Law report: Memorandum 23 not a self-standing form of cover in defective workmanship case

MJ Gleeson Group v Axa Corporate Solutions Assurance 
Queen's Bench Division, 4 June 2013

Gleeson engaged sub-contractors for a development in Watford. Axa provided insurance cover, with an extension, Memorandum 23, in respect of sub-contractors' defective workmanship. An agent of the funder wrote to Gleeson asking for responses about defects in the works. A claim was later pursued by the property owner. A dispute arose regarding the cover provided under Memorandum 23.

Axa's case was that Memorandum 23 did not displace the general insuring clause, under which cover was only provided where the defective workmanship caused physical loss or physical damage to other than the defective part. Gleeson argued that Memorandum 23 was a self-contained insuring clause and compliance with the general insuring clause was not a pre-condition to cover.

The judge construed the policy by reference to contractual interpretation principles and held that the words "the company will indemnify" used in the general insuring clause and the words "this section of the policy extends to indemnify" at the beginning of Memorandum 23 made it clear that it was not intended to provide a self-standing form of cover. It was to be triggered only where the general insuring clause responded.

It was further held that the letter notifying defects did not constitute a claim within the meaning of the policy; it was merely a communication of "circumstances which might lead to a claim".

Comment
This case reinforces the fact that a contract of insurance will be construed by reference to general principles of contractual interpretation. Had Gleeson's submissions been accepted, in effect there would have been guaranteed cover for defective workmanship by subcontractors (rather than against fortuitous damage) by an "extraordinary" extension to a public liability policy. The judge held this would have required much clearer words.
Holly O'Brien

This article was published in the 18 July 2013 edition of Post