The overlapping of construction activities is a project management technique which helps a project to be completed as quickly possible. However, it inherently leads to increased risk and can jeopardise the insurance in place. This is even more true when two separate design and construction projects overlap forcibly and are knowingly implemented concurrently in the same area. In a recent case, the Greek courts found that the multiple damages which one constructor had caused to another's works were not sudden and unforeseen and did not qualify as one event.
A company belonging to a railway group specialised in implementing rail infrastructure works awarded the plaintiff the project of constructing an underground fibre optic grid running along both sides of a railway track. A few months later, another contractor (Contractor 2) was awarded the project of upgrading the railway track along a 22km section of the network, where and while the plaintiff was working. The second project, although awarded by another entity, also had to be implemented by the first awarding company, which now had to supervise two independent but overlapping construction projects. Following several meetings between the supervising entity and the plaintiff, the latter was required to submit detailed additional information regarding his progress, including updated Gantt charts, monthly schedule reports showing all deviations from the agreed baseline schedule and weekly reports on the work performed each day and the work to be performed on each day of the following week.
The supervisor agreed to confirm the plaintiff's schedules and to update him on Contractor 2's progress. Soon after both contractors were simultaneously active in the common project area, the plaintiff advised the supervisor that the conduit which he had laid in the trench had been extensively damaged by Contractor 2. Three months later, the plaintiff notified the supervisor of several other instances of serious damage to completed parts of his project, caused by Contactor 2. The plaintiff then turned to his contractors' all-risk insurers, which repudiated the claim on the basis that the damages were not sudden and unforeseen and that – even if the insuring clause was triggered – each separate loss fell below the policy's 'per event' deductible.
The plaintiff filed suit against his contractors' all-risk insurers, seeking indemnification for the physical damages to his works.
The Athens First-Instance Court found that the plaintiff had agreed with the supervisor on a system of information exchange between them, which could help to avoid damages resulting from the concurrent execution of the two overlapping construction projects. However, the court stated that the plaintiff had failed to provide the court with evidence that:
- the charts, schedules and reports that the plaintiff should have submitted to the supervisor had been submitted; or
- the supervisor had confirmed and accepted such submissions.
The court held that the plaintiff had been fully aware of Contractor 2's concurrent and overlapping construction activity in the same area in which he was working. Therefore, he should have applied a higher degree of prudence and care and taken all possible measures to avoid any damages. Such degree of care would include submitting all of the above documentation and asking the supervisor for specific written instructions before proceeding to the next steps of his project, particularly since he was evidently complaining to the supervisor about not being notified of Contractor 2's planning.
Further, the first-instance court rejected the plaintiff's argument that the various damages constituted a 'series of events' under the policy. There were 14 instances where Contractor 2 had damaged the plaintiff's works. Such damages had occurred along approximately 7km of the railway track over more than eight months. In addition, the plaintiff claimed that in some instances the damages were attributable to Contractor 2's gross negligence, whereas in other instances he had acted with intent in order to accelerate the completion of his own project. Hence, the court found that the damages were separate events and that the deductible should apply to each event individually.
The plaintiff challenged this decision before the Court of Appeal, arguing that providing the supervisor with additional information on his project's progress was an administrative obligation, not causally linked to the damages for which he was seeking compensation. He argued that the losses were the result of Contactor 2 failing to show due care and acting negligently in avoiding the covered trenches where the plaintiff had laid the optic fibres. Therefore, he claimed that all of the damages which he had suffered should be considered as one event. Further, he suggested that in the absence of detailed Greek jurisprudence on the matter, reference had to be made to that of common law countries, where the courts regularly use unity of time, space, cause and motive as criteria for testing the series of losses concept in insurance.(1)
The underwriters countered that damages had repeatedly occurred over a long period in various parts of the two parallel projects' common area. Thus, they could not be perceived as 'sudden and unforeseen' events; rather, it was a repeating and evolving situation ultimately resulting from a lack of communication with the other parties involved, but each time proximately caused by a different act of Contractor 2. In addition, for each occurring loss, the plaintiff had had ample time to remedy the conditions that led to it and avoid the next occurrence; this hindered the successive losses from qualifying as one event.
The Court of Appeal found in favour of the insurers: the plaintiff's submission of additional information was not an administrative formality and was not used as such by the first-instance court. The Court of Appeal stated that the failure to implement the agreed communication framework between the plaintiff and the supervisor had been justly used by the lower court in establishing the lack of the essential coordination between the two contractors. This was proof that the plaintiff had failed to exercise due care under the circumstances, particularly as he had been fully aware of not only the increased risks linked with the overlapping construction activities, but, more importantly, the successive losses right from the start. Hence, these losses could not conceptually qualify as 'sudden and unforeseen' – a rigid requirement for the policy's cover to be triggered.
In addition, the court dismissed the plaintiff's arguments as contradictory. In supporting the 'sudden and unforeseen' quality of the damages, the plaintiff claimed that they had occurred at considerable distances apart and at different times; in arguing for 'one event', the plaintiff invoked the space and time proximity of the same occurrences. The Court of Appeal determined that the plaintiff's negligence was recurring with each loss, as every time he had protested the damage but omitted to take the agreed measures to avoid a new occurrence. This had led to several losses, each of them (with the exception, potentially, of the first one) being caused by a separate act of Contractor 2 and each one being avoidable. In addition, the plaintiff claimed that certain losses were the result of Contractor 2's negligence, while others were caused by his wilful misconduct as he had wanted to complete his project as fast as possible. Consequently, all of the losses were not attributable to one common cause and the plaintiff's 'one event' argument was also dismissed.
This case is notable because the courts in both instances addressed with clarity two critical and practical insurance issues which are often heavily litigated in claims disputes.
The first relates to the fact that for an event to trigger a policy's cover, it must fit within the specific criteria contained in the operative clause. In property and casualty insurance, cover is provided against fortuitous future happenings so that the mutualisation of risk – the core element of the insurance operating model – can function properly. To be fortuitous, these happenings must contain an element of suddenness and unpredictability. The words 'sudden', 'unforeseen', 'accidental', 'unexpected' and 'violent' are used, either separately or in combination, in policies' insuring clauses worldwide to describe the criteria to be met for the cover to be triggered. Among them, 'sudden and unforeseen' and 'sudden and accidental' are most used by insurers to delineate their liability. The construction by the courts, internationally, of these words and of other synonymic language is a long-running and disputed issue. Disputes over the word 'sudden' often revolve around insurers' repudiation of claims where a (contributory) cause of the loss extends over a period of time, thus attributing to it an aspect of graduality.(2)
In this case, both courts took a pragmatic approach. They did not endorse the position that 14 almost identical losses occurring one after the other over eight months in a hazardous environment (as is the concurrent execution in a specific area of two overlapping construction activities) should qualify as 'sudden and unforeseen'. The courts did not venture into the discussion of whether the damages to the plaintiff's executed works were instantaneous. They did consider a temporal element, but this was not whether the damaging events were gradual or abrupt. Rather, time was taken into account in establishing that there was enough of it between the losses to permit the plaintiff to take the necessary action to avoid the next loss.(3) The repetition in a pattern-like manner of Contractor 2 damaging his executed works, as well as his own flagrantly negligent conduct (in omitting to implement the fundamental procedure requested by the supervisor), inevitably negated a determination that the losses were unforeseeable.
The second issue concerned aggregation – a usual bone of contention in insurance claims that include more than one injuring incident. The courts in various jurisdictions will use specific tests to determine whether separate incidents should be aggregated as a single loss. Usually, a temporal and spatial relationship between the various incidents is required, as well as 'causal continuum'.(4) In establishing such causal continuum, it is critical to identify the operative incident, which is the proximate cause of the injuring event.(5)
In this case, oddly, the policy did not define a 'series of losses'. Instead, it mentioned only that the deductible was set at X amount "per injuring event". The Court of Appeal, in dismissing the 'series of events' principle from applying in the case, emphasised the inherent contradiction in the plaintiff's two arguments: in order to establish that the losses were 'sudden and unforeseen', he claimed that they had occurred independently, over a long period and in unrelated places, some having been the result of Contractor 2's negligent acts and others having been caused intentionally. When trying to prove that all of the losses were the result of 'one event', he had invoked the various incidents' same alleged underlying cause and their temporal and spatial proximity.
Notably, the decision relied heavily on the expert evidence of the underwriters' adjuster, who had meticulously registered every detail of each loss's specific characteristics, proving once again the importance of strong technical support when litigating builders' risks cover.
Endnotes
(1) The plaintiff referred, in particular, to the precedent set by Michigan Chemical Corp v American Home Assurance Co, 728F 2d 374 (6th Circ 184).
(2) This is particularly true in many cases litigated before the US courts on environmental liability. See also African Products (Pty) Ltd v AIG South Africa Ltd ((659/2007) [2009] ZASCA 27 (27 March 2009)) by the South African Supreme Court of Appeal, which stated that "[t]he physical damage to the cables was… not sudden. It is the manifestation of the damage that was sudden and not the actual damage, which had occurred over a lengthy period of time as observed". See also "Sudden and unforeseen damages – tautology?", ENSafrica, 28 January 2011, and "What is sudden and unforeseen damage?", as well as the contrary approach by the Israeli Supreme Court in two leading cases, discussed in "Physical, accidental and unexpected damage under contractors' all-risk policy", Levitan, Sharon & Co, 25 May 2010.
(3) The time available to realise when things have not gone as planned and react to this can be a critical factor in assessing a loss as accidental or unforeseen, as the Queensland Court of Appeal found in Matton Developments Pty Ltd v CGU Insurance Limited ([2016] QCA 208). See "When a calculated risk doesn't pay off: insurance policies and accidents", Clayton Utz, 29 September 2016.
(4) See "The unfortunate event test – aggregating incidents", Squire Patton Boggs, 17 September 2015.
(5) Regarding litigation on aggregation in insurance, Moore v IAG New Zealand Limited undoubtedly stands out. The NZ Court of Appeal overturned a High Court decision and found that the damages caused to an insured house by February 2011 and June 2011 earthquakes were caused by separate events and did not constitute – as the insurer had argued – a series of losses which had as a common cause a prior September 2010 earthquake that had not damaged the house. See "Losses caused by 2011 earthquakes not a 'series of losses'", Hesketh Henry, 12 August 2020 and "Court of Appeal clarifies the effect of aggregation clauses", Minter Ellison Rudd Watts, 14 October 2020.
