or many years, insurers specialising in insurance of construction and engineering works have been comfortable with the Joint Names insurance provisions for the works under NEC and JCT Forms of Contract.
Revisions to the JCT Forms of Contract over the years have established the principle of Joint Names insurance coverage and the basis of the hold harmless provisions that this effectively provides to the employer, contractor and any other party to the Joint Names policy.
Whilst there are of course differences between the NEC and JCT Contract Forms themselves, the fundamental concept of a Joint Names insurance cover remains constant and has certainly formed the basis of the insurance industry’s consideration of risk allocation and insurance/indemnity.
Insurers have long accepted that the named parties to the insurance are fully protected thereunder and there are no effective rights of recovery against a Joint Insured in respect of claims costs incurred, howsoever the loss might be caused, irrespective of causation, fault or negligence.
Whilst this might seem inequitable in many eyes, a full and effective waiver of subrogation rights is in place and any insurance claim for loss or damage to the insured property would begin and end with the Joint Names’ insurers.
The decision in the case referred to does not necessarily alter the underlying nature of the Joint Names insurance, but opens up a much wider area of concern and potential uncertainty, regarding contractual claims under other clauses.
The decision essentially states that whilst the Joint Names insurance provisions prevail, it does not preclude any potential recovery under all other terms and conditions of the contract.
It is clear that if this is upheld (assuming that an appeal is a strong likelihood), then we may see contract provisions amended to provide an effective route of recovery through other clauses in the contract or by bespoke amendment.
The position could become even more difficult where the Joint Names insurance provisions extend to an existing building being worked upon, and loss or damage caused to that structure during the contract works being undertaken.
For many years construction insurers providing public liability coverage, in respect of third-party properties being worked upon have been able to rely upon, an effective relief of any liability under their policy arising from loss or damage caused by the specified perils, even if their policy holder was negligent in causing damage to the third-party property.
Where the insurance policy is arranged for the contractor on an annual basis, the rate charged on the forecast turnover would ordinarily take into account the perceived risk allocation and a discounted premium would be derived as a result, where it was assumed that insurance was arranged by the employer on a Joint Names basis under contract.
This assumption could now be fundamentally undermined, and insurers might need to consider a different approach to rating and premium evaluation for risks in the future.
In summary, if the decision is upheld, if the logic is applied to JCT Contracts – this would certainly seem a possibility – or if the decision becomes a benchmark in contractual law in England and Wales, then the contract employer could well be advised to amend the provisions of the contract to allow an effective route of recovery against the contractor in respect of damage arising from his negligence or that of a subcontractor acting on his behalf.
This could potentially see the landscape change completely for the construction insurance market when considering the impact of Joint Names insurance provisions.
We must all now wait for further developments and see if this case does indeed deliver a decision that fundamentally alters the way in which construction insurance risks have been underwritten in the past and more importantly how they will be appraised in the future.