Joint Names Insurance And Risk Allocation In Construction Projects

Two recent cases highlight how provision for joint names insurance in construction projects can determine risk allocation.

1. Hunt v ASME

   The employer entered into a JCT With Contractor's Design (1998 ed) contract with the main contractor. Part of the work under the contract involved retaining a building's facades. The main contractor contracted with the claimant (Hunt) as demolition sub-contractor who, in turn, contracted with the defendant (ASME) as a sub-subcontractor (to provide temporary supports to the facades during demolition). The facades were damaged in a fire caused by ASME's negligence.

   Hunt settled a claim brought jointly by the employer and main contractor and then sought to recover the amount paid in settlement from ASME.

   Under the main contract, the main contractor gave a general indemnity to the employer against any loss or damage caused, except where the damage involved the works and/or the site materials, or where the damage was caused by a specified peril (including fire) to the existing structures at the site. There was a contractual obligation on the employer to maintain a joint names policy in respect of the existing structures at the site (including the facades). Each of the sub-contractors was required to be recognised as an insured under the joint names policy. It was therefore clear that the main contractor was not liable to the employer in respect of the damage to the facades caused by the fire, as this was expressly excluded from its indemnity. The contract allocated the risk for such damage to insurers.

   Despite this, Hunt settled the claim from the employer and main contractor and then sought to recover from ASME by arguing that they, Hunt, had been liable to the employer in negligence. That is, in order to justify their settlement, they tried to argue that the contractual provisions regarding the indemnity and the joint names insurance did not stop a duty of care from existing between Hunt and the employer. In support of their argument, Hunt tried to exploit certain differences in the language used in the main and sub-contracts in relation to the insurance provisions.

   In a complex judgment, the Court held that this argument failed. The parties to the main and sub-contracts knew that, if fire (or any Specified Peril) caused damage to the existing structures, the loss would be covered by the joint names insurance. It would be inconsistent with that regime for any party to sidestep the contractual allocation of...