The Limits Of Insurer's Subrogation Rights Against Co-Insureds And Third Parties

The Supreme Court recently handed down judgment in the matter of Gard Marine and Energy Limited v China National Chartering Company Limited [2017] UKSC 35 and ruled, by a majority of 3:2, that a contractual requirement to maintain joint insurance includes an implied term which precludes any claim by owners against the demise charterer, or therefore by the latter down the line to time charterers.

While this judgment was made in the context of international shipping and English law, the Court's findings are relevant in the context of domestic and international construction and engineering projects where it is common for employers and contractors to maintain insurance on a joint basis.

Background

Building and engineering contracts typically provide for insurance to be maintained against all risk of loss or damage to the works to be undertaken. This typically comes in the form of contractor's all risks (CAR) or 'joint-names' policies which are designed to cover multiple insureds to reflect the fragmented nature of the supply chain, where numerous subcontractors may undertake varying construction activities on site at any given time.

It is also useful to note that it is a feature of English insurance law that an insurer may not exercise rights of subrogation1 to bring an action in the name of one co-insured against another co-insured. The juridical basis of this was endorsed by the House of Lords in Co-operative Retail Services Ltd v Taylor Young Partnership [2002] 1 WLR 1419 on the ground that there was an implied term of the contract of insurance and/or the underlying contract between the co-insureds (as it would be absurd for an insurer to bring a subrogated claim against a co-insured when the insurer would be legally liable to...