Stuart Pemble admits that the Court of Appeal has changed his understanding of the law applicable to construction all risks insurance.
Key point
- Whether an employer and contractor under a building are joint insured to the same extent will depend on an analysis of the contract terms and the application of key principles.
Most (if not all) building contracts contain provisions dealing with construction all risks (CAR) insurance. This provides cover against the risk of accidental physical damage to construction works, however it may have been caused.
It is normally taken out in the joint names of the employer and contractor, with the contract specifying which party has the responsibility for obtaining the cover. Joint insurance is also, as acknowledged by Coulson LJ (with whom Baker and Nicola Davies LJJ agreed) in FM Conway Ltd v The Rugby Football Union and others [2023] EWCA Civ 418, “a notoriously complex area of law”.
I should also admit that my (incorrect) understanding of the caselaw on joint insurance in general, and CAR cover in particular, had convinced me that the Court of Appeal would have reached the opposite conclusion.
The facts
In 2011, as part of upgrade works at Twickenham Stadium in preparation for the 2015 Rugby World Cup, the RFU appointed Conway to install ductwork to accommodate high-voltage cables under an amended JCT Standard Building Contract with Quantities (2011 edition).
That contract required the RFU to take out the CAR policy which covered Conway in respect of physical loss or damage to the work executed or to site materials. Although CAR insurance can apply even where the damage is caused by the actions (or inactions) of either the employer or the contractor, the policy in this instance did not provide cover to Conway for damage caused by its own faulty work.
The policy did contain a waiver of subrogation provision. Subrogation is the principle that allows an insurer who has paid compensation to an insured to seek compensation, in its insured client’s name, from the party which it thinks caused the loss. A waiver of subrogation means the insurer cannot issue a subrogation claim against “any insured party”.
The RFU alleged the ductwork was defective and it damaged the high-voltage cables as they were pulled through it. The cost of replacing the cables was £3.3m. The cost of rectifying the ductwork was £1.1m. Royal Sun Alliance, the insurer which had issued the CAR policy, accepted the cost of replacing the cables (but not of repairing the defective ductwork) was caught by the CAR policy. It paid the £3.3m to the RFU.
RSA wanted to recoup that cost and so brought a subrogated claim in the RFU’s name against Conway. Those proceedings also sought to recover damages for repairing the ductwork.Conway issued separate Part 8 proceedings seeking declarations that (1) it had the benefit of the CAR cover on the same terms as the RFU; (2) the RFU could not claim against Conway under the CAR policy; and (3) RSA could not exercise subrogation rights against Conway because the loss and damage was covered by the policy and Conway had the benefit of the waiver of subrogation provision. Both cases were managed together.
Preliminary issue
In April 2022, Eyre J ([2022] EWHC 956 (TCC)) decided, by way of preliminary issue, that Conway’s insurance was not co-extensive with that of the RFU.
Instead, it was limited to the extent of the cover required under the building contract (which did not provide cover to Conway for its own faulty work). Because Conway was not co-insured with the RFU in respect of the relevant loss, the waiver of subrogation clause did not apply and the claim could be brought. Conway appealed.
The appeal
The Court of Appeal unanimously dismissed the appeal. Coulson LJ acknowledged there was a tension at the heart of the case: it was common ground that Conway was co-insured with the RFU and the policy did cover the loss because RSA had compensated the RFU.
However, this was simply a result of Conway’s cover being more limited than the RFU’s. Coulson LJ identified a number of key principles which had been established by authorities including Gard Marine and Energy Ltd v China National Chartering Company Ltd [2017] UKSC 35:
- The fact two parties are insured under the same policy does not, by itself, mean they are covered for precisely the same loss or cannot make claims against each other.
- Where it is alleged that one party has procured insurance for another, the courts will normally consider matters such as authority, intention and scope of cover, usually by reference to the law relating to principal and agent. Alternatively, and something dictated by the facts, the insurance policy is an offer by the insurer which the co-insured accepts by executing the contract.
- There does not need to be an underlying contract for there to be an investigation into authority, intention and scope, and, in any event, a contract may be implied.
- If there is an underlying contract, however, it will be the best place to find evidence of authority, intention and scope.
- The underlying contract may not provide the complete answer.
Coulson LJ held that Eyre J – who had applied the law of agency for his analysis – had applied the correct principles.That arguably resolved the appeal, but the Court of Appeal considered and dismissed Conway’s other grounds. In particular, the argument that Conway benefited from the waiver of subrogation failed because of the fact that Conway was not co-insured to the same extent as the RFU.
Stuart Pemble is a partner at Mills & Reeve
