Significant court ruling for construction professionals and their insurers
The need for main contractors to ensure that everyone in the supply chain responsible for design carries appropriate insurance has been highlighted in a recent Technology and Construction Court ruling.
The case Multiplex v Bathgate & others  EWHC 590 demonstrated the challenges of solely relying on professional indemnity insurance and collateral warranties and why Latent Defects Insurance (LDI) should be taken out on construction projects.
A LDI policy will cover the owner of a completed building for 10 to 12 years due to damage caused by defects in design, workmanship and materials, without a need to prove any particular party involved in its design or construction owed a duty of care or was negligent.
In this case, Multiplex brought claims against RNP, an independent design checker, following the failure of a slipform rig used in the construction of a 40-storey tower at 100 Bishopsgate. RNP had contracted with the subcontractor Bathgate only, to independently check the design by specialist consultants BRM. Multiplex alleged that RNP owed it a duty of care arising out of an assumption of responsibility and/or that RNP’s certificates contained warranties to Multiplex.
After a three day trial in the TCC, the Judge Mr Justice Fraser found that RNP owed no duty of care and/or warranties to Multiplex.
This judgment provides more certainty for insurers in terms of assessing potential risks and liabilities at the outset of a complex construction. The court heard the contractor issued proceedings against the sub-contractor and the designer, however, the sub-contractor was in administration, the designer was uninsured and the consultant had gone into liquidation. As a result, the contractor pursued the consultants’ insurers.
The court asked two questions: Did the Consultant owe the contractor a duty of care in respect of checking the design and issuing the certificates? Did the Consultant provide warranties directly to the contractor by way of the certificates? The answer to both was No.
The court took the view that “It was inconceivable that a reasonable businessman would consider that the consultant was voluntarily assuming an unlimited responsibility to the main contractor, or indeed to any party with whom it was not a direct contractual relationship”.
The case confirmed that large infrastructure projects are often subject to intricate contractual relationships between the relevant stakeholders, and this will also include collateral warranties to cover any potential gaps in liability to mitigate potential effects of one of the participants in the contractual matrix becoming insolvent.
W Denis is a leading broker in the area of structural defects insurance with a significant involvement in UK and overseas markets. To discuss this further with an expert at W Denis, please make arrangements with firstname.lastname@example.org and on 0044 (0)113 2439812
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