Building contract — Insurance — Liability for negligence — Respondent employing appellant contractor for refurbishment work — Contract requiring respondent to take out insurance policy in joint names — Fire damaging building — Whether damage covered by policy — Whether appellant liable if fire caused by negligence of subcontractor — Appeal allowed
The respondent employed the appellant as a contractor to carry out refurbishment work to a public house in Reading. The contract was on standard form IFC 84. It provided, in clause 6.3C.1, that the employer should take out insurance in the form of a “Joint Names Policy”, in the names of itself and the contractor, to cover against damage to the existing structure from a number of “Specified Perils”. Under clause 8.3, these perils were to include fire. Clause 6.1.2 of the contract was a liability and indemnity clause. This permitted the employer to recover certain losses from the contractor, including damage “due to any negligence, breach of statutory duty, omission or default by the Contractor, his servants or agents, or any person employed or engaged by the Contractor”. Where the employer undertook to take out insurance, that liability excluded “loss or damage to any property required to be insured thereunder caused by a Specified Peril”. In the event, the respondent failed to take out the insurance policy, and, during the refurbishment, a fire damaged the existing building of the public house.
The respondent brought a claim for damages against the appellant, relying upon clause 6.1.2. In its defence, the appellant contended, relying upon the same clause, that it had no liability for any loss or damage that would have been covered by the insurance policy. A preliminary issue was tried as to whether, assuming that the fire had been caused by the negligence of the appellant’s subcontractors, the appellant’s liability was none the less excluded. The judge held that the appellant would be liable. The appellant appealed.
Held: The appeal was allowed.
The appellant was not liable to the respondent for losses resulting from the fire. Clauses 6.1.2, 6.3C.1 and the definition of “Specified Perils” and “Joint Names Policy” were together intended to define the whole scope of the appellant’s liability to the respondent for negligent acts and defaults. Those provisions divided and allocated the risk of loss and damage between the respondent and the appellant.
On a correct reading, the risk of damage to existing structures following a fire caused by the negligence of the appellant’s subcontractor was allocated to the respondent. The respondent’s losses would have been covered by the joint names insurance policy that it was contractually bound to take out and maintain. The word “fire”, as a specified peril, had to be given the meaning that was normally attached to it in an insurance policy. It therefore covered loss proximately caused by fire regardless of whether the fire had been caused by accident, by the negligence of the assured, or by the negligence or deliberate act of any third party: Dorset County Council v Southern Felt Roofing Co (1990) 48 BLR 96 and Barking and Dagenham London Borough Council v Stamford Asphalt Co Ltd (1997) 82 BLR 25 distinguished. Where two parties entered into a contract that stipulated that one party had to obtain insurance in the joint names of both, there was an implied term that one joint insured could not sue the other for damages if the loss was covered by the insurance: Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] UKHL 17; [2002] 1 WLR 1419 per Lord Hope of Craighead applied. It was also relevant that the insurance policy, had it been taken out, would have contained a “no recourse” clause preventing the insurer from suing the appellant under the respondent’s name.
Graham Eklund QC (instructed by Hill Dickinson) appeared for the appellant; Marcus Taverner QC (instructed by Vizards Wyeth) appeared for the respondent.
Sally Dobson, barrister
