Abstract

A principal which is added as an insured under a constuction contract may be coveredfor its own neglignce.  Relevant principles of construction

Article

Under a Construction and Maintenance Contract, the contractor agreed with the principal to obtain, inter alia, ‘Third Party Liability Insurance covering legal liability for loss or damage to property or persons. The policy should be effected in the name of [the contractor] and provide indemnity to [the principal] for claims wrought against it by third parties arising out of the performance of the contract by [the contractor] until completion of the works.

The contract further provided that As is usual, taking out or approval of any or all insurance required by this … Agreement does not in any way limit our liabilities or obligations under this … Agreement.

The contractor agrees to immediately notify in writing both [the principal] and the relevant insurer of any occurrence or incident likely to give rise to a claim under the policies referred to in this Agreement or of any other matter or thing in respect of which notice should be given by [the contractor]to the relevant insurers. After then, [the contractor]must give all information and assistance as is reasonably practicable in all the circumstances.

We are each liable for, and shall indemnify each other ... against … claims about personal injury… or death …; and to the extent that the … claim was caused by an act, error or omission of the indemnifying … Participant arising out of, or in connection with, the indemnifying … Participant carrying out the Work. The responsibility to indemnify any other … Participant is reduced to the extent that an act or omission of any other … Participant contributed to the loss or damage suffered.

The definition of Assured included: … in so far as any contract may require, the Principal for whom the Named Assured is working but only to the minimum amount to which the Named Assured is required to effect such insurance and only in respect of activities relating to that contract.

The phrase ‘arising as a result of’, involves some causal or consequential relationship. It expresses a particularly broad notion of causation and should be construed broadly: Speno (supra)309, but it is not unlimited. It does not connote proximate or direct cause: Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500, 505. Remoteness is an element, but more is required than the mere existence of connecting links: F & D Normoyle Pty Ltd v Transfield Pty Ltd (supra). It is broader than ‘caused by’: Dickinson,  but must be more proximate than a mere casual concomitant: GIO v R J Green (1966) 114 CLR 437, 447. It should be interpreted as it is, without substitution of an alternate form: Erect Safe (2008) 72 NSWLR 1, 5.^[118]

On completing his work and on his way to the exit of the principal’s premises an employee of the contractor tripped and fell, and  claimed damages from the contractor as his employer, and from the principal as occupier of the premises. WorkCover also sought recovery of payments of workers’ compensation benefits made to the worker.

The claim against the contractor and principal was settled on the basis of the payment of a sum plus costs, to which each contributed 50%. One week later, the recovery claim was settled on the basis of the principal’s insurer’s payment of a further sum plus costs.

The contractor was entitled to indemnity for both claims as the Named Assured under the policy purchased pursuant to the contract, and the principal was entitled to indemnity for both under its own policy. The principal’s insurer sought from the insurer under the policy purchased pursuant to the contract, contribution for its payment on behalf of the principal.

The issues were whether the claims arose out of the performance of the contract by the contractor, whether they were in respect of activities relating to the Agreement within the meaning of the policy purchased pursuant to the contract, and whether the worker was a third party for the purposes of that policy.

As to whether the claims arose out of the performance of the contract by the contractor, the discussion turned on the effect of the principal’s neglligence, which was the subject of consideration in Davis v Commissioner for Main Roads [1968] HCA 10; (1968) 117 CLR 529; Australian Paper Plantations Pty Ltd v J & E M Venturoni [2000] VSCA 71; Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408; (2000) 23 WAR 291; Leighton Contractors Pty Limited v Smith [2000] NSWCA 55; Roads and Traffic Authority (NSW) v Palmer [2003] NSWCA 58; (2003) 38 MVR 82; New South Wales v Tempo [2004] NSWCA 4; National Vulcan Engineering Group Ltd v Pentax [2004] NSWCA 218; F & D Normoyle Pty td v Transfield Pty Ltd [2005] NSWCA 193; (2005) 63 NSWLR 502; Erect Safe Scaffolding (Australia) v Sutton [2008] NSWCA 114; (2008) 72 NSWLR 1; Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367; GIO General Limited v Centennial Newstan Pty Ltd [2014] NSWCA 13; CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121. Each of these depended on the language used in the particular agreement. There was marked dissent in the judgments, and even the majority judgments are difficult to recconcile: see their analysis in Certain Underwriters at Lloyds of London v Allianz Australia Insurance Limited [2018] VSC 735.

In that case, it was found that the policy’s cover extended to the added insured principal’s own negligence, partly on the policy’s language and partly on commercial considerations and practical convenience. The principal commercial purpose of Liability insurance is to cover liability arising from an insured’s breaches of duty or other acts or omissions: Albion Insurance Company Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339, 345; CGU v Lawless [2008] VSCA 38 [14.

It was also found that the claim arose out of the performance of the Agreement by the named insured contractor. The worker’s presence was directly related to and formed part of the performance, his injuries and the principal’s liability were consequential on it, and the ‘but for’ test was satisfied: Speno 319 – 320. Within the understanding of a reasonable business person, it would not be necessary for the claim to arise out of an injury while the worker was involved with tools rather than while moving from one work area to another work area within the premises: Tempo,  or while walking to his area of work: Pentax or leaving it after having finished work. Accordingly, the insured was entitled to indemnity under the policy.

The principles of construction of a commercial contract as reviewed in Erect Safe Scaffolding (Australia) v Sutton (supra) were cited. The Court will ask what a reasonable business person would have understood its terms to mean: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116, being placed in the position of the parties: Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63.

The terms are construed objectively and the subjective intentions of the parties are irrelevant: Ibid. The court cannot receive evidence from one party as to its intentions and construe the contract by reference to them: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 429. It will consider the text, its ordinary meaning, the context of the contract, including matters referred to in its text: Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [45]–[47], and its commercial purpose and object.

The commercial purpose and object are to be found in its genesis and background, the context, and the market in which the parties are operating: Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995–6; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 350; Royal Botanical Gardens and Domain Trust v South Sydney City Council  (2002) 240 CLR 45, 52–3; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–2.

The Court may have regard to the surrounding circumstances known to the parties: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179, and is entitled to assume that the parties intended to produce a commercial result: Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63. It will avoid a construction that produces commercial nonsense or inconvenience: Zhu v Treasurer of New South Wales (2004) 218 CLR 530, 559; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7; and Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85, 111, and will prefer a congruent operation to the various components of the whole: Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12, 22.

It may have regard to more than internal linguistic considerations: Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 52, but if there is no ambiguity, subject to what is said below it must ordinarily discern the intention by reference to the contract alone, and evidence of other surrounding circumstances is inadmissible to contradict its plain meaning’. Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116.

It may refer to external events, circumstances and things which are known to the parties or which assist in identifying the purpose or object of the transaction, including its history, background and context and the market in which the parties were operating’: Ibid 117. But though evidence of prior negotiations is admissible to establish objective known background facts and the subject matter of the contract, evidence of the parties’ statements and actions reflecting their actual intentions and expectations is inadmissible as such: Ibid. this does not apply to evidence of mutual intention to negative an inference from surrounding circumstances’: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352-353

A clause imposing an obligation to indemnify is interpreted strictissimi juris and ambiguous contractual provisions are construed in favour of the indemnifier: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 561. However, contracts of insurance are interpreted as are other commercial contracts generally: McCann v Switzerland Insurance Australia [2000] HCA 65; (2000) 203 CLR 579, 589; and insurers are not treated with the considertion accorded to guarantors and indemnifiers: Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12, 22.

With respect to a clause requiring a party to take out insurance cover for the acts of another party, the standard principles of construction apply, and the operation of different words in different contracts are of limited assistance’: Erect Safe (2008) 72 NSWLR 1, 4; GIO General Ltd v Centennial Newstan Pty Ltd [2014] NSWCA 13 [137]. While the Court is not bound by the outcome in other cases involving a similar but not identical contract, it is bound to apply principles established in them.

A requirement of an indemnity that the principal’s liability arise from performance by the indemnifier may predicate that it does not cover the principal’s liability for its own negligence: Palmer, Normoyle, Venturoni; Speno, Leighton Contractors. But an interpretation that gives it practical operation is to be preferred to one that does not. For example, limiting it to liability arising vicariously to the indemnifier’s liability: Davis 533, 537; Pentax; Erect Safe 21–2, or the negligent act by the indemnified party, which has arisen out of the performance by the indemnifier: Speno 319, may deprive it of any real purpose.