Haberdashers’ update: contract is still king in co-insurance disputes
Haberdashers’ Aske’s Federation Trust Ltd and others v Lakehouse Contracts and others [19.03.18]
An appeal in this case, in which Kennedys represented the defendant contractor, was due to be heard in the Court of Appeal at the end of January, where the market were hoping for some clarification on the issue of sub-contractor’s rights under a project policy in circumstances where the sub-contract required the sub-contractor to take out its own CAR/public liability insurance. The case settled prior to the hearing and for the present therefore, the judgment of Mr Justice Fraser stands.
Consequently, although the Supreme Court decision in Gard Marine & Energy v China National Chartering Co Ltd and another  determined that in general subrogated claims cannot be brought against co-insureds, Fraser J held that reference must be made to the conditions of the sub-contract between the insured contractor and the party seeking cover under the project policy. In this matter, Clause 6 of the sub-contract expressly required the sub-contractor to take out its own insurance. Fraser J therefore determined that it was not a co-insured and as a result was afforded no protection from a subrogated claim.
Dismissing an argument raised by the sub-contractor based on agency, Fraser J stated it was not a relevant principle to consider, especially in a situation where the sub-contractor was unknown at the date of the project policy. This begs the question as to whether the principle will apply where the sub-contractor is ascertained, and therefore known, before the project policy is arranged.
Fraser J also rejected an argument that the project policy was a standing offer from insurers, from which the contractor would ‘draw down’ cover for the individual sub-contractors, on the premise that Clause 6 of the sub-contract demonstrated an explicit intention by the contractor not to ‘offer’ cover to the sub-contractor. Again, where 200 sub-contractors were all contracted on the contractor’s standard terms requiring them to take out their own insurance cover, this begs the question as to who was intended to be offered cover.
The decision remains a windfall for project insurers, who receive premium for providing cover for sub-contractors of any tier (even those known about at the time the policy was taken out) in the knowledge that, during contract negotiations with their sub-contractors, most contractors will ensure that their standard terms apply, with a standard clause requiring the sub-contractors to take out their own insurance. Pursuant to Fraser J’s judgment, in these circumstances, insurers can subrogate against the sub-contractor (of a tier listed in the schedule) to recover their outlay.