A contractor for a £125 million hydro-electric scheme using NEC2 took out a joint names construction all risks policy. Damage occurred to the works, costing some £130 million to put right but did the CAR insurance put in place, as required by the contract, remove any liability that the contractor might otherwise have?
A Scottish court, construing the relevant provisions of NEC2 as a preliminary issue, ruled that it did not. The judge noted that this is a difficult area of the law and that the thrust of the cases is in favour of joint names insurance displacing contractual liability. Care must, however, be taken not to merge the law of insurance with the law of contractual interpretation and the primary focus in each case is on the words used by the parties set in their context.
In this case clause 83.1 expressly said that each party indemnified the other against claims etc due to an event at their risk and the court decided that the contractor’s obligation to take out joint names insurance for contractor’s risk events did not displace the parties’ contractual liability. There is no irrebuttable presumption that they have no liability to one another simply because a joint names policy is in place. That would tend to merge the law of insurance with the law of contractual interpretation.