Legal Q&A: Insurance
Kathryn Moffett, Senior Associate, CMS Cameron McKenna Nabarro Olswang LLP
A CONSTRUCTION or engineering contract allocates risks and liabilities between the parties. The allocated liability may be substantial. Insurance protects the policy holder from loss or damage and it can help the party accepting the risk to discharge its liability in the event it is required to do so.
What is joint names insurance?
Joint names insurance is an insurance policy extension that accommodates the contractual responsibilities of the employer and the contractor. The benefits of a joint names extension include the removal of any need for each party to take out separate policies covering their own responsibilities and eliminates the risk of duplicated insurance arrangements. It also ensures that the named parties cannot claim against one another or cancel the cover without notifying those named.
What happens when my insurance policy provides greater cover than my obligation in the underlying building contract?
The Court of Appeal has recently considered this point in the case of FM Conway Ltd v The Rugby Football Union.
The facts
Ahead of the 2015 Rugby World Cup, the Rugby Football Union (RFU) carried out upgrade works to the infrastructure and facilities at Twickenham Stadium. FM Conway was appointed by RFU to install ducting to house new high voltage power cables. The installation and ‘pulling through’ of those cables was under another package to be carried out by a separate contractor. During that pulling though the ducting installed by FM Conway, the new cables were damaged.
Joint names insurance is an insurance policy extension that accommodates the contractual responsibilities of the employer and the contractor. The RFU recovered the cost of replacing the damaged cables under a project insurance policy. RFU’s insurers then brought a subrogated claim against FM Conway alleging that the damage to the cables had been caused, among other things, by defective installation of the ducting on FM Conway’s part.
The policy was to cover the RFU and the contractor for each project as well as all other contractors and/or subcontractors of any tier and others engaged to provide goods or services in connection with the project. The policy also included a waiver of subrogation clause stating that the insurers agree to waive all rights of subrogation which they may have or acquire against any insured party.
The building contract between the RFU and FM Conway, was a 2011 JCT standard building contract incorporating the JCT’sstandard option C insurance clause. This clause required the RFU to take out a joint names insurance policy on certain terms covering the works. Those works did not include the cables.
The arguments
FM Conway claimed that due to the policy wording it was an insured party and protected from subrogation claims. The RFU’s insurers pointed to the terms of the building contract and argued that FM Conway should only be insured under the policy to the extent required by the JCT insurance clause and that the waiver of subrogation under the policy should only apply to that extent. It said this meant FM Conway was not an insured party in respect of the cable damage claimed by RFU under the policy and that FM Conway could not rely on the waiver of subrogation clause.
The Court of Appeal
As the court noted, co-insurance in the construction industry is common but it has historically given rise to some potentially complex issues, including the nature, scope and effect of such policies
The Court of Appeal highlighted the need to establish the RFU’s intention and its authority to extend cover to FM Conway, given the policy had been taken out by the RFU. In the court’s view, the best evidence of this in relation to the policy came from the building contract and a letter of intent which preceded it. It was clear under these documents that the JCT insurance clause was to apply and that FM Conway was not to be covered in respect of damage caused by its own defective work.
The court found that where a joint names insurance policy was taken out by an employer which provided cover greater than required by the underlying building contract, the contractor was only insured to the extent required under the contract. As a result, the subrogated claim by RFU’s insurers was able to be pursued against the contractor FM Conway in respect of amounts paid to the employer RFU under the policy.
What should you take away from the decision?
As the court noted, co-insurance in the construction industry is common but it has historically given rise to some potentially complex issues, including the nature, scope and effect of such policies. Here the case shows that one should not assume that certain parties are automatically covered by a project-wide joint names insurance policy that has been put in place and the contract terms should be considered carefully. It is the contract, rather than the policy, that will determine the extent of cover.
Kathryn Moffett, Senior Associate, CMS Cameron McKenna Nabarro Olswang LLP
