It's an all-risks insurance policy! Every single risk is covered! Nothing's left out! It's completely watertight! You can't lose! Unless, of course … Oh dear …
Just two days after the mighty 16-screen Multiplex opened, the suspended ceiling in cinema six fell down. Nobody was hurt – everyone had gone home. Having parted company with the hanger system that bolted it to the roof, the cascade of plasterboard didn't do much good to the rows of brand-new seating; nor any good to the wall finishes, the carpets and of course all the heating and ventilating equipment that ended up on the deck. Not a pretty sight.

AMC, the owner of the building at Great Northern Warehouse, Manchester, then had a word with its main contractor, Galliford Northern. In turn Galliford had a word with its ceiling subcontractor, Horbury. Cinema six was out of use. Unsurprisingly, AMC shut the other 15 cinemas too – their ceilings looked OK, but so had the one in six. Every one of the 3726 cinema seats stayed empty. No income, no profit, big outgoings. Even the popcorn-maker no longer popped. Everyone reached for their insurance policies; especially the one happily called "Contractor's All Risks". You might guess what is coming next; does it cover all risks?

Human nature attracts the eyeball to the firm that built the product that fell down. Be careful about that. Nobody has yet sued the ceiling company. But the nervous installer asked its insurer if the policy covers for all that happened. Hampden Insurance NV soon said no. The All Risks Policy has some gaps. The case Horbury Building Systems vs Hampden Insurance NV is quite useful since this ordinary "builder's" policy is explored and explained by the High Court. It may even lead the industry to have a think about the wisdom of having policies with such gaps.

To find out what cover is really given by the insurance policy, the court was asked to assume that Horbury had carried out the work, or some of it, unskilfully and not in conformity with the contract. For example, take it for now that the wrong washers were used to connect the otherwise very strong ceiling hanger to the otherwise very strong ceiling system. Wrong penny washer … wrong ceiling … disaster.

The policy immediately indicates that it does not indemnify the insured, or anyone else, for re-installing the product. No money is payable for rectifying the ceiling. So, if the subcontractor does go wrong, he pays for the remedy. Do you see the risk that is not covered?

So what is covered? It is cover for liability at law for damages in respect of loss of or damage to property. The insurer says this means it will fork out for what the duff product damaged because of it being duff – thus covering the seats, the walls, the carpets, the ductwork, the lights and so on. It covers any damage done to any part of the building as a whole.

The policy also covers the loss caused by the physical damage to other property. So, if cinema six is physically out of action because of damage, then that auditorium earns no income. So the loss of profit is within the all-risks policy.

The 15 cinemas suffered loss of profit not caused by the duff ceiling; the cause of keeping closed was to see if similar faults existed elsewhere

Things get slightly trickier when considering the other 15 cinemas. The policy gives cover for loss of profit if the cause of the loss is having to actually repair the ceiling. So, if I need to keep the place shut while the washers are changed, the loss is within the policy. But if, as happened in Manchester, the reason for keeping the other cinemas closed was the want of inspection, reports, health and safety and so on, then the policy doesn't cover all that. The reason is down to the word "cause". The 15 cinemas suffered loss of profit and overhead not caused through the duff ceiling; the cause of keeping closed was to see if similar faults existed elsewhere.

So if, repeat if, the ceiling subcontractor did go wrong, its "All Risks" policy is not all risks at all. It will have to dig into its pocket for the gaps in the policy. That's all very well until it runs out of money. Then the main contractor picks up the tab, since it is responsible for the errors and omissions of its subcontractor.

This policy ought to be scrapped.