One to Watch - Insured Status - JLT

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CONSTRUCTION AND REAL ESTATE TECHNICAL AND LEGAL BULLETIN ISSUE 05 DECEMBER 2009
One to Watch -
Insured Status
When reviewing the insurance conditions in standard or bespoke project
contracts a number of terms can be used when referring to the insured
status of the various parties associated with the project. These
references can be confusing and on occasion are used seemingly
indiscriminately. We therefore explore the likely meaning of some of the
most regularly used terms representing insured status and associated
references and concepts.
As always, the English courts will construe the particular contract in
dispute in its "factual matrix" considering the document as a whole to
ascertain the intention of the parties. Therefore, while the below is a
useful guide, every case needs to be carefully considered on its
particular facts and the language of the whole policy.
JOINT INSURED
Each Insured shares the same policy and
the rights of the insured parties stand or
fall together. One Insured party can be
denied cover if another party breaches
the terms of the policy.
Comment
This term should be reserved for cases
where two or more parties have an
identical interest in the subject matter of
the insurance. It is not generally
appropriate for parties to a construction
contract to be included as a Joint
Insured.
CO-INSURED
Each Insured parties insurable
interests/liabilities are individually insured
so the actions or omissions of one party
should have no effect on the rights of the
other under the policy. Generally
speaking a vitiating act by one Insured will
generally not prejudice the other. But
other language in the policy may deal
expressly with this issue.
Comment
Where reference to Joint Insured status is
being made in commercial contracts the
reference would be best changed to read
Co-Insured to indicate that the separate
interests are to be insured.
However, also note that where two
insured parties can demonstrate that they
have separate interests in an insurance
policy then the policy may be considered
a composite policy (General Accident Fire

and Life Assurance Corporation Ltd vs
Midland Bank Ltd 1940) and therefore
even where the expression Joint Insured is
being used in commercial construction
contracts such as ICE standard contract,
or Joint Names as is used in JCT forms,
any insurance placement should still be
placed on a composite basis.
NAMED INSURED / ADDITIONAL
INSURED
This terminology is more common place in
the USA where policy construction can be
a little different to European formats.
A Named Insured should be defined in the
policy (such as X plus associated
/subsidiary companies etc) and will usually
have the benefit of all coverage given
under the policy. Where a Named Insured
wants to include another party under the
policy (who doesn't fall within the definition
of Named Insured) then the policy needs
to be specifically endorsed to include that
party as an Additional Insured. By
comparison, composite policies in the UK
tend to list all insured in the one insurance
schedule. When this has been endorsed
the Additional Insured will usually enjoy the
same benefits under the policy as the
original named insured although the
endorsed Additional Insured status can be
subject to coverage, territory or time
restrictions if expressly stated in the
endorsement.
Comment
When a client is required by contract to
insure another commercial entity under
their own insurances as an Additional
Insured, or where a client is requiring
another commercial entity by the terms of
a contract to provide them with Additional
Insured status, then it is worth checking
that full insured status has been achieved
as would be the case as a Co-Insured. In
other words it is worth checking that the
endorsement creating this Additional
Insured status is complete. There should
be no difference in the extent of cover
provided to the additional insured
compared with the named insured unless
this was specifically agreed and therefore
intended.
NOTING OF INTEREST
Having your interested noted on an
insurance policy does not necessarily
mean that you will be entitled to be
compensated for a loss insured under the
terms of the insurance contract.
Comment
In order to properly protect an insurable
interest then the party with the interest
should be included as an insured party
under the insured contract.
RESPECTIVE RIGHTS AND
INTERESTS
The number of insured parties identified as
'the insured' under an insurance policy and
the scope of cover afforded to those
insured parties may be wider than required
by the relevant construction contracts.
The phrase 'for their respective rights and
interests' is sometimes inserted after the
names of the insured parties, and the
effect of this may be to limit the application
of the insurance to no more than required
by the contract (s) between the parties. It
also adds an additional indication that that
policy is composite and that all insured
parties are to therefore be treated
separately.
The case of National Oilwell (UK) Ltd v
Davy Offshore Ltd (1993) showed that the
courts are prepared to recognise the
wording of construction contracts in
deciding the extent of insurance available
under insurance policies. In this case, a
Construction All Risks insurance policy
included National Oilwell as 'other
Assureds' and specified that 'the interest
of other Assureds shall be
covered….unless specific contracts
contain provisions to the contrary'. The
contract between Davy and National
Oilwell stated that Davy would insure the
materials of National Oilwell until the time
of delivery. A loss occurred after delivery
and, because of the terms of the contract,
insurers were allowed to deny coverage to
National Oilwell in this case.
This should not however be confused with
an Insureds "pervasive interest" which
permits an insured party to be insured for
more than their own interest in an insured
asset. For example under a composite
Construction "all risk" policy a
subcontractor can be insured for their
"pervasive interest" in the whole contract
works, based on his potential liability for
damage to those works, even though
there is no proprietary or possessory right
in such property.
Comment
In order to protect the interest of 'Other
Insureds' the insurance provisions of the
contract should be carefully reviewed to
make sure they accurately reflect the
intention of the parties. If it is the intention
of a Construction 'All Risks' policy to
provide full cover to the 'other insureds'
then avoid clauses in the insuring
provisions of the policy such as:
'unless specific contract(s) contain
provisions to the contrary, in which event
insurance hereunder for such specific
contract(s) only shall be limited
accordingly…'
WAIVER OF SUBROGATION
Following the cases of Hopewell Project
Management v Ewbank Preece (1998) and
Co-operative Retail Services v Taylor
Young Partnership (2002) it was generally
accepted that an insurer cannot exercise a
right of subrogation against a co-insured.
The recent case of Tyco Fire & Integrated
Solutions Ltd v Rolls-Royce Motor Cars
Ltd (2008) has however thrown some
doubt on this assumption. The judgment
in this case held that the Tyco (the
contractor) was liable to indemnity Rolls-
Royce (the employer) for damage to Rolls-
Royce's existing structures caused by
Tyco's negligence, despite a contractual
requirement for Rolls-Royce to maintain a
joint names insurance for specified perils.
The facts
Rolls-Royce contracted Tyco to design
and construct a sprinkler system at its
assembly plant. During construction, and
due to the negligence of Tyco, a large
quantity of water escaped causing
damage to both the works and existing

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© Jardine Lloyd Thompson Limited – December 2009. All rights reserved.
structure. Tyco repaired the works, but
Rolls-Royce sought to recover losses
flowing from damage to the existing
structure. Rolls-Royce relied upon a term in
the contract by which Tyco indemnified it
against damage arising from Tyco's
negligence. Tyco contended that it was
relieved of this liability because the parties
had agreed under contract to allocate such
risk under a clause requiring Rolls-Royce to
maintain, in the joint names of the Employer
and the Contractor, insurance of the works
and the existing structure.
The Decision
The Court of Appeal held that Tyco
remained liable for damage to the existing
structures caused by their negligence. The
court said obiter (so not formally part of the
judgment), that there is no overriding rule of
law that co-insured's (under a construction
contract) cannot sue one another (or an
insurer sue by way of subrogation) in
respect of damage within the scope of a
joint names policy - the position must be
determined on a true construction of the
contract.
Comment
Where there is no cross reference between
the insurance and indemnity clauses of a
contract there may be nothing in the
doctrine of subrogation to prevent an insurer
from suing a co-insured in the absence of
an express waiver of subrogation. Please
refer to the details of the Tyco case which
have been widely reported and commented.
This is a difficult area of law that will no
doubt become clearer as it is further tested
in the courts but the case serves as a
reminder that where a contract provides for
joint names insurance, consideration should
given to the need for contractual provisions
dealing with a waiver of subrogation.
NON-VITIATION
From the above examination a non-vitiation
clause (which expressly distinguishes the
rights of each insured party and expressly
states that the insurer will only implement
any rights that they may have against the
vitiating insured) may be considered
unnecessary where the interests of the
insured parties are insured via a composite
policy. However, it is possible that all such
rights could be collectively affected, for
example the broker acting on behalf of all
insured could fail to inform the insurer of a
fact material to them all; alternatively the
insured may collectively have ongoing
obligations via a policy warranty for proper
maintenance of the property in question.
Non-vitiation provisions are therefore used
to deal with circumstances that could
otherwise effect all insured parties,
irrespective of composite policy status.
Such provisions may also include a noninvalidation
clause in the insurance to the
effect that an individual insureds interest
should not be prejudiced by any act or
neglect of the insured in respect of any
property insured, provided the insured, on
becoming aware, immediately gives written
notice to the insurers and pays an additional
premium if required.
Comment
Lenders on limit recourse financing
transaction generally require a non-vitiation
clause as part of their specifically required
Lender Endorsements. Non-vitiation
conditions are also generally used on project
construction policies perhaps using a variant
on the LEG Multiple Insured Clause. The use
of such clauses can also introduce the
concept of innocent non-disclosure not
being deemed a vitiating act by an insured
and therefore offers a benefit to all insured
parties. Such conditions will generally have
a cost implication.
Jardine Lloyd Thompson Limited
6 Crutched Friars London EC3N 2PH
Tel +44 (0)20 7528 4000
Fax +44 (0)20 7528 4500
Lloyd's Broker. Authorised and Regulated by the Financial Services
Authority. A member of the Jardine Lloyd Thompson Group. Registered Office:
6 Crutched Friars, London EC3N 2PH. Registered in England No. 01536540.
VAT No. 244 2321 96. www.jltgroup.com. © December 2009