The Rugby Football Union v Clark Smith Partnership Limited & Anor

Whether a contractor is co-insured under project insurance, and the extent of any waiver of subrogation, depends principally on the contractual arrangements between the parties. A contractor does not become a party to an insurance policy merely because it is named or identifiable as an insured. The court must determine whether the party effecting the insurance had authority and objectively ascertainable intention to obtain cover for the contractor, and the extent of that cover. Where co-insurance applies only to specified risks, the contractor is protected only to that extent. A waiver of subrogation likewise cannot protect a contractor against losses for which it was not insured.

The Rugby Football Union engaged Clark Smith Partnership Limited to design high-voltage cable ductwork and F M Conway Limited to install it for works at Twickenham Stadium. The RFU later entered an all-risks project policy, under which it was indemnified for damage to cables allegedly caused by defects in Conway’s ductwork.

The RFU brought proceedings against Clark Smith and Conway. Conway brought Part 8 proceedings seeking declarations that it was co-insured under the policy and that the RFU and its insurer could not recover the insured losses from it. The court ordered preliminary issues concerning the effect of the policy and contract, the insurer’s subrogation rights, and Clark Smith’s entitlement to contribution from Conway.

1. The insured losses were recoverable from Conway. The policy and the contract did not make the losses irrecoverable, and Conway remained potentially liable to the RFU. The first preliminary issue was answered against Conway. The second issue therefore did not arise, although Clark Smith was entitled in principle to seek contribution under the Civil Liability (Contribution) Act 1978.
2. The governing principle is that parties insured under the same policy against the same risk cannot claim against each other for that insured loss. Its basis is found in the contractual arrangements between the parties. The court must construe those arrangements to determine whether insurance was intended to be the sole fund for the relevant loss or whether contractual liability co-existed with the insurance.
3. A person may obtain cover through agency, as an undisclosed principal, or in appropriate circumstances by accepting a standing offer from the insurer. The legal mechanism depends on the circumstances. In either event, the underlying contract determines whether cover exists and its extent. Authority and intention are separate requirements, and intention is assessed objectively.
4. Being named or identifiable as an insured does not, without more, make a person a party to the insurance contract. Conway was not identified from the policy alone and could not rely on the policy as though its cover were fully co-extensive with the RFU’s.
5. The contractual documents showed that the RFU had obtained the cover contemplated by Insurance Option C of the JCT contract for the project as a whole. They did not establish a common insurance fund which was the RFU’s sole remedy for loss caused by Conway’s breach or default. Conway and the RFU were therefore not co-insured in respect of the losses for which the RFU had been indemnified.
6. The waiver of subrogation extended only to matters in respect of which Conway was insured. It did not protect Conway against the RFU’s losses, because RSA’s claim was based on the RFU’s right to compensation for loss caused by Conway, rather than on a subrogated claim against Conway as an insured party.