Joint insurance is regularly used in the contraction industry and is a standard insurance option in JCT contracts. However, parties rarely consider the extent to which cover is provided for each individual insured party. For example, where both parties are insured under the same policy, does this mean that both parties are equally covered to the same extent as co-insureds for the same risks?
This was considered in the recent case of The Rugby Football Union v Clark Smith Partnership Limited and FM Conway Limited [2022] EWHC 956 (TCC) (“RFU v Conway”). In this case, one of the defendants, FM Conway Limited (“Conway”) (a contractor), put forward a coinsurance defence on the basis that they were jointly insured under the same project policy as the claimant (employer) and therefore, were not liable to the claimant for the losses being claimed. The Technology and Construction Court (“TCC”) undertook a detailed review of the relevant authorities in this area in coming to its decision.
This blog post will look at key points raised in RFU v Conway, including the court’s approach to assessing the extent of cover for individual parties under a joint insurance policy and how this was applied in the context of a JCT Option C insurance obligation.
Background
- The Rugby Football Union (“RFU”) engaged Clark Smith Partnership Ltd (“Clark Smith”) to design cable ducting and Conway to install the ducting as part of the upgrade works carried out at Twickenham Stadium in advance of the 2015 Rugby World Cup. Conway was initially engaged via a Letter of Intent, but subsequently signed a JCT contract which included Insurance Option C.
- RFU procured a project insurance policy (“the policy”) from Royal Sun Alliance (“RSA”), which included Conway within a category of parties to be insured under the policy.
- RFU contends that there were defects in the ductwork design and installation which caused damage to the cables when they were pulled through it, leading to losses of c. £3.3m, being the cost of replacing the damaged cables and c. £1.1m as the cost of rectifying the ductwork itself.
- RFU was indemnified by RSA under the terms of the policy in respect of the replacement and related costs of £3.3m. RFU brought a claim against both Clark Smith and Conway in respect of these losses. Clark Smith and Conway each brought contribution claims against each other (on the basis that they were each liable for the same damage).
- Conway argued that it was an insured party under the policy for the losses claimed and for which RSA had already indemnified RFU. As such, Conway’s position was that it had no liability to RFU in respect of those insured losses, as they were both co-insured parties under the same policy.
- It followed that if this were the case, then Conway could also not be liable to Clark Smith by way of contribution, as it was not liable to RFU for the same damage.
The court’s approach
The court directed this matter to be heard as a preliminary issue, to determine whether Conway was liable to RFU for the losses, where there was a joint insurance policy which provided cover for those losses.
The court noted the starting principle that “the law [does] not allow an action between two or more persons who [are] insured under the same policy against the same risk” (Co-operative Retail Services Ltd v Taylor Young Ltd [2002] UKHL 17).
If Conway was right, the policy would effectively be an insurance fund, “recourse to which would be the RFU's sole redress in the event of loss caused by a contractor who was covered by the proposed policy”. Conway would have no separate liability to RFU for such loss.
The court accepted that Conway was an insured party under the policy. However, this was not in itself an answer to the argument. The court stated that “A person does not become a party to an insurance contract simply by reason of being named or identifiable as an insured and when a person becomes a party as a consequence of the actions of another person then the terms of the contract between the insured party and that other govern the extent of the insurance”. In this case, the terms of the underlying JCT contract were relevant in deciding the extent to which Conway was insured under the policy.
The JCT contract between the parties included Insurance Option C (without amendment) which required the employer to take out joint insurance for specific losses and/or risks. The JCT contract also contained various clauses setting out the risks and responsibilities of the parties – including obligations by the contractor to comply with various requirements and its liability for defective works. In this case, the JCT contract had been entered into three months after the policy had been taken out. The court considered that if the parties had intended for the cover provided by the policy to go further than as set out in the JCT contract and/or for the policy to alter the liabilities of the parties under the JCT contract, then this should have been expressly set out in the contract itself - particularly given the timing of the contract and the fact that it had been negotiated by the parties and contained various other amendments.
The conclusion
The court held that while Conway was insured under the policy, it was clear, by reference to the JCT contract, that the intention was for RFU to take out a single insurance policy providing cover to all contractors on the project in accordance with Option C of the JCT contract. The court noted that this is a common approach which avoids the employer relying on various contractors being covered by a multiplicity of insurance policies taken out with different insurers and on different terms, leaving the potential for gaps in insurance in the event of damage. But it was not intended to be RFU’s sole remedy in the event of a breach or other default by Conway, or any other contractor insured under the policy.
The court agreed that the policy insured both RFU and Conway, but crucially, the court held that they were not insured to the same extent in respect of the same risk. In particular, they were not co-insured in respect of the losses claimed by RFU, due to Conway’s alleged breach of contract and for which RFU had been indemnified by RSA.
Therefore, it was open for RFU/RSA to bring a claim against Conway for those losses and it was similarly open to Clark Smith to claim a contribution.
Key takeaways
- Insurance is often only considered by the parties quite late in the contractual negotiation process and does not perhaps always attract the level of scrutiny given to other areas of the contract.
- When joint policies are used, the parties need to be clear about the extent of cover being provided for each party. If such cover is intended to change the liabilities of the parties in the underlying construction contract, then this needs to be clearly stated within the contract itself.
- Remember, just because parties are jointly insured under a policy, this does not mean that they are both co-insured for the same risks. Contractors in particular need to be aware that joint "all risks" or "project" insurance policies taken out by an employer do not absolve them from their contractual liabilities. Therefore, parties need to ensure that they have the relevant insurance in place to cover their own liabilities under or in connection with any construction contract, in addition to any joint policies which may be in place.
Ultimately, the cover afforded to each party under a joint insurance policy will depend on the terms of that policy and those of the underlying contract. Parties need to take time to agree and understand the level of cover being proposed in any joint policy at an early stage, to avoid the risk of facing an unexpected (and potentially uninsured) claim further down the line.
Claire Perry