In Sky UK Limited and Mace Limited v Riverstone Managing Agency Limited and others  EWHC 1207 (Comm) the Commercial Court considered the scope of cover available under a construction all risk policy ("the Policy"). Key issues included the period of cover under Policy, the meaning of 'physical damage', the number of applicable deductibles and the quantum of sums recoverable under the Policy.
The case concerned the failure of the roof of Sky's global headquarters in West London ("Sky Central") spanning 41,000 square meters and housing up to 4,000 of Sky's employees. The building was constructed by Mace under a JCT Design and Build Contract 2011 ("Construction Contract") and achieved practical completion on 4 April 2016 ("PC"). The roof, covering 16,000 square metres and said to be the largest flat timber roof in Europe, consists of a series of glue laminated timber beans known as Glulams on which 472 cassettes sit forming a secondary roof structure.
Following installation between December 2014 and May 2015, the cassettes were exposed to substantial rainfall prior to the completion of the permanent waterproofing installation. As no temporary weather protection was provided during this period rainwater entered the cassettes. Drying out was attempted between April 2015 and June 2015 and, again, between August 2015 and April 2016. When PC was awarded on 4 April 2016, the issue remained unresolved. Sky and Mace contended that the principal means of the water ingress was attributable to the way the gutters were constructed, with a gap created underneath the underlay without any protection from a temporary roof, described as a "fundamental flaw", as well as other means such as the holes in the cassettes.
Sky and Mace sought an indemnity under the Policy for the cost of remediating the roof. In this article we look at the extent to which Mace, as a third party insured, was determined to benefit from the cover under the Policy.
The scope of cover under the Policy
Unsurprisingly, following a line of authorities referred to most recently in the decision of Eyre J in Rugby Football Union v Clark Smith Partnership  EWHC 956 (TCC);  BLR 381 (a decision approved by the Court of Appeal following the conclusion of the Sky trial), the Judge reiterated the established principle that where a principal insured (in this case Sky) concludes an insurance policy with an insurer on behalf of a third party insured (in this case Mace) the extent of the latter's interest in the policy is determined having regard to "the intention of the parties to be gathered from the terms of the Policy and the terms of any contract between the contractual assured (here Sky) and the relevant third party insured (here Mace) concerning in particular the scope of the cover it had been agreed as between the contractual insured and the third party insured would be provided for the benefit of the third party insured".
Whilst Sky, as the principal insured, had the benefit of cover for the full period of insurance (the construction period plus a further 12 months maintenance period following PC) the Judge determined in light of the intentions of Sky and Mace as set out in the Construction Contract that Mace's interest ended on PC after which time it was liable to indemnify Sky in respect of any damage to Sky Central to the extent it was attributable to its negligence, breach of statutory duty or omission or default. One consequence of this is that for damage arising due to fault on the part of Mace in the maintenance period, Sky could potentially be indemnified under the Policy but as Mace would not be so entitled the insurers would have rights to bring a subrogated recovery action against Mace for such damage.
Presumably to overcome the principle that the extent of its interest under the Policy should be determined by the intention of the parties as set out in the Construction Contract, Mace sought to argue that as a named insured it should be distinguished from and treated differently from a third party insured that is not named as an insured under a policy but which falls within a defined class of persons insured such as "subcontractors". The Judge rejected that submission as "unprincipled and unsupported by the authorities". The Judge referred to the clear comments of Eyre J addressing the issue in the Rugby Football Union v Clark Smith Partnership case referred to above. Accordingly the Judge accepted the insurers submission 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" and therefore "that I should approach an assessment of the scope of cover by reference to the contents of the construction contract."
A novel argument raised by the insurers based on the terms of the Construction Contract was that Mace was not insured in respect of remedial work carried out after PC even in respect of damage occurring prior to that event. The Judge robustly rejected that submission as being inconsistent with the overall structure of the contractual and insurance arrangements in place being to bar recourse against Mace for damage occurring prior to PC, irrespective of when or whether it is rectified. The Judge stated that, "In my judgment if the parties had intended Mace to be covered only in respect of remedial work carried out by it prior to Practical Completion, the parties could and would have used clear express words in the construction contract to make that clear."
This is the latest in a line of recent cases which have reiterated the principle (endorsed by the Court of Appeal in FM Conway Limited v The Rugby Football Union  EWCA Civ 418) that the scope of the cover available to third parties who are insured as a consequence of agreement between an insurer and a Principal insured is determined by the parties' intentions. The starting point for determining such intentions is the contract between the Principal insured and the third party rather than the Policy.
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