King's College London
Centre of Construction Law
MSc Construction Law & Dispute Resolution
Module A: Introduction to Law
Assessed Coursework
Candidate Number: AD38227
“Critically discuss how courts may have been influenced by considerations of insurance in reaching their
decisions both in contract law and the law of tort. Is such influence appropriate? Please refer to decided
cases and academic commentary in your answer”
I.
Introduction
Insurance is, by definition, a policy under which a company or the state undertakes to
compensate against a specified loss or damage 1. The policy is a contract that includes provisions
regulated by rules and regulations set out by insurance law. However, insurance is presumed to
have an influence in areas not only in insurance law contracts, but also in general contracts law
and tort law. Contrary to past views that accounting for insurability, when deciding a case, would
be focusing on distributive justice instead of principles of facts, the contemporary reality is that
insurance considerations have been present in the court judgements, partly due to the judge gaining
knowledge of the extent of the insurance coverage of the parties to the claim2. This essay describes
the influence of insurance observed in court judgements in areas of contract law and in tort law, in
addition to assessing whether it was contributory to establishing justice.
II.
Contract Law
a. Influence of “joint insurance” clauses
A joint names policy is an insurance which is often present in construction contracts. It
consists of preventing the insured parties from bringing claims against one another in regard to the
insured losses3. The courts’ interpretation of the joint insurance clauses has caused ambiguity on
the extent of its application. The effect of this clause is brought in cases where a breach of the
contract occurs, by negligence, causing damage supposedly covered by joint insurance and raising
the question of whether the damages can be claimed from the negligent party.
In the context of construction, joint names insurance clauses do not seem to protect the
damaging party from liability as courts will critically determine its scope and will not put weight
on the presumed will of the parties at the outset of the contract. As presented in the case of Tyco
Fire and Integrated Solutions Ltd v Rolls Royce Motor Cars Ltd 4. The case describes the
malfunction of a main water pipe negligently installed by Tyco, a subcontractor appointed by Rolls
Royce. The dispute is over the eligibility of the main contractor to claim damages caused, by the
water flooding, to the existing part of the building. Tyco, oppositely, is claiming its protection by
the joint insurance clause. The court held that the joint insurance clause, although not fulfilled by
Rolls Royce, did not extend its coverage to existing structures of the building due to the presence
of an indemnity clause in the contract referring to the liability of Tyco for the caused damage 5.
1
Oxford English Dictionary, second edition (1989)
The Modern Law Review, Vol. 75, No. 3 (MAY 2012), pp. 301-323
3
Jenny Savage and Will Sefton, Joint Names Insurance And Risk Allocation In Construction Projects, CMS
Cameron McKenna Nabarro Olswang LLP.
4
(2008) EWCA Civ 286
5
John D Wright, Insurance requirements in construction contracts (socup.org.uk, 08 December 2021) <
https://www.socup.org.uk/knowledge/underwriting/articles/insurance-requirements-in-constructioncontracts/6959#:~:text=The%20rationale%20behind%20these%20decisions,remains%20as%20fluid%20as%20ever.
> accessed 20 December 2022
2
However, Rix LJ commented in obiter, that there is a necessity of caution when drafting
contracts with joint names insurance clauses as to define the extent of the insurance coverage and
to the inclusions of indemnity clauses.
As opposed to the construction industry, the marine industry has maintained a clearer view
on joint names insurance clauses in marine contracts. The court also commented unfavourably on
the previous Tyco v Rolls Royce case, insisting on the importance of giving weight to parties’
intention translated by the presence of a joint name insurance, which is to protect both parties from
their own negligence 6. A case demonstrating the view on joint insurance clauses is Gard Marine
& Energy Ltd v China National Chartering Co Ltd 7, where Gard Marine, the insurer, sought to
bring subrogated charges against the sub-charterer claiming for damages caused on the vessel by
breach of a “safe port” warranty. The sub-charterer claimed being protected by the joint name
insurance. The court held that the contract prima facie reflects the will of the parties to transfer the
indemnification to the insurer rather than to each other.
This shows that the interpretation of the joint name insurance by courts could protect the
party who committed a breach of contract in the case where it clearly mentions that the intention
of the contracting parties is to seek relief from liability. Whilst the “safe port” warranty was
regarded as insufficient in this case, the indemnity clauses in the Tyco contract were enough to tilt
the balance against enforcing the joint name insurance clause. The consequence of both cases is to
highlight the need to carefully consider the insurance clauses in the construction contracts as it can
sway the judgement of the courts accordingly 8.
b. Limitation and exclusion clauses
Contracts often include clauses limiting or excluding liability which adhere to the doctrine
of freedom of contract. However, statutes such as the Unfair Contracts Terms Act 1977 and the
Sale of Goods Act 1979, dictate a set of rules assessing the unfairness of limitation and exclusion
clauses 9. Not restricted to the latter, considerations of insurance have also played a role in courts’
judgments on disputes over limitation and exclusion clauses.
A possible influence of insurance consideration over court judgments is the likelihood of
deeming an exclusion or limitation clause reasonable when an alternative remedy exists. When the
issue relates to business profit, courts will be inclined to rule in favour of the damaging party as it
supposes that such losses are insurable. In Regus v Epcot Solutions 10, the contract included a
limitation of liability clause benefitting Regus, who sought enforcing it in order to be relieved from
paying damages to Epcot following a loss of business profit due to a malfunction of the airconditioning system in the rented workspace. The court allowed the appeal and provided that the
limitation clause is enforceable. The arguments employed included a consideration of the
6
L.L.I.D. 2017, May 18, 6
[2017] UKSC 35
8
Const. L.J. 2008, 24(1), 60-73
9
Burrows FBA Q (Hon), Cartwright J and Beatson FBA J, Anson’s Law of Contract (31st edition, Oxford
University Press 2020)
10
[2008] EWCA Civ 361
7
possibility for Epcot to have insured against loss of business profit, which is an alternative remedy
to the risks presented by the exclusion clause and therefore cannot be deemed unreasonable.
The views of the courts, as evident in the above, are to consider the possibility of obtaining
an insurance, to cover a certain risk, when assessing the merits to the claim, in the presence of a
limitation or exclusion clause. Similarly, in a construction contract between a client and a
consultant, it is common to have a net contribution clause (NCC) in the benefit of the consultant.
Therefore, the client should be advised that the insolvency risk of a contractor appointed by them
should be covered by insurance as it is not a possibility for the consultant 11. The court has adopted
this approach in West v Ian Finlay12, where the Wests appointed IFA to refurbish a newly bought
property and entered into a contract including an NCC. The latter specified that the liability of IFA
was excluding the work done by parties appointed by the Wests. The Wests sought to claim for all
the damage caused by major defects from IFA only, as the other contributor to the defects became
insolvent. On the other hand, IFA defended by demanding enforcement of the NCC and excluding,
from the damages sought, the liability of the insolvent party, as it was appointed by the Wests. The
court held that the NCC was unambiguous and therefore created equal bargaining power between
the parties of the contract, therefore concluding that it was enforceable. Not exclusively, the court
considered that the risk of insolvency of a party appointed by the Wests should be borne by them,
as, unlike IFA, they were able to cover that risk through insurance.
Hence, it can be concluded that the courts will be swayed to judge that a limitation of
liability or exclusion clause is reasonable based on the possibility of a party to protect themselves,
through an insurance policy, against the risk imposed by the clause
III.
Tort Law – Duty of care
c. Economic Loss
Tort law has sought to safeguard parties from a floodgate of liability. This has been possible
through considerations of insurance in the courts’ judgments. Courts adopt the view that a
damaging party is to be protected, from the risk of being held liable, by the rules against the
recovery of pure economic loss or consequential losses. Without the previously stated rule,
contractors will be incentivised to not take proper care in the conducted works, as the likelihood
and the impact of an accident occurring are “crushingly great” 13. In Spartan Steel Alloys v Martin
Ltd (1972)14, where an aluminium smelter had his electricity negligently cut off by an employed
contractor and consequently interrupted the supply for several hours. In addition to damages
claims, Spartan sought to recover a loss of potential profit had the interruption not occurred. The
court considered that recovering the named losses cannot be conducted through the contractor and
rather could have been done through an insurance policy covering the events of loss of profit.
11
Hudson's Building and Engineering Contracts 14th Ed, Section 2.3 (5).
[2014] EWCA Civ 316
13
Philip Sales, Pure economic loss in the law of tort: the history and theory of assumption of responsibility, 26
September 2022.
14
[1973] Q.B. 27
12
The liability, in tort, of a solicitor negligently failing to convey the wishes of the testator
towards the beneficiaries is present as there will be legal responsibility 15. The establishment of this
liability was in the case of White v Jones16. Solicitors had failed to update the will of the father of
the defendants who successfully brought claims of damages under the breach. The court dismissed
the appeal of the solicitors deliberating that the assumption of responsibility applies to them as the
consequence of an unenforceable will should be foreseen consequent to an act of negligence from
their side. Additionally, the court has considered that, in practice, “there should be no difficulty in
obtaining adequate insurance cover. In practice, solicitors are covered in respect of such risks under
ordinary professional indemnity policies.”
The abovementioned reflects the courts’ considerations of insurance, reflected in the
judgements, that the party to be held liable, in a case of economic loss in tort, is the party who
would “normally” be covered by insurance 17.
d. Occupier’s liability
Considerations of insurance are not only taken in cases of breach of duty of care causing
economic losses but are also present in the judgements on the duty of care owed to the occupier of
a property. Courts have adopted the view that confirming the presence of an insurance policy is
regarded as a necessary limb of the duty owed by the proprietor. In Gwilliam v West Hertfordshire
Hospitals NHS Trust,18 the claimant was injured at a fair organised by the hospital who employed
“Club Entertainment” to operate it. The court insisted on the duty of care owed by the hospital
towards the attendees of the fair and therefore should ensure that the operators should have an
insurance against the risk of breach. The previous judgment was distinguished in Naylor v
Payling,19 an incident had occurred where Payling sustained an injury through an altercation with
the security staff employed by the nightclub owner, Naylor. The court substituted the need for
ensuring that the employed party is insured by it being a certified server provider.
However, more recently, the courts have been more lenient in finding proprietors liable for
the occupiers’ damage or injury within their premises. The requirement for insurance against this
specific risk has been subject to the reasonableness of the care taken by the party receiving the
damage. In Edwards v London Borough of Sutton20, the plaintiff is an individual who was crossing
a narrow, unguarded bridge and fell off of it and sought to bring claims on the council for breaching
their duty of care. McCombe LJ adopted the view that despite severe loss caused by an accident
there should not always be the fault of another. The judge proceeded by adding that the “occupier
of the property is not the insurer against injuries sustained on his premises”.
Holbech, Charles. “White v Jones Liability for Negligent Advice.” Trusts & trustees 22.8 (2016): 874–879.
[1995] 2 W.L.R. 187
17
Lewis, Richard. “Insurance and the Tort System.” Legal studies (Society of Legal Scholars) 25.1 (2005): 85–116
18
[2002] EWCA Civ 1041
19
[2004] EWCA Civ 560
20
[2016] EWCA Civ 1005
15
16
The views on the occupier’s liability insurance seems to have been consistent ever since
Edwards’ case, as it has been reflected in the judgements of Juj v John Lewis Partnership Plc21
and Warner v Scapa Flow Charters22.
IV.
Conclusion
It is beyond doubt that the courts have considered insurance coverages in their judgments in
both contract and tort law. As previously discussed, joint name insurance clauses influenced the
judgments of the courts in relation to a breach of a contractual obligation. Additionally, the
interpretation of limitation and exclusion clauses were deemed enforceable based on the likelihood
of the insuring against a risk arising from the beneficiary of the clause. The same approach has
been adopted in tort law in the assessment of economic losses arising from a breach of duty of
care, a distributive justice was applied in factoring the possibility of insuring against that risk.
However, a more restrictive approach has been carried out in occupier’s liability cases, where the
injured or damage party’s care for avoiding the risk will be assessed.
The courts have rightfully measured the presence or the possibility of insuring against certain
risks since obtaining coverage policies is a requirement in most industries. Adopting construction
as an example, multiple insurance policies are most often required to cover the risks of duty of
care breach. Professional indemnity insurance policies are concerned with liabilities as a cause of
a professional negligence and the obligation to conduct works with reasonable skill and care. Also,
public liability insurance is required to be used to cover potential injuries of third parties occurring
during business operations 23.
This helps to prove that it is common practice, not only in construction, to insure against
breaches of duty of care. Courts have rightfully considered the latter in their judgments having
ruled against parties with insurance cover.
[2407 Words]
21
[2022] EWHC 2418 (KB)
[2022] CSIH 25
23
(2020) 31 5 Cons.Law 14
22
Bibliography:
Primary Sources
Cases:
1. Tyco Fire & Integrated Solutions (UK) Ltd (formerly Wormald Ansul (UK) Ltd) v Rolls
Royce Motor Cars Ltd (formerly Hireus Ltd) [2008] EWCA Civ 286
2. Gard Marine & Energy Ltd v China National Chartering Co Ltd [2017] UKSC 35
3. Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361
4. West v Ian Finlay and Associates [2014] EWCA Civ 316
5. Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] Q.B. 27
6. White v Jones [1995] 2 W.L.R. 187
7. Gwilliam v West Hertfordshire Hospitals NHS Trust [2002] EWCA Civ 1041
8. Payling v Naylor (t/a Mainstreet) [2004] EWCA Civ 560
9. Edwards v Sutton LBC [2016] EWCA Civ 1005
10. Juj v John Lewis Partnership Plc [2022] EWHC 2418 (KB)
11. Warner v Scapa Flow Charters [2022] CSIH 25
Acts and Law reports:
1. Unfair Contracts Terms Act 1977
2. Sale of Goods Act 1979
Secondary Sources
Books:
1. Oxford English Dictionary, 2nd ed. (1989)
2. The Modern Law Review, vol. 75, no. 3 (May 2012), pp. 301-323
3. Burrows, FBA Q (Hon), Cartwright, J and Beatson, FBA J, Anson's Law of Contract, 31st
ed. (Oxford University Press, 2020)
4. Hudson's Building and Engineering Contracts, 14th ed., Section 2.3(5)
5. Holbech, Charles, White v Jones Liability for Negligent Advice, Trusts & Trustees, vol.
22, no. 8 (2016), pp. 874-879
6. Lewis, Richard, Insurance and the Tort System, Legal Studies (Society of Legal Scholars),
vol. 25, no. 1 (2005), pp. 85-116
Journal Articles:
1. Savage, Jenny and Sefton, Will, Joint Names Insurance and Risk Allocation in
Construction Projects (CMS Cameron McKenna Nabarro Olswang LLP, 2021)
2. Wright, John D, Insurance Requirements in Construction Contracts (Socup.org.uk, 8
December 2021) https://www.socup.org.uk/knowledge/underwriting/articles/insurance-
3.
4.
5.
6.
requirements-in-constructioncontracts/6959#:~:text=The%20rationale%20behind%20these%20decisions,remains%20
as%20fluid%20as%20ever. accessed 20 December 2022
Steensma, Aidan and Armstrong, Rachel, Key Decision for Insuring Clauses in
Construction Contracts, Lloyd's List Insurance Day, 18 May 2017
Tierney, Jessica, Joint Names Insurance: Negligence of Contractor Causing Flood,
Construction Law Journal, vol. 24, no. 1 (2008), pp. 60-73
Sales, Philip, Pure Economic Loss in the Law of Tort: The History and Theory of
Assumption of Responsibility, 26 September 2022
Tierney, Jessica, Construction Law Guide to: Insuring a Construction Project,
Construction Law, vol. 31, no. 5 (2020), pp. 14-17