Obtaining insurance covering risks for building projects is a common occurrence. This is colloquially referred to as “project insurance” and typically covers the risk of loss or damage to the works themselves, damage to third party property and personal injuries. The insurer generally will not be interested in the identity of the party responsible for causing the loss and damage. Thus, the policy will typically insure not only the main contractor against liability but also its subcontractors as co-insured. Design liabilities, however, are usually excluded from the policy cover.

If an insurer indemnifies its insured, it will inherit the insured’s own rights to seek recovery of its losses from a third party who may be culpable. In this way, an insurer may recover its losses either wholly or in part. This is called subrogation. Typically, the insurer will not be able to secure any subrogated recovery from a subcontractor when that subcontractor is itself co-insured under the policy. This is a term that the courts will imply into both the underlying contract between the parties and the policy of insurance itself. 

But can a subcontractor participate in and claim the benefit of a project insurance policy when it has also expressly agreed with the main contractor in the underlying contract to insure its own liabilities? Can the project insurer in such an instance invoke subrogation and seek recovery of sums paid? These are questions the courts, up to now, have not had to address. However, they were confronted with this dilemma in the recent case of Haberdashers’ Aske’s Federation Trust Ltd vs Lakehouse Contracts Ltd & Others, on which Mr Justice Fraser ruled of 12 March this year. 

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