An April 2023 judgment of the English Court of Appeal has confirmed that under English law the scope of cover available to a party identified as a co-insured may be more limited than the cover available to the principal insured.  The co-insured is at risk of facing a subrogated claim from the insurer where it does not enjoy cover for the particular loss.

In the Court of Appeal Decision of FM Conway Ltd v Rugby Football Union & Ors (Rev1) [2023] EWCA Civ 418 (19 April 2023) (bailii.org), a subrogated claim had been instituted in the name the Rugby Football Union (RFU), against a contractor, FM Conway Limited (Conway), who had been appointed to install ductwork to accommodate high voltage cables at the Twickenham rugby stadium.  The RFU claimed damages arising out of defective ductwork which caused water damage to the cables. The insurance policy was arranged by RFU as the principal insured under the policy.  All contractors and sub-contractors on the project were co-insureds “for their respective rights and interest”. 

Conway raised the insurance policy as a defence, arguing that as it was entitled to cover under the policy and that this prevented the insurer from advancing the subrogated claim against it.

The Court of Appeal upheld the first instance decision (see Subrogation, co-insurance and CAR insurance policies | Financial Institutions Legal Snapshot).  In doing so, the appeal court confirmed that the mere fact that two parties are both listed as insured under the same policy does not in all cases mean that they are both covered for the same loss and cannot make claims against each other.  Where, as in this case, one party has procured insurance for another, it is necessary to consider the authority and intention of the party in deciding what the scope of cover is.  In most cases, the intention and authority is to be determined by an analysis of the underlying contract, in this case the construction contract. In this case, the court found that the underlying construction contract only required the RFU to take out a more limited form of cover for Conway which did not include cover for damage caused to the ductwork by its defective workmanship.   This was relevant for ascertaining the intention of the principal insured (the RFU) when taking out the cover for the benefit of Conway and consequently the scope of cover available to Conway.

While the RFU, as the principal insured, was entitled to the full benefit of the cover and was indemnified by the insurer, the court held that Conway’s cover was more limited and did not include cover for the damage to the ductwork.  The insurer was not precluded from recovering under rights of subrogation from Conway.  This was despite the waiver of subrogation clause in the policy, which the court held only applied to losses where Conway had cover under the policy.  The Court of Appeal further held that this outcome was reinforced by the fact that Conway was named as an insured only for “its respective rights and interests”.

While English insurance judgments are usually persuasive in South Africa, whether this precedent will be followed will largely depend on the terms of the policy and the underlying contract.  The principle in this judgment remains is of critical importance to contracting parties in any type of project.  It is recommended that extra care to be taken to ensure that the contracting and insurance arrangements are synchronised to ensure that there are no unexpected coverage gaps.