| Date | 7 May 1997 |
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| Judgment | London Borough of Barking and Dagenham -v- Stamford Asphalt Company Ltd. Court of Appeal, 20 March 1997 |
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| The Issue | Insurance and liability provisions of the JCT forms. |
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| Implication |
Contractor unable to claim under the general insurance of the works provisions in the event of a fire caused by the contractor or subcontractor's negligence. |
printThe insurance and related liability clauses of the JCT forms often cause difficulty of interpretation, but upon examination the general scheme intended by the contracts is reasonably clear. Taking the 1980 Minor Works form of contract as an example, clause 6 deals with injury, damage and insurance. Clause 6.1 concerns injury to or death of persons and places the contractor under a duty to indemnify the employer against any liability or proceedings arising in respect of personal injury or death caused by the carrying out of the works. Clause 6.2 deals with injury or damage to property other than the works. The contractor is liable for and indemnifies the employer against any loss or damage to any property excluding the works, caused as a result of any negligence or breach of the contractor during the carrying out of the works. The contractor is required to take out insurance to cover his responsibilities under this clause. Clause 6.3 covers the obligations to insure the works themselves from damage caused by the specified perils (fire, lightning, explosion, storm, etc). Insurance is taken in the joint names of the employer and contractor, and under clause 6.3a, generally used where the project is for new works, the contractor carries the obligation to take out the insurance and in the event of a claim is paid only the monies received under the insurance policy. Clause 6.3b, generally used where the work is to existing structures, requires the employer to take out the necessary insurance policy and here, in the event of a claim, the contractor will be paid for the reinstatement works as if they were a variation to contract. These provisions were recently analysed in the case of London Borough Barking and Dagenham -v- Stamford Asphalt Company heard in the Court of Appeal on 20 March 1997. Stamford had taken out the relevant insurance required by clause 6.2, that is injury or damage to property other than the works, but in breach of clause 6.3b the employer had not effected the joint names policy for the specified risks. A fire broke out and as a preliminary issue the Official Referee had decided that this had been negligently caused by a subcontractor. The employer claimed against the contractor under clause 6.2 for direct and consequential losses arising from damage to the building and its contents. Faced with this claim the contractor's insurers had counterclaimed alleging that the employer's failure to insure had caused them substantial loss as the building contents and works would have been covered under the provisions of clause 6.3b, and they had been deprived of this protection due to the employer's failure to insure. The court examined the provisions with care. They concluded that clauses 6.2 and 6.3 were concerned with entirely different types of damage. Clause 6.2 was concerned with liability for damage negligently caused by the contractor. Most of the specified perils in clause 6.3, on the other hand, were of a kind which resulted only from natural phenomena, ie acts of God. That was how 'fire' should be interpreted in that context. Whilst there was nothing to prevent the employer from insuring against fire caused by the negligence of the contractor, that would simply be a duplication of the requirement under clause 6.2 for the contractor to take out such insurance. The court decided that it could not have been the intention of the contract's draughtsman, nor the parties, that the employer's insurance would apply for the benefit of the contractor so as to enable the contractor to escape liability for its own negligence. The arguments put forward by the contractor and its insurers to the contrary were, according to the appeal court, defeated by the contract's clear intention. The contract was established on the basis that the contractor should pay for its own default (and was expected to carry insurance to that effect), whereas the employer would have insurance cover to ensure speedy reinstatement of the building contents and works damaged by circumstances which were not the contractor's fault. The contractor's appeal was therefore dismissed. The fact that the employer had failed to effect the necessary insurance under the contract was irrelevant in the context of a claim for losses arising from a fire caused by the contractor or his subcontractor's negligence. Employer's insurance, had it been put in place, would simply not have been required to cover such an event. This decision must been seen as an extremely surprising one. Many practitioners would have previously thought that clause 6.2 concerned the contractor's obligations with regard to damage to adjacent property and not the works themselves. The philosophy of the standard JCT provisions has always been to avoid expensive legal argument as to the cause of a problem and simply to rectify it and get on with the work. Accordingly, it has generally been assumed that where the employer carried the risk of loss or damage to the works, together with the contractual obligation to insure, it would be obliged to pay for reinstatement regardless of whether the damage was caused by the contractor's negligence. This case may require these orthodoxies to be reconsidered.
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