The Rugby Football Union took out a Joint Names All Risks Insurance policy for works at Twickenham Stadium. Power cables forming part of the works were damaged and had to be replaced and the RFU, which alleged that the damage had been caused by defective design and installation of ductwork for the cables, recovered the cable replacement costs from the insurers. The RFU started subrogated proceedings against the ductwork installation contractor, claiming the replacement, and other, costs but the contractor, a co-insured under the policy, argued that the RFU (and the insurers, by subrogation) could not claim against it in respect of losses covered by the policy.
In dismissing the contractor’s appeal, the Court of Appeal reviewed the case law and textbooks on co-insurance (“a notoriously complex area of law”). It noted that Colinvaux’s Law of Insurance (13th Edition) said that “the mere fact that a policy states that it covers the interests of named or identifiable third parties does not of itself give those third parties the right to enforce the contract or to rely upon its terms” (e.g. the benefit of the waiver of subrogation clause). The textbook went on to identify three cumulative conditions to be satisfied for cover taken out by A to cover B’s interest, as well as that of A, where A is required or authorised by a contract with B to insure a risk on behalf of both:
- A’s authority must extend to making the insurance contract in question;
- A must have intended when taking out the policy to cover B’s interests; and
- the policy terms must not preclude the extension of coverage to B.
From the case law, the Court set out the following broad propositions:
- the mere fact that A and B are insured under the same policy does not, by itself, mean that they are covered for the same loss or cannot make claims against one another;
- where it is alleged that A has procured insurance for B, it will usually be necessary to consider issues such as authority, intention (and the related issue of scope of cover). Such issues are conventionally considered by reference to the law relating to principal and agent (although an alternative approach, referrable to the existence of a standing offer, was identified in another case, dictated by its particular facts);
- an underlying contract between A and B is not a necessary pre-requisite for a proper investi- gation into authority, intention and scope but a contract may well be implied in any event;
- where, however, there is an underlying contract then, in most cases, it will be much the best place to find evidence of authority, intention and scope. The underlying contract has been called “the most obvious source of authority” and “a powerful indicator”;
- the underlying contract will not always provide the complete answer. Circumstances may dictate that the court looks in other places for evidence of authority, intention and scope of cover.
In this case, it was agreed that the relevant contract clause (Option C of the JCT Standard Form) did not expressly require the RFU to effect insurance on behalf of the contractor to cover the contractor against the cost of rectifying damage caused by the contractor’s own defective work. The Court of Appeal noted that the judge who heard the case was aware that the policy was a composite insurance policy, so that each co-insured was to be treated as if they had their own policy and the mere fact that the contractor and the RFU were insured under the same policy was insufficient to allow the co-insurance defence. That judge had concluded that the RFU’s authority to insure (on behalf of the contractor) was co-extensive with its obligation to do so: in other words, the RFU was obliged and intended to provide Option C cover, but nothing more. The Court of Appeal confirmed his ruling.