BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
London, EC4A 2NL
B e f o r e :
| (1) HABERDASHERS' ASKE'S FEDERATION TRUST LIMITED
(2) THE MAYOR AND BURGESSES OF THE LONDON BOROUGH OF LEWISHAM
(1) LAKEHOUSE CONTRACTS LIMITED
(2) CAMBRIDGE POLYMER ROOFING LIMITED
- and –
|(1) ZURICH INSURANCE PLC
(2) QBE CASUALTY SYNDICATE 386
(3) CNA INSURANCE COMPANY LIMITED
Crown Copyright ©
Mr Justice Fraser:
The roofing sub-contract terms
1. "Please carry out the following works in accordance with the attached referenced documents."
2. "This Sub Contract order is based on: Lakehouse Standard T&Cs".
3. Those standard terms and conditions were printed under the following heading "Lakehouse Sub-Contract Terms and Conditions" and it is common ground that they govern the contractual relationship between Lakehouse and CPR. Clause 6 states:
"6. INJURY DAMAGE AND INSURANCE
6.1 The Sub-Contractor shall be liable for and shall indemnify the company against any loss, expense, claim or proceedings whatsoever in respect of:-6.1.1 Personal injury or death of any person arising out of or caused by the carrying out of the Sub-Contract Works or as a result of the Sub-Contractor's failure to comply with its obligations under these terms and conditions.6.1.2 Loss, injury or damage to any real or personal property but only to the extent that it is due to any, act, omission or default by the Sub-Contractor in connection with the Sub-Contract works or as a result of the Sub-Contractor's failure to comply with its obligations under these terms and conditions.6.2 The Contractor shall take out and maintain insurance in respect of claims arising out of his liability under Clause 6.1. Insurance in respect of claims for personal injury to, or death of any person under a contract of service or apprenticeship with the Sub-Contractor shall comply with all relevant legislation. For all other claims under Clause 6.1 the insurance should be not less than £2 million (or such other sum as may be specified in the order) for any one occurrence of series of occurrences arising out of one event.6.3 The Sub-Contractor shall be responsible for the Sub-Contract Works and any loss or damage to all work executed and material and goods for use in connection with the Sub-Contract Works until completion of the Sub-Contract Works except to the extent that any loss or damage is caused by the negligence, omission or default of the Company.6.4 The Sub-Contractor shall take out and maintain suitable all risks insurance in respect of any loss or damage to all work executed and materials and goods for use in connection with the Sub-Contract Works for their full reinstatement value or such other sum as may be specified in the order.6.5 The Sub-Contractor shall be responsible for all of its temporary works, plant, tools, equipment and other property not intended for incorporation into the Sub-Contract Works and shall take out adequate insurance to cover the cost of replacing or installing such items.6.6 Where it is stated in the Order, the Sub-Contractor shall take out and maintain for a period of 12 years from completion of the Main Contract Works a policy of professional indemnity insurance…..6.7 When required to do so, the Sub-Contractor shall provide such evidence as the Company may reasonably require that the insurances referred to in this section 6 are being maintained. If the Sub-Contractor is unable to provide the evidence that the Company reasonably requires that such insurances are being maintained the Company may itself take out any such insurances and set off against any payment otherwise due to the Sub-Contractor or deduct from any payment otherwise due to the Sub-Contractor or otherwise recover from the Sub-Contractor the premium for such insurance…"
The existence of the Project Insurance
The terms of the Project Insurance
1. CPR is an Insured under the Project Insurance;
2. In the alternative to (1), pursuant to section 1 of the Contracts (Rights of Third Parties) Act 1999, CPR is entitled to enforce the Project Insurance as if it were an Insured under the Project Insurance;
3. CPR will be entitled under the Project Insurance to an indemnity against any damages, interest and/or costs which it becomes liable to pay to the Trust and/or to Lewisham and/or to any other party claiming in respect of the fire, and to its costs;
4. If and insofar as any claim brought against CPR is a subrogated claim made by any or all of the Third Parties, the Third Parties are not entitled to pursue it, on the basis that:
(a) CPR is a co-insured under the Project Insurance; and/or
(b) There is no right of subrogation and the claim is barred by reason of the waiver of subrogation in the Project Insurance; and/or
(c) The said Claimants have received satisfaction for the claimed loss or damage from the Project Insurance.
"In regard to Lakehouse's additional claim against CPR for indemnity or contribution, which is brought by the Named Third Parties in the name of Lakehouse, it is declared that the Named Third Parties are not entitled to pursue this claim against CPR."
The approach adopted by Mr Edelman on behalf of the Project Insurers was that the terms agreed by Lakehouse and CPR in the roofing sub-contract were highly relevant. This is supported by the decision of the Court of Appeal in Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd  2 Lloyd's Rep 578 in which it was held that a sub-contractor under a ship-building contract did not have the benefit of a policy under which the insurers agreed to include "Sub-Contractors as additional co-assured for their respective rights and interests". Parker LJ stated as follows:
"… for the purposes of ascertaining intention one may look not only at the policy documents but also at the contract between the assured and the alleged co-assured." (at 584 col.1)
"(1) Where at the time when the contract of insurance was made the principal assured or other contracting party had express or implied actual authority to enter into that contract so as to bind some other party as co-assured and intended so to bind that party, the latter may sue on the policy as the undisclosed principal and co-assured regardless of whether the policy described the class of co-assured of which he was or became a member.(2) Where at the time when the contract of insurance was made the principal assured or other contracting party had no actual authority to bind the other party to the contract of insurance, but the policy is expressed to insure not only the principal assured but also a class of others who are not identified in that policy, a party who at the time when the policy was effected could have been ascertained to qualify as a member of that class can ratify and sue on the policy as co-assured if at that time it was intended by the principal assured or other contracting party to create privity of contract with the insurers on behalf of that particular party.(3) Evidence as to whether in any case the principle assured or other contracting party did have the requisite intentions may be provided by the terms of the policy itself, by the terms of any contract between the principal assured or other contracting party and the alleged co-assured or by any other admissible material showing what was subjectively intended by the principal assured.I would only add that it is unnecessary to consider on the facts of the present case what is the position where, at the time when the contract of insurance was entered into, the alleged co-assured could not be ascertained as a member of the class referred to in the policy, but only qualified for membership at a later stage or where at the time of the policy it was only intended to insure all persons in the class or who might in future qualify as members of the class, although it would then have been impossible to identify the alleged co-assured as such. These are difficult points considered in Arnould Marine Insurance 16th ed. para. 243. I express no view on whether privity of contract could be established in such cases."
(at 596 col.1 – 596 col.2)
'. . . . policies for marine insurance on goods have long been taken out for the benefit of "all those to whom they do, may or shall appertain", or similar wording; and it has often been assumed that beneficiaries of such policies may sue on them. It seems that in such a case the understanding is that the agent who procures the insurance need not at the moment have in mind any particular person or persons as the intended principal or principals, provided that there is some general contemplation as to the person or persons intended to benefit.'
"One other general point…relates to the date at which an insurable interest must exist, and (where relevant) the date at which it must be valued. In an indemnity policy the relevant date is the date of loss…"
"In my judgment, that argument would have failed. Since National Oilwell v Davy Offshore, supra, it is settled law and was when the CAR policy was underwritten that in order for a contractor not identified as a principal co-assured in a CAR policy to be entitled to the benefit of cover as another assured under such policy, the insured operator must have assumed a contractual obligation to such contractor to procure the benefit of cover for him. A mere intention to do so in the future is insufficient. Consequently, when an underwriter insures under a CAR policy, a Principal Assured and an unidentified Other Assured, the cover to which he agrees extends only to that which is given by the policy to the Principal Assured and to those Other Assureds with whom the Principal Assured has contracted and will contract to procure cover and only to the extent to which such cover is by the terms of the contract to be procured."
"So far as the High Court is concerned, puisne judges are not technically bound by decisions of their peers, but they should generally follow a decision of a court of co-ordinate jurisdiction unless there is a powerful reason for not doing so. And, where a first instance judge is faced with a point on which there are two previous inconsistent decisions from judges of co-ordinate jurisdiction, then the second of those decisions should be followed in the absence of cogent reasons to the contrary:" see Patel v Secretary of State for the Home Department  1 WLR 63" at .
"The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it . . . But the consent must have been given by each of them, either expressly or by implication from their words and conduct." (at page 508 col 2, per Lord Pearson)
"It is unsettled whether the person claiming the benefit of the insurance must be capable of ascertainment at that time, and not only subsequently, or whether subsequent ascertainment is no bar as long as that person belongs to a class of persons whose interests are expressly covered. Commercial convenience favours the latter view, but it is difficult to reconcile with the agency view that the principal should have been able to enter the contract at the time it was made. It may be more satisfactory to interpret the class wording in the policy as a standing offer made by the insurer to insure persons who are subsequently ascertained as members of the defined grouping."
"… a person who had no interest at the time of the insurance should not in principle be able to ratify and therefore should not be able to sue on such a policy as principal."
"98. The starting point is the general rule that insurance recoveries are ignored in the assessment of damages arising from a breach of duty: Bradburn v Great Western Railway Co (1874) LR 10 Ex 1; Parry v Cleaver  AC 1. This can conveniently be called the collateral payments exception. It is a departure from the general principle that collateral benefits are brought into account, and is probably best regarded as being based on public policy. Insurance recoveries are a benefit which the injured party has bought in consideration of his premiums, which are intended to inure to his benefit alone, not that of third party wrongdoers. Moreover, the courts have traditionally been concerned to preserve the subrogation rights of insurers against those who are legally responsible for the loss, which are an important part of the economics of insurance. The effect of the collateral payments exception is that as between the insured and the wrongdoer who has caused the loss, they are not treated as making good the former's loss or as discharging the latter's liability. The assumption underlying it is that as far as the wrongdoer is concerned, insurance is res inter alios acta, ie, loosely translated, none of his business. The rule thus stated falls to be modified in a case where insurance manifestly is the wrongdoer's business because, for example, he is a co-insured and/or the insurance is taken out for his benefit. The business context in which this has most commonly arisen is the co-insurance of employer, contractor and subcontractors under standard forms of building contract.
99. It is well established, and common ground between the present parties, that where it is agreed that the insurance shall inure to the benefit of both parties to the contract, they cannot claim against each other in respect of an insured loss. Co-insurance is the paradigm case. The principle first appears in the United States, but was successively adopted in early editions of MacGillivray on Insurance Law, by the Supreme Court of Canada in Commonwealth Construction Co Ltd v Imperial Oil Ltd  1 SCR 317 and by the English courts in a line of cases beginning with the decision of Lloyd J in Petrofina (UK) Ltd v Magnaload Ltd  QB 127. What is less clear is its juridical basis. Lloyd J was inclined to think that it was based on the rule against circuity of action, which is difficult to accept given that the insurer will not be a party to any litigation between the co-insureds. The better view, which was endorsed by the House of Lords in Co-operative Retail Services Ltd v Taylor Young Partnership Ltd  1 WLR 1419, paras 61-65 (Lord Hope), is that it is an implied term of the contract of insurance and/or of the underlying contract between the co-insureds pursuant to which their interests were insured. The implication is necessary because if the co-insureds are both insured against the relevant loss, the possibility of claims between them is financially irrelevant. It would be absurd for the insurer to bring a subrogated claim against a co-insured whom he would be liable to indemnify against having to meet it. It should be noted that this reasoning is relevant only to the position as between the co-insureds. In all of the English cases before this one the question arose between the co-insureds and their insurer. None of them raised the question how the principle about co-insurance affects claims against a third party wrongdoer who is not himself a co-insured and is not party to the arrangements between them. There is no necessity to exclude a claim against him and indeed no reason why either of the co-insureds or their insurer should wish to do so. It is impossible to identify any contract whose business efficacy depends upon that result being achieved.
100. As between a co-insured (or his insurer) and a third party wrongdoer, a different question arises which none of the existing English authorities purports to answer. The question is this: when we say that one co-insured cannot claim damages against another for an insured loss, is that because the liability to pay damages is excluded by the terms of the contract, or is it because as between the co-insureds the insurer's payment makes good any loss and thereby satisfies any liability to pay damages? The significance of this question may be illustrated by a hypothetical case. Suppose that A and B are engaged in some contractual venture, involving the use of A's property. The property is insured in their joint names. It is damaged in breach of some contractual duty owed to A by B, but the cause of the damage is some act of B's agent, X. If the effect of the co-insurance is that B's liability to pay damages to A is excluded, then B never had a relevant liability and has suffered no loss which he can claim over against X. But if its effect is that payment by the insurer makes good A's loss as between A and B and thereby satisfies any liability of B, the result is different. The effect is to exclude the collateral payments exception, so as between A and B the receipt of the insurance proceeds must be taken into account. However, the fact that the insurer's payment has made good the loss as between A and B does not mean that it has done so as between B and the stranger, X. As between B and X the insurance is res inter alios acta. Indeed, its normal consequence is that the claim will survive to be pursued by the subrogated insurers. Either analysis will achieve the object of the implication, namely to prevent claims between co-insureds. But they have radically different consequences for claims against third parties. Which is the correct analysis must depend on the particular terms of the particular contract. The answer will not necessarily be the same in every case."
"139. The critical question is whether the contractual scheme between the owners and the demise charterer precluded any claim by the former against the latter for the insured loss of the vessel. This is a matter of construction. It has become a common practice in various industries for the parties to provide for specified loss or damage to be covered by insurance for their mutual benefit, whether caused by one party's fault or not, thus avoiding potential litigation between them. The question in each case is whether the parties are to be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, or whether the existence of the fund co-exists with an independent right of action for breach of a term of the contract which has caused that loss. Like all questions of construction, it depends on the provisions of the particular contract: see, for example, Cooperative Retail Services v Taylor Young Partnership."
"The issue which lies at the heart of this question is whether the effect of the contractual arrangements between these parties is to be taken to be that Wimpey and Hall were never under any obligation to pay compensation to CRS for fire damage caused by their negligence, omission or default, as the entire cost of making it good was to be recovered from the insurers under the joint names policy; or whether they were under an obligation to pay compensation for that damage to CRS until it was made good in the event that the insurance cover failed or proved to be inadequate."
At  he also said:
"There is no doubt that both the main contract and the sub-contract contain provisions which have the effect in the clearest terms of excluding liability for damage to the works, work executed and site materials due to the negligence, breach of statutory duty, omission or default of the contractor and the sub-contractor respectively: see clause 20.3 of the main contract and clause 6.4 of the sub-contract. This has not been disputed by Mr Blackburn [counsel for the defendants]. It is also plain that the purpose of the all risks insurance which the contractor is required to take out and maintain in joint names of the employer, the contractor and the sub-contractors is to provide funds for the reinstatement of the works in the event of their being damaged up to and including the date when the certificate of practical completion is issued, whatever the cause of the fire. But the contractual scheme does not end there. For an understanding of its true effect it is necessary to pay close attention to the provisions of clause 22A.4, which deal with what is to happen in the event of loss or damage affecting work executed or any site materials occasioned by any one or more of the risks covered by the joint names policy."
Acceptance by conduct
"12. Primary Insurance
The Insurers agree that this insurance provides the primary cover for risks insured under this Policy. In the event that any risk insured under this Policy is also insured under any other policy of insurance effected by any Insured, the Insurers agree to indemnify the Insured as if such other policy of insurance did not exist except in respect of……"
Waiver of subrogation
The Contracts (Rights of Third Parties) Act 1999
"(1) Subject to the provisions of this Act, a person who is not a party to a contract (a "third party") may in his own right enforce a term of the contract if--
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
(5) ... ...
(6) Where a term of a contract excludes or limits liability in relation to any matter references in this Act to the third party enforcing the term shall be construed as references to his availing himself of the exclusion or limitation."