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Cover for consultants

ANYONE considering taking out project insurance might gain some comfort from a recent High Court decision (subject to any appeal) which clarifies who is insured.

This particularly applies to design-and-build or management contracting projects, where the insurance will cover a number of risks including construction all risks (CAR) for different parties at different tiers of the project structure.

Increasingly, where project insurance is being considered, parties such as the various types of consultant involved with the project wish to know whether they are, or can be included, in the cover. Even though these parties are not 'named' as one of the insured, they might be covered where the insured is described by referring to a category of persons involved with the project - as long as they can show that they fall within that category and that they were intended to be insured.

Just such a situation arose in the case of Hopewell Project Management and another v Ewbank Preece.

Under a build, operate, transfer contract made in 1988, Hopewell, a Hong Kong-based development group, agreed to build a power station in the Philippines for the state-owned power corporation, Napocor. Hopewell carried out the project by appointing its subsidiary, Slipform, as project manager. Slipform advised on and selected contractors, whom Hopewell appointed under direct contracts.

Ewbank was appointed by Hopewell to provide certain engineering services and Ewbank did this by seconding three of its engineers to Hopewell.

In addition, Hopewell was obliged to take out CAR insurance for the entire works to cover all kinds of damage. It arranged CAR insurance (and an advance loss of profits insurance) with insurers in Hong Kong. The insured under both policies were defined to include Hopewell, Napocor, Slipform, the named gas turbine installation contractor and named lenders. Also included as insured were 'all contractors and subcontractors'.

When damage occurred and a claim was brought by the subrogated insurers against Ewbank, the firm argued that it was a co-assured. Ewbank said it fell within the meaning of 'all contractors and subcontractors' under the policies.

In Ewbank's view, the fact of its appointment by Hopewell meant it was either a 'contractor' or a 'subcontractor'.

But, crucially, the court found - after hearing both factual and expert evidence - that on the policies concerned the terms 'contractors and subcontractors' did not include firms of professionals such as consulting engineers.

Much time during the trial was spent investigating the nature of Ewbank's engineering services and whether there had been a transfer of employment of Ewbank's engineers because the services had been carried out through the secondment of engineers.

However, the court was clear that the relationship between Hopewell and Ewbank was one of client and consulting engineer. The court went on to hold that it would be most unusual for the terms 'contractors' or 'subcontractors'', as used, to include professional firms.

Those terms invariably referred to those carrying out 'physical works of construction', even if design services were offered as an adjunct to that function. Ewbank's services could not be described as physical works of construction and so it was not a co-assured.

A key document referred to in the case was a report produced by the Insurance Institute of London, entitled Construction and Erection Insurance, published in 1985. The parties collaborating on a project listed by the report as potential co-assured include the employer, architects, engineers and other professional advisers (under contract to the employer), contractors (under contract to the employer) and subcontractors (under contract to contractors). The report noted that professionals are rarely included by name or profession but that their inclusion in the cover by reason of being subcontractors could easily be overlooked.

However, it also noted that CAR policies do not usually cover professionals against their negligence, and that if a limited form of cover under CAR insurance is intended to extend to a professional it will usually be accompanied by an exclusion in respect of professional risk.

Taking account of this commentary, the judge concluded that, were the terms 'contractor' or 'subcontractor' intended to include a professional firm, he would have expected to find an exclusion clause in respect of such risk in the policy conditions.

The decision in the Hopewell and Ewbank case provides guidance on whether a firm of professionals collaborating on a project might be covered by project insurance if they are not named individually or as a professional category. The use of the word subcontractor in the definition of the insured will not in future be sufficient if a professional firm is intended to be insured. CAR insurance cannot be

assumed to cover professional risk.

If such cover is required, it must be raised with the insurers at an early stage.

Susan Beech is a lawyer with City law firm Masons