Despite being issued in a case involving a wrecked ship, the Supreme Court decision in Gard Marine and Energy Ltd v China National Chartering Company Ltd(1) leaves implications for construction in its wake. Over the years, joint insurance of the works in a construction project has presented the courts with various legal problems:
- Does a joint policy mean that a contractor which causes damage to the works is protected from a subrogation claim by insurers which have paid out, under the policy, to the employer?
- If the express terms of the contract provide no answer, but the court decides that the contractor cannot be sued, what is the basis of that decision? Further, where might that leave a subcontractor which caused damage but was not a joint insured or protected by a contract term?
- Can an insurer which paid out for the loss bring proceedings in the name of the contractor against the subcontractor to recover its money?
In Gard, the Supreme Court reiterated that where insurance exists for the benefit of both parties to a venture, the parties cannot claim against each other in respect of an insured loss. This principle is best seen as an implied term of the insurance or underlying contract between the co-insureds, under which their interests were insured. In Gard, the court decided by a three-to-two majority that under the applicable co-insurance scheme, the owners had no claim against the charterers, regardless of whether the insurance monies had been paid. This meant that the insurers which paid out for the shipwreck had, in turn, no claim to pursue by assignment against the sub-charterers. The commercial purpose of maintaining the joint insurance in question was not only to provide a fund to make good the loss, but also to avoid litigation between the joint insureds or the bringing of a subrogation claim in the name of one against the other.
For the construction industry – where this co-insurance arrangement often arises – this decision could, subject to the relevant contract wording, protect subcontractors which cause a loss insured under a joint names contractors' all-risks policy from a claim advanced by insurers, where subcontract terms do not otherwise protect them.
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For further information on this topic please contact Chris Fellowes at Mayer Brown International LLP by telephone (+44 20 3130 3000) or email (email@example.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.