High Court considers key co-insurance principles

Construction analysis:

The Technology and Construction Court (TCC) construed the terms of a construction contract to establish that a contractor was not co-insured under an employer’s all-risks project insurance policy. This meant that the employer could seek recovery of its insured losses from the contractor, and a fellow contractor and co-defendant could seek a contribution.

The Rugby Football Union v Clark Smith Partnership and others [2022] EWHC 956 (TCC)

What are the practical implications of this case?

The court in RFU v Conway began by outlining the basic principles that: (i) ‘the law [does] not allow an action between two or more persons who [are] insured under the same policy against the same risk’ (citing Lord Hope in Co-operative Retail Services Ltd v Taylor Young Ltd [2002] UKHL 17), and (ii) insurers who have indemnified one co-insured cannot exercise rights of subrogation against a co-assured (citing Colman J in National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582).

Parties involved in construction projects should note the basic principle considered in RFU v Conway, namely, that liability (for the insured losses) cannot arise between parties who are insured under the same policy in respect of the same loss. All involved parties need to be very clear with one another as to agreed responsibility for, and the scope of, any project insurance, and then ensure that both the contract and any policy wording clearly reflect what has been agreed.

The terms of the contract between two parties determines whether, and to what extent, any insurance cover taken out by one party applies to the other.

What was the background?

The Rugby Football Union (RFU) claimed losses incurred in respect of allegedly defective ductwork installed by FM Conway Ltd (Conway) as part of works to upgrade the Twickenham stadium ahead of the 2015 Rugby World Cup. Conway’s works started on site in July 2012, initially pursuant to a letter of intent, with a contract (JCT 2011 Standard Building Contract without Quantities, with amendments) following in October 2012 (the JCT Contract).

The project works were insured under an all-risks insurance policy, of which RSA was the principal underwriter (the RSA Policy).

The RFU issued a claim against the ductwork designer (Clark Smith) and Conway, alleging defective design and workmanship respectively. Both defendants then sought contributions from one another under the Civil Liability (Contribution) Act 1978 (CL(C)A 1978). Conway argued that the RFU could not claim against Conway for its insured losses because Conway was co-insured with the RFU, and RSA’s rights of subrogation under the RSA Policy had been waived. Further, that without any liability for Conway to the RFU, Clark Smith was not entitled to seek contribution from Conway under CL(C)A 1978.

A preliminary issues trial sought: (i) to clarify whether on a proper interpretation of the RSA Policy and the JCT contract the RFU’s insured losses were (ii)recoverable from Conway, and (ii) then to establish the implications of that decision for any contribution claim by Clark Smith against Conway.

What did the Court decide?

The court held that Conway was not co-insured, as Conway’s cover under the RSA Policy was limited to that required under the JCT Contract, which obliged the RFU to take out insurance to cover Conway in respect of physical loss or damage to the work executed or to site materials, and not for loss flowing from breaches by Conway or any other contractor.

The ‘clear’ principle derived from the authorities is that to determine whether and to what extent an insurance policy applies to other parties beyond the principal insured ‘it is necessary to look to the terms of the contract between those parties. It is those terms which provide the key to the existence and extent of the insurance cover.’

Neither the letter of intent nor the JCT Contract referred to a co-insurance arrangement. Similarly, Conway was not named in the RSA Policy, and whilst the definition of the ‘insured’ included ‘all other contractors and/or sub-contractors …engaged to provide goods or services in connection with the Project insured hereunder…’, the construction of the JCT Contract and the RSA Policy overall indicated that Conway was not co-insured with the RFU in respect of the relevant loss.

A person does not become a party to an insurance contract simply by reason of being named or identifiable as an insured under the policy. Although key witnesses gave evidence that the pre-contract intention had been for the RFU to procure ‘…comprehensive insurance cover creating a fund recourse to which would be “the sole avenue for making good the relevant loss or damage”’, the court was satisfied that the contractual documents themselves reflected a different arrangement.

In answer to the first preliminary issue, there was therefore no restriction on the ability of the RFU to seek recovery from Conway, or on the ability of RSA to exercise subrogation rights. The court did not then need to address the second preliminary issue, although it is worth noting that Clark Smith had already conceded that, if the effect of the RSA Policy was that Conway had no liability to the RFU, then Clark Smith could not seek a contribution from Conway under CL(C)A 1978.

Case details

Court: Technology and Construction Court, Business and Property Courts of England and Wales, High Court of Justice

Judge: Mr Justice Eyre

Date of judgment: 29 April 2022