Do you have breakdown cover?

Goodwood, Rolls-Royce Motor Cars. It has an exciting ring to it, doesn’t it? This was the one-time home of the Bugatti, of the Wolseley-Siddeley Coppa Florio and the Bentley Jackson Special. These days, a new assembly plant for Rolls-Royce is being built at Goodwood in West Sussex. And a nasty snag recently cropped up in its sprinkler system. One of the main supply pipes leaked a lot of water. It wasn’t a sprinkle, but a whoosh that damaged the building works and Rolls-Royce goods. In all, £400,000 of damage was done while the work was within the building contract.

For the purposes of what was first an adjudication and then a High Court case, it is taken that the escape of all that water was down to one of the sprinkler installer’s chaps failing to do up a joint properly. That’s called negligence.

However, this didn’t stop the sprinkler company turning to Rolls-Royce with its hand out. Does that surprise you? How can a negligent specialist contractor call on the injured party to pay for the damage caused to him? And would it surprise you also that this makes good sense in building construction?

Let me tell you the story. When the pipe leaked, the sprinkler man looked up his contract document. It said the employer, Rolls-Royce, would obtain insurance cover for “specified perils”. There was a list. One of the perils was bursting or overflow of pipes.

Credit: Simone Lia

"Please! Could someone turn off that tap?"

Be that as it may, said Rolls-Royce, this type of clause doesn’t cover negligently forgetting to fasten a main joint. And, by the way, we haven’t actually taken out that insurance policy. Not that it matters, it said, negligence wouldn’t be covered anyway by this wording.

The sprinkler firm, Tyco Fire, decided to adjudicate. The point was: is a negligent contractor that causes serious damage to property covered by the proposed insurance policy? If so, should Rolls-Royce swallow the loss since it failed to take out the policy?

The adjudicator decided that even if Rolls-Royce had taken out the policy of insurance, this negligent act was not covered so Tyco had to pay Rolls-Royce for the damage it caused. You might say the outcome sounds fair. A negligent act that causes loss to you ought to be paid for by the negligent outfit.

Actually, that’s not the way many of these insurance policies work on building sites. The occurrence of a fire or flood and what we call perils is made 10 times worse if folk start running around trying to pin blame. Horrid delays invariably grow worse.

The sprinkler man’s contract said the employer would obtain insurance for ‘specified perils’. One of the perils was bursting or overflow of pipes

To avoid this, along came the idea of a “joint-names” policy. The big advantage to the employer is that whoever dropped a clanger, whoever caused the burst pipe, is irrelevant. It is to the employer’s benefit to put the joint-names policy in place. It gives a financial remedy and avoids a fight. I suspect the adjudication focused on the negligent act by the sprinkler man. But the line of real inquiry is why no policy was in place.

Having lost in the adjudication, Tyco exercised its right to bring the same dispute to the High Court. The judge was plainly conscious of the advantage of having a building project with a joint-names policy to be taken out by the employer.

The first question, however, was whether the wording in the intended policy would cover a negligent act? The adjudicator was persuaded no, but the judge was persuaded yes. Not only did he look at the words in the policy, but he put the policy into context.

To interpret the words of an insurance policy or contract, they have to be put in context. The words are read as a whole and against a backdrop of the way it fits in actual use. The words in the policy when read as bare words are not awfully clear about covering a negligent act.

But once the context reveals the logic of a joint-names policy, it makes perfect sense that it is intended to cover a disaster, never mind which party is the cause. It makes particular sense when a large number of contractors are engaged in separate packages and any one package could be the culprit.

It is a sort of “no-fault” compensation idea. Sounds great. Mind you, we dispute sorter-outerers would soon be out of business if we had a no-fault system in building construction – now, there’s a thought …

By the way, the judge ordered the £400,000 to be paid back.