| Date | 18 February 2008 |
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| Judgment | Hopewell Project Management Ltd -v- Ewbank Preece Ltd, ORB 1 August 1997 |
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| The Issue | Whether a sub-consultant on a design and build or BOT contract will benefit from a joint names all risks insurance policy described for the benefit of the insured and all contractors and sub-contractors. |
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| Implication |
Professional firms acting as sub-consultants to contractors will not normally be covered by such policies and should seek to obtain endorsements expressly to this effect. |
printConstruction contracts commonly require the contractor to take out insurance to cover what are almost always contractual obligations arising under the construction contract. The risk traditionally covered by such insurance will extend to damage occurring to the works themselves during construction and the risk of claims by third parties for personal injuries or damage to their property resulting from the carrying out of the construction works. The objective of the insurance is to cover economic loss which would otherwise be incurred by the contractor as a consequence of its contractual liabilities, but to safeguard the employer in the event that the contractor's financial resources are inadequate to meet its contractual liabilities in the event of a major loss. Of course the insurance world in general and the drafting of insurance contracts in particular are specialist fields. As can be determined from a substantial line of legal cases in recent years concerning insurance and performance bonds, insurers have been particularly adept at drafting policies which limit or avoid the very liabilities which are being sought. One common device used by insurers is the right of subrogation, or the settlement of claims in return for assignment of rights, in order to transfer, reduce or eliminate the insurers liability. Subrogation is the process whereby an insurer pays a claim in full, but becomes entitled to sue third parties in the name of the insured. This has been used in the construction context to shift the burden of meeting a claim under a contractor's policy onto the shoulders of sub-contractors. It is for this reason that standard form contracts generally now require contractor's all risk insurance to be held in joint names, thus preventing subrogation against any other party caught within the "umbrella" of the policy. Precisely who might be covered by such a contractor all risk policy was considered in the case of Hopewell Project Management Ltd -v- Ewbank Preece Ltd. Hopewell had entered into an agreement with the National Power Corporation of the Phillipines to build, operate and then transfer after a period of 12 years, a power station. Revenues from income generated by the operation of the power station were to fund the entire project. Hopewell had engaged Ewbank as a sub-consultant to provide engineering services. The project involved the dismantling of three gas turbine units at Wray Power Station in Colerado, in the USA, and the re-erection and refurbishment, including testing and commissioning of these turbines, in the Phillipines. During commissioning of the plant in 1990, two of the turbines failed and Hopewell alleged that the damage had been caused when bolts which had been removed for transportation had not been replaced. In the event Hopewell's insurers paid out substantial sums for the cost of repairs and loss of profits, and commenced a subrogated claim against Ewbank. Ewbank in turn defended that such a claim could not be brought against them, as they were also insured under the same policy. This question was examined in a trial of preliminary issues in the Official Referees court. The insurance policy in question described the name of the insured as "Hopewell Project Management…and/or all contractors and sub-contractors…" The crucial question was therefore whether the defendant (Ewbank) fell within the category of contractors and sub-contractors and whether they, therefore, were one of the parties insured by the policy. This was against the background that Ewbank were of course sub-contracted to Hopewell but to provide professional services rather than to carry out sub-contracted project works. Considering all the matters before him the Judge held that Ewbank were not covered by the policy of insurance and could therefore not defeat the subrogated action against them by this means. "I am bound to say that in my experience, the terms contractor and sub-contractor are invariable used to refer to persons, firms or companies who carry out physical works of construction… In the light of the evidence as a whole I find that it would be most unusual for the term contractor or sub-contractor, appearing in a contractor's all risks policy, to mean or include within its meaning a firm providing professional services." The Court concluded that it was not the parties intention that Ewbank should be covered by the all risks policy.
CJ-9806
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