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Updated: November 9th, 2009 09:41 AM GMT-05:00
Post Magazine
While the attitude of insurers to policy interpretation has never been strictly uniform - with some prepared to show leniency where others would be swift to repudiate liability - there is no doubt that a harder line has been taken across the board by all insurers in the past 12 months. This seems to have had a knock-on effect for, among others, contractors in the building industry.
At a time when the construction sector is under increasing financial pressure, some contractors within the industry are finding themselves without cover when their insurers repudiate liability for claims worth millions of pounds after the insurers of their sub-contractors decline to cover a claim arising in the same circumstances. Although a standard condition of many policies, contractors rarely verify whether their policies contain a warranty obliging them to retain only sub-contractors that have, and maintain, a comparable or specified level of insurance. Yet even those that do check their sub-contractors' insurance policies can still face the prospect of losing their entitlement to indemnity, since they lack control over their sub-contractors' actions away from the project on which they are working and, consequently, their effect on cover. This means contractors cannot guarantee their insurance and are left trying to police the impossible.
In a recent case, a design and build contractor encountered a dispute with its insurers as a result of this increasingly hardline approach - and almost suffered dire consequences. In 2007, two men fell through a roof on one of the DBC's construction sites. Both were seriously injured and one man was left paralysed from the neck down. Although the men had been working under the direction of their employer - a demolition sub-contractor that we will call firm A - the DBC was still potentially liable under the Health & Safety at Work Act.
After a criminal prosecution had taken place, the paralysed worker brought a civil claim for damages in excess of £2m against the DBC and Firm A. The DBC's insurers agreed to indemnify it and instructed its solicitors to defend the claim. Firm A's insurers, by contrast, refused to cover the claim. It later transpired that it had only agreed to insure a gentleman known as Mr Y, who had been a sole trader specialising in demolition but was made bankrupt. Mr Y persuaded a friend to set up the new company, Firm A, so that he could continue trading, but failed to tell his insurers about this arrangement or, indeed, of his bankruptcy.