Dealing with insurance-related

A recent case in the Technology and Infrastructure Court (Rugby Football Union v Clark Smith (1) and (2) FM Conway [2022] Image of EWHC956) has shown the importance of the parties agreeing to the extent of their insurance and ensuring that the agreed terms are reflected in the contract.

This case will be of particular interest to parties who rely on, or intend to rely on, insurance taken out by others.

History

Prior to the Rugby World Cup in 2015, the Rugby Football Union (“RFU”) had operations held at Twickenham Stadium. Some of the work involved lifting ropes. The RFU appointed Clark Smith Partnership (“Clark Smith”) to design the ducts through which the cables would be run and FM Conway Limited (“Conway”) to build the ducts. The RFU later ruled against Clark Smith and Conway that the ducts were harmless because they were damaging the cables. The claim, which Clark Smith and Conway contested, was in the region of £4.5million.

Insurance

The RFU insured the work in accordance with the Contractors All Risk Insurance (“Policy”) by the Royal Sun Alliance (“RSA”). The scheme paid the RFU a £3.5million claim for damaged cables. RSA then went after Conway under the bankruptcy laws, which allow an insurer to go after another person after the insured has paid. the amount of insurance you choose C to use. As is often the case in such contracts, the ‘insured parties’ under the construction contract included the contractor and subcontractors. Conway, therefore, contended that he was insured under a Policy taken out under a contract of construction.

Co-insurance

Conway sought to rely on the fact that they were co-insured with the RFU under the same Policy as the RFU and therefore could not be liable to the RFU or the RSA. It is a settled law that there can be no action between two parties who are insured under the same policy against the same risk. This principle comes from the insurance policy but because of the time that is related to the agreement between the two parties. Therefore, as this binds the insurance company, and restricts their limited rights, it was necessary for the court to look at the binding contract between the RFU and Conway, and the principles of the organization to determine the extent of Conway’s insurance under the Policy. Did the RFU confirm Conway’s role as a sponsor?

In order to determine whether one party has the right as an ‘assistant’ to act on behalf of the other, the following must be met:

  • The agent must have the authority to enter into the contract on behalf of the other party.
  • The agent must be seeking to make a contract on behalf of another.
  • So that the principles of this policy do not prevent another party from being arrested.

The opinion of the court was that the terms of the construction contract reflect the intention of the RFU and according to the construction contract, there was no exclusion of damage caused by the party’s mistakes. Therefore, there was no intention of the RFU to extend insurance under the Policy on Conway on behalf of Conway to meet their wrongful obligations, and the parties were not insured to the same extent under the same policy for the same risk. Therefore RSA can pursue a judgment against Conway as they can exercise the right of subrogation.

The terms of the JCT contract included the contractors and subcontractors as insured parties, but this only required the RFU to take out insurance to cover these contractors for damage and loss of the work and did not extend to the damage to the cabling caused by Conway’s. ductwork-related failures. Conway’s cover was not sufficient for the RFUs and the Policy did not provide a matching fund which was intended to be the only RFU for losses resulting from Conway’s breach of contract. Conway could not rely on being an insured party to avoid the RSA claim.

Take away

The parties to the construction contract should always be clear about which party is responsible for ensuring which losses and how the insurance covers them. Even if, as was the case here, the parties have discussed and coordinated the sale of insurance, all parties must ensure that this is clearly reflected in their agreement.