Haberdashers' Aske's Federation Trust Ltd v Lakehouse Contracts Ltd & Ors

In project-wide construction insurance, a subcontractor may fall within the class of insureds, but the parties’ express contractual allocation of insurance remains decisive. An express term requiring the subcontractor to obtain its own insurance prevents implication of a contrary term making it an insured under the project policy, or conferring equivalent rights through agency, a standing offer, conduct or the Contracts (Rights of Third Parties) Act 1999.

Project insurance described as primary cover pays first where the same risk is insured elsewhere. It does not necessarily prevent subrogated recovery against the subcontractor’s separate liability insurance. Waiver of subrogation and co-insurance protections are available only to a party that has established insured status.

The claim arose from a fire during roofing works at a school. Lakehouse was the main contractor and Cambridge Polymer Roofing Ltd was its subcontractor. The project was covered by project-wide insurance, while the subcontract required the subcontractor to maintain separate liability insurance.

The owners’ claims against Lakehouse and the subcontractor were settled for £8.75 million. The remaining preliminary issue was whether the subcontractor could rely on the project insurance to resist Lakehouse’s subrogated claim, limited to the subcontractor’s £5 million separate insurance cover. The court considered whether that result followed from the project policy, the subcontract, agency, a standing offer, acceptance by conduct, waiver of subrogation or the Contracts (Rights of Third Parties) Act 1999.

1. Preliminary issue determined. The declaration sought by Cambridge Polymer Roofing Ltd was refused. Lakehouse was entitled to pursue, on behalf of the Project Insurers, recovery of the losses covered by the subcontractor’s separate £5 million policy.
2. The project policy and the contractual scheme identified subcontractors as potential insureds. However, the legal mechanism by which a subsequently appointed subcontractor obtained cover depended on the subcontract between the main contractor and that subcontractor. The approach in Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd’s Rep 578 was correct: the subcontract was central to ascertaining the parties’ intention.
3. Whether analysed as agency, a standing offer or acceptance by conduct, the express term in clause 6 requiring CPR to obtain its own insurance excluded any contrary implied term. An implied term could not contradict an express term dealing with the same subject matter. The commercial context and the project policy’s primary-insurance clause did not alter that conclusion.
4. The standing-offer analysis was the preferable legal analysis for unidentified subcontractors. Acceptance would occur through the subcontract and would imply a term in that subcontract. But CPR did not join the relevant grouping to the extent that its express agreement required separate insurance. The necessity and business-efficacy bases for implication were absent.
5. The reasoning in National Oilwell (UK Ltd) v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582 and the highly persuasive dicta in BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd [2005] 1 Lloyd’s Rep 307 were consistent with that approach. Objective intention was relevant, but the express subcontract terms provided the decisive evidence.
6. CPR could not rely on the project policy’s waiver of subrogation or co-insurance principles because it was not an insured. The exclusion of third-party rights in the project policy also defeated reliance on section 1 of the Contracts (Rights of Third Parties) Act 1999. The question of recovery beyond the limit of CPR’s own insurance was left open.