It might have been a case about a wrecked ship but a Supreme Court decision about its insurance leaves implications for construction in its wake. Joint insurance of the works in a construction project has, over the years, presented the courts with some legal problems. Does a joint policy mean that a contractor who causes damage to the works is protected from a subrogation claim by insurers who have paid out, under the policy, to the employer? And 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? And where might that leave a subcontractor who caused the damage but was not a joint insured, or protected by a contract term? Can an insurer, who paid out for the loss, bring proceedings in the name of the contractor against the subcontractor to recover its money?
In Gard Marine and Energy Ltd v China National Chartering Company Ltd the Supreme Court reiterated that, where there is insurance 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 now best seen as an implied term of the insurance contract and/or of the underlying contract between the co-insureds under which their interests were insured. In Gard the Court decided, by a 3-2 majority, that under the co-insurance scheme in the case, the owners had no claim against the charterers, whether or not the insurance monies had been paid. This meant that the insurers who paid out for the shipwreck had, in turn, no claim to pursue, by assignment, against the subcharterers. The commercial purpose of maintaining the joint insurance in question was, said Lord Toulson, not only to provide a fund to make good the loss but to avoid litigation between the joint insured, or the bringing of a subrogation claim in the name of one against the other.
Translated into the world of construction, where this co-insurance arrangement commonly arises, and subject to the relevant contract wording, this decision could protect subcontractors who cause a loss insured under a joint names CAR policy, from a claim advanced by insurers, where subcontract terms do not otherwise protect them.