The recent case of Haberdashers’ Aske’s Federation Trust Ltd & Ors v Lakehouse Contracts Ltd & Ors  EWHC 558 (TCC) has considered when a subcontractor can benefit from a project insurance policy.
Having one project insurance policy to cover all risks in relation to loss or damage to the works, third party property and personal injury is commonplace in construction projects. Project insurance policies generally cover the employer, the main contractor and any subcontractors working on the project. Difficult questions can arise when an insured risk occurs and the insurer under the project insurance policy then seeks to recover its losses from the party who was liable for the loss.
In the case of Haberdashers against Lakehouse, the court considered whether a subcontractor was a co-insured under a project insurance policy when other insurance was also in place.
The project involved an extension and other works to a school in the London Borough of Lewisham. The school was operated by Haberdashers Aske's Federation Trust Ltd ("Haberdashers"). Lakehouse Contractors Ltd (“Lakehouse”), as the main contractor, employed Cambridge Polymer Roofing (“CPR”) as subcontractor in relation to certain roofing works.
A fire broke out at the school, allegedly following hot works carried out by CPR on the roof. A claim was raised by Haberdashers against Lakehouse and CPR for £11 million. There was project insurance in place and the project insurers settled the action with Haberdashers and made payment of £8.75 million. The project insurers then sought to advance a claim against CPR. Therefore, the question for the court was whether the insurer’s claim against CPR could proceed.
It was accepted that the insurance policy had an implied term which prevented recovery from a co-insured and that the insurance policy extended to subcontractors. However, the subcontract between Lakehouse and CPR contained an express term requiring CPR to obtain its own insurance. CPR did obtain such insurance to the value of £5 million. The project insurers argued that the project insurance was the ‘first call’ in making good the losses suffered, but that they were entitled to make a claim against CPR’s insurance policy and importantly, that CPR was, under the circumstances, not a co-insured under the project insurance.
The court decided that since the subcontract expressly required CPR to obtain its own insurance, this meant that the parties never intended CPR would benefit from the project insurance. CPR was therefore not a co-insured under the project insurance. The court held that, subject to establishing liability, the project insurers were entitled to recover from CPR up to the amount of insurance cover it had taken out.
The facts of each case will need to be considered carefully but subcontractors should review any clauses requiring them to obtain insurance under their subcontracts to check how those provisions interact with any project insurance policy.