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[2013] NSWCA 175
Court of Appeal (NSW)
2013-03-22
Meagher JA, Ward JA, Stevenson J
Original judgment source is linked above.
Judgment 1MEAGHER JA: This appeal is concerned with the application of a "Self-Insured Excess" in a policy of liability insurance issued by the first to fourth respondents (who I will refer to as QBE Europe). The appellant (ARTC) is one of the entities insured under that policy. It sought a declaration that the excess provision (in General Condition 1 and Item 6 of the Schedule to the policy) does not apply to its claims for an indemnity against liabilities arising from two separate incidents which occurred on the New South Wales Country Rail network in January 2008. The primary judge (Stevenson J) rejected that claim: Australian Rail Track Corporation Ltd v QBE Insurance (Europe) Ltd [2012] NSWSC 952. ARTC appeals from that decision.
The parties to the insurance and the claims to an indemnity 2At the relevant times ARTC managed the New South Wales Country Rail network under the Country Regional Network Management Agreement, an agreement between ARTC, State Rail Authority of New South Wales (SRA) and Rail Infrastructure Corporation (now Country Rail Infrastructure Authority) (CRIA). The fact of that agreement and its terms are referred to in the policy and accordingly may be taken into account as part of the context in which the contract of insurance is to be construed. 3Clause 15.5(a) of that agreement provided that SRA and CRIA may effect, for themselves and ARTC, insurance against third party liability claims arising out of or in connection with that network and agreement. By cl 15.5(c) that insurance was required, to the extent "commercially available", to contain "waiver of subrogation" and "cross-liability" provisions. The former would prevent the insurers from pursuing subrogated claims against other insured. The latter was to provide insurance of liabilities of one insured to another on the basis that all insuring provisions and endorsements, with the exception of limits of liability, would operate as if there was a separate policy covering each entity insured. Clause 15.5(d) separately required that ARTC effect professional indemnity insurance of its activities in Australia in an amount of not less than $8m. 4Clauses 15.1 and 15.2 contained indemnities by SRA and CRIA in favour of ARTC and by ARTC in favour of SRA and CRIA. The effect of those provisions was that ARTC was indemnified against any liability arising out of or in connection with the network and agreement, except to the extent that it arose as a result of an act or omission of ARTC or its agents or contractors. At the same time ARTC indemnified SRA and CRIA against any such liability that they may have, but only to the extent that it was caused by a breach of the agreement or by the wilful misconduct or negligent act or omission of ARTC or its agents or contractors. The liability of ARTC to indemnify SRA and CRIA was reduced to the extent that they were indemnified under insurance effected in accordance with cl 15.5(a). 5The policy issued by QBE Europe includes cover effected as provided by cl 15.5(a). It insures against public liability, pollution liability, products/completed operations liability and professional liability. The Insured are described in the Schedule as: "RAIL CORPORATION NEW SOUTH WALES, RAIL INFRASTRUCTURE CORPORATION, STATE RAIL AUTHORITY OF NEW SOUTH WALES and all subsidiary companies (including those acquired during the Period of Insurance). Including all contractors and sub-contractors and other parties as required by contract or agreement. Fluor Daniel Pty Limited but excluding damage to the Insured's own property. Australian Track Corporation but only in connection with and arising from the Country Regional Network and Country Regional Network Management Agreement." 6ARTC claims an indemnity in respect of two incidents. The first happened on 11 January 2008 on the CRIA owned rail corridor between Lithgow and Wallerawang. Mr Asimus suffered injuries whilst undertaking re-sleepering works on behalf of ARTC. He commenced proceedings against ARTC, and his employer, in respect of those injuries (the Asimus claim). The second incident occurred on 29 January 2008. A Pacific National coal train derailed while travelling on the CRIA owned track between the Boggabri Colliery and Port Waratah, resulting in damage to the track, the rolling stock and its cargo of coal, which was owned by Indemitsu Australia Resources. ARTC has received or anticipates receiving claims by Pacific National, Indemitsu and CRIA in respect of that property damage (the Breeza claim). QBE Europe maintains that there is a self-insured excess of $2.5m applicable to each of the Asimus and Breeza claims.
The structure and relevant terms of the policy 7Section 1 insures against liabilities, other than professional liability, which is dealt with in Section 2. There are general exclusions and conditions applicable to both of those sections. The general conditions include General Condition 1, headed "Self-Insured Excess". It provides: "1. Self-Insured Excess Insurers shall only be liable for that part of any one Occurrence/claim or series of such Occurrences/claims arising out of any one originating cause under this Policy, including Defence Costs, which exceeds the amount of the Self-Insured Excess (including Defence Costs) stated in Item 6 of the Schedule. The Insured shall retain the Self-Insured Excess (including Defence Costs) for its own account." 8Item 6 of the Schedule is as follows: "SELF-INSURED EXCESS: (Inclusive of Defence Costs) In respect of Rail Corporation New South Wales (Sections 1 and 2) AUD 10,000,000 each and every occurrence/claim and in the annual aggregate, but the first AUD 250,000 of any claim will not erode the aggregate amount. In the event that the aggregate is eroded an excess of AUD 1,000,000 each and every claim will apply In respect of Rail Infrastructure Corporation (Sections 1 and 2) AUD 2,500,000 each and every occurrence/claim but AUD 5,000,000 each and every occurrence/claim in respect of selected Restricted Lines as outlined on page 28 of 2004-2005 Regional Network Management Plan outlined in 2004-2005 renewal submission In respect of State Rail Authority of New South Wales (Section 1) AUD 50,000 each and every occurrence but AUD 500,000 each and every occurrence in respect of worker to worker claims In respect of State Rail Authority of New South Wales (Section 2) Section 2 Professional Indemnity (i) In respect of claims first made against the Insured prior to 30th September 2005 at 4.00 pm Australian Eastern Standard Time AUD 10,000,000 each and every claim and in the annual aggregate (ii) In respect of claims first made against the Insured subsequent to 30th September 2005 at 4.00 pm Australian Eastern Standard Time AUD 2,500,000 each and every claim In respect of Construction (Clearways) activities AUD 10,000,000 any one occurrence and in the aggregate in respect of Completed Operations" 9The issue of construction is concerned with how the provisions of Item 6 are engaged by General Condition 1. ARTC says that Item 6 of the Schedule identifies the entities named in the Schedule who are to bear an excess and the amount of that excess. As ARTC is not named or otherwise referred to, there is no Self-Insured Excess applicable to it. Accordingly, ARTC argues, QBE is liable to indemnify it in respect of the whole of its liability with respect to each of the Asimus and Breeza claims.
The decision of the primary judge 10The primary judge rejected that argument. He concluded that General Condition 1 required that an excess apply to any claim to an indemnity, and that the amount of the excess be determined by reference to the relevant Occurrence and whether it was "in respect of" one of the entities named or the activity described in Item 6: esp at [60], [66], [72], [73]. The use in General Condition 1 of the words "that part" rather than "any part" or "such part, if any" indicated that the parties intended in all cases that the insurer would be liable only for "part" of the insured's liability in respect of "any one Occurrence": [57]. Therefore, there must always be an amount "stated" in Item 6 that applies to the insurer's liability to indemnify an insured: [58], [60], [70]. The words "in respect of" are not to be read as stating an excess which is applicable only to the three named insured: [71]. The excess is stated by reference to the relevant Occurrence: [72]. 11Adopting that construction, the primary judge held that each of the Occurrences which resulted in the Asimus and Breeza claims was "in respect of" CRIA. Each happened on a track owned and operated by CRIA: [76], [77]. Accordingly, there was an excess of $2.5m applicable to ARTC's entitlement to an indemnity in respect of its liability for each of those incidents: [80].
The arguments on appeal 12ARTC's argument requires that General Condition 1 be read and applied to each insured's claim for an indemnity and, allowing for ellipses, as if it read in its application to that claim: "Insurers shall only be liable [to the insured] for that part [if any] of [the insured's liability to pay damages for personal injury or property damage occurring during the period of insurance] which exceeds the amount of the Self-Insured Excess [if any] ... stated in Item 6 of the Schedule". That argument emphasises that, with one exception, which would not apply in this case, the amounts stated in Item 6 are "in respect of" three named insured. If there is no amount stated "in respect of" the insured making the claim, as is the case with ARTC, the respondent insurers are liable for the whole of its claim to an indemnity. 13The insurers argue that it is wrong to read and apply the general condition separately in relation to each claim for an indemnity by an insured. The excess, as with the limits applicable to the indemnity given by Section 1, applies in respect of each Occurrence. That is a defined term and directs attention to the event or happening which is the cause of the relevant injury or damage for which an insured may be liable. 14It does not follow, however, that a separate self-insured excess applies to each and every claim to an indemnity under Section 1 made by an insured. On the construction urged by the insurers, only one self-insured excess applies to each Occurrence and, therefore, to the insurers' liability in respect of any and all claims to an indemnity against liability for injury or damage caused by or resulting from that Occurrence.
The disposition of the appeal 15Consideration of these arguments requires close attention to the provisions of the policy. For the reasons which follow, it is my view that the construction contended for by the respondent insurers gives effect to the language which the parties have used. 16The Operative Clause in Section 1 relevantly provides: "The insurers will indemnify the Insured against their liability to pay damages (including claimants' costs, fees and expenses) ... This indemnity applies only to such liability as defined by each insured Sub-Section of this Policy arising out of the Business specified in the Schedule, subject always to the terms, Conditions and Exclusions of such Sub-Section and of the Section and Policy as a whole." The Insured is defined as "the entity or entities named in the Schedule as the Insured". That definition raises a question as to whether the named entities include Fluor Daniel and ARTC or whether the reference to entities "named" is only to the three entities whose names are capitalised (see [5] above). That question would have to be addressed in the light of cl 2 "Indemnity to Others". One explanation for the fact that Fluor Daniel and ARTC are specifically mentioned in the Schedule but not as named insured may be to make clear that, whilst they are within the description "contractors and sub-contractors", the basis on which they are insured is subject to the limitations stated. It is not necessary to resolve this question because the argument proceeded on the basis that Fluor Daniel and ARTC were to be regarded as within the definition of the Insured in Section 1. 17The Business specified in the Schedule includes: "Principally managers of trains and railway stations, passenger fleet maintenance, property owners, managers and maintainers of the New South Wales rail network and infrastructure, including but not limited to .... ... Owners and managers of the rights to access and control of the New South Wales Country Network including but not limited to timetables. ..." 18Section 1 contains three sub-sections which separately describe the cover and exclusions in relation to the insurance of public liability (Sub-Section A), pollution liability (Sub-Section B) and products/completed operations liability (Sub-Section C). The insuring clause in Sub-Section A (cl 6) provides: "The Insured is indemnified by this Sub-Section, in accordance with the Operative Clause for and/or arising out of Personal Injury and/or Property Damage occurring during the Period of Insurance ..." 19The effect of this clause, read with the Operative Clause, is that an insured is indemnified against any liability to pay damages for Personal Injury or Property Damage which happens during the Period of Insurance. That liability must, by the Operative Clause, arise out of the Business, meaning the conduct of the activities described in the Schedule. Personal Injury and Property Damage are defined. The former includes death, bodily injury, illness and disease. The latter includes loss of, physical damage to or destruction of tangible property. The insuring clauses in Sub-Sections B and C take the same form. In each case the Personal Injury or Property Damage must happen during the policy period. Each of the definitions of those terms addresses the circumstance that it might not be possible to ascertain the timing of any injury or property damage. In that circumstance, the injury or damage is deemed to have occurred at a particular time. 20The limits of the insurers' liability under Section 1 are fixed by reference to an Occurrence. Those limits are stated in cl 5: "INDEMNITY LIMITS Insurers' liability to pay damages (including claimants' costs, fees and expenses and Defence Costs) shall not exceed the sum stated in the Schedule against each Sub-Section in respect of any one Occurrence, but under Sub-Section C (Products/Completed Operations Liability) the Indemnity Limits represent Insurers' total liability in respect of all Occurrences. Should liability arising from the same originating cause form the subject of indemnity by more than one Sub-Section of this Section, each Sub-Section shall be subject to its own Indemnity Limit, provided always that the total amount of Insurers' liability shall not exceed the greatest Indemnity Limit available under any one of the Sub-Sections of this Section providing indemnity." Item 5 in the Schedule provides that the indemnity limit in respect of public liability is "AUD10,000,000 each and every Occurrence". The indemnity limits in respect of the other sub-sections of Section 1 are also expressed to apply to "each and every Occurrence". 21An Occurrence is defined as: "an event including continuous or repeated exposure to substantially the same general conditions. All events of a series consequent on or attributable to one source or original cause will be deemed one Occurrence". 22That definition, and the context in which the defined term is used, make clear that the event referred to is the mishap or accident or conditions which cause the Personal Injury or Property Damage, as distinct from the happening of that injury or damage. That is a well recognised distinction in this context: see, for example, Forney v Dominion Insurance Co Ltd [1969] 1 WLR 928 at 934; The Distillers Company Biochemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd [1974] HCA 3; 130 CLR 1 at 19-20 per Stephen J (with whom Gibbs J agreed). The reference in that definition to "continuous or repeated exposure to substantially the same general conditions" describes a cause consisting of a continuing state of affairs, and indicates that an Occurrence is not to be taken to refer only to something which happens at a particular time, at a particular place and in a particular way, which is its ordinary meaning: see for example, AXA Reinsurance (UK) PLC v Field [1996] 1 WLR 1026 at 1035 per Lord Mustill. 23The second sentence of the definition of Occurrence aggregates events in respect of which there is "one source or original cause". The presence of that unifying factor requires that events which might otherwise constitute separate Occurrences be treated as one Occurrence for the purpose of fixing the limits of liability: see The Distillers Company Biochemicals at 23 per Stephen J; Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48; [2003] 4 All ER 43 at [14]-[15] per Lord Hoffmann. 24To take the Breeza claim as an example, the relevant event and Occurrence was the derailment of the loaded coal train which happened on 29 January 2010. That derailment resulted in property damage to the rail track, rolling stock and cargo of coal. That damage has resulted in a claim by CRIA against ARTC in relation to the damage to the rail track and could have resulted in claims by Pacific National and Indemitsu against CRIA. Assuming such liabilities of ARTC and CRIA, they would fall within the insuring clause in Sub-Section A. By the Operative Clause, the insurers' obligation to indemnify would be subject to a limit of A$10m in respect of the derailment, as the relevant Occurrence, notwithstanding that the one event had given rise to liabilities of both ARTC and CRIA, and accordingly to claims by each of them to an indemnity under Section 1. 25General Condition 1 imposes an excess, which ordinarily describes an amount of the insured loss or liability which is to be borne by the insured, in the sense that the insurer's obligation to indemnify applies to that part of the insured loss or liability which exceeds that amount. That obligation to indemnify remains subject to any relevant indemnity limits in the policy. The excesses imposed by General Condition 1 are stated in Item 6. For cover provided under Section 1, they are described as an amount "each and every occurrence" or "any one occurrence". Although the capitalised word Occurrence is not used in Item 6, occurrence as there used is reasonably to be understood as having the same meaning as that defined term. That follows from the structure of General Condition 1, which describes the subject of the insurers' obligation to indemnify from which the excess applicable to that subject is to be deducted, as an Occurrence. It is also consistent with the use of the same subject to fix the indemnity limits under Section 1. 26General Condition 1 is in the form of a statement describing the extent of the insurer's obligation for an Occurrence after the application of any excess stated in Item 6. Its introductory words "shall only be liable" refer to the insurer's liability to indemnify. That liability is the liability to indemnify in respect of an Occurrence. The excesses are amounts each and every Occurrence so that the extent of the insurer's liability remaining after deduction of the excess applicable to that Occurrence is correctly described as being "that part" of its liability for the Occurrence which exceeds the amount of that excess. 27For the cover provided under Section 2, the excesses in Item 6 are described as an amount "each and every claim". That accommodates the form of the insuring clause in Section 2, which is to indemnify against liability for third party "claims" for breach of professional duty first made against the Insured and notified during the period of insurance. General Condition 1 aggregates such third party claims "arising out of any one originating cause" for the purpose of the application of the excess. That has the consequence that third party claims made against different insured and covered under Section 2 may be aggregated, and together be the subject of one excess. The construction argued for by ARTC is inconsistent with that being the position because it submits that the excess only applies to claims to an indemnity made by the three insured named in Item 6 in relation to third party claims made against them. Insofar as the same aggregation provision in General Condition 1 applies to an Occurrence, it is superfluous because that defined term contains its own aggregation provision. However, the consequence of aggregation is the same. One excess applies to the aggregated Occurrences notwithstanding that they may give rise to several liabilities, and of more than one insured, each of which is indemnified against under Section 1. 28For every claim to an indemnity against a liability insured under Section 1, there must be an Occurrence, namely the event, which may be one of a series of events attributable to one source, that causes the bodily injury or property damage which is the subject of the liability indemnified against. The excess "stated" in Item 6 which is applicable to that Occurrence is the one for the entity or activity in respect of which it happened, so that the Occurrence answers the description of being "in respect of" that entity or activity. 29That is an inquiry which depends upon the nature of the event and the circumstances in which it occurred. ARTC argues that it would not be possible to identify the excess which might apply to claims to an indemnity made by it or Fluor Daniel. That argument does not take account of the relevant inquiry. That inquiry is as to which of the three named insured, or the described activity, has the closest connection with the Occurrence. Each of ARTC and Fluor Daniel is a contractor or sub-contractor of one of those insured, and for a liability to be the subject of an indemnity under Section 1 it must arise out of the business activities of one or other of those named insured. These two factors mean that there will be a connection between any incident which involves one of them and a named insured. 30The primary judge concluded that the Occurrence in relation to each of the Asimus and Breeza claims was "in respect of" CRIA. Each of the tracks was at the relevant time owned and operated by CRIA and neither incident had anything to do with SRA, Railcorp or Construction (Clearways) activities. The SRA had transferred to CRIA the Country Rail network assets, rights and liabilities held or owned by it with effect from 30 June 2007. None of these conclusions is challenged on appeal. They are consistent with the position being that ARTC has sought an indemnity under the management agreement from CRIA in respect of the Asimus claim and that Pacific National has made a claim against CRIA in respect of the Breeza claim. 31As the primary judge observed (at [83]), this construction of the policy does not lead to outcomes which may be regarded as unbusinesslike and for that reason unlikely to have been agreed between reasonable persons in the position of these parties. The limits of the insurers' liability and the excesses applicable under Section 1 are fixed by reference to each Occurrence. If, as is the position in relation to the Breeza claim, one event may give rise to claims against more than one insured entity, whether there is an excess applicable does not turn on the identity of the entity against whom the third party decides to press its claim. That, however, is the consequence of the construction urged by ARTC. If Pacific National and Indemitsu pressed claims against ARTC, there would be no self-insured excess and, having indemnified ARTC, the insurers could not pursue any rights of subrogation because of the waiver of subrogation provision (in General Condition 4). If they pressed claims against CRIA the self-insured excess would apply. 32Most of the arguments in support of ARTC's construction of these provisions have been dealt with in the analysis above. It says that the use of the expression "that part" in General Condition 1, rather than the expression "any part", does not mean that there must always be a self-insured excess. Considering those words alone that may be so, although they are not obviously to be read as meaning "the whole" whenever the claim to an indemnity is made by an insured which is not named in Item 6. Those words are not, however, determinative. The critical point is that the excess applies to each Occurrence. It follows that there will be an excess in relation to every claim to an indemnity under Section 1, even if that claim is not made by one of those named insured and is only one of a number of claims with respect to that Occurrence. That has the consequence that although there is only one excess for each Occurrence, it may be borne by more than one of the entities having the benefit of the insurance in the sense that none will be entitled to an indemnity in relation to liability resulting from the Occurrence until the excess has been exhausted. 33ARTC also argues that whereas the construction adopted by the primary judge would result in there being two self-insured excesses in the event of claims to an indemnity being made by ARTC and CRIA, that would not be the case in relation to the construction it contends for. If the primary judge's reasons (esp at [60], [66], [73]) are to be understood as accepting that separate excesses would apply to each claim, even if they are made in respect of one Occurrence, I disagree with that conclusion. The application of the excess to each Occurrence cannot result in there being more than one excess in respect of that Occurrence. 34ARTC also relied upon the provisions of cl 2 in Section 1 as indicating that the self-insured excess may not apply to all of the entities entitled to the insurance. That clause describes the terms of the indemnity extended to "Others". They include ARTC which is dealt with in cl 2.1. Clauses 2.2 and 2.3 describe the basis upon which the indemnity extends to contractors, sub-contractors and managers who may be engaged by Railcorp, CRIA or SRA. The extension of an indemnity to those entities is made subject to their having effected "underlying" insurance in respect of various risks, including public liability. Each of those clauses provides, in slightly different language, that the self-insured excess should be deemed "inclusive of and not additional to" the limit of cover provided by that underlying insurance. To this extent, those provisions expressly provide for the operation of the self-insured excess. ARTC submits that the absence of any similar reference to the self-insured excess in cl 2.1 is an indication that it does not apply to it. That conclusion does not follow. The need for the specific reference to the excess in cll 2.2 and 2.3 is explained on the basis that it was necessary to refer to it to make clear how it operated in the context of the underlying insurance that those entities were required to effect. 35ARTC also refers to cll 2.4 to 2.10, which provide that the indemnity extends to entities and persons such as those undertaking "work experience or similar training, study, youth training or other government schemes" and members of the Insured's "canteen, social, sports, medical, fire-fighting and welfare organisations". ARTC says that it is not likely that the self-insured excess was intended to apply to such entities and persons because insurance which is subject to such significant excesses would be of little utility to them. That may be so. However, the cover provided to them and ARTC is expressed by the closing proviso to cl 2 to be "subject to the terms, Conditions and Exclusions" of the policy on the same basis as they would apply if they were the Insured. It was therefore subject to the operation of General Condition 1 as properly construed. 36None of these provisions is inconsistent with the construction of the self-insured excess as applying to each Occurrence within Section 1 or claim or series of claims within Section 2. The primary judge's construction of the self-insured excess as applying to each Occurrence should be upheld and the appeal dismissed.
Proposed orders 37The orders I propose are: (1)Appeal dismissed. (2)Appellant pay the costs of the first to fourth respondents of the appeal. 38WARD JA: I agree with Meagher JA's reasons and the orders his Honour proposes. 39TOBIAS AJA: I agree with the orders proposed by Meagher JA for the reasons he has expressed.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 June 2013
Australian Rail Track Corporation Ltd
QBE Insurance