The Court of Appeal has upheld the decision of the Technology & Construction Court in the case of FM Conway Limited v Rugby Football Union & Others [2023] WECA Civ 418 and reaffirmed that consideration of the underlying contract is key when considering the authority, intention and scope of co- insurance cover.
The facts
The Rugby Football Union engaged Clark Smith Partnership (CSP) to design ductwork as part of the major refurbishment works to Twickenham Stadium. FM Conway (FMC) was appointed to install the ductwork.
The RFU claimed that the design and installation of the ductwork was defective, causing losses in the sum of circa 拢4.5m. CSP denied liability and blamed FMC for poor installation. In defence, FMC argued that the problem stemmed from CPS鈥檚 design.
Under the terms of an all-risk insurance policy, Royal & Sun Alliance Insurance (RSA) indemnified the RFU for most of the losses, being circa 拢3.3m. RFU subsequently issued a subrogated claim.
FMC denied liability and argued that it was co-insured under the policy on the same terms.聽 Therefore, the RFU could not recover the losses from FMC. 聽聽The policy also contained a waiver of 鈥�all rights of subrogation which [the insurer] may have or acquire against any insured party鈥�. The court at first instance had to determine whether a defence of co-insurance precluded liability between the co insured parties.
At first instance the TCC Judge Mr Justice Eyre decided, for several detailed reasons, in favour of the RFU on the basis that FMC could not rely on the policy as a defence to the subrogated claim.
Issues and decision of the Court of Appeal
FMC considered the judge applied the wrong test and appealed. Grounds 1-4 made several criticisms of Mr Eyre鈥檚 analysis of the RFU鈥檚 authority and Ground 5 raised the argument that FMC could rely on the policy鈥檚 waiver of subrogation clause in respect of all losses to avoid liability to the RFU.
The Court of Appeal rejected all the arguments and upheld the decision of Mr Eyre. Lord Justice Coulson summarised the applicable principles in paragraph 53 of his judgment, which he described as 鈥榓 notoriously complex area of law鈥�:
Paragraph 53.1 鈥渢he mere fact that A and B are insured under the same policy does not, by itself, mean that A and B are covered for the same loss or cannot make claims against one another鈥︹��.鈥�
Paragraph 53.2 鈥淚n circumstances 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鈥�..鈥�
Paragraph 53.3 鈥淎n underlying contract between A and B is not a necessary pre-requisite for a proper investigation into authority, intention, and scope. However, a contract may well be implied in any event鈥︹��..鈥�
Paragraph 53.4 鈥溾�here there is an underlaying contract then, in most cases, it will be much the best place to find evidence of authority, intention and scope鈥︹�︹�︹��
Paragraph 53.5 鈥淭hat is not to say that the underlaying contract will always provide the complete answer. Circumstance may dictate that the court looks in other places for evidence of authority, intention, and scope of cover鈥�...
The mere fact that a policy states that it covers the interest of a party does not itself give that party the right to enforce the contract or rely upon its terms.聽 Further, the mere fact that FMC and the RFU were insured under the same policy was insufficient to allow the co-insurance defence. Although the RFU and FMC were insured under the same policy, the policy did not cover them in respect of the same risk.聽 The underlaying contract prevailed the pre-contractual negotiations for the purpose of the appeal.
Lord Justice Coulson considered that Mr Eyre used the correct authority and intention, paying particular attention to the underlaying JCT contract. The contract obliged the RFU to obtain Option C cover but nothing more, and it is clear from the letter of intent, the contract, and the policy that insurance in respect of the cost of rectifying damage caused by FMC鈥檚 own defective works were excluded.
Key takeaway
The scope of joint insurance cover will primarily be assessed by reference to the underlaying contract between the parties - not just the wording of the policy alone.
To avoid future ambiguity and risk of implied terms being rejected by the Court, parties should implement any pre contractual discussions concerning co-insurance to form part of their contract terms.
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