It is becoming increasingly common practice, particularly in the construction industry, for parties to agree that a single project insurance policy will cover all the parties interested in a project.
Insurance has a key role in facilitating projects, obtaining funding, but also quantifying and identifying the parties' legal risk to protect their own businesses. A normal insurance policy allows subrogation which means that if you are insured and you have to pay damages to somebody, but part of those damages were caused by a third party, your insurer can effectively step into your shoes and pursue the third party for a contribution. In a project insurance policy, it is common to waive those subrogation rights, so all of the co-insured parties cannot claim against each other and therefore the risk is shared across the parties within a project without complicated allegations of blame.
Further down the chain
A recent fire at Haberdasher Askes School has helped to understand the interaction between a project insurance policy and sub-contracts further down the chain which contain insurance obligations. In this particular case, Lewisham Borough Council used the Priority Schools Building Programme to engage an SPV to build an extension to their school in Lewisham. That contract required the private sector partner to purchase project insurance covering the Council, the SPV, the main building contractor and sub-contractors of any tier, and furthermore that the insurer should waive all rights of subrogation against any insured party. Lakehouse were engaged as the Main Contractor and, in turn, they employed Cambridge Polymer Roofing as the specialist roofing Sub-Contractor. It was an express term of the Sub-Contractor that Cambridge Polymer obtained its own insurance.
During the course of the works there was a fire, allegedly caused by hot works on the roof. The Council sued Lakehouse who settled for £8.75m provided by the project insurer, who then attempted to run a subrogated claim against the Sub-Contractor for a £5m contribution. The sub-contractor argued that it was entitled to cover provided by the project insurance, and so the subrogated claim should not proceed. The judge concluded that the sub-contract obligation on Cambridge Polymer to maintain insurance was an express term that governed liability in that area. The analysis was that their project insurance contained a standing offer for sub-contractors to join that cover and, if they chose to do so, it became an implied term in their sub-contract that they were insured by the project policy. However, as a matter of general law, implied terms cannot conflict with express terms. Therefore, the implied term did not exist in circumstances where the sub-contract itself contained an express insurance obligation. Therefore, the subrogated claim proceeded against the sub-contractor's insurers for a £5m contribution.
Project insurance policies
From a practical perspective, all businesses carry insurance (or should do so), not only to protect themselves but to comply with compulsory rules on Employer's Liability and Public Liability cover. For that reason, it is almost routine for an insurance clause in a contract to be accepted subject to a correct description of the insurance involved. However, if you are working as part of a much bigger project, and you are told that there is a central project insurance policy, then not only might this reduce your premiums for your own insurance, but you will actually have to take positive steps to delete the express insurance obligation in your sub-contract because, for the reasons stated above, the existence of that term requiring you to carry your own insurance prevents any implication that you are covered by the project policy. It would, therefore, be sensible to ask detailed questions at the beginning of a job, to identify how the project will be insured and then obtain evidence that the insurance is actually effective and in position so that you can delete your sub-contract clause that might otherwise prejudice that protection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
