The Rugby Football Union v Clark Smith Partnership Limited and FM Conway Limited  EWHC 956 (TCC)
The High Court has dismissed an attempt by a construction contractor to rely upon a coinsurance defence, where its underlying construction contract was inconsistent with it having the full benefit of a project wide insurance policy.
The decision contains an important review of the law on how third parties come to participate in a project wide policy, and the principles of agency as applied in National Oilwell.
The underlying dispute relates to the upgrade works carried out at Twickenham Stadium in advance of the 2015 Rugby World Cup. The Rugby Football Union (“RFU”) has brought claims of c. £4.5m in respect of cable ducting laid as part of an upgrade to the stadium infrastructure. In summary, the RFU alleges 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 both deny liability, and also 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.
Representation by Gatehouse
In the preliminary issue trial:
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.
Judgment on the preliminary issue was handed down on 29th April 2022. In a considered and detailed review of the relevant authorities, Eyre J rejected Conway’s coinsurance defence.
Eyre J found that, in order to establish whether Conway was an insured in respect of the claimed losses, the principles of agency were to be applied. Three cumulative conditions needed to be satisfied:
- That the RFU had authority to contract on Conway’s behalf;
- That the RFU intended to contract on Conway’s behalf; and
- That the terms of the policy did not preclude Conway from being covered.
Eyre J confirmed that, in considering the first and second conditions, it is the terms of the underlying construction contract that are of primary importance. This was a problem for Conway, as the underlying construction contract was on JCT standard terms (insurance option C). Eyre J found that the obligations regarding insurance in those terms expressly exclude damage caused by Conway’s own defective works.
That meant that the RFU’s authority and intention to procure insurance on behalf of Conway was limited, and (applying National Oilwell and the authorities which followed) Conway’s cover was limited to that which the RFU was required to obtain under the JCT contract. Hence, Conway was not an insured in respect of the claimed losses.
Conway sought to rely upon discussions and dealings between the parties at the time the policy was incepted, to establish that there was authority/intention going beyond what was contained in the JCT contract. Eyre J found that there was no “compelling evidence” to counter the natural inference from the contractual documents, which was that Conway was not covered.
Eyre J also rejected an attempt by Conway to sidestep the principles of agency altogether, by arguing that Conway was a “specifically named” insured and as such entitled to the full benefit of cover. Eyre J found that argument was wrong, both in fact and in law.