The foreign government concerned found it hard to grasp that even though the fire must have been caused by a subcontractor on site, it had to call on its own insurers to pay out, as well as fund a substantial excess on the policy. What's more, the contractor had an unanswerable claim for an extension of time, so delay damages went out of the window.
The law reports are full of cases where contract clauses are less than transparent about the allocation of these everyday risks, and unwittingly cause confusion as a result.
When negotiating construction contract terms, lawyers often tend to stand back from the insurance clauses, sensibly recommending that the parties' brokers get together to make sure they are talking the same language. But misconceptions about the extent of normal policy cover are commonplace, and it is often assumed that if the contract clauses are appropriate, that is sufficient, when of course the most important task is to check that the policies in question do what they are meant to do.
If lawyers' eyes glaze over when they reach the indemnity and insurance clauses in our standard forms, we can be charitable about the design professional charged with making sure that the clients' insurance interests are protected in their building contracts. Take the case of the architect for the parish council who employs a contractor for refurbishment work to the church. If the contractor carelessly leaves the roof unprotected and rain ruins the church organ, it is the architect who will have a problem if the church has only insured the organ for a fraction of its value. Those who promote and administer contracts will be found negligent by the courts if they do not fully explain to clients their legal consequences.
By identifying that the employer was to bear “the sole risk” of fire and obliging him to insure, the whole of the risk of fire was placed on him, even if caused by a contractor’s negligence
Let us return to the problem of our friendly foreign government. How can it be right for the negligent contractor to get off scot-free? "In ordinary circumstances, he who is negligent should pay, and certainly should not himself be paid for loss or damage caused by that negligence. However, it is open to the parties to a contract to provide otherwise. That is so here …" The clause in the very recent case from which this quote is taken, Casson vs Ostley [QBD 5.9.2000], had stated, quite simply, that the works and the existing structures on which the contractor was working should be "at the sole risk of the client" as regards damage by fire and the client should maintain a proper insurance policy against that risk.
So, when the claimant suffered severe damage to his farm, caused by a fire that was assumed to have been caused by the contractor's negligence, the only way of avoiding the conclusion that the client should bear the cost was to argue that the clause, it could not exempt the contractor from the consequences of its own negligence because it did not do so in sufficiently clear terms. It was argued that if a party seeks to exempt itself from liability for negligence, that word must be used.
The judge disagreed. He refused to interpret the clause against what he called "some rigid terminological framework" involving express words to exclude negligence. The clause was there to provide for a distribution of risk and insurance costs between the parties. By identifying that the employer was to bear "the sole risk" of fire and obliging him to insure, the whole of the risk of fire was placed on the employer, irrespective of the fact that it might be caused by contractor's negligence.
Postscript
Tony Blackler is a partner in solicitor MacFarlanes.
