The recent case of The Trustees of Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd highlights how contractually committing to hold more insurance than the amount of the liability cap can render a limitation of liability clause unenforceable.
In this case, the judge decided that the limit on liability was unreasonable, and was consequently unenforceable, because Turner & Townsend had contracted to hold £10 million of professional indemnity insurance, which exceeded the contractual liability cap.
For NHS providers holding unlimited cover with the NHSLA, this may mean that inserting a liability cap has no legal effect.
However, one shouldn’t give too much emphasis to this point as only 11 paragraphs out of the 200 paragraph judgment dealt with it and so it was hardly a central issue in the case. In addition, insurance is often subject to an aggregate cap on the total value of all claims. This means that there is good reason to have a liability cap which is less than the insurance cover, to ensure that the insurance is not exhausted for future claims, or in order to avoid an increase in the premiums payable.
Providers should take note of this case and be wary of disclosing the full extent of cover within a contract, especially when dealing with third parties.
When commissioning, it is advisable to confirm what insurance cover a provider has in place, when dealing with the independent sector, and to record in the contract the minimum level of insurance the supplier commits to hold.
Obviously, in the NHS Standard Contract, liability is unlimited and so this issue does not arise.