In European Group Limited and Others v Chartis [2012] EWHC 1245 (QB), Mr Justice Popplewell held that damage to the insured’s property during transportation was proximately caused by an external fortuitous accident or casualty, and therefore there was no room for “inherent vice” to be an additional proximate cause.

The case concerned which insurers were liable for losses caused by fatigue stress cracking to tubes in economiser blocks which had been installed in a new waste recycling plant. The Claimants were the subscribing insurers to an Erection All Risks, Public Liability and Delay in Start Up Insurance Policy (the EAR Policy), which covered damage on site. The Defendant was a subscribing insurer to a Primary Marine Project Cargo/Delay in Start-Up Insurance Policy (the Marine Policy), which covered damage in transit.

Both policies contained a clause (the 50/50 clause), which provided that where it was not possible to ascertain whether the cause of damage to the insured’s property occurred before or after the arrival of the property at the insured’s premises, the EAR insurers and the Marine insurers would each contribute 50% of the insured’s properly adjusted claim. In addition, the Marine Policy incorporated the Institute Cargo Clauses (A), which, by clause 4.4, excludes liability for “loss damage or expense caused by inherent vice or nature of the subject-matter insured“.

Following the discovery of fatigue crack damage to the tubes, a claim was made on both policies for the cost of repair and other associated costs. The EAR insurers settled the insured’s claim under the EAR Policy without prejudice to their position that the damage occurred during transit and was covered by the Marine Policy. They then claimed their respective proportions of the amounts paid in settlement of the claim from the Marine insurers, contending that the damage had occurred during transport, entitling them to recover 100% of their claim from the Marine insurers, or alternatively that it was not possible to determine how or when damage had been caused, thus entitling them to 50% of their claim. The Defendant contended that the damage had occurred after the tubes had been installed on site. It also argued that if, contrary to its primary case, the damage had occurred during transit, there was an additional proximate cause that amounted to an inherent vice, which excused the Defendant from liability under the principle that, where a loss has two proximate causes, one of which is within the policy and the other expressly excluded, the exclusion takes effect to exempt the insurer from liability.

Finding in favour of the Claimants, the court held, on the balance of probabilities, that the damage occurred prior to the arrival of the property on site as a result of resonant vibration, and that, given the damage was proximately caused by an external casualty, there was no room for inherent vice to be an additional proximate cause.