Contractors beware: insurance clause cuts down policy coverage

United Kingdom

The Court of Appeal has considered a joint names insurance policy taken out by an employer which was expressed to provide cover greater than required by the underlying building contract. The Court held that, despite the wording of the policy, the contractor was only insured to the extent required under the contract. As a result, a subrogated claim was able to be pursued by insurers against the contractor in respect of amounts paid to the employer under the policy.

FM Conway Limited v The Rugby Football Union

In advance of the 2015 Rugby World Cup, the Rugby Football Union (“RFU”) undertook a considerable upgrade programme to the facilities and infrastructure at Twickenham Stadium. The RFU engaged a number of contractors to perform the necessary works through a series of separate works packages or sub-projects. FM Conway were appointed to install ducting to house new high voltage power cables. The installation and “pulling through” of those cables was a separate package to be carried out by a different contractor.

The new cables were damaged in the course of being pulled through the ducting installed by FM Conway. The cost of replacing the damaged cables was recovered by the RFU under a project insurance policy (the “Policy”). RFU’s insurers then brought a subrogated claim against FM Conway alleging that the damage to the cables had been caused, among other things, by defective installation of the ducting on FM Conway’s part. 

The Policy was expressed to cover, in addition to the RFU, the “Contractor for each Project” as well as “all other contractors and/or sub-contractors of any tier and others engaged to provide goods or services in connection with the Project”. The Policy also included a waiver of subrogation clause stating that the insurers “agree to waive all rights of subrogation which they may have or acquire against any insured party …”. FM Conway claimed that it was an insured party under the policy and protected from subrogation claims.

The RFU’s insurers relied on the terms of the building contract between the RFU and FM Conway, a 2011 JCT Standard Building Contract, which incorporated the JCT’s standard Option C insurance clause. This clause required the RFU to take out a joint names insurance policy on certain terms covering the Works. However, such a policy would not have covered the damaged cables. By contrast, the Policy taken out by the RFU covered all the packages of work involved in the upgrade programme and did provide cover in respect of the damaged cables.

The RFU’s insurers argued that FM Conway should only be insured under the Policy to the extent required by the JCT insurance clause and that the waiver of subrogation under the Policy should only apply to that extent. On this basis, FM Conway was not an insured party in respect of the cable damage claimed by RFU under the Policy.

Intention and authority

Given the Policy had been taken out by the RFU, the Court of Appeal emphasised the need to establish the RFU’s intention and its authority to extend cover to FM Conway. Lord Justice Coulson summarised the approach to be taken as follows:

“In 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). … where there is an underlying contract then, in most cases, it will be much the best place to find evidence of authority, intention and scope … That is not to say that the underlying contract will always provide the complete answer. Circumstances may dictate that the court looks in other places for evidence of authority, intention and scope of cover …”

FM Conway relied on pre-contractual discussions in an attempt to show that the RFU had intended, and was authorised, to provide cover to FM Conway on a much broader basis. These discussions were to the effect that comprehensive insurance cover was to be taken out by RFU which would create a fund to make good loss and damage and avoid disputes between the parties and their insurers. In particular, it was said to have been envisaged that this cover would be broader than the joint names policy required by the JCT Option C insurance clause.

Policy coverage cut down to size

The Court of Appeal upheld the TCC’s decision that FM Conway was insured under the Policy only insofar as required by the JCT insurance clause. It was not, therefore, an insured in respect of the damage to the cables and a subrogated claim was able to brought against it.

In the Court’s view, the best evidence of the RFU’s intention, and its authority, in relation to the Policy came from the building contract and a letter of intent which preceded it. It was clear under these documents that the JCT insurance clause was to apply and that FM Conway was not to be covered in respect of damage caused by its own defective work. The fact that pre-contractual discussions had been had as to a broader insurance arrangement was not sufficient to displace the strong indicators of intention and authority provided by the contract and letter of intent.

Conclusions and implications

This is an important Court of Appeal decision which clarifies the operation of joint names insurance taken out in respect of construction works. Importantly, it is now clear that the mere fact such a policy states that it covers the interests of named or identifiable third parties does not of itself give those third parties the right to enforce its terms. When a person becomes a party to an insurance policy as a consequence of the actions of another person, it is likely to be the terms of the contract between the insured party and that other which govern the extent of the insurance.

Contractors and sub-contractors should not, therefore, assume that they are automatically covered by a project-wide joint names insurance policy that has been put in place on their behalf and they should review the terms of their contract carefully. It is this, rather than the policy itself, that will determine the extent of cover.

It is worth noting that the standard JCT Option C insurance clause discussed in this case is phrased in terms of the Employer procuring a joint names policy with cover “no less than” that specified in the contract. Such language was not sufficient to allow FM Conway to take advantage of the broader terms of the Policy, but it is conceivable that a more generously worded clause may do so.


FM Conway Ltd v Rugby Football Union [2023] EWCA Civ 418