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Subrogation, co-insurance and CAR insurance policies

03 August 2022 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

This United Kingdom judgment dealt with the issue of co-insurance under project construction all-risk policies, and the extent of cover when facing a subrogated claim from the project insurers. It depends on the terms of the project contract.

The Rugby Football Union (RFU), as the employer insured under the CAR policy, engaged CSP to design buried ductwork which was to contain power cables and FMC to install the cables.

The RFU claimed for defective ductwork which caused damage to the cables. It was indemnified by the project insurer.

The insurer then sought to recover those sums both from FMC in a subrogated recovery action on the basis that the damage had been caused by its defective workmanship.

FMC contended that it was a co-insured under the project policy giving it the benefit of cover to the same extent as the RFU and which prevented the insurer from pursuing the subrogated claim against it.

The court said that the construction contract is key when determining the intention and the authority of the principal insured when insuring risks.

In determining whether a contract effected by the employer or the contractor applies to the contractor or sub-contractor, and to what extent, requires consideration of the terms of the contract between those parties which are key to the existence and extent of the insurance cover.

Having regard to the intention and authority of the RFU, the court found that the contract documents read together did not demonstrate an intention for the project policy to create the sole remedy for loss suffered by the RFU as a consequence of a breach by FM.

FM was insured under the policy but the extent of cover envisaged did not make it a co-insured in relation to the damage for which the insurer had indemnified the RFU.

The waiver of subrogation clause in the policy only related to matters for which FMC Conway had cover under the policy and so did not prevent this subrogated claim by the insurers.

First published by: Financial Institutions Legal Snapshot

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