Although each case will turn on its own facts, the courts have continued to show their reluctance to impose personal liability on insureds for contractors' fees save for any uninsured losses.
The decision shows the pragmatic approach taken by the courts to reach this conclusion. However, insurers should be mindful that the decision was fact specific, based on the actual terms of this mandate. One can foresee a situation where a more astute sub-contractor might include different wording, clearly imposing an obligation to pay on an insured.
The case is a salutory reminder of the importance of reading a contract. From an insurer's perspective, it is also a timely reminder that they need to exercise greater control not only over those who they employ directly, but also their sub-contractors. To prevent is surely better than to cure.
The Defendants were consumers who had each purchased a household insurance policy with Zurich ("the Zurich Policy"). In each case, the insured property suffered minor damage and a claim was made under the Zurich Policy.
Zurich accepted liability and instructed Rok Building Ltd (Rok) to carry out the repair works. Rok subcontracted the work to AJ Building and Plastering Ltd (AJB), who carried out the works. AJB subsequently invoiced Rok, which in turn sought payment from Zurich. Each time, Zurich paid Rok. However, that is where the monies stayed as, before Rok made any payment to AJB, it went into administration.
As it had no contractual relationship with Zurich, AJB sued the Defendants, alleging that, under their "Works Authority & Mandate" that had been signed by each Defendant, they were directly liable to pay for the works. Zurich, although not a party to the proceedings, funded the defence of these test cases.
The mandates were on AJB’s headed paper and showed the Defendants as the "customer/employer". They stated that the Defendants:
- Authorised AJB to undertake the repairs works
- Authorised Zurich to make payment direct to AJB for the works
- Accepted liability for the excess and any sums due which are not paid by Zurich
The Defendants cited the decision in Brown & Davis Ltd v Galbraith  1 WLR 997 in their defence. In that case, repair work was performed on the defendant’s car by Brown & Davis Ltd (B&D), who had a written contract with Galbraith's insurer. Unfortunately, the insurer became insolvent, and B&D sought to recover the cost of its work directly from Galbraith. The Court of Appeal dismissed the claim and stated that, although an implied contract existed between the parties, it went no further than requiring B&D to carry out the work properly and Galbraith to pay any uninsured losses - in particular, the excess.
In this case, the Judge held that, but for the mandates, he would have found the position to be as set out in Brown & Davis Ltd above. However, after considering the correct interpretation of the mandates, he reached the same conclusion anyway, i.e. that although there was a contract between AJB and the Defendants, the latter were only liable to pay any uninsured losses. He reached this conclusion on the basis that:
- The Defendants had not chosen to instruct AJB
- The price had been agreed by Zurich and was unknown to the Defendants
- The mandates expressly stated that Zurich was to pay the insured losses and this made commercial sense