Joint Names Clauses Create Own Problems

Blog Author: John D Wright  – JD Risk Associates

Standard contract forms such as JCT have a long history of words and phrases being adjusted to meet the evolving demands of business and to develop more compatibility with associated businesses such as insurance. The latest adjustments under JCT 2016 provide further clarity but the fundamental question of who bears the risks in any given situation continues to exercise the minds of all who advise on such contracts.

JCT 2016: the final touches?
The move to joint names insurance from the sole responsibility basis of the earlier editions has been a catalyst for more litigation but in the meantime other difficulties became apparent having first been raised in the 2005 edition but now dealt with more positively in JCT 2016. This refers to the availability of insurance cover on existing structures required to be insured by the employer under insurance option C1. It became apparent that the demands of cl C1 were unsuitable for certain types of employer who found that the insurance market was not sympathetic to their request for joint names protection. This applies in particular to refurbishment contracts, extensions or alterations by a tenant employer whose landlord controls the existing structures insurance. Domestic home owners or occupiers wishing to extend or refurbish their properties are in a similar position.

The solution under JCT 2016 is to provide the option of a C1 Replacement Schedule. This may specify alternative solutions such as using the contractor’s public liability insurance or for the employer to take out special structures insurance.

For lower valued projects where the value is well within the insurance limits of the contractor, in particular domestic property contracts, the employer’s risk in respect of those structures and their contents may be covered under the contractor’s public liability insurance that he must carry to comply with cl 6.4. Such cover must not however contain a custody or control exclusion, ie of property on which the contractor is working. Insurers will generally qualify this exclusion to allow cover for property which is temporarily in the contractor’s occupation for the purpose of carrying out the works. There could still be problems. The replacement schedule may set out alternatives but this does not necessarily change the attitude of the insurance market to the risks involved. They may not accept the alternative arrangement. One area in particular relates to tenants in multi-occupancy flats where the existing structure may be valued at millions of pounds and where insurers will be reluctant to relinquish their subrogation rights following a major loss.

The contractor should have public liability cover in place but the indemnity limit may not be sufficient to cover a major loss, particularly where the size of the contract and of the contractor is small and the cost of more layers of cover may be prohibitive. The only alternative may be for the employer to negotiate a one off special structures insurance.

Whatever solutions are adopted it is vital that a prospective employer who may not be conversant with insurance option C, particularly a tenant or domestic home owner including any member of their professional team, should consult with their construction insurance advisers at the earliest possible stage of the project. The insurers of the landlord must also be consulted. This should take place at the pre-tender stage. Before the work itself commences the contractor and his insurance advisers should be consulted. The eventual insurance programme needs to be agreed with all the parties and replacement cl C1 needs to describe accurately what has been agreed. Any lack of attention to detail may only result in more litigation.

The three insurance options have themselves been simplified in JCT 2016 by the transfer to and consolidation in s 6, along with their respective provisos relating to evidence of insurance (cl 6.12) reinstatement (cl 6.13) together with the former option C rights of termination in case of damage to the existing structure (cl 6.14).

One further reference in JCT 2016 concerns the situation where there is an existing structure on site at the commencement of the contract but which may be of relatively low reinstatement value – say 50 per cent or less of the proposed contract value. Contract works insurers have generally taken a hard line in excluding any item however small which constitutes an existing structure, eg a small outbuilding or a retained facade or a retaining wall. It now appears that insurers when considering proposals under options A and C will consider cover on such structures. A lesser overall premium rate would apply than that payable by effecting option C insurance.

Other changes
The third party rights in s 5 now includes a net contribution clause. This is because the JCT believes that there are circumstances where the employer’s consultants could be held jointly liable with the contractor for design defects, particularly when it is considered that under cl2.11 (with some exceptions), the employer retains responsibility for the contents of the employer’s requirements (if the contractor has been given total design responsibility the above would not be suitable).

Clause 6.15 also provides the option of acquiring product liability insurance where suppliers are involved.

Pollution and contamination risks may also appear in the contract particulars so attention should be drawn to any exclusion of such risks in the professional indemnity and product liability policies.

There are also new provisions for granting performance bonds and parent company guarantees. The parties must now select whether these will be required in the contract particulars and these are now extended to include third party rights from sub-contractors.

This above is a slightly adapted article from the article that first appeared in the May 2017 edition of Construction Law. Construction Law’s website can be found at: