Calliden Insurance Limited v Chisholm

DECISION: 1. Leave to appeal is refused. 2. The application to pay the costs of the respondent of the application for leave to appeal and of the appeal heard concurrently.

CATCHWORDS: INSURANCE - Accident and sickness insurance - construction of insurance policy - policy including excess - excess defined to be amount "insured first bears" - claim against now insolvent company - whether insured has to pay the excess before claim can be bought against insurance company - payment by insured not precondition for claim against insurance company - Law Reform (Miscellaneous Provisions) Act 1947 (NSW) - s 6

LEGISLATION CITED: Insurance Contracts Act 1984 (Cth) Law Reform (Miscellaneous Provisions) Act 1947 (NSW)

Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 CASES CITED: Charter Reinsurance Co Ltd v Fagan [1997] AC 313 Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1

PARTIES: Calliden Insurance Limited Danial Arthur Chisholm

COUNSEL: A S Bell SC; A Lo Surdo (Appellant) G R Graham (Respondent)

SOLICITORS: Hunt & Hunt (Appellant) Emery Partners (Respondent)

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

1 ALLSOP P delivering the judgment of the Court: The applicant insurer seeks leave to appeal from an interlocutory decision of a judge in the District Court (Elkaim DCJ). His Honour granted leave to the respondent, the plaintiff, pursuant to the Law Reform (Miscellaneous Provisions) Act 1947 (NSW), s 6 (4) (the "Act") to commence proceedings against the applicant insurer. Section 6 of the Act relevantly provides as follows: "6 Amount of liability to be charge on insurance moneys payable against that liability

(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up. …

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken."

2 The plaintiff was injured in the course of his employment in March 2007. He alleges that his injuries were caused by the negligence of an employee of a company called Employ (No 14) Pty Limited. Employ 14 was the beneficiary of a broad form liability insurance policy issued by the insurer which was in force for the period 14 December 2006 to 14 December 2007. The policy covered "the insured's legal liabilities for personal injury or property damage occurring during the period of employment arising out of the insured's operations".

3 The insured carried on business as a labour hire agency. Liquidators were appointed to the insured on 29 August 2007 apparently in consequence of the resolution of its creditors on 17 August 2007. The appointment of a liquidator is deemed to have commenced on 17 August 2007.

4 By a summons filed on 22 April 2009 the plaintiff sought leave under s 6(4) of the Act to commence proceedings against the insurer claiming damages for personal injury allegedly suffered by reason of the insurer's negligence. The insurer resisted the application for leave on two grounds: (a) The insured was entitled to disclaim liability under the policy without the necessity to bring the proceedings to establish its right to disclaim, and

(b) In the exercise of the Court's discretion it was inappropriate to grant leave to proceed.

5 The insurer's application below and for leave to appeal rested, and rests, on a short point of construction of the policy. The insurer says that Condition 3, set out below, required the insured to pay an excess of $25,000 in respect of the plaintiff's claim as a condition precedent to the engagement of indemnity under the policy. Since, as is common ground, the liquidator of the insured has declined to pay any excess and the insured has no resources to do so, the condition precedent has not been met and the insurer is said to be entitled to disclaim liability thereby. The policy

6 The policy schedule provides public liability cover for any one occurrence of $20 million. As already noted, the cover is for "the insured's legal liability for personal injury or property damage occurring during the period of insurance arising out of the Insured operation". That definition comes from the policy schedule. The policy schedule also stipulates a "standard excess" for "Each and every claim" of $25,000. The terms of the policy contained in what is called a product disclosure statement of a "Broadform Liability Insurance" contains a number of sections.

7 Relevantly first is the Definition section of the policy which includes the following definitions of "Excess" and "Occurrence": " Excess the amount the Insured first bears in relation to each claim caused by an Occurrence. The Excess applies to a ll amounts payable under this Policy. … " Occurrence means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury or Property Damage neither expected nor intended to happen by You." [emphasis original]

8 It is to be noted that the definitions in the policy do not include the word "Claim".

9 After the Definition section comes a section on Conditions. Conditions 3 and 4 of the policy are in the following terms: " 3. Excess Where an Excess is shown in the Schedule or within Your Policy wording You or any other person insured must first bear the amount of the Excess for each and every claim arising out of the one event or occurrence before becoming entitled to cover under Your Policy. Where two or more different Excesses apply to an event or occurrence giving rise to a claim only the greatest of those Excesses shall be applied to the whole claim. 4. Payment of Premium You will pay promptly to Us the premium, any adjustments of premium and other amounts charged for this Policy and any renewal, extension or Endorsement to the Policy."

10 Condition 10 of the policy entitled "Claims" sets out various responsibilities of the insured and is in the following terms: " 10. Claims You must not without Our written consent make any admission, offer, promise or payment in connection with any Occurrence or claim and We will be entitled to take over and conduct in Your name the defence or settlement of any claim. You must use your best endeavours to preserve all property, products, appliances and plant and all other things which may assist in the investigation or defence of a claim or in exercise of the right of subrogation and so far as may reasonably be practicable You must not without our written consent carry out any alteration or repair until We have had an opportunity of inspection. We will be entitled to prosecute in Your name at Our own expense and for Our benefit any claim for indemnity or damage or otherwise. We will have full discretion in the conduct of any proceedings in connection with any claim and You must give all information and assistance We may require in the prosecution, defence or settlement of any claim." 11 After the section of the policy on Conditions there is a section entitled Exclusions, none of which are said to be relevant.

12 After the section dealing with Exclusions there is a section entitled "Cover Details". This section can be taken to be a full statement of the cover of indemnity elaborating upon the pithy identification of cover in the policy schedule. The Cover Details relevantly provide as follows: "In consideration of the payment of premium subject to the terms, definitions, conditions, exclusions and Limits of Liability incorporated herein, We will pay to or on behalf of the Insured all amounts which the Insured shall become legally liable to pay for compensation: In respect of Personal Injury or Property Damage; Happening during the Period of Insurance caused by an Ocurrence; and In connection with the Insured's Business. 2.1 Limits of Liability The Limit of Australian Unity's liability in respect of any one Occurrence shall not exceed he Limit of Liability stated in the Schedule. The total aggregate liability of Australian Unity during any one Period of Insurance for all claims arising out of the Insured's Products shall not exceed the Limit of Liability stated in the Schedule. 2.2 Additional Payments In addition to the Limits of Liability stated in the Schedule Australian Unity will: Defend any suit against the Insured claiming compensation for Personal Injury or Property Damage and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; and Australian Unity may investigate, negotiate and settle any claim or suit as it deems expedient; but Australian Unity shall not be obligated to pay any claim or judgement or to defend any suit after Australian Unity's Limit of Liability has been exhausted by payment of judgements or settlements; Pay all expenses incurred by Australian Unity, all legal costs recoverable from the Insured in any such suit and all interest accruing after any such judgement until Australian Unity has paid, tendered, or deposited in court such part of such judgement as does not exceed Australian Unity's Limit of Liability thereon; Reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred with Australian Unity's consent; and Pay expenses incurred by the Insured for first aid to others at the time of any Personal Injury for which the Insured is entitled compensation. Provided that if a payment exceeding Australian Unity's Limit of Liability has to be made to dispose of a claim, the liability of Australian Unity to pay Additional Payments in connection therewith shall be limited to such proportion of the Additional Payments as the Limit of Liability bears to the amount to dispose of the claim. 2.3 Claims Excess Where a claims excess is specified in the Schedule the Insured shall bear this amount for each and every claim."

13 Legal analysis The primary judge adopted the plaintiff's argument that Condition 3 of the policy requires the insured to "bear" the specified excess but not to "pay" the amount as condition precedent to the insurer incurring liability under the policy. In his Honour's view, the excess provision did no more than " relieve the insurer of liability to pay the first $25,000 of a claim " (at [12]). According to his Honour, this is consistent with the definition of Excess where the word "first" is to be read as referring to the first $25,000 of any claim made against the insured and made by the insured against the insurer (at [14]).

14 His Honour observed that if the insurer's interpretation is correct "it would have the effect of relieving an insurer from liability under a policy whenever an insured was unable to pay the excess" (at [16]). His Honour continued "The clear intent of the policy is not that the insurer should be paid the $25,000 but rather that it should not have to pay the first $25,000 in respect of any claim which otherwise arises under the policy" (at [16]). In our view, the conclusion of the primary judge was clearly correct. 15 We also think that there is another reason apart from that given by his Honour which supports that conclusion. Under the policy the insured is obliged to pay promptly the "premium and other amounts charged to this policy, and any renewal, extension or endorsement to the policy" (Condition 4). The expression "Premium" is not defined but is not apt to refer to any excess that must be borne by the insured in respect of a claim. Nor is the expression, "any other amount charged for the policy" apt to refer to any such excess.

16 The requirements that the insured bear any specified claims excess is imposed by Clause 2.3 of the Cover Details. Clause 2.3 also makes it clear that the insured must bear the specified excess for each and every claim. There is nothing in the language of Clause 2.3 or in the definition of "Excess" to suggest that the insured is to pay the amount of any excess before the insurer becomes liable to indemnify the insured in respect of its legal liability to a third party suffering personal injury as provided by the Policy Schedule.

17 Condition 3, relied on by the insurer, may be seen not to impose any pre-condition that the insured must satisfy before the insurer's liability to indemnify is engaged. It is concerned with a different issue. Condition 3 makes it clear that not only must the insured bear the specified excess for each and every claim (Clause 2.3) but he or she or it must do so in respect of each and every claim arising out of the one event or occurrence, and where two or more different excesses apply to one event or occurrence only the greater of those excesses shall be applied. But for Condition 3 the effect of Clause 2.3 would be arguable where more than one claim is made arising out of the one event or occurrence. In short, Condition 3 is to be read with, and is explanatory of, and in a sense subsidiary to, clause 2.3 in the particular circumstances in respect of which Condition 3 is engaged. In these circumstances it has no application in the present case.

18 Condition 3 and the definition of Excess and Clause 2.3 must all be read together and all must be given work to do and in this case, in our view, the subject of Condition 3 can be seen to directed to be multiple excess circumstances.

19 The words, "becoming entitled to cover under the policy", were heavily relied on by the insurer, together with the word "first" and "any" in the definition of Excess and Condition 3. These words could, in some circumstances, support a construction of a provision whereby payment was a pre-condition to the engagement of an insurer's liability. However the words here are simply not adequate, in our view, to carry the meaning of "pay" in the pre-conditional sense propounded by the insurer. The insurer squarely puts Condition 3 as a clause which means that the whole liability undertaken by the insurer is of a pay as may pay character.

20 For the reasons given by the trial judge, and with which we agree, we simply do not think that the words in Condition 3 carry that meaning. No dictionary definition of the word "bear" is "pay". We accept, of course, the limitations on dictionary meaning, but the natural and coherent meaning of "bear" is "to be responsible for" or "carry". That is not demonstrative of a pre-condition of liability of the insurer to indemnify. It is especially so when the clause does not appear in the indemnity provisions of the policy, and further, when in those indemnity provisions of the policy Clause 2.3 appears, which is apt, indeed more than apt, to accord with the meaning given by the learned trial judge.

21 It should also be noted that the insurer gave indemnity for additional payment in Clause 2.2, most significantly defence costs. It was argued by the insurer that the definition of "Excess" picks up defence costs. Even if that be correct and if the insured is in fact responsible to bear the first $25,000 of any defence costs, there is no commercial irrationality in the insured being and continuing to be responsible for the first $25,000 of those fees. The insurer can claim from the sum from the insured and in the present circumstances that means prove in its liquidation.

22 There is no qualification whatsoever to the insurer's clear obligation in the indemnity provisions to provide defence. Defence has to be undertaken. It is not predicated in turn on any payment of its nominated solicitors' costs incurred or to be incurred. In our view, the proposal use of Condition 3 to impose a pre-condition on that defence liability is not warranted by the words of the policy.

23 We should note however that it is not at all clear that the definition of "Excess", when it applies to "all" amounts payable under this "Policy", covers reimbursements of solicitors' legitimate fees and charges in defence costs. There may well be an argument that "payable" in this context is payable to third parties in respect of claims. Of course, it may be said that solicitors' costs generally might be seen as the costs of defending claims. That does not mean that the holding for the solicitors their costs when they are retained by the insurers, or nominated by them, is paid under the policy. That matter was not argued before us and we have disposed of the matter on the hypothesis most favourable to the insurer, that is that the $25,000 excess includes defence costs.

24 Reliance was also placed on the standard excess clause in the Policy Schedule and in our view this is of no assistance. In our view, there is no coherent business purpose disclosed by the policy to construe it as meaning "first paid as a pre-condition", or elevating Condition 3 beyond the subject matter in the way we have described.

25 There is, in our view, no apparent commercial purpose in restricting operation of the policy to only a solvent insured. Excess clauses of this kind may have a number of commercial purposes including: (a) giving the insured an interest or encouragement to prevent or minimise claims; or (b) the elimination of small claims from the insurer's book.

26 Here the defence costs responsibility may eliminate or qualify that second purpose. Nevertheless that additional responsibility by the insurer no doubt can be seen to have significant commercial attraction for insured and makes the policy commercially attractive. The additional payment in relation to defence costs and other matters, however, does not undermine the existing commercial purpose of giving the insured a real interest in the responsibility for the prevention of claims.

27 There are other insurance contexts in which the payment by an insured may be seen to be a sensible pre-condition to the engagement of the responsibility to the underwriter. Two examples come easily to mind. One was in particular relied upon in this case. The most usual is re-insurance, in particular excess of loss insurance. One only needs to examine the judgment at all levels of the courts in Charter Reinsurance Co Ltd v Fagan [1997] AC 313, to understand the policy underlying such provisions. A recent local example in professional indemnity area was discussed in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [277] and following. There the provision cut in to limit the engagement of subsequent layers of excess insurance. Another example is what was relied upon here, P & I Club insurance: Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC. There members of P & I club have a clear purpose and interest in ensuring that they are responsible only for solvent members. Not only are the memberships likely to be of a better quality (and thus productive of fewer clauses) but also that they do not stand for shares of insolvent fellow owners.

28 Here, the policy does not say that it will not respond to a claim well within the levels of insurance if the insured be insolvent or unable to pay its excess. If a policy of insurance governed by the Insurance Contracts Act 1984 (Cth) were to contain such a clause one could anticipate an issue arising under the Insurance Contracts Act, s 37.

29 In our view, the primary judge was already correct. 30 Notwithstanding that we have taken the time to deal with the matter fully. reflecting the concurrent hearing of the matter, the unanimous view of the court is that leave to appeal be refused.

31 The applicant should pay the costs of the respondent of the application for leave to appeal and of the appeal heard concurrently. **********

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