Worth a Try? – judgment handed down on Rugby Football Union appeal

FM Conway Limited v The Rugby Football Union, Royal & Sun Alliance Insurance PLC, Clark Smith Partnership Limited

The Court of Appeal has handed down its judgment following FM Conway’s appeal of the High Court’s decision that it did not enjoy the same level of cover as its employer. Our previous article commenting on the first instance judgment can be found here.

Summary

The decision regards the potentially complicated factual and legal issues about the nature and extent of insurance cover obtained by one party on behalf of another. It was common ground at the first instance hearing that FM Conway was an insured under the project policy secured for the refurbishment of Twickenham stadium, but the extent of that cover was disputed by insurers.

FM Conway’s appeal was rejected by the Court of Appeal, with the leading judgment from Lord Justice Coulson providing a firm endorsement of Mr Justice Eyre’s decision that FM Conway was not insured under the project policy for damage to existing structures caused by its own defective work, but cover was instead restricted to specified perils in accordance with the (unamended) JCT Option C.

It is clear from the judgment that Lord Justice Coulson was in full agreement with Mr Justice Eyre, referring to his decision as “careful”, “unassailable” and “entirely in accordance with the authorities”.

Issues

The background facts are contained in our previous article but, in short, the underlying claim includes a subrogated claim by RSA in relation to the cost of remediating damaged cables, for which it had indemnified RFU as principal insured. FM Conway raised a co-insurance defence to that claim, asserting that it enjoyed the full benefit of the project policy obtained on its behalf by RFU.

FM Conway appealed the first instance decision on five grounds, albeit ground 1 was clearly FM Conway’s primary argument: whether the High Court applied the correct test for ascertaining the necessary authority and intention of the insuring party, the RFU. It was submitted on behalf of RFU and RSA, and then accepted by Lord Justice Coulson, that if ground 1 failed then so too must grounds 2, 3 and 4 as they were largely variations of the first ground and/ or were contingent on that ground succeeding.

It was held by the Court that Mr Justice Eyre did apply the correct test, given that he “paid particular attention to the underlying contract between the RFU and FM Conway. In that, he was following what Lord Toulson said was the correct approach in Gard Marine”. Lord Justice Coulson went on to say that “in any case where there is an underlying contract … it would be counter-intuitive if that was not at least the starting point for any consideration of authority and intention” to insure.

Lord Justice Coulson went on, as Mr Justice Eyre had in the first instance decision, to make clear that whilst the pre-contractual discussions between representatives for Conway and the RFU, respectively, regarding insurance arrangements could be taken into account (which were the main thrust of Conway’s argument that it had wider cover), they could not displace the clear interpretation of the building contract.

It was affirmed by the Court that “extraneous evidence” of a contrary authority or intention to insure could be relied on (similarly to Mr Justice Eyre’s finding that “compelling evidence” could be relied on), but the relevant investigations “will start (and possibly finish) with the underlying contractual arrangements agreed between the parties”.

The Court also made frequent reference, contrary to FM Conway’s reliance on the witness evidence which it said demonstrated an authority and intention of the RFU to secure wider cover, that both parties were represented by legal and insurance professionals such that had there been an intention to secure wider cover beyond that in Option C of the JCT Contract then it would have been reflected in the building contract ultimately agreed. Lord Justice Coulson said that to adopt FM Conway’s attempt to rely on early/ pre-contract discussions was “untenable” as it would enable a party to “ignore any subsequent stages of the actual negotiations”.

Guidance on co-insurance generally

Following his summary of the law in this area generally, Lord Justice Coulson provided (at paragraph 53 of the judgment) the following guidance in relation to co-insurance:

“53.1 The mere fact that A and B are insured under the same policy does not, by itself, mean that A and B are covered for the same loss or cannot make claims against one another;

53.2 In circumstances where it is alleged that A has procured insurance for B, it will usually be necessary to consider issues such as authority, intention (and the related issue of scope of cover). Such issues are conventionally considered by reference to the law relating to principal and agent …

53.3 An underlying contract between A and B is not a necessary pre-requisite for a proper investigation into authority, intention and scope …

53.4 On the other hand, where there is an underlying contract then, in most cases, it will be much the best place to find evidence of authority, intention and scope …

53.5 That is not to say that the underlying contract will always provide the complete answer. Circumstances may dictate that the court looks in other places for evidence of authority, intention and scope of cover”

Comment

Whilst the result is not surprising (especially as Lord Justice Coulson said that the first instance decision was in accordance with the existing authorities), it represents a clear articulation of the principles in this often complex area.

For policyholders in FM Conway’s shoes, it is key that if there is an intention for contractors to enjoy the same level of cover under the project policy as the employer/ principal insured, that the contractual documents make that clear and, where necessary, any standard forms are appropriately amended. That way, there is no need to look for other compelling or extraneous evidence to demonstrate that wider authority and intention which, as is made clear in the facts of this case, might be difficult to do.

Rob Goodship is an Associate Partner at Fenchurch Law