Hansen Yuncken Pty Ltd v The Hollard Insurance Company Pty Ltd
[2024] FCA 398
•24 April 2024
FEDERAL COURT OF AUSTRALIA
Hansen Yuncken Pty Ltd v The Hollard Insurance Company Pty Ltd [2024] FCA 398
File number: VID 819 of 2023 Judgment of: DERRINGTON J Date of judgment: 24 April 2024 Catchwords: INSURANCE – indemnity sought pursuant to commercial business insurance policy – construction of policy – whether and to what extent applicant insured under the policy – where policy extends the named insured to any party the insured undertakes to insure – where the insured undertook to insure the applicant – where applicant is the principal of the insured – where policy also extends cover on a limited basis to principals of the insured – declaratory relief granted Legislation: Insurance Contracts Act 1984 (Cth) Cases cited: Certain Underwriters at Lloyds of London v Allianz Australia Insurance Limited [2018] VSC 735
Cribb v Korn (1911) 12 CLR 205
Delta Pty Ltd v Team Rock Anchors Pty Ltd [2018] 1 Qd R 564
Erect Safe Scaffolding (Australia) v Sutton (2008) 72 NSWLR 1
LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435
Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367
Marks v Carne [1909] 2 KB 516
Onley v Catlin Syndicate Ltd (2018) 360 ALR 92
QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326
Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291
Star Entertainment Group Ltd v Chubb Insurance Australia Ltd (2021) 156 ACSR 119
Swiss Re International SE v LCA Marrickville Pty Ltd (2021) 394 ALR 461
Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114
Desmond Derrington and Ronald Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013)
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 82 Date of hearing: 5 March 2024 Counsel for the Applicant: Mr R Andrew KC with Mr B Murphy Solicitor for the Applicant: Wotton + Kearney Counsel for the Respondent: Mr C Archibald KC with Ms J Elliott Solicitor for the Respondent: Barry Nilsson ORDERS
VID 819 of 2023 BETWEEN: HANSEN YUNCKEN PTY LTD ACN 060 384 056
Applicant
AND: THE HOLLARD INSURANCE COMPANY PTY LTD ACN 090 584 473
Respondent
ORDER MADE BY:
DERRINGTON J
DATE OF ORDER:
24 APRIL 2024
THE COURT DECLARES THAT:
1.The Hollard Insurance Company Pty Ltd is liable to indemnify Hansen Yuncken Pty Ltd pursuant to the Commercial Business Insurance policy issued to Reed Christian Holdings Pty Ltd and bearing the policy number MMB011871BUS for the period from 30 June 2015 to 30 June 2016 in respect of its liability to Mr McConnon in respect of the proceedings commenced in the Supreme Court of Tasmania numbered 2647 of 2017.
THE COURT ORDERS THAT:
2.The respondent pay the applicant’s costs of the proceedings.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
Introduction
These proceedings concern whether the applicant, Hansen Yuncken Pty Ltd (Hansen Yuncken), is entitled to indemnity in respect of its liability to a third party under a policy of insurance issued by the respondent, The Hollard Insurance Company Pty Ltd (Hollard), to Reed Christian Holdings Pty Ltd, trading as “Choices Hobart” (referred to by the parties and in these reasons as “Choices Flooring”).
Hollard has denied that it is required to indemnify Hansen Yuncken, though the precise basis for its declinature has changed from time to time. In essence, it now denies that Hansen Yuncken is a primary insured under the policy and contends that the only cover available to it could arise under an extension which contemplates coverage for “principals” of Choices Flooring. It further asserts that the specific liability for which indemnity is sought does not fall within that cover.
The matter, being on the Insurance List of this Court, was brought on for a determination of the construction of the policy wording and whether the policy extended cover to Hansen Yuncken in circumstances which were largely agreed between the parties.
Background
It is appropriate to set out some of the background circumstances which are relevant to the question before the Court. There was little to no dispute about these matters.
Hansen Yuncken carries on business as a building contractor. Relevantly for present purposes, it was the principal contractor of a project involving the refurbishment of commercial premises at 40 Molle Street, Hobart.
In or around November 2015, Hansen Yuncken engaged Choices Flooring as a subcontractor to provide services in respect of the refurbishment, namely the installation of various flooring.
The policy of insurance
On or about 3 June 2015, Hollard issued to Choices Flooring a Commercial Business Insurance policy bearing the policy number MMB011871BUS covering the period from 30 June 2015 to 30 June 2016 (the Policy).
The parties agreed that the Policy comprised Hollard’s policy wording document titled “Business Insurance Product Disclosure Statement & Policy Wording” (the Policy Wording) and a “Schedule of Insurance” (the Schedule) which contained a “Business Insurance Certificate”.
The scope of persons covered by the Policy is identified in the Policy Wording in the following manner:
Who is insured under this policy
The persons or organisations that are covered by this policy are shown on the Insurance Certificate. In this policy, those persons or organisations are referred to as ‘you’ or ‘your’. We will extend the policy to cover other persons or organisations requiring cover under this policy if you have advised us of them, and we have named them on the Insurance Certificate. All persons or organisations covered by the policy have to comply with the terms of the policy. We may refuse to pay a claim or reduce the amount we pay if you or any person covered by the policy does not comply with the terms of this policy.
There was, rightly, no dispute that the Business Insurance Certificate contained in the Schedule amounted to an “Insurance Certificate” within the meaning of the Policy. That Certificate identifies the “Insured” in the following manner:
Insured Name
Reed Christian Holdings Pty Ltd
Business name /
Trading name
Choices Hobart and/or subsidiary and/or related Corporations as defined under Australian Corporations Law and/or financiers and all parties for whom the Insured undertakes to insure for their respective rights, interests and liabilities.
The insuring clause relevant for the purposes of the present proceedings is contained in the “Business Liability” section of the Policy Wording, and provides:
2. What we cover
Liability
We will cover your legal liability to pay compensation for:
1. personal injury;
2. property damage to property that is neither owned by or leased or rented to you or not in your physical and legal control;
3. advertising injury;
which happens during the period of insurance and is caused by an occurrence in connection with your business within the geographical limit.
For the purposes of that clause and the Business Liability section more broadly, the expression “you/your” is defined in the following terms:
you/your has the same meaning as defined elsewhere in this policy and extended for this business liability section only to include:
1. every principal of yours, in respect of that principal’s liability caused by the performance of work for that principal, but subject always to the extent of coverage and the limit of liability provided by this policy;
…
This will be referred to as the “extended definition” of “you/your”.
The expression “you/your” is otherwise defined as follows:
you or your means any person or entity (including their social clubs) shown on your Insurance Certificate as the insured.
This will be referred to as the “general definition” of “you/your”.
The word, “occurrence”, as used in the insuring clause, is defined in the Business Liability section as follows:
occurrence means an event which results in personal injury, property damage or advertising injury, neither expected nor intended from your standpoint. …
The definition of the term, “personal injury”, includes “bodily injury (including death and illness), disability, shock, fright, mental anguish, mental injury”.
The Business Liability section also includes a severance clause regulating the cross liability between joint insureds. It provides:
Cross liability – Joint insured
Where you comprise of more than one party, each of the parties will be considered as a separate and distinct unit and the words you and your will be considered as applying to each party in the same manner as if a separate policy had been issued to each of them provided that nothing in this clause will result in an increase of our limit of liability in respect of any occurrence.
Hansen Yuncken added to the Policy
Hollard accepted that, sometime in June 2015, Choices Flooring requested that Hansen Yuncken be added as an “interested party” to the Policy.
On 2 July 2015, Hollard issued a Certificate of Currency in relation to the Policy which identified Hansen Yuncken as an interested party “as principal” to the “Broadform Liability” cover as follows:
INSURED
Reed Christian Holdings Pty Ltd T/as Choices Hobart
INTERESTED PARTY
Hansen & Yuncken as Principal
During the hearing of this matter, Hollard acknowledged that the issuing of the Certificate of Currency had the effect of an endorsement to the Policy so as to include Hansen Yuncken as an insured “to the extent that it is a principal”. It also accepted that the Certificate of Currency fell within the meaning of an “Insurance Certificate” under the Policy. Prior to then it had denied that the Policy had that operation.
The contracts for supply of goods and services to Hansen Yuncken
On 10 November 2015, Choices Flooring entered into an agreement with Hansen Yuncken to supply and install hardboard, carpet tiles, vinyl and vinyl skirting and to undertake “base building works” at the Molle Street site. Two purchase orders between the parties came into existence, both including a clause which required Choices Flooring (referred to as the “Supplier”) to obtain insurance coverage for Hansen Yuncken (referred to as the “Buyer”) in the following terms:
7. INSURANCE
7.1 The Supplier must obtain and keep current public liability insurance not less than $10million, product liability insurance, workers compensation insurance and motor vehicle insurance in relation to the Goods or Services and its obligations under the Contract.
7.2 The Supplier must ensure that the Buyer is named as an interested party to and entitled to the benefit of indemnity under all insurance policies in respect of the Contract and provide to the Buyer all documents requested by the Buyer in relation to such insurance.
7.3 Public Liability cover is to include a cross liability clause in which cover shall be considered as applying separately to each party entitled to the benefit of Indemnity under the policy.
By a further agreement entered into on around 27 November 2015, which took the form of a subcontract agreement, Choices Flooring agreed to supply and install floor coverings at the Molle Street site for an agreed price of $47,707.00 (excluding GST). Incorporated into that agreement was a document titled, “Subcontractor/Major Supplier Pre-Award Meeting Minutes”. It relevantly shows that, at a meeting on 27 November 2015, Choices Flooring agreed to comply with an obligation to obtain insurance for Hansen Yuncken as follows:
4.10 Insurances
4.10.1 Public Liability Insurance
The Subcontractor shall effect Public Liability insurance for a minimum of $20 million.
The Policy is to include secondary subcontractors, labour hire companies and apprenticeship schemes.
The cover is to include a cross liability clause in which the cover shall be considered as applying separately to each party entitled to the benefit of indemnity under the policy.
The Subcontractor shall arrange for submission of a Certificate of Currency from the actual insurer (not a broker), with Hansen Yuncken noted as an interested party and entitled to the benefit of indemnity under the terms of the policy.
Subcontractors are not permitted to start on site until the Public Liability insurance requirements have been provided.
(Emphasis in original).
Whilst those two obligations clearly required Choices Flooring to obtain for Hansen Yuncken insurance which met the description, they in no way affect the construction of the Policy.
In late 2015, Choices Flooring subcontracted part of the work it was required to carry out under its agreement with Hansen Yuncken to a Mr Peter McConnon, a professional carpet layer. He completed a site-specific induction in relation to the Molle Street site on 21 December 2015, and a record of that appears in the materials.
Mr McConnon claims that, on 25 January 2016, he sustained personal injuries whilst climbing over a retaining wall at the Molle Street site.
He commenced proceedings against Hansen Yuncken in the Supreme Court of Tasmania on 4 December 2017, claiming damages for those personal injuries. He alleged that his injuries were caused by Hansen Yuncken’s negligence and/or breach of statutory duty. The allegation of negligence was particularised as being the failure of Hansen Yuncken to provide a safe means of access to the Molle Street site, as well as directions given to him by Hansen Yuncken’s officers to unload the carpet tiles on the retaining wall, which apparently caused him to climb over the wall to access the site where he was to work.
On 11 January 2019, Hansen Yuncken filed a third party notice against Choices Flooring in the proceedings which Mr McConnon had commenced and, on 5 September 2019, Hansen Yuncken filed a statement of claim to that third party notice.
As at the time of the hearing of this matter, the litigation in the Supreme Court of Tasmania remained on foot.
Hansen Yuncken’s claim for indemnity
In correspondence prior to the commencement of these proceedings, Hansen Yuncken claimed that it was entitled to be indemnified under the Policy in respect of the proceedings commenced by Mr McConnon. That was denied by Hollard, which asserted that Hansen Yuncken was not an insured under the Policy because it is not noted as such on the Schedule or the Certificate of Currency, and that it did not fall within the extended definition of “you/your” in the Business Liability section of the Policy. At the hearing, however, Hollard reversed its position in relation to that latter proposition.
Issues for consideration
Hansen Yuncken advanced its entitlement to indemnification under the Policy in two alternative ways.
The first was that it falls within the scope of the general definition of “you/your” and is entitled to an indemnity as such under the insuring clause in the Business Liability section of the Policy. It submitted that the Insurance Certificate contained in the Schedule extended the scope of the named insured to entities for whom Choices Flooring had “undertaken to insure”, and that it was such an entity. It also submitted that it was insured as a named and accepted addition to the Policy through the process of extension provided under the heading, “Who is insured under this policy”, in the introductory part of the Policy.
The second basis upon which Hansen Yuncken advanced its entitlement to be indemnified was under the extended definition of “you/your” in the Business Liability section of the Policy which extended cover to Choices Flooring’s principals. In this respect, it submitted that the limitations imposed upon this extension did not relevantly reduce its entitlement to be indemnified in respect of Mr McConnon’s claim.
Principles of construction of policies of insurance
The principles regarding the construction of an insurance policy are well established and were not in dispute. They were concisely stated by the Full Court in Onley v Catlin Syndicate Ltd (2018) 360 ALR 92 at 100 – 101 [33]:
… Necessarily, a policy of insurance is assumed to be an agreement which the parties intend to produce a commercial result: Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; 306 ALR 25; [2014] HCA 7 at [35]: as such, it ought to be given a businesslike interpretation being the construction which a reasonable business person would give to it: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58; [2017] HCA 12 (Ecosse Property Holdings) at [17]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; 339 ALR 200; [2016] HCA 47 at [78]; Todd v Alterra at Lloyd’s Ltd (on behalf of underwriting members of Syndicate 1400) (2016) 239 FCR 12; 330 ALR 454; 112 ACSR 1; [2016] FCAFC 15 at [42]; Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100 at [52]. The contract is naturally enough interpreted, in a temporal sense, as at the date on which it was entered into: Ecosse Property Holdings at [16] per Kiefel, Bell and Gordon JJ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; 325 ALR 188; [2015] HCA 37 (Mount Bruce Mining) at [47]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [40]. The Courts frequently have regard to the contextual framework in which a contract is formed, to the extent to which it is known by both parties, to assist in identifying its purpose and commercial objective: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; 176 ALR 711; [2000] HCA 65 per Gleeson CJ at [22]; Mount Bruce Mining at [47]; Franklins Pty Ltd v Metcash Ltd (2009) 76 NSWLR 603; 264 ALR 15; [2009] NSWCA 407 per Allsop P at [19]. It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit.
Consideration
The scope of the extension to the named insured in the Schedule
Hansen Yuncken’s primary submission was that the general definition of “you/your” under the Policy was extended by reason of the following words appearing on the Insurance Certificate contained in the Schedule:
… and all parties for whom the Insured undertakes to insure for their respective rights, interests and liabilities.
The inclusion of those words makes plain that the concept of the “insured” under the Policy extends to any parties for whom Choices Flooring undertook to arrange such cover. The introductory section of the Policy Wording document identifies that the persons or organisations covered by the Policy are shown on the Insurance Certificate and, as is discussed below, it is not necessary for those persons or organisations to be specifically named.
Hansen Yuncken submitted that it falls within the scope of the extension in circumstances where Choices Flooring had, by the terms of its subcontract agreement with it, undertaken to arrange insurance for it. That is, by cl 4.10.1 of the Pre-Award Meeting Minutes, which were incorporated into the subcontract agreement, Choices Flooring was obliged to obtain public liability insurance of at least $20 million. The policy obtained was to include a cross liability clause so that all parties relevantly entitled to cover would be considered as a single insured and, more importantly, Choices Flooring was obliged to ensure that Hansen Yuncken would be entitled to the benefit of the indemnity under the policy.
By the time of the hearing, it was not disputed that the obligations of Choices Flooring had the result that Hansen Yuncken was an entity for whom it had undertaken to insure for its rights, interests and liabilities, with the result that it fell within the described insureds in the Schedule. It was also not disputed that, by the Policy’s terms, the general definition of “you/your” encompassed “[t]he persons or organisations … shown on the Insurance Certificate” and that such persons were covered by the Policy. That is unsurprising given that this form of extension of cover to those for whom the named insured is required to arrange insurance is commonplace: Desmond Derrington and Ronald Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) 263 – 266 [2-287] – [2-289], 298 – 300 [2-328] and esp 2296 – 2298 [11-123] – [11-124].
However, Hollard contended that the scope of any indemnity that Hansen Yuncken might enjoy under the Policy is qualified by, inter alia, the context of the subcontract agreement between it and Choices Flooring, as well as the Certificate of Currency which identified Hansen Yuncken only as an “interested party” as “principal”. For the reasons which follow, those submissions must be rejected.
The scope of the insurance which Choices Flooring agreed to arrange for Hansen Yuncken is not limited to liabilities which are co-extensive with that of Choices Flooring’s responsibilities under the subcontract agreement. The Pre-Award Meeting Minutes required a cross liability clause such that the cover could be considered as applying separately to each party entitled to the benefit of indemnity under the policy. Indeed, the cross liability clause contained in the Policy does not suggest that the scope of Hansen Yuncken’s liability should be limited to that of Choices Flooring. Rather, it provides that the Policy is to operate “in the same manner as if a separate policy had been issued” to each joint insured. To that extent, their individual liabilities are separately covered. This, however, as has been said above, is irrelevant to the construction of the Policy’s terms.
The drafting of the extension in the Schedule is somewhat poor. The Insurance Certificate issued on behalf of Hollard by Aviso TAS Insurance Brokers includes the words of extension adjacent to the trading name of the insured, rather than adjacent to the identification of the insured, where they ought to have been. Rightly, no point was taken by Hollard as to the misplacement of the words. The words used are of a generic type and are generally appropriate for entities such as Choices Flooring which, it can be assumed, may regularly enter into subcontracts which require it to obtain insurance for its principals. The Policy Wording, however, is generally inapt to deal with the ambulatory nature of that extension. Rather, it is more appropriately directed to where an extension could be provided to those who have been notified to the insurer and then named in an Insurance Certificate, as per the following words:
We will extend the policy to cover other persons or organisations requiring cover under this policy if you have advised us of them, and we have named them on the Insurance Certificate.
The Policy Wording also anticipates the inclusion of entities which are Choices Flooring’s principals. In the Business Liability section of the Policy, cover is automatically extended to the principals of those described as “you/your”, though it is circumscribed by the requirement that the relevant liability be “caused by the performance of work for that principal”.
Overall, the Policy contemplates the inclusion of other entities and persons by three different means. The fact that the drafting is poor, and that the extension in the Schedule does not mesh seamlessly with the Policy Wording, does not assist Hollard. The insertion of the extension into the Schedule cannot be ignored, and Hollard has not made any application for rectification and did not suggest that its inclusion was a mistake.
There was no need for Hansen Yuncken to be specifically named in the extension contained in the Schedule, as opposed to being described by the reference to a class of persons: see s 20 of the Insurance Contracts Act 1984 (Cth). That section applies generally to all insurance contracts and does not, as Hollard submitted, “fall to one side” where s 48 of the Insurance Contracts Act is not relied upon. In any event, it is common for policies of this nature to include, within the scope of the insureds, persons or entities who are described in general, as opposed to specific, terms. On this issue, reference was made to the decision in QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326, which concerned s 48 of the Insurance Contracts Act. There, Lumley General Insurance Ltd (Lumley), insured a building contractor, Probuild Constructions (Aust) Pty Ltd (Probuild), in respect of its public liability. The policy extended to the liability of Probuild’s “subcontractors”, which included the company Commercial Interiors Australia Pty Ltd (Commercial Interiors). Commercial Interiors was itself insured with QBE Insurance (Australia) Ltd (QBE), and the QBE policy covered “principals” of Commercial Interiors, which included Probuild. In the course of undertaking fit-out works, Commercial Interiors damaged certain fire suppression equipment causing flooding of the premises and damage to the fit-out works. Probuild made a claim on the Lumley policy and Lumley accepted liability for the loss and paid Probuild in respect of the rectification costs.
Lumley then sought contribution from QBE as the subcontractor’s insurer on the basis that the liability for the rectification costs was also insured under its policy. At first instance, it was held that, although Commercial Interiors was not specifically named as an insured and was unaware of its entitlement to indemnity under the Lumley policy, Lumley was liable to indemnify in respect of its liability. It had paid out in respect of that liability and was therefore entitled to contribution from QBE. The Court of Appeal held that s 48 operated to allow third parties to policies of insurance to take advantage of the cover provided by them, regardless of whether they were party to them or even aware of the existence of the cover. It observed the following at 342 [75]:
It follows that the absence of any act by Commercial Interiors to authorise Probuild to include Commercial Interiors as an insured under the Lumley policy or to ratify its inclusion as an insured in the policy or to otherwise engage the policy did not alter the legal effect of Commercial Interiors’ inclusion as an insured under the Lumley policy. The legal effect was that Commercial Interiors had a right under s 48 of the IC Act to recover its liability to Dabserv [the injured party] under that policy and Lumley had an obligation to discharge that liability.
To a not dissimilar effect are the observations of Santamaria JA (with whom Nettle and Weinberg JJA agreed) in Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367, where his Honour identified the general nature of some policies of insurance regularly used in the building industry at [8]:
The insurance contract had a structure common where a main contractor is retained in a large building or engineering project: a single policy exists covering several parties in respect of loss and damage occurring anywhere in the project. In Petrofina (UK) Ltd v Magnaload Ltd, Lloyd J held that:
… a head contractor ought to be able to insure the entire contract works in his own name and the name of all his sub-contractors, just like a bailee or mortgagee, and that a sub-contractor ought to be able to recover the whole of the loss insured, holding the excess over his own interest in trust for the others.
Convenient as such policies are, the availability of indemnity to persons other than the main contractor will always require close attention to the language of the policy.
(Footnotes omitted).
It follows that the ambulatory operation of such extensions does not require the persons insured by it to be specifically named as opposed to being described. The Policy in the present case uses the descriptors “you” and “your” as a shorthand means of referring to the insured, and its meaning is provided in the Schedule as including, inter alia, “all parties for whom the Insured undertakes to insure for their respective rights, interests and liabilities”. This widens the scope of the specific insureds under the Policy. The extension within the Business Liability section of the Policy in respect of the “principals” of the insured simply widens the scope of the Policy further and in a different manner.
Here, the wide definition of the insured in the Schedule includes Hansen Yuncken. There are no countervailing textual or contextual considerations which necessitate a departure from the clear words which the parties used: cf Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114 [97] – [104].
It is not to the point that the agreement between Choices Flooring and Hansen Yuncken did not require the former to arrange insurance for the whole of the latter’s work at the construction site. The scope of the obligation to arrange insurance did not affect the extent of the indemnity which Hollard granted in this case. The use of the ambulatory words in the Insurance Certificate operated within the context of the Policy and its wording, and not that of the subcontract.
Hollard submitted that, even if Hansen Yuncken falls within the general definition of “you/your”, it is not obliged to indemnify Hansen Yuncken because the occurrence which caused its liability was not in connection with the business of Choices Flooring. That submission arose from the following words which appear in the insuring clause:
We will cover your legal liability to pay compensation for … personal injury … which happens during the period of insurance and is caused by an occurrence in connection with your business within the geographical limit.
(Emphasis added).
The parties were at odds as to whether the expression “your business” should be read as referring only to the business of Choices Flooring or whether it should be read as also referring to the business of Hansen Yuncken. However, where “you/your” is clearly defined, and Hansen Yuncken is within its scope, there is no reason to construe the words “your business” as being confined to the business of Choices Flooring. That the expression extends to the business of Hansen Yuncken is the necessary result of the wide, unambiguous, words of extension in the Schedule and the standard form Policy terms. Further, the cross liability clause envisions that the Policy may have applications in respect of the separate liabilities of more than one insured.
In any event, the liability was caused by an occurrence, being the personal injury suffered by Mr McConnon, that happened in connection with Choices Flooring’s business. The cause of the injury included both the scaling of the wall by Mr McConnon in order to enter the site, and the direction allegedly given by Hansen Yuncken that access occur via the wall. The former cause directly related to, and formed part of, the performance of the contract work. On this basis, the occurrence which caused Hansen Yuncken’s liability was “in connection with” Choices Flooring’s business, as it happened in the course of Choices Flooring carrying out its contractual obligations to Hansen Yuncken under the subcontract agreement.
Hansen Yuncken falls within the description of the named insured in the Insurance Certificate and, hence, within the general definition of “you/your”. It is therefore entitled to the indemnity provided for by cl 2 of the Business Liability section of the Policy — the claim made by Mr McConnon is in respect of Hansen Yuncken’s liability to pay compensation for personal injury allegedly sustained by him during the period of insurance and caused by an occurrence in connection with Hansen Yuncken’s business.
Is Hansen Yuncken also insured as a named and accepted addition to the Policy?
An alternative submission was that Hansen Yuncken is brought within the Policy’s scope through the process of extension provided under the heading, “Who is insured under this policy”, in the introductory part of the Policy. That provided that the insurer would:
… extend the policy to cover other persons or organisations requiring cover under this policy if you have advised us of them, and we have named them on the Insurance Certificate.
In this case, no new Insurance Certificate was issued for the Policy, though Hansen Yuncken asserted that the Certificate of Currency issued on 2 July 2015 sufficed for such purposes. As mentioned, this was disputed by Hollard until the hearing of the matter when it accepted that the Certificate of Currency was either an Insurance Certificate in its own right or effected an endorsement to the original Insurance Certificate by including Hansen Yuncken as an interested party “as principal”.
Hollard had also initially refused to accept that Hansen Yuncken was a “principal” of Choices Flooring for the purposes of the extension of cover under the Business Liability section of the Policy. The reason for Hollard’s changed approach is unknown, though one might suspect that, on reflection, it perceived that the limitations on the coverage afforded to a principal were such that Mr McConnon’s claims would not be indemnified.
For the purposes of the Policy, it can be accepted that Hansen Yuncken was a principal in the sense of being a principal contractor of Choices Flooring: see Marks v Carne [1909] 2 KB 516, 519; Cribb v Korn (1911) 12 CLR 205, 212; Delta Pty Ltd v Team Rock Anchors Pty Ltd [2018] 1 Qd R 564, 585 – 586 [74] – [78].
It can also be accepted that Hansen Yuncken was included on the Certificate of Currency as an interested party on 2 July 2015 pursuant to the extension mechanism referenced; being one which the insurer is able to regulate by the requirement that it take the additional step of re-issuing, amending or endorsing the Insurance Certificate. In that way, Hollard is, and was, entitled to impose limitations on any extension of that nature. It purported to do so here by extending cover to Hansen Yuncken as a principal of Choices Flooring. In this way, the cover in cl 2 of the Business Liability section of the Policy is also available to Hansen Yuncken by reason of the extended definition of “you/your”, albeit limited, inter alia, “in respect of that principal’s liability caused by the performance of work for that principal”.
Whilst Hollard was entitled to extend the insurance at the request of Choices Flooring in this way, it was not entitled to unilaterally reduce the scope of the cover otherwise provided under the Policy. Choices Flooring has the benefit of the extension noted on the original Insurance Certificate contained in the Schedule which, by reference to others for whom Choices Flooring undertook to insure, extends the relevant cover to Hansen Yuncken. That extension satisfied Choices Flooring’s obligations under its subcontract with Hansen Yuncken. Hollard submitted, however, that the endorsement effected by the Certificate of Currency reduced the scope of the Policy to the extent it related to Hansen Yuncken. If that were true, it would put Choices Flooring in breach of its obligations to Hansen Yuncken under its subcontract to obtain like cover for Hansen Yuncken. In any event, it was not correct. Whilst it was possible for Hollard to make additional extensions to entities “as principal”, that could not reduce the existing scope of the Policy.
The effect of the Certificate of Currency
There is nothing in the context of the Policy which suggests that the indemnity cannot be available to the one insured in respect of the same event by either of the alternate avenues. Such a limitation was suggested by Hollard and the cause of the restriction on Hansen Yuncken’s rights under the Policy was said to derive from the manner in which the Certificate of Currency was issued. In particular, it was suggested that the issuing of the Certificate of Currency identifying Hansen Yuncken as a “principal”, led inexorably to the conclusion that Hansen Yuncken could only claim under the Policy in that capacity. Although the contract of insurance was formed on 3 June 2015, with cover commencing from 30 June 2015, the scope of coverage offered by it was said to be restricted by the Certificate of Currency which was issued on 2 July 2015 and signed on 4 August 2015. No explanation was given as to why that was so or why an insured would be unable to claim under a Policy in two different capacities and none immediately presents itself. Additionally, it was not explained how the insurer would be entitled to unilaterally reduce the scope of indemnity provided for by the Policy by subsequently issuing a certificate of currency.
As has been mentioned, the overlapping and somewhat inconsistent interaction between the extension provided by the Schedule and the terms contained in the Policy Wording is the product of its drafting. In many cases, a policy of insurance will operate coherently, but equally, many policies will comprise a “patchwork” of overlapping and potentially inconsistent provisions: see Swiss Re International SE v LCA Marrickville Pty Ltd (2021) 394 ALR 461, 516 [201]. The fact of overlap between different clauses of a policy does not require the Court to give meaning to the different clauses to eliminate their overlap with refined precision: Star Entertainment Group Ltd v Chubb Insurance Australia Ltd (2021) 156 ACSR 119, 149 [166].
The issuing of the Certificate of Currency on 2 July 2015, which identified Hansen Yuncken as an interested party to the Policy “as principal”, did not reduce the scope of the named insureds under the Policy which had been issued on 3 June 2015. The position may have been different if the naming of Hansen Yuncken as “principal” had occurred on the Policy’s issue. In those circumstances, there would be a real question as to whether the express and specific inclusion of it “as principal” meant that the more general description of the named insureds did not apply to it. However, here, where the issue of the Certificate of Currency occurred subsequently, it did not and could not diminish the cover which the Policy already provided.
In ordinary parlance, a “certificate of currency” refers to a certificate issued by an insurer for the use of its insured to demonstrate to third parties the existence of current insurance and a brief description of its terms, including the period of insurance. They are common in the building industry and are often required by principals from contractors to demonstrate the existence of an insurance policy which covers their work. That is not to say that parties to a policy cannot alter it by an agreement which is evidenced by a certificate of currency, or that a certificate of currency document cannot also operate as an insurance certificate. In this case, however, there is nothing to suggest that, prior to the issue of the Certificate of Currency, Choices Flooring and Hollard made any further agreement to adjust or alter the terms of the Policy and no submission was made to that effect. Rather, the issuance of the Certificate of Currency had the effect of including Hansen Yuncken as a “principal” under the Policy, and that was in addition to any other rights which it had, or could have, as an identified third party beneficiary of the Policy by reason of the words, “all parties for whom the Insured undertakes to insure”, contained in the Schedule.
Although the Certificate of Currency has been dealt with in these reasons in light of the agreement eventually reached by the parties as to its effect, in other circumstances it ought to have been disregarded. It is merely a certificate purporting to confirm that the insurance has been taken out, and if it does not correspond to the relevant policy, it should be ignored for the purpose of considering the proper construction of the policy’s terms and what the policy says.
The scope of cover afforded to Hansen Yuncken “as principal”
Despite the competing submissions as to the scope of the cover under this extension, it is sufficiently clear that one intended purpose of the extension is to provide cover to the insured’s principal in respect of any liability caused to it by the insured’s performance of its work. This ultimately operates to the benefit of the expressly named insured who might otherwise be responsible for any liability which it has caused its principal to incur in the performance of work for it.
Although Hansen Yuncken accepted that the cover under the extended definition of “you/your” was limited, it contended that the expression “caused by the performance of work for that principal” encompassed anyone who performed work for the principal. On that basis, it said that Mr McConnon suffered personal injury by the performance of work by him for it and its liability to him is covered by the Policy. That submission should be rejected. The extension of cover to the insured’s principals is in respect of their capacity as the recipients of work performed by the insured. So much appears from the words, “every principal of yours, in respect of that principal’s liability caused by the performance of work for that principal”. It is difficult to contemplate a wider operation or that the capacity in which the principal has work performed for it (for the purposes of the Policy) could be other than as the principal of the insured.
Once a recognised principal of the insured has incurred a liability of the type specified, it falls within the extended definition of “you/your” for the purposes of the cover in cl 2. That is, cover is provided for its legal liability to pay compensation for, in this case, personal injury, which happens during the period of insurance and is caused by an occurrence in connection with its business within the geographical limits. However, by reason of the limitations inherent in the extension, that cover is only in respect of a liability of the principal “caused by” the performance of work by the insured for the principal.
The question here then becomes whether Hansen Yuncken’s alleged liability to Mr McConnon was “caused by” the performance by Choices Flooring of work for Hansen Yuncken. In this context, it can be accepted that any liability arises from the confluence of, or simultaneous or sequential occurrence of, a number of matters. They include the existence and contravention of some normative standard of behaviour on the part of the person said to be liable, the occurrence of an event, usually by conduct, and the sustaining of damage. It is often the case that the crystallisation of a liability involves more than one person, each of whom contribute some element.
Here, Mr McConnon did the acts which caused him to suffer the alleged personal injuries — that is, scaling the retaining wall to enter the work area at the site. He did those acts as part of the performance of the work contracted to be completed by Choices Flooring under its subcontract with Hansen Yuncken. Further, at least on Mr McConnon’s case, Hansen Yuncken gave him directions as to how to enter the site and those directions were said to be negligent and/or in breach of a statutory duty.
There are, of course, myriad clear examples of where a principal’s liability is caused by the insured subcontractor’s or agent’s performance of work for that principal. An example is where the insured is carrying out the directions of the principal in undertaking work and, in doing so, damages the property of a third party. Another example is where the insured is given authority to act on behalf of the principal and, in exercising that authority, causes damage.
The work being undertaken in this case was the work under the subcontract between Choices Flooring and Hansen Yuncken. Mr McConnon was engaged to complete at least part of that work and he allegedly suffered injury when doing that work by attempting to enter the construction site with the carpet tiles. It might be said, therefore, that the performance of the subcontract work was a cause of the alleged liability in the sense that, but for the carrying out of the work, the liability would not have arisen. Conversely, it could be said that Hansen Yuncken’s alleged liability arose because of its direction to Mr McConnon to undertake the work in a particular way. In that way, the direction was also a cause of the liability.
In the absence of any contrary intention being identified by the parties, the causation requirement between the event in question and the liability insured is one of proximate cause: LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435, 476 [107]. In that decision (at 476 – 478 [109] – [111]) reference was also made to the general principles relating to proximate cause and they are adopted here without further explication. Applied to this case, the performance of Choices Flooring’s contract with Hansen Yuncken at least provided the occasion for the latter’s liability. However, the efficient, real or effective cause of Hansen Yuncken’s liability was, at least as far as the allegations in the Supreme Court proceedings are concerned, the conduct of its employees directing Mr McConnon to enter the site in a particular manner. The gravamen of Mr McConnon’s claim concerns the provision of inappropriate access to the construction site and the direction to use it. In both respects, the essential acts giving rise to Hansen Yuncken’s alleged liability were performed by it and not by anything done in the fulfilment of Choices Flooring’s subcontract.
On behalf of Hollard, it was submitted that the connecting words “caused by” are not so wide as to bring within the scope of the principal’s cover circumstances where only some elements of the liability are produced by the performance of the work. Support for that submission was sought to be obtained from the decision in Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 (Speno Rail). In that case, Speno Rail Maintenance Australia Pty Ltd (Speno) had entered into a contract to undertake certain rail grinding work for Hamersley Iron Pty Ltd (Hamersley). Mr Nolan, an employee of Speno, was assisting in undertaking that task. In the course of carrying out his duties, he was travelling in a rail vehicle operated by Hamersley. Whilst riding through a switch at a siding, Hamersley’s employees negligently switched the points causing the vehicle to derail as a result of which, Mr Nolan suffered personal injury. He sued Hamersley which admitted negligence and issued a third party notice to Speno. An issue arose as to whether Hamersley was indemnified under a policy of insurance which Speno had arranged. The relevant clause there included others named as a “principal” of Speno and Hamersley was so named. The relevant cover for such an entity was defined as being:
Any principal in respect of his liability arising out of the performance, by the insured designated in definition 5(a) of any contract or agreement for the performance of work for such principal to the extent required by such contract or agreement, but subject always to the terms, conditions and exclusions of this policy.
The question was whether Hamersley’s liability was one “arising out of” Speno’s performance of the contract between them. It was accepted (at 317 [122]) that those words were wider than the expression “caused by” and, though requiring some causal connection, it did not require any proximate relationship. Wheeler J rejected (at 318 [126]) the insurer’s narrow construction of the contract that what is required was that there be a causal relationship between the negligent act or omission of the principal and the works being undertaken by the named insured. His Honour held (at 318 – 319 [127] – [130]) that it is the composite elements of liability which must arise out of or have some relevant causal connection with the performance of the contract by the named insured. He observed that if it was required that the negligent act or omission by the principal must arise out of performance of the contract with the named insured, it would be difficult to imagine any situation in which it would occur. However, the clause will appropriately operate where what is required is that one of the constituent elements of negligence gives rise to the duty of care which is owed. His Honour added the following at 319 [131]:
In the present case, I have no difficulty with Zurich’s proposition that the relevant negligent act or omission was the switching of the switches or points by the Hamersley employee. However, in doing so, Hamersley breached its duty of care which was owed to those travelling on the railway that it operated. It was by reason of Speno’s performance of the contract that Mr Nolan, Speno’s employee, was travelling on the railway. His presence was directly related to and formed part of the performance of the contract, and in that sense the duty, which was one ingredient of Hamersley’s liability, “arose” out of the performance of the contract by Speno.
Wheeler J also considered the operation of an exclusion relied upon by the insurer in respect of personal injury “caused by any vehicle in respect of which there is at any time a statutory obligation to effect insurance or contribute to a fund”. The connecting words “caused by” were, in his Honour’s opinion (at 320 [134]), a reference to the “effective or dominant cause of the occurrence” or a direct or proximate cause. In the matter at hand, the injury was caused by the switching of the points rather than the driving of the vehicle. However, it must be recognised that there the question was the cause of the injury and not of the liability. The immediate cause of the injury was not the occasion of Mr Nolan being on the premises or the undertaking of his work. It was the conduct which caused the vehicle to be upset.
In the present matter, the issue is the cause of Hansen Yuncken’s liability. Whilst it is certainly true that it arose out of the performance by Choices Flooring of its subcontract, the real and efficient cause was the allegedly errant direction given to Mr McConnon and the provision of inadequate access to the site.
At the hearing, Hollard also sought to emphasise the fact that Mr McConnon’s statement of claim identifies Hansen Yuncken’s own negligence and/or breach of duty as being the only cause of the liability. It suggested, by reference to the decision in Erect Safe Scaffolding (Australia) v Sutton (2008) 72 NSWLR 1, that the insuring clause in this case should be construed as not operating to cover a liability which arises only from the principal’s own negligence. In that case, a head contractor claimed indemnity from its scaffolding subcontractor under a subcontract, which relevantly provided that the subcontractor agreed to indemnify the head contractor against all damage that the head contractor suffered “arising out of the performance of the subcontract works and its other obligations under the subcontract”. In short, the Court held that the contractual indemnity only covered a liability on the subcontractor for damage occasioned by any act or omission which it committed, and that it would not be engaged where the liability was brought about by the head contractor’s own negligent act.
Although this decision might provide some guidance on the relationship required by the term “arising out of”, the factual circumstances are vastly distinct from those in the present case. It is, though, worth observing at this juncture that, in seeking to identify the proper construction of a contractual provision, the Court is not bound by the outcome in another case involving a similar but not identical contract; it is bound only by the principles established in such cases. It will gain little assistance from an assessment of the operation of different contractual provisions in different factual circumstances. Indeed, a perusal of the various authorities that have considered whether a liability arises out of, is incurred in connection with, or relates to, the performance of a contract, reveals a range of different results that ultimately turn on the facts or the specific wording in each case: see Certain Underwriters at Lloyds of London v Allianz Australia Insurance Limited [2018] VSC 735 [24] – [58].
Hansen Yuncken sought to rely upon the observation made in Speno Rail that, if the expression “caused by” in clauses such as that under consideration were given the narrower construction, the clauses would be of very little scope. If cover was only provided where all the constituent elements of the liability were performed by the principal, it is difficult to see how the liability could be said to have been caused by the insured’s performance of work. Though there is some force in that, where the clause appears in subcontractor’s insurance policies relating to building or construction work, a myriad of possibilities arise where the clause might have effect. Necessarily, construction sites are dynamic and involve a substantial number of persons performing different tasks, and the work of individual participants often impacts the work of others as well as third parties. In most cases, the principal has responsibility for the overall management of the site as well as its impact on those outside of it. So, necessarily, as between the principal and the contractors, there will be a wide net of interlocking obligations and duties towards third parties. Where a contractor performs work in a negligent manner which results in damage to others to whom the contractor also owes a duty of care, the clause will provide cover. In this way, the clause does not have a narrow scope of operation, rather it has a scope which is appropriate to the relationship as between the principal and contractor.
It can be concluded that Hansen Yuncken’s liability was not caused by the performance of work for it by the insured. Therefore, the specific liability for which indemnity is sought does not fall within the more limited avenue of cover afforded to Hansen Yuncken “as principal”.
Conclusion
Hansen Yuncken ought to be granted a declaration that it is entitled to indemnity under the Policy issued to Choices Flooring. As the above discussion reveals, Hansen Yuncken is insured by reason of it being included as an insured on the Insurance Certificate because it came within the words, “all parties for whom the Insured undertakes to insure”, and thus within the scope of the expression “you/your” in the policy. Whilst it also has cover as the principal of Choices Flooring, that cover does not apply in the particular circumstances.
The parties will be heard on the question of costs.
I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate:
Dated: 24 April 2024
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