FM Conway Limited (Appellant) v The Rugby Football Union, Royal & Sun Alliance Insurance PLC and Clark Smith Partnership Limited (Respondents)  EWCA Civ 418
Gatehouse barristers acting in the case of Rugby Football Union v Clark Smith Partnership and FM Conway successfully resisted Conway’s appeal against the decision of Eyre J, which dismissed Conway’s attempts to establish a coinsurance defence to claims brought by the Rugby Football Union (“RFU”).
In a further landmark decision on the extent of the coinsurance defence, the Court of Appeal held that the judge’s approach (in determining the scope of cover under a joint names policy by reference principally to the terms of the underlying building contract between the parties) was correct. The Court of Appeal reaffirmed the principles laid down in National Oilwell (UK) Ltd v Davy Offshore Ltd,  2 Lloyd’s Rep 582, and noted that “when the court considers authority and intention in the co-insurance context, it is inevitable that its investigations will start (and possibly finish) with the underlying contractual arrangements agreed between the parties.”
The decision is the first at appellate level where the conclusions on coinsurance form part of the ratio. As such, the Court of Appeal’s explanation of the relevant principles is essential reading for practitioners in this field.
The underlying dispute relates to the upgrade works carried out at Twickenham Stadium in advance of the 2015 Rugby World Cup. The RFU brought claims of c. £4.5m in respect of cable ducting laid as part of an upgrade to the stadium infrastructure alleging that the ducting was defective, such that when high voltage cables were subsequently pulled through, they suffered damage.
The RFU was insured under a project insurance policy, with Royal Sun Alliance (“RSA”) the principal underwriter together with following insurers. The policy indemnified the RFU in respect of the majority of its losses (c. £3.5m) and insurers are pursuing a subrogated claim.
RFU has brought claims against two defendants:
- Clark Smith Partnership (“CSP”), the designer of the ductwork, alleging that such design was defective; and
- FM Conway Limited (“Conway”), the construction contractor, alleging that the ductwork was defectively installed.
CSP and Conway deny liability, and pursue contribution claims against each other.
The coinsurance defence
Conway (both in its defence to the RFU’s claim, and in its own separate Part 8 proceedings) sought to assert a coinsurance defence. It alleged that it was entitled to the benefit of cover under a project insurance policy taken out by the RFU, and as such had no liability to the RFU in respect of the insured losses. It followed (so Conway said) that it could not be liable to CSP to make contribution, not being liable to the RFU for “the same damage.”
The court ordered that Conway’s coinsurance defence should be dealt with as a preliminary issue, which was heard before Eyre J on 21st-23rd March 2022. The essential dispute was as to the scope of Conway’s cover:
- Conway asserted that it had the full benefit of the policy, including cover in respect of all losses for which RFU was insured. As such, it had the benefit of cover (and a coinsurance defence) in respect of the damage to the cables.
- RFU/CSP maintained that Conway’s cover was more limited, extending only to the losses the RFU was required to insure pursuant to the insurance provisions of the underlying contract (JCT insurance option C). That required cover would not extend to the cables, in respect of which Conway therefore has no coinsurance defence.
Representation by Gatehouse Chambers
In respect of the preliminary issue:
Although on opposite sides in the broader dispute, both the RFU and CSP shared a common position that Conway’s coinsurance defence should be rejected.
The decision at first instance
In a judgment handed down on 29th April 2022, Eyre J rejected Conway’s coinsurance defence.
Eyre J identified the relevant issue as being the scope of Conway’s cover under the coinsurance policy, which in turn depended upon the RFU’s authority and intention to procure insurance cover on Conway’s behalf. He reviewed the relevant authorities including the Supreme Court’s decision in Co-operative Retail Services Limited v Taylor Young Partnership Limited & Ors  UKHL 17;  1 WLR 1420 and Gard Marine Energy Limited v China National Chartering Co Limited & Anr  UKSC 35;  1WLR 1793, in particular Lord Toulson’s statement in Gard Marine (at paragraph 139) that:
The question in each case is whether the parties are to be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, or whether the existence of the fund co-exists with an independent right of action for breach of a term of the contract which has caused that loss. Like all questions of construction, it depends on the provisions of the particular contract…
Eyre J considered Conway’s authority and intention by reference first to the underlying building contract between Conway and RFU, before going on to consider the wider factual context. Having considered the matter from all angles, the judge concluded:
I am satisfied that the Policy was effected on the basis that it was providing the cover contemplated by Option C in the JCT contract.
You can read more about the first instance decision here.
The case on appeal
Conway appealed Eyre J’s judgment on 5 grounds. Grounds 1 to 4 made interconnected criticisms of the judge’s analysis of the RFU’s authority and intention, relating principally to (a) his focus on the terms of the underlying contract, and (b) the application of Lord Toulson’s judgment in Gard Marine, which was said to relate to a different and unrelated issue.
The Court of Appeal rejected all of these arguments. It held that “where there is an underlying contract then, in most cases, it will be much the best place to find evidence of authority, intention and scope” and that the common theme in all the authorities (including Gard Marine) is that an investigation into authority and intention in the context of co-insurance “will start (and possibly finish) with the underlying contractual arrangements agreed between the parties.”
The Court of Appeal recognised that the underlying contract may not “always provide the complete answer” and that “[c]ircumstances may dictate that the court looks in other places for evidence of authority, intention and scope of cover”. However, in the instant case, the Court of Appeal was satisfied that Eyre J had done precisely that, and explained why those broader dealings were not determinative.
Although not an issue that arose in the appeal, the Court of Appeal commented on the alternative ‘standing offer’ analysis in Haberdashers’ Aske’s Federation Trust & Anr v Lakehouse Contracts Limited & Anr  EWHC 558 (TCC), noting that it was “dictated by the particular facts of that case.” Application of agency principles to question of coinsurance was reinforced as the conventional analysis.
Ground 5 raised a separate point, that Conway (being a party insured under the policy) was entitled to the benefit of the policy’s ‘waiver of subrogation’ clause in respect of all losses, not merely those within the scope of Conway’s cover. The Court of Appeal rejected that argument as being contrary to commercial common sense, as well as contrary to Colman J’s decision on the same point in National Oilwell.
The Court of Appeal also accepted that the express terms of the policy which defined parties as being insured ‘for their respective rights and interests’ supported the conclusion that Conway’s cover was limited to the scope of cover envisaged by the underlying JCT contract.
Accordingly, the appeal was dismissed.
Implications of this decision
For insurers and insureds, this decision has important implications:
- The Court’s explanation of the principles governing coinsurance and the scope of cover are the first time that these principles have formed part of the ratio of any decision at appellate level. As such, while the obiter in CRS, Gard Marine and other cases will remain important authorities, the Court of Appeal’s decision in RFU should now form the cornerstone of any analysis of these issues.
- The underlying building contract between parties insured under the same policy remains the key document to consider when determining the scope of cover.
- The possibility of appealing to the broader dealings as an alternative source of authority/intention was left open for an appropriate case.
- The definition of insureds by reference to their “respective rights and interests” may provide an additional reason why the scope of a contractor’s cover under a joint names insurance policy is limited to that envisaged by their underlying contract.
  EWCA Civ 418, at para 67
 Para 53.4
 Para 67
 Para 53.5
 Para 53.5
 Paras 55 and 56
 Para 53.2
 Paras 109 to 111
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