Mashhad Tower: Adjacent Shop Collapse and a Crane Blown Over in a Storm
A contractor is building a 12-storey residential tower in Mashhad under a Contractor's All Risks policy covering the works, construction plant, and third-party liability of 5 billion IRR. During excavation for the raft foundation to 9 m depth, the retaining wall on the adjacent plot - a 30-year-old two-storey shop - cracked and part of its rear wall collapsed. The project's geotechnical engineer had warned that the shoring design was inadequate for the silty clay; a revised drawing was prepared but not implemented because of a dispute over the cost of extra anchors. The works themselves were undamaged. The shop owner claims 4.2 billion IRR for repairs, 1.5 billion for lost business during four months of closure, and 0.8 billion for loss of goodwill. Separately, a tower crane toppled in a storm with a recorded wind speed of 92 km/h (the manufacturer's design threshold is 110 km/h), damaging a completed slab section and a parked car outside the site; the slab repair is estimated at 1.1 billion and the car at 900 million.
1. Assess the shop owner's three heads of claim and state what the third-party liability section will pay.
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Liability first. The geotechnical engineer's written warning, the preparation of a revised shoring design and the decision not to build it because of a cost dispute establish negligence against the contractor. The shop is third-party property, not owned, hired or in the contractor's care, custody or control (verify this), so the standard TPL exclusions do not apply. Liability is established; the adjuster's job is quantum.
Repairs – 4.2bn. Indemnity is reinstatement of the pre-loss building, not a new building. A 30-year-old shop must be measured on a depreciated basis, or repair cost if lower than diminution in value. Deduct betterment for any element replaced new-for-old, and require a licensed engineer's repair specification and competitive quotations. Expect the 4.2bn to be reduced.
Lost business – 1.5bn. The TPL section covers physical damage to third-party property. Consequential financial loss is excluded unless the policy carries a specific extension. Unless such an extension exists, decline this head; if it exists, apply the waiting period, the indemnity period and the proof of loss (accounts before and after).
Goodwill – 0.8bn. Loss of goodwill is not a measurable proprietary loss and is too remote in this context; decline it. The shop owner retains whatever rights he has at law, but the insurer is not obliged to fund them.
Limits. All of the above falls inside the 5bn TPL limit, but the aggregate matters if the car claim also sits in the TPL section. Present a schedule showing each head admitted, reduced or declined, with reasons.
2. The crane toppled at 92 km/h against a 110 km/h design threshold. Is the slab damage and the car damage covered, and under which section?
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Is there a storm peril at all? The manufacturer's 110 km/h is a design and operating threshold, not a policy definition. Unless the policy defines storm by reference to a stated wind speed or Beaufort scale, the recorded 92 km/h is a storm and an insured peril under the material damage section. Obtain the meteorological office record for the site, not just the contractor's anemometer.
Slab (1.1bn). The slab is part of the permanent works and therefore insured under the material damage section. Cover responds to the storm damage. Two questions remain: was the crane left in a safe out-of-service condition (free-slewing, brakes released, jib down) in the light of the forecast; and does any 'reasonable precautions' or maintenance condition apply? Those go to possible reduction, not to the existence of cover. Apply any policy deductible.
Car (900m). The car is third-party property outside the site and not in the contractor's custody. If the contractor is legally liable (for example for failing to secure the crane when a storm was forecast), the third-party liability section responds. Check the 'property in the insured's care, custody or control' exclusion and the exclusion for property belonging to the employer; neither applies to a stranger's car on the road.
Overlap and limits. The slab and the car fall under different sections with separate limits and possibly separate deductibles. Do not charge both to the 5bn TPL limit; the slab belongs to the material damage section. Confirm whether the policy aggregates the limits or treats them separately before presenting the settlement.
Subrogation. If a crane-hire company or an operator was responsible for securing the plant, check the hire terms for a waiver of recourse; do not pay subrogated items without clearing that point.
3. The insurer's engineer argues that the shop claim should be declined entirely because the loss arose from defective design or specification. Evaluate that contention and draft your recommendation.
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What the design/defective-work exclusions actually do.
In a CAR policy the defective-design and defective-workmanship exclusions typically do two things: they exclude the cost of rectifying the defective work, design or material itself, and they exclude loss caused by that defect to the insured works where the defect is in the insured's own scope. They are not intended to wipe out the third-party liability cover, which exists precisely to pay innocent third parties who are damaged by the contractor's methods. Reading the exclusion as a total bar would empty the TPL section of content.
Applying that here. The defective element is the shoring design/specification. The consequence is physical damage to a third party's building. The TPL section responds to the consequence. If the policy contains a design exclusion that expressly extends to liability for damage to third-party property, quote it verbatim and take a legal opinion; without such wording the engineer's position is too broad.
A second argument the engineer may have in mind. If the shoring was designed by the employer's own consultant rather than the contractor, a 'liability arising from design furnished by the employer' exclusion may apply. Establish who designed the shoring and who instructed that the revised drawing be shelved.
Recommendation wording. 'Liability to the shop owner is admitted under the third-party section, subject to quantum. The defective-design exclusion is applied only to exclude any cost of rectifying the shoring or the insured works, which is nil in this case because the works were undamaged. The repair claim is adjusted to depreciated reinstatement; the business-interruption and goodwill heads are declined as consequential unless an extension is produced. Rights are reserved against the geotechnical consultant, with subrogation to follow payment.'