Joint-Named Insurance

Considering the allocation of risk is crucial when drafting

construction and project agreements. Often, insufficient attention

is paid to ensuring the prescribed insurance covers are appropriate

to the respective parties' risk exposures. When obtaining

joint-named insurance the consideration of the allocation of risk

as set out in the contracts' indemnities and liabilities

provisions is very important.

Historically, the courts have not allowed an insurer to pay out

to insured party A and then exercise subrogation rights in order to

recover from insured party B. At one time the basis of this rule

was "circuity" as it was thought that insured party B

would then be entitled to an indemnity under the insurance. In

Co-operative Retail Services Limited v. Taylor Young

Partnership Limited [2002] 1 WLR 1419 ("the CRS

Decision") the House of Lords stated (obiter) that the basis

of the 'rule' was found, not in the principle of circuity,

but in the underlying construction/project contract between the

parties.

In the recent case of Tyco v Rolls Royce [2008] EWCA

Civ 286, the Court of Appeal ("CA") had to consider the

extent to which the doctrine of joint-named insurance could

override express provisions where one of the joint-named insureds

was liable for negligence or other default to the other joint

insured.

The CA distinguished the contract in the CRS Decision from the

one in this case. The former contract contained highly detailed

provisions making it completely clear that any possible liability

for negligence on the part of the contractor (so far as damage

within the scope of the joint names policy provisions was

concerned) was excluded. In the present case, the liability clauses

were general and not specifically crafted to exclude certain works.

There was nothing express in the language of the contract, unless

it was to be found in the mere mention of joint named insurance, to

emphasise that there was a special regime which excluded Tyco's

obligations (including negligence) as found elsewhere in the

contract. The contract was not intended to provide Tyco or any

individual contractor with separate liability insurance.

The CA did not believe that the observations in the CRS Decision

created a rule of law. Its preference was to adopt the reasoning

that "the true basis of the rule is to be found in the

contract between the parties". In the event the contract was

not clear the question would have to be answered case by case

although the provision for...