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The unintended consequence of insurance

Overview

Last week, the UK's Supreme Court gave a decision by the closest of margins (3 to 2) which will have significant implications for Middle East projects where the parties have agreed a common approach to insurance.

The Court held that even where one party is in breach of a clear warranty, if the parties have agreed to take out common or joint names insurance for the benefit of both, they cannot then claim against each other in respect of an insured loss. That was not surprising. But, the court went on to consider the position where the loss had been caused by a sub-contractor who was not a co-insured. It held that a negligent sub-contractor may escape liability for damage caused to the employer, as the main contractor has no claim to pass down the chain.

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