Joint-names insurance: Capital punishment

Back in 2002, the House of Lords put the wind up the construction world with its decision in Co-operative Retail Services v Taylor Young. The court held that the joint-names insurance provisions of the JCT80 private with quantities form excluded the contractor’s potential liability to the employer for a fire partly caused by the contractor’s negligence. The decision was considered controversial.

The complications arose in the Taylor Young litigation itself. Consultants who were sued by the employer for their part in the fire tried to get a contribution from the contractor. However, the consultants could only get a contribution from the contractor where it had contributed to the damage or loss caused by fire.

The wording of the joint-names insurance clause in the contract meant that the consultants failed because the contractor owed no liability to the employer. According to the contract, therefore, the contractor had not contributed to the same loss or damage as the consultants.

The controversy centred around what exactly the House of Lords held. It was generally accepted that the decision on the wording of the JCT80 form itself was correct. More controversial was the suggestion that there is a principle of English law that one jointly insured party could never sue another for damages arising out of a jointly insured risk, because the damages would have to be met by the same insurance policy.

These issues have just been reconsidered by the Court of Appeal in Tyco Fire and Integrated Solutions (UK) v Rolls-Royce Motor Cars, which had to decide whether Tyco was obliged to compensate Rolls-Royce for flood damage which, it was assumed, had been caused by Tyco’s negligence. Despite being required to follow decisions of the House of Lords, the Court of Appeal has reached a radically different conclusion.

This is because the disputes refer to different contracts with different insurance wording. Although the judges in Tyco agreed with (and were bound by) the analysis in Taylor Young of the effect of the insurance provisions in JCT80, Tyco was a dispute over the meaning of a trade contract for fire sprinklers in a construction management project.

It is more logical, as a matter of English language, for a defined party – the Contractor – to be caught by a more generic term – contractors

The key issue was whether Tyco, which was defined as “the Contractor” (the capital C is the important bit in this case) was caught by Rolls-Royce’s obligation “to maintain, in the joint names of … others including, but not limited to, contractors, insurance of existing structures” (note the lower case letter c).

In a decision you may find surprising, the Court of Appeal held that Contractor (with a capital C) did not fall within that class of people caught by the definition of “others including, but not limited to, contractors”. As such, Tyco (and its capital C) was excluded from the joint-names insurance and therefore liable for the flood damage. There was an added quirk (that doesn’t seem to have effected the decision) that Rolls-Royce had not actually taken out the insurance policy.

The Court of Appeal went further. It stressed that the decision in Taylor Young on the question of jointly insured parties suing one another was not binding. This leaves us in a bit of a conundrum: we have confusing and contradictory comments from the two highest courts in the land.

Joint-names insurance is a key component of the agreements reached by contractors and employers in building contracts. Although both cases make it clear that the wording of the contract itself may well be key, there is still a fundamental principle that needs urgent clarification. Can a jointly named insured sue a co-insured in relation to an insured risk?

Further, the distinction between the capital and lower case c seems odd. I agree with the judge who heard the case in the High Court. It seems more logical, as a matter of English language, for a defined party – the Contractor – to be caught by a wider and more generic term – contractors. I expect more litigation to follow.