Contact (Print And Packaging) Ltd v Travelers Insurance Co Ltd

An insured claiming under a machinery breakdown policy must prove that the damage resulted from a cause which is not excluded. The burden remains on the insured where the policy’s breakdown exclusion is accepted to apply.

Causation may be established by circumstantial evidence. The court must consider all evidence and possible causes, then stand back and decide whether the insured cause is more probable than not. Eliminating competing causes is insufficient by itself.

Policy exclusions are construed in context. Normal settlement or bedding down concerns the expected settlement of a new structure. A defective design exclusion requires an objectively faulty design, not merely a design which failed in hindsight.

The claimant operated a Heidelberg printing press supported by specialist piled foundations and concrete plinths. In April 2013 the press suffered catastrophic gear damage and became unusable.

The claimant claimed under a combined insurance policy for property damage, business interruption and additional expenditure. The insurer repudiated liability, contending that the failure resulted from excluded fatigue, settlement, defective design, workmanship or materials rather than insured subsidence. Quantum was also disputed.

The central issues were the cause of the gear failure, the proper construction and application of the relevant exclusions, whether replacement rather than repair was recoverable, and the extent of the business interruption loss.

1. Liability. The claim for property damage succeeded. The claimant accepted that the breakdown exclusion applied, so it bore the burden of proving that the damage resulted from a non-excluded cause. Applying Rhesa Shipping Co v Edmunds [1985] 1 WLR 948, as explained in Ide v ATB Sales Ltd [2008] EWCA Civ 424, the judge considered all evidence and possible causes and assessed the claimant’s case independently on the balance of probabilities.
2. The court accepted the claimant’s metallurgical and printing evidence. The failure was a sudden event caused by inadequate gear backlash resulting from vertical displacement of the press. That displacement was caused by differential settlement of the plinths. The only credible explanation for that settlement was subsidence of natural clay ground, probably associated with variation in groundwater levels. The absence of direct evidence or recent cracking did not prevent that conclusion.
3. The court applied the circumstantial-evidence approach stated in O’Connor v The Pennine Acute Hospitals NHS Trust [2015] EWCA Civ 1244 and Milton Keynes v Nulty [2013] 1 WLR 1183. The court was required to stand back and decide whether subsidence was more probable than not, rather than treating the least unlikely cause as established automatically.
4. The settlement exclusion did not apply. It concerned normal settlement or bedding down of a new structure, and did not extend to abnormal settlement occurring about 15 years after installation. The defective design exclusion required an objectively faulty design. The specialist foundation design was satisfactory, and there was no defective workmanship or materials.
5. The claimant reasonably chose replacement rather than repair. The available repair proposal could not guarantee restoration of the press to its previous performance, and the decision was assessed by reference to information reasonably available at the time, not hindsight.
6. The property damage claim succeeded in full. The business interruption claim for lost gross profits failed for inadequate evidence and the underlying business decline. Additional expenditure succeeded only for job re-stepping in the sum of £18,900. After applying the £10,000 deductible, judgment was entered for £833,583.07.

This was a first-instance trial in the High Court. The claim succeeded on liability and property damage, but only part of the business interruption and additional expenditure claims was allowed.