Horsell International Pty Ltd v Divetwo Pty Ltd - [2013] NSWCA 368

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368
Hearing dates: 18 March 2013
Decision date: 01 November 2013
Before: Beazley P at [1]; McColl JA at [2]; Meagher JA at [244]
Decision:
(1) Confirm the leave given to Horsell on 18 March 2013 to amend the amended notice of appeal to include ground 8 in terms of the further amended notice of appeal.
(2) Appeal and cross-appeal dismissed.
(3) Appellant pay the costs of the respondents (Dive Two, Mr Todd and Liberty) of the appeal and cross-appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
INSURANCE - construction of insurance policy - insuring clause - whether first and second respondents entitled to indemnity from third respondent - policy cover for claims arising "in connection with the Insured's Business" - injury and damage caused during recreational boat trip - whether trip in connection with insured's business

INSURANCE - construction of insurance policy - exclusion clause - dangerous navigation - Crimes Act 1900 s 52B - whether second respondent's conduct "criminal act or omission" for purposes of exclusion clause - whether act needs to be intentional
NEGLIGENCE - insurance broker - duty of care - retainer - whether insurance broker failed to advise of deficiencies in policy
Legislation Cited: Civil Liability Act 2002
Crimes Act 1900
Crimes Act 1958 (Vic)
Insurance Contracts Act 1984 (Cth)
Motor Traffic Act 1909
Cases Cited: Australian Associated Motor Insurers Ltd v Wright (1997) 70 SASR 110
Australian Aviation Underwriting Pty Limited v Henry (1988) 12 NSWLR 121
Australian Breeders Co-Operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
BHP Billiton Iron Ore Pty Ltd v National Competition Council [2008] HCA 45; (2008) 236 CLR 145
Burrows v Rhodes [1899] 1 QB 816
Caldwell v JA Neilson Investments Pty Ltd [2007] NSWCA 3; (2007) 69 NSWLR 120
CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
Charter Reinsurance Co Ltd v Fagan [1997] AC 313
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337
Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500
Elkateb v Lawindi (1997) 42 NSWLR 396
Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57
Fire and All Risks Insurance Co Ltd v Powell [1966] VR 513
Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898; [1967] 2 Lloyd's Rep 1
Fraser v The Irish Restaurant & Bar Company Pty Ltd [2008] QCA 270
Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Ins Cas ¶61-012
Gibb v Commissioner of Taxation (Cth) [1966] HCA 74; (1966) 118 CLR 628
Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387
Ground Gilbey Ltd v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124
Halford v Price [1960] HCA 38; (1960) 105 CLR 23
Hatfield v Health Insurance Commission (1987) 15 FCR 487
HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553
James v British General Insurance Co Ltd [1927] 2 KB 311
Jiminez v The Queen [1992] HCA 14; (1992) 173 CLR 572
Johnson v American Home Assurance Company [1998] HCA 14; (1998) 192 CLR 266
Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216
King v The Queen [2012] HCA 24; (2012) 245 CLR 588
Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; (2010) 241 CLR 390
Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390
McBride v The Queen [1966] HCA 22; (1966) 115 CLR 44
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690
Mersey Docks and Harbour Board v Henderson Brothers (1888) 13 App Cas 595
Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556
Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad [1989] HCA 32; (1989) 167 CLR 219
Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149
QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166
R v Brown [1996] 2 WLR 203; [1996] 1 All ER 545
R v Coventry [1938] HCA 31; (1938) 59 CLR 633
R v De Montero [2009] VSCA 255; (2009) 25 VR 694
R v Jurisic (1998) 45 NSWLR 209
R v Khazaal [2012] HCA 26; (2012) 86 ALJR 884
R v Orcher [1999] NSWCCA 356; (1999) 48 NSWLR 273
R v Reynolds [2010] NSWSC 691
R v Warner (1991) 25 NSWLR 382
RAA-GIO Insurance Ltd v O'Halloran [2007] HCATrans 688
RAA-GIO Insurance Ltd v O'Halloran; Australian Kitchen Industries Pty Ltd v O'Halloran [2007] SASC 245; (2007) 98 SASR 123
Ramco Ltd v Weller Russell & Laws Insurance Brokers Ltd [2008] EWHC 2202 (QB); [2009] Lloyds Rep IR 27
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45
Selected Seeds Pty Ltd v QBEMM Pty Ltd [2010] HCA 37; (2010) 242 CLR 336
Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236
Sydney Local Health Network v QY [2011] NSWCA 412
Taciak v Commissioner of Australian Federal Police (1995) 59 FCR 285
Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1
Thomas v State of New South Wales [2008] NSWCA 316
Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327
Transfield Services (Australia) Pty Ltd v Hall; Hall v QBE Insurance (Australia) Pty Ltd [2008] NSWCA 294; (2008) 75 NSWLR 12
Vero Insurance Ltd v Australian Prestressing Services Pty Ltd [2013] NSWCA 181
Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226
Watts v Perry [1972] 1 NSWLR 73
Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522
Xerri v Kingmill Pty Ltd [1998] NSWSC 573; (1998) 25 MVR 569
Y.Z. Finance Co Pty Ltd v Cummings [1964] HCA 12; (1964) 109 CLR 395
Texts Cited: D Derrington and R Ashton, Law of Liability Insurance, 2nd ed (2005) LexisNexis Butterworths
K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012) Thomson Reuters (Professional) Australia Limited
K Sutton, Insurance Law in Australia, 3rd ed (1999) LBC Information Services
Second Reading Speech for the Crimes (Dangerous Driving) Bill, Victorian Legislative Assembly, Parliamentary Debates (Hansard), 3 June 2004
Second Reading Speech of the Hon Michael Egan MLC, Criminal Legislation Further Amendment Bill, New South Wales Legislative Council, Parliamentary Debates (Hansard), 17 April 1996
Category: Principal judgment
Parties: Horsell International Pty Ltd - Appellant/First Cross-Defendant
Divetwo Pty Ltd - First Respondent/Cross-Claimant
William Todd - Second Respondent/Cross-Claimant
Liberty Mutual Insurance Co - Third Respondent/Second Cross-Defendant
Representation: Counsel:
S Donaldson SC with G M Drew - Appellant
Dr C J Birch SC with P Lowson - First and Second Respondents
J Sexton SC with D Macfarlane - Third Respondent
Solicitors:
Clyde & Co - Appellant
Slater & Gordon - First and Second Respondents
Riley Gray-Spencer - Third Respondent

File Number(s): CA 2012/73365
Publication restriction: No
Decision under appeal

Citation:

Lane v Dive Two Pty Ltd [2012] NSWSC 104

Date of Decision:

2012-02-24 00:00:00

Before:

Adamson J

File Number(s):

SC 2008/289706

HEADNOTE

[This headnote is not to be read as part of the judgment]

Dive Two Pty Ltd ("Dive Two"), the first respondent, conducted a scuba diving business. On 29 July 2006, Mr William Todd, the second respondent and sole director of Dive Two, was navigating a vessel owned by Dive Two when it collided with a fishing boat driven by Mr Rian Lane, the plaintiff. Mr Lane was seriously injured. At the time of the accident, Mr Todd was engaged in a recreational boat trip. Mr Todd pleaded guilty to the offence of dangerous navigation causing grievous bodily harm in s 52B(3)(b) of the Crimes Act 1900.

Mr Lane commenced proceedings against Dive Two and Mr Todd for negligence. Dive Two and Mr Todd cross-claimed against Liberty Mutual Insurance Company ("Liberty"), the third respondent, seeking an indemnity against their liability to Mr Lane under a policy of insurance between Dive Two and Liberty. In the event that the policy was found not to respond, Dive Two and Mr Todd cross-claimed against the insurance broker that placed the policy, Horsell International Pty Ltd ("Horsell"), the appellant, for damages commensurate with any award to Mr Lane.

Mr Lane's claim was settled and judgment was ordered against Dive Two and Mr Todd. The cross-claims were then litigated. The primary judge dismissed the cross-claim against Liberty on the basis that the policy did not respond but upheld the alternative claim against Horsell for damages for negligence and breach of contract.

Horsell appealed against this decision contending the policy did apply and, in any event, that it did not act negligently or in breach of contract. By way of cross-appeal, Dive Two and Mr Todd submitted that if Horsell's appeal as to the construction of the policy was upheld, they were entitled to be indemnified by Liberty. By notice of contention, Liberty challenged the primary judge's ruling that an exclusion clause in the policy which excluded liability for any "criminal act or omission" did not apply.

The appeal raised three issues for determination:

(1) Whether the claim fell within the insuring clause of the policy;

(2) Whether the claim was excluded by reason of the exclusion clause in the policy; and

(3) Whether Horsell was liable for negligence or breach of contract.

The Court dismissed Horsell's appeal, Dive Two and Mr Todd's cross-appeal. It also ordered that Horsell should pay the costs of Dive Two, Mr Todd and Liberty of the appeal and cross-appeal.

Held per McColl JA and Meagher JA (Beazley P agreeing)

In respect of (1)

(i) The insuring clause provided that the policy covered liability for compensation payable as a result of a claim against the insured for injury and/or damage arising "in connection with the Insured's Business". In construing the insuring clause, the definition of the term "Insured's Business" has to be read into the operative text of the policy: [158], [262]. The ordinary meaning of the words "Insured's Business" is also relevant to the construction of the insuring clause: [159], [264].

Principal cases considered: Halford v Price [1960] HCA 38; (1960) 105 CLR 23; Gibb v Commissioner of Taxation (Cth) [1966] HCA 74; (1966) 118 CLR 628; Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387; Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; Sydney Local Health Network v QY [2011] NSWCA 412.

(ii) The primary judge's unchallenged finding was that the trip in which Mr Lane was injured was a recreational one: [72]. There was not a sufficient connection between the activity engaged in and the "Insured's Business" for the claim to fall within the insuring clause: [178], [263].

Principal cases considered: HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553; RAA-GIO Insurance Ltd v O'Halloran; Australian Kitchen Industries Pty Ltd v O'Halloran [2007] SASC 245; (2007) 98 SASR 123; Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; (2010) 241 CLR 390; R v Khazaal [2012] HCA 26; (2012) 86 ALJR 884.

In respect of (2)

(i) The term "criminal act or omission", construed in the context of the phrase in which it appears and the nature and object of the contract, refers only to an intentional criminal act or omission: [272].

Principal cases considered: Fire and All Risks Insurance Co Ltd v Powell [1966] VR 513; Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898; [1967] 2 Lloyd's Rep 1; Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500; Australian Aviation Underwriting Pty Limited v Henry (1988) 12 NSWLR 121; Xerri v Kingmill Pty Ltd (1998) 25 MVR 569.

(ii) The offence of dangerous navigation under s 52B(3) of the Crimes Act 1900 is determined objectively and does not require the offender to have intended the results of the act: [200], [269]. It was open to the primary judge to find that Mr Todd's conduct was not intentional: [221], [270]. The primary judge did not err in concluding that the exclusion clause did not operate to exclude the claim: [230], [275].

Principal legislation and cases considered: Crimes Act 1900 ss 52A, 52B; McBride v The Queen [1966] HCA 22; (1966) 115 CLR 44; R v Warner (1991) 25 NSWLR 382; Jiminez v The Queen [1992] HCA 14; (1992) 173 CLR 572; McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579; R v De Montero [2009] VSCA 255; (2009) 25 VR 694; R v Reynolds [2010] NSWSC 691; King v The Queen [2012] HCA 24; (2012) 245 CLR 588.

In respect of (3)

(i) Horsell owed a duty to Dive Two both in contract and tort to exercise all reasonable care and skill in advising and placing the policy: [236] per McColl JA. Horsell was negligent in failing to make clear to Dive Two and Mr Todd that the policy did not cover liability arising from activities that were not connected to Dive Two's business: [239], [279].

Principal cases considered: Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556; Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57; Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Ins Cas ¶61-012; Caldwell v JA Neilson Investments Pty Ltd [2007] NSWCA 3; (2007) 69 NSWLR 120; Ramco Ltd v Weller Russell & Laws Insurance Brokers Ltd [2008] EWHC 2202 (QB); [2009] Lloyds Rep IR 27; Ground Gilbey Ltd v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124 (Comm).

Judgment

INDEX
BEAZLEY P:
1
McCOLL JA:
2
Statement of the case
7
BACKGROUND
14
Dive Two and the PADI Asia Pacific Watertight Liability Insurance Programme
14
Insurance contracts entered into by Dive Two/Mr Todd
24
(a) The Watertight Policy
24
(b) Hull insurance
35
Summary: policies held
43
Events following 2003
45
The Master Policy
53
THE PRIMARY JUDGMENT
64
Was the Claim Covered under the Policy's Insuring Clause?
64
Was the Claim Excluded by Reason of Exclusion Clause 7.24?
77
Was Horsell Liable for Breach of Contract or Negligence?
81
ISSUES ON APPEAL
97
SUBMISSIONS
101
Horsell's submissions: construction of the Policy (grounds 1 and 2)
101
Dive Two's submissions: construction of the Policy (grounds 1 and 2)
109
Liberty's submissions: construction of the Policy (grounds 1 and 2)
112
Liberty's submissions: construction of clause 7.24
112
Dive Two's submissions: construction of clause 7.24
122
Horsell's submissions: retainer/duty issue (grounds 6 and 7)
129
Dive Two's submissions: retainer/duty issue (grounds 6 and 7)
135
CONSTRUCTION OF THE POLICY
151
General principles
151
The insuring clause
158
Ambit of the appeal on the exclusion clause issue
179
Operation of the exclusion clause
191
The nature of the offence of dangerous navigation
193
The decisions in Henry and Xerri
204
Conclusion: operation of clause 7.24
219
LIABILITY OF HORSELL
231
Relationship between Horsell and Dive Two
232
Duty of an insurance broker
234
ORDERS
242
MEAGHER JA:
243
Issues in the appeal
252
Construction and application of the insuring clause
256
Construction and application of exclusion clause 7.24
266
Breach of duty and negligence of Horsell
276

BEAZLEY P: I have had the advantage of reading in draft the reasons of McColl JA and of Meagher JA. I agree with both of their Honour's reasons. I agree with the orders proposed by McColl JA.

McCOLL JA: Mr William Todd, the second respondent and sole director of Divetwo Pty Ltd ("Dive Two"), the first respondent, was navigating a dive vessel owned by Dive Two when it collided with a fishing boat owned by Rian Lane (the "plaintiff") on 29 July 2006. Mr Lane was seriously injured. He commenced proceedings against Dive Two and Mr Todd (hereafter referred to as "Dive Two" unless the context requires they be differentiated) to recover damages in respect of his injuries. Pursuant to a policy of insurance (the "Policy") placed by Horsell International Pty Ltd ("Horsell"), the appellant, an insurance broker, Dive Two cross-claimed against Liberty Mutual Insurance Company ("Liberty"), the third respondent, seeking indemnity in respect of any damages that might be awarded to the plaintiff. Dive Two also cross-claimed against Horsell to recover damages commensurate with any award to the plaintiff in the event it was found the Policy did not respond.

The plaintiff's case was settled (on a basis which resulted in a judgment against both Dive Two and Mr Todd). The issues raised by the cross-claim were then litigated.

Adamson J dismissed Dive Two's claim against Liberty on the basis that the Policy did not cover the accident. However, her Honour awarded Dive Two damages against Horsell for negligence and breach of contract for failing to warn it of the deficiencies in the Policy: Lane v Divetwo Pty Ltd [2012] NSWSC 104.

Horsell appeals against this decision contending the Policy did apply and, in any event, that it did not act negligently or in breach of any retainer. By way of cross-appeal, Dive Two and Mr Todd submit that if Horsell's appeal as to the construction of the Policy is upheld, they are entitled to be indemnified by Liberty. By notice of contention Liberty challenges the primary judge's ruling that an exclusion clause (7.24) in the Policy did not apply.

For the reasons which follow I am of the view that Horsell's appeal and Dive Two's cross-appeal should be dismissed and that Liberty's notice of contention should be rejected.

Statement of the case

On 29 July 2006, the plaintiff sustained serious injuries when Dive One, a 7.5 metre aluminium dive vessel owned by Dive Two and driven by Mr Todd, collided with his fishing boat on the Myall River. Dive Two carried on a scuba diving business trading under the business name "Dive One".

When the accident occurred, Mr Todd was taking a group of passengers for an afternoon boat trip. The purpose of the trip was contested at trial. However, it was uncontested that none of the six people on the boat trip went scuba diving or swimming that afternoon and that there was no scuba gear on the boat: primary judgment (at [74], [82]).

Mr Todd was charged with, and pleaded guilty on 6 November 2006 to, the offence of dangerous navigation occasioning grievous bodily harm in s 52B(3)(b) of the Crimes Act 1900 in respect of the accident: primary judgment (at [11] - [13]). He was sentenced on 24 September 2007 and required to enter a bond for two years: primary judgment (at [11] - [13]). He was also charged with what the primary judge described (at [12]) as "a lesser charge of negligent navigation in breach of Water Traffic Regulations s 3(1)", however it was common ground before her Honour and in this Court that the dangerous navigation offence was the relevant offence for the purposes of determining whether cl 7.24 applied.

The details of the s 52B(3)(b) charge recorded in the Court Attendance Notice as set out by her Honour (at [11]) were:

"... between 4:00 pm and 5:50 pm on 29/07/2006 at Hawks Nest [Mr Todd] did dangerously navigate a vessel, to wit, 'Dive One' a 7.45 m aluminium dive vessel, when it was involved in an impact occasioning grievous bodily harm to Rian Lane, and at the time of impact the said William Andrew Todd was navigating the vessel at a speed dangerous to other persons."

As I have said, the plaintiff's claim against Dive Two was resolved by the second day of the hearing of the matter before Adamson J. Her Honour ordered judgment for the plaintiff on 7 February 2012 in a specified sum: primary judgment (at [3]).

Dive Two cross-claimed against Liberty and Horsell for the following sums:

(a) the amount of the judgment given in favour of the plaintiff and the plaintiff's costs as agreed or assessed;

(b) compensation paid in respect of damage to the boat with which Dive One collided ($5,500); and

Dive Two contended that it was covered by the Policy for the amounts it was liable to pay the plaintiff and, if the Policy did not cover that liability (and some other incidental sums referred to in [12] (b) and (c)), Horsell had acted in breach of retainer and/or its duty of care to Dive Two in advising and placing the Policy.

BACKGROUND

Dive Two and the PADI Asia Pacific Watertight Liability Insurance Programme

The Professional Association of Diving Instructors is a recreational diving association whose members include dive instructors, dive masters, dive resorts, dive shops and dive educational facilities. PADI Asia Pacific Pty Ltd ("PADI") provides services to members of the Professional Association of Diving Instructors throughout the Asia Pacific region. Members of the Professional Association of Diving Instructors have the opportunity to join the PADI International Resort and Retailer Associations ("IRRA").

Dive Two was incorporated in February 2002. Mr Todd, who became the sole director of Dive Two from around August 2002, joined PADI in his personal capacity in or about April 2002. Dive Two became a member of PADI and joined the IRRA around six months later.

Horsell had been the insurance broker for PADI since about 2001: primary judgment at [151]. According to the evidence of Mr Gavan Keith Duffy, a director of Horsell, Horsell was authorised, in accordance with an agreement "issued" by PADI in around January 2005 (the "Horsell agreement"), to negotiate and effect certain insurance policies in the name of PADI and all members who elected to be covered: primary judgment at [159]. The Horsell agreement was not formally executed but, it was accepted at trial and on appeal, was treated as binding by both Horsell and PADI.

Clause 2 of the Horsell agreement relevantly provided:

"Engagement and Appointment of HI [Horsell International]

For the term of this agreement PADI:

2.1 Appoints HI as their official insurance broker to manage and arrange any of its own Insurance requirements.

2.2 Authorises HI to negotiate and effect the insurance policies listed in SCHEDULE 1 PART 1 in the name of PADI and all members electing to be covered by any of those policies.

2.3 Authorises HI to offer members other insurance products, policies and services listed in SCHEDULE 2, which will receive the endorsement of PADI.

..."

The Schedules referred to in cls 2.2 and 2.3 provided:

"SCHEDULE 1

PART 1 - INSURANCE POLICIES

1. PADI MEMBERS WATER TIGHT INSURANCE PLAN

Criminal Defence/Broadform Liability/Professional Indemnity Personal Accident and Equipment

2. PADI DIVE CENTRES & RESORTS MEMBERS WATER TIGHT INSURANCE PLAN

Broadform Liability/Professional Indemnity

...

SCHEDULE 2

PART 1 - INSURANCE POLICIES

All classes, types and forms of insurance policies (excluding Travel) and services.

PART 2 - ADMINISTRATION FEES

As agreed from time to time in writing between the parties."

Although "issued" in January 2005, it is apparent from what follows that the Horsell agreement embodied the manner in which PADI and Horsell had conducted their relationship for some years prior to its preparation and, relevantly, during the period Mr Todd and Dive Two were members of PADI.

Horsell developed an insurance policy for PADI called the PADI Asia Pacific Watertight Liability Insurance Programme (the "Watertight Policy") with the professed aim of making it easier for PADI's members to obtain competitively priced insurance. In or about late 2002, Horsell negotiated a master policy of insurance with Liberty. The master policy expired on 30 September every year. Horsell also negotiated renewal terms annually with Liberty on behalf of PADI.

PADI's marketing department handled the renewal of the Watertight Policy and the forwarding of information about it to PADI members. Horsell only had direct contact with PADI's members about the Watertight policy in limited circumstances. However, as is apparent from cl 2.3 of the Horsell agreement, Horsell was also authorised to market other insurance products to PADI members. It had direct contact with PADI members, including Dive Two, in that context.

Horsell designed and paid for marketing materials including a brochure describing the policy that bore PADI's and Horsell's logos. PADI distributed the brochures to its members: primary judgment [174]).

The brochures issued in respect of the 2004/2005 and 2005/2006 years identified as a benefit of the policy "liability of water craft up to 12 metres in length" and answered the frequently asked question: "Does the public liability policy cover the liability of the dive boats we own and operate?", "Only if the vessel is under 12 metres in length ...": primary judgment (at [161]).

Insurance contracts entered into by Dive Two/Mr Todd

(a) The Watertight Policy

In his 17 May 2011 trial statement, Mr Todd said that he was aware at the time he started his business that he needed to have adequate public liability insurance for the activities associated with Dive One. He accordingly made enquiries with PADI about insurance coverage. He said that he spoke with the Coordinator for PADI IRRA in or around April 2002 and was informed that the Watertight Policy would cover him for all public liability issues. He also said he discussed the policy with the local Area Manager of PADI who said words to the following effect:

"The [Watertight Policy] will cover you for anything that you need. You won't need any other insurance."

Dive Two's first amended statement of cross-claim ("FASCC") alleged:

"52. On or about June 2002 Dive Two and/or Mr Todd retained Horsell to advise them as to the insurance cover they should obtain in regard to the business of Dive Two and the use by it of its vessel.

...

55. Horsell represented to Dive Two and/or Mr Todd that:

(a) the Watertight Policy provided adequate public liability insurance

(b) there was no need to have separate public liability insurance through the boat insurance.

PARTICULARS

Facsimile dated 3 March 2003 from Horsell to Mr Todd with quotation for Dive Boat insurance.

56. In consequence of the giving of the advice referred to in paragraph 55 above Horsell undertook a duty of care to Dive Two and/or Mr Todd to ensure that the advice given by him was accurate as to the adequacy of the insurance which he proposed.

57. Mr Todd relied on that representation and cancelled, or did not renew, public liability insurance attached to his boat insurance."

I assume the date referred to in paragraph 52 of the FASCC refers to what appears to have been Mr Todd's first engagement with Horsell when, on 26 June 2002, he took out "personal insurance" issued by Horsell in the form of the Watertight Policy to cover his liability as Dive Master/Instructor. This policy originally covered the period from 1 July 2002 to 31 December 2002 but was renewed annually until at least 2007.

At the end of 2002, Mr Todd received a letter on Horsell's letterhead dated 23 December 2002 enclosing the 2003 Watertight Policy Application. The letter described the benefits of the Policy, including that it provided "[c]over for hull liability up to a maximum boat length of 12 metres". At around the same time, he received a brochure from PADI entitled "2003 PADI Watertight Insurance Programme - Information for PADI Asia Pacific Members". The brochure bore both PADI and Horsell's logos and included the latter's address and contact details.

Under the heading "Other Insurance Policies", the brochure advised the reader to "contact Horsell International if you would like more information about the following insurance policies, which have been designed specifically for PADI members". One of the policies so identified was "Boat Insurance".

Mr Todd contacted the PADI Area Manager again after receiving these documents and enquired about the coverage of the Watertight Policy. He said the Area Manager said words to the following effect:

"The Watertight Policy is a 'complete package'. You won't need to do anything else in regards to public liability. Your boat is less than 12 metres in length, you will have coverage for any public liability arising from the boat on top of coverage for public liability attached to the activities you undertake on the boat".

Mr Todd then took out the Watertight Policy for the period 31 December 2002 to 30 September 2003. The policy insured Dive One, which, it will be recalled was Dive Two's business name, for "professional liability, public and products liability and criminal defence costs".

Mr Todd received a renewal letter dated 25 September 2003 from Horsell which stated that the Watertight Policy provided:

"Third Party Liability coverage for all owned vessels up to 12 metres in length whilst used in connection with the following activities: Diving, Snorkelling, Swimming, Fishing, Whale Watching and Site [sic, as in original] Seeing Activities."

Mr Todd renewed the policy in September 2003, then annually until at least 30 September 2007.

Mr Todd said that as he had the Watertight Policy he did not renew the comprehensive hull insurance policy he had with Associated Marine Insurers Agents which included public liability coverage: (see [36] below). He said he "understood [he] would have complete coverage under the new policy."

Horsell was paid a broker's fee of $612.26 in respect of the Watertight Policy Dive Two held for the period from 1 October 2005 to 30 September 2006: primary judgment at [159].

(b) Hull insurance

Dive Two bought Dive One, which was 7.5 metres long, in or about March or April 2002. Dive One was then located in Melbourne. Mr Todd insured the boat prior to having it transported on a trailer from Melbourne to Nelson Bay through Roderick Insurance Brokers ("Roderick"). Roderick arranged a Pleasure Craft Insurance - Commercial Hull Policy for Dive One through QBE/Mercantile Mutual Marine Insurance with an insurance period from 13 April 2002 to 13 April 2003. This policy did not include public liability insurance.

On 11 October 2002 Mr Todd cancelled the Commercial Hull Policy arranged for Dive One's transport to Nelson Bay. He took out a comprehensive hull insurance policy for the boat arranged through Roderick with Associated Marine Insurers Agents Pty Ltd (CAU/Zurich) for the period 13 September 2002 to 13 March 2003. This policy provided public liability insurance up to $5,000,000.

At the time he had the conversations with the PADI representatives (see [24] above), Mr Todd said he was told that Horsell also offered "an insurance policy to cover the boat itself", that he would "save money by joining all of the policies together and that there would be no loopholes as [he would] be fully covered".

On 3 March 2003, Mr Todd sent Horsell a Boat Quote Request seeking a quote for hull insurance cover for Dive One. Against the heading on the request form "Advise any Non Diving Related Activities", he inserted "Bush Walkers, Sight Seeing". On 3 March 2003 Horsell sent Mr Todd a facsimile with a quotation for Dive Boat Insurance which relevantly stated:

"Please note that we have not quoted Liability for the vessel as the PADI Watertight Policy provides coverage for Liability for vessels up to 12 metres in length for activities associated with Diving, Swimming, Sightseeing, Whale Watching and Fishing."

Mr Todd accepted the quote and took out hull insurance for Dive One in the form of the PADI IRRA Dive Boat Insurance Policy from 13 March 2003. He paid Horsell a total of $744.32 for the cover which included a broker's fee of $75.

On 17 September 2004 Horsell sent Dive Two a letter in respect of the dive boat insurance which was about to expire. The letter attached Horsell's tax invoice with renewal terms and invited Dive Two to remit payment to Horsell if it wished to renew the policy. The letter also stated:

"Please be aware that your boat insurance does not include liability insurance. If you have a PADI Asia Pacific Watertight Liability Policy then you have liability cover for all vessels up to 12 metres in length whilst used in connection with the following activities: Diving, Snorkelling, Swimming, Fishing, Whale Watching and Site [sic, as in original] Seeing."

In his trial statement Mr Todd said:

"My vessel was less than 12 metres in length therefore I understood that I was covered by the PADI Asia Pacific Watertight Liability Policy and I did not use the vessel for activities outside those terms. This had always been my understanding and was further cemented following receipt of the letter from Horsell."

Mr Todd renewed the hull insurance policy for the period 30 September 2004 to 30 September 2005. The renewal fees included a $50 broker's fee. He renewed the hull insurance policy again for the 30 September 2005 to 30 September 2006 year, again through Horsell directly.

Summary: policies held

In summary, from 2003 until Mr Todd closed his business in 2007, Mr Todd/Dive Two held three separate insurance policies through Horsell:

(1) Personal insurance through the Watertight Policy to cover his Dive Master/Instructor activities, operative from 1 July 2002 and renewed until at least 2007 (see [26] above);

(2) Business insurance through the Watertight Policy to cover the activities of Dive Two, operative from 31 December 2002 and renewed until at least 2007 (see [30] - [32] above); and

(3) Hull insurance through the PADI IRRA Dive Boat Insurance Policy to cover Dive One, operative from 13 March 2003 and renewed until at least 2007 (see [39] - [42] above).

In his trial statement Mr Todd said that based on, among other matters, the 3 March 2003 Horsell facsimile, he believed he was "fully covered for public liability insurance in relation to the use of the boat Dive One".

Events following 2003

On 30 September 2004, Mr Todd received a copy of the 2004/2005 PADI Watertight Insurance Programme Brochure which listed as a benefit of the policy "[l]iability of watercraft up to 12 metres in length". The following appeared in the section dealing with "Common Questions":

"Does the public liability policy cover the liability of the dive boats we own and operate?

Only if the vessel is under 12 metres in length. Most boat policies have a separate liability coverage. Horsell International can arrange insurance for vessels over 12 metres in length."

On 24 August 2005, Liberty sent an email to Horsell attaching and setting out the proposed renewal terms for the Watertight Policy for the period of insurance from 30 September 2005 to 30 September 2006. The terms included the following (primary judgment at [45]):

"Wording: Liberty International Underwriters base form CLM03.02 plus Endorsements as expiring.

Endorsements:

...

2. Watercraft inclusion for craft up to 12 meters ..."

In late August or early September 2005, PADI sent its members a brochure entitled "2005/2006 PADI Asia Pacific Watertight Liability Insurance Programme", which stated that the coverage for public and products liability included "[l]iability of watercraft up to 12 metres in length": primary judgment at [45]. It included substantially the same question and answer in the "Common Questions" section as appeared in the 2004/2005 brochure. Mr Todd received that brochure.

Both the 2004/2005 and 2005/2006 brochures had the same getup as the 2003 brochure. Each also stated:

"This brochure is for illustration purposes only and is subject to the full terms, conditions and exclusions of the policy wordings."

On 26 September 2005, PADI sent Mr Todd a letter which said the Watertight Policy included "[c]over for watercraft liability up to a maximum boat length of 12 metres": primary judgment at [45].

On 31 October 2005, a Certificate of Insurance on PADI's letterhead was issued in respect of Dive One for the period 1 October 2005 to 30 September 2006. The letterhead included the words "Underwritten by Liberty International Underwriters" and "Scheme Insurance Managers: Horsell International Pty Ltd".

The Certificate described the Insured as "Dive One" and the Cover as "Professional Indemnity, Public & Products Liability [and] Criminal Defence Costs". It showed the category of member as "Dive Store" and that the total premium included a broker fee of $612.26. It also stated:

"This Certificate of Insurance is issued as part of a master policy arranged by PADI Asia Pacific. This certificate is subject to the terms and conditions of the policy."

Mr Todd did not receive a copy of the Master Policy.

The Master Policy

The Master Policy was nominally in three sections but, in substance, constituted two sections: primary judgment (at [15]). Sections A & B were described as a "Combined General & Products & Professional Liability Policy". Section C of the Policy governed "Legal Expenses".

Clause 1 of sections A & B provided:

"1. Insuring Clause

Subject to the terms of this Policy, [Liberty] will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay by way of compensation as a result of a Claim(s) both first made against the Insured and notified to [Liberty] during the Period of Insurance for Injury and/or Damage in connection with the Insured's Business." (Emphasis added)

Clause 2.3 defined "claim" or "claims" as follows:

"2.3 'Claim' or 'Claims' means:

2.3.1 Any writ, statement of claim, summons, application or other originating legal or arbitral process, cross claim, counter-claim or third or similar party notice issued against or served on the Insured; or

2.3.2 Any written claim or allegation against the Insured which may result in Injury and/or Damage."

Paragraph 2 of the Policy Schedule provided:

"INSURED: PADI Asia Pacific and individual members, dive centers [sic, as in original] and resorts and others as agreed"

Paragraph 4 of the Policy Schedule provided that the "Insured's Business" was "[a]s defined in the policy wording under 'Scuba Diving'". Clause 2.11 in the policy wording defined "Scuba Diving" in the following terms:

"'Scuba Diving' means principally incorporating class and water based learning activities and modules including first aid training and certification, including the determination of standards by the accrediting agency and all activities relating to training, instructing, observing and control of recreational scuba diving. This includes all activities relating to snorkelling, skin diving, swimming, recreational surface supplied air, servicing, hiring and repairing of equipment and sales of related products, tours of reef by glass bottom boats (under 12 metres), transportations of people from one Island to another, bird watching, guided tours of Island when not diving, jungle and/or bush walking, fishing, underwater photography and/or video, whale watching, scuba doos, beach games."

Paragraph 9 of the Policy Schedule provided:

"This policy is a master policy schedule and each Insured entity is insured separately for their respective rights and interests as if this policy was issued individually for all terms, conditions and policy limits."

Clause 3 provided that the indemnity granted by the Policy extended to:

"Any director ... of the Insured ... but only while acting within the scope of their duties in such capacity ... Provided always that all such persons ... shall, whilst not being a party to this contract, observe fulfil and be subject to the terms of this Policy (insofar as they can apply) as though they were the Insured."

The relevant exclusions to the Policy were found in cl 7 as follows:

"This Policy does not cover liability directly or indirectly caused by, arising out of or in any way connected with:

...

7.18 Ownership, maintenance, operation, possession or use by or on behalf of the Insured of:

...

7.18.2 Any watercraft which exceeds twelve metres in length

...

7.24 Any alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the Insured or any person covered by Clause 3 of this Policy."

Clause 1 of Section C provided:

"Subject to the Limit of Indemnity, [Liberty] will indemnify the Insured for Legal Costs and Expenses incurred by the Insured in the course of scuba diving and related activities at or in:

1.1 Defending a criminal prosecution; or

1.2 Pleas of mitigation for a criminal defence against the Insured ..."

Pursuant to cl 3.9 of Section C, Liberty was not liable for claims in respect of:

"Legal services arising out of any dishonest, fraudulent, malicious or deliberate act or omission of the Insured. Provided that this exclusion 3.9 shall only apply where a judgment establishes that the Insured was guilty of any such dishonest, fraudulent, malicious or deliberate act or omission.

..."

Clause 4.5 of Section C provided:

"Section C and the relevant part of the Combined General & Products Liability Policy shall be read together as one contract and any word or expression to which a specific meaning has been given shall bear such specific meaning wherever it may appear unless such meaning is clearly inapplicable in the context in which the word or expression appears;"

THE PRIMARY JUDGMENT

Was the Claim Covered under the Policy's Insuring Clause?

Liberty contended that it was not liable to indemnify Dive Two under the Policy because:

(1) The claim did not fall within the insuring clause because it did not arise "in connection with the Insured's Business"; and

(2) The claim was excluded by reason of exclusion cl 7.24 because:

(a) It involved a criminal act as evidenced by Mr Todd's plea of guilty to the charge of dangerous navigation occasioning grievous bodily harm under the Crimes Act s 52B(3)(b); and

(b) Mr Todd was not covered for his legal costs in relation to the criminal proceedings as he was not acting in the course of his duties at the time of the accident.

Liberty also relied upon the following matters of background knowledge as relevant to the construction of the insuring clause: primary judgment (at [49]):

"(1) the policy was for members of a commercial organisation, PADI. It was not a policy for members of the public generally or for a broad range of users of watercraft. The policy was only available to PADI members and the membership of PADI comprised only persons and entities with a business or commercial interest in scuba diving which principally involved instruction;

(2) the terms of this policy were not contained in a compulsory standard form, such as are found in, for example, statutory policies (such as compulsory third-party motor vehicle, or barristers' professional indemnity, with the wording approved by the Government) or industry standard terms (such as Institute Yacht Clauses);

(3) different underwriters take different attitudes to the risks they are prepared to cover;

(4) liability policies for pleasure craft (meaning recreational use of watercraft) were available and known to be different to 'commercial' or 'business' liability cover;

(5) the cover arranged by Horsell for PADI members over a number of years was not limited to insureds who owned or used watercraft in relation to their business. That is, the policy was available to members of PADI whose business activities involved scuba diving, as defined in the policy, whether or not the instructor involved use of watercraft. Not only did the extended definition of scuba diving as defined in clause 2.11 of the policy include many activities for which watercraft are not required but the policy was also available to instructors, dive shop owners and dive masters; and

(6) insurers have a legitimate commercial interest in distinguishing between business and private/recreational risks. As this incident demonstrates, recreational use may more readily involve distractions and inadvertence whereas business use is more likely to be subject to regulation and to be taken more seriously by an operator conscious of business reputation."

In the event that Dive Two was not entitled to claim indemnity from Liberty, Horsell denied that it was negligent and that there was any relevant contract of retainer, or that, if there was, it was breached, or even if it was, that any such breach caused Dive Two's loss: primary judgment (at [6]).

The primary judge accepted (at [66]) Liberty's submissions concerning the construction of the insuring clause. Those submissions included (primary judgment at [50]) that the insuring clause and cl 2.11 operated together, first, to identify the nature of the business insured and, secondly, to require that the occurrence giving rise to the claim was sufficiently connected with that identified business. Her Honour held (at [66]) that the insuring clause imposed two requirements, that "the activity must be in some way related to recreational scuba diving and [that] it must be 'in connection with the Insured's Business'". Her Honour found that although the term "Insured's Business" was a defined term, those words were not irrelevant to the construction of the insuring clause as a construction that disregarded the requirement that there be a connection with the business was at odds with the Policy. Accordingly she concluded that a trip along the Myall River conducted for private purposes unconnected with the business did not fall within the insuring clause.

The primary judge accepted (at [68]) that the words "in connection with the Insured's Business" were apt to include the promotion of the business, as "the words 'in connection with' ought be read as extending the scope of the noun they precede, ... ought not be read narrowly [and] merely require[d] a relationship between one thing and another [which was] real and not merely tenuous". Her Honour considered that this threshold would be met if she was satisfied that the purpose of the trip was the promotion of Dive Two's scuba diving business.

Her Honour rejected (at [70] - [72]) a submission made by Horsell to the effect that the endorsement to the Policy (originally set out in the quotation renewal terms Liberty sent Horsell in August 2005: see primary judgment (at [45])) to cover "[w]atercraft inclusion for craft up to 12 meters", could assist in resolving any ambiguity in the Policy. In her Honour's view (at [70]) "the somewhat sparse wording of the endorsement [was] wholly inadequate to support the contention that it was designed to provide public liability cover for boats up to 12 metres without any of the qualifications in insuring clause 1". Her Honour considered (at [72]) that the quotation was of historical significance only and that the purpose of the endorsement was to make it clear that boats less than 12 metres in length would not be covered by an exclusion clause ([7.18.2], see primary judgment (at [22])) which applied to boats of greater length.

There was a substantial factual issue about the purpose of the boat trip which was relevant to whether the insuring clause applied having regard to her Honour's conclusion that a promotional trip would fall within its ambit.

The primary judge did not accept Mr Todd's evidence in his trial statement that there were two reasons he had had for inviting two people whom he believed to work at the local high school, together with their spouses, on a trip on Dive Two's boat. They were that he wanted to expand Dive Two's business to include more of the local market and that he wanted to thank his guests for the business that they had already referred to Dive Two: primary judgment (at [75] - [76]).

In the course of Mr Todd's cross-examination it became apparent that he had given six versions as to the purpose of the trip from that given to the police shortly after the collision to his trial statement. Her Honour concluded (at [76]) that the latest version was designed to further his interests and could not be relied upon. She found (at [90]) that Mr Todd had "concocted" the suggestion that he was seeking to promote the business to advance his interests when indemnity was being declined and held that the first version Mr Todd gave to the police was correct, namely that the trip was a recreational one, which was not made in connection with the business. There is no challenge to her Honour's factual findings in this respect.

Her Honour, accordingly, rejected (at [91]) Mr Todd's evidence about the trip, or the surrounding circumstances unless it was corroborated or it amounted to a statement against interest. She otherwise accepted his evidence about the insurance he had taken out, as she concluded that evidence was "unaffected by the motive that affected his credibility in relation to the purpose of the trip": (at [92]).

Her Honour rejected (at [94]) Dive Two's alternative submission that the activity was in connection with Dive Two's business because it was conducted with an asset of the business, occurred in the vicinity of the locations where Dive Two conducted its scuba diving business and the boat was navigated by the same person as when it was engaged in the business activities of Dive Two. She held that there was an implicit dichotomy between "private" and "business" activities arising from the use of the word "Business" in the insuring clause. While accepting the question of connection was one of fact and degree, her Honour also did not consider that "Mr Todd's use of Dive One in a location proximate to Dive Two's usual business operations [was] sufficient to establish a connection for the purposes of the insuring clause": (at [95]).

The primary judge rejected the third way Dive Two sought to put its case, namely that it was sufficient to conclude that the claim arose in connection with its business if Mr Todd discussed his business with his guests and this discussion would tend to have the effect of promoting the business. Her Honour held (at [99]) that even if she accepted Mr Todd's evidence that he mentioned his business to the people on the boat in the course of the trip, this did not convert a social situation to an event "in connection with the business". Her Honour also rejected (at [100]) a submission that there was a sufficient connection as the trip involved "sightseeing".

Accordingly, the primary judge concluded (at [101]) that the Policy did not respond to the claim.

Was the Claim Excluded by Reason of Exclusion Clause 7.24?

Clause 7.24 (see [60] above) excluded "liability directly or indirectly caused by, arising out of or in any way connected with ... [a]ny alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the Insured or any person covered by Clause 3 of this Policy." If that exclusion applied, Dive Two could not succeed against Horsell: primary judgment (at [115]).

The primary judge made the following findings about the circumstances of the accident for the purpose of determining whether cl 7.24 applied:

"141 I find that Mr Todd was barely aware of the presence of the other boat until immediately prior to impact. He had little chance to slow his boat or avoid the collision. Had he cleaned the salt from the windscreen, his visibility and range of vision would have been significantly greater. Having regard to his compromised vision, he was driving at an excessive speed.

142 There is, however, no suggestion that Mr Todd intended the collision or intended the plaintiff any harm. Immediately following the collision he acted so as to safeguard the other passengers and save the plaintiff, who had been seriously injured. His conduct, although criminal and having serious consequences, was not intentional."

Liberty challenges the latter finding insofar as it submits on the question of the application of exclusion cl 7.24, that Mr Todd's conduct, while not deliberate or intentional in the sense that he was trying to hurt the plaintiff, was nevertheless deliberate and intentional in the sense that he must have known he was travelling at a dangerous speed in the circumstances.

The primary judge applied Hope JA's reasoning in Australian Aviation Underwriting Pty Limited v Henry (1988) 12 NSWLR 121 (at 126) ("Henry") concerning the circumstances in which a limitation should be read into "the ordinary meaning of the words 'from an insured person's own criminal act'" and held:

"145 What each of the other words in clause 7.24 has in common is intention. Although an act may be criminal without any intent at all, criminal acts, like torts, can be classified as intentional or otherwise. The term 'criminal acts' is broad and, in a sense, arbitrary since it depends on legislative choice and may cover acts of considerable seriousness or relatively trivial infringements without any requirement of intention. Because the words 'criminal act' appear at the end of a list where the preceding words have in common an element of intention, I consider that they should be read down to include only those criminal acts that are intentional.

146 I consider the ejusdem generis rule to provide some guidance too, notwithstanding that the words 'other' or 'etc' are not used at the end of the list and notwithstanding that 'criminal acts' constitute a separate category in the exclusion clause. However, where, as here, there is a list of a number of items, the meaning of a term, particularly a general one as I find 'criminal acts' to be, is more readily ascertained by reference to the list as a whole (see, in the context of statutes, Pearce, Statutory Interpretation in Australia (2011), at [4.24]).

147 The effect of this construction is that it is immaterial that the degree of lack of care exhibited by Mr Todd was greater than mere negligence. The exclusion clause does not exclude cover in the instant case because the criminal act committed by Mr Todd was not intentional. This analysis is consistent with both Henry and Xerri. In the former case, the words 'criminal act' were read down to exclude non-intentional criminal acts because of its context and because it was the insurer's wording and therefore the contra proferentem rule applied. In the latter case, the exclusion clause applied because its terms specifically covered the claim and there was no basis to read down the words of the exclusion.

148 Although it does not matter for the purposes of my consideration, I was not persuaded by Mr Birch's argument that clause 3.9 assists his construction of exclusion clause 7.24. There may be good reason why an insurer would be prepared to cover criminal defence costs, except where they arise out of 'any dishonest, fraudulent, malicious or deliberate act or omission of the Insured' but not be prepared to indemnify an insured for claims arising from criminal acts of the insured per se. Different words are used in clause 3.9 of Section C than are used in clause 7.24. I do not think that the comparison between them provides any particular warrant for importing the requirement that the criminal acts or omissions excluded by clause 7.24 be intentional."

Was Horsell Liable for Breach of Contract or Negligence?

The question of Horsell's liability arose, accordingly, because the insuring clause, on her Honour's construction, meant the Policy did not respond to the claim and the claim was not otherwise excluded: primary judgment (at [150]).

The primary judge rejected a submission by Horsell that it was not open to Dive Two to submit that Horsell was guilty of negligent misstatement when its pleading and particulars merely alleged a failure to advise. Her Honour described Dive Two's pleaded case as being that Horsell "made positive representations in the past which [Dive Two] relied upon" and that "[w]hen it came to the relevant year, [they] allege that Horsell failed to advise them that the insurance cover they obtained was inadequate": primary judgment (at [154]).

Dive Two's case against Horsell was that Horsell gave advice to the members of PADI in Australia, including Dive Two, regarding the nature and extent of liability insurance that it could procure for them and, too, that it advised Dive Two directly as to the extent of coverage of the Watertight Policy. It relied upon the brochures Horsell designed and paid for on behalf of PADI, the Horsell agreement and advice Horsell gave to Dive Two in exchanges of correspondence: primary judgment (at [158] - [162]); see also [21] - [22] and [31] - [40] above. Those communications, it was contended, either "gave rise to an implied contract of retainer with Horsell, which contained a term implied by law that the broker will exercise reasonable care and skill in respect of a contract for the provision of brokering services" (primary judgment at [163]) or, a duty to take reasonable care in the circumstances, the scope and content of which was commensurate with the implied retainer: primary judgment (at [164] - [166], [168]). Dive Two contended that had Horsell given advice that identified the deficiencies in the policy Mr Todd would have maintained a further liability policy attached to his hull insurance and that insurance would have protected him from the plaintiff's claims: primary judgment (at [168], [170]).

Horsell denied there was any retainer between it and Dive Two or that it breached any duty of care: primary judgment (at [171] - [175]). It also invoked s 5D(1) of the Civil Liability Act 2002 and argued that Dive Two had not established it would have acted any differently if advised that the Policy did not, or would not, cover "sightseeing" or the use of watercraft for no reward. Horsell contended that if the primary judge was disinclined to accept Mr Todd's evidence as to the purpose of the trip, her Honour should also reject Mr Todd's evidence on causation: primary judgment (at [177] - [178]).

The primary judge concluded that the circumstances surrounding the relationship between PADI and its members, and Horsell, were sufficient to create a contract of retainer and impose a duty of care on Horsell. Her Honour found that PADI had engaged Horsell to advise it and its members on appropriate insurance cover and, by implication, to warn it and its members where cover was inadequate or doubtful: primary judgment (at [179]).

Her Honour found (at [180] - [181]) that Horsell had made the following representations:

(1) By refusing to quote on a liability policy for Dive One in the 3 March 2003 facsimile because the liability to third parties was said to be covered by the policy, Horsell was effectively advising that Dive Two did not need a liability policy for the vessel. [It was common ground on appeal that this finding related to the exchange of correspondence between Mr Todd and Horsell in March 2003 (see [38] - [39]) above)]. Her Honour also found that Mr Todd was not warned of the limitation that appeared in the insuring clause in the Master Policy that it "covered matters 'in connection with the Insured's Business'"; and

(2) The Watertight Policy brochure Horsell issued intimated to readers that the Policy would provide public liability insurance for boats less than 12 metres in length, and did not warn potential policy holders that not all activities undertaken in such boats would be covered by the Policy.

The primary judge considered that it was incumbent on a reasonably competent broker, in circumstances where the broker had earlier advised a client that it did not need public liability insurance for its boat, to advise the client of the limitation of the policy, namely that it would not cover all activities undertaken in such boats but only those related to scuba diving and associated activities which were conducted in connection with its business. Furthermore, her Honour found that such broker ought to have advised the client that Protection & Indemnity Insurance for boats was available and could be obtained to cover risks not covered by the Watertight Policy. Accordingly she concluded that Horsell was negligent and in breach of its implied retainer by failing to warn Dive Two of a potential deficiency in the Policy which could have been rectified by Dive Two obtaining the policy it had previously held to cover public liability in respect of Dive One: primary judgment (at [182]).

The primary judge accepted (at [183]) that it was usual in such cases to have evidence from a broker deposing to the standards expected of a reasonably competent broker. However, her Honour found that such evidence was not required where it was obvious, as she considered it to be, that the words "in connection with the Insured's Business" in the insuring clause would put a reasonably competent broker on notice that there was at least a substantial risk that private, non-business activities would not be covered by the Policy.

Mr Todd said at trial that based on the conversations he had with the PADI Area Coordinator and Area Manager, the 3 March 2003 Horsell facsimile and the brochures he received when renewing the Watertight Policy, that he believed he was "fully covered for public liability insurance in relation to the use of the boat Dive One." He also said he did not renew the hull insurance with Associated Marine Insurers Agents which had a public liability component as he had the Watertight Policy and understood that he would have "complete coverage under [this] policy."

The primary judge accepted Mr Todd's evidence. Her Honour made the following findings:

"186 I accept Dr Birch's submissions that Mr Todd had shown himself to be prudent and conservative when it came to obtaining insurance. His evidence, which I accept, as to the various policies of insurance that he took out on behalf of Dive Two and on his own account (including in respect of his role as Dive Master) from time to time shows that he was risk averse as far as his business was concerned. He arranged insurance for the boat when he transported it from Victoria to New South Wales. When the business started to operate, he obtained business insurance. He also appreciated that he would need public liability insurance in respect of the boat.

187 I accept Mr Todd's evidence that he cancelled the Protection and Indemnity aspect of the hull insurance as a result of advice given by an employee of PADI. This advice was reiterated in the PADI Watertight brochures that were written and published by Horsell, extracts of which are set out above.

188 I find that had Mr Todd been advised that there was a risk that the Watertight Policy would not cover him for public liability if he used the boat for purposes unrelated to scuba diving and associated activities, or unconnected with the business of Dive Two, he would have taken out public liability insurance for the relevant period to cover the activities of Dive One."

There was evidence that such insurance was commercially available at the relevant time at a cost that was broadly commensurate with the premium of other policies that Mr Todd had taken out and accordingly her Honour found that, in substance, Mr Todd would have taken out such a policy if properly advised about the cover of the Watertight Policy: primary judgment (at [189]).

There is no challenge to her Honour's finding (at [187]) about why Mr Todd cancelled the hull insurance he held prior to March 2003.

In determining that Horsell's negligence caused Dive Two's loss through Liberty's justified denial of indemnity, the primary judge was satisfied that Horsell's negligence was a necessary condition of the occurrence of harm, and that it was appropriate for Horsell's liability to extend to such harm: primary judgment (at [190]); s 5D(1), Civil Liability Act.

As the primary judge had found that the sole reason Liberty was not liable to indemnify Dive Two was because the claim did not arise "in connection with the Insured's Business", her Honour considered that a public liability policy associated with the boat that did not have that limitation would have responded to each of the three aspects of Dive Two's claim: primary judgment (at [191]).

Her Honour awarded Dive Two the three sums sought in the cross-claim being:

(1) The amount of the judgment in favour of the plaintiff;

(2) $5,500 compensation for damage to Dive One; and

(3) $11,275 in respect of Mr Todd's legal representation.

Horsell was ordered to pay Liberty and Dive Two's costs of the proceedings: Lane v Dive Two Pty Ltd (No 2) [2012] NSWSC 209.

ISSUES ON APPEAL

At the outset of the hearing, Horsell sought leave to file an amended notice of appeal. The Court ruled that proposed amended ground 3 could not be relied upon, while Horsell no longer pressed ground 4. Horsell was granted leave to proceed with the amended notice of appeal which then contained the following grounds (numbered as in the document, but omitting grounds 3 and 4):

(1) The primary judge erred (at [66]) in construing the insuring clause of the policy as requiring that the claim in respect of which indemnity is sought must be in some way related to "recreational scuba diving".

(2) The primary judge erred (at [66]) in construing the insuring clause of the policy as requiring that the claim in respect of which indemnity is sought must be "in connection with the Insured's Business".

(5) The primary judge erred (at [101]) in holding that the policy did not respond to the claim.

(6) The primary judge erred (at [182]) in finding that the appellant was negligent and in breach of its implied retainer by failing to warn the Insured of a potential deficiency in the policy.

(7) The primary judge erred in finding that any breach of duty of care by the appellant or breach of any term of an implied retainer caused the first respondent and/or the second respondent to suffer loss.

Dive Two filed an amended notice of cross-appeal. In the event that the Court upheld paragraphs 6 and 7 of Horsell's notice of appeal, Dive Two relied on Horsell's grounds of appeal on the issue of the construction of the insuring clause. Dive Two also relied on the following grounds of appeal:

(1) The primary judge erred (at [95]) in finding that the use of the dive boat, Dive One, in a location proximate to Dive Two's usual business operations was not sufficient to establish a connection with the business for the purposes of the insuring clause;

(2) The primary judge erred (at [99]) in finding that a discussion of the business by Mr Todd during the trip was insufficient to convert the trip into an event "in connection with the business";

(3) The primary judge erred (at [100]) in finding that it was not sufficient that the trip was for "sightseeing" to bring the trip within the insuring clause;

(4) The primary judge erred in holding (at [70]) that the endorsement in paragraph 2 of the quotation did not assist in resolving any ambiguity in the policy;

(5) The primary judge erred (at [94]) in finding that it was insufficient to establish a connection with the Insured's Business that an asset of the business was used by a director of the business who was also a Dive Master; and

(6) The primary judge erred in construing the insuring clause of the policy by finding that the policy did not respond in circumstances where the insured's loss arose from use of the insured's dive boat to conduct a sightseeing trip on the Port Stephens Inlet and Myall River.

As can be seen grounds (1) and (5) are substantially the same.

Liberty filed a notice of contention asserting that the primary judge's decision should be affirmed on the ground that cl 7.24 of the Policy operated so as to exclude the claim by Dive Two and/or Mr Todd.

In the course of the hearing of the appeal, Horsell sought leave to further amend its amended notice of appeal to add a ground complaining about the primary judge's decision about the operation of cl 7.24 of the Policy. That application became a matter of controversy which I deal with in that part of these reasons dealing with the exclusion clause: see [179] ff below.

SUBMISSIONS

Horsell's submissions: construction of the Policy (grounds 1 and 2)

Mr S Donaldson SC who appeared for Horsell on appeal but not at trial, with Mr G M Drew, submitted that the primary judge erred in finding that the insuring clause imposed two preconditions to cover, namely, that the activity out of which the claim arose must be in some way related to "recreational scuba diving" and "in connection with the Insured's Business".

Mr Donaldson accepted that the primary judge was correct to read the words of the definition of "Scuba Diving" into the insuring clause in lieu of the expression "Insured's Business". References to his submissions in the following should be understood to refer to that approach to the insuring clause.

However, Mr Donaldson argued that the primary judge was in error in concluding that the "label" the "Insured's Business" was an aid to the construction of the definition. Such an approach had the impermissible effect of altering the meaning of the Policy and introduced a qualification to Dive Two's cover that did not find expression in the Policy wording.

Mr Donaldson submitted, accordingly, that the Policy covered liability arising in respect of claims in connection with all the matters referred to in the definition of "Scuba Diving", irrespective of the purpose for which they were undertaken, provided that they were activities of the insured.

He emphasised the generality of the description of activities in the insuring clause. Thus, "Scuba Diving" was said to "principally incorporate" activities of a certain description "including" activities related to recreational scuba diving, but also encompassed an extensive and disparate list of specified activities, many of which were not necessarily connected with recreational scuba diving.

Mr Donaldson submitted that the words "all activities relating to ... recreational scuba diving" in the second sentence of the insuring clause did not dominate the first part of the clause such that the preceding activities had to be related to recreational scuba diving. Such an interpretation would have a perverse effect, he argued, of potentially excluding cover for damage resulting from class and water based learning activities unless they were so related. Rather, he contended, the effect of the insuring clause was that the range of activities attracting cover principally incorporated "class and water based leaning activities", but extended to a broad range of potentially related activities, which included, but did not necessarily involve, recreational scuba diving.

Mr Donaldson's next principal submission was that the insuring clause did not require that the activity must be undertaken in the course of the conduct of a business. He first argued that the primary judge failed to attach sufficient significance to the fact that the definition of "Insured's Business" did not incorporate any of the features conventionally associated with the concept of carrying on a business. Rather, the parties chose to define the term in a way that did not reflect its conventional meaning. He emphasised that the plain and natural meaning of the wording did not require that the activity giving rise to a claim be carried on systematically with a view to profit. He repeated the argument advanced in support of his first principal submission that the label attached to the definition did not justify rewriting the scope of cover more narrowly than the broad range of activities that could be expected to be undertaken in the course of the business.

Finally, Mr Donaldson submitted that there was a sufficient connection between the activity out of which the claim arose (transporting people in Dive Two's boat) and the activities covered by the insuring clause. Although the named activities did not include sightseeing trips, transporting people by boat was a routine activity associated with water-based learning activities and recreational scuba diving and might be associated with other named activities such as bird watching, beach walking and beach games.

Dive Two's submissions: construction of the Policy (grounds 1 and 2)

Dr C J Birch SC who appeared for Dive Two at trial and on appeal with Ms P Lowson, adopted Horsell's submissions regarding the construction of the insuring clause. He argued that instead of the two requirements the primary judge imposed upon the insuring clause, the provision was to be construed by reference to the definition of "Scuba Diving".

Dr Birch argued it was not correct, as Liberty contended, to construe the insuring clause as having the general meaning that the term "Insured's Business" should be added as a qualification to each of the terms in the definition of "Scuba Diving". This was because the language at paragraph 4 of the schedule clearly countenanced a substitution of the definition of "scuba diving" for the term "Insured's Business". Furthermore, he contended that the label "Insured's Business" did not assist in resolving ambiguities regarding the construction of cl 2.11, such as whether it included sightseeing, and that the separation between private purposes on the one hand and business purposes on the other was inapt insofar as Dive Two was a corporate entity.

Alternatively, Dr Birch also submitted that there was a sufficient connection between the claim and Dive Two's business because Dive One was the vessel used by the business for its usual dive boat operations and, at the time of the accident, it was being skippered by one of the business' usual dive boat operators, Mr Todd. Further, the accident resulted from the use of Dive One by an operator in regard to an activity in which the business usually engaged, sightseeing on the Myall River.

Liberty's submissions: construction of the Policy (grounds 1 and 2)

Mr J Sexton SC, who appeared on appeal and at trial with Mr D Macfarlane, embraced the primary judge's construction of the insuring clause. He contended that the primary judge correctly interpreted the Policy by treating the definition as an explanation of what was to be construed as the "Insured's Business".

Mr Sexton also submitted that the definition of "Scuba Diving" could not be read into the insuring clause without any regard to the term, "Insured's Business" and that Horsell's submissions failed to engage with her Honour's discussion (at [66]) of the significance of the defined term.

Liberty's submissions: construction of clause 7.24

Liberty submitted that even if the Court found that the primary judge erred in the construction of the insuring clause so that, to that extent, the Policy extended to Dive Two's claim, nevertheless the claim was excluded by virtue of cl 7.24 on the basis that the offence of dangerous navigation which gave rise to the claim was caused by Dive Two's criminal acts or omissions.

First, Mr Sexton submitted that the offence of dangerous navigation with which Mr Todd was charged involved an appreciable risk of injury or death to the public over and above that ordinarily associated with navigating a vessel, including mere negligent navigation, and that, having regard to the way the analogous offence of dangerous or culpable driving had been characterised in Jiminez v The Queen [1992] HCA 14; (1992) 173 CLR 572 (at 579) and R v De Montero [2009] VSCA 255; (2009) 25 VR 694 (at [75]) an insurer could properly want to exclude such conduct from the risk.

Secondly, Mr Sexton submitted that it would be wrong to treat dangerous navigation as an offence of negligence as s 52B(3) did not use the word "negligently". He argued that the s 52B(3) offence was relevantly identical to the offence of dangerous driving causing grievous bodily harm in s 52A of the Crimes Act. He pointed out that the Victorian Court of Appeal had placed dangerous driving between negligent and culpable driving on a spectrum of wrongdoing: R v De Montero (at [11] - [14], [26]).

Thirdly, Mr Sexton sought to distinguish Henry on the basis that the words used in cl 7.24 were broader than in the exclusion clause in that case. He argued cl 7.24 specifically adverted to the intentional criminal conduct embodied in the phrase "fraudulent, dishonest, malicious, wilful", and that the expression "criminal act" was intended to exclude from cover activities which were criminal yet did not necessarily fall within the preceding words. He submitted that Xerri v Kingmill Pty Ltd (1998) 25 MVR 569 ("Xerri") was a better guide to the interpretation of the Policy than Henry.

Fourthly, Mr Sexton argued that the following points McHugh JA made in his dissenting judgment in Henry (at 130 - 132) concerning culpable driving of a motor vehicle also applied to dangerous navigation in the context of cl 7.24: that a criminal act is any act or omission prohibited by the State, that the words "criminal act" are not confined to acts of conscious wrongdoing and that culpable driving was such a serious offence that it was a criminal act for the purpose of the policy even when it was the product of inadvertence or negligence by the driver.

Fifthly, Mr Sexton submitted that the phrase "directly or indirectly caused by, arising out of or in any way connected with [any criminal act or omission]" in cl 7.24 was strongly indicative of a meaning which would extend to negligent or inadvertent conduct. He also contended that the words preceding "criminal act or omission" ("fraudulent, dishonest, malicious, wilful") should be read disjunctively, so that "or" should not be construed to mean "and".

Sixthly, Mr Sexton submitted that even though Mr Todd's conduct was not deliberate or intentional in the sense that he was trying to hurt the plaintiff, it was nevertheless deliberate and intentional in the sense that he must have known he was travelling at a dangerous speed in the circumstances. He argued that the primary judge focused on the wrong intention, in considering whether Mr Todd intended to cause the collision or harm the plaintiff, rather than considering his intention to travel at a dangerous speed in the circumstances. He submitted that Mr Todd knew the speed he was travelling at and knew about the problems with visibility caused by the build up of salt on his windscreen.

Finally, Mr Sexton submitted that the primary judge erred in her application of the maxim noscitur a sociis on the basis that as most, if not all, fraudulent, dishonest and malicious acts were also criminal acts, the word "criminal" in cl 7.24 would have little or no work to do if it was read down to apply only to intentional or deliberate conduct.

Dive Two's submissions: construction of clause 7.24

Dr Birch, in essence, repeated the submissions that succeeded at trial as to the operation of cl 7.24: see primary judgment (at [116] ff). In short, he argued that cl 7.24 had to be read in light of the contract as a whole and with regard to its commercial purpose and effect. He submitted that a public liability insurance policy for a dive operator must have been intended to respond to circumstances where there had been conduct by the insured that could give rise to liability, which would commonly be negligent conduct by the insured or its officers or employees. In that light, he contended, the insured would be substantially deprived of any benefit from the Policy if negligent acts were excluded.

Secondly, Dr Birch submitted that when construed in the context of the phrase in which it appeared ("any alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the insured ...") it was apparent the word "criminal" connoted conduct with an element of intent, whereas Mr Todd's action had been one of unintentional negligence.

Thirdly, Dr Birch submitted that it was not significant that construing "criminal act" to refer only to intentional or deliberate acts would limit its sphere of operation, considering the overlap between terms such as "fraudulent", "dishonest" and "wilful". He contended that the Policy did not clearly manifest an intention not to use words that were synonyms or overlapped in meaning, considering that the term "fraudulent" itself was probably subsumed within the term "dishonest".

Fourthly, Dr Birch submitted that the primary judge did not err in applying Henry to read down the word "criminal" to exclude acts of negligence, notwithstanding that they were also criminal.

Fifthly, Dr Birch referred to exclusion cl 3.9 in Section C of the Policy (see [62] above). He submitted that it would be anomalous if the insured could be covered for legal expenses in relation to a plea in mitigation for dangerous navigation (as the conduct was not "dishonest, fraudulent, malicious or deliberate") but not indemnified for a damages claim.

LIABILITY OF HORSELL

Whether the claim against Horsell was characterised as arising from a retainer between it and Dive Two or from a duty of care it owed Dive Two, it was essentially based on Dive Two's contention that Horsell failed to exercise reasonable care and skill in advising it as to the terms of the Policy, its adequacy for Dive Two's purposes and failing to advise of the necessity to obtain additional public liability insurance to cover use of Dive One that did not fall within the insuring clause. As such its claim for damages against Horsell fell to be determined in accordance with Part 1A of the Civil Liability Act: s 5A(1), Civil Liability Act. Neither party contended that the outcome of the appeal turned on the application of any particular provision of the Civil Liability Act. The primary judge appears to have considered the issue of causation by reference to s 5D of the Civil Liability Act. There was no submission that her Honour ought not to have done so or that she misapplied it. As I have observed, there was, in any event, despite ground seven in the notice of appeal, no submission challenging her Honour's causation finding.

Relationship between Horsell and Dive Two

In my view there was a contract of retainer between Dive Two and Horsell pursuant to which Horsell acted as Dive Two's insurance broker to arrange both the Policy and Dive Two's hull insurance for the insurance years 2003/2004, 2004/2005 and 2005/2006. Dive Two paid Horsell a broker's fee in respect of each of the policies it took out for those insurance years.

I am also of the view that Horsell owed Dive Two a duty of care insofar as it advised of the terms of the Policy and the hull insurance. In the latter respect, in particular in March 2003, it was dealing directly with Dive Two as its insurance broker in response to an inquiry about insurance not within the umbrella of what I will loosely call the PADI scheme. However it advised Dive Two about the ambit of the cover it needed for its hull insurance, in the context of advising Dive Two what the Policy covered.

Duty of an insurance broker

The obligations of an insurance broker were succinctly stated in Caldwell v JA Neilson Investments Pty Ltd [2007] NSWCA 3; (2007) 69 NSWLR 120 per Ipp JA (Mason P and Hodgson JA agreeing):

"103 There is considerable authority to the effect that an insurance broker must use reasonable skill and care to ascertain its customer's needs by instructions or otherwise: see, for example, Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 at 555 to 556, Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd (1982) 2 NSWLR 57 at 62. A broker must use reasonable care and skill to procure the cover that the customer has asked for, either expressly or by implication. If the broker cannot obtain what is required, it must report in what respects it has failed and seek the customer's alternative instructions Youell v Bland Welch & Co Ltd (The "Superhulls Cover" Case (No 2)) [1990] 2 Lloyd's Rep 434 at 445, Harvest Trucking Company Ltd v P B Davis [1991] 2 Lloyd's Rep 638, Aneco Reinsurance Underwriting Limited (In Liq) v Johnson & Higgins Ltd [1998] 1 Lloyd's Rep 565 at 590." (Emphasis added)

The content of an insurance broker's duty includes an obligation to ensure the client's policy is suitable for the purpose for which it is sought as Blair J explained in Ground Gilbey Ltd v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124 (Comm) as follows:

"73 In short, a broker owes his client a duty to take reasonable steps to obtain a policy which clearly meets his client's needs and is suitable for the client. An aspect of that is that the client should not be exposed to an unnecessary risk of legal disputes with the insurer ... The broker owes his client a duty to draw to the client's attention any onerous or unusual terms or conditions, and should explain to the client their nature and effect. After the risk has been placed, the continuing duty is exemplified by HIH Casualty & General Insurance Ltd v JLT Risk Solutions Ltd in which Longmore LJ stated that, 'an insurance broker who, after placing the risk, becomes aware of information which has a material and potentially deleterious effect on the insurance cover which he has placed is under an obligation to act in his client's best interest by drawing it to the attention of his client and obtain his instructions in relation to it' ([2007] EWCA Civ. 710 at [116])." (Emphasis added)

The duty is owed both in contract and tort to exercise all reasonable care and skill in advising the clients and in respect of obtaining appropriate insurance cover; that duty required the broker "so far as possible, to obtain insurance coverage which clearly and indisputably meets its clients' requirements": Ramco Ltd v Weller Russell & Laws Insurance Brokers Ltd [2008] EWHC 2202 (QB); [2009] Lloyds Rep IR 27 (at [14] - [15]) per David Donaldson QC, sitting as a Deputy High Court Judge; see also Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149 (at 167) per Brennan J.

Even if the client gives ambiguous instructions to the broker "in circumstances where if they had the meaning put upon them by the broker they left the client substantially under insured ... it [is] the duty of the broker both to clarify the instructions and to draw the attention of the client to the consequences of giving effect to them if they had the meaning that the insurer put upon them": Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Ins Cas ¶61-012 (at 76, 635) per Gleeson CJ (Kirby P agreeing). The broker's duty of care does not extend to having to expound the law to the insured, but it does extend to pointing out the legal pitfalls for the insured where these might arise in the course of effecting a valid insurance cover: Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57 (at 65) per Hutley JA. The primary judge (at [182]) applied Hutley JA's statement in Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd.

In this respect Horsell must have realised, or the circumstances were such that it ought to have realized, that Dive Two intended to act upon the information or advice Horsell gave in respect of the insurance it sought in relation to Dive Two and that that was in connection with some matter of business or serious consequence. Further, the circumstances were such that it was reasonable in all the circumstances for Dive Two to seek, or to accept, and to rely upon what Horsell said: Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556 (at 571) per Barwick CJ. His Honour's statement was approved in Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 (at [47]) per Gleeson CJ, Gummow and Hayne JJ; see also Gaudron J (at [73] - [78]).

As Dive Two submitted, it had no access to the Master Policy, a matter of which Horsell knew, or ought to have known. In any event, even if it had, it was Horsell's obligation as insurance broker to ensure Dive Two understood the Policy only covered it for matters covered by, or reasonably incidental to, the insuring clause. Horsell should have appreciated when Dive Two made an inquiry in March 2003 about a hull policy which included public liability, that that inquiry reflected the fact that Dive Two may use its boats for trips not connected with its business. In any event, had the inquiry been ambiguous in this respect, it was a matter for it to clarify the cover Dive Two sought. Instead it advised Dive Two in its response to the request for hull insurance that the Policy provided "coverage for liability for vessels up to 12 metres for activities associated with diving, swimming, sightseeing, whale watching and fishing". That was, in my view, a representation that was not limited to activities conducted in connection with Dive Two's business. Mr Todd was entitled to rely upon it, as he did, as a representation that the Policy extended to non-business use of his boats.

As I have said, there is no effective challenge to the primary judge's causation finding but, in any event, I would be of the view that her Honour's finding was amply open on the evidence. In order to succeed on causation, Dive Two had to establish that the negligence was a necessary condition of the occurrence of the harm it suffered and that it is appropriate for the scope of Horsell's liability to extend to the harm so caused: s 5D(1), Civil Liability Act.

In my view the evidence as to Mr Todd's determination to have full insurance cover for Dive One amply supported her Honour's conclusion in the light of all relevant circumstances that had he been properly advised about the limits on the cover available under the Policy, he would have taken out the hull insurance Horsell otherwise could have arranged: s 5D(3), Civil Liability Act.

Orders

I propose the following orders:

(1) Confirm the leave given to Horsell on 18 March 2013 to amend the amended notice of appeal to include ground 8 in terms of the further amended notice of appeal.

(2) Appeal and cross-appeal dismissed.

(3) Appellant pay the costs of the respondents (Dive Two, Mr Todd and Liberty) of the appeal and cross-appeal.

MEAGHER JA: On 29 July 2006 an aluminium dive vessel owned by the first respondent (Dive Two) collided with a fishing boat driven by Mr Lane. The dive vessel was being navigated by the second respondent (Mr Todd), the sole director of Dive Two. The collision occurred on the Myall River near Winda Woppa. Mr Lane was seriously injured. He brought proceedings for negligence against Dive Two and Mr Todd. Those proceedings were settled. Dive Two and Mr Todd sought an indemnity against their liability to Mr Lane under a contract of insurance between Dive Two and the third respondent (Liberty).

That insurance had been arranged by the appellant insurance broker (Horsell). Dive Two was a member of the Professional Association of Diving Instructors. PADI Asia Pacific Pty Ltd (PADI Asia Pacific) is a company formed to provide services to the members of that association. It made an arrangement with Horsell which permitted Horsell to promote and market insurance products to members of the association. Pursuant to that arrangement Horsell promoted and marketed what was described as the "PADI Asia Pacific Watertight Liability Insurance Programme".

That insurance was effected with Liberty, which issued a policy described as a "Master Combined General & Products & Professional Liability, Claims Made and Notified" policy. That policy named PADI Asia Pacific and "individual members, dive centers and resorts and others as agreed" as insured. Horsell as "scheme insurance manager" issued certificates of insurance to individual members who required insurance. Those certificates evidenced a contract of insurance between Liberty and the member on the terms of the master policy. The insurance in question was for the period from 1 October 2005 to 30 September 2006.

Dive Two and Mr Todd sought an indemnity from Liberty under insuring clause 1 in Sections A & B of the policy. That clause provided:

"... [Liberty] will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay by way of compensation as a result of a Claim(s) both first made against the Insured and notified to [Liberty] during the Period of Insurance for Injury and/or Damage in connection with the Insured's Business."

The "Insured's Business" was described in the schedule to the master policy as "defined in the policy wording under 'Scuba Diving'". The definition of "Scuba Diving" is extracted by McColl JA at [57]. Dive Two was described in the certificate issued by Horsell as a member of the association in the category known as "DiveStore".

Mr Todd also relied on cl 3.1 which extended the benefit of the insuring clause to:

"3.1 Any Director, Executive Officer or Worker of the Insured, ... but only while acting within the scope of their duties in such capacity and excluding Instructors, Assistant Instructors, and Dive Masters working for a store unless otherwise agreed."

The primary judge dismissed the claims of Dive Two and Mr Todd to an indemnity and upheld their alternative claim against Horsell for damages for negligence: Rian Lane v Divetwo Pty Ltd [2012] NSWSC 104. Her Honour rejected their claim under the policy on the basis that it only indemnified in respect of Dive Two's liability to pay compensation for injury or damage occurring "in connection with" its business of "Scuba Diving". The primary judge held that, at the time of the accident, Mr Todd was navigating the dive vessel in the company of his wife and four friends on a private pleasure trip and not for any purpose connected with the conduct of Dive Two's business. That conclusion was sufficient to defeat each of their claims. In addition, Mr Todd was not within cl 3.1 because at the time of the accident he was not acting in his capacity as a director of Dive Two.

Liberty also argued that it was not liable because of the operation of cl 7.24. That clause excluded from the cover provided by cl 1 liability "directly or indirectly caused by or arising out of ... any alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the Insured". Horsell supported Liberty's argument in relation to the operation of that exclusion. It did so because it was accepted before the primary judge that if this exclusion had applied Dive Two and Mr Todd could not recover damages from Horsell for negligence. That involved a concession by Dive Two and Mr Todd that in the performance of its duty of care Horsell could have arranged cover which extended to non-business use of the dive vessel and included an exclusion to the effect of cl 7.24.

The primary judge held that this exclusion did not apply because the words "criminal act or omission" referred only to a criminal act or omission which was intentional. Although Mr Todd had pleaded guilty to the offence of "dangerous navigation", it was not an element of that offence that he intended the collision or intended that Mr Lane suffer any harm. His conduct, "although criminal and having serious consequences, was not intentional": [142].

Finally, the primary judge held that Horsell was negligent in failing to advise Dive Two and Mr Todd that the so called "Watertight" policy only covered activities using the dive vessel which were undertaken in the course of Dive Two's dive instruction business. Had Mr Todd received such advice he would have taken out public liability insurance for the relevant period to cover non-business activities of the vessel: [182], [188].

Issues in the appeal

There are three issues in the appeal. They concern the construction and operation of the insuring clause, the construction and operation of exclusion clause 7.24 and whether Horsell was liable in negligence for failing to advise Dive Two and Mr Todd that the policy did not cover all activities of the dive vessel.

Horsell challenges the primary judge's conclusion as to the construction and operation of the insuring clause (grounds of appeal 1, 2 and 5) and her Honour's findings that it was negligent (ground of appeal 6) and that its negligence caused loss (ground of appeal 7). It also challenges the holding that exclusion clause 7.24 did not apply (ground of appeal 8). Horsell was granted leave to rely on that ground at the commencement of the hearing of the appeal. At that time the operation of the exclusion clause was already raised as an issue by Liberty's notice of contention, which sought to support the primary judge's conclusion that it was not liable on the additional basis that the exclusion applied.

By their cross-appeal, Dive Two and Mr Todd also challenge the primary judge's conclusion as to the construction and operation of the insuring clause (grounds of cross-appeal 1(a), (b) and (e) and 2(b), (c), (f), (g) and (h)). They do so against the possibility that Horsell's appeal in respect of that issue is successful, in which event they argue that, subject to the application of the exclusion clause, they are entitled to judgment against Liberty. They also do so against the possibility that Horsell's challenge to the finding of negligence against it is otherwise successful.

It is convenient to deal with these issues in the order in which they arise: the construction and operation of the insuring clause, the construction and application of the exclusion and the question of Horsell's negligence.

Construction and application of the insuring clause

The directly relevant provisions of the policy are the insuring clause, the reference to the "Insured's Business" in the schedule and the definition of "Scuba Diving" in cl 2.11.

Before considering these provisions, it is necessary to record the primary judge's findings as to the circumstances in which Mr Lane was injured. Her Honour's relevant findings were as follows. Mr Todd picked up his wife and two other couples shortly after 1.20pm on 29 July 2006 and took them on a sightseeing tour along the Myall River. He had spent the morning with two separate groups of divers. Those earlier activities were undoubtedly part of Dive Two's dive instruction business. The trip along the river was a recreational one for purposes not connected with that business. The primary judge rejected Dive Two's case that the or an express purpose of the trip was to thank Mr Todd's guests for business already referred to the business or to promote the business to them. Her Honour found that the true position was, as Mr Todd told the police following the accident, that the vessel "was being used in a recreational activity": [80], [90].

In my view the primary judge did not err in construing the insuring clause as requiring that the injury or damage which is the subject of the liability to pay compensation against which an indemnity is sought, must be or happen "in connection with" the insured's scuba diving business activities. Those activities at least include activities within the definition of "Scuba Diving" provided they are undertaken in the conduct of that business: esp at [66]-[68]. It is not necessary to decide in this case whether they would also include activities which, whilst not so described, are incidental to the business being undertaken.

The meaning to be given to the insuring clause is that which reasonable persons in the position of the parties would be taken to have intended, giving primacy to the language they have used and taking into account the context in which the agreement was made. Here that context includes, as was stated in the marketing and information brochure distributed in relation to the insurance, that it had been "designed exclusively" to cover the activities of the dive centre and resort member categories of the association.

The promise made is to indemnify against sums which an insured is legally liable to pay "by way of compensation". The requirement that the insured become legally liable "as a result of" a Claim first made against the insured and notified to Liberty during the period of insurance describes the event which must occur during the policy period so as to attract cover. The insuring clause concludes with two phrases: "for Injury and/or Damage" and "in connection with the Insured's Business". The second, which is the critical provision in this case, qualifies the first and requires that there be a connection between the "Injury and/or Damage" and the "Insured's Business". The use of the preposition "for" to introduce the first suggests that read together they qualify "compensation" rather than "Claim(s)". So understood, the insuring clause relevantly indemnifies against legal liability to pay compensation for personal injury happening in connection with the "Insured's Business".

The purpose of the requirement for the connection between the injury or damage and the "Insured's Business" is to define and limit the scope of the activities of the insured which are the subject of the liability insurance. As the authors of Derrington and Ashton, The Law of Liability Insurance 2nd ed (2005) Lexis Nexis observe at 8-235:

"... it is common for the policy to limit the scope of the activities of the insured for which indemnity will be provided, and it then becomes necessary to determine the scope of the liability that is covered in this way and whether the liability of the insured comes within the limits of that scope. Plainly, such a limitation is justified since the insurer's assessment of the risk and, if cover is provided, of the rate of premium, is made on its understanding of the nature of the business which the proposal specifies. This limitation may relate to a particular business, to particular activities of it, or even a particular venture of a business, or to the performance of a particular contract between the insured parties ...".

The first letters in the expression "Insured's Business" are capitalised to indicate that the expression is further defined or explained elsewhere in the policy. In addition, each of the words in that expression has an ordinary meaning. A "business" refers to activities conducted in some organised fashion directed to an identified end, which is usually the making of a profit. The Schedule to the master policy states that "Insured's Business" is "As defined under 'Scuba Diving'". In that statement "Business" is used in its ordinary sense and "Insured's" refers to the specific insured covered under the master policy. When the definition is applied, the statement in the Schedule is that the insured's business is Scuba Diving which principally incorporates "class and water based learning activities and modules ..." and includes "all activities relating to snorkelling, skin diving, swimming, recreational surface supplied air, ...".

When those activities are undertaken by the insured as part of its business, liabilities for injury or damage happening in connection with them are covered under the insuring clause. The activities in which Mr Todd was involved on the afternoon of 29 July 2006 did not answer that description because they were not undertaken in the course of, or as part of, Dive Two's business.

The construction contended for by Horsell and Dive Two requires that the definition of "Scuba Diving" be substituted for the words "Insured's Business" in the insuring clause so as to require only that there be a connection between an activity within that definition and the injury or damage which is the subject of the liability of the insured to pay compensation. On that basis it is argued that there was a sufficient connection between the injuries sustained by Mr Lane and "Scuba Diving" because the boat was being used for, among other things, sight-seeing. That construction treats the definition of "Scuba Diving" as being of the expression "Insured's Business", that expression being used only as a label. However, as the above analysis shows, the expression "Insured's Business" is not used as a label which is to be replaced in the insuring clause with the definition of "Scuba Diving". Each of the words in the expression "Insured's Business" has its ordinary meaning and the defined term, "Scuba Diving", is used to describe in detail the activities which are agreed to be within the insured's business of "Scuba Diving".

The primary judge correctly rejected the arguments of Dive Two and Horsell concerning the application of the insuring clause.

Construction and application of exclusion clause 7.24

At the commencement of the hearing of the appeal, Horsell sought and was granted leave to amend its notice of appeal to challenge the primary judge's conclusion as to the operation of this exclusion. Dive Two and Mr Todd opposed that application. However, because the case at trial was conducted on the basis recorded by the primary judge at [115], and the issue was already raised by Liberty's notice of contention, Horsell was permitted to argue that the primary judge erred in concluding that the exclusion did not apply.

The relevant part of cl 7.24 is set out above. It excludes from the indemnity liability arising out of or in any way connected with any "alleged or actual" act or omission which is "fraudulent, dishonest, malicious, wilful or criminal". The primary judge, applying similar reasoning to that adopted by Hope and Priestley JJA in Australian Aviation Underwriting Pty Ltd v Henry (1988) 12 NSWLR 121, construed the adjective "criminal" as referring only to an intentional or conscious act or omission, the doing of which constituted a crime. Her Honour reasoned:

"[145] What each of the other words in cl 7.24 has in common is intention. Although an act may be criminal without any intent at all, criminal acts, like torts, can be classified as intentional or otherwise. The term 'criminal acts' is broad, and, in a sense, arbitrary since it depends on legislative choice and may cover acts of considerable seriousness or relatively trivial infringements without any requirement of intention. Because the words 'criminal act' appear at the end of a list where the preceding words have in common an element of intention, I consider that they should be read down to include only those criminal acts that are intentional."

As her Honour observed, that conclusion was not inconsistent with this Court's later decision in Xerri v Kingmill Pty Ltd (1998) 25 MVR 569 because the exclusion clause in that case applied in the event that the motor vehicle was "used or driven in contravention of the provisions of the Motor Traffic Act". Here the operation of the exclusion does not turn upon whether there has been a contravention of a statute or the commission of an offence but rather, as was also the position in Henry, it turns upon whether the liability arises or is connected with the doing of a "criminal" act.

The elements of the offence of dangerous navigation under s 52B(3) of the Crimes Act 1900 are navigating a vessel in a manner which is dangerous to another person or persons and an impact with another vessel or person or object which causes grievous bodily harm to a person. The offence is one of "strict liability" in the sense that the culpability of the offender lies not in having intended the results of his or her action, but in having navigated a vessel, which is involved in an "impact occasioning grievous bodily harm", at a speed or in a manner dangerous to another person or persons. Whether navigation of a vessel answers that description is to be determined objectively and by reference to whether in the circumstances the act of navigating was in a real sense potentially dangerous to another person or persons: McBride v The Queen [1966] HCA 22; 115 CLR 44 at 49-50 per Barwick CJ; King v The Queen [2012] HCA 24; 245 CLR 588 at [32]-[33] per French CJ, Crennan and Kiefel JJ. Although negligence may, and in many cases will, underlie the offence of dangerous navigation, it is not an element of the offence and a person may navigate with care and skill and yet still navigate dangerously: King at [38].

As I have already noted, the primary judge found at [142] that there was no suggestion in the evidence that Mr Todd had intended the collision or to harm or injure Mr Lane. Her Honour concluded that his conduct "although criminal and having serious consequences, was not intentional". It followed that cl 7.24 did not apply: [149]. I agree with that conclusion.

The question of construction concerns the meaning of the adjective "criminal" when used in this exclusion clause. As each of the judgments in Henry recognises, unless read down the description "criminal act" is capable of referring to any act involving a breach of the law to which is attached penal sanctions enforceable by court proceedings. Such acts may not involve any conscious or intentional conduct or conduct which ordinary persons would regard as criminal in the sense that it constitutes serious wrongdoing deserving of punishment.

There are in my view two principal considerations which support the conclusion that when used in cl 7.24 "criminal act or omission" means an intentional or conscious act the doing of which constitutes a crime. Each of these considerations assists in identifying the meaning which reasonable persons in the position of the parties should be presumed to have intended from the language they have used.

First, the epithet "criminal" is one which, when used to describe conduct, is likely to be understood by ordinary persons to refer to serious misconduct involving as an element some conscious or intentional wrongdoing: Henry at 129-130 per McHugh JA. Here it is used as part of a collection of words to describe conduct which attracts the operation of the exclusion. Each of the other words - "fraudulent, dishonest, malicious, wilful" - describes a state of mind which must accompany the relevant act or omission. In relation to each that state of mind is one involving intentional or conscious conduct directed to a specific end or having a particular quality. In addition, the meanings conveyed by some of those words and "criminal", understood as describing conscious or intentional wrongdoing, overlap, indicating that when used in this collection of words it is to be understood in that sense.

Secondly, the purpose of the liability cover provided by Sections A & B of the master policy is to indemnify an insured against liability to its clients and others for acts of negligence and inadvertence which occur in the course of the conduct of its business in so far as it relates to scuba diving and related activities. In that context the parties should not be presumed, in the absence of clear words, to have intended to exclude from cover conduct which, whilst resulting in serious injuries, involves acts of negligence or inadvertence. For that reason where there is more than one available meaning or, as in this case, means of reading a provision down, the one to be preferred is that which gives the policy a sensible interpretation taking into account the purposes it was intended to secure: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 at [22]; CGU Insurance Ltd v Porthouse [2008] HCA 30; 235 CLR 103 at [43]. An example of the application of this principle is to be found in Fraser v BN Furman (Productions) Ltd, Miller Smith & Partners (A Firm) Third Party [1967] 1 WLR 898 at 905. There, a condition requiring that the insured "take reasonable precautions" was read down and as requiring only that the insured avoid recklessness. That decision has been applied on a number of occasions, including by this Court in Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 and Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226.

For these reasons in my view the primary judge did not err in concluding that cl 7.24 would not have applied, in the circumstances in which Mr Lane was injured, to exclude any obligation to indemnify Dive Two and Mr Todd.

Breach of duty and negligence of Horsell

Horsell had arranged the business liability insurance of Dive Two under the Watertight policy from 31 December 2002. In March 2003 it also arranged insurance of the dive vessel. At the time that insurance was arranged Mr Todd was advised by Horsell that it had not quoted liability cover for the vessel as the "PADI Watertight Policy provides coverage for Liability for vessels up to 12 metres in length for activities associated with Diving, Swimming, Sight-seeing, Whale Watching and Fishing". That statement was not qualified so as to make clear that the liability cover only applied if those activities were conducted as part of the business of the insured under that policy. That hull insurance was renewed through Horsell for periods to 30 September 2006.

Unqualified statements to the same effect were made by Horsell in the marketing brochure which preceded the renewal of the Watertight policy in each of the years after 2002. Under the heading "Public and Products Liability", that brochure described the cover as including liability "for bodily injury or damage to property as a result of an occurrence during the period of insurance" and as extending to "Liability of water craft up to 12 metres in length". In addition, under the heading "Common Questions" the question whether the policy covered "the liability of the dive boats we own and operate" was answered: "Only if the vessel is under 12 metres in length. Most boat policies have a separate liability coverage. Horsell International can arrange insurance for vessels over 12 metres in length".

Dive Two's vessel was less than 12 metres in length and Mr Todd gave evidence that he thought it was covered under the Watertight policy provided that he used it for activities which included swimming and sight-seeing. He did not understand that those activities excluded activities not undertaken in the course of Dive Two's business.

In these circumstances I agree, for the reasons given by the primary judge and McColl JA, that Horsell was negligent in not making clear to Dive Two and Mr Todd that the liability insurance which had been arranged did not extend to liability arising from recreational activities not engaged in as part of Dive Two's business. The primary judge found that had Mr Todd received advice to that effect he would have taken out public liability insurance to cover the non-business activities of the dive vessel: [188]. The challenge to that finding, although made by ground of appeal 7, was not the subject of written or oral submissions. The finding was justified on the evidence which included that prior to March 2003 Mr Todd had arranged, through a separate broker, hull and liability insurance of the vessel.

Horsell's appeal and the cross-appeal of Dive Two and Mr Todd should be dismissed. In circumstances where that cross-appeal was brought as a reasonable and necessary response to Horsell's appeal, and that appeal has been unsuccessful, it is my view that Horsell should pay the costs of all of the other parties (Dive Two, Mr Todd and Liberty) of the appeal and cross-appeal. Accordingly I agree with the orders proposed by McColl JA.

**********

Decision last updated: 01 November 2013

Medium Neutral Citation:	Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368
Hearing dates:	18 March 2013
Decision date:	01 November 2013
Before:	Beazley P at [1]; McColl JA at [2]; Meagher JA at [244]
Decision:	(1) Confirm the leave given to Horsell on 18 March 2013 to amend the amended notice of appeal to include ground 8 in terms of the further amended notice of appeal. (2) Appeal and cross-appeal dismissed. (3) Appellant pay the costs of the respondents (Dive Two, Mr Todd and Liberty) of the appeal and cross-appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	INSURANCE - construction of insurance policy - insuring clause - whether first and second respondents entitled to indemnity from third respondent - policy cover for claims arising "in connection with the Insured's Business" - injury and damage caused during recreational boat trip - whether trip in connection with insured's business INSURANCE - construction of insurance policy - exclusion clause - dangerous navigation - Crimes Act 1900 s 52B - whether second respondent's conduct "criminal act or omission" for purposes of exclusion clause - whether act needs to be intentional NEGLIGENCE - insurance broker - duty of care - retainer - whether insurance broker failed to advise of deficiencies in policy
Legislation Cited:	Civil Liability Act 2002 Crimes Act 1900 Crimes Act 1958 (Vic) Insurance Contracts Act 1984 (Cth) Motor Traffic Act 1909
Cases Cited:	Australian Associated Motor Insurers Ltd v Wright (1997) 70 SASR 110 Australian Aviation Underwriting Pty Limited v Henry (1988) 12 NSWLR 121 Australian Breeders Co-Operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 BHP Billiton Iron Ore Pty Ltd v National Competition Council [2008] HCA 45; (2008) 236 CLR 145 Burrows v Rhodes [1899] 1 QB 816 Caldwell v JA Neilson Investments Pty Ltd [2007] NSWCA 3; (2007) 69 NSWLR 120 CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 Charter Reinsurance Co Ltd v Fagan [1997] AC 313 Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 Elkateb v Lawindi (1997) 42 NSWLR 396 Fanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57 Fire and All Risks Insurance Co Ltd v Powell [1966] VR 513 Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898; [1967] 2 Lloyd's Rep 1 Fraser v The Irish Restaurant & Bar Company Pty Ltd [2008] QCA 270 Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Ins Cas ¶61-012 Gibb v Commissioner of Taxation (Cth) [1966] HCA 74; (1966) 118 CLR 628 Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387 Ground Gilbey Ltd v Jardine Lloyd Thompson UK Ltd [2011] EWHC 124 Halford v Price [1960] HCA 38; (1960) 105 CLR 23 Hatfield v Health Insurance Commission (1987) 15 FCR 487 HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553 James v British General Insurance Co Ltd [1927] 2 KB 311 Jiminez v The Queen [1992] HCA 14; (1992) 173 CLR 572 Johnson v American Home Assurance Company [1998] HCA 14; (1998) 192 CLR 266 Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216 King v The Queen [2012] HCA 24; (2012) 245 CLR 588 Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; (2010) 241 CLR 390 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 McBride v The Queen [1966] HCA 22; (1966) 115 CLR 44 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690 Mersey Docks and Harbour Board v Henderson Brothers (1888) 13 App Cas 595 Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556 Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad [1989] HCA 32; (1989) 167 CLR 219 Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149 QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 R v Brown [1996] 2 WLR 203; [1996] 1 All ER 545 R v Coventry [1938] HCA 31; (1938) 59 CLR 633 R v De Montero [2009] VSCA 255; (2009) 25 VR 694 R v Jurisic (1998) 45 NSWLR 209 R v Khazaal [2012] HCA 26; (2012) 86 ALJR 884 R v Orcher [1999] NSWCCA 356; (1999) 48 NSWLR 273 R v Reynolds [2010] NSWSC 691 R v Warner (1991) 25 NSWLR 382 RAA-GIO Insurance Ltd v O'Halloran [2007] HCATrans 688 RAA-GIO Insurance Ltd v O'Halloran; Australian Kitchen Industries Pty Ltd v O'Halloran [2007] SASC 245; (2007) 98 SASR 123 Ramco Ltd v Weller Russell & Laws Insurance Brokers Ltd [2008] EWHC 2202 (QB); [2009] Lloyds Rep IR 27 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 Selected Seeds Pty Ltd v QBEMM Pty Ltd [2010] HCA 37; (2010) 242 CLR 336 Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236 Sydney Local Health Network v QY [2011] NSWCA 412 Taciak v Commissioner of Australian Federal Police (1995) 59 FCR 285 Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 Thomas v State of New South Wales [2008] NSWCA 316 Tinline v White Cross Insurance Association Ltd [1921] 3 KB 327 Transfield Services (Australia) Pty Ltd v Hall; Hall v QBE Insurance (Australia) Pty Ltd [2008] NSWCA 294; (2008) 75 NSWLR 12 Vero Insurance Ltd v Australian Prestressing Services Pty Ltd [2013] NSWCA 181 Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226 Watts v Perry [1972] 1 NSWLR 73 Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 Xerri v Kingmill Pty Ltd [1998] NSWSC 573; (1998) 25 MVR 569 Y.Z. Finance Co Pty Ltd v Cummings [1964] HCA 12; (1964) 109 CLR 395
Texts Cited:	D Derrington and R Ashton, Law of Liability Insurance, 2nd ed (2005) LexisNexis Butterworths K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012) Thomson Reuters (Professional) Australia Limited K Sutton, Insurance Law in Australia, 3rd ed (1999) LBC Information Services Second Reading Speech for the Crimes (Dangerous Driving) Bill, Victorian Legislative Assembly, Parliamentary Debates (Hansard), 3 June 2004 Second Reading Speech of the Hon Michael Egan MLC, Criminal Legislation Further Amendment Bill, New South Wales Legislative Council, Parliamentary Debates (Hansard), 17 April 1996
Category:	Principal judgment
Parties:	Horsell International Pty Ltd - Appellant/First Cross-Defendant Divetwo Pty Ltd - First Respondent/Cross-Claimant William Todd - Second Respondent/Cross-Claimant Liberty Mutual Insurance Co - Third Respondent/Second Cross-Defendant
Representation:	Counsel: S Donaldson SC with G M Drew - Appellant Dr C J Birch SC with P Lowson - First and Second Respondents J Sexton SC with D Macfarlane - Third Respondent Solicitors: Clyde & Co - Appellant Slater & Gordon - First and Second Respondents Riley Gray-Spencer - Third Respondent
File Number(s):	CA 2012/73365
Publication restriction:	No
Decision under appeal	Citation: Lane v Dive Two Pty Ltd [2012] NSWSC 104 Date of Decision: 2012-02-24 00:00:00 Before: Adamson J File Number(s): SC 2008/289706

INDEX
BEAZLEY P:	1
McCOLL JA:	2
Statement of the case	7
BACKGROUND	14
Dive Two and the PADI Asia Pacific Watertight Liability Insurance Programme	14
Insurance contracts entered into by Dive Two/Mr Todd	24
(a) The Watertight Policy	24
(b) Hull insurance	35
Summary: policies held	43
Events following 2003	45
The Master Policy	53
THE PRIMARY JUDGMENT	64
Was the Claim Covered under the Policy's Insuring Clause?	64
Was the Claim Excluded by Reason of Exclusion Clause 7.24?	77
Was Horsell Liable for Breach of Contract or Negligence?	81
ISSUES ON APPEAL	97
SUBMISSIONS	101
Horsell's submissions: construction of the Policy (grounds 1 and 2)	101
Dive Two's submissions: construction of the Policy (grounds 1 and 2)	109
Liberty's submissions: construction of the Policy (grounds 1 and 2)	112
Liberty's submissions: construction of clause 7.24	112
Dive Two's submissions: construction of clause 7.24	122
Horsell's submissions: retainer/duty issue (grounds 6 and 7)	129
Dive Two's submissions: retainer/duty issue (grounds 6 and 7)	135
CONSTRUCTION OF THE POLICY	151
General principles	151
The insuring clause	158
Ambit of the appeal on the exclusion clause issue	179
Operation of the exclusion clause	191
The nature of the offence of dangerous navigation	193
The decisions in Henry and Xerri	204
Conclusion: operation of clause 7.24	219
LIABILITY OF HORSELL	231
Relationship between Horsell and Dive Two	232
Duty of an insurance broker	234
ORDERS	242
MEAGHER JA:	243
Issues in the appeal	252
Construction and application of the insuring clause	256
Construction and application of exclusion clause 7.24	266
Breach of duty and negligence of Horsell	276