Make Contract and Intention Identical to Avoid a Co-Insurance Claim Battle

A recent appeal against a High Court ruling has highlighted the complexities surrounding co-insurance agreements.

It has also shown that both verbal understandings and actual signed contract wordings need to match, in order for the terms of the co-insurance to apply in the manner to which the parties to the agreement might anticipate.

This was not the situation with regard to the case in question, where a construction contract’s wording did not support the belief of the appellant that they were working on a project within which co-insurance applied to all aspects of the job.

In this particular case, ductwork for power cables was installed ahead of the 2015 Rugby World Cup at Twickenham by FM Conway Ltd.

FM Conway Ltd contracted with the client – the Rugby Football Union (RFU) – on the basis of a JCT Standard Building Contract without Quantities 2011, some of which, but not all, was then subject to agreed amendments.1

When the RFU suffered cable damage and replacement costs of over £3.3m, the insurance policy’s DE3 standard form defects exclusion applied. Whilst the cost of consequential damage to the cables was covered for the RFU by the policy, the cost of addressing the defective ductwork was not.2 So insurer RSA sought to recover these sums from FM Conway Ltd.

The contractor believed this to be impossible on the basis of co-insurance within the policy, which it said entitled it to the same insurance rights as the RFU. However, High Court and appeal judges both ruled that the contractor’s insurance rights were no wider than those provided by the initial JCT. The contractor was not insured for existing structure damage caused by its own defective work.

Despite references to pre-contractual discussions about the insurance arrangements, the start and end point for the case was what was actually written in the contract, and any other ‘intention’ was not tenable in law.

The absence of amendments to the standard JCT, to demonstrate the alleged ‘intention’, was key. These would have potentially provided the cover FM Conway believed to have been in place. The contractor was actually under the terms of the contract, and only entitled to cover for specific perils.

This case should act as a strong reminder to any contractor working on construction projects, to make sure the contractual arrangement in place accurately reflects the intention and authority of the party obtaining insurance cover for others.

Even if two parties are insured under the same policy, it does not necessarily mean both parties are covered for the same loss or that they cannot make claims against each other.

To avoid being in such a position, always work with an experienced broker in the construction sector who can advise on the situation relating to insurance cover within any project agreement. If you need such support for your future projects, or require a review of your existing arrangements, please get in touch.