Vee H Aviation Pty Limited v Australian Aviation Underwriting Pool Proprietary Limited [1996] ACTSC 123 (20 December 1996)

SUPREME COURT OF THE ACT

VEE H AVIATION PTY LIMITED v. AUSTRALIAN AVIATION UNDERWRITING POOL
PROPRIETARY LIMITED
No. SC61 of 1995
Number of pages - 16
Insurance

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY HOGAN AJ

CATCHWORDS

Insurance - indemnity - breakdown policy - aircraft engine - "sudden and unforeseen damage" - "extra expenses" - gradually developing defects - discovered during routine inspection - repair necessary before use - "immediate stoppage" - reasonable precautions.

Insurance Contracts Act 1984 (Cth), s9(3) Sun Alliance & London Insurance Group & Ors v North West Iron Co Ltd & Ors [1974] 2 NSWLR 625 Albion Insurance Co Ltd v Body Corporate Strata Plan 4303 [1983] 2 VR 339

HEARING

CANBERRA, 29, 30 October 1996 20:12:1996

Counsel for the Plaintiff: Mr G C Lindsay SC with Mr E R Romaniuk

Instructing solicitors: Elrington Boardman Allport

Counsel for the Defendant: Mr J Langmead

Instructing solicitors: Minter Ellison

ORDER

THE COURT ORDERS THAT:
1. Judgment be entered for the defendant. 2. The plaintiff pay the defendant's costs.

DECISION

HOGAN AJ
1. The plaintiff company sues for an indemnity pursuant to an Aircraft Engine Breakdown Policy of insurance issued by the defendant.

2. The policy was issued on 20 October 1993, effective from 30 June 1993, for the period to 30 June 1994. The engine insured by the policy was a Garrett type 331-8 turbo prop engine, fitted to the plaintiff's Cessna Conquest 441 aircraft.

INDEMNITY
3. The material words of the grant of indemnity were as follows, THE UNDERWRITER HEREBY AGREES that if during the Period of Insurance ... there shall occur any Breakdown (as hereinafter defined) of any Aircraft Engine described in the Schedule hereof the Underwriter will subject to the Terms, Definitions, Exception and Conditions contained herein or endorsed hereon indemnify the Insured against: The Cost of Rectification of (a) Loss, Destruction of [sic] Damage to Aircraft Engine/s including labour charges incurred caused by breakdown. (b) Extra Expense incurred by the Insured to maintain operation of the aircraft following breakdown of Aircraft Engine. The Underwriter shall not, however, be liable to indemnify the Insured under Section (b) of this Policy unless an admissible claim has been made under section (a) of this Policy or could have been made but for the application of any excess hereunder. PROVIDED THAT the total Liability of the Underwriter shall not exceed the Limit of Liability as stated in the Schedule or such other sum as may be substituted therefor by endorsements of memorandum hereon or attached hereto signed by the Underwriter.

DEFINITIONS
4. The following relevant Definitions were set out in the policy, 1. "BREAKDOWN" shall mean sudden and unforeseen damage resulting from (a) Breaking seizing or burning out of Aircraft Engine parts, vibration, maladjustment, misalignment, loosening of parts, defective lubrication, abnormal stress, fatigue, centrifugal force, self heating, defective lubrication systems, excessive electrical current or voltage, failure of insulation, short circuit or arcing. (SECTION A) (b) Failure of protecting, measuring or regulative devices or failure of or failing in connected equipment of any Aircraft Engine. 2. "EXTRA EXPENSES shall mean (a) The reasonable extra cost of temporary repair and of expediting the repair of any damaged Aircraft Engine, including overtime, and extra cost of express delivery or other rapid means of transportation. (SECTION B) (b) The hire of a replacement Aircraft Engine. (c) Any other reasonable expense incurred by the insured in an attempt to minimise the quantum of a loss hereunder. Provided that the Extra Expense does not exceed 20 per cent of the said rectification cost. 3. "AIRCRAFT ENGINE shall mean all integral parts of the engine proper with its mountings and all other parts forming a complete unit including gear box(ex), propeller hub/constant speed unit, ignition system, fuel systems, exhaust systems, control cables, wiring, tubing, mounting frames and cowlings.

EXCEPTIONS
5. The policy contained, amongst others, the following relevant exceptions, This Policy does not cover:- 1. Damage due to: 1.1 fire, lightning or extinguishing of a fire; ... 3. Gradually developing flaws, defects, defective insulation and cracks or partial fractures or distortions in any part which do not cause immediate stoppage and necessitate repair or replacement, although at some future time repair or replacement of the parts affected may be necessary: wastage of material or the like or wearing away or wearing out of any part of the Aircraft Engine caused by or naturally resulting from ordinary usage or working or other gradual deterioration; renewal of fuels, chemicals, lubricants, oil, refrigerant and similar operating materials. 4. Repair or replacement necessitated by wear, corrosion, erosion, deposits of scale, sludge or other sediment or any other direct consequences of progressive or continuous influences from working, atmospheric or chemical action, rust or scratching of painted or polished surfaces. ... 6. Damage caused by or arising out of: ... 6.2 the Aircraft not being operated in accordance with the Aircraft Operating Handbook and/or Operations Manual. ... 6.7 the Aircraft not being maintained to Operators, Manufacturers and/or Certificate of Airworthiness Document requirements.

CONDITIONS
6. The policy was subject to the following relevant conditions, 2. The Insured shall take all reasonable steps to ensure that: 2.1 each Aircraft Engine is maintained in good working order and is not habitually or intentionally overloaded unless such overload is performed for the sole purpose of safeguarding life and/or property. ... 2.3 all other reasonable precautions are taken to prevent the occurrence of Breakdown. ... 12. The due observance and fulfilment of the terms, conditions and endorsements of this Policy insofar as they relate to anything to be done or complied with by the insured and the truth of the statements and answers in the said Proposal shall be conditions precedent to any liability of the Underwriter to make any payment under this Policy.

SUPPLEMENTARY CONDITIONS
7. There was also the following relevant supplementary condition, 1. Where the damage shall be discovered during the course of a routine inspection of the Aircraft Engine, the Underwriter shall not be liable for the cost of opening, closing, dismantling or re-assembly of the Aircraft Engine.

INSURANCE CONTRACTS ACT 1984
8. It was common ground between the parties that the insurance was in respect of an aircraft engaged in commercial operations, so that, pursuant to s9(3) of the Insurance Contracts Act 1984 (Cth), the provisions of that Act did not apply to the policy in such a way as to prevent the policy from operating according to its terms and in accordance with the Common Law.

THE ENGINE
9. The basic structure of the engine is relatively simple. It is a turbine, powered by the combustion of a mixture of fuel and air. The shaft of the turbine rotates at a speed considerably in excess of the operating speed of the propeller that is driven by it.

10. Behind the propeller, therefore, is a reduction gear box, through which the rotational energy of the turbine shaft is transmitted at a lower speed to the propeller shaft. The turbine shaft rotates at over 40,000 revolutions per minute, the propeller at about 2,000rpm.

11. The air inlet is below the gear box and feeds air into a two stage centrifugal compressor, the rotating blades of which are mounted on the turbine shaft.

12. That compressor forces air under pressure into an annular combustion chamber, into which fuel is introduced under pressure, through nozzles which are designed to convert it from a liquid to a fine spray. Around the combustion chamber there are five fuel nozzles attached to the primary manifold and ten attached to the secondary manifold. The mixture of fuel spray and air is ignited by ignition plugs in the combustion chamber and flows at high speed through the blades of the three stage turbine attached to the turbine shaft causing it to rotate. At each stage of the turbine, the gases are directed at the correct angle on to the turbine blades by fixed guide vanes. The spent gases are exhausted at the rear of the engine.

13. The compression section is sometimes referred to as the "cold section", while the "hot section" comprises the combustion and turbine sections.

THE DAMAGE
14. The engine did not fail during operation. In November 1993 it was removed from the aircraft for routine inspection of the hot section and gear box.

15. The plaintiff sought a number of admissions from the defendant which succinctly set out material facts that are not in dispute. A summary of the admissions is as follows, 1. Since 1988 Vee H Aviation has owned and operated a Cessna Conquest 441 aircraft registered number VH-IJQ. 2. At all material times the port engine of that aircraft was a Garrett type TPE 331-8-402-S and bearing serial number P31368. 3. The port engine was removed from the aircraft in the course of a normal routine inspection of the hot and the gear box sections on the engine on or about 6 November 1993. 4. At all material times the manufacturer's inspection recommendation for the hot section of the engine was that it occur every 1400 to 1600 hours of operation. 5. At the time the hot section was inspected (on or about 15 November 1993) the engine had performed 1592 hours of service since its last inspection. 6. At all material times the manufacturer's inspection period recommendation for the gear box was that it occur every 2900 to 3100 hours of service. 7. The gear box inspection conducted on or about 15 November 1993 was conducted after 3070.5 hours of service. 8. At the time of the engine inspection and removal from the aircraft on or about 15 November 1993 no degradation of performance had been observed or reported. 9. Prior to the engine being removed from the aircraft on or about 15 November 1993 a ground performance run was carried out and all parameters were shown to be normal. ... 11. On inspection on or about 15 November 1993 the engine was found to have suffered damage to the hot section, the gear box and compressor. 12. The hot section distress noted during inspection of the engine on or about 15 November 1993 was that: (a) *1 nozzle guide vane had major burn through and heat distress on the vanes. (b) *1 turbine rota [sic] had major heat distress on the blade. (c) *2 nozzle guide vane had major erosion on the guide vane. (d) *3 nozzle guide vane had major erosion on the guide vane. (e) *3 turbine rota had cracks ammoniating [sic] from the hub. (f) The baffle adjacent to *1 turbine rota had been chafing on the rota [sic] with loss of connecting shimming. (g) On testing the fuel nozzle showed definite problems by way of poor spray pattern. 16. The inspection of the gear box conducted on or about 15 November 1993 noted:- (a) The interior of the gear box area was black and a dark stain. ... (c) Planet gear carrier wear and cracks at attach holes. (d) Compressor discharge air cross over duct were by way of loose assembly rivets [sic]. ... 18. Following inspection on or about 15 November 1993 part of the gear box assembly of the aircraft was sent to Hawker De Havilland Limited Bankstown in NSW for testing. 19. The gear box underwent a breakaway torque check on the sun-bull gear retaining nut on or about 19 January 1994. 20. On or about 19 January 1994 the breakaway torque of the retaining nut was recorded at 25 feet/lb. 25. Upon discovery of damage to the hot section and the gear box sections during the inspection on or about 15 November 1993 the engine was required to have repairs effected to return it to service. 26. Engine repair was a necessity before the engine could be resembled [sic] and the engine placed back in service.

16. Mr Sarkies is the plaintiff's maintenance controller. He is a licensed aircraft maintenance engineer, with relevant expertise in the operation and maintenance of engines of the type in question.

17. In a report dated 16 November 1993 he set out the damage that was found on inspection as follows, ENGINE T.S.O.: 3070.5 hours/3329 cycles REASON OF TEARDOWN INSPECTION:
Routine hot section inspection Routine gear box inspection

MAJOR DAMAGE FOUND:
Hot section distress Overall gear train wear Planet gear carrier damage Compressor discharge air cross over duct wear HOT SECTION DISTRESS:
*1 nozzle guide vane has major burn through and heat distress on the vanes *1 turbine rotor has major heat distress on the blades *2 nozzle guide vane has major erosion on the guide vanes *3 nozzle guide vane has major erosion on the guide vanes *3 turbine rotor has cracks emanating from the hub The air baffle adjacent to the *1 turbine rotor has been chaffing on the rotor through loss of correct shimming probably as a result of excessive heat build up and warpage OBSERVATIONS:
The fuel nozzles were flowed at Pacific Aviation's facility and currently show definite problems by way of poor spray patterns (uneven, streaking and drooling of fuel as opposed to an even fuel spray cone). These nozzles have been in service roughly for 320 hours since last clean and test. The Garret recommended testing interval is 400 hours. GEAR BOX DISTRESS:
- Excessive overall wear to entire gear train - Planet gear carrier wear and cracks at attach holes - Compressor discharge air cross over duct wear by way of loose assembly rivets OBSERVATIONS:
The interior of the gear box area shows up quite blackened and dark stained.

18. Mr Sarkies concluded at the time that it was more likely that the hot section distress had been caused by a build up of carbon on the fuel nozzles, causing them to become inefficient. He expressed the same view in his cross-examination. He agreed that a carbon build up on the nozzles was something that simply occurs with use.

19. The experts called by the defendant agreed.

20. Similarly, the experts were all agreed that the damage to the gear box section resulted from vibration. None of them were prepared with any confidence to identify the cause of the vibration.

21. I agree with the submission of counsel for the defendant that there were two competing theories. One was that because of the damage that had been done to the rotating mass of the turbines in the hot section, there was an imbalance that was transferred through to the gear box. The other was that there had been some propeller imbalance.

22. During cross-examination Mr Sarkies gave the following evidence, Now, I am going to put to you some general descriptions of the nature of the damage in toto to this engine. That is the hot section, the cross-over duct in the compressor and the gears in the gear box and associated parts. It would be fair to describe them as gradually developing flaws, would it not, as distinct from something that happens in a split second?---It wasn't broken. But, the question is, it would be fair to describe them as gradually developing flaws?---I can't tell you because I've not seen inside the engine other than when the engine was pulled apart. So I can't tell you that it has been developing a problem. Well, you've seen Mr Lewis saying that in respect of the gear box it probably happened over hundreds of hours, you are of the view that certain damage could have happened over thousands of hours this morning. I am just simply putting to you as a general proposition that that is a fair general description as an engineer that you could apply to say that these were gradually developing flaws to be contrasted with a gear that flies apart or a nut that lets go or something that breaks?---Okay, yes, that's fine. Now, it would also be fair to describe the damage to - I will break this up - the hot section as wearing away by virtue of the heat action of the fuel mixture and the consequent wearing out of those parts as a result?---Mm. And it would be fair to say that that wearing out was caused by the ordinary usage or working of the engine?---Yes. Because it was not as though there was a prop strike or a blade flew off. It was - whilst it had the streak, the nozzles, it wasn't the perfect pattern, it was still the normal working of the engine and as identifiable from the cockpit it was working perfectly, was it not?---But the parts didn't actually wear out did they. They had major wear as opposed to wearing away or wearing out. So they didn't effectively wear out and were underneath limits or anything. Wearing beyond tolerance, perhaps, would you prefer?---Yes, that would probably be a better way to put it. Now, it is also fair - and I appreciate that these terms would apply to different components, but to describe the parts that had to be replaced as suffering from wear, corrosion or erosion, would it not?---Yes, the parts did suffer from that. In fact those three terms would probably cover all of the damage to the engine in respect of which the insurance claim is made, would it not?---Wear and erosion. Take the word corrosion out it tends to give people the feeling that, you know, we have got something sitting around and rusting away which is not quite the way it is. So, I will modify that and I will put this proposition to you, Mr Sarkies. Would it be fair to describe all this damage as being either the result of wear or erosion?---Mm. And of course that could fairly be said to be the consequence of the continuous influences - by influences I am referring torque pressures, chemical action, heat. All of the forces at work in an engine that could be said that the progressive and continuous influences within that engine caused that wear and erosion? Do you agree with that?---Yes, I do.

WAS THERE A BREAKDOWN? 23. The first question to be decided is whether the event happened which was required by the terms of the policy to bring the indemnity into operation, or, more simply, had there been a breakdown as defined in it.

24. That there was damage is obvious. That it resulted from one or more of the causes listed in paragraph (a) of the definition of "Breakdown" is also clear.

25. It was undoubtedly unforeseen. But I am unable to see that in any meaningful sense of the word could it be called "sudden".

26. Counsel for the plaintiff submitted that Sheppard J in Sun Alliance & London Insurance Group & Ors v North West Iron Co Ltd & Ors [1974] 2 NSWLR 625 at 630 construed "sudden" to mean "unforeseen and unexpected", and that it should be so construed in this case.

27. I do not agree with that submission. In the policy that Sheppard J was construing, "Breakdown" was defined to mean the actual breaking of a part of the machine, ...causing sudden stoppage of the functions thereof and necessitating repair or replacement before it can resume working. The machine did not cease to function during use. As a periodic inspection a crack was found which had been caused by metal fatigue. Once the crack was discovered, the machine could not be safely operated until the defect had been cured.

28. His Honour pointed out (at 629) that it is important to note carefully the words used in the definition. The word "stoppage" was used, not "stopping". Secondly, the stoppage referred, not to the machine, but to the functions of the machine.

29. In the present policy, it is the damage that must be sudden. The definition clearly contemplates that the cause of the damage may be something that has been taking place over a period of time, such as the wearing out or loosening of a part, or fatigue. In those circumstances it is not necessary to construe the word "sudden" to mean merely "unforeseen and unexpected" to give commercial reality and purpose to the policy.

30. Definitions of "stoppage" are not to the point in this part of the case.

31. "Sudden", to my mind, is to be contrasted with "gradual". Synonyms are "abrupt" and "quick". It is often a connotation of the word that the event it describes should be "unforeseen", or "unexpected", or "without warning" but those words, alone or in conjunction, do not express its denotation.

32. An event may be sudden even though it is foreseen and expected. Engineers testing materials for resistance to stress might be able to predict almost to the second when a particular sample will fail, but, because the material is of a particular molecular structure, when it does fail it will fail suddenly. Other materials may gradually deform and slowly fall apart, but just as predictably.

33. In the ordinary, every day meaning of the word, "sudden" is not the same as "unforeseen and unexpected".

34. The definition of Breakdown used in this particular policy required that the damage, as distinct from the cause of it, should be both sudden and unforeseen. That requirement is not tautologous. The words have different meanings, and the requirements that they express are cumulative.

35. The admissions that, until the engine was removed from the aircraft no degradation in its performance had been observed or reported, and that just before the removal a performance test had shown no sign of abnormality, merely demonstrate that the damage was, until then, undiscovered. Simply because it had been undiscovered does not mean that it was sudden.

36. Once it was discovered it had to be repaired. Had the terms of this policy been the same as those being considered in Sun Alliance, the stoppage resulting from the necessity to repair would have been sudden and would have given rise to indemnity.

37. But in this case it was the damage that must be shown to have been sudden, not the stoppage.

38. The supplementary condition contemplates that the damage may be discovered during the course of a routine inspection. That is quite consistent with the meaning given to the word sudden. The damage that must be sudden is damage to the aircraft engine, which is defined to mean all its integral parts. It may be quite demonstrable, when the routine inspection takes place, that some part of it has been damaged, and that the damage had been sudden, resulting, for example from metal fatigue, and yet the engine had appeared till the inspection to be operating normally. The supplementary condition is simply to relieve the insurer of the burden of paying for costs of routine inspection, which would have been incurred in any event, simply because when the inspection took place, damage as defined was discovered.

EXCEPTIONS
39. By paragraph 9 of the amended defence, the defendant relied upon a number of the exceptions expressed in the policy.

(a) Fire - Exception 1.1 40. In the context in which it appears, I think it is clear that "fire" in exception 1.1 was not meant to include damage resulting from the processes of combustion which were an essential part of the functioning of the machine.

(b) Gradually developing defects - Exception 3 41. It is clear from what I have already said that, in my view, the damage found on inspection was due to gradually developing flaws and defects. But it is in the construction of this part of the policy that the decision of Sheppard J in Sun Alliance may be in point, although the word here is "immediate", and not "sudden", and here there is no mention of what it is of which there is to be a stoppage, whereas in that case the whole phrase was "stoppage of the functions thereof". Once the flaws and defects were discovered, it was necessary immediately to stop using the engine, and to repair it and replace the damaged parts.

42. An alternative, and probably more sound, analysis is to note that there are excluded from cover under the policy a number of things listed and numbered 1 to 11.

43. Number 1 is damage due to various causes. Number 2 is damage resulting from a number of things. Similarly paragraphs 5, 6 and 9 refer to damage variously caused. Paragraphs 8, 10 and 11 refer to various types of loss.

44. What are excluded by clause 3 are gradually developing flaws, defects, defective insulation and cracks or partial fractures or distortions in any part. It does not refer to damage resulting from those conditions or states of the part. The clause contemplates that the defect in the part may be such as will need to be repaired or replaced at some future time. Even if that future need is obvious, the policy does not cover it.

45. On the other hand, if the state of the part is such as to cause immediate stoppage and necessitate repair or replacement, it is not excepted from cover.

46. It does not follow, however, that in those circumstances, the cost of repair or replacement is recoverable.

47. It is still necessary to bring what has happened within the description contained in the grant of indemnity. There must be, in order to attract liability in the insurer, not only immediate stoppage and necessary repair or replacement, but sudden and unforeseen damage resulting from one of the causes in paragraph (a) or (b) of the definition of breakdown. So far as the definition refers to "parts", there must be breaking, seizing or burning out of the part, or its loosening, which leads to damage which can properly be described as sudden as well as unforeseen.

48. It may be that defects in parts of the first kind, where postponement of repair or replacement to some time in the future is possible, may never be capable of causing breakdown in the defined sense. If that is so, I would regard that part of the exception as having been included for greater caution, not as governing the interpretation of the grant of indemnity.

49. But, in any event, the defects in the relevant parts, even though they did develop gradually, did cause immediate stoppage and necessitated repair or replacement, and the plaintiff's claim, if it were within the grant of indemnity, would not be defeated by this particular exception.

(c) Wear, corrosion etc - Exception 4 50. Repair or replacement of the gear box parts was obviously necessitated by wear, and of the hot section parts by wear and erosion, as was fairly conceded by Mr Sarkies. I would so have held even if he had not conceded it. The erosion of the hot section parts was itself a direct consequence of progressive influences from working, atmospheric or chemical action, namely the gradual build up of carbon on the fuel nozzles.

51. I am therefore satisfied that the claim is excluded by exception 4, even if it be held that it would otherwise come within the grant of indemnity.

(d) Failure to maintain - Exception 6.7 52. There was some evidence that it would have been prudent for the plaintiff to have serviced the fuel nozzles at shorter intervals to guard against carbon build up considering the type of operation of the aircraft. I am not satisfied that the plaintiff was in any way at fault in that regard. But in any event, exception 6.7 refers to a failure to maintain to the requirements of operators, manufacturers and/or certificate of airworthiness documents. I am not persuaded that there was any such failure, and the claim would not be defeated by this exception.

BREACH OF CONDITION
(Paragraphs 7 and 8 of Amended Defence) 53. The defendant relies upon a breach of condition 2, alleging that the plaintiff failed to take all reasonable steps to ensure that, (a) the engine was maintained in good working order; and (b) all other reasonable precautions were taken to prevent the occurrence of breakdown.

54. By clause 12, the due observance by the plaintiff of that condition is a condition precedent to the liability of the defendant to make any payment under the policy.

55. In construing this condition, "reasonable" means reasonable as between insured and insurer, having regard to the commercial purpose of the contract. The condition requires that the plaintiff should not deliberately court a perceived danger by refraining from taking any adequate measures to avert it. See Albion Insurance Co Ltd v Body Corporate Strata Plan 4303 [1983] 2 VR 339.

56. Particulars of the breaches alleged may be summarised as follows, (a) not servicing the fuel nozzles at 200 hours, but at 320 hours; (b) not carrying out adequate propeller balance checks; (c) not carrying out adequate trend monitoring of engine performance; (d) not changing the engine oil at 800 hours. At 15 November 1993, the oil was 366 hours overdue for replacement; (e) not carrying out adequate SOAP oil testing.

(a) Fuel Nozzles 57. The fuel nozzles had in fact been serviced 308 hours before the inspection.

58. The manufacturer's requirement was that they be serviced at 400 hour intervals.

59. The defendant called evidence from Mr Shapanis, an expert whose practice it was to service at least the primary nozzles at 200 hours. Mr Hopkins, the loss assessor, said 250 to 350 hours was common.

60. Mr Sarkies, after this inspection, tried servicing at 200 hour intervals, without perceiving any benefit, and returned to 400 hours. This was the only occasion on which any problems were encountered with the nozzles.

61. I am satisfied that the plaintiff did not perceive any danger in servicing the nozzles at 400 hours, in accordance with the manufacturer's recommendations. Even if it might have been prudent to have serviced them a shorter intervals, because of the short flying periods that were common for the particular aircraft, it is clear that the plaintiff did not in fact have that prudential opinion. There was no perceived danger to be courted.

(b) Propeller balance 62. Mr Shapanis said that a period for propeller balance checks of 400 hours was prudent. Mr Hopkins suggested between 400 and 600 hours, and whenever any work was done on the propeller. There is no manufacturer's recommendation. Mr Sarkies, after this incident, instituted a precautionary system of 500 hour checks. Before, the subject inspection checks had been done when a need was perceived. The log books showed figures of 443, 204 and 628 hours as examples.

63. Again, I am satisfied that the plaintiff did not perceive any danger in its system of propeller balance checks and was not deliberately courting any perceived danger.

(c) Trend monitoring 64. Pilots record a lot of information about engine performance as a matter of routine. It was suggested that the data should have been collated and analysed to see whether it showed any significant trends. The plaintiff did not have any system of doing such an analysis. Mr Sarkies could not see the value of going to the trouble of doing so, at any rate without the aid of computer software. The manufacturer did not provide software for this engine. I do not think that failing to do so was a failure to take a precaution that was reasonably required as between insurer and insured. There is no evidence of any particular danger against which it would have guarded.

(d) Oil change 65. The manufacturer specified that oil changes should take place at 800 hour intervals or less. When the plaintiff took over the maintenance of the engine, 1,166 hours had expired since the last change. The plaintiff cannot be blamed for that. I am satisfied that it did comply with the requirement for oil changes at the specified periods.

(e) SOAP testing - Particular 8(g) 66. The evidence is that this type of testing was carried out for the plaintiff by Mobil, which might be expected to have relevant expertise. The test results were scrutinised by the plaintiff. At the end of the case, there was no evidence that the plaintiff failed in any way in this respect, and I did not understand counsel for the defendant to press it in his final submissions.

(f) High frequency vibration - Paragraph 18 67. The amended defence also alleged four matters which were said to be operational factors within the control of the plaintiff, each constituting a breach of the same condition as pleaded in paragraph 8.

68. They may be shortly disposed of. The experts were unable to identify the cause of the high frequency vibration which probably caused the wear in the gears and crossover duct. To my lay mind, the explanation proffered by Mr Hopkins, the loss assessor, seemed the most likely, namely, that the erosion of the parts in the turbine resulted in some imbalance and caused high frequency harmonic vibration.

69. At the end of the case, however, there was simply no evidence that the aircraft had ever been operated with extreme propeller pitch or with the engine at anything other than its proper torque setting. The only evidence was that there had been no propeller strike and the de- icer boot had not been lost in flight.

70. The high frequency vibration did not result from any failure by the plaintiff to take reasonable steps or reasonable precautions, in the sense in which those phrases are used in the condition.

71. If the plaintiff has a claim for indemnity, it is not defeated for breach of any condition.

QUANTUM
72. During the hearing, the items on which money was spent in repairing the engine were analysed and, by agreement between the parties, the cost of some parts and some services were excluded as not being claimable under the policy. The details are set out in Exhibit C and were ultimately not contested. If the plaintiff were entitled to indemnity, the cost of rectification would be $118,454.67.

73. The plaintiff also claimed extra expense which it incurred to maintain operation of the aircraft following breakdown of the aircraft engine. That expense took the form of the hire of another engine for the period during which the insured engine was being repaired. That time was considerably lengthened by the investigations and negotiations that took place, in an attempt to discover the causes of the damage, and to persuade the manufacturer to contribute.

74. The definition of "Extra Expense" includes the hire of a replacement aircraft engine, but includes a proviso that the extra expense may not exceed 20% of the rectification cost. In this case, therefore, the maximum hiring cost recoverable is $23,691.00.

75. The defendant submits that the four weeks for which a rental engine would have been required in any event, because the damage was discovered at a routine inspection, should be deducted.

76. I do not agree with that submission. The definition section provides that "Extra Expense" means (a), (b) and (c). One does not start, therefore, with the concept of "extra" and include only those elements that meet that description. The clause gives its own meaning to the phrase "Extra Expense", and one element of that meaning is, simply, "the hire of a replacement aircraft engine".

77. I am satisfied that the plaintiff expended more than $23,691.00 on the hire of a replacement engine.

78. The policy does not cover, however, the cost of expert assessment for insurance purposes, as claimed by the plaintiff.

79. The plaintiff concedes that the policy provides for a deductable amount of $15,000.00.

80. If the plaintiff were entitled to indemnity, therefore, the amount recoverable would be made up as follows, Repair costs $118,454.67 Extra expense 23,691.00 142,145.67 Less deductable 15,000.00 Total indemnity $127,145.67

81. Indemnity had been refused by 31 October 1994. Interest on that sum, from that date to the date of this judgment, at 10% in accordance with the practice direction, is $25,248.00.

82. If the plaintiff were entitled to judgment, it would therefore be for $152,393.67.

83. I direct the entry of judgment for the defendant. I order the plaintiff to pay the defendant's costs.