You are the Judge - Damage of goods


Do you run a small business? Have you ever wondered about how safe your materials are from damage caused by somebody else? Are they always insured and do you have any recourse? Here's a scenario which might make you stop and think.

Image of Sharpe and Blayde suits hanging up

The scenario:

Matthew Sharpe of Sharpe & Blayde Suits Ltd (SBS) arrived at back at work from a holiday to find a disgusting scene. It appeared that his office toilet had regurgitated raw sewage overnight, flooding his workshop.

Luckily most of his work had been packed safely away, but even so more than £10,000 of materials had to be abandoned and the clean-up work took nearly two weeks to complete. 

Sharpe investigated the cause of the flooding and traced it to the Sticky Wicket chewing gum factory that had apparently been dumping its waste straight into the sewers. These had naturally become blocked and the sewage had been forced back through the pipes to the lowest exit point: the toilets of SBS.

Unfortunately, SBS’s insurance policy specifically exempts damage for flooding of this kind.

Consequently, SBS has brought a case against Sticky Wicket for the damage of materials and the loss of profits during the two-week clean-up period. Sticky Wicket have refused to pay, saying that it is not their fault that the insurance failed to pay out.

The answer:

Sticky Wicket’s actions were negligent, and the damage to SBS was reasonably foreseeable, so on the face of it, there may appear to be liability.

This will certainly be so with respect to the £10,000 of lost materials, unless some form of contributory negligence can be can be proved.

However, Sticky Wicket cannot be held liable for SBS’s lost profits. As a matter of policy, the law does not allow the recovery of ‘pure economic losses’ - loss that appears on a balance sheet and nowhere else.

The rationale for this is firstly that to allow such claims would open the floodgates to unlimited and unpredictable sums, preventing the possibility of insurance. Secondly, it would be open to abuse. It would be all too easy to claim for plausible profits that might not in fact have been made.

SBS will get partial recompense, but not total. Make sure your business is covered for all eventualities if possible – and make sure your actions aren’t going to cause you issues in the future!

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