It is the often the case that sub-contractors believe they are covered by project insurance where sub-contractors, as a general category, are a named class under the project insurance.
However, a recent case this year has highlighted and confirmed that just because a sub-contractor is named as an insured class in the policy documents, it does not necessarily follow that they are covered by the project insurance. The case in question was Haberdashers’ Aske’s Federation Trust Limited and Another v Lakehouse Contracts Limited and Others[i].
Sub-contract required additional insurance cover
The project involved works to a college. Lakehouse Contracts were engaged by the Local Education Partnership for the works to be carried out.
Lakehouse entered into a sub-contract with Cambridge Polymer Roofing Limited (“CPR”) for the roofing works.
The overall project, which was under the Government’s Building Schools for the Future initiative, involved project-wide insurance. That included Lakehouse and its sub-contractors as named categories of persons covered by the project insurance.
So on the face of it the project insurance included CPR as a co-insured. However, the sub-contract with CPR also required CPR to obtain its own insurance cover, of £5 million.
Damage caused by hot works led to claim
CPR’s works involved hot works using a blow torch. There was a fire in the area of their hot works, which caused extensive damage.
As a result, proceedings were commenced against Lakehouse and CPR, with damages claimed at over £11 million.
Lakehouse brought its own additional claim against CPR, seeking a contribution and indemnity from CPR, given that it was CPR who had carried out the hot works. CPR, in turn, sought a declaration from the Court that it could rely on the project insurance, on the basis it was a co-insured.
Lakehouse, via its insurers, settled the claim against it. It paid circa £8.7 million to settle the claim against it, paid by its insurers.
Lakehouse’s insurers then sought to recover from CPR the £5 million of insurance CPR was required to take out under its sub-contract.
In its defence, CPR argued that as it was named as a class of persons insured under the project insurance, it was a co-insured, and so entitled to cover under the overall project insurance. As a result, said CPR, it could not be liable for the sum claimed, even though it had taken out its own separate £5 million worth of insurance as required under its sub-contract
Sub-contract clause required additional insurance
The Court rejected CPR’s contention. The Court reviewed the case law relating to this issue. It found that Lakehouse could bring a claim against CPR despite CPR being named as a class of insured under the wider project insurance.
This was mainly because the reference in the project insurance to sub-contractors being a class of insured amounted to an “offer.” That offer would normally be accepted on CPR entering into the sub-contract, so that there would be an implied term of the sub-contract that they were co-insureds.
However, CPR had agreed to a clause in its sub-contract which required them to obtain their own insurance. The court found that the effect of that was to prevent CPR from being a co-insured. The express requirement to obtain their own insurance displaced the above implied term of being a co-insured. So Lakehouse could pursue CPR for the £5m cover it held.
Sub-contractors should not assume they are co-insured
Although this was a case ultimately between the parties’ insurers, it highlights the need for sub-contractors, and others named as co-insureds under project insurance, not simply to assume that they are co-insured without first checking whether their contracts contain an obligation to obtain their own insurance. If they do, then it is unlikely that they will be covered under the project insurance.
[i]  EWHC 558 (TCC)