Co-insurance in construction – back to Twickenham – RFU win the scrum

Summary

The Court of Appeal has confirmed, in FM Conway Limited v (1) The Rugby Football Union and others, that a contractor (Conway) was not a co-insured of the employer (the Rugby Football Union, or RFU) under the RFU's all-risks project insurance. This upholds a decision covered in our May 2022 article.  Accordingly, Conway was unprotected from a claim by the RFU concerning negligently designed ductwork for HV cables in Twickenham stadium.

That meant that:

• the RFU could claim from Conway for losses caused by Conway's (or Conway's ductwork sub-contractor's - Clark Smith) negligent design/poor installation of HV cables and related ductwork; and

• because Conway was liable to the RFU, Conway would seek a contribution from Clark Smith.

Background

Conway had been engaged by the RFU on a project to upgrade Twickenham stadium in advance of the 2015 Rugby World Cup. The HV cabling/ductwork had to be done urgently.

JCT standard form building contracts provide pro-forma insurance options.  .

Before the contract documentation was finalised, both RFU/Conway had intended the RFU (as employer) would put comprehensive insurance protection in place, to cover all contractors, and that the insurance pot would be "the sole avenue for making good...loss and damage" (quoting Gard Marine  - our May 2017 article Storm in a teacup? The Gard Marine case - subrogated claims and co-insurance).  If the RFU was going to obtain comprehensive cover in the joint names of the RFU/Conway, then Conway did not need to worry.  Conway would, in this scenario, be safe from claims by the RFU, because "it is well established...that, where it is agreed that insurance shall inure to the benefit of both parties to a venture, the parties cannot claim against each other in respect of an insured loss" (Lord Mance in Gard Marine).  Therefore, Conway unsurprisingly neither (i) reflected an insurance premium in its tender bid, nor (ii) bought cover for losses caused by its works.

Unfortunately (for Conway), the documentation (as completed) did not reflect the pre-contractual aim of comprehensive cover.  In fact, the completed paperwork simply recorded JCT's standard insurance 'Option C'.  'Option C' relates to work on existing buildings (such as Twickenham stadium, built in 1909), and requires (among other things) the employer (RFU) to take out joint names insurance for (so-called) "all risks insurance".  (For reference, JCT's insurance Options 'A' and 'B' cover work on new buildings, where joint names/'all risks insurance' is bought by the contractor (for 'A'), or the employer (for 'B')).

JCT's reference to "all risks insurance" in 'Option C' is misleading, because 'Option C' does not give the contractor blanket protection.  In particular, 'Option C' insurance will not help a contractor if costs are caused by the need to replace/repair "any work executed ... as a result of its own defect in design..., specification or workmanship". Such losses are not covered by 'Option C' (unless amended/extended). Conway was a co-insured of the RFU under 'Option C' (so-called "all risks insurance" for works on existing buildings).  However, unless amended/extended, 'Option C' did not cover losses caused by Conway's negligence. 'Option C' was not modified in the completed documentation.

In other words, if a contractor is negligent, and unamended 'Option C' cover applies, then the employer (the RFU) can sue the contractor (Conway).  It did not matter that the RFU and Conway were co-insureds.  What counted against Conway was that they were not co-insureds for relevant losses  (being those arising from Conway's negligence).

Conclusion

The Conway/RFU case is a striking example of the need closely to examine standard form insurance options in contracts (and modify if necessary). 

This many seem a harsh decision, given that both parties had intended that (i) comprehensive cover would be acquired, and (ii) the insurance pot would be the only route to recovery.

However:

• What ultimately mattered was not the pre-contractual understanding/discussion, but the completed documentation.

• The result promotes certainty, and reflects Gard Marine, in which the underlying contract (or 'contractual scheme') was paramount.

• Conway was not a small/inexperienced party.  It "was a substantial civil engineering business with an in-house legal department and an internal insurance manager".   This perhaps leaves the door open to what approach the court might take when dealing with smaller contractors with limited experience when dealing with contractual insurance options.

• The parties could have modified Option C, but did not.

The RFU/Conway case is yet another instance where the contract is king.  The messages are that (i) the result of any case will almost always turn on the terms of the contract at issue, and (ii) it is essential for advice to be taken on what pro-forma insurance packages in standard form contracts actually cover (and do not cover).