A recent case has confirmed that 50/50 clauses in policies covering
the same risk, will be applicable if:
(a) there is such uncertainty that it is not possible to reach
any conclusion as to when the relevant damage occurred; or
(b) one theory as to causation of the loss is so improbable
that even if the other theory is ruled out, it cannot as a matter
of common sense be described as more likely than not.
In European Group Limited & Others v Chartis Insurance UK Ltd
 EWHC 1245 (QB), the developer of a new waste recycling plant
and its contractors were insured for damage to plant and materials
under two insurance policies. The first policy was provided by the
Claimant, and covered damage to plant and materials on site. The
second policy was provided by the Defendant, and covered damage to
plant and materials while they were in transit.
The new recycling facility required the installation of economizer
blocks containing lengths of tubes. These were manufactured in
Romania and delivered by road and sea to the site. After the units
had been on site for 4 to 6 months, cracking was discovered in the
tubes. The parties agreed that the cracking was caused by fatigue
stress. However, the Claimant argued that the fatigue stress and
cracking was caused by the condition of the roads during transit;
while the Defendant argued that it was caused by wind exposure
suffered on site. Both polices contained 50/50 clauses, providing
that if it was not possible to ascertain whether the cause of
damage occurred before or after arrival at the site, the insurers
would each contribute 50% of the properly adjusted claim.
The Judge concluded that it was not a realistic possibility that
the fatigue stress and cracking was caused by wind exposure.
However, although he found the wind theory improbable, that did not
automatically mean that the road vibration theory was the probable
cause. The balance of probabilities test had to be applied to the
road vibration theory, to properly determine whether it was more
likely than not to have caused the damage. If it was not possible
to conclude that this alternative theory was more likely than not,
either because of a lack of evidence or because this theory itself
was improbable, then the 50/50 clause would apply.
The Judge in fact found that the road vibration theory was more
likely than not to have caused the damage, and therefore the 50/50
clause was not applicable in this case.
The Defendant’s second defence of inherent vice also failed.
The Defendant argued that, if damage was caused in transit, there
was an additional proximate cause, as various parts of the unit
were defective before transit. The Defendant’s policy
excluded liability for damaged caused by inherent vice. The
Defendant therefore sought to rely on the principle that where a
loss has two proximate causes, one of which is covered under the
policy and one of which is excluded, the exclusion takes effect to
exempt the insurer from liability. However the judge did not
consider that the units contained an inherent vice. Further, as a
matter of law, an inherent vice cannot be an additional proximate
cause, where it is established that another proximate cause is an
accident or event which occurs during the period of cover.
Case: European Group Limited & Others v Chartis Insurance UK
Ltd  EWHC 1245 (QB)
Co-contributor: Eleanor Doherty +44 (0) 20 7367 3498