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Insurance Law Monthly

Effect of insurance obligations on contractual indemnities

Construction contracts contain elaborate provisions for the allocation of risk as between the employer and contractor. In addition to express provisions relating to indemnities for particular forms of loss there may also be insuring obligations. The interrelationship of these provisions was discussed by HHJ Gilliland QC in Tyco Fire & Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd [2007] EWHC 137 (TCC), where it was held that the employer’s obligation to take out joint names insurance relieved the contractor from any liability for negligent damage to the insured subject matter

Tyco: the facts

The claimant agreed to design, install, commission and complete a fire protection system at the defendant’s assembly plant. Practical completion of the claimant’s works occurred on 26 November 2003 and practical completion of the whole assembly plant occurred on 31 May 2004. On 30 July 2003 there was an escape of water from one of the main supply pipes on the sprinkler system installed by the claimant in one of the buildings within the assembly plant. Under the contract the claimant had assumed liability to indemnify the defendant for damage to the works, and duly did so. The dispute in the present case was whether the claimant was liable for other damage caused by the escape of water: in adjudication the claimant was ordered to pay £393,562.14 as damages plus interest of £39,765.95 and costs of £100, and this was an application for a declaration that there was no liability despite the findings in the award.

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