TGI Australia Limited v QBE Insurance (Europe) Limited

[2007] NSWSC 1254

CITATION:	TGI Australia Limited v QBE Insurance (Europe) Limited [2007] NSWSC 1254 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	30 October 2007
JUDGMENT OF:	Hammerschlag J
EX TEMPORE JUDGMENT DATE:	30 October 2007
DECISION:	Summons dismissed with costs.
CATCHWORDS:	CONTRACT – Construction of clause in insurance contract
PARTIES:	TGI Australia Limited (ACN 000 041 458) Allianz Australia Insurance Limited (ACN 000 122 850) QBE Insurance (Europe) Limited ERC Frankona Reinsurance (III) Limited
FILE NUMBER(S):	SC 50049/2007
COUNSEL:	I.M. Jackman SC with D.F.Villa (First & Second Plaintiffs) D.L. Williams SC with D.S. Weinberger (First & Second Defendants)
SOLICITORS:	Kennedys Lawyers (First & Second Plaintiffs) McCabe Terrill (First & Second Defendants)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMERSCHLAG J

TUESDAY 30 OCTOBER 2007

(EUROPE) LTD & ANOR

EX TEMPORE JUDGMENT

Introduction

1 HIS HONOUR: The facts which give rise to this controversy are not in dispute.

2 In about 1999 Rail Infrastructure Corporation (“RIC”) (formerly Rail Access Corporation) contracted with Barclay Mowlem Constructions (NSW) Limited or a related company, ("Barclay Mowlem"), to carry out certain works at Redfern railway station.

3 Barclay Mowlem held two insurance policies which were current in July 1999.

4 The first was a policy (“the underlying insurance”) with the first plaintiff, TGI Australia Ltd, which covered it up to $2.5M for any occurrence during the period of insurance which caused bodily injury and/or personal injury for which Barclay Mowlem became legally obliged to pay damages.

5 The second was a policy with the second plaintiff, Allianz Australia Insurance Limited, (“the umbrella insurance”), which covered it for liability in excess of the amount recoverable under the underlying insurance up to $20M for any one occurrence.

6 RIC held a policy, current in July 1999, obtained through London Insurance and Reinsurance Market Assurance (“the LIRMA policy”) with the first defendant QBE Insurance (Europe) Limited, the second defendant ERC Frankona Reinsurance (III) Limited and Independent Insurance Company Ltd. The last mentioned company failed and is not a party to these proceedings. The first and second defendants each undertook one third of the risk under the LIRMA policy.

7 On about 10 July 1999, during the course of the work, Mr Garry Buckman sustained a serious head injury and by his tutor commenced proceedings in this Court against Barclay Mowlem and RIC.

8 On or about 18 October 2004 Barclay Mowlem and RIC entered into an apportionment agreement (embodied in an exchange of correspondence) under which the amount of any liability to Mr Buckman would be apportioned 80 per cent to Barclay Mowlem and 20 per cent to RIC. In addition, it was agreed that solicitors who had been acting for Barclay Mowlem in the proceedings would act on behalf of both Barclay Mowlem and RIC. It was agreed that it remained open for the first plaintiff to seek contribution from any other party or any other insurer in respect of the liability which had arisen.

9 The proceedings by Mr Buckman were settled.

10 Pursuant to the settlement, Barclay Mowlem and RIC, under indemnity from the plaintiffs, paid him $3.2M, plus an amount of $365,784 for funds management, and an amount of $385,000 for his costs of the proceedings. In addition, the plaintiffs paid Barclay Mowlem’s and RIC’s costs of defending the proceedings in the amount of $272,753.24 .

11 The plaintiffs assert that Barclay Mowlem was an insured under the LIRMA policy in respect of its liability to Mr Buckman and that the defendants were obliged to indemnify it accordingly.

12 The plaintiffs claim that the defendants are liable to contribute rateably to the amounts paid by them on behalf of Barclay Mowlem to Mr Buckman. They assert further that the defendants are obliged to make contribution with respect to the costs incurred by them in defending his claim.

13 The contribution sought from each defendant is one third of half of what was paid by the plaintiffs, which amounts to $572,230.07.

The Issues

14 There are two issues. The first and principal issue is whether, on the proper construction of the terms of the LIRMA policy, Barclay Mowlem was an insured under it. The second issue is if Barclay Mowlem was an insured under the LIRMA policy, whether RIC was liable for a share of the defence costs and had indemnity in respect of those costs from the defendants so that the defendants were obliged to make contribution to the plaintiffs in respect of the plaintiffs’ payment of those defence costs.

Was Barclay Mowlem an insured under the LIRMA policy?

15 The cover provisions in the LIRMA policy are divided into two sections.

16 Section I is entitled “Primary Broadform Public & Products Liability Insurance”. Paragraph 1.1 is entitled “Liability” and is in the following terms:

“1.1 Liability
Subject to the Limit of Liability stated in the Schedule, the Insurer will pay to the Insured or on the Insured’s behalf all sums which the Insured shall become legally liable to pay by way of damages (excluding punitive, exemplary or multiple damages) by reason of:
i. Personal Injury
ii Property Damage
iii Advertising Liability
occurring during the Period of Insurance as a result of an Occurrence in connection with the Insured’s business.”

17 Section II is entitled “Primary Contract Works Third Party Liability Insurance”. Under the heading “Insuring Clause”, par 1.1A provides as follows:

“1.1 A The Insurer will indemnify the Insured for all
amounts which the Insured shall become liable to pay in respect of or arising out of or by reason of:
(a) Personal Injury or
(b) Property Damage
as a result of an Occurrence during the Period of Insurance arising out of or in connection with or in relation to:
- Any Insured Contract.”

18 There is no issue that Mr Buckman’s accident was an Occurrence under the LIRMA policy.

19 The LIRMA policy contains no definition of Insured Contract.

20 Under Section I there is a deductible of $100,000 in respect of each and every loss. There is nil deductible under Section II in respect of Personal Injury losses.

21 The insured under the LIRMA policy is the “Insured named in the Schedule”. Under the heading “Insured”, the Schedule provides as follows (“the Definition”):

“ Section I
RAIL ACCESS CORPORATION including subsidiary or controlled companies now or previous existing or hereafter formed or acquired.
Section II
1. RAIL ACCESS CORPORATION, RAIL SERVICES AUSTRALIA and ALLIANCE CONTRACTORS
2. Any Firm or Company now or subsequently constituted which is or becomes a subsidiary, associated or controlled company under the control of the Named Insured or over which the Named Insured has or assumes active management.
3. Any Person, Firm or Company with which any of the foregoing in 1 or 2 above enter into a Joint Venture, Partnership or similar Contract, Agreement or Arrangement.
The foregoing in 1, 2 and 3 are hereinafter referred as the ‘Named Insured’;
Additional Insureds
4. Any ‘Principal’ being any principal or proprietor or other person or organisation (by whatever name) for or on behalf of whom an Insured Contract is carried out.
5. (i) Contractors and/or Sub-contractors including, but not limited to, manufacturers, suppliers, lower tier sub-contractors and any other person, firm or company whom any of the foregoing in 1, 2, 3 or 4 above have agreed to include as an Insured in this Policy, or are required to indemnify, hold harmless or release from liability by virtue of any contract or agreement;
(ii) Any successor or permitted assign of any of the foregoing in 1, 2, 3, 4 or 5(i) above, subject to prior agreement by the Lead Insurer, whose agreement shall not be unreasonably withheld;
(iii) Any director, partner, officer or employee and/or family of any of the foregoing in 1, 2, 3, 4, 5(i) and 5(ii) above whilst acting with the authority or on behalf thereof;
6. Railcom, but only with respect to Section I of this Policy;
7. Architects, engineers or other consultants and/or their employees; in conjunction with any insured contract;
8. Any other person, firm or company having an insurable interest pursuant to this Policy;
All for their respective rights interest and liabilities.”

22 It is not in issue that Barclay Mowlem was in the relationship of a Contractor with RIC.

23 There is also no issue that no person described in 1, 2, 3 or 4 of the Definition had agreed to include Barclay Mowlem as an Insured in the LIRMA policy and that none of them were required to indemnify, hold harmless or release from liability Barclay Mowlem by virtue of any contract or agreement.

24 The question of construction which arises is whether cl 5(i) of the Definition requires that for a person to be an Insured under it, one of the persons described in pars 1, 2, 3, and 4 of the Definition must have agreed to include that person as an Insured in the LIRMA policy (“an inclusion agreement”) or must have agreed to indemnify, hold harmless or release that person from liability by virtue of any contract or agreement.

25 Put another way, does cl 5(i) of the Definition provide for two categories of Additional Insureds, one being "Contractors and/or Sub-contractors including, but not limited to, manufacturers, suppliers, and lower tier sub-contractors” and another consisting of “any other person, firm or company whom any of the foregoing in 1, 2, 3 or 4 above have agreed to include as an Insured in this Policy, or are required to indemnify, hold harmless or release from liability by virtue of any contract or agreement", or does it provide for only one category, that is Contractors and others who are the subject of an inclusion agreement with, or who have an indemnity from, one of the persons described in 1, 2, 3 or 4?

26 Mr I.M. Jackman SC, who together with Mr Villa of counsel appeared for the plaintiffs, put that there was a separate and free standing category of Insureds, namely Contractors and Sub-contractors (including but not limited to manufacturers, suppliers and lower tier contractors) of which Barclay Mowlem was one, and a further category of those who were the subject of an inclusion agreement or indemnity. On this construction Barclay Mowlem qualifies as an Additional Insured without the necessity of an inclusion agreement or indemnity.

27 Mr D.L. Williams SC, who together with Mr D.S. Weinberger of counsel appeared for the defendants, put that the words from “whom any of the aforegoing…” were words qualifying all the persons previously designated in the provision and no person who was not the subject of an inclusion agreement or indemnity was an Additional Insured. On this construction Barclay Mowlem does not qualify as an Additional Insured because there is no inclusion agreement or indemnity.

28 I have come to the conclusion, for the reasons which follow, that the correct construction is that contended for on behalf of the defendants.

29 Each of pars 1, 2, 3, 4, 5(ii) and (iii), 6, 7 and 8 of the Definition encapsulates a single cohesive concept. On the construction contended for by the plaintiffs, par 5(i) would encapsulate two separate logically and rationally unrelated concepts and so construed would be inconsistent with the general structure of the Definition.

30 An ordinary grammatical reading of par 5(i) favours the defendants’ construction. There is no "and" but rather a comma between “suppliers” and “lower tier sub-contractors”. Hence the words “and any other person, firm or company” are part of the group rather than separate from those who are described after the word “including”. The words from “whom any of the foregoing…” thus qualify all of the persons referred to previously. It seems to me that if the construction contended for by the plaintiffs was correct, the word "and" would necessarily appear between the word "suppliers" and the words "lower tier subcontractors". Appearing where it does, the word “and” indicates that each of the designated persons with whom the provision commences together with the other persons, firms or companies to whom the remainder of the provision applies, are one and the same category.

31 Each of the other paragraphs in the Definition provides for a fixed and discernible relationship between the Named Insured and the Additional Insureds. The plaintiffs’ construction would extend the ambit of insureds to manufacturers, suppliers and lower tier sub-contractors per se and would include persons and entities with an extremely remote connection to the Named Insured. Such a construction would have an almost limitless operation. Construed as put by the defendants, the Insurer would be in a position at any time to ascertain from the Named Insureds or their Principals who are the persons who are covered by par 5(i). The latter construction is, to my mind, more commercially realistic than that contended for by the plaintiffs.

32 Some support is to be garnered for the defendants’ construction from the provisions of par 5(ii) which concerns successors and permitted assigns of any of the Insureds described in pars 1, 2, 3, 4, or 5(i) of the Definition. The operation of such a provision is commercially more sensible if applied to persons within par 5(i) as the defendants would construe it (that is to persons who have been agreed to be included by those specified in 1, 2, 3 or 4 or where there is a contract or agreement for indemnity by them) than so as to operate on a practically unlimited field of potential insureds, on the construction that the plaintiffs contend for.

33 In support of his narrower construction, Mr Williams put that it would be unlikely that the primary Named Insured would be willing to pay a premium, and/or that the insurer would be offering insurance to a host of potential insureds who do not have any discernible or express connection with the Named Insured.

34 In support of his wider construction Mr Jackman, on the other hand, put that a commercial motive behind par 5(i) was to protect the Named Insureds from insolvency or inability to meet commitments of any Contractors and/or Subcontractors including, but not limited to, manufacturers, suppliers and lower tier subcontractors whose impecuniosity might affect performance of the insured contract.

35 There is something to be said in favour of both propositions. However, for the reasons I have set out above, I prefer, on balance, the defendants’ construction.

36 Mr Jackman put that paragraph 7 of the Definition provides some support for the plaintiffs’ construction as it requires no immediate nexus to a Named Insured. Hence, he put, no such requirement should be implied into par 5(i). Paragraph 7 does not in my view, provide that support. Firstly, it contains a single concept, and secondly, each of the persons enumerated in it has a nominated connection with an insured contract.

37 The LIRMA policy does not define "Insured Contract", notwithstanding that the term appears in the upper case. However, there are indications elsewhere in the policy, especially clause 4.3 in Section II, which excludes from operation from cover under the policy any contract entered into by the Named Insured under the terms of which work is to be performed outside the Commonwealth of Australia. It seems to me the commercially sensible construction to be given to the term "Insured Contract" is any contract entered into by a Named Insured under the terms of which work is to be performed inside the Commonwealth of Australia. Mr Williams did not put anything to the contrary.

38 Accordingly, the plaintiffs' claim fails on the principal issue.

Were the defendants liable to indemnify RIC for defence costs?

39 Although it follows that the second issue becomes unnecessary to decide, it seems to me that I should, nevertheless, deal with issues raised by submissions made by the parties on it.

40 The first question is whether, if the LIRMA policy responded (in common with the underlying insurance) to the legal costs claim, it is Section I or Section II which responds. Section I, but not Section II, has a deductible. In my view, it is Section II and not Section 1 which responds.

41 Section I is directed to an occurrence in connection with the insured's business, whereas Section II is in the section named Primary Contract Works Third Party Liability Insurance and is directed to an occurrence arising out of or in connection with or in relation to any Insured Contract. It seems to me that Mr Buckman's injuries in the course of the work, are more aptly described as an occurrence arising out of or in connection with or in respect to any “Insured Contract” within the specific provisions of Section II, rather than in connection with the insured’s business.

42 The second question is whether (as was put by Mr Williams) the plaintiffs' claim for a contribution towards legal costs must fail because RIC itself had no claim for those costs against the defendants. It was put that under the terms of the agreement made on 18 October 2004, and pleaded in paragraph 8 of the summons, Barclay Mowlem took over at its own cost, the running of defences on its own behalf and for RIC. It followed, it was put, that RIC had no costs exposure and therefore no claim against its own insurer. Hence no question of contribution to the plaintiffs arises.

43 In the apportionment agreement the plaintiffs’ solicitors recorded that “Our office is to assume conduct of the proceedings on behalf of both Barclay Mowlem and RIC”.

44 In my view, the agreement, although infelicitously pleaded in paragraph 8 of the summons, (for which there is an explanation in an exchange of correspondence between the parties), was that Barclay Mowlem’s solicitors were retained jointly by Barclay Mowlem and RIC, who it seems to me would have been jointly and severally liable for their solicitors’ costs.

45 In those circumstances RIC would have had recourse to its insurers for its share of the costs liability. This would, but for my conclusion on the first issue, have meant that the plaintiffs were entitled to recover the appropriate share of those costs from the defendants.

46 The summons is dismissed with costs.

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19/11/2007 - delete word "or" and insert word "of" after the word "virtue" - Paragraph(s) par 21(5)(i)