Whether or not a co-insured has a defence to a subrogated claim depends on the authority and obligations of the parties in the underlying contract between them.
In FM Conway Ltd v The Rugby Football Union and others [2023] EWCA Civ 418 the Court of Appeal has dismissed an appeal by a contractor against a decision that it could be pursued either by the principal or by subrogated claim by the insurer for losses under a co-insurance policy.
The case concerned the design and installation of ductwork to accommodate high voltage power cables as part of a major refurbishment of Twickenham Stadium before the 2015 Rugby World Cup.
The RFU engaged the appellant, Conway, to install the ductwork but the cables were damaged when they were pulled through. The RFU claimed £4.4m for the cost of replacing the damaged cables and rectifying the ductwork, of which £3.3m had been paid by the insurer, RSA, under a policy by which the RFU and Conway were co-insured. At first instance the judge decided that Conway could not rely on the policy as a defence to the claim against it by the RFU or the subrogated claim of RSA.
The effect of co-insurance depends in each case on whether the parties intend to create an insurance fund which will be the sole avenue for making good the relevant loss or damage, or whether the fund co-exists with an independent right of action for breach of a term of the contract which has caused that loss. This is a question of construction of the particular contract Gard Marine Energy Ltd v China National Chartering Co Ltd and another [2017] 1 WLR 1793. The fact that the RFU and Conway were insured under the same policy did not of itself mean that they were covered for the same loss or could not make claims against each other.
The judge, following the approach set out in Gard Marine, paid particular attention to authority and intention in the contract between RFU and Conway, which comprised an initial letter of intent, the subsequent building contract and the policy. He concluded that the RFU’s authority to insure was co-extensive with its obligation to do so in respect of all risks cover for existing structures and contents and nothing more. There was no extraneous evidence of authority and intention for anything wider. Insurance in respect of the cost of rectifying damage caused by Conway’s own defective works was excluded. The Court of Appeal found no fault with the decision.
Louise Clark is a property law consultant and mediator
