Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets
[2020] FCA 1493
•19 October 2020
FEDERAL COURT OF AUSTRALIA
Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493
File number: VID 781 of 2019 Judge: LEE J Date of judgment: 19 October 2020 Catchwords: INSURANCE – claims for indemnity by construction company under two insurance policies in relation to structural damage to Opal Tower – where applicant declared construction contracts commenced during period of insurance – where incident occurred after practical completion of project but during defects liability period – whether applicant’s declaration of project under first policy engaged “run off” cover during defects liability period – whether first insurer precluded from denying indemnity by operation of s 58 of Insurance Contracts Act 1984 (Cth) – rectification – whether first policy should be rectified – whether Opal Tower and/or its constituent parts constitute a “Product” as defined in second policy
INSURANCE – whether endorsement to policy of insurance is a project-specific policy of insurance – whether such endorsements are “usual to renew” – whether s 58 of Insurance Contracts Act 1984 (Cth) engaged
CONTRACTS – construction of policies of insurance – consideration of relevant principles – consideration of permissible resort to extrinsic materials in interpretation of insurance policy – consideration of “true rule” stated in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 – where majority of evidence adduced irrelevant to disposition of contract claim – consideration of distinction between enquiries in claim in contract and claim of rectification
EQUITY – rectification – consideration of relevant principles – whether parties held common intention that policy was to provide cover during defects liability period – where each party engaged an agent – consideration of principles of attribution of intention of agents to principals in context of rectification – whether permissible to have resort to ostensible authority in context of rectification
EVIDENCE - where first respondent insurer did not call evidence from representatives of their agent - whether Jones v Dunkel inference should be drawn
Legislation: Competition and Consumer Act (2010) (Cth) ss 2, 8, Sch 2
Evidence Act 1995 (Cth) s 140
Insurance Contracts Act 1984 (Cth) ss 11, 54, 58
Cases cited: Andar Transport Pty Limited v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424
Ankar Pty Limited v National Westminster Finance Australia Limited (1987) 162 CLR 549
Antico v Heath Fielding Australia PtyLtd (1997) 188 CLR 652
Ashcroft v Barnsdale [2010] EWHC 1948 (Ch)
Aspen Insurance UK Ltd v Adana Construction Ltd [2015] EWCA Civ 176
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Australian Casualty Co Ltd v Federico (1985) 160 CLR 513
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Beefeater Sales International Pty Ltd v MIS Funding No 1 Pty Ltd [2016] NSWCA 217
Bigby v Kondra [2017] QSC 37
Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429
BP Plc v GE Frankona Reinsurance Ltd [2003] EWHC 344
Brambles Holdings Ltd v Carey (1976) 15 SASR 270
Brandi v Mingot (1976) 12 ALR 551
Bush v National Australia Bank Ltd (1992) 35 NSWLR 390
CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11; (2017) 55 VR 62
C.E. Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535
Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101
Cherry v Steele-Park [2017] NSWCA 295; (2017) 96 NSWLR 548
Chong v CC Containers Pty Ltd [2015] VSCA 137; (2015) 49 VR 402
Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; (2001) 3 VR 526
Codelfa Construction Pty Ltd v State Rail Authorityof New South Wales (1982) 149 CLR 337
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust [2019] FCAFC 226
Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421
Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662
Director of Public Prosecutions (Cth) v Thomas [2016] VSCA 237; (2016) 53 VR 546
Earl v Hector Whaling Ltd [1961] 1 Lloyd’s Rep 459
El-Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 14; (2014) 251 CLR 640
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
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Fairfax Media Publications Pty Ltd v Gayle [2019] NSWCA 172; (2019) 100 NSWLR 155
Fowler v Fowler (1859) 4 De G & J 250
Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
GE Capital Finance Australasia Pty Ltd v Federal Commissioner of Taxation [2011] FCA 849; (2011) 219 FCR 420
Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560
GPI Leisure Corp Ltd v Herdsman Investments Pty Ltd (No 4) (1990) 9 BPR 17,461
Halford v Price (1960) 105 CLR 23
Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 87 NSWLR 609
Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2011] EWHC 503 (Ch)
Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2012] EWCA Civ 55
HL Bolton (Engineering) Company Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159
Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280; (2005) ATC 4,986
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151
Jones v Dunkel (1959) 101 CLR 298
Joscelyne v Nissen [1970] 2 QB 86
Kelly-Dempsey & Co v Century Indemnity Co 77 F 2d 85 (10 Cir. 1935 – liability)
Krakowski v Eurolynx Properties Limited (1995) 183 CLR 563
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361
Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390
Lennard’s Carrying Company Ltd v Asiatic Petroleum Company Ltd [1915] AC 705
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd[2006] FCAFC 144; (2006) 156 FCR 1
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33; (2014) 252 CLR 590
Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119
MBF Investments Pty Ltd v Nolan [2011] VSCA 114; (2011) 5 BFRA 586
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
Mealey v Power [2015] NSWSC 1678
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500
Metlife Insurance Ltd v Visy Board Pty Ltd [2007] NSWSC 1481
Metricon Homes Pty Ltd v Great Lakes Insurance SE [2017] VSC 749
Mobis Parts Australia Pty Ltd v XL Insurance Co SE (No 7) [2017] NSWSC 1321
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Muriti v Prendergast [2005] NSWSC 281
NIML Ltd v MAN Financial Australia Ltd [2006] VSCA 128; (2006) 15 VR 156
Obeid v Lockley [2018] NSWCA 71; (2018) 98 NSWLR 258
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Perpetual Ltd v Myer Pty Ltd [2018] VSC 2
Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98
Pukallus v Cameron (1982) 180 CLR 447
QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166
Racal Group Services v Ashmore [1995] STC 1151
Rava v Logan Wines Pty Ltd [2007] NSWCA 62
R v MAP [2006] QCA 220
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
Seymour Whyte Constructions [2019] NSWCA 11; (2019) 99 NSWLR 317
Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85
Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; (2014) 314 ALR 166
Tesco Supermarkets Ltd v Nattrass [1972] AC 153
Thiess Pty Ltd v Arup Pty Ltd [2012] QSC 185
Thiess Pty Ltd v FLMIDTH Minerals Pty Ltd [2010] QSC 6
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Todd v Alterra at Lloyds Ltd [2016] FCAFC 15; (2016) 239 FCR 12
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Macquarie Dictionary (7th ed, 2017)
Date of hearing: 25, 26, 27, 28 and 29 May 2020 Date of last submissions: 12 June 2020 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 315 Counsel for the Applicant: Mr J Slattery SC with Ms J Collins Solicitor for the Applicant: K & L Gates Counsel for the First Respondent: Mr C Caleo QC with Ms G Crafti Solicitor for the First Respondent: Lander & Rogers Counsel for the Second Respondent: Mr S Donaldson SC with Ms N Oreb Solicitor for the Second Respondent: Barry.Nilsson. ORDERS
VID 781 of 2019 BETWEEN: ICON CO (NSW) PTY LTD
Applicant
AND: LIBERTY MUTUAL INSURANCE COMPANY AUSTRALIAN BRANCH TRADING AS LIBERTY SPECIALTY MARKETS
First Respondent
QBE UNDERWRITING LIMITED AS MANAGING AGENT FOR UNDERWRITING MEMBERS OF LLOYD'S SYNDICATES 386 AND 299
Second Respondent
JUDGE:
LEE J
DATE OF ORDER:
19 OCTOBER 2020
THE COURT ORDERS THAT:
1.The parties provide to the Associate to Justice Lee agreed short minutes of order reflecting these reasons (or, failing agreement, competing short minutes of order and submissions limited to two pages) within seven days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
LEE J:
A INTRODUCTION
[1]
B FACTUAL BACKGROUND
[11]
B.1 Dealings between Liberty and the Icon Group
[12]
B.2 The Liberty Policy
[23]
B.3 Notification of the Project
[29]
B.4 The 2017/18 Policy
[37]
B.5 The QBE Policy
[39]
B.6 Construction and completion of the Opal Tower
[40]
C FACTUAL AND LEGAL ISSUES FOR DETERMINATION
[42]
D THE CLAIMS AGAINST LIBERTY
[43]
D.1 Further factual background: the dealings between the parties
[43]
Evidence of the construction insurance market
[45]
The parties’ use of endorsements
[47]
E RUN OFF CLAIM
[50]
E.1 Did the Opal Declaration meet the requirements of Condition 15?
[52]
Relevant legal principles
[53]
The Liberty Policy in its terms
[65]
Extrinsic materials of surrounding circumstances
[75]
The construction insurance market
[77]
The parties’ use of endorsements
[81]
The calculation of premium
[85]
Contra proferentum
[88]
Conclusion
[90]
E.2 If Icon did not comply with Condition 15 by reason of an omission to use some precise form of wording, is Liberty precluded from denying indemnity on that basis by operation of s 54 of the ICA?
[91]
E.3 Conclusion on the Run Off Claim
[95]
F STATUTORY EXTENSION OF COVERAGE CLAIM
[96]
F.1. Was there a project-specific insurance policy, separate from the Liberty Policy, for the Project?
[98]
F.2. If the answer is yes, was that project-specific insurance policy cover ‘of a kind that it is usual to renew or for the renewal of which it is usual to negotiate’?
[102]
F.3 Conclusion on the Statutory Extension of Coverage Claim
[106]
G RECTIFICATION CLAIM
[107]
G.1 Relief sought
[107]
G.2 Legal principles
[111]
General principles of rectification
[111]
Proof necessary for rectification
[114]
G.3 Whose intention is relevant?
[119]
Legal principles
[120]
Icon and Austbrokers
[123]
The evidence
[123]
Conclusion as to attribution of intention to Icon
[130]
Liberty and Chase
[134]
The evidence
[134]
What was the scope of Chase’s actual authority?
[143]
Is it permissible to have resort to ostensible authority?
[147]
Chase also had ostensible authority
[153]
Mr Hingston’s intention
[157]
G.4 The evidence of intention
[160]
Evidence as to Mr O’Reilly’s intention
[163]
Evidence as to Chase’s intention
[180]
Evidence as to Mr Hingston’s intention
[188]
G.5 Consideration: was there a common “Contracts Commencing Intention”?
[204]
Mr O’Reilly
[207]
Chase
[229]
Mr Hingston
[237]
Jones v Dunkel and Mr Burgess
[250]
The evidence of communications with Chase representatives
[251]
Legal principles
[258]
Should the inference be drawn?
[259]
G.6 Was the “Contracts Commencing Intention” communicated between Icon/Austbrokers and Chase/Liberty?
[266]
G.7 Did the Annexure “A” Endorsement reflect the common intention of Icon/Austbrokers and Chase/Liberty at the commencement of the Liberty Policy?
[271]
G.8 Conclusion on the Rectification Claim
[278]
H CONCLUSIONS ON THE CLAIMS AGAINST LIBERTY
[279]
I THE CLAIM AGAINST QBE
[280]
I.1 The QBE Policy
[283]
I.2 Icon’s evidence
[287]
I.3 Summary of the competing contentions
[291]
I.4 Consideration
[301]
I.5 Conclusion on the claim against QBE
[314]
J CONCLUSIONS AND ORDERS
[315]
ANNEXURE A
A INTRODUCTION
The applicant in this proceeding, Icon Co (NSW) Pty Ltd (Icon), is a construction company, and one of a number of companies that comprise the “Icon Construction Group” (Icon Group).
In October 2015, Icon entered into a contract to design and build a 37-storey high rise mixed residential and commercial development known as the Opal Tower at Sydney Olympic Park (Opal Tower Contract). The Opal Tower comprises 392 residential apartments, retail and commercial spaces on the ground level and a three-storey underground car park (Project). On any view of it, it was a very substantial endeavour: the value of the Opal Tower Contract was $154,707,111 plus GST.
Building commenced on 16 November 2015 and “practical completion” occurred two days ahead of the contracted schedule, on 8 August 2018.
On the night before Christmas in 2018, things were stirring: major cracks were observed at the Opal Tower across three floors in certain wall panels, floor slabs and hobs (Incident). The Incident forced the newly moved-in residents to be evacuated. On Christmas Day, most residents were permitted to return to their apartments, however, those residents were re-evacuated two days later. Icon subsequently re-entered the site and undertook rectification works. Residents were progressively allowed to return to their flats throughout 2019.
Residents of the Opal Tower have made claims against Icon and a class action was commenced in the Supreme Court of New South Wales in July 2019 by certain lot owners of the Opal Tower against the Sydney Olympic Park Authority, which has filed a cross-claim against Icon (2019/00232749 Williamson v Sydney Olympic Park Authority). As at 28 February 2020, Icon had paid out in excess of $31 million as a result of the Incident, including approximately $17 million in property rectification costs, $8.5 million in alternative accommodation costs and $530,000 in legal fees associated with defending the class action.
Icon brings this proceeding against two insurers, the first respondent (Liberty) and the second respondent (QBE), with which it placed third party liability insurance policies through its broker, Austbrokers Countrywide (Austbrokers) in September 2015 and September 2018 respectively. The 2015/16 Liberty policy (Liberty Policy) was in place at the time of the commencement of the Opal Tower Contract. The QBE policy covered the period from 20 September 2018 to 31 December 2018 (QBE Policy). The policies were each placed with the insurers through a specialised construction underwriting agency, Chase Underwriting Pty Ltd (Chase).
Icon seeks declarations designed to progress its claims for indemnity against both Liberty and QBE as both insurers have denied indemnity.
As against Liberty, Icon seeks declarations to the effect that the Incident reflected or was the result of an “Occurrence” within the period of cover of the Liberty Policy. Icon advanced three claims, framed in the alternative, as to why that is so: first, that its notification to Liberty of the Project engaged a provision of the Liberty Policy providing for “run off” cover, thus allowing for the insurance to cover the 12 month defects liability period which followed the contractual time period for the Project, during which the Incident occurred (Run Off Claim); secondly, by operation of s 58 of the Insurance Contracts Act 1984 (Cth) (ICA), Liberty is precluded from denying indemnity for the period during which the Incident occurred (Statutory Extension of Coverage Claim); and thirdly, that the Liberty Policy should be rectified by the addition of an “endorsement” in terms that would entitle it to such cover (Rectification Claim).
As against QBE, Icon seeks declarations to the effect that the Incident reflected or was the result of an “Occurrence” in connexion with a “Product” of Icon within the meaning of the QBE Policy.
It is convenient first to set out the factual background to the proceeding, before identifying and then dealing with disputed factual matters and the legal issues for determination.
B FACTUAL BACKGROUND
I have been greatly assisted by the parties’ joint preparation, in compliance with orders made in advance of the hearing, of a document setting out the agreed factual background (Agreed Facts). The findings that follow in this section are drawn largely from that document.
B.1 Dealings between Liberty and the Icon Group
Between at least 2012 and the end of 2018, Icon and the Icon Group engaged Austbrokers to act as their broker for the purpose of obtaining “Material Damage Contract Works” and “Third Party Liability” insurance for Icon and the Icon Group. The primary contact at Austbrokers was Mr Mark O’Reilly.
Between approximately June 2012 and July 2017, Chase was authorised to act as agent for Liberty in respect of, inter alia, the sale of third party liability insurance for the construction industry. In May 2016, Liberty and Chase executed two agency agreements, one for the period 1 June 2012 to 31 August 2015 (First Agency Agreement), and a second for the period 1 September 2015 to 1 September 2018 (Second Agency Agreement). The First and Second Agency Agreements attached policy wordings for both an annual third party liability policy and for a project specific third party liability policy.
Between September 2012 and September 2017, Icon and Liberty entered into several successive, and relevantly identical, 12 month contracts of third party liability insurance. As noted above, the Liberty Policy was the relevant annual policy to which Icon’s claims against Liberty are concerned, which identified the “Period of Insurance” as 20 September 2015 to 20 September 2016.
Icon did not deal directly with Liberty in relation to its insurance programme; all communications as to the policies were between Austbrokers and Chase. Within Liberty, the person with primary responsibility for Icon’s insurance programme was Mr Daniel Hingston. Mr Hingston was employed by Liberty first as a senior underwriter, and later as Assistant Vice President & Victorian Casualty Manager.
At the outset of the contractual dealing between Liberty and the Icon Group, in September 2012, Austbrokers, on behalf of Icon, issued Chase with a “quotation slip” seeking a quotation for both “contract works” and “liability” policies of insurance. Chase then forwarded the quotation slip to Liberty.
Shortly thereafter, Liberty sent an email to Chase confirming the rates which Chase could offer to Icon for annual third party liability insurance and Chase sent a quotation to Austbrokers in respect of both the “contract works” and “liability” policies of insurance. It was agreed that Chase was acting as agent of Liberty only in respect of the “liability” policy for which it provided a quotation. Chase then sent an email to Austbrokers attaching two separate policy wordings for a “contract works” policy and a “third party liability” policy and then, on 19 September 2012, Austbrokers emailed Chase to confirm that Icon had accepted the “terms”.
During the currency of the annual insurance policies, between September 2012 and September 2017, Austbrokers “notified” Chase, usually by email, of new construction projects in respect of which Icon sought third party liability insurance cover.
In respect of each construction project, Chase then usually provided Austbrokers with what was referred to as an “endorsement”, confirming that cover was in place in respect of each project notified. Such endorsements usually commenced with a statement substantially in the following terms:
IT IS HEREBY NOTED AND AGREED THAT THE ANNUAL THIRD PARTY LIABILITY FLOATER POLICY IS AMENDED TO INCLUDE THE FOLLOWING CONTRACT, WITH AMENDMENTS DETAILED HEREIN. ALL OTHER TERMS CONDITIONS AND LIMITATIONS APPLY AS PER POLICY.
The endorsement then contained various matters describing the project, including an “Estimated Project Period”.
From at least September 2013, and in respect of each subsequent annual policy, Icon paid a deposit premium which was then offset or deducted against the premium payable when projects were declared under the relevant annual policy. This was calculated and charged by reference to the full contract value of each project. Icon contends that this was the case from the outset of the first annual policy in 2012, but Liberty disputes this contention.
Chase always gave notice by letter pursuant to the ICA of the impending expiry of the annual contract works and third party liability policies with the Icon Group.
B.2 The Liberty Policy
On 7 September 2015, in the customary manner by which the parties had previously conducted themselves, Austbrokers sent Chase an email attaching a quotation slip seeking terms for the renewal of the Icon Group’s annual “Material Damage Contract Works” and “Third Party Liability” insurance policies for the period 20 September 2015 to 20 September 2016.
On 16 September 2015, Chase sent Liberty an email, attaching Icon’s quotation slip, seeking approval for Chase to offer Icon third party liability cover on expiring terms.
On 17 September 2015, Mr Hingston sent an email in response to Chase stating that “I confirm agreement to continuation of expiring terms for the 2015-16 period”. Later that day, Chase sent Austbrokers an email attaching a renewal offer, for the period 20 September 2015 to 20 September 2016, for Icon’s annual third party liability insurance policy and for its annual contract works insurance policy. The renewal offer identified that Icon’s annual third party liability insurance policy would be provided by Liberty for that period.
On 18 September 2015, Austbrokers sent Chase an email attaching a “placing slip” to confirm the renewal of both policies for Icon for the period 20 September 2015 to 20 September 2016. Later that day, Chase sent an email to Austbrokers confirming Liberty’s cover for the annual third party liability insurance policy for that period, and the Liberty Policy came into effect.
The “Period of Insurance” is specified in the Schedule to the Liberty Policy as the period from 20 September 2015 4:00pm local standard time to 20 September 2016 4:00pm local standard time, “or any subsequent period for which the Insured has requested and the Insurer(s) has accepted renewal.”
Two conditions of the Liberty Policy are of especial importance to the determination of the issues in the proceeding. They are as follows:
8. Adjustment of Premium
The premium for this Policy is provisional (unless otherwise agreed) and is based on the estimated Turnover for the Period of Insurance. The Insured shall, as soon as practical after the expiry date of this Policy, declare to the Insurer(s) the Turnover during the preceding Period of Insurance.
An adjustment premium shall be determined by calculating the difference between the provisional premium and the sum of the agreed rate applied to the Turnover.
Notwithstanding the above, the maximum allowable return premium will be 25% of the provisional premium paid.
15. Run Off
Subject to written instructions from the Insured to the Insurer(s) prior to expiry of the Period of Insurance, this Policy will continue in full force and effect at terms and conditions prevailing immediately prior to expiry for all incomplete contracts as at date of expiry until completion of those contracts including any testing and/or defects liability and/or maintenance periods.
The Insured is required to provide the Insurer(s) with a list of contracts requiring Run Off and additional premium is to be calculated on expiring rates applied to value of works declared for completion of projects after expiry of the Period of Insurance.
B.3 Notification of the Project
The Opal Tower Contract provided for a defects liability period of 12 months after the date of practical completion, during which time Icon was required to rectify all defects. Clause 17 required Icon to maintain public liability insurance until the issue of the final certificate under the contract, which occurred at the later of various specified events, one of which was within 28 days of the expiry of the defects liability period.
On 2 November 2015, Mr O’Reilly of Austbrokers sent Chase an email notifying it that Icon had been awarded the Opal Tower Contract (Opal Declaration). Mr O’Reilly’s email provided particulars of the contract, relevantly including that: (a) the time period of the build was “notional start date 16th November 2015 to anticipated completion 10th August 2018”; (b) the Project had a defects liability period of 12 months; (c) the Project involved construction of 369 residential apartments over 34 storeys plus 3 levels of basement car parking; and (d) the cost value of the Project was $154,707,111.
Also on that day, Austbrokers sent Icon certificates of insurance, which stated the “Contract Works and Public & Products Liability” insurance had been arranged for the Project for the period of insurance from 16 November 2015 “to Practical Completion estimated at 10th of August 2018 plus 12 months maintenance period”.
On 24 November 2015, Chase sent an email to Liberty informing it that Austbrokers had notified it of the Project “which began on 16 November 2015 and is to be included under the annual (but paid in full now)”. Chase stated in that email that the “contract period” was “16th November 2015 to 10th August 2018” and that the “cost value of the project” was $154,707,111. Chase did not refer to the 12 month defects liability period in that email.
On 9 December 2015, Chase sent Austbrokers an email relevantly informing it that: (a) “cover” was in place for the Project “from 16th November 2015 and ending on 10th August 2018”; (b) that the base premium payable by the Icon Group for “Third Party Liability” insurance cover for the Project was calculated to be $92,050.73 (net) plus charges; (c) that “all other terms and conditions were as per the annual policy”: and (d) that an endorsement would be sent to Austbrokers for its records.
Chase again did not make mention in that email that cover was in place for the additional 12 month defects liability period.
On 22 December 2015, Mr Hingston signed an “endorsement” for the Project (Opal Endorsement) which relevantly stated that:
(a)IT IS HEREBY NOTED AND AGREED THAT THE ANNUAL THIRD PARTY LIABILITY FLOATER POLICY IS AMENDED TO INCLUDE THE FOLLOWING CONTRACT, WITH AMENDMENTS DETAILED HEREIN. ALL OTHER TERMS CONDITIONS AND LIMITATIONS APPLY AS PER POLICY.
(b)the “Estimated Project Period” was “16th November 2015 to 10th August 2018 at 4:00pm local standard time”; and
(c)the “Endorsement Premium Calculation” was based on the “Full Value of Works” of $154,707,111.
The Opal Endorsement was not provided to Austbrokers or Icon.
B.4 The 2017/18 Policy
Although the third party liability policy that Icon entered into in the 2017/18 year (2017/18 Policy) is not directly in issue in that there is no claim made under that policy, it is appropriate to say something about it. The 2017/18 Policy was placed through Chase with a syndicate of underwriters at Lloyd’s rather than Liberty, and, as will become apparent later in these reasons, elements of its terms are said by Icon, for the purposes of the Rectification Claim, to reflect the true bargain it had struck with Liberty when it entered the Liberty Policy in September 2015.
The 2017/18 Policy wording included, for the first time since at least 20 September 2012, endorsement “TPL008 – Contracts Commencing” (Contracts Commencing Endorsement). The Contracts Commencing Endorsement made certain amendments to the policy wordings from previous years. It read as follows:
Endorsement – TPL008
The following Endorsement forms part of the Third Party Liability Policy Number: 438396
Contracts Commencing Amendment to Policy
It is hereby noted and agreed that this Policy is endorsed to include the following amendments:
(A) the Schedule is amended to include:
Construction Period
Maximum Construction Period 24 months any one Contract Including any testing and commissioning period
Maximum Maintenance/ Defects Liability Period 12 Months any one Contract
(B) The Insuring Clause is amended to read as follows:
The Insurer(s) agree to:
1.indemnify the Insured in respect of all amounts which the Insured shall become legally liable to pay in respect of:
(a) Personal Injury;
(b) Property Damage;
(c)interference with traffic or to property or the enjoyment of use thereof by obstruction, trespass, loss of amenities, nuisance,
1.1happening during the Construction Period as a result of an Occurrence in connection with the Insured’s Business
1.2happening during the Period of Insurance as a result of an Occurrence in connection with the Insured’s Products Liability and/or Completed Operations
(C) Condition 8 (Adjustment of Premium) is deleted and replaced by:
8. Adjustment of Premium
The premium for this Policy is provisional and is based on the estimated value of works to commence during the Period of Insurance. The Insured shall, as soon as practical after the expiry date of this Policy, declare to the Insurer(s) the actual total value of works for all contracts that commenced during the Period of Insurance.
An adjustment premium shall be determined by determining the difference between the provisional premium and the sum of the agreed rate applied to the actual total value of works commenced during the Period of Insurance. The adjustment premium paid to the Insurer(s) or refunded by the Insured(s) as the case may be.
Notwithstanding the above, the maximum allowable return premium will be 25% of the provisional premium paid.
(D) Condition 15 (Run Off Cover) is amended to read:
15. Run Off
This Policy will continue in full force and effect at terms and conditions prevailing immediately prior to expiry for all incomplete contracts as at date of expiry until completion of those contracts including any testing and/or defects liability and/or maintenance periods subject to the Maximum Construction Period noted in the Schedule.
On expiry of the Period of Insurance the Insured is required to provide the lnsurer(s) with a list of all Insured Contracts that commenced during the period of insurance and additional premium is to be calculated as per Condition 8 (Adjustment of Premium). Any contracts not declared to Insurers will not be covered by this Policy.
(E) The following definition is deleted in its entirety
Turnover
Turnover is defined as the total value of work completed during the preceding twelve months period for the Business and/or Activities of the Insured to which this Policy applies, including the value of principals supplied materials where appropriate
In all other respects this Policy remains unaltered.
B.5 The QBE Policy
In September 2018, Icon entered into the QBE Policy, by which it renewed its third party liability insurance through Chase for three months from 20 September 2018 to 31 December 2018. The QBE Policy was written by a syndicate of underwriters at Lloyd’s (of which QBE is a member), had the same policy wording as the 2017/18 Policy, and included the Contracts Commencing Endorsement.
B.6 Construction and completion of the Opal Tower
Construction of the Opal Tower commenced on 16 November 2015, and was organised into different stages or tasks. Practical completion of the Project occurred on 8 August 2018, which triggered the commencement of the 12 month defects liability period. As I mentioned at the outset, the Incident occurred on 24 December 2018, which, obviously enough, was during the defects liability period but after the date of practical completion.
I turn now to the factual and legal issues in contest between the parties.
C FACTUAL AND LEGAL ISSUES FOR DETERMINATION
In advance of the trial, the parties provided the Court with an agreed list of contested factual and legal issues, which were as follows:
PRINCIPAL CONTESTED FACTS IN ISSUE
Claim against Liberty
Run Off Claim
1. Did Icon comply with the terms of Condition 15 of the 2015/16 Liberty TPL Policy in respect of the Opal Tower project?
2. How was the premium for the 2015/16 Liberty TPL Policy calculated, and on what basis?
Statutory Extension of Coverage Claim
3. Was there a project-specific insurance policy, separate from the 2015/16 Liberty TPL Policy, for the Opal Tower project?
4. If the answer to questions 3 is yes, was that project-specific insurance policy cover of a kind that it is usual to renew or for the renewal of which it is usual to negotiate?
5. If the answer to question 4 is yes, did Liberty give Icon notice in writing, no later than 14 days before the date on which the project-specific cover provided for the Opal Tower project was about to expire, of the date on which and the time at which that cover would expire and whether Liberty was prepared to negotiate or renew that cover?
6. If the answer to question 5 is no, did Icon obtain from some other insurer insurance cover to replace the project-specific policy provided by Liberty in respect of the Opal Tower project prior to expiry of the project-specific insurance policy provided by Liberty?
Rectification Claim
7. Was it the intention of:
(a) Icon;
(b) Austbrokers;
(c) Chase Underwriting; and/or
(d) Liberty,
at the time of commencement of the 2015/16 Liberty TPL Policy, that the 2015/16 Liberty TPL Policy would apply during the construction and defects liability period for any projects:
(i) commenced by Icon or the Icon Group during the period of insurance of the 2015/16 Liberty TPL Policy;
(ii) declared by the Icon Group to Liberty; and
(iii)for which an additional upfront premium was calculated by Chase (as agent for Liberty) based on the total project value and paid by the Icon Group.
8. Was a common intention to the effect set out in question 7(i) – (iii) communicated between Icon/Austbrokers and Chase Underwriting/Liberty?
9. Was a common intention to the effect set out in question 7(i) – (iii) not reflected in the written terms of the Liberty 2015/16 Annual TPL Policy?
10. Did the Contracts Commencing Endorsement, which was introduced into the 2017/18 Chase TPL Policy Wording, reflect the common intention of Icon/Austbrokers and Chase Underwriting/Liberty at the time of commencement of the 2015/16 Liberty TPL Policy?
CONTESTED LEGAL ISSUES
Claim against Liberty
Run Off Claim
11. What was the legal effect of Icon “declaring” the Opal Tower project to Liberty and what was the period of insurance obtained in respect of the Opal Tower project as a consequence?
12. On the proper construction of Condition 15 of the 2015/16 Liberty TPL Policy, did Icon and the Icon Group obtain run off insurance cover from Liberty for the Opal Tower with the consequence that the terms and conditions of the Liberty 2015/16 Annual TPL Policy continued to apply to the Opal Tower until completion of the Defects Liability Period on 8 August 2019?
13. Did the parties “otherwise agree” to calculate premiums payable under the 2015/16 Liberty Policy pursuant to Condition 8 of that policy as alleged by Liberty in paragraph 13 of its defence?
14. If the answer to question 13 is “no”, would the effect of the 2015/2016 Liberty TPL Policy be that, but for s. 54(1) of the Insurance Contracts Act 1984 (Cth) (ICA), Liberty may refuse to pay the claim made by Icon by reason of Icon’s failure to expressly state that it was seeking “run off” cover, being an act or omission that occurred after the 2015/2016 Liberty TPL Policy was entered into?
15. If the answer to question 15 is “yes”, is Liberty prohibited from relying on any such act or omission by reason of s. 54(1) of the ICA?
Statutory Extension of Coverage Claim
16. Did Liberty have an obligation under s.58 of the ICA to give Icon notice in writing, no later than 14 days before the date on which any project-specific insurance policy provided for the Opal Tower project was about to expire, of the date on which and the time at which that cover would expire and whether Liberty was prepared to negotiate or renew that cover?
17. If the answer to question 16 is yes, did Liberty fail to comply with that obligation?
18. If the answer to question 17 is yes, pursuant to s. 58(3) of the ICA, had the project-specific insurance policy provided by Liberty for the Opal Tower project not expired as at the time of the Incident on 24 December 2018?
Rectification Claim
19. For the purpose of rectification, which entities’ conduct and state of mind are relevant?
20. Is the conduct and state of mind of Austbrokers relevant to determining Icon’s intention?
21. Is the conduct and state of mind of Chase relevant to determining Liberty’s intention?
22. Should the 2015/16 Liberty TPL Policy be rectified by adding the Contracts Commencing Endorsement?
Declarations Sought
23. Given the nature of the relief sought in the Further Amended Originating Application and the issues raised in the Further Amended Statement of Claim, does the Court have the power to grant declarations in the terms sought, alternatively should that power be exercised as a matter of discretion?
Claim against QBE
24. Is the Opal Tower, the component parts pleaded, and/or the concrete structure of the Opal Tower (comprising columns, slabs, precast panels, reinforced concrete walls and hob beams) a “Product”, as that term is defined in the QBE Policy?
D THE CLAIMS AGAINST LIBERTY
D.1 Further factual background: the dealings between the parties
As I have noted (at [8]), against Liberty Icon makes the Run Off Claim, the Statutory Extension of Coverage Claim and the Rectification Claim. Much of the evidence adduced, and cross-examined upon, related to the Rectification Claim. That is because, as will become apparent, that evidence was sought to be relied upon in support of the parties’ contentions as to whether or not there was a common intention that the Liberty Policy was to apply on a “contracts commencing” basis and thus the cover was in place during the defects liability period.
However, as I will detail more fully below, some of that evidence is relevant, and admissible, in respect of the surrounding circumstances of the Run Off Claim. Prior to doing so, however, it is convenient to provide a further summary of the market in which the parties operated, and the dealings between them. I will later make specific findings of fact with respect to the principal witnesses when considering the merits of the Rectification Claim.
Evidence of the construction insurance market
Evidence about the construction insurance market was given by Mr Neil Bovington, who is an insurance broker and insurance adviser with over 20 years’ experience in the construction insurance sector in Australia and the United Kingdom. Mr Bovington explained that public and products liability insurance for the construction industry, when purchased on an annual basis by contractors and builders, is purchased in one of two ways, either: (a) on a “contracts commencing” basis (contracts commencing policies); or (b) on a “turnover” basis (turnover policies). Contracts commencing policies were said to provide cover for the project until works are completed plus the relevant defects liability period, even if this occurs after the annual period of insurance has expired. Turnover policies cover projects which are commenced or are on hand during the annual period of insurance (including those projects which are complete and in the defects liability period) but only during the annual period of the insurance policy. Mr Bovington observed that insurance professionals who are involved in the construction insurance market in Australia would have been well aware that contractors are required, under their construction contracts, to maintain public and products liability insurance during the construction and defects liability period.
Mr Bovington’s evidence was relevantly unchallenged by Liberty, and I accept it. Indeed, the parties expressly agreed with the market-based circumstances prevailing at the relevant time, to the extent they were relevant. Those circumstances included that most commercial construction contracts are based upon standard form contracts prepared by Standards Australia, and that those contracts require the contractor to obtain and maintain public liability insurance for the term of the contract, including any defects liability period. The parties were also ad idem that contracts commencing policies “usually” required the payment of a premium based on the total contract value of contracts commenced during the annual policy period, and cover was provided for the duration of those contracts even if that duration extended beyond the end of that annual policy period, including any defects liability period.
The parties’ use of endorsements
As will be explained, there was a dispute between Icon and Liberty as to the relevance of the Opal Tower Endorsement to construing the Liberty Policy. Accordingly, it is necessary to make findings as to the parties’ use of such endorsements generally. As I have outlined above (at [18]–[22]), it was agreed that since the commencement of the parties’ dealings, Icon, through Austbrokers, declared to Chase, as agent for Liberty, each of its new construction projects commenced during the policy period, notifying it of the relevant contractual details. What then occurred is that Chase usually provided Austbrokers with an “endorsement” to the policy, which noted that the policy was “amended” to include the relevant building contract, and the details of that contract were then set out. A premium was then calculated and charged by reference to the full contract value of each project declared to Liberty, which was set out in the relevant endorsement. Although there was some dispute as to whether this method of calculation commenced in 2012 or 2013, it does not matter for present purposes because the premium was calculated and paid upfront upon declaration of the projects to Chase during the period of the Liberty Policy.
It was agreed that there were numerous endorsements prepared by Chase during the course of the parties’ dealing. These endorsements, 18 of which were in evidence, included endorsements on two projects declared to Liberty immediately prior to the Project and were in substantially the same form (save that each identified a different project, named different additional insureds, identified differing project periods and included a different premium payable).
The Opal Tower Endorsement was signed by Mr Hingston for the Project on 22 December 2015, but it was agreed that that endorsement was never provided to Icon. However, it will be recalled that on 9 December 2015, it was agreed that Chase, in response to the Opal Declaration on 2 November 2015, had emailed Austbrokers relevantly informing it that cover was in place “from 16th November 2015 to 10th August 2018” and that an endorsement would be sent to Icon for its records. Neither this email, nor the endorsement subsequently executed by Mr Hingston, referred to the defects liability period.
E RUN OFF CLAIM
Notwithstanding that the parties framed the issues for determination in relation to this claim by reference to the series of questions set out above (at [42]), the parties’ submissions on each question oftentimes overlapped and it is convenient to reformulate the issues in a somewhat simpler way.
In relation to the Run Off Claim, broadly speaking, the following two issues fall for determination:
(1)Did the Opal Declaration meet the requirements of Condition 15?
(2)If Icon did not comply with Condition 15 by reason of an omission to use some precise form of wording, is Liberty precluded from denying indemnity on that basis by operation of s 54 of the ICA?
E.1 Did the Opal Declaration meet the requirements of Condition 15?
Condition 15 has been set out at [28] above. The question arises: what did the parties objectively intend Condition 15 to require?
Relevant legal principles
It is trite to observe that the process of construing insurance contracts is governed by ordinary principles of contractual interpretation: Australian Casualty Co Ltd v Federico (1985) 160 CLR 513 (at 520 per Gibbs CJ); McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 (at 589 [22] per Gleeson CJ); Todd v Alterra at Lloyds Ltd [2016] FCAFC 15; (2016) 239 FCR 12 (at 22 [42] per Allsop CJ and Gleeson J). Thus, that process is as was stated by the High Court in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 (at 656–7 [35] per French CJ, Hayne, Crennan and Kiefel JJ).
Before embarking upon the exercise of construction, however, it is well to tarry briefly to consider two related issues: first, the extent to which it is permissible that I have regard to extrinsic evidence in construing the Liberty Policy; and secondly, should I decide to have regard to such evidence, to what end that evidence may be put.
As to the first issue, it is well established that surrounding circumstances known to the parties are one of the elements required to be considered in the construction exercise. However, resort to evidence of those circumstances is confined. The classic authority for that proposition is the “true rule” as stated by Mason J (Stephen and Wilson JJ concurring) in Codelfa Construction Pty Ltd v State Rail Authorityof New South Wales (1982) 149 CLR 337 were his Honour relevantly said (at 352) that “evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning”.
During the course of oral closing submissions, in response to my request for assistance on the issue of how the parties suggested I should deal, in the construction exercise, with the great swathes of evidence adduced by both parties, Senior Counsel for Icon suggested that the presence of ambiguity itself is not a threshold that must be met before resort may be had to such evidence. It was said that the Court is able to have regard to extrinsic material in aid of assessing whether there is ambiguity in a contractual provision. That submission was not developed by either party, but it is necessary that I consider it. That is because, although I have determined, as I will explain, that Condition 15 is ambiguous and that I should consider some of that extrinsic material, should I be wrong on that point, my regard to such materials may be in issue on any appeal.
There has been lively debate as to whether the requirement for ambiguity expressed by the “true rule” remains good law: see, eg, Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd[2006] FCAFC 144; (2006) 156 FCR 1 (at 10–13 [45]–[51] per Weinberg J); Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 (at 616–8 [14]–[18] per Allsop P, at 622–3 [49] per Giles JA, and at 678 [305] per Campbell JA); MBF Investments Pty Ltd v Nolan [2011] VSCA 114; (2011) 5 BFRA 586 (at 637–8 [194]–[202] per Neave, Redlich and Weinberg JJA); Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1 (at 2–3 [3]–[5] per Gummow, Heydon and Bell JJ); Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633 (at 653–6 [71]–[86] per Leeming JA, Ward and Emmett JJA agreeing); Cherry v Steele-Park [2017] NSWCA 295; (2017) 96 NSWLR 548; Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust [2019] FCAFC 226; see also Prince T, “Defending Orthodoxy: Codelfa and Ambiguity” (2015) 89 ALJ 491.
Much of that debate turns upon whether resort may be had to extrinsic material in the absence of ambiguity. A subsidiary and related issue is whether, as Icon submitted, to ascertain whether such ambiguity exists, such resort may be had. The core of the argument in favour of that position is that statements in High Court authority following Codelfa, most recently from the passage of French CJ, Hayne, Crennan and Kiefel JJ in Woodside (at 656–7 [35]), adopted a test that permitted such resort. At that passage their Honours said that the “not unfamiliar” approach to determining the meaning of the terms of a commercial contract by what a reasonable businessperson would have understood those terms to mean, will “require consideration of … the surrounding circumstances known” to the parties. That language has been described as “mandatory” and must not have been “chosen lightly”: Mainteck (at 563 [71] per Leeming JA). Earlier High Court authority post-dating Codelfa has also been relied upon in an attempt to demonstrate that ambiguity is no longer a threshold that must be met, including passages in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 (at 188 [11] per Gleeson CJ, Gummow and Hayne JJ), Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 (at 461 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 (at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ), Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) and in International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 (at 160 [8] per Gleeson CJ, and at 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ).
As Steward J (Griffiths and Derrington JJ agreeing) recently observed in Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust [2019] FCAFC 226 (at [28]–[31]), a number of decisions of the New South Wales Court of Appeal and of the Full Court of this Court have opined that those High Court decisions mean evidence of surrounding circumstances is admissible in the absence of ambiguity; see, eg, Franklins (at 616–8 [14]–[18] per Allsop P) and Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; (2014) 314 ALR 166 (at 174–5 [37] and [40] per Allsop CJ, Siopis and Flick JJ).
Much of this debate risks descending into semantics but to the extent it matters, I do not consider that anything that has been said in those High Court decisions post-dating Codelfa has had the effect of weakening or abandoning the “true rule”. Of course I am bound by what the High Court has said, not by another court’s interpretation of what it has said; such interpretations are but a guide to the meaning of that language: Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 (at 631 [98] per Leeming JA); Fairfax Media Publications Pty Ltd v Gayle [2019] NSWCA 172; (2019) 100 NSWLR 155 (at 210 [239(3)] per Leeming JA, Bell P and Gleeson JA agreeing); Obeid v Lockley [2018] NSWCA 71; (2018) 98 NSWLR 258 (at 296–7 [167]–[170] per Bathurst CJ, Beazley P agreeing, and at 308–9 [237]–[241] per Leeming JA); Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421 (at 457 [149] per Edelman J, Besanko J agreeing); Director of Public Prosecutions (Cth) v Thomas [2016] VSCA 237; (2016) 53 VR 546 (at 595–6 [132]–[133] per Redlich, Santamaria and McLeish JJA). If one has regard to the summary of the authorities in Heydon on Contract (Lawbook Co, 2019) (see especially 379–90 [9.1060]–[9.1200]), it seems to me the preferable view is that the “true rule” remains as Mason J stated it in Codelfa.
Hence, I proceed on the basis that it is only permissible for me to have regard to extrinsic material going to the surrounding circumstances if I find ambiguity in the Liberty Policy. As will be explained, I have determined that Condition 15 is ambiguous, and as such I have had regard to certain (but not all) aspects of the evidence adduced going to the surrounding circumstances.
As to the second issue, to what end any extrinsic evidence received may be put, in circumstances where a rectification claim is advanced in the same action as a contract claim, it is well to remember the relevant inquiry in each claim. In Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85 (at 117 [104]), Gageler, Nettle and Gordon JJ stated that the inquiry relevant to a rectification suit “may be approached by asking – what was the actual or true common intention of the parties?” That remark cited passages of the decision of Tobias JA (with whom Mason P and Campbell JA agreed) in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 (at 642 [182], [185]), a decision to which I will return below. In that case, Campbell JA (at 665 [261], with whom Tobias JA relevantly agreed) emphasised that although the Court’s task in both construction and rectification is to ascertain the common intention of the parties to the contract, that expression “masks two quite different concepts”. After setting out the orthodox principles of contractual construction (at 655–7 [262]–[266]), his Honour observed (at 657 [269]):
One way in which it can be seen that it is subjective intention that matters for rectification, concerns the evidence admissible in a rectification suit. Notwithstanding that the contract that it is sought to rectify is in writing, and notwithstanding the common law rule that parol evidence is not admissible to contradict a written agreement, parol evidence is receivable, in an action seeking rectification, to establish what was the intention of each of the parties to the contract.
(Citations omitted).
Conversely, in respect of the construction exercise, the observations of French CJ in Simic (at 95 [18]) repay attention:
At a conceptual level, construction and rectification of a contract are different processes. The first involves determination of the meaning of the words of the contract defined by reference to its text, context and purpose. Resort to extrinsic circumstances and things external to the contract may be necessary to identify its purpose and in determining the proper construction where there is a constructional choice. The question for constructional purposes is not about the real intentions of the parties, not what the parties meant to say, but what they actually said.
(Citations omitted).
Hence I must approach much of the evidence adduced by the parties on the basis that it is, on the whole, irrelevant to the disposition of the construction of the Liberty Policy, directed as it was to establishing the common intentions of the parties for the purposes of the Rectification Claim.
The Liberty Policy in its terms
Although somewhat clumsily drafted, on its face, Condition 15 contains four aspects that should be noted: first, if run off cover is obtained, the cover provided will continue past the expiry date of the Liberty Policy (being 4pm on 20 September 2016), in its then current form, for “all” incomplete contracts until their completion, including the defects, testing and/or maintenance liability periods in place for those contracts; secondly, is the requirement for “written instructions” to obtain that cover and the requirement in the second paragraph whereby “[t]he Insured is required to provide the Insurer(s) with a list of contracts requiring Run Off”; thirdly is that those instructions must be provided “prior to the expiry of the Period of Insurance” (again, being 4pm on 20 September 2016) and no further temporal element is specified; and fourthly, the “additional premium” is to be calculated on “expiring rates” applied to the value of works “declared” that are to be completed after the period of insurance.
Icon’s principal case was that Condition 15, properly construed, only contains two requirements: first, the requirement for “written instructions” prior to expiry identifying “contracts requiring Run Off”; and secondly, payment of a premium “calculated on expiring rates applied to the value of works declared for completion of projects after expiry of the Period of Insurance”. Icon contends that it complied with both requirements. It says it met the first requirement when Austbrokers sent Chase the Opal Declaration on 2 November 2015 (as set out at [30] above), which informed Liberty that Icon sought cover for the Project which would not be completed prior to the expiry of the Liberty Policy. As to the second requirement, Icon said this was met by its payment of a premium to Liberty for cover for the Project calculated by reference to the total value of the Opal Tower Contract (including works to be completed after the expiry of the Liberty Policy).
Liberty’s position starts from the premise that no question as to “compliance” with Condition 15 arises for consideration because there was no question of seeking or needing run off cover for the Project. Its principal case was that, instead, when proper regard is had to the operation of the terms and conditions of the Liberty Policy, and the conduct of the parties in arranging endorsements, no issue of run off cover ever arose. On its case, the critical issue of interpretation is not the construction of Condition 15, but the meaning of the term “Estimated Project Period” in the Opal Tower Endorsement, which period ended on 10 August 2018.
As to the text of the Liberty Policy, it is first noteworthy that the terms of the first paragraph of Condition 15 appear straightforward. As I have noted, although the statement “subject to written instructions from the insured to the insurer” is somewhat unclear, it is given content by the words in the second paragraph. If the requirements of the text of that clause up to that point alone were to be determinative, on a literal reading, Icon would not comply with the clause unless it provided a “list” of contracts requiring run off, which it was agreed it did not. Liberty contended for such a reading, submitting that this “list” contemplates a single notification of all projects requiring run off cover. The submission was developed by reference to an attack on Icon’s interpretation of the clause, being that the only temporal limitation on the notification was that it occur “prior to expiry of the Period of Insurance”. Liberty said that such a broad construction would produce the result that it is possible to acquire run off cover even before the relevant annual policy took effect and, further, before a relevant project had even commenced. It was asserted that such a reading was “patently uncommercial”. Accordingly, it said that such a notification, “at the earliest, must occur once Icon knows with a degree of certainty all of the projects which are incomplete during the relevant policy period and for which it decides it wishes to seek run off cover”, which was said to be shortly before the expiration of the annual period of insurance.
I do not find these submissions persuasive. I am bound to give the Liberty Policy a businesslike construction on the assumption that the parties intended to produce a commercial result: Woodside (at 657 [35] per French CJ, Hayne, Crennan and Kiefel JJ); Mount Bruce (at 116–7 [47]–[49] per French CJ, Nettle and Gordon JJ). Although at first glance it might appear odd that Icon could acquire run off cover before the relevant annual policy took effect, or before a relevant project had even commenced, it does not necessarily follow that, should the parties have adopted the commercial expedient of ensuring that projects “declared” to Liberty during the period of insurance were so declared for the purposes of obtaining run off cover, such declarations would have been ineffectual to obtain that cover. Such declarations would still have been written instructions, would have been provided prior to the expiry of the Liberty Policy, and would have been, after accumulation, a “list” of such contracts.
The nature and effect of the parties’ adoption of such declarations, however, and the endorsements provided to effect such declarations, was the heart of the issue. This principal matter is one of context and surrounding circumstances, but staying with the text for present purposes, clarity as to what Condition 15 requires is found in the other important requirement of the clause, being the calculation of “additional premium”.
That term, of course, cannot be construed in isolation. The whole of the policy has to be considered: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 (at 109 per Gibbs J). The “additional premium” referred to in Condition 15 was to be calculated “on expiring rates applied to value of works declared for completion of projects after expiry of the Period of Insurance”. That method of calculation for the additional premium is at odds with the way in which the Liberty Policy, on its face, determined that the premium for the policy itself was to be calculated.
It is first to be noticed that there was, in fact, no stipulated premium set out in the Liberty Policy. In the Schedule under the heading “Premium” were simply the words “As Agreed”. The next mention of premium is that contained in Condition 8, titled “Adjustment of Premium”. I have set out Condition 8 at [28] above. The premium is said to be “provisional (unless otherwise agreed) and is based on the estimated Turnover for the Period of Insurance” (emphasis added). Icon was obliged under this condition to declare its turnover as soon as practical after the expiry date for the preceding period of insurance. “Turnover” is defined as follows:
[T]he total value of work completed during the preceding twelve months period for the lnsured’s Business to which this Policy applies, including the value of principals supplied materials where appropriate [sic].
After such a declaration of turnover, an “adjustment premium” was to be calculated as the difference between the provisional premium and the sum of the “agreed rate”. It is clear, therefore, that what that condition contemplated was that the final premium to be paid under the Liberty Policy was incapable of ascertainment until after the period of insurance. However, as was agreed between the parties, Icon “declared” each of their contracts at or about the time of their commencement, and the premium paid by it was calculated by reference first to a deposit premium which was then offset or deducted against the premium payable when projects were declared. This agreed position supports the conclusion that the parties did in fact “otherwise agree” to determine the premium payable otherwise than pursuant to Condition 8. Indeed, Icon expressly admitted in its reply that the parties agreed that the premium payable for the Liberty Policy would not be calculated in accordance with that condition.
In such circumstances, there exists an ambiguity which necessitates an examination of some of the extrinsic materials. The parties’ express agreement that Condition 8 was not to apply, and their dispute as to how, instead, the premium for the policy was to be calculated creates a difficulty in ascertaining, with precision, what “expiring rates” any such “additional premium” was to be additional to for the purposes of Condition 15.
Extrinsic materials of surrounding circumstances
It must first be recalled that admissibility is limited to ascertaining the surrounding circumstances known to the parties: Woodside (at 656–7 [35] per French CJ, Hayne, Crennan and Kiefel JJ); Codelfa (at 352 per Mason J). The reason for this restriction was explained by Allsop P (as his Honour then was) in QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 (at [22], Giles and Macfarlan JJA agreeing):
To permit, under the guise of the reasonable person, background facts known only to one person to be attributed to the reasonable person would tend to re-introduce the subjective understanding of one party by permitting or requiring the contract to be interpreted by reference to one party’s knowledge only.
The evidence of the surrounding circumstances relevant to the disposition of the Run Off Claim concerned: (a) the nature of the construction insurance market; (b) the parties’ conduct in arranging endorsements to the Liberty Policy; and (c) the calculation of premium.
The construction insurance market
Given my finding’s based upon Mr Bovington’s evidence, there is no reason to doubt that a reasonable person in the position of both parties during the relevant period would be aware of the features of the types of policies of insurance to which Mr Bovington referred. The question, however, is whether this assists in the construction contended for by Icon on its Run Off Claim.
Icon sought to rely upon this evidence in support of its contention that the parties objectively intended that the Liberty Policy was to operate as a contracts commencing policy, that such a policy was intended to cover the defects liability period, and that the machinery for enabling that cover to occur was Condition 15. Support for this contention was sought from prior policies of insurance between the parties and renewal quotations which were in evidence, and the evidence of Mr Hingston and Mr O’Reilly, which showed that Liberty agreed that it would automatically cover projects commenced by Icon with a “maximum construction period” of up to 36 months for any one project, and that such agreement was consistent with the Liberty Policy being a contracts commencing policy. I will deal with the evidence as to attribution of knowledge and intention in detail when considering the Rectification Claim.
The essence of Icon’s argument on the assistance to be gleaned from these materials is that, since the Liberty Policy and the parties’ conduct bear the hallmarks of a contracts commencing policy, commercially sensible parties in the position of Icon and Liberty would have expected that the Liberty Policy covered Icon during the defects liability period. Further, it was said that a commercially sensible party in Icon’s position is most unlikely to have bought cover that placed it in breach of all of its building contracts. Equally, a commercially sensible party in Liberty’s position is most unlikely to have sought to offer a product for sale that did not meet the uniform contractual requirements of its insured customers.
But the construction task requires me to ascertain the parties’ objective intention, and having regard to the language of that provision and the Liberty Policy as a whole, I am not persuaded that the evidence pointing to similarities between various policies, and the way the parties conducted themselves, is sufficient to enable me to draw the conclusion that Condition 15 ought be construed in the manner contended for by Icon. Further, a significant barrier to accepting Icon’s contended construction is another known surrounding circumstance: the parties’ adoption of adding “endorsements” to the policies.
The parties’ use of endorsements
As I have outlined, Liberty’s main case focussed on the meaning of the term “Estimated Project Period” in the Opal Endorsement (see [35]), which period ended on 10 August 2018. Hence, it was said the cover extended only to that period and did not include the defects liability period.
Icon submitted that the endorsement was not relevant to its contract case. Two reasons were advanced in support of this contention. First, it was said that because the endorsement was not provided to Icon, it is not a “contract document” and is therefore inadmissible in construction as part of the surrounding circumstances of the contract because it was not “known” by both parties, as required by the authorities. I reject this submission. It was agreed that, although the endorsement was not provided to Icon, the substance of the terms of the endorsement were provided in writing by Chase to Austbrokers. This fact, coupled with the known circumstance that a number of prior endorsements had been prepared in similar terms, following similar notifications and email confirmations, tells against the conclusion that the terms of the endorsement were not known by both parties. Accordingly, the Opal Tower Endorsement is relevant in construing the cover provided under the Liberty Policy.
Secondly, Icon says that, if the endorsement is relevant, the “estimated project period” set out in that endorsement does not have the effect contended for by Liberty, because that period was only an “estimate”. The endorsement noted that the Liberty Policy was amended to include the Opal Tower Contract, and Icon contended that this necessarily meant the whole of that contract, including the defects liability period; and the Opal Tower Endorsement specifically stated that “all other terms and conditions and limitations apply as per policy”, which, it was contended, included Icon’s “right” under Condition 15.
Although it may be accepted that it was known to the parties that construction contracts generally required insurance to be in place to cover the defects liability period, that circumstance cannot displace the language of the endorsement in the light of the language of the Liberty Policy as a whole. Contrary to Icon’s assertion that “estimated project period” must be read only as an “estimate”, it would be commercially inconvenient to construe that phrase, with the precision with which the period is drafted (“4:00 pm local standard time”), as not marking an end point to the amended cover provided by that time period. Further, as an amendment to the Liberty Policy, the endorsement must be read with that policy. Critical to the operation of the Liberty Policy was the definition of “Insured”, which included a number of companies within the Icon Group. The endorsement adds an additional insured, being Australia Avenue Developments Pty Ltd (AAD), the other party to the Opal Tower Contract. As an additional insured, the endorsement provides cover for Icon and AAD with the “amendments detailed herein”. As Liberty correctly submitted, such additional insureds were not intended to be “added” to the Liberty Policy “at large”. It follows that the identification of a period of insurance for additional insureds is important in ensuring clear limits as to the extent of coverage offered to any additional insureds.
The calculation of premium
In the light of the parties’ adoption of declarations under and endorsements to the Liberty Policy, further weighing against Icon’s construction that Condition 15 was engaged is the agreed fact that the premium was based on a deposit premium charged for the renewal, which was then offset against the premium payable for contracts declared during the policy period. Icon submitted that its construction of Condition 15 worked harmoniously with Condition 8. It said that the “additional premium” contemplated by Condition 15 is the premium representing the difference between the “turnover” for that project during the annual policy period which would otherwise be payable under Condition 8, and the full contract value which would be earned over the entire life of the contract. Thus, Icon submitted that Condition 15 permitted it to say “I now seek cover for the full contract duration, and I will pay you a premium on the additional revenue that I will earn from this contract for the full contract duration”, and that this is in fact what happened.
I cannot accept this submission. First, to the extent that the submission relies upon Condition 8 so as to show that, contextually, Condition 15 was objectively intended to operate in a manner consistent with the concept of turnover, it is a submission which ignores the express words of the definition of that term. That definition, in operation with Condition 8, identifies that the “agreed rate” is to be applied against the total value of work completed for the insured’s business. To the extent I follow the submission, Icon’s contention would have that defined term narrowed to a point inconsistent with its application in Condition 8. Secondly, the submission appears to be a departure from Icon’s pleaded case, and from the agreed position it adopted in the Agreed Facts. Icon admitted in its reply that the premium was calculable otherwise than in accordance with Condition 8, and it otherwise pleaded that the agreed calculation of the premium was payable for each new project commenced during the annual policy period, calculated on the value of the total contract works for that project. Nothing in that pleaded operation of how the policy machinery determined the premium to be paid relies on the concept of turnover.
As Liberty correctly noted, Condition 15’s “additional premium” cannot sensibly mean payment of the premium for the Liberty Policy itself. The ineluctable inference is that payment of the balance of the premium calculated under the endorsement was simply that: payment of the premium for the Liberty Policy. It cannot, therefore, have been “additional premium” for the purposes of Condition 15, that is, “additional” to what was paid for the cover provided under the annual policy. That would give no work to the word “additional”. On Icon’s characterisation of the premium paid for projects declared as “additional premium” for the purpose of run off cover, the entire premium pool collected during the course of each annual policy was “additional premium” paid for run off cover – and, necessarily, only for run off cover. It is unlikely that this was the objective intention of the parties, who were in agreement that the “deposit premium” was to be offset against the future premium paid after the declaration of each project.
Contra proferentum
By way of completeness, I should deal with Icon’s submission that the principle of contra proferentum should be applied. In simple terms, that principle means that where there is ambiguity in the meaning of a contract, the words will be construed against the party who puts them forward: see Andar Transport Pty Limited v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 (at 433 [17] per Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ); Ankar Pty Limited v National Westminster Finance Australia Limited (1987) 162 CLR 549 (at 561 per Mason ACJ, Wilson, Brennan and Dawson JJ).
However, an important qualification to that rule, accepted by Icon, is that resort to that rule may be had if the relevant clause remains ambiguous. It must be recalled that this “rule” of construction is but one of a number of rules of contractual construction: see Rava v Logan Wines Pty Ltd [2007] NSWCA 62 (at [53]–[56] per Campbell JA). Although it was traditionally the case that the rule applied commonly in insurance contracts (see, eg, Halford v Price (1960) 105 CLR 23 (at 34 per Fullagar J)), it has been held that the rule is one of last resort, to “apply only when ambiguity remains after all other avenues of construction have been exhausted”: Beefeater Sales International Pty Ltd v MIS Funding No 1 Pty Ltd [2016] NSWCA 217 (at [66] per Bathurst CJ). That proposition accords with the established position that the process of construing insurance contracts is governed by ordinary principles of contractual interpretation. Accordingly, where resort to extrinsic materials and the text, context and purpose of the Liberty Policy has resolved the ambiguity I have identified, there is no occasion to apply the contra proferentum “rule” in this case.
Conclusion
It follows that on its proper construction, the Opal Declaration did not meet the requirements of Condition 15.
E.2 If Icon did not comply with Condition 15 by reason of an omission to use some precise form of wording, is Liberty precluded from denying indemnity on that basis by operation of s 54 of the ICA?
Section 54 of the ICA relevantly provides:
(1)Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.
(2)Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3)Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.
(4)Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
…
(5) A reference in this section to an act includes a reference to:
(a) an omission; and
(b) an act or omission that has the effect of altering the state or condition of the subject‑matter of the contract or of allowing the state or condition of that subject‑matter to alter.
Section 54(1) contemplates the existence of a claim and a contract, the effect of which is that the insurer may refuse to pay the claim: Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 (at 669 per Dawson, Toohey, Gaudron and Gummow JJ); Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33; (2014) 252 CLR 590 (at 597–8 [21] per Hayne, Crennan, Kiefel, Bell and Gageler JJ). An omission for the purposes of s 54 may be a failure by the insured “to exercise a right, choice or liberty which the insured enjoys under the contract of insurance”: Antico (at 669 per Dawson, Toohey, Gaudron and Gummow JJ); FAI Insurance Limited v Aust Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 (at 652 [22] per McHugh, Gummow and Hayne JJ).
Icon’s s 54(1) claim takes as its starting point that Condition 15 required Icon to refer, in terms, specifically to that condition or to “run off”, to be entitled to run off cover. It contends that, by s 54(6)(a), Icon’s failure to specifically refer to the condition or to run off was an omission constituting an act under s 54(1). Icon submitted that an omission is not restricted to something which an insured was obliged to do, and thus an omission to seek run off cover, a right Icon said it had under the Liberty Policy, can fairly be described as an omission for the purposes of s 54(6)(a). Accordingly, as the submission went, Liberty could not refuse cover by reason of that omission by operation of s 54(1), and that no relevant prejudice to Liberty is present.
I reject these submissions. Icon has not run a case that it “omitted”, in September 2017, to ask for run off cover, and thus the premise upon which the s 54 case is founded does not arise for consideration. As Liberty correctly submitted, the “claim” to which s 54 makes reference is the claim actually made by Icon. Section 54 does not permit, let alone require, the claim to be reformulated; nor does s 54 operate to relieve the insured of “restrictions or limitations that are inherent in the claim”: Maxwell (at 598 [23] per Hayne, Crennan, Kiefel, Bell and Gageler JJ). The reason why Liberty may properly refuse to pay the purported claim is because Icon seeks indemnity in respect of alleged property damage that did not occur within the period of insurance under the relevant policy. Section 54 contemplates a restriction or limitation “which must necessarily be acknowledged in the making of a claim” by Icon: Maxwell (at 598 [23] per Hayne, Crennan, Kiefel, Bell and Gageler JJ).
E.3 Conclusion on the Run Off Claim
As to authority, QBE submitted that I ought not apply Metricon; the conclusions reached by Hargrave J in the relevant respect were obiter, and the terms of the policy considered in that case were “markedly different” to the QBE Policy. Further, contrary to Icon’s submissions, QBE said that decisions concerning the proper construction of differently worded policies in different circumstances are of limited utility, and the interpretation of the definition of “Product” falls to be decided by reference to the terms of the policy as a whole. Instead, it relied upon the decisions of Aspen Insurance and Bigby v Kondra [2017] QSC 37, notwithstanding that those decisions were considered, but not followed, in Metricon (at [122]–[128] per Hargrave J).
I.4 Consideration
QBE’s well-crafted submissions overcomplicate the construction issue.
I have set out the relevant principles above (at [53]–[64]) and there is no need to repeat them. As to the text of the definition, on an ordinary reading of the words “product” and “thing”, it appears plain to me that the Opal Tower and its constituent parts satisfy the definition. Although it is true that the definition qualifies the ordinary meaning of those words by requiring the product or thing be dealt with in the manner of one of the following listed past participles, to my mind this reinforces my conclusion; I simply cannot see how the Opal Tower and its constituent parts cannot be “supplied”, “installed”, “manufactured” or “erected”. Icon is a construction company. Such companies erect buildings, and in so doing they supply to their clients a completed building, which involves it installing many components which have been manufactured by a number of different sub-contractors. The absence of the words “built” or “constructed” are therefore of no moment. Although it may be accepted that the definition commences as “Product shall mean” (emphasis added), which indicates that the definition is exhaustive (see, eg, Cherry v Steele-Park [2017] NSWCA 295; (2017) 96 NSWLR 548 (at 571 [97] per Leeming JA, Gleeson and White JJA agreeing)), the list of words included easily accommodate the Opal Tower and its constituent parts. Further, I do not see how the Opal Tower cannot be classed, on the ordinary meaning of product, as “a thing produced by any action or operation, or by labour” – a “thing” is hardly a narrow conception.
I reject QBE’s contention that the only relevant “things” that Icon would be expected to supply as a product are those that are “an adjunct to the construction of a building”. A resort to the ordinary and natural meaning of product and thing “must depend on the subject matter in connection with which it is used and on its collocation”: Australian Temperance & General Mutual Life Assurance Sociey v Howe (1922) 31 CLR 290 (at 302 per Isaacs J). Thus, it is hard to see, for example, how such an “adjunct” may be “erected”, in the ordinary sense of that term. In the context of an insurance policy issued to a construction company which delivers large-scale building projects, it is hard to imagine what other product or thing, besides a building, would be erected such to fall within the meaning of the definition.
I further reject QBE’s reliance on the reference within the definition to the CCA and the ACL. As QBE correctly noted, the phrase “including liability arising out of the Competition and Consumer Act 2010 or similar legislation” sits awkwardly with the rest of the definition. Nevertheless, it submitted that this aspect of the definition suggests that the parties treated the expression “Product” as meaning goods the subject of obligations and liabilities under the CCA. In oral submissions, it was further put that the reference to the CCA directs attention to the sorts of things that are acquired by consumers, being goods and services, not buildings. With respect, I do not find these submissions persuasive. The phrase is introduced with the word “including”, which serves merely to illustrate that the goods in the CCA are a species of the same genus of product there defined.
As to context, QBE contended that for the Opal Tower to fall within the meaning of Product would do violence to the precise distinction drawn between Products and Completed Operations. I do not accept that submission. It will be recalled that the definition of “Products Liability and/or Completed Operations” draws a distinction between two concepts: Products and Construction Operations, being Completed Operations that are not within the defects liability period. It is to be recognised that cl 1.2 provides Icon cover in respect of property damage as a result of an occurrence in connexion with the “Products Liability and/or Completed Operations” (emphasis added). That composite phrase is itself further defined, somewhat unhelpfully, as “liability for compensation in respect of or arising out of any Product or Completed Operation” (emphasis added), where the use of the grammatical tool “and/or” is not present. QBE submits that “and/or” in cl 1.2, properly understood, means “both or either”, which confirms that Products and Completed Operations are distinct concepts, and thus to construe Product as including the Opal Tower would make the definition of Construction Operations redundant. It may be accepted that the concepts are distinct, being, as they are, separately defined. But this does not have the result for which QBE contends. Completed Operations is defined to excise construction contracts for which the defects liability has expired. This explains why the definition of Construction Operations is couched in terms of the “contract” for such operations, not the resultant object created by the performance of such a contract. Accordingly, it does not render redundant the definition of Construction Operations to construe the meaning of Product to include the Opal Tower or its constituent parts.
Further, I do not consider that construction is inconsistent with the fact that liability for Products, as defined, were the subject of certain exclusions within the QBE Policy, but not for the reasons articulated by Icon. Icon says that the exclusions do apply to Completed Operations, subject to the qualifications within those exclusions. For the reasons outlined above, that the Opal Tower is to be considered a Product within the meaning of the QBE Policy does not mean that it is to be equated with a Construction Operation, as defined. Accordingly, read fairly, it would not make sense for Exclusion 5, for example, to apply to a “contract for the construction” of tangible property, and further that that exclusion would only to apply to the extent that the damage is caused to a part of such a “contract”.
I now turn to the authorities relied upon by the parties. QBE attempted to qualify the ordinary meaning of “product’ by reference to the decision of Aspen Insurance. The dispute in that case arose out of construction work in Liverpool. The defendant company was responsible for concrete and drainage works, including the construction of concrete bases for tower cranes that were to be used in the course of the work. A heavy crane collapsed, and all experts were agreed that the loads imposed on the bases were higher than those considered in the design. The defendant company’s public liability policy excluded liability in connexion with Products. The claimant applied for a declaration of non-liability under the policy. On appeal, the Court of Appeal affirmed the reasoning of the primary judge that the concrete base constructed by the insured was not a Product. QBE relied upon the following statement of Clarke LJ (with whom Gloster and Vos LLJ agreed), in particular the emphasised portion, in support of its construction (at 518 [42]):
The meaning of ‘a product’ may elude precise definition, depending, as it does, on whether the item in question is what you would really and naturally describe as a product. Without attempting a precise definition, I would regard a hallmark of a product, in this context, as being that it was something which, at least originally, was a tangible and moveable item which can be transferred from one person to another; and not something which only came into existence to form part of the land on which it was created. I appreciate that this analysis could be said to introduce indicia which the definition does not contain and, thus, open to an objection similar to that which I expressed in para 32 above. It is, however, in my view, a more reliable guide to the correct answer to the basic question as to the meaning in this context of a product.
(Emphasis added).
It can be appreciated that this analysis appears to have been informed by the consideration that the definition in that case ends with the words “only after such item has left the Insured’s care, custody or control”. A similar qualification appears in parentheses in the QBE Policy definition of Product (“after such goods and/or products cease to be in the possession and/or under the control of the Insured”). Earlier in his Lordship’s reasons, Clarke LJ summarised the primary judge’s reasons as follows (at [28]):
The concrete base was, he held, not a product with a small “p”. It was not one of the Adana range of products; you could not buy it; it was created at the customer’s premises and not at a factory. A customer would see the activity of creating the base as part of the work on site and not as a product like a boiler to be ordered and sent to the scene.
Aspen’s criticisms of that reasoning were accepted on the basis that the definition did not provide that absent any one or more of the indicia there identified by the primary judge (part of a range/buyable separately/created offsite) an item cannot be a Product. I agree with Hargrave J’s analysis in Metricon (at [126]–[127]) of his Lordship’s reasoning; I do not agree that a hallmark of a product is something which is a “tangible and moveable” item as opposed to something which “only came into existence to form part of the land on which it was created”. In any event, such an interpretation of the ordinary meaning of “product” in the policy in issue in Aspen cannot be determinative of the policy in issue in this case; this is especially so in circumstances where the definition of Product in the QBE Policy is of such broad scope to encompass “any product or thing”.
Bigby is of little assistance. The defendant in that case argued that it was entitled to deny indemnity in reliance on an exclusion concerning “Damage to products”, on the basis that the plaintiffs’ house was a “product”. Daubney J set out the dispositive reasoning of Clarke LJ in Aspen, and, without any analysis, adopted it as his own to find that the house in that case was a product. Further, his Honour’s conclusion was reinforced by reference to certain other provisions that are not analogous with those found in the QBE Policy: see at [177]–[179].
The case of Metricon supports the construction to which I am attracted. It is to be noticed that the definition of “Product” in that case bears a strikingly close resemblance to the definition of that term in the QBE policy. The policy in that case also included a very similar definition of Completed Operations and Construction Operations. While I accept that Hargrave J’s relevant conclusion in that case was obiter, and that each contract must be construed according to its own terms, it is also to be borne in mind that the same words used in similar policies should be given a consistent interpretation where possible: Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 (at 394 per Kirby P); McCann v Switzerland Insurance [2000] HCA 65; (2000) 203 CLR 579 (at 601 per Kirby J).
I should also note that Apsen and Bigby concerned the proper construction of the term “product” for the purposes of an exclusion clause, where the definition in issue here concerns the insuring clause. For example, Clarke LJ in Aspen said that “I, also, bear in mind in reaching this conclusion that the clause in question is an exceptions clause, which supports a narrow rather than a broad interpretation”. That principle of interpretation is well established (see, eg, C.E. Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 (at 541 per Deane J)), but it is not apposite in the present case. Further, for the reasons I have explained, I reject QBE’s submission on this point that it is in fact Icon’s construction which “constrains the scope of cover by expanding the operation of [the] exclusions.” I further note, for completeness, that Metricon itself concerned an exclusion clause, but that is also of no moment. I have found that the Opal Tower and its constituent parts constitutes a Product as defined independent of that authority; it merely fortifies my conclusion.
Although it is not determinative, if QBE’s construction were correct it might be thought to be somewhat odd result. In circumstances where contracts commenced during the policy period would be covered during their defects liability period, and projects completed, but not necessarily commenced, during the policy period would be covered if the defects period had expired, it seems contrary to the parties’ intent that there would be no cover for damage occurring on projects that had been completed during the policy period but for which the defects liability period had not expired.
I.5 Conclusion on the claim against QBE
For these reasons, I find that the Incident was “in connection with” a “Product” of the Icon Group, with the consequence that the Incident reflects, or was the result of an Occurrence “in connection with” the “Insured’s Product Liability” within the meaning of Insuring Clause 1.2 of the QBE Policy. Accordingly, the claim against QBE succeeds.
J CONCLUSIONS AND ORDERS
The parties should provide short minutes to reflect these reasons (and reflecting any agreement or disagreement as to costs) within seven days.
I certify that the preceding three hundred and fifteen (315) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee. Associate:
Dated: 19 October 2020
ANNEXURE A
ICON’S OVERVIEW OF AMENDMENTS SOUGHT AS SET OUT IN THE CONTRACTS COMMENCING ENDORSEMENT
Item
Text
Evidence of Common Intention
(A)
The Schedule is amended to include:
Construction Period
Maximum Construction Period: 36 months any one Contract including any testing and commissioning period
Maximum Maintenance/Defects Liability Period: 12 Months any one Contract
This amendment has the effect of defining the “Construction Period” (which is used in Amendment (B)) and prescribing the contract limits for the “construction period” and “defects liability period” for contracts that will be covered by the Policy.
The “Maximum Construction Period” of “36 months any one Contract including any testing and commissioning period” and the “Maximum Maintenance/Defects Liability Period” of “12 months any one Contract” both appeared in the renewal slips issued by Chase [CB tab 22; p.507; tab 23 p.515; tab 37 page 767; tab 73 p.974].
Mr Hingston confirmed in cross-examination that “We had agreed that we would cover projects up to 24 months under – under the policy”, which meant that projects with a construction period of up to 24 months were automatically covered at the annual adjustment rates, irrespective of contract value [T300:1-21; T343:10-47].
When it was suggested to Mr Hingston that the relevant parameter was 36 months rather than 24 months, he readily conceded that could well be the case [T344:26-33]. Contemporaneous documents and the evidence of Mr O’Reilly confirm that the relevant limitation was 36 months, not 24 months [CB tab 37 page 767; T141:1-19; T194:21-23; T213:18-215:19].
Mr Hingston’s evidence also confirms that this was a feature of a “contracts commencing” policy, in which the premium is based on the total contract value of contracts commenced during that annual year and cover is provided for the duration of those contracts, up to a specific limit within the policy [T300:5-12].
Mr O’Reilly also gave evidence to similar effect in relation to the 36 month construction and 12 month “contractual limitations”: [T212:10 – 215:20].
Mr Hingston said there was no limit on the defects liability period, but contemporaneous documents and the evidence of Mr O’Reilly suggest that in fact there was a limit of 12 months: [CB tab 22; p.507; tab 23 p.515; tab 37 page 767; tab 73 p.974; T213:18-215:19].
The contemporaneous documents and the evidence of Mr O’Reilly should be preferred over the evidence of Mr Hingston.
Accordingly, Amendment (A) reflects the parties’ common intention.
(B)
The Insuring Clause is amended to read as follows:
The Insurer(s) agree to:
1. indemnify the Insured in respect of all amounts which the Insured shall become legally liable to pay in respect of:
(a) Personal Injury;
(b) Property Damage;
(c) interference with traffic or to property or the enjoyment of use thereof by obstruction, trespass,
loss of amenities, nuisance,
1.1 happening during the Construction Period as a result of an Occurrence in connection with the Insured's Business;
1.2 happening during the Period of Insurance as a result of an Occurrence in connection with the Insured's Products Liability and/or Completed Operations.
Insuring Clause 1 of the 2015/16 Liberty TPL Policy, in its unrectified form, provides [CB tab 80 p.1020]:
“The Insurer(s) agree to:
1. Indemnify the Insured in respect of all amounts which the Insured shall become legally liable to pay in respect of:
1.1. Personal Injury;
1.2. Property Damage;
1.3. interference with traffic or to property or the enjoyment of use thereof by obstruction, trespass, loss of amenities, nuisance,
happening during the Period of Insurance as a result of an Occurrence in connection with the Insured's Business.”
This includes cover for Products Liability and Completed Operations, which has its own separate and distinct “Limits of Liability” set out in the Schedule to the 2015/16 Liberty Policy, as follows [CB tab 80 p.1018]:
“$20,000,000 any one Occurrence unlimited in the aggregate during the Period of Insurance but limited to:
316 $20,000,000 in the aggregate during the Period of Insurance arising from Products Liability and/or Completed Operations.”
Mr O’Reilly gave evidence that it was always the intent that the “Product Liability and Completed Operations” cover in the Annual Liberty Policies responded to liabilities “post practical completion”, and the amendments introduced by TPL008 to the 2017/18 TPL Policy did not represent any substantive change in the Policy, as “I understood that was the intent all along” [CB tab 118 p 1282; CB tab 80 p1018; T215:28-
317 216:30]. Mr Hingston agreed that he understood that the Annual Liberty Policies that Liberty provided to Icon between 2012 and 2016 provided cover for Products Liability and Completed Operations [T346:9- 11]. He confirmed that there was no inconsistency in a “contracts commencing” policy also providing cover for products on hand or operations that were completed prior to the commencement of the annual period [T306:1-3].
Accordingly, Amendment (B) effects:
318 (1) substantive amendment to Insuring Clause 1 to provide for cover on a “contracts commencing” basis during the construction period and defects liability period (ie, during the “Construction Period”) in accordance with the parties’ common intention; and
319 (2) no substantive amendment to Insuring Clause 1 with respect to the cover for Products Liability and Completed Operations, given that both parties considered that cover for Product Liability and Completed Operations was provided under the 2015/16 Liberty Policy in any event.
(C)
8. Adjustment of Premium
The premium for this Policy is provisional and is based on the estimated value of works to commence during the Period of Insurance. The Insured shall, as soon as practical after the expiry date of this Policy, declare to the Insurer(s) the actual total value of works for all contracts that commenced during the Period of Insurance.
An adjustment premium shall be determined by determining the difference between the provisional premium and the sum of the agreed rate applied to the actual total value of works commenced during the Period of Insurance. The adjustment premium paid to the Insurer(s) or refunded by the Insured(s) as the case may be.
Notwithstanding the above, the maximum allowable return premium will be 25% of the provisional premium paid.
Condition 8 of the 2015/16 Liberty Policy, in its unrectified form, provides [CB tab 80 p.1026]:
“The premium for this Policy is provisional (unless otherwise agreed) and is based on the estimated Turnover for the Period of Insurance. The Insured shall, as soon as practical after the expiry date of this Policy, declare to the Insurer(s) the Turnover during the preceding Period of Insurance.
An adjustment premium shall be determined by calculating the difference between the provisional premium and the sum of the agreed rate applied to the Turnover.
Notwithstanding the above, the maximum allowable return premium will be 25% of the provisional premium paid.”
Amendment (C) effects only one substantive amendment: the premium is to be based on the value of works commenced during the Period of Insurance, rather than on Turnover.
That plainly accords with the common intention of the parties [O’Reilly [21], [26], [41]-[43], [100(a), (b) &
(d)]; T299:43-300:21; T306:18-307:7: 308:22-44; 309:31-42; 310:29-40].
(D)
15. Run Off
This Policy will continue in full force and effect at terms and conditions prevailing immediately prior to expiry for all incomplete contracts as at date of expiry until completion of those contracts including any testing and/or defects liability and/or maintenance periods subject to the Maximum Construction Period noted in the Schedule.
On expiry of the Period of Insurance the Insured is required to provide the Insurer(s) with a list of all Insured Contracts that commenced during the period of insurance and additional premium is to be calculated as per
Condition 8 (Adjustment of
Premium). Any contracts not declared to Insurers will not be covered by this Policy.
Condition 15 of the 2015/16 Liberty Policy, in its unrectified form, provides [CB tab 80 p.1028]:
“Subject to written instructions from the Insured to the Insurer(s) prior to expiry of the Period of Insurance, this Policy will continue in full force and effect at terms and conditions prevailing immediately prior to expiry for all incomplete contracts as at date of expiry until completion of those contracts including any testing and/or defects liability and/or maintenance periods.
The Insured is required to provide the Insurer(s) with a list of contracts requiring Run Off and additional premium is to be calculated on expiring rates applied to value of works declared for completion of projects after expiry of the Period of Insurance.”
The textual amendments to Condition 15 are sought on the assumption, contrary to Icon’s primary case, that Condition 15 is ineffective to provide cover on a “contracts commencing” basis. The amendments are as follows:
(1) Instead of providing for Icon to notify the Insurer(s) of “contracts requiring Run Off”, Condition 15 provides for Icon to notify the Insurer(s) of “all Insured Contracts that commenced during the period of insurance”. The evidence shows that is what Icon in fact did, all throughout the operation of the Annual Liberty Policy, and in doing so Icon/Austbrokers and Liberty/Chase understood and intended that Icon was obtaining cover for such contracts under the Policy.
320 (2) There is no substantive change to the requirement for Icon to provide written notification to Liberty of contracts commenced and declared by it for which it seeks cover. The second part of amended Condition 15 makes it plain that Icon must still provide those instructions, and accordingly, nothing turns on the deletion of the words “subject to written Instructions from the Insured to the Insurer(s)” in the first part of Condition 15.
(3) Condition 15 provides that the premium is to be calculated by applying the agreed rate to the value of works declared, which is in fact how Icon and Liberty calculated and paid the premium for each project commenced and declared to Liberty [O’Reilly [21], [26], [41]-[43], [100(a), (b) & (d)]; T299:43-300:21; T306:18-307:7: 308:22-44; 309:31-42; 310:29-40].
(4) Condition 15 is to be amended to include: “Any contracts not declared to Insurers will not be covered by this Policy.” That amendment reflects the basis of cover (ie, contracts commencing, rather than turnover).
(5) The addition of the words “subject to the Maximum Construction Period” is a reference to the matters addressed in Amendment (A) above.
(E)
The following clause is deleted in its entirety:
Turnover
Turnover is defined as the total value of work completed during the preceding twelve months
period for the Business and/or Activities of the Insured to which this Policy applies, including the value of principals supplied materials where appropriate.
The evidence confirmed that the parties never intended to conduct themselves with reference to Icon’s “Turnover” as defined in the Policy [O’Reilly [21], [26], [41]-[43], [100(a), (b) & (d)]; T299:43-300:21; T306:18-307:7: 308:22-44; 309:31-42; 310:29-40]. It is appropriate for the definition of Turnover to be deleted.
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