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Wear and tear is not always what it seems

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Jonathan Bruce

Jonathan Bruce

Insurance is designed to insure  against a fortuity occurring – this is a  fundamental principle of insurance. In the context of marine claims, the Marine Insurance Act 1906 (MIA), Section 55, expressly excludes insurers’ liability for claims arising from wear and tear (a principle which the courts will also apply where there is a connection to a marine risk, for example in offshore energy matters).

Wear and tear is usually expressly excluded in property covers, including hull, on the basis that it is not a fortuity.

In the 2011 case called the Cendor MOPU (Global Process Systems Inc and another v Syarikat Takaful Malaysian Berhad [2011] UKSC 5) the English Supreme Court cited and approved established case law to the effect that “the purpose of insurance is to afford protection against contingenices and dangers which may or may not occur; it cannot properly apply to a case where the loss or injury must inevitably take place in the ordinary course of things” (Paterson v Harris (1861) 1 B&S 336).

However, wear and tear is a common  cause of damage, and is often the subject of disputes arising from claims brought by assureds. In this article we will try to define wear and tear, by looking at some examples which illustrate how wear and tear compares and contrasts with other causes of damage with similar characteristics.

We will also look at some examples of cases where the English court has demonstrated that the position on wear and tear claims is not always as clear cut as one might think. So what is wear and tear? The characteristics of damage or loss arising from wear and tear are often comparable with cases of inherent vice or latent defect, for example.

Similarities between such cases may be that the “manifestation” of damage, could be either gradual or sudden. The damage might occur over a matter of years. However, the key significant point for insurers is that whilst insurers may cover defects, or damage arising from defects (although this is of course dependent on the policy wording), insurers will never want to cover damage or loss arising from wear and tear.

Defects are created by a positive act of human agency, usually a fault in the manufacture, design or materials within the insured property. A defect is a condition causing premature failure which was either present on construction or installation, or has resulted from the way the insured property has been designed, constructed or installed.

Laura Steer

Laura Steer

Compare this with wear and tear and the position is actually quite different. Wear and tear is the uncorrected result of ordinary, natural and inevitable incidents of trading or use. For example, this would include where the sections of the  insured property requires renewal at intervals, and has merely worn out at the end of its normal working
life. Alternatively, it could be where a part fails prematurely as a result of external circumstances, which are not due to an internal defect.

So, for example, corrosion damage caused by a change of ambient temperature would normally be excluded from cover as wear and tear. However, if there is some other insured peril which has caused the damage to occur, such as someone’s
negligence, or a previous accident which was a fortuity, that could be deemed to trump wear and tear, this may bring the claim back within the cover. It is a matter of what is the proximate cause.

Characteristics of damage which may appear to be wear and tear may not always be wear and tear.  Proximate cause can easily displace a claim for wear and tear. In the “Caribbean Sea” (Prudent Tankers Ltd S.A. v The Dominion Insurance
Co. Ltd [1980] QBD (Comm Ct) 1 Lloyd’s Rep. 338) defective welding led to a fatigue crack, the vessel sank and was a total loss. The insurers argued that the claim was excluded as the loss was caused by wear and tear. However, the court
held that where a latent defect has developed in the ordinary use of a ship, as was held to be the case with this particular cracking, the proximate cause was the latent defect and not wear and tear. The court therefore held that the loss was covered. Incidentally, where possible the courts will try to identify only one proximate cause for each aspect of damage.

Wear and tear is an inevitable cause of damage through the ordinary course of use of insured property.
The courts have made it clear that such inevitable damage and deterioration of insured property is not in the contemplation of insurance cover (unless of course it is expressly included). However, insurers should have care because as we have seen,
characteristics of damage which may appear to be wear and tear, may not always be wear and tear.

HFW-400x90For more information, viewers can contact  Jonathan Bruce, Partner, on  +44 (0)20 7264 8773 or jonathan.bruce@hfw.com, or Laura Steer, Associate, on +44 (0)20 7264 8032 or laura.steer@hfw.com, or your usual contact at HFW

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