Coromin Ltd v AXA Re & Ors

Insurance and reinsurance policies must be construed in their contractual and commercial context, using admissible background and business common sense. An electrical and mechanical breakdown extension may apply to a discrete component of a larger plant where that component is separately identifiable, has its own function, and has undergone the specified testing and acceptance procedures. Official acceptance does not require a particular chronological sequence or definitive contractual acceptance, provided it is formally connected with handover and certification. Business interruption cover is not confined to business or assets existing when the physical damage occurred. Loss is recoverable where insured damage causes interruption to the insured’s business during the applicable indemnity period. An implied restriction cannot be added where it is unnecessary, insufficiently obvious, or unsupported by business efficacy or necessity.

Coromin, the captive insurer for Anglo American’s worldwide operations, sought indemnity from subscribing reinsurers under global all-risks reinsurance for physical damage and business interruption following the failure of a stator in a gearless motor driving a copper-mill at Collahuasi in Chile.

The parties accepted that the failure resulted from defective design. The issues were whether the motor or the mill as a whole was the relevant machinery for the electrical and mechanical breakdown extension; whether the extension’s four conditions had been satisfied before the policy attached; whether business interruption losses relating to a molybdenum plant that did not exist at the date of damage were covered; and whether the policy contained an implied temporal limitation on the word business.

1. Construction of the policy. The policy was construed by reference to its language, the document as a whole, admissible background and business common sense, applying the approach in Absalom v TCRU [2006] 2 LLR 129 and the principle in Antaios Compania Naviera v Salen Rederierna AB [1985] AC 191. The policy had to be understood without reference to the particular construction contracts alone.
2. The motor was a discrete item of machinery or equipment for the purposes of the extension. It had a distinct function, was separately identifiable, was subject to a separate supply contract and could be affected by a design defect independently of the mill drum. The fact that it operated in conjunction with, and was partly attached to, the mill did not alter that conclusion.
3. The four conditions in the extension were satisfied before the 2004–2005 cover began. They could be satisfied in any order and more than one could be satisfied at the same time. Official acceptance required authorised formal acceptance connected with the formal handover and appropriate certification. It did not require definitive acceptance after 365 days, nor did it require the certificates to precede the acceptance.
4. The same conclusion applied even if the mill as a whole were the relevant item. Provisional acceptance and handover transferred care, custody, control, risk and responsibility to Collahuasi. Outstanding non-critical punch-list matters did not prevent official acceptance.
5. Business interruption cover extended to interruption of the insured’s business during the 24-month indemnity period. The policy did not require the interrupted business to have existed when the physical damage occurred, or to be connected with property insured under the physical-damage section. The later operation of the molybdenum plant could therefore give rise to recoverable loss where the loss was caused by the earlier insured damage.
6. The proposed implied limitation of business was rejected. Applying the principles identified in Philips Electronique Grand Public S.A. v British Sky Broadcasting Limited [1995] EML 472, the term was neither necessary nor sufficiently obvious and was unsupported by legal efficacy, business necessity or business sense.
7. Coromin was entitled to recover for the damaged stator, repair costs relating to the motor and mill, and consequential business interruption losses, including losses affecting the molybdenum plant. Costs followed the event.