Subcontractor was liable for company’s loss of profit, costs of auditor assistance and excess

A main contractor hired a subcontractor to remove a steel construction. The steel construction could only be removed with a blowtorch and during the work a building was set on fire. Large sections of the company’s stock of goods were damaged.

The insurance company covered the company’s loss which amounted to more than 5 million DKK. The loss included loss of profit, costs of auditor assistance and excess. The insurance company filed an action for recovery against the main contractor and the subcontractor. Both rejected liability.

District Court: The subcontractor was liable

The District Court of Aalborg determined that the subcontractor’s apprentice, who handled the work, had not received sufficient instructions. Furthermore, the District Court found that the welding was done without checking whether any combustible material was nearby. Therefore, the District Court decided that the work was a violation of the applicable security regulations and the apprentice was considered responsible. Consequently, the subcontractor - being the employer - was liable for the fire damage.

According to the District Court, the main contractor had a legitimate expectation that the subcontractor had instructed the apprentice sufficiently before the work. For that reason, the District Court did not consider the main contractor liable.

After the judgment was handed down by the District Court, the subcontractor repaid most of the insurance company’s claim. However, part of the claim was appealed to the Danish Western High Court. Before the High Court the subcontractor claimed that the main contractor should cover the damages in full.

The Danish Western High Court and the Danish Supreme Court: Main contractor was not liable

Like the District Court, the Danish Western High Court considered the subcontractor liable and the main contractor not liable. The Danish Western High Court and the Danish Supreme Court mainly focused on the question whether the insurance company had a right of recourse for the contested damages - in particular loss of profit, costs of auditor assistance and excess.

The subcontractor argued that the company’s claim concerning loss of profit should be limited to the cost price of the discarded goods. However, the District Court, the Danish Western High Court and the Danish Supreme Court emphasized that the goods were manufactured goods which could easily be sold during the period where the company’s stock was re-established. Therefore, the courts found that the loss of profit should be valued to the selling price of the manufactured goods and not the cost price of the discarded goods as the subcontractor argued.

Furthermore, it was decided that the insurance company could claim costs of auditor assistance. The Supreme Court emphasized that the company did not have the sufficient manpower and experience to assess it’s loss of profit by itself.

The insurance company sought recourse of the excess on behalf of the company. The contract between the company and the main contractor stipulated that the company was obliged to take out standard insurance. All three court instances agreed that the terms of the contract did not prevent the company from claiming reimbursement of the excess. The excess amount was not unusual and could therefore be included in the claim.

The insurance company’s claim was therefore upheld.

IUNO’s opinion

The judgment illustrates the fundamental principle in Danish law that a claimant may obtain total compensation inclusive consequential damages. In this case the compensation also included loss of profit, costs of auditor assistance and excess.

Costs of auditor assistance may be included in the claim if the expense is necessary – for instance, if a company does not have manpower with sufficient experience. If the company can prove that goods in the company’s stock would have been sold, loss of profit may also be included in the claim for damages. Furthermore, excess may also be included, provided the amount is customary.