| Date | 29 August 2007 |
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| Judgment | John F Hunt Demolition v ASME Engineering, TCC 27 June 2007, and Tyco Fire & Integrated Solutions (UK) v Rolls-Royce Motor Cars, TCC 29 June 2007 |
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| The Issue | The manner in which provisions for joint names insurance in construction contracts can determine risk allocation between the parties to a contract. |
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| Implication |
Where the parties to a building or engineering project have agreed that one of them is to take out joint names insurance for the benefit of two or more parties, the risk of certain types of loss is transferred away from the jointly-named parties to the insurer regardless of who was at fault. |
printTwo recent cases highlight how provisions for joint names insurance in construction contracts can determine risk allocation between the parties to a contract. In the case of John F Hunt Demolition v ASME Engineering the Employer, Kier (Whitehall Place) Ltd., entered into a contract with the main contractor, Kier Build Ltd., adopting the JCT With Contractor’s Design, 1998 edition form of contract. Part of the work under the contract involved retaining the facades of the building. The main contractor contracted with the claimant (Hunt) as demolition sub-contractor, adopting the JCT Domestic Subcontract DOM 2, with bespoke amendments. In turn, Hunt contracted with the defendant (ASME) as a sub-subcontractor, for the provision of temporary supports to the facades during demolition. The sub-subcontract was evidenced in correspondence, but made no reference to those other JCT based contracts. The facades were damaged in a fire caused by ASME's works; sparks from welding work set light to bitumen felt weather-proofing on the facades. In this respect the court was asked to assume the fire was due to ASME’s negligence, in order to deal with the disputes of principle by way of preliminary issue. Hunt settled a claim brought jointly by the Employer and the main contractor and subsequently sought to recover from ASME the amount paid in settlement. Under the main contract, the main contractor gave a general indemnity to the Employer against any loss or damage caused, excepting where the damage involved the works and/or the site materials, or where the damage was caused to the existing structures at the site by a specified peril, including fire. There was a contractual obligation on the Employer to maintain a joint names policy in respect of the existing site structures, including the facades. Under that joint names policy, each of the sub-contractors was to be recognised as an insured. It was therefore clear that the main contractor was not liable to the Employer in respect of the damage to the facades caused by the fire. The contract allocated the risk for such damage to the insurers. Notwithstanding this, Hunt settled the claim from the Employer and main contractor and claimed recovery from ASME. The premise of their argument was that they, Hunt, had been liable to the employer in negligence and that the contractual provisions regarding the indemnity and the joint names insurance did not stop a duty of care from existing between Hunt and the Employer. The Court held that this argument must fail. Parties to the main and sub-contracts knew that if fire, or any other specified peril, caused damage to the existing site structures, the loss would be covered by the joint names insurance. This was a contractual allocation of risk. It would be inconsistent with that regime for any party to sidestep that by arguing negligence against a sub-contractor. Therefore, Hunt was not entitled to recover that part of the settlement from ASME. In the second case, Tyco Fire & Integrated Solutions (UK) v Rolls-Royce Motor Cars, the claimant Tyco designed and installed a fire protection system for the defendant’s new assembly plant at Goodwood, East Sussex, and agreed to indemnify the defendant against any damage which resulted from the claimant's negligence. Under the contract dated 14 November 2002, the defendant Employer, Rolls Royce, was required to maintain joint names insurance in respect of specified perils (including flooding and other water damage). However, it failed to take out this insurance. Subsequently it transpired that there was a leak from the sprinklers that Tyco had installed and damage occurred to parts of the building which were not part of Tyco’s works. Rolls Royce claimed for damages. In response, Tyco argued that the correct course for action by the Employer was against the insurer, not the contractor, Tyco. The fact that Rolls Royce had failed to take out the joint names insurance required by the contract did not change this situation, and allow it to redirect its claim to the contractor. The court agreed with this. Under the contractual scheme adopted by the parties, the contractor's obligation to indemnify the employer for the damage caused by the flooding was subject to the employer’s obligation to maintain joint names insurance. It would be unjust if the employer’s failure to take out such insurance resulted in the contractor becoming liable under the indemnity. Both of these cases demonstrate that where the parties to a building or engineering contract have agreed that one of them is to take out joint names insurance for the benefit of two or more parties, the risk of certain types of loss is transferred away from the jointly-named parties to the insurer; this is regardless of who was at fault. There are perceived benefits to this approach:
CJ-0734
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