UK: Builders' Risks - Co-Insurance And Waiver Of Liability

BMT Marine & Offshore Survey Ltd v. Lloyd Werft Bremerhaven GmbH [2011]1
Commercial Court, 24 January 2011

Where a Claimant (A) sues Defendant (B) the latter may deny liability on the grounds of lack of any wrongdoing. Alternatively, B may accept liability for breach of duty but he may contend that the loss was, at least in part, also the result of wrongdoing on the part of C, either by way of breach of C's contract with the Claimant or as a joint tortfeasor. The result is that C may be held liable to contribute to the damages payable to the Claimant, under a mechanism governed in England by the Civil Liability (Contribution) Act 1978 ("the 1978 Act").

The present case concerned a fire at a shipyard belonging to Lloyd Werft Bremerhaven GmbH ('LWB'), which occurred while repair and conversion work was being carried out on the vessel m/v 'CALA PALMA'. The vessel suffered significant damage in the fire.

The conversion works were being undertaken pursuant to a contract between Owners and LWB, which provided for German law and for the exclusive jurisdiction of the Courts of Hamburg.

At the time of the fire the vessel was insured under a hull policy incorporating the Institute Time Clauses - Hulls - Port Risks (20.07.87), and selected clauses of the Institute Clauses for Builders Risks (1.6.88), but with the choice of English law expressly overridden in favour of Italian law. As required under the terms of the conversion contract, the policy named both the Owners and LWB as co-assureds, though it did not refer to any express waiver of subrogation against LWB. It also required, as a condition precedent to liability, that a shipyard and/or project risk assessment survey be carried out by BMT Marine and Offshore Survey Ltd ("BMT").

Following the fire, the insurers settled the claim from their assureds, the Owners, and thereby took an assignment of the attendant subrogation rights under Italian law. In pursuit of those rights, they commenced English proceedings against BMT, alleging that they had failed to exercise reasonable skill and care in the conduct of the risk assessment survey, in particular in relation to the review of hot works procedures adopted by LWB and its sub-contractors. For its part, BMT denied any lack of reasonable skill and care, and contended that the cause of the fire was in fact the negligence and/or breach of contract by LWB (or its sub-contractors) in carrying out the hot works.

Accordingly, BMT brought the present Part 20 proceedings against LWB, claiming a contribution or indemnity from LWB under the 1978 Act. In response, LWB contended that, as a matter of German law and on the proper construction of the conversion contract, Owners had agreed to waive or surrender any right to claim against LWB, whether in contract or in tort in respect of work done to the vessel. Consequently, argued LWB, they were under no liability to Owners, and hence could not be obliged to contribute.

The first question for the court to consider was whether, as a matter of German law, the conversion contract did indeed excuse LWB of liability to Owners, as alleged. LWB argued that it did, and that was why the contract required insurance to be procured for the benefit of both it and Owners. The risk of losses was to be borne by insurance, not by means of claims between the parties. BMT, on the other hand, contended that LWB remained liable to Owners, but simply that Owners were required to procure insurance of the type stipulated.

The German law experts agreed that until 2000 there had been a line of cases in the German Federal Supreme Court to the effect that, contracts which provided for co-insurance were generally regarded as amounting to a waiver of liability between the parties in relation to liability for losses covered by the insurance. Since then, however, BMT contended that German law had developed in a different direction, such that co-insurance no longer amounted to a waiver. While, clearly, there could be no exercise by insurers of subrogation rights between co-assureds, that was not the case here, since the Part 20 claim was being pursued by BMT, not by Owners' insurers.

The court accepted that, under German law, it was entitled to take into account not merely the wording of the final contract, which in this case was not entirely clear, but also the intention of the parties as revealed in the negotiations leading up to it. Having reviewed all of the evidence, it concluded that LWB were intended to benefit from a waiver of liability under the contract, save in those cases where builders' risks insurance had been withdrawn due to the fault of LWB's management.

On the basis, therefore, that LWB owed no liability to Owners for the loss, there could be no claim for contribution under the 1978 Act, since it could not be said that BMT and LWB were together "liable in respect of the same damage"2

Result: Judgment (on preliminary issue) for the Defendant, LWB

Taylor Wessing acted in this matter, in providing the German law expert evidence on behalf of the successful Defendant, LWB.

Footnotes

1 [2011] EWHC 32 (Comm)

2 S. 1 Civil Liability (Contribution) Act 1978.

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