FM Conway Ltd v The Rugby Football Union & Ors

[2023] EWCA Civ 418

We discussed this case in Issue 263. During works to upgrade Twickenham rugby stadium for the 2015 World Cup, the RFU engaged Clark Smith to design the ductwork and Conway to install it. The RFU and Conway entered into a JCT Standard Building Contract without Quantities 2011. The RFU also obtained an all-risks insurance policy. The RFU said that there were defects in the ductwork which caused damage to the cables when they were pulled through it. The RFU was indemnified under the terms of the all-risks policy in respect of the replacement and related costs, but said that Clark Smith and Conway were liable for those losses because of defects in the design of the ductwork and workmanship deficiencies. Conway said that it was co-insured with the RFU under the all-risks policy and so had the benefit of the cover to the same extent as the RFU. The result was that the RFU could not bring claims in respect of those alleged losses as they were covered by the policy, and it could not make a subrogated claim (on behalf of insurers) in respect of sums already paid out under the policy.

At first instance, the Judge agreed with the RFU. Coulson LJ commented that this appeal revealed “at its heart, a potential tension.” On the one hand, the appellant Conway was seeking to rely on the co-insurance policy to avoid liability for what was alleged to be its own defective work, which was a type of cover which the first respondent employer, the RFU, was not obliged to (and did not) procure pursuant to its building contract with Conway. On the other hand, there could be no argument that the policy covered the loss that eventuated, because, if it had not, the second respondent insurer, RSA, would not have paid out to the RFU under the policy and would not now be behind the subrogated claim against Conway. So, if Conway were a co-insured under that policy, it might seem odd that their cover was different to that of the RFU. 

Although the Judge noted that he was well aware of the dangers of summarising the applicable principles in what is “a notoriously complex area of law,” he said that the following broad propositions could be derived from the authorities:

(i) 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.

(ii) 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. 

(iii) An underlying contract between A and B is not a necessary pre-requisite for a proper investigation into authority, intention and scope. However, as the same case shows, a contract may well be implied in any event.

(iv) 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.

Coulson LJ considered that the Judge, at first instance, had expressly considered authority and intention, paying particular attention to the underlying contract between the RFU and Conway. The Judge, at first instance, concluded that the RFU’s authority to insure was co-extensive with its obligation to do so. In other words, the RFU was obliged and intended to provide Option C cover, but nothing more. The Judge had considered whether anything passed between the parties in the course of the pre-contractual negotiations which indicated that Conway gave authority, and/or the RFU intended, to effect cover that was wider than Option C, concluding there was no such extraneous evidence of authority and/or intention. For example, whilst there were discussions about the creation of a fund recourse to which would be the sole remedy for loss suffered by the RFU, this was of no legal significance because it was overtaken by the subsequent negotiations. Coulson LJ noted that this finding was fatal to the appeal.

There was no issue that the RFU intended to procure insurance for Conway; the issue was the extent of the cover they intended to provide. This was a composite insurance policy, which meant that each co-insured was to be treated as if they had their own policy. Thus, the mere fact that Conway and the RFU were insured under the same policy was insufficient to allow the co-insurance defence. The all-risks policy insured both the RFU and Conway, but they were not insured to the same extent in respect of the same risk. In particular, they were not co-insured in respect of the losses which the RFU was said to have suffered by reason of damage to the cables resulting from defects in the ductwork and for which the RFU had been indemnified by insurers. The result was that the co-insurance defence failed; a conclusion that Coulson LJ considered to be unassailable. 

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