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Project insurance: are sub-contractors entitled to cover?

  • United Kingdom
  • Construction and engineering - Foundations

06-06-2018

Issues decided

Where a sub-contractor had expressly agreed that it would obtain its own insurance cover in respect of construction works at a school, the court determined whether the sub-contractor was insured under a project-wide insurance policy.

Parties

  • Claimants
    • Haberdashers’ Aske’s Federation Trust Limited – owner and operator of the school
    • The Mayor and Burgesses of the London Borough of Lewisham – owner of the building occupied by the school.
  • First Defendant
    • Lakehouse Contracts Limited (“Main Contractor”) – main contractor for works at the school.
  • Second Defendant
    • Cambridge Polymer Roofing Limited (“Sub-contractor”) – sub-contractor to the Main Contractor.
  • Third Parties
    • (1) Zurich Insurance plc, (2) QBE Casualty Syndicate 386 and (3) CNA Insurance Company Limited (“Project Insurers”) – insurers under the project-wide insurance (“Project Insurance”).

Facts

The Main Contractor for works to refurbish and extend a school entered into a sub-contract for roofing works.

The Sub-contractor was carrying out “hot work” on the roof of the school when a fire broke out causing considerable damage.

It was an express term of the roofing sub-contract that the Sub-contractor would obtain its own insurance cover in the sum of £5 million. At the time of the fire this cover was in place.

The Project Insurance covered among others, the Main Contractor and the Main Contractor’s sub-contractors.

The Claimants issued proceedings seeking damages in excess of £11 million from the Main Contractor and the Sub-contractor. The Main Contractor issued an additional claim against the Sub-contractor seeking a contribution or an indemnity in respect of its liability to the Claimants. The Sub-contractor issued additional claims against the Project Insurers seeking declarations to the effect that it was entitled to the benefit of the Project Insurance and that this was a defence to the additional claim brought by the Main Contractor.

The Main Contractor settled the proceedings against it. The Project Insurers paid the settlement sum of £8.75 million to the Claimants.

The Sub-contractor contended that it was a co-insured party under the Project Insurance policy and was entitled to the benefit of the cover, notwithstanding its own separate insurance cover.

The Project Insurers and the Main Contractor argued that the Sub-contractor was not entitled to the protection of the Project Insurance and that the Project Insurers were entitled to bring a subrogated claim against the Sub-contractor to recover the losses insured by the Sub-contractor under its separate policy.

Decision

The judge found in favour of the Main Contractor holding that the existence of the express term in the roofing sub-contract requiring the Sub-contractor to obtain its own insurance cover, precluded the Sub-contractor, to the extent that it had its own insurance cover, from being entitled to the benefit of the Project Insurance.

The Project Insurers were entitled to bring a subrogated claim against the Sub-contractor for the losses suffered as a result of the settlement and could therefore recover £5 million (the full amount of the insurance cover the Sub-contractor had in place).

Comment

The decision confirms that, where there is an express term placing an obligation on a sub-contractor to obtain specific insurance cover, the sub-contractor will not be covered by any project insurance.

The decision highlights the importance of:

  1. the objective intention of the parties. The express terms agreed by the parties are of particular importance in ascertaining this; and
  2. paying particular attention to insurance provisions in construction projects to ensure they do not overlap in terms of the parties and risks covered.

The decision is likely to result in sub-contractors seeking to exclude insurance provisions from the sub-contracts they enter into, to the extent that they overlap with the cover in place under any project insurance policy, in order to secure their right to the benefit of that project insurance.

Haberdashers’ Aske’s Federation Trust Limited And Others v Lakehouse Contracts Limited And Others [2018] EWHC 558 (TCC)

http://www.bailii.org/ew/cases/EWHC/TCC/2018/558.html

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