Citation: EWHC 2394 (TCC) (insurance and collateral warranties)
Nature of case: DTR were engaged as the architects on a residential development, of which Oakapple became the head lessee. DTR were obliged to grant collateral warranties to the lessees, and did so in respect of the commercial lessees. The development was destroyed by fire, allegedly as a result of various breaches of DTRs design and inspection duties. DTR was called upon to execute the collateral warranties in favour of the residential lessees, but refused. An issue arose as to whether DTR’s professional indemnity insurance would cover payments under the collateral warranties. DTR’s insurers argued that DTR were entitled to defend any claims under the collateral warranties on the basis of the contributory negligence of the contractor on the project. In the alternative, it was argued that the wording of the insurance policy would allow the insurers to decline to indemnify claims under the collateral warranties. Ramsey J rejected both arguments. The terms of the warranty precluded DTR from raising any defence on the basis of the contractor’s contributory negligence. Further, allowing DTR’s insurers to decline to indemnify claims under the collateral warranties “would not be consistent with sound commercial principles and good business sense and would produce an unrealistic and generally unanticipated result.”
