A May 2023 judgment of the English High Court has confirmed the position 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, even where it is expressly named on the policy.  The co-insured is at risk of facing a subrogated claim from the insurer where it does not enjoy cover for the particular loss.

The decision in Sky UK Ltd & Anor v Riverstone Managing Agency Ltd & Ors [2023] EWHC 1207 (Comm) (22 May 2023) (bailii.org), was handed down a short time after the Court of Appeal decision in the case of FM Conway Limited v The Rugby Football Union, Royal & Sun Alliance Insurance PLC and Clark Smith Partnership Limited) [2023] EWCA Civ 418.   The High Court applied the Court of Appeal’s reasoning to a similar dispute where a contractor under a JCT Design and Build Contract was expressly named in a contract works policy as a co-insured for its “respective rights and interests”.  The policy provided cover to the principal insured (the employer – Sky UK) for losses beyond the date of practical completion. 

Under English law, as confirmed by the Court of Appeal in the RFU case, the mere fact that two parties are both listed as being 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.

The arrangement under the construction contract was that the risk of the works fell on the contractor until practical completion and thereafter passed to the employer.  The court held that the contractor had no relevant rights and interests after practical completion, other than to the extent that it had continuing liability in respect of work done prior to practical completion. The construction contract required the contractor to take out its own liability insurance.

While the principal insured, Sky UK, had the benefit of cover for the full period of insurance, the court held that the contractor only had the benefit up to the date of practical completion.  The court rejected the contractor’s attempt to distinguish the Court of Appeal judgment by the fact that it was expressly named as a co-insured.  The court held that “a person who is named as an insured but who is not otherwise a party to the insurance contract does not become a party to the contract simply by reason of having been named in it”.

While English insurance judgments are usually followed 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 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.