|
The Court went on to consider the earlier case authorities and rejected underwriters suggestion that the dividing line between a defect and damage was whether there was consequential damage to another distinct part of the vessel. The principle was whether there was consequential damage and in the Courts’ view the notion of a part, which is a word that can be used in a variety of ways and with a variety of meanings, did not assist with the assessment of whether there was or was not damage.
As regards the Scindia Steamships case, which I have referred to above and was a judgment of Mr Justice Branson , there was there an old flaw which led to the fracturing of the rest of the shaft. Lord Justice Hobhouse said
“ Mr Justice Branson was clearly justified in reaching the conclusion which he did. No loss by a peril insured against had been proved. The shaft was already in a condition which required it to be condemned and its value was already no more than scrap value. The breakage of the shaft was simply the breakage of a part that was already without value and required to be replaced. There was no insured loss. This is what is reflected by the language which Mr Justice Branson used when asking whether there was something different from the damage involved in the latent defect itself…The loss which the shipowner had suffered was a financial loss arising from the discovery of the latent defect not from the latent defect having caused any damage.”
There are still certainly difficult factual situations where it would be difficult to apply these principles One such area is where the defect has developed prior to the commencement of the policy and continues to do so and the issue arises as to when damage occurred and what was the cause of the continuing damage. However in considering a claim under the Institute Time Clauses Hulls these are the principles to apply.
The New Clauses
Clause 2.2 of the new clauses reads as follows:
2.2 This insurance covers loss of or damage to the subject-matter insured caused by…
2.2.2. any latent defect in the machinery or hull, but only to the extent that the cost of repairing the loss or damage caused thereby exceeds the cost that would have been incurred to correct the latent defect. (my underlining)
The change from the previous wording is the addition of that new underlined limitation. It is worth noting the contrasting change to Clause 2.2.1, where the wording is now “bursting of boilers or breakage of shafts but excludes the cost of repairing the boiler which bursts or the shaft which breaks.” Here the reference is to the actual cost whereas with latent defect it is the cost “that would have been incurred”.
|
