McMurray v AIG Insurance Australia Ltd
[2018] WASC 144
•10 MAY 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MCMURRAY -v- AIG INSURANCE AUSTRALIA LTD [2018] WASC 144
CORAM: CHANEY J
HEARD: 20 FEBRUARY 2018
DELIVERED : 10 MAY 2018
FILE NO/S: CIV 2962 of 2016
BETWEEN: FREDERICK WILLIAM MCMURRAY and JENNIFER GRACE MCMURRAY
Plaintiffs
AND
AIG INSURANCE AUSTRALIA LTD
First Defendant
RUSSELL BRESLAND
BRESLAND CONSULTANTS PTY LTD
Second Defendants
TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Third Defendant
MOSMAN BAY CONSTRUCTION PTY LTD
First Third Party
TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Second Third Party
HANS BO KRISTIAN HOLGERSSON trading as HOLGERSSONS COMPLETE HOME SERVICE
First Fourth Party
Catchwords:
Insurance - Proper construction of insurance contract - Schedule showing insured as including all principals, contractors and sub-contractors - Whether sub-contractor entitled to indemnity
Legislation:
Insurance Contracts Act 1984 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Preliminary question answered
Category: B
Representation:
Counsel:
| Plaintiffs | : | Mr G R Hancy |
| First Defendant | : | No appearance |
| Second Defendants | : | No appearance |
| Third Defendant | : | Ms J A Thornton |
| First Third Party | : | No appearance |
| Second Third Party | : | Ms J A Thornton |
| First Fourth Party | : | Mr J A Thomson SC |
Solicitors:
| Plaintiffs | : | Solomon Brothers |
| First Defendant | : | Wotton + Kearney Lawyers (Perth) |
| Second Defendants | : | Sparke Helmore Lawyers |
| Third Defendant | : | Clyde & Co (Perth Office) |
| First Third Party | : | Clyde & Co (Perth Office) |
| Second Third Party | : | Clyde & Co (Perth Office) |
| First Fourth Party | : | SRB Legal |
Case(s) referred to in decision(s):
AWB Ltd v Cole (No 2) (2006) 233 ALR 453
CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103
City of Swan v Lehman Bros Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86
Co‑operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Landsdale Pty Ltd v Moore [2009] WASCA 176
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2002) 203 CLR 579
Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107
Woodside Petroleum Development Pty Ltd v H & R ‑ E & W Pty Ltd (1999) 20 WAR 380
CHANEY J:
These proceedings arise following a fire that occurred overnight between 15 and 16 January 2016 at a house owned by the plaintiffs in Wellington Street, Mosman Park. At the time of the fire, the home was undergoing extensive renovations which were being carried out by the first third party (Mosman Bay).
The principal proceedings were brought by the plaintiffs against three defendants. The first defendant (AIG) is the insurer of the house. It denies liability under the relevant policy on the basis of a contract works exclusion.
The second defendants (Bresland parties) are insurance brokers who arranged the insurance with AIG. The plaintiffs allege that if, as AIG contends, the contract works exclusion applies, then the Bresland parties were negligent and engaged in misleading and deceptive conduct in arranging insurance containing such an exclusion.
The third defendant (Tokio) is an insurer from whom Mosman Bay procured annual project and legal liability insurance. The plaintiffs assert that that policy contained an extension by which Tokio provided insurance to all principals of Mosman Bay for contract works carried out by Mosman Bay. Tokio has denied indemnity to the plaintiffs and the plaintiffs sue Tokio for breach of contract.
Mosman Bay had entered into a sub‑contract with certain painting sub‑contractors. There is an issue in the proceedings as to the identity of the painting sub‑contractors. Mosman Bay alleges that the interior painting sub‑contract was formed with the first fourth party (Holgersson) who traded as Holgersson's Complete Home Service. Holgersson pleads that the interior painting sub‑contract was formed jointly with himself and another painting sub‑contractor, being either a company operated by Mark Simpson known as Simmos Improvements Pty Ltd or by Mark Simpson personally. The first defendant (AIG) alleges that the interior painting sub‑contractor was Simmos Improvements Pty Ltd.
The third party proceedings were commenced by AIG against Mosman Bay and Tokio. AIG claims that, if it is liable, then it is entitled to be subrogated to the plaintiffs' rights to bring proceedings against Mosman Bay. In the third party proceedings against Mosman Bay, AIG alleges that the fire was caused by the negligence of Mosman Bay's painting sub‑contractor, Simmos Improvements Pty Ltd. Pursuant to its right to subrogation, AIG claims indemnity from Mosman Bay for damage caused by Mosman Bay's sub‑contractor pursuant to the terms of the building contract between the plaintiffs and Mosman Bay. It also claims damages for breach of the building contract provision which required Mosman Bay to procure contract works insurance for the existing house as well as new contract works being carried out by Mosman Bay.
AIG also claims, pursuant to a right of subrogation, against Tokio under its annual project and legal liability insurance for damage caused to the contract works on the basis that the plaintiffs were the principal under the building contract with Mosman Bay and were insured by the policy issued by Tokio.
Mosman Bay instituted fourth party proceedings against Holgersson. Subsequently, Mosman Bay has indicated that it does not propose to defend the third party proceedings brought against it by AIG. Tokio proposes however to require Mosman Bay to maintain the proceedings against Holgersson pursuant to Tokio's rights of subrogation under its policy with Mosman Bay. It is that requirement that has given rise to Holgersson's application to have two preliminary issues dealt with. Those issues are as follows:
(1)Does the Annual Projects Construction and Legal Liability Insurance Policy (Policy No E10003079) (Tokio Policy) issued by Tokio provide legal liability insurance cover for Property Damage under cl 1 of section 2 to Holgersson?
(2)If the Tokio Policy provides the insurance referred to in issue (1), is the effect of condition 6 of the conditions applicable to section 2 of the Tokio Policy that the first third party has agreed to waive its rights of subrogation under the Tokio Policy against Holgersson, whether or not Holgersson has other legal liability insurance?
I directed the parties to file submissions both as to whether the questions identified should be dealt with as preliminary issues, and as to their arguments in relation to those questions.
At the hearing of this application, the parties were agreed that regardless of the court's determination of the first preliminary question, it is unnecessary for the court to determine the second preliminary question. That is because Tokio accepts that if Holgersson is insured under the Tokio Policy, the doctrine of circuity of action would preclude the maintenance of any subrogated claim by Mosman Bay against Holgersson.
Should there be a determination of the preliminary issues?
The applicable principles as to when the court should make a direction pursuant to O 32 r 4 of the Rules of the Supreme Court 1971 (WA) for the trial of a separate question or issue were not in dispute between the parties. They were conveniently summarised by Rares J in City of Swan v Lehman Bros Australia Ltd[1] drawing on the review of authorities by Young J in AWB LTD v Cole (No 2).[2] Rares J identified the principles as follows:
[1] City of Swan v Lehman Bros Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86 [27].
[2] AWB Ltd v Cole (No 2) (2006) 233 ALR 453 [26] ‑ [40].
(1)As a general rule the starting point is that all issues of fact and law should be determined at the one time.
(2)A party seeking the determination of separate questions must satisfy the court that it is 'just and convenient' for the order to be made. The order must be made on concrete facts, either established or agreed, for the purpose of quelling a controversy between the parties so as to produce a conclusive or final judicial decision on the issue, which is of a real, not hypothetical, importance to the determination of the controversy.
(3)There are special problems where the separate issue involves a mixed question of fact and law, although it may still be able to be decided as a separate issue. However, care must be taken in precisely formulating the question and specifying the facts upon which it is to be decided.
(4)The court must have all relevant matters before it as a precondition of it being asked to exercise its discretion if the separate question involves the grant or refusal of declaratory relief.
(5)It may still be appropriate to determine a separate question even if it will not resolve all the issues, provided that there is a strong prospect that the parties will agree upon the result when the core of the dispute has been decided or if the decision will obviate unnecessary and expensive hearings of other questions.
(6)Generally speaking an issue will not be appropriate for separate determination if it is simply one of two or more alternative ways in which an applicant or plaintiff frames its case and its determination would leave other significant issues unresolved.
(7)It is relevant to consider whether:
•the separate questions will contribute to the saving of time and cost by substantially narrowing the issues for trial or even lead to the disposal of the proceedings;
•they will contribute to the settlement of the proceedings;
•they will give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of the trial;
•there will be any significant overlap between the evidence adduced on the hearing of the separate question and a trial;
•the questions will prolong, rather than shorten, the proceedings.
In Landsdale Pty Ltd v Moore,[3] Newnes JA, with whom Buss JA agreed, affirmed that it is a relevant consideration, in determining whether or not issues should be tried separately, that one course or another may assist in leading to a settlement of the action.
[3] Landsdale Pty Ltd v Moore [2009] WASCA 176 [28].
For the purposes of the consideration of the preliminary questions, the parties submitted a book of agreed documents which comprised the certificate of currency for the Tokio Policy, the Policy Schedule and the policy wording of the Tokio Policy and the proposal submitted by Mosman Bay for the Tokio Policy. The parties also submitted a statement of agreed facts which read as follows:
1.The First Third Party, Mosman Bay Construction Pty Ltd (Mosman Bay) is a registered building company which was contracted by the Plaintiffs to undertake renovation works (the Renovation Works) at their property at 179 Wellington Street, Mosman Park (the Property).
2.Mosman Bay submitted a proposal dated 20 May 2015 to obtain an annual projects and legal liability insurance policy through the Second Third Party, Tokio Marine & Nichido Fire Insurance Co Ltd (Tokio) for the Renovation Works.
3.Tokio issued Mosman Bay an annual projects construction and legal liability insurance policy for the period 1 June 2015 to 1 June 2016 (the Tokio Policy).
4.The signed copy of the Policy Schedule for the Tokio Policy is dated 20 May 2015.
5.The Renovation Works commenced in May 2015.
6.The written building contract between Mosman Bay and the Plaintiffs was entered into in about October 2015.
7.The Renovation Works included interior painting works.
8.Holgersson's Complete Home Service (Holgersson) is a registered business name with the sole proprietor being Hans Holgersson.
9.There is a dispute as to the identity of the party that was subcontracted by Mosman Bay to do the interior painting works. Mosman Bay alleges that it subcontracted the interior painting works to Holgersson. Hans Holgersson says it a was a joint contract between Mosman Bay and himself and Simmos Improvements Pty Ltd, alternatively Mark Lawrence Simpson (Simpson), acting jointly (the Interior Painting Subcontract).
10.The Interior Painting Subcontract was entered into on or about 26 October 2015. It was not a term of the Interior Painting Contract that Mosman Bay was required to obtain insurance cover for the benefit of the subcontractor.
11.The Interior Painting Subcontract was performed by various employees, subcontractors or agents of Holgersson (and Holgersson alleges also of Simmos Improvements Pty Ltd or Simpson) (the Painters).
12.The Interior Painting Subcontract required the Painters to carry out the staining of all timber wall panelling, skirting, new doors and frames to match the timber floor.
13.Early in the hours of 16 January 2016 a fire caused substantial damage to the Property (the Fire).
14.At the time of the Fire, the Renovation Works (including the interior painting works being carried out by the Painters) were still being undertaken.
15.The damage to the Property is the subject of these proceedings.
16.The cause of the Fire is a matter in dispute in these proceedings.
17.Tokio Marine has agreed to grant indemnity to Mosman Bay for the damage the Fire caused to the Renovation Works.
18.Tokio currently maintains the fourth party proceedings in the name of Mosman Bay in a claimed exercise of a right of subrogation.
The preliminary questions identified by Holgersson are questions as to the proper construction of the Tokio Policy. Holgersson submitted that those questions can be answered by reference solely to the agreed bundle of documents seen in the context of the agreed facts. Tokio agreed that, so long as no reliance was placed on matters external to those facts and documents, the preliminary questions were capable of resolution.
The application to determine preliminary questions was brought on the basis that the answers to the questions had the potential to finally resolve the fourth party proceedings on the basis that, if answered in favour of the fourth party, Tokio would be unable to require Mosman Bay to maintain the fourth party proceedings. It was also submitted that resolution of the question either way would significantly enhance the prospect of settlement of the proceedings. With the number of parties involved in these proceedings and the nature and number of the issues to be resolved, which will inevitably involve a reasonably long trial, it is clearly desirable that the parties fully investigate settlement so as to avoid costs becoming disproportionate to the amount in issue.
In the circumstances, I am satisfied that it is appropriate to deal with and answer the preliminary questions in respect of which the parties have fully presented their arguments.
Terms of the Tokio Policy
The policy issued by Tokio is entitled 'Annual Projects Construction and Legal Liability Insurance Policy'. It comprises a 24‑page standard form document together with a policy schedule and a certificate of currency.
Under the heading 'Annual Projects Construction and Legal Liability Insurance', the policy provides:
The Company and You are identified and referred to in the Policy and the Schedule.
You having paid, or agreed to pay, to Us, the premium shown in the Schedule for the Policy Period or a premium as advised by Us as applying to any subsequent period, We will provide insurance against the risks described in each Section, subject to the Terms, Conditions, Exclusions and Endorsements of this Policy.
That clause utilises the defined term 'You'. The policy defines a number of terms used within it. The definitions are applicable to both section 1 and section 2 of the policy. Section 1 deals with Property Damage Cover and section 2 deals with Legal Liability. 'You', 'Your' and 'Insured' are defined in item 26 of the definitions to mean 'the Person(s) or legal entity named in the Schedule'. The Schedule describes 'insured' as:
Mosman Bay Construction Pty Ltd
and all Principals, Contractors and Sub‑Contractors
Although the words 'Principals', 'Contractors' and 'Sub‑Contractors' used in the Schedule are capitalised as though they are defined terms, there is no definition of those words found within the policy document.
The definitions applicable to section 1 and section 2 include a definition of the term 'Named Insured' (being item 14 of the definitions) as follows:
Named Insured shall mean:
(a)You.
(b)Your personal; representatives
(c)Additional Insured(s):
(a)any principal; or
(b)the head contractor; or
(c)the project manager; or
(d)all contractors and sub‑contractors but excluding manufacturers and suppliers,
not being You but being a legal entity with whom You have entered into a Contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract, and only in respect of work performed as a part of the Project.
(d)Any officers, committees or members of Your canteen, sports, social and welfare organisations and any member of Your fire, first aid, medical or ambulance services whilst acting in their capacity as such and in respect of activities associated with the Project, and acting performed within the scope of their duties in their respective capacity.
(e)Any legal entity identified by name in the Schedule as having a financial, legal, or equitable interest in the Project, but only in respect of the insurance provided under Section 1 and only to the extent of such financial, legal, or equitable interest.
The Named Insured(s) as outlined above should represent the entire group as described unless specified in the Schedule.
As noted above, section 1 deals with Property Damage Cover (Cover). The Cover is described as follows:
A.Construction Period Cover
We will indemnify You for Damage to the Contract Works and other Insured Items as specified in the Schedule from any cause, not excluded, occurring at the Project site as set out in the Schedule during the Construction Period including materials, components and equipment to be incorporated in the Insured Project, whilst in storage or in transit within the Commonwealth of Australia.
B.Commissioning Period Cover
Where a commissioning period is required by the Contract conditions we will indemnify the Named Insured against damage caused by Breakdown of any of the items the subject of this condition and which
(a) arise out of the performance of the commissioning
(b)occur and are discovered during the commissioning period.
C.Defects Liability Period Cover
Where a Defects Liability Period is required by the Standard Contract conditions, we will indemnify the Named Insured for damage to, the Contract Works from any cause, not hereafter excluded, and which:
(a) manifests itself during the Defects Liability Period; and
(b) originates from:
(i)a cause (unless excluded) occurring and arising out of the Contract works carried out by the Named Insured during the Construction Period and at the Project Site; or
(ii)any cause (unless excluded) occurring and arising out of the course of operations carried out by the Named Insured on the Project Site in complying with the requirements of the Defects liability clause or the Maintenance Period clause in the Standard Contract.
The insurance shall cease to attach to the whole or any separable portion of the Contract Works following cessation of the Defects Liability Period.
Those provisions contain further defined terms, being 'Contract Works' and 'Contract'.
'Contract' is defined as follows:
Contract shall mean the contract or agreement between any of the Named Insured(s) under 14 a), b) and c), which gives rise to the Contract Works, and includes any sub‑contract or sub‑contract agreement entered into pursuant to such contract or agreement.
'Contract Works' are defined to mean:
Contract Works shall mean the cost of labour and all the materials incorporated in, or to be incorporated in the Project and included within the estimated construction value at the commencement of the Project.
Section 2 deals with Legal Liability. Clause 1 deals with the coverage under that section of the policy as follows:
What We Cover
We agree (subject to the terms, Claims Conditions, General Conditions, Exclusions, Definitions and Limits of Liability incorporated herein) to pay to You or on Your behalf all amounts You shall become legally liable to pay as compensation in respect of:
1.1Personal injury; and/or
1.2Property Damage; and/or
1.3Advertising Injury;
Happening during the Policy Period within the Geographical Limits and caused by or arising out of an Occurrence in connection with the Project.
The conditions applicable to section 2 include condition 3 dealing with cross liabilities, which provides:
Cross Liabilities
This insurance extends to indemnify:
3.1Each of the parties comprising the Named Insured; and
3.2Each of the Insured(s) hereunder, separately in the same manner and to a like extent as though policies had been issued in their separate names.
In particular, but without limiting the foregoing, this insurance shall indemnify each of the parties described in clauses 3.1 and 3.3 in respect of claims made by any other of such parties.
Provided always that:
3.4Each of such parties shall be separately subject to the terms, Claims Conditions, General Conditions, Exclusions and Definitions of this Policy in the same manner and to a like extent as though separate policies had been issued; and
3.5.in no case shall the amount payable by Us in respect of any one claim or series of claims arising out of any one Occurrence or in the aggregate, as the case may be, exceed the applicable Limit of Liability as specified in the Schedule.
Clause 5 of the conditions applicable to section 2 deals with subrogation as follows:
Subrogation and allocation of the proceeds of recoveries
Subject to Condition 6 'Subrogation waiver', any corporation, organisation or person claiming under this insurance shall, at Our request and at Our expense, do and concur in doing and permit to be done all such acts and things that may be necessary or may reasonably be required by Us for the purpose of enforcing any rights and remedies, or of obtaining relief of indemnity from any other organisation(s) or person(s), to which We shall be or would become entitled upon Us paying for or indemnifying You in respect of legal liability under this insurance. If the Insurer makes any recovery as a result of such action, the Insured may only recover from the Insurer any amount by which the amount recovered by the Insurer exceeded the amount paid to the Insured by the Insurer in relation to the loss.
Clause 6 of the conditions applicable to section 2 contains a subrogation waiver in the following terms:
Subrogation waiver
Notwithstanding Condition 5 We hereby agree to waive our rights of subrogation under this Policy against:
6.1Each of the parties described under Definition 14.
6.2Any corporation, organisation or person which or who owns or controls the majority of the capital stock of any corporation or organisation to which or to whom protection is afforded under this Policy.
Where such corporation, organisation or person is protected from liability insured against hereunder by any other policy of indemnity or insurance, Our right of subrogation is not waived to the extent and up to the amount of such other policy.
The general conditions applicable to section 1 and section 2 contain a provision relating to joint insurance in the following terms:
Joint Insurance
A claim made by any one of the people or entities named as the Insured in the Schedule is a claim made by all of the people or entities named as the Insured. Similarly, any statement, act or omission made by any person or entity named as the Insured in the Schedule is assumed to be made by all people or entities named as the Insured.
Condition 13 applicable to section 1 and section 2 provides:
Contractors and Sub‑contractors insurances
You must ensure that all contractors and sub‑contractors to be included within the Named Insured carry a current Public Liability Policy with a minimum Limit of Liability of $10,000,000.
Holgersson's contentions
Holgersson contends that he is insured pursuant to the Tokio Policy because he is named in the Schedule, and thus comes within the definition of 'You' in item 26 of the definitions. He contends that he is 'named' in the Schedule for the purpose of that definition by reason that he comes within the class of persons referred to as the 'insured' in the Schedule because he is a sub‑contractor to Mosman Bay. He notes Tokio's contention that Holgersson is not named in the Schedule because it is not specifically mentioned by proper noun, and contends that the effect of that construction of the policy is to render those classes of persons referred to as 'all Principals, Contractors and Sub‑Contractors' uninsured and to render the Schedule misleading. He contends that Tokio's construction is inconsistent with the definition of 'Named Insured' contained in item 14 of the definitions which specifically extends to classes of persons. That is said to be evidenced by the definition of 'Additional Insured(s)' in par (c) and from the reference to 'any officers, committees or members of Your canteen, sports, social or welfare organisations etc' in par (d). He submits that those extensions are inconsistent with the suggestion that 'named' in the definition of 'You' should be construed as meaning a person named by proper noun.
Further, Holgersson contends that the proposed limitation advanced by Tokio is inconsistent with the commercial purpose of the type of project insurance undertaken by Mosman Bay. It is said that it does not align with the comments made by Lloyd J in Petrofina (UK) Ltd v Magnaload Ltd[4] where his Honour said:
In the case of a building or engineering contract, where numerous different sub‑contractors may be engaged, there can be no doubt about the convenience from everybody's point of view, including, I would think, insurers of allowing the head contractor to take out a single policy covering the whole risk, that is to say covering all contractors and sub‑contractors in respect loss of or damage to the entire contract works. Otherwise each sub‑contractor would be compelled to take out his own separate policy. This would mean, at the very least, extra paperwork; at worst it could lead to overlapping claims and cross claims in the event of an accident. Furthermore … the cost of insuring his liability might, in the case of a small sub‑contractor, be uneconominal. The premium might be out of all proportion to the value of the sub‑contract. If the sub‑contractor had to ensure his liability in respect of the entire works, he might well have to decline the contract.
[4] Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 [136].
Holgersson contends that that commercial rationale underlies the decisions of the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd[5] and the Court of Appeal in this State in Co‑operative Bulk Handling Ltd v Jennings Industries Ltd[6] and Woodside Petroleum Development Pty Ltd v H & R ‑ E & W Pty Ltd.[7]
[5] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 [124], [172].
[6] Co‑operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257.
[7] Woodside Petroleum Development Pty Ltd v H & R ‑ E & W Pty Ltd (1999) 20 WAR 380 [389].
Finally, Holgersson contends that the construction advanced by Tokio is inconsistent with the operation of s 48 of the Insurance Contracts Act 1984 (Cth) which provides for the recovery from an insurer by a third party beneficiary under a contract of insurance.
The plaintiffs' contentions
The plaintiffs support Holgersson's contentions. They contend that Holgersson comes within the definition of 'You' by reason of being a sub‑contractor, and is therefore within the class of persons referred to in the Schedule. The plaintiffs also contend that they are entitled to coverage under the Tokio Policy by reason of being principals. That is not, however, a contention which calls for determination in the context of the identified questions for preliminary determination.
Tokio's contentions
Tokio contends that the words or phrases used in the definition of 'You' indicate a clear intention to precisely identify who falls within the scope of the definition of 'You'. It contends that the reference in the Schedule to 'All Principals, Contractors and Sub‑Contractors' is not a reference to 'a person or a legal entity' that is 'named' in the Schedule.
Tokio points to the definition of 'Named Insured' and in particular the extension of that definition found in par c). That extension applies, relevantly, to sub‑contractors 'not being You but being a legal entity with whom You have entered into a contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract, and only in respect of the work performed as part of the Project'. Tokio contends that if all contractors and sub‑contractors fell within the scope of the definition of 'You', then the carefully drafted limit on the cover found in the definition of 'Named Insured' would have no effect.
Tokio also contends that the interpretation advanced by Holgersson is not a commercial interpretation of the policy bearing in mind the obligations and rights that 'You' has under the Tokio Policy and the premium paid. It contends that the interpretation advanced by Holgersson would not give the Tokio Policy a business‑like construction, in that it would fail to render all the words used in the policy harmonious with one another.
Tokio contends that it would not make sense for the obligations imposed on 'You' under the Tokio Policy to apply to persons falling generally into the category of all principals, contractors and sub‑contractors because at the time of taking out the policy and paying the premium, all principals, contractors and sub‑contractors would not be known.
Tokio also contends that if all principals, contractors and sub‑contractors are insured under the Tokio Policy, then cl 6.1 of the conditions applicable to section 2, which contains the subrogation waiver in relation to claims against each of the parties described as 'Named Insured', would be redundant because of the doctrine of circuity of action.
Construction of insurance policies
A policy of insurance is a commercial contract which should be given a business‑like interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure.[8]
[8] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2002) 203 CLR 579 [22]; CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 [43].
The terms of a commercial contract are to be determined by what a reasonable business person would have understood those terms to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.[9]
[9] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].
The proper construction of the Tokio Policy
The primary issue for resolution concerns the relationship between the definition of 'You' and the description of the insured in the Policy Schedule. The expressions 'You' and 'Insured' are both defined in item 26 of the definitions, and therefore bear the same meaning and are interchangeable. That meaning is a 'person(s) or legal entity named in the Schedule'. The Schedule uses the expression 'Insured' which it identifies as Mosman Bay Construction Pty Ltd and all principals, contractors and sub‑contractors. Tokio contends that 'named' necessarily means named by proper noun. I reject that contention.
The difficulty with Tokio's construction is that it fails to give meaning to the inclusion of the words 'and all Principals, Contractors and Sub‑Contractors' where they appear in the Schedule.
Condition 3.2 of section 2 (set out above at [27]) contemplates that there is more than one 'Insured' and contemplates coverage for each insured as though separate policies had been issued to them.
Tokio argues that those words should be, in effect, read as 'Principals, Contractors and Sub‑Contractors to the extent that they may be covered by this policy'.[10] It contends that in order to determine what cover principals, contractors or sub‑contractors may have under the Tokio Policy, it is necessary to look to the policy wording, and that the Schedule must be read subject to the policy terms. It is clear, however, that the definition of 'You' and 'Insured' depends for its content on the provisions of the Schedule. Furthermore, the proposition that the reference to principals, contractors or sub‑contractors should be qualified in the way suggested by Tokio ignores the presence of the word 'all' where it appears before principals, contractors and sub‑contractors in the Schedule.
[10] ts 47.
In my view, it is artificial to construe the word 'named' in the definition of 'You' and 'Insured' as meaning named by proper noun. There can be no doubt, because the words are clear, that a reasonable business person reading the Policy Schedule description of the Insured would understand the policy to extend to all principals, contractors and sub‑contractors regardless of whether their particular name was specified. That construction is also supported by the introductory words of the Tokio Policy which read 'the Company and You are identified and referred to in the Policy and the Schedule' (emphasis added). All contractors and sub‑contractors are referred to in the Schedule.
It is true that the inclusion of all principals, contractors and sub‑contractors as 'You' appears to render par c) of the definition of 'Named Insured' unnecessary. That is not a reason to qualify the description of the insured in the Schedule or to give that description anything other than its plain meaning. There are numerous provisions in the boiler plate provisions of the Tokio Policy that plainly have no application to the project to which the insurance relates. For example, it is difficult to see any relevant application to the project of some of the categories of persons referred in par d) of the definition of Named Insured such as committees or members of Your canteen, sports, or social or welfare organisations. Some of the exclusions applicable to section 1 of the Tokio Policy such as loss or damage to any vessel or thing intended to float on water (exclusion 10), or loss and damage resulting from the normal action of the sea (exclusion 22), are examples. Similarly, in relation to section 2, exclusions in relation to Aircraft, Hovercraft and Watercraft (exclusion 4) and Aircraft Products (exclusion 5) can have no sensible application to the project the subject of the insurance. That the specific extension of coverage to all principals, contractors and sub‑contractors might render certain provisions of the policy terms unnecessary or redundant is not a reason to limit that express and specific description of the Insured. The Schedule is a document drawn specifically to deal with the particular insurance contract.
In oral submissions, Tokio argued that principals, contractors and sub‑contractors are referred to in the Schedule because there are circumstances in which the policy provides coverage to those classes of person. By way of example, it refers to coverage to contractors and sub‑contractors where they come from within par c) of the definition of 'Additional Insured'. However, there are other classes of persons referred to in par d) of that definition who are not referred to by class in the Schedule. There is no apparent reason why principals, contractors and sub‑contractors would be singled out for reference in the Schedule because they may have coverage as additional insured, but other additional insured should not be mentioned.
The passage from Petrofina (UK) v Magnaload Ltd set out above (at [33]) has been cited with approval by the Full Court of this Court in Woodside Petroleum Development and Co-operative Bulk Handling.[11] A similar rationale underlay the decision of the High Court in Trident General Insurance Co.[12] Tokio argues that the nature of the Tokio Policy, being in relation to a specific single project, differs in character from those considered in the cases just mentioned. Having reviewed those cases, I do not consider that any difference in the nature of the policies considered in each of the cases leads to the conclusion that that underlying rationale is inapplicable in the present case. I therefore reject Tokio's contention that the interpretation advanced by Holgersson is not a commercial interpretation of the Tokio Policy either because it was only Mosman Bay which paid the premium or because all contractors and sub‑contractors were not known at the time the policy was taken out.
[11] Co‑Operative Bulk Handling [269].
[12] Trident General Insurance Co [124] (Mason CJ & Wilson J), [172] (Toohey J).
Some reliance was placed by Tokio on the contents of the proposal which it completed in applying for the Tokio Policy. Although reference is made in the Tokio Policy to the insured's duty of disclosure, nothing in the Tokio Policy purports to incorporate the proposal into the Tokio Policy. The proposal is of no assistance in construing the words used in the Tokio Policy, including the Schedule.
Conclusion
For those reasons, the answer to the first issue is that the Tokio Policy does provide legal liability insurance for property damage under cl 1 of section 2 to the first fourth party.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TS
ASSOCIATE TO THE HONOURABLE JUSTICE CHANEY10 MAY 2018
4
9
2