurers sought declarations concerning cover under a project insurance package issued to Canary Wharf Group Plc. A tower crane collapse at an uninsured adjoining construction site caused work to stop and led Canary Wharf to change the method by which cranes at another site were raised. The parties agreed factual assumptions about resulting crane outages, delay and additional working costs.

The principal questions concerned the construction of Extension 16 to Section 1, including whether the costs were incurred in consequence of imminent or actual loss or damage, whether they were incurred to mitigate such loss or damage, and whether they constituted additional costs of working. The court also considered notification and the effect of the reasonable-precautions condition.

1. Construction and policy structure. The policy was an insurance against the risk of property loss or damage. Section 1 addressed actual damage; Extension 16 addressed additional costs of working necessarily and reasonably incurred to prevent or minimise delay in consequence of actual or imminent damage; Section 2 addressed additional costs attributable to delay. Special Condition 8 addressed emergency action, but excluded costs incurred to prevent future occurrences of a similar nature.
2. Imminence. The issue was to be assessed prospectively and objectively, by asking whether the facts available at the relevant time would lead a reasonable person to regard the damage as sufficiently likely to happen sufficiently soon. It was a question of fact and degree. A serious risk amounting to a real likelihood could be imminent; virtual certainty was unnecessary.
3. Nevertheless, the proposed crane collapse was not imminent. The cranes had not yet been constructed, would not be constructed using the defective method previously employed, and the change to two-crane working was a reasonable precaution required by the policy. Treating the cost of avoiding a potentially defective construction method as recoverable would effectively provide cover for defective design or construction method.
4. If damage had been imminent, liability would still not have been admitted because the insured’s failure to comply with the reasonable-precautions condition would engage the condition precedent to liability. The claim based on mitigating the effects of loss or damage therefore failed because the damage itself had to be imminent. Claims based on actual damage to adjoining property or the collapsed crane also failed: the additional work was not carried out to minimise delay in consequence of that damage, and there was no basis for assuming admission of liability for the collapsed crane.
5. The notification objection failed. The crane collapse was the occurrence giving rise to the claim, and timely notice of it had been given. The policy did not clearly require further notification of consequent imminent damage or each head of claim.
6. The court stated, alternatively, that it would not have rejected the claim merely because the costs could also be described as costs of delay. Costs of using two cranes could both result from delay and be incurred to prevent further delay.
7. The insurers’ declaration succeeded on the assumed facts. Counsel were to be heard on the appropriate order.