Nice Try, but Contractor’s Co-Insurance Defence Fails to Convert: The Rugby Football Union v Clark Smith Partnership Ltd  EWHC 956 (TCC)
This recent Judgment contains a helpful analysis of authorities relating to the principle that the law does not allow an action between two or more persons (or by an Insurer by way of subrogation) who are insured under the same policy against the same risk.
In 2012, ahead of the 2015 Rugby World Cup at Twickenham stadium, the Rugby Football Union (the “RFU”) undertook substantial works to prepare the stadium for the World Cup.
The works included the installation of high voltage power cables in buried ductwork. The RFU engaged contractors Clark Smith Partnership Ltd (“Clark Smith”) to design the ductwork and FM Conway Ltd (“Conway”) to install it. That engagement commenced by way of a Letter of Intent dated 19 June 2012 which envisaged that the RFU and Conway would subsequently enter into a JCT Standard Building Contract without Quantities 2011. The parties did so on 19 October 2012 (the “JCT Contract”). Importantly, when entering into the JCT Contract, the parties elected for “Insurance Option C”, as to which more below.
The RFU now contends that there were defects in the ductwork such that when the cables were pulled through they were damaged. It says it has suffered losses to the tune of circa £4.5m.
Approximately £3.4m of the loss was in respect of the cost of replacing the damaged cables and related sums for which the RFU has been indemnified by RSA Insurance Group Ltd (“RSA”), the principal underwriter of an all-risks insurance policy which the RFU entered into in July 2012 (the “Policy”).
RSA thus pursued a subrogated claim in the High Court for those losses (1) against Clark Smith on the basis of alleged defective design of the ductwork; and (2) against Conway on the grounds of alleged deficiencies in its workmanship.
The Co-insurance Argument
Conway commenced Part 8 proceedings against the RFU and RSA seeking a declaration that it was co-insured with the RFU under the Policy and that, as a consequence, the RFU could not claim against it in respect of those losses which were covered by the Policy. Conway and Clark Smith also both served Contribution Notices on each other.
This led to a trial of preliminary issues relating to Conway’s co-insurance defence, i.e. whether the £3.4m of loss could not be recovered by RSA/RFU from Conway either because (a) RSA could not exercise subrogation rights against Conway as a co-insured under the Policy written by RSA and/or (b) on a proper interpretation of the Policy and/or the JCT Contract the RFU and/or RSA are not entitled to claim the insured losses from Conway.
The core question was whether the insurance available to Conway under the Policy was:
- limited to the extent of the cover that was required under the JCT Contract, in which case Conway was not
co-insured with the RFU in respect of the relevant loss and a clause in the Policy waiving rights of subrogation against an insured party would not preclude a claim against Conway by RSA; or
- alternatively, fully co-extensive with that of the RFU in respect of the losses for which the RFU had been indemnified by RSA, in which case Conway could rely on the fact of that co-insurance and/or waiver of subrogation wording in the Policy as a defence to RFU’s claim for insured losses.
The starting point in determining the above issue is the principle that the law does not allow an action between two or more persons who are insured under the same policy against the same risk.
Having addressed the caselaw in that regard, Eyre J applied agency principles in considering whether and to what extent the party effecting the insurance had both the authority to obtain cover for the other party and an intention to do so. Eyre J held that the considerations required to be satisfied for cover taken out by the RFU to cover Conway’s interest as well as the RFU’s were that:
- the RFU’s authority must extend to making the insurance contract in question;
- the RFU must have intended
when taking out the Policy to have covered Conway’s interests; and
- the terms of the Policy must not be such so as to preclude the extension of coverage to Conway.
Eyre J considered that the authorities have made it clear that the means by which the above issue is determined is the terms of the parties’ contract. The answer to that question then influences the approach to the determination of the proper interpretation of a provision for the waiver of subrogation in an insurance policy.
Conway was not a named or identified party to the Policy. In analysing the Letter of Intent, the JCT Contract and the Policy, Eyre J concluded that:
- He was satisfied that the Policy was effected on the basis it was providing the cover contemplated by the JCT Contract – the RFU was obliged to take out insurance which gave Conway cover in respect of physical loss or damage to the work executed or site materials (i.e. “Insurance Option C”). Insurance in respect of the cost of rectifying damage caused by Conway’s own defective works was excluded. The project manager may have intended there to be project insurance which would be more extensive than envisaged in the standard terms of the JCT Contract, but Eyre J did not consider when the Letter of Intent, the Policy and the JCT Contract were read together that they indicated that the RFU and Conway were insured to the same extent in respect of the same loss. The JCT Contract set out a detailed structure for allocating risks and responsibilities and “Insurance Option C”, chosen by the parties, required the RFU to arrange insurance that provided cover to Conway in respect of physical loss or damage to the work executed or to site materials only, without any express modification or expansion of its effect.
- The effect of the Policy was to insure both the RFU and Conway, but they were not insured to the same extent in respect of the same risk. In particular, they were not completely co-insured in respect of the losses which the RFU is said to have suffered by reason of damage to the cables resulting from defects in the ductwork and for which the RFU had been indemnified by RSA.
- The waiver of subrogation clause in the Policy only extended to matters in respect of which Conway was insured under the Policy and Conway was not co-insured with the RFU to the extent of the losses currently in issue.
Accordingly, Eyre J concluded that the insured losses are not irrecoverable from Conway because of any restriction on the exercise of subrogation rights by RSA or because of the terms of the Policy and the JCT Contract when properly interpreted.
A second preliminary issue, relating to whether, if the RFU/RSA could not recover the insured losses from Conway, Clark Smith could not claim a contribution from Conway under the Civil Liability (Contribution) Act 1978 if it was ‘same damage’, did not arise in light of the answer to the first question.
On the face of its pleaded case, at least, Conway may have walked away from this trial surprised that it was not insured by the RSA Policy. Consequently, this decision highlights the need for contracting parties to make sure that an insurance policy properly (and clearly) reflects (a) the intentions of those contracting parties insofar as who is insured for what risks; and (b) the language of any contract as a written record of those intentions. Failing to do so can, as in this case, result in a surprising outcome when the existence of cover upon which a contractor might seek to rely is challenged. Where the intention is for one party to be co-insured with another, being named on the policy may avoid the risk that an insurer may argue a contractor was not intended to be covered.
Where in doubt, speak to your insurance broker about the cover afforded by (or intended to be afforded by) a project policy and the need to take out separate own cover to the extent it is required.
As for this case, we wait to see what may happen next in the main proceedings as to the alleged liability of Conway and Clark Smith to the RFU. The case continues.
18 May 2022
 Per Lord Hope in Co-operative Retail Services Ltd v Taylor Young Ltd  UKHL 17
 Set out in Colinvaux’s Law of Insurance at 15-022 0 15-08 (12th ed)
 At the time of contracting with Insurers such intention is to be ascertained objectively as to whether the RFU had communicated to Conway an intention to contract on its behalf.
 See in particular National Oilwell (UK) Ltd v Davy Offshore Ltd ; Co-op Retail Services Ltd v Taylor Young ; Gard Marine & Energy Ltd v National Chartering Co Ltd & Another