How does a subcontractor in the construction industry come to participate in a project wide all risks insurance policy? This was the issue in the case of Haberdashers’ Aske’s Trust Ltd v Lakehouse Contracts Ltd [2018] EWHC 558 (TCC).
The Claimants owned and operated a London school. They employed Lakehouse Contracts Limited (‘the Contractor’) to extend the school buildings. The Contractor was added to a project wide insurance policy. This policy covered the Contractor and all its subcontractors.
The Contractor then in turn engaged Cambridge Polymer Roofing Limited (‘the Subcontractor) to carry out roofing works. There was an express term in the subcontract that the Subcontractor would obtain its own third party liability insurance cover. This separate cover was duly obtained before commencing work in the sum of £5 million.
Disaster struck. There was a fire at the school allegedly caused by the Subcontractor causing significant damage. The Claimants accordingly claimed damages against the Contractor and Subcontractor. The Contractor exited the litigation early by paying the Claimants £8.75 million. In reality this sum was paid by the project insurers. The policy insurers then sought by way of a subrogated claim a contribution of £5 million from the Subcontractor. The Subcontractor resisted this claim and argued it was entitled to the benefit of the project insurance policy.
Perhaps surprisingly the way in which a subcontractor may become a party to project insurance has not previously received detailed analysis. In a discursive judgment Fraser J considered the various ways in which a subcontractor could become such a party including (i) agency (ii) acceptance of a unilateral offer and (iii) acceptance by conduct. The Judgment will provide fertile ground for future argument because none of these potential avenues was closed.
However on the facts of this case Fraser J found an analysis of the contractual arrangements was determinative. In particular, the express term in the subcontract that the subcontractor would obtain his own insurance meant it was not co-insured and was not therefore entitled to claim under the project insurance policy; to find otherwise would contradict the provision expressly agreed in the subcontract.
The decision is unsettling for subcontractors who may have thought they were covered by project insurance despite having their own insurance in place. As with the recent Judgment of Gard Marine v China National Chartering [2017] UKSC 35 the case underlines the importance of the wording of subcontract and the intention of parties when entering into that subcontract. A thorough examination of current project insurance arrangements is therefore recommended.