B+B Construction

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DMC/INS/12/01
B+B Construction Co Ltd v. Sun Alliance and London Insurance plc
Hong Kong Court of Final Appeal: Judgment given by Sir Anthony Mason NPJ: [2001] HKEC 704: June 2001
Miss Gladys Li, SC and Mr. Anthony Ismail, instructed by Messrs Ip Kwan & Co., for B+B Construction
Miss Audrey Eu, SC and Mr. Mohan Bharwaney, instructed by Messrs Deacons, for the Sun Alliance insurance company
INSURANCE: EMPLOYEES COMPENSATION INSURANCE POLICY: INSUREDS: EMPLOYEES IN INSURED’S IMMEDIATE SERVICE: EXCLUSION OF LIABILITY TO EMPLOYEES OF INSURED’S CONTRACTORS: PRINCIPAL CONTRACTOR AND SUB-CONTRACTOR INSURED: WHETHER PRINCIPAL CONTRACTOR INSURED FOR INJURY TO EMPLOYEE OF SUB-CONTRACTOR CAUSED BY NEGLIGENCE OF EMPLOYEE OF PRINCIPAL CONTRACTOR

Summary
Where an insurance policy taken out by a sub-contractor covered liability for employee compensation, a principal contractor, although an insured under that contract, was held not entitled to recover under the policy for amounts it had paid in respect of injury sustained by an employee of its sub-contractor caused by the negligence of its own employee.

DMC Category Rating: Confirmed

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Facts
B+ B Construction was the principal contractor on a construction project, in which it engaged a company, Pak Kee Transportation, to provide labour for carrying out some H-piles driving works. The sub-contract under which Pat Kee was engaged, obliged Pak Kee to provide employees' compensation insurance "for his labour and for those of his own sub-contractors". Long before the sub-contract was made, Pak Kee took out an insurance policy with the Sun Alliance. Under this policy, the insurer agreed to indemnify the insured (which were stated in the Schedule to be "Pak Kee and its contractors") against liability to pay compensation to injured employees in "the Insured's immediate service".
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An employee of Pak Kee, Cheung Ping, was injured at the B+B Construction site in an accident which was wholly the fault of an employee of the B+B Construction. Cheung Ping successfully claimed against Pak Kee for employees' compensation. Later, in another action, Cheung Ping brought an action against Pak Kee and B+B Construction for damages for personal injury. Pak Kee instituted third party proceedings against B+B Construction to recover the employees' compensation paid. In the main action, judgment was entered against B+B Construction in favour of Cheung Ping, with costs. In the third party action,judgment was given against B+B Construction in favour of Pak Kee. B+B Construction were, in addition, ordered to pay Pat Kee their costs in defending the action brought against them by Cheung Ping and in bringing the third party proceedings. B+B Construction then started proceedings against the Insurer, to claim indemnity under the policy for these amounts.
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The relevant provisions of the insurance policy effected by Pak Kee were as follows:
Indemnity


"Now this Policy Witnesseth that if any employee in the Insured's immediate
service shall sustain bodily injury by accident or disease caused during the
Period of Insurance and arising out of and in the course of his employment
by the Insured in the Business, the Company will ……indemnify the Insured against liability at law (including liability under the [Employee's Compensation Ordinance]) to pay
compensation and claimant's costs and expenses in respect of such injury….."
Exceptions
"The Company shall not be liable in respect of ...the Insured's liability to
employees of contractors to the Insured."
Conditions
"This Policy and the Schedule shall be read together as one contract and any
word or expression to which a specific meaning has been attached in any part
of this Policy or of the Schedule shall bear such specific meaning wherever
it may appear."
In the Schedule,
"the Company" was described as "the insurer"
"the insured" was described as "Pak Kee and his contractors"

Judgment
The court held that B+B Construction’s claim failed, on the following grounds:
1. The cover given by the policy extended to B+B Construction as well as to Pak Kee, as B+B Construction were within the description of Pak Kee’s ‘contractors’
2. The critical question was whether the scope of the indemnity extended to the liability in question, namely, (a) B+B Construction's liability in negligence to Cheung Ping and (b) its liability to Pak Kee for reimbursement of the employee's compensation.
3. Under the policy the cover was against liability at law to pay compensation and costs and expenses in respect of an injury sustained by any employee in the Insured's immediate service.
4. The court adopted the principle stated by MacGilivray on Insurance Law that "Where ... the interests of different people in the same insured property are diverse interests, a policy expressed to insure all the persons interested must be construed as a composite policy insuring each one severally in respect of his own interest."
5. The court held that the cover did not extend beyond Pak Kee's liability to employees in its immediate service and the B+B Construction's liability to employees in its immediate service.
6. The cover did not extend to one contractor for liability to the employees of another contractor. Cover of that nature would have been available under a general liability insurance policy, which this policy was not.

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Comment
The court expressly said that the sole issue in the appeal was as to the interpretation of the policy. In interpreting the policy, apart from the principle stated in 4 above, the court also took into account the fact that the policy was taken out by Pak Kee before it entered into its contract with B+B Construction. The intention of Pak Kee in taking out the policy was certainly to protect its sub-contractors as well as itself. This is because under the Hong Kong Employee's Compensation Ordinance, Pak Kee would be liable to compensate its sub-contractor's employees if the sub-contractor could not compensate them itself.
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The message in this case is that the principal contractor must be careful as to whether it is properly insured, especially when it relies on a policy taken out by its sub-contractor. A problem of this nature would not have arisen had the principal contractor taken out a Contractors' All Risks Policy, as it was in fact obliged to do under its contract with Pat Kee.

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