Subrogation - Haberdashers' Aske's Federation Trust v Lakehouse Contracts & Ors

Case Alert - [2018] EWHC 558 (TCC)

Judge holds that insurers can pursue subrogation claim against sub-contractor on a project.

A main contractor entered into a project insurance policy, which included cover for sub-contractors. The main contractor sub-contracted roofing works to a sub-contractor, which was undertaking "hot work" at the project site when a fire broke out, causing extensive damage to buildings. The project insurers indemnified the main contractor and then sought to recover some of that payment from the sub-contractor. The sub-contractor argued that the subrogation claim couldn't be pursued because it was a co-insured under the project insurance policy. However, there had been an express term in the roofing sub-contract entered into between the main contractor and the sub-contractor that the sub-contractor would obtain its own third party liability insurance cover (which it had done). The project insurers argued that, as a result, the sub-contractor was not entitled to be covered under their policy.

The insurers accepted that sub-contractors who had already contracted with the main contractor when the project insurance policy was taken out would ordinarily be covered under the policy. They also accepted that sub-contractors who were appointed after the policy was in place were also covered by the policy because of an implied term in the sub-contract ("This implication of a term would occur by means of a standing offer to a sub-contractor to be included in the Project Insurance, that offer being accepted by the sub-contractor by execution of the sub-contract". The Contracts (Rights of Third Parties) Act 1999 was excluded under the policy). However, the project insurers argued that there was an exception to this position where there was an express term in the sub-contract that the sub-contractor would take out its own insurance.

That argument was accepted by Fraser J. Reference was made to the recent Supreme Court decision in Gard Marine v China National Chartering where, although it was held that subrogated claims cannot generally be brought against co-insureds, it was also emphasised that regard had to be made to the particular terms of the particular contract between the co-insureds. Fraser J also pointed out that "in order to avail itself of what is effectively immunity from suit by a co-insured, [the sub-contractor] has to demonstrate that it is a co-insured in the first place". He held that it could not do that given the...