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Joint-names insurance can mean your profits go up in smoke

legal matters

A decade or so ago my Saturday morning shopping was interrupted by the wail of fire engines racing up the High Street. At the sight of Surrey Heath Council's newly built offices going up in flames, two thoughts chased each other, unbidden, from the sub-conscious of a young lawyer. Thought One: 'That will be a juicy piece of litigation'. Thought Two: 'Oh no, of course, it will be covered by insurance'. The fallacy that the presence of insurance cover would preclude any court proceedings, was demonstrated a year or so later, when a large brief was plonked on my desk to represent the m&e contractors who were, it was said, responsible for the very same fire.

Fires in new buildings, it seems, usually occur when they are very nearly, but not quite, finished. They can be caused by the negligence of an operative, a fault in design or workmanship or by accident. Whichever way, the damage caused can be considerable. The costs of re-instatement and the losses to the owner, whose hopes of a prompt move disappear with the smoke, are likely to be beyond the financial resources of most contractors. It is in the interests of both employer and contractor, therefore, for works under construction to be insured against fire. The employer, because there will be money available should disaster strike; the contractor, because it will not be his money.

Most of the standard forms require insurance for new buildings to be effected by a joint-names policy, taken out in the names of both the employer and the contractor. An important feature of joint-names insurance is that one insured cannot claim against a co-insured in respect of an insured loss: for the purposes of insurance, co-insured are one and the same. The more sophisticated standard forms also deal with the delay consequences of a fire, entitling the contractor to an extension of time but none of his delay-related costs. Should the unthinkable happen, the insurers meet the cost of repairing the building, the joint-names policy prevents them from arguing between themselves over liability and then, usually, although the employer can deduct no liquidated damages for the delay caused by the reinstatement works, the contractor recovers no loss and expense either - so every one is happy, right? Apparently not.

In the Surrey Heath case, the council wanted to recover its uninsured costs from the construction team. The defendants argued that these losses were all delay-related and covered by the contract. The judge decided that losses, such as the loss of car-parking charges at the civic office car park, were, in the main, irrecoverable.

More recently, the Co-op's new headquarters in Rochdale was damaged by a fire which started during the commissioning of the generator. The rebuilding costs were met by the joint-names insurers, who were then precluded from claiming against their co-insured contractors and sub-contractors. Instead, on its behalf, the Co-op sued the architect and engineer, claiming that they were, in effect, tempting fate by putting a steel flue through a wooden roof. The design team, in turn maintained that the real culprit was the contractor, for failing to pass on its technical queries about the flue, and its m&e sub-contractor, for the way it built it. The design team claimed a contribution from the builders, under that useful piece of legislation, the 1978 Civil Liability (Contribution) Act. The act enables defendants to claim against others responsible for the same damage, a contribution towards that damage. In the Co-op case, the contractor successfully argued that it was not liable to the Co- op because it was co-insured under the joint-names policy. If the contractor was not liable to the Co-op, it could not be called upon to contribute towards the claim against the designers.

Again, as in the Oxford University case (aj 22.7.99), where the existence of a final certificate defeated the architect's claim for contribution against the builder, this case suggests that, once the flames have died down, the designers will be out in the cold.

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