At last someone is looking into the insurance provisions of JCT80. At the moment, the issue of liability is nothing short of bewildering
News that the JCT is undertaking a review of the insurance provisions in its contracts is very welcome. These clauses are always complicated and frequently misunderstood by clients and contract administrators alike.

Clauses designed for situations where it is the client that should insure – where, for example, the extension or refurbishment of an existing structure is planned – seem particularly fraught. There is a bewildering line of cases endeavouring to make sense of the relationship between liability and indemnity clauses on the one hand and insuring clauses on the other. The effect is that, where JCT98 is involved and the client is obliged to insure the works or existing structures, the contractor is relieved of liability even when negligent.

For matters as fundamental and commonplace as which party should shoulder the risk of fire damage, there must be a strong case for adding a health warning to the footnotes, explaining in simple language what the risk allocation is in each of the current contracts.

In the case of Co-operative Retail Services vs Taylor Young & Others last year, the Court of Appeal had a different problem to wrestle with.

A fire had caused serious damage to CRS' nearly complete headquarters. Wimpey, the main contractor, was responsible for the works insurance under JCT80, and CRS, as client, had been jointly named on the policy, as had Hall Electrical, which was a subcontractor employed by Wimpey. (A different aspect of this case was discussed by Rachel Barnes, 18 February 2000, pages 68-69.) The works insurer paid CRS for the reinstatement costs and then, invoking its subrogation rights, used CRS' name to sue the architect (Taylor Young) and the M&E engineer (Hoare Lea).

It was assumed for the purposes of the preliminary issue before the court that the fire resulted from negligence or breach of contract on the part of each and all of the architect, the M&E engineer, Wimpey and Hall. The question before the court was whether the professional firms could join Wimpey and Hall into the proceedings with a view to seeking a contribution against them towards any damages the professional firms might be liable to pay.

The effect is that, where JCT98 is involved, the contractor is relieved of liability even when negligent

Their problem was that because CRS, Wimpey and Hall were all insured under the joint names policy taken out by Wimpey, it was difficult to see how they could be brought within the terms of the Contribution Act, which entitles a party liable to another to claim contribution from "any other person liable in respect of the same damage".

How could it be argued that Wimpey and Hall were liable to CRS when the insurance clauses of the contracts meant that if a fire occurred, each of CRS, Wimpey and Hall would look to the joint insurance policy to provide for the cost of repairing the fire damage? So, the cost of repairs and fees were provided for under that scheme, irrespective of possible negligence on the part of Wimpey or Hall.

Counsel for the consultants had argued that rights of subrogation (the right of an insurer to step into the shoes of its insured and launch an action) and the right to contribution were essentially equitable remedies. It would be inequitable if his clients, who might only be 10% responsible for the loss, were unable to recover a contribution from a more blameworthy party.

There is much force in this submission as a matter of fairness and proportionality. It may fairly be assumed that the consultants were in the position of the "negligent policeman" who fails to catch a criminal, and that their liability would have been secondary to that of the primary wrongdoers who actually caused the fire. Nonetheless, by virtue of the principle of joint and several liability, they would be potentially liable for all of the loss.

The court could see no way around the "perceived harshness" of this principle. Wimpey and Hall had a complete defence based on contract to any claim brought against them by CRS, and the other consultants were liable for the best part of £1m.