A recent case illustrating this issue involved the installation of a sprinkler system, by a company called Tyco, at a plant owned by car manufacturer Rolls-Royce. In the contract for the works, Tyco agreed to indemnify Rolls-Royce for any losses it suffered as a result of any negligent act committed by Tyco. The contract also required Rolls-Royce to maintain a joint names insurance policy which covered specified perils. These included losses due to water damage and flooding. Rolls-Royce failed to take out the insurance specified.
When one of the pipes in the sprinkler system burst, water damage occurred. Rolls-Royce claimed for its losses, which exceeded £400,000, from Tyco. Tyco refused to pay on the ground that the loss was one for which Rolls-Royce should have claimed on its insurance policy.
The case ended up in the Court of Appeal.
The Court found that the specific wording of the policy that Rolls-Royce should have taken out, but did not, was such that it would not have covered the actual loss suffered. In the words of LJ Rix, the relevant clause was “not intended to give Tyco or any individual contractor separate liability insurance in respect of the existing structures outside the area of its own works.”
Interestingly, LJ Rix, when commenting on the case, offered his opinion that the leading case on the matter (CRS v Taylor Young) could not be interpreted as meaning that a case in negligence cannot be brought by an employer against a contractor with regard to a risk with which the employer was contracted to deal by taking out insurance. In other words, in his view, Rolls-Royce might still have been able to take their case against Tyco even if they had taken out an insurance policy that did cover the loss suffered.