GD Construction (St Albans) Ltd. v Scottish & Newcastle Plc

Where a building contract expressly links a contractor’s liability clause to an employer’s obligation to insure existing structures under a joint-names policy, the provisions must be construed together. A stated exclusion for damage caused by a specified peril excludes liability for negligent fire where fire has its ordinary insurance meaning.

That meaning includes a fire proximately caused by the negligence of the contractor, its subcontractors or a third party, unless the policy provides otherwise. Joint insurance without recourse between co-insured parties confirms the contractual allocation of that risk to insurance. The usual approach to construing an exclusion of negligence does not apply where the contractual scheme makes that allocation clear.

The employer engaged the contractor under the JCT Intermediate Form of Building Contract, IFC 84, to refurbish a public house. The contract required the employer to insure the existing structure against specified perils, including fire, under a joint-names policy with no recourse between co-insured parties. The employer did not obtain that insurance.

On the assumed facts, a subcontractor negligently started a fire during the works. The employer claimed the cost of repairing the existing structure and business-interruption losses. HHJ Seymour QC held that the contractor was liable for both categories; the contractor appealed only the ruling concerning the existing structure. The central issue was whether clauses 6.1.2 and 6.3C.1 excluded liability for negligently caused fire damage to property which the employer was required to insure.

1. Appeal allowed unanimously. Mr Justice Aikens, with whom Longmore LJ and Ward LJ agreed, held that the contractor was not liable for the cost of repairing the existing structure. The preliminary issue was answered in the negative to that extent.

2. Clause 6.1.2 first defined a broad liability and indemnity for loss caused by negligence, breach of statutory duty, omission or default in carrying out the works. Its final sentence expressly cut down that liability when clause 6.3C.1 applied. It excluded damage to property required to be insured under that clause where the damage was caused by a specified peril.

3. The relevant provisions formed a single scheme allocating risks between the parties. Clause 6.3C.1 required a joint-names policy for the full cost of reinstating, repairing or replacing the existing structures. The policy had to protect both employer and contractor and preclude recourse between co-insured parties. The employer’s failure to obtain the required policy did not alter the contractual allocation of risk.

4. In an insurance context, unqualified fire ordinarily covers loss proximately caused by fire, including fire caused by the negligence of an assured or a third party. It therefore covered the fire caused by the subcontractors’ negligence. It did not, absent express words, extend to fire deliberately caused by the insured itself.

5. The joint-names and no-recourse provisions confirmed that the intended source of recovery was insurance rather than a damages claim against the contractor. The court applied the contractual approach reflected in [1954] 1 WLR 459, [1986] 1 WLR 995 and [2002] 1 WLR 1419. The cases relied on by the employer were distinguishable because their contracts did not expressly connect the contractor’s liability exclusion with the employer’s joint-insurance obligation. Accordingly, there was no genuine ambiguity requiring application of the Canada Steamship approach to exclusion clauses.

• Court of Appeal (Civil Division): Allowed the contractor’s appeal and reversed the preliminary ruling insofar as it held the contractor liable for damage to the existing structure: [2003] EWCA Civ 16.
• Technology and Construction Court: HHJ Seymour QC held the contractor liable on the preliminary issue. The decision was reported at 80 ConLR 76.