Am I insured under a Project Insurance Policy?
The recent case of Haberdashers’ Aske’s Federation Trust Ltd and others v Lakehouse Contracts Ltd and others1 afforded the court with an opportunity to consider a sub-contractors immunity to subrogated claims against him if co-insured under a project insurance policy.
Three interconnected questions lay at the heart of the matter:
a) How sub-contractors within the construction industry come to participate within project insurance policies;
b) To what extent they are covered by them; and
c) Any effect separate insurance cover, obtained because of an express term within the sub-contract, may have upon general coverage and entitlement.
Lewisham Borough Council entered into a contract with a Local Education Partnership [“LEP”] regarding a school extension. In turn the LEP engaged Lakehouse as principle contractor. Lakehouse also entered into a Duty of Care Deed with Haberdashers, the school operators. Under the contract the LEP were obligated to take out project insurance coverage for themselves, the Council, Lakehouse and ‘sub-contractors of any tier’.
Lakehouse subsequently engaged Cambridge Polymer Roofing [“CPR”] to perform roofing works. An express term of the sub-contract required CPR to obtain its own insurance, which it did with a limit of cover of £5 million. Furthermore, prior to the parties entering the sub-contract, CPR had also confirmed its own insurance cover, and that various insurances were “held with ourselves”, in response to a Lakehouse Supply Chain Questionnaire required to ascertain CPR’s suitability as a sub-contractor.
Following the commencement of CPR’s works on site, a fire broke out during CPR hot works, carried out under a hot work permit issued by Lakehouse, resulting in extensive damage to the buildings. The reinstatement works took some time to be completed.
A claim was subsequently raised against Lakehouse and CPR. Lakehouse admitted liability and in conjunction with the project insurers settled the matter for £8.75 million. Lakehouse then sought to bring a subrogated claim against CPR, who in turn claimed they benefited from the project insurance and were therefore immune from such claims.
During its judgment the court considered how a project insurance policy may provide cover to CPR, identifying three mechanisms:
a) By way of agency, whereby authority is given to the contractor by the sub-contractor to procure insurance on his behalf. The sub-contractor than ratifies the procurement of the insurance as an undisclosed principle;
b) By way of offer and acceptance, whereby a unilateral offer is made by the insurers to insure any sub-contractor engaged by the contractor; or
c) By way of conduct, whereby the sub-contractor is accepted by the insurer by his conduct in entering a sub-contract.
The court held that CPR could not be insured based on agency or conduct, both of which could not take primacy over any express intention of Lakehouse and CPR. As such CPR could only be insured by way of offer and acceptance. However, CPR were required to demonstrate that it was co-insured in the first place, and that the express term within its sub-contract had not overridden any standing offer made to them.
There was common ground between the parties that any sub-contractor co-insured under a project insurance policy would have had immunity against subrogated claims from others, as this status was accepted as an implied term within sub-contracts relating to the project.
The matter of contention was whether the express term within the sub-contract negated the implication of an implied term. Citing the decision of Gard Marine and Energy Ltd v China National Chartering CO Ltd2 the court considered that it did, noting that the key issue was the parties’ intention as demonstrated by the particular terms of the contract.
Lakehouse and CPR expressly agreed within the sub-contract that CPR was required to have its own individual insurance cover and as such the parties’ intention must have been for CPR to rely on its own insurance cover. As confirmed by Fraser J:
“How…could the parties be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, when those parties had expressly agreed that [CPR] would obtain its own separate insurance?”
Therefore, CPR was neither covered by the project insurance or entitled to the benefit of the express waiver of subrogation clause within it. Lakehouse were entitled to bring a claim against CPR.
The court’s decision that any immunity to subrogation will be based upon the arrangements between the two parties, rather than the detail of the project insurance policy concerned, continues to highlight the need for sub-contractors to carefully consider any express terms within a proposed sub-contract which may overrule any provisions or benefits provided by the main contract.
This is particularly important when utilising standard forms of contract that may incorporate express terms regarding such things as insurances as a matter of routine. It may be convenient and comfortable to assume some matters are simply routine, and hence carry no significant risk, but by agreeing express terms without due consideration of others’ obligations under a contract a sub-contractor exposes himself to risk which is both unknown and avoidable.
Should you wish to find out more about this, please do get in touch with us.
1  EWHC 558 (TCC)
2  1 WLR 1793
Whilst Tudor Rose has made every effort to ensure that the information contained within this article is correct at the date of publication, this article has been prepared as guidance only and does not constitute legal advice.