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Marine Insurers Must Pay for Damaged Machines

Cracks discovered in giant waste recycling machines were probably caused in transit as they were transported along rough eastern European roads, the Court of Appeal has ruled in resolving a dispute between insurers over where financial liability for the damage should fall.

Minute cracks were discovered in two water-cooled heat exchangers whilst they were being commissioned at a waste recycling site which was under construction. A number of welds had to be replaced and the operators of the site and contractors involved in its construction made a claim on an ‘erection all-risks’ (EAR) policy they held with a consortium of five insurers.

The consortium paid for the loss but sought an indemnity from marine insurers who had covered the machines whilst in transit, by road and sea, to the site. At first instance, the High Court ruled that the marine insurers were liable to pay a full indemnity after finding, on the balance of probabilities, that the damage had been caused whilst the machines were being transported by road across Romania.

On appeal, the marine insurers argued that there was no evidence that the machines had been inadequately packed or that road surfaces in Romania were so poor as to set up a resonant vibration sufficient to have caused the damage. It was submitted that the damage was more likely to have been caused by exposure to the elements on the construction site and was therefore covered by the EAR policy.

However, dismissing the appeal, the court noted that the machines were extremely large and that it was quite likely that the wide lorry transporting them for 150km along a Romanian motorway would have traversed the rumble strip by the side of the road for a great part of the journey. There was also no flaw in the first instance ruling that parts of the packaging, which was meant to protect the machines’ components from vibration, had been missing.