JCT Insurance Arrangements Explained
Insurance arrangements under the JCT Design and Build suite often appear straightforward; however, as the Technology and Construction Court illustrated in Haberdashers’ Aske’s Federation Trust Ltd v Lakehouse Contracts Ltd and Others [2018] EWHC 558 (TCC), the practical and legal reality can be far more complex.
Haberdashers’ highlighted the risks involved in assuming that all tiers in the supply chain automatically benefit from coverage under the Main Contract Works Insurance Policy and underlined the importance of using the correct standard form of contract at each level of the contractual hierarchy.
Haberdashers’
In Haberdashers’, Haberdashers’ Aske’s Federation Trust, acting as the Employer, engaged Lakehouse Contracts Ltd as the Main Contractor, under a JCT Design and Build Contract to carry out refurbishment works at a school. Lakehouse then engaged Cambridge Polymer Roofing Ltd as a Subcontractor to perform roofing works.
Following completion, a fire caused extensive damage to the works. The Employer’s insurers paid out and then sought to pursue subrogated claims against the Subcontractor, alleging negligence and breach of contract. The central issue was which parties were covered (or intended to be covered) by the Works Insurance Policy, and whether that coverage prevented subrogated claims.
The TCC held that a subrogated claim could proceed against the Subcontractor because it did not fall within “the defined grouping” of insured parties, at least not to the extent that it had insurance cover of its own. In short, the insurer’s right of subrogation was preserved.
What is in “the defined grouping”?
Under the JCT Design and Build Contract 2016 and its companion forms (including the Design and Build Subcontract Agreement 2016, the Sub-Contract Conditions 2016 and the Sub-Contract Guide 2016), insurance of Works is often arranged under Option A, where the Main Contractor procures a Works Insurance Policy covering the Employer and Main Contractor (and, sometimes, named Subcontractors). In Haberdashers’, the Court described these insured parties as “the defined grouping”.
In short, “the defined grouping” is confined to those expressly included in the Works Insurance Policy. Typically this includes the Employer, the Main Contractor and, in some cases, Subcontractors.
In respect of Sub-subcontractors, the JCT Sub-Contract Guide 2016, at paragraph 188, makes clear that “The benefit of the Main Contract Works Insurance Policy for the Works may apply only to sub-contractors to whom the Contractor sub-contracts works in accordance with clause 3.3.1 of the Main Contract Conditions; it does not apply to sub-subcontractors.”
Key takeaways from Haberdashers’
- Privity of contract should be observed: insurance protections extended under a Main Contract (or even a Subcontract) will not automatically flow down the chain
- Separate insurance can be determinative: if a contracting party is required to obtain its own works insurance, it may be precluded from joining “the defined grouping”, at least to the extent that it has insurance cover of its own
The net effect is that gaps in insurance coverage can appear, which can give rise to disputes over which insurance policy responds in the event of damage.
Using the wrong standard form of contract
Confusion can also arise when parties use the wrong standard form of contract. For example, a subcontractor using a JCT Design and Build Subcontract Agreement to appoint a sub-subcontractor, rather than a JCT Sub-subcontract, risks importing obligations and insurance provisions inappropriate for that level of the supply chain. The result may be a break in insurance continuity and loss of intended protection.
The contracting-stage imperative
The lesson from Haberdashers’ is clear. Parties should verify who is actually insured under each Works Insurance Policy, ensure that each tier of the supply chain is correctly described and covered and always use the correct standard form of contract for the contractual level in question.
Specialist legal input at the contracting stage can prevent costly mistakes and disputes and avoid the challenge of uninsured losses.
How To Get In Contact
If you require assistance with construction disputes, or have questions about insurance coverage or liability, please contact Paul O’Donnell on 07521 417579 or at paul.odonnell@culbertellis.com.
