Background of the Case
In 2019, Å Energi Vannkraft discovered an unusual noise from a turbine at the power plant. Further investigation revealed water damage to the support structure behind the runner chamber. Expert reports concluded that the support structure had gradually deteriorated due to erosion and corrosion over several years, ultimately leading to the collapse of the runner chamber itself. The entire turbine, including the runner chamber, had to be replaced.
During repairs, the power plant was shut down for approximately two months. The costs for repairs and business interruption amounted to around NOK 77 million, which Å Energi Vannkraft sought to have covered under its insurance policy with Tryg Forsikring.
The company’s energy insurance covered “sudden and unforeseen physical damage occurring during the insurance period.” Since the damage could only be detected shortly before the runner chamber failed, both parties agreed that the damage was “unforeseen.” Experts confirmed that even with thorough inspections, it would have been nearly impossible to detect the damage earlier. However, the parties disagreed on whether the actual collapse should be considered “sudden” physical damage covered by the insurance.
Supreme Court’s Assessment
The question before the Supreme Court was whether “sudden” physical damage had occurred.
The Supreme Court established that internal damage leading to a sudden new event may be covered. In this particular case, however, the Court found that the collapse, viewed in light of the preceding development of damage in the chamber, could not be regarded as “sudden” damage. The gradual progression and successive damages to the runner chamber had to be considered together and as a whole in relation to the insurance terms. In the Court’s view, it was not appropriate to isolate the final—and brief—phase of the incident as a separate event to be assessed independently from the earlier damage development.
As a result, the power plant was not entitled to coverage under the insurance policy.
What Does the Judgment Mean for the Industry?
Renewable Norway, which acted as an intervener for the power plant, emphasized that material fatigue developing over time and suddenly resulting in damage is typical for the power sector. The Supreme Court’s judgment clarifies that such damage is not necessarily covered by standard energy insurance, even if the damage could not have been detected earlier. The outcome is expected to set a precedent for similar insurance cases going forward. This means that power plants will have to bear a greater share of the risk associated with damage not caused by a purely external event, unless the insurance terms are amended.
