Haberdashers’ Aske’s Federation Trust Limited and others v Lakehouse Contracts Limited and others  EWHC 558 (TCC)
It is common practice that parties will agree that any loss or damage will be covered by insurance that is obtained for each parties’ mutual benefit. If project insurance is in place, it can act as a bar from any claims between the parties and be the sole avenue to make good the loss or damage.
In Haberdashers’ the courts looked for the first time at how sub-contractors come to participate in project insurance.
Lewisham Borough Council (LCC), entered into a contract with a public-private SVP known as LEP for an extension to a school in Lewisham. Subsequently, LEP engaged, Lakehouse as the main-contractor and Lakehouse sub-contracted the roofing works to Cambridge Polymer Roofing (CPR).
Under their contract LEP were obliged to provide project insurance that would cover the Council, LEP, the main-contractor and any sub-contractors and the insurers would waive all rights of subrogation against any insured party.
After a fire at the school, the Council and LEP brought a claim against Lakehouse to recover the loss. Lakehouse was able to settle the claim solely through the project insurance, because as the main-contractor they were classified as an ‘insured’ under the policy.
One of the key issues in debate was whether Lakehouse were entitled to bring a subrogated recovery claim against CPR. It was CPR’s argument that they were covered by the project insurance thus Lakehouse were barred from bringing a claim. It was held that CPR were not covered by the policy and Lakehouse were entitled to bring a claim.
The judge held that the insurer of the project insurance made a ‘standing offer’ to insure those that were members of a defined group and thus the ‘standing offer’ is accepted when a sub-contractor becomes a member of that group. This acceptance has the effect of implying a term into the contract between the main-contractor and the sub-contractor, ensuring the sub-contractor cannot be sued for events covered under the project insurance policy.
However, it was held that no such term could be implied into CPR’s sub-contract as there was an express term obliging CPR to obtain their own insurance. Therefore, they did not become an insured under the policy. CPR could not rely on the policy’s bar to bring a subrogated claim and Lakehouse eventually brought a claim against CPR.
The judge stated that the ‘key’ issue was the parties’ intention and due to the express term of the sub-contract, the intention of the parties must have been for the insurance obtained by CPR to be relied upon and they were therefore not covered by the wider project insurance.
The judge’s decision has effectively limited the scope of the ‘standing offer’ made by the insurers of the project insurance. Such a policy could only cover sub-contractors that did not expressly agree to obtain their own insurance. However, it has been noted that this limitation was not a term of the project insurance policy. Each case will need to be considered carefully on its own facts and when entering into a contract, sub-contractors should be aware of any project insurance in place and the effect of any express terms on their ability to benefit from the policy.