The Contractor's Liability Spiral
BuildRight Contractors holds a public liability policy with a £2m limit per occurrence, £5m in the aggregate, and a £10,000 excess. In June a subcontracted electrician's faulty wiring caused a fire that destroyed a client's warehouse (£1.4m) and injured two employees of a neighbouring business (£600,000 in combined damages). The client also claims £300,000 for business interruption. BuildRight's own employee was injured in the same fire and claims £150,000 under employers' liability, which is written as a separate policy with a £10m limit. The public liability policy excludes 'injury to the insured's own employees' and 'damage to property in the insured's care, custody or control'. The client's warehouse was not in BuildRight's custody. The electrician was an independent subcontractor with his own £1m liability cover.
1. Allocate the losses across the policies and identify the coverage gaps and overlaps.
Read the worked answer
Work through each head of loss against each policy.
Warehouse damage (£1.4m). The property was not in BuildRight's care, custody or control, so the exclusion does not apply. This is third-party property damage caused by BuildRight's (subcontracted) negligence. It falls under public liability, subject to the £10,000 excess and the £2m per-occurrence limit. Covered.
Neighbour's employee injuries (£600,000). Third-party bodily injury, not BuildRight employees. Covered under public liability, same occurrence, same limit.
Business interruption (£300,000). This is the client's consequential loss. Whether it is covered depends on whether the policy insures consequential financial loss or only physical damage. Many public liability wordings cover 'loss of use' only where it flows from covered property damage; others exclude pure economic loss. The team must read the wording. If covered, it shares the same per-occurrence limit.
BuildRight's own employee (£150,000). Excluded from public liability by the own-employee exclusion. It falls under the separate employers' liability policy with its £10m limit. Covered there, subject to that policy's terms.
Limit interaction. The public liability losses (£1.4m + £600,000 + possibly £300,000) total up to £2.3m against a £2m per-occurrence limit and £5m aggregate. If all are one occurrence, the per-occurrence limit caps recovery at £2m, leaving up to £300,000 uninsured. The aggregate is not exhausted.
Subcontractor's policy. The electrician's £1m cover may respond as a concurrent insurer; BuildRight's insurer may seek contribution or subrogation. The £1m is insufficient to cover the £2.3m, so the shortfall remains with BuildRight's policy and then with BuildRight.
2. The insurer proposes to treat all losses as a single occurrence. Is that correct, and what are the consequences if it is wrong?
Read the worked answer
'Occurrence' is usually defined by reference to the originating cause, not the number of claimants or heads of damage. Here there is one originating cause: the electrician's faulty wiring. On that reading, all the fire losses are one occurrence, and the £2m per-occurrence limit applies once. That is the insurer's strongest position.
The counter-argument. Some wordings define occurrence by reference to 'each event or series of events arising from one source or repeated cause'. If the insured can show separate causative events (e.g., a distinct failure to supervise the subcontractor, separate from the wiring fault), a court might find more than one occurrence. That argument is weak where the losses all flow from a single fire.
Consequences of error. If the insurer wrongly aggregates and the losses are in fact separate occurrences, it will have underpaid and may face a bad-faith or breach-of-contract exposure, plus interest. If it wrongly treats losses as separate and pays more than the per-occurrence limit allows, it may be unable to recover the overpayment. The safer course is to aggregate, state the reasoning, reserve rights, and invite the insured to demonstrate separate causes.
Interaction with the aggregate. The £5m aggregate is not engaged by a single £2m occurrence, but a series of claims in the same policy year could erode it. The insurer should track aggregate erosion and notify the insured when the aggregate is approached.