Independent Timber Importers v Mercantile Mutual Insurance [2002] NSWCA 304 | Case summary

We will indemnify You up to the Limit of Liability against claims for Compensation on respect of: 2.1 Personal Injury; 2.2 Property Damage; occurring during the Period of Insurance within the Territorial Limits as a result of an Occurrence happening in connection with the Business." 6 The term "You" was defined in cl 1.3 as follows: "1.3 "YOU/YOUR " means the Insured named in the Certificate including as if they were You: 1.3.1 subsidiary companies (existing at the inception date of this Policy or acquired during the Period of Insurance) which are incorporated within Australia and carry on the Business but excluding interests or liabilities of other parties in joint venture with You or any such companies unless such interests or liabilities are specifically included in the Certificate or by Endorsement to this Policy; 1.3.2 any director, executive officer or employee of You or a company designated in clause 1.3.1 but only whilst acting within the scope of their duties in such capacity; 1.3.3 any principal in respect of his or her liability arising out of the performance by You or any company designated in clause1.3.1 of any contract or agreement for the performance of work for such principal to the extent required by such contract or agreement but subject always to clause 8; 1.3.4 any office bearer or member of any canteen, social, sports, welfare or child care organisations of Your employees and internal first aid, fire or ambulance services formed with Your consent (other than 1.3.3) but only whilst acting within the scope of their activities in such capacity. This Insurance shall not apply to Personal Injury to or Property Damage of any participants of any game, match or the like. This Policy will cover a claim against any Insured by a third party who is also an Insured in clause 1.3.1 and for this purpose only, the Policy will be treated as a separate contract between each Insured in the above definition on one hand and Us on the other hand but nothing in this clause increases the Limit of Liability." 7 The respondent's renewal certificate for the period including 25 November 1996 named Shadbolt alone as the insured. Clause 1.9 of the policy defined the term "business". It was in the following terms: " 1.9 " BUSINESS " means all of Your activities and operations designated in the Certificate and including the ownership and tenancy of premises, private work carried out with Your consent by any of Your employees and the provision of management of canteen, social, sports, welfare or child care organisations for Your employees and internal first aid, fire and ambulance services." 8 The business designated in the renewal certificate was: "Property Owners - Timber Storage". The appellant argued that it was a subsidiary company of Shadbolt carrying on the business specified in the renewal certificate. 9 Shadbolt owned the entire issued capital of En Rapport Pty Ltd which owned 99% of the shares of Volage Consultants Pty Ltd which owned 92% of the shares of the appellant. Shadbolt thus had an indirect controlling interest in the appellant. The first question which arises is whether the appellant was a subsidiary company of Shadbolt for the purposes of cl 1.3.1 of the policy. 10 The term "subsidiary company" is not defined in the policy. In common usage it means a company which is controlled by another company. In the Macquarie Dictionary the term is defined as: "A company the controlling interest in which is controlled by another company."

The Oxford English Dictionary definition is: "A company controlled by a holding company." 11 In common usage a company owned or controlled by an individual is not a subsidiary company. The term is confined to a relationship between two corporate entities. That is also the case in legislation governing companies (see: Corporations Act 2001, s 46). 12 The appellant argued that the ordinary meaning should give way to an interpretation including companies owned or controlled by an individual. It was submitted that the commercial purpose of this form of policy was to extend the indemnity to companies other than the named insured which carried on business in an auxiliary, supplementary or subordinate way and that no commercial purpose was served by distinguishing between companies owned or controlled by other companies and those owned or controlled by natural persons. 13 In the case of an insured holding company, the form of policy in question extends to indemnifying subsidiaries conducting the business specified in the certificate. This is achieved by use of the well understood term "subsidiary companies" in cl 1.3.1. Whether or not the respondent would offer an indemnity to a company owned or controlled by an individual insured on similar terms is beside the point. The commercial purpose of such a policy does not advance the argument that the ordinary meaning of the term "subsidiary companies" should be replaced by an extended concept including companies owned or controlled by individuals. 14 It was submitted that there were further indications of an intention to extend the ordinary meaning of the term in this fashion. The renewal certificate specified the business as: "Property Owners - Timber Storage". It was argued that the use of the plural in that phrase indicated an intention that the indemnity extended beyond Shadbolt. It was pointed out that cl 8.5 of this form of policy excluded from indemnity, liability arising out of a breach of the duty owed in a professional capacity. The argument was that since professional activities are conducted by individuals and the extension to subsidiary companies is included in the form of policy offered to individuals, in order that the extension not be surplusage, companies owned or controlled by individuals must be included in cl 1.3.1. 15 Neither of these matters is sufficient to exclude the ordinary meaning of the term "subsidiary companies". The use of the plural in describing the business of the insured when the insured is a single individual is an infelicitous use of language. That infelicity, however, is hardly the basis for the exclusion of the common usage of the term. 16 As to the second submission, the form of policy is clearly in a standard form offered to individual and corporate entities alike. When a corporate entity is the insured, there will be some provisions which do not apply to that insured. The exclusion in cl 8.5 may be an example, although in modern parlance corporations do carry on professional activities and may have professional indemnity insurance. When an individual is the insured, other provisions of the policy will not apply. An example is cl 1.3. That it is confined to a corporate insured in accordance with the use of the term "subsidiary companies" in cl 1.3.1 is enforced by cl 1.3.2. It is only if the insured is a company that there can be any director or executive officer of the ubiquitous "You". 17 In Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103, Bryson J held that the later conduct and statements of parties to a contract are not admissible to resolve an ambiguity in the meaning of the contract, although they are admissible to identify the things with which the contract deals. This court has agreed with these propositions (see: H Magill v National Australia Bank Ltd [2001] NSWCA 221 at par 51). 18 The appellant asked the court to have regard to the later conduct of the appellant's insurance brokers in issuing, with respect to the subsequent period of insurance, its closing certificate naming Shadbolt and the appellant for their respective rights and interests as the insured. It was submitted that one of the things with which the policy deals is the identity of the insured. 19 That argument should be rejected. The insured named in the renewal certificate was Shadbolt. The appellant seeks, by reference to the meaning of cl 1.3.1 of the policy, to include the appellant as an insured. That is a construction argument. It is not concerned with identifying the things with which the policy deals. 20 The appellant also submitted that the contra proferentem rule should be invoked against the respondent. Reference was made to a passage from the judgment of Kirby P in MGICA Ltd v United City Merchants (Australia) Ltd (1986) 4 ANZ Insurance Cases par 60-729 at 74,350: "In the case of the policy here under consideration, regard must also be had to the fact that it is a policy for insurance. Although it was contested that the policy had been proffered by the insurer to the insured, the facts reveal that this is what occurred. It would have been unusual had it been otherwise. True it is, the terms were debated and negotiated even after the policy had been tendered. But it was a policy prepared by the insurer with provisions particular to the business of the insured. Being proffered by the insurer it is subject to the contra proferentem rule of construction. Whilst this is a rule of last resort and a principle for construction to remove ambiguities only when other more rational approaches fail, it is not without importance in the present case. The insurer was in the superior position to so design its policy as to clarify the unclear and to deal with matters important to its perceived risk…" 21 It was argued that cl 1.3 might have been struck out of a policy offered to an individual, or cl 1.3.1 might have been worded: "subsidiary companies other than those owned or controlled by an individual …" 22 In my view there is no ambiguity with respect to the term "subsidiary companies" and thus no call for the use of the contra proferentem rule. Furthermore, there was no need to strike out cl 1.3 in a policy proffered to an individual. The clause had no operation with respect to such an insured because of the well-understood meaning of the term "subsidiary companies" and its limitation to ownership or control by holding companies. Also, there was no call for a re-wording of cl 1.3.1 to exclude companies owned or controlled by individuals, because such companies are not subsidiary companies. 23 In my view the appellant was not a subsidiary of Shadbolt and was not covered by the policy. It is unnecessary to consider the question whether, if it were a subsidiary, the appellant was conducting the business specified in the renewal certificate. 24 The appellant's second argument was that a contract of insurance arose between the respondent and the appellant from the course of conduct between the parties. Gregory Naghten was the underwriting manager at the office of the respondent which issued the policy. He issued a cover note after speaking with the appellant's insurance broker on the telephone. A diary note of that conversation was in evidence. It identified the insured as "Shakbolt", a misspelling for Shadbolt. It contained abbreviations for "property owner public liability only". It recorded that two adjoining buildings were occupied for timber storage and recorded that Shadbolt was the principal of the tenant company and owned the buildings and business. 25 There was nothing in the note of the telephone conversation to indicate that a request was being made of the respondent to cover the appellant. Nor was there any indication that cover of the appellant's business was in the contemplation of the parties. The diary note indicated that cover was property owner public liability only. Naghten said in evidence that the risk he was writing or underwriting was the property owner only risk. 26 The proposal lodged with the respondent named "Paul Shakbolt" as the insured. The proposal form requested an identification of all subsidiary companies. No companies were specified. The description of the business was: "Property Owners Only (timber storage in adj buildings)". Questions relevant to the assessment of risk with respect to a timber storage business were crossed out as being inapplicable. 27 Naghten did not recall whether he saw the proposal. He said it would have been considered by an underwriter before the certificate of insurance issued. Naghten may have signed the original certificate. He did not remember. 28 The proposal does not suggest that cover was being sought for the appellant as an insured or that the respondent understood that to be the application. The failure to identify the appellant in the proposal is a strong indication that a contract was being sought between the respondent and Shadbolt alone. 29 Another company controlled by Shadbolt, P S Management Pty Ltd, completed a proposal form with the respondent for a similar business in which many of the questions treated as inapplicable in Shadbolt's proposal were completed. The respondent accepted the proposal at a premium $50 higher than that charged to Shadbolt. It was submitted that this demonstrated the irrelevance of the questions not answered in Shadbolt's proposal. However, the P S Management Pty Ltd proposal indicated that the business was new and it is a possibility that the respondent had a policy of discounting its normal premium for new businesses. This and other possible reasons for a relatively small increment in premium for increased risk were not explored in the evidence before the trial judge. 30 The renewal certificate for the period following the accident was not in evidence. The broker's closing certificate identified the insured as Shadbolt and the appellant for their respective rights and interests and the interest insured as indemnity in respect of bulk timber storage and property owners. The premium was the same as it was in the year of the accident. 31 Far from indicating that the parties regarded the appellant as an insured in the period prior to the issue of the broker's closing statement, the contrast with the name of the insured in previous years is against the inference that the appellant as well as Shadbolt were parties to the insurance contract. 32 So far as the identical premium is concerned, there was no evidence as to why this was so. It may be, for example, that a reduction of premium otherwise chargeable with respect to the timber storage business was made because of the claims history of Shadbolt and his other companies (other than the appellant). The respondent may have instituted a policy of discounting premiums on fourth year renewals of policies the subject of no claim. These matters were not explored in the evidence. The following exchange occurred in the cross-examination of Naghten: "Q: So for the years commencing April 95,96,97 your company charged the same premium on this policy? A: So it would appear yes. Q: In the year commencing 1997 that was so even though Independent Timbers name was placed on the policy and even though the interest insured was on your view widened to include 'bulk timber storage', would you agree? A: This is the broker's paperwork. It's not the company's paperwork. Could I say something on this?" 33 Counsel for the appellant did not explore this matter with Naghten. Neither was it put to him that in the previous years the respondent was covering the appellant as well as Shadbolt. Counsel for the appellant submitted that the failure of the respondent to call the underwriter who considered Shadbolt's proposal and authorised the issue of the initial insurance certificate raised an inference adverse to the respondent in terms of Jones v Dunkel (1959) 101 CLR 298. 34 The rule only applies where a party is required to explain or contradict something. In the absence of evidence requiring an answer the failure to call evidence has no probative significance (Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121 at 141-143). 35 In its amended notice of cross-claim, the appellant alleged that by a policy of broadform liability insurance no 22 A4619 PLB the respondent agreed to indemnify the appellant. That is the policy number for which the renewal certificate issued to Shadbolt. By its defence the respondent alleged that that policy named Shadbolt as the insured. In the alternative, the appellant pleaded that it was a party entitled to indemnity as an insured under the policy as a company under the control of the insured named in the policy. By its defence, the respondent alleged that the policy did not provide indemnity to a company under the control of Shadbolt and that the appellant was not nominated by Shadbolt as a business subsidiary company entitled to indemnity under the policy. 36 There was no issue on the pleadings that a contract of insurance between the respondent and the appellant had been concluded by the conduct of the parties. Shadbolt gave evidence. No evidence was elicited from him in chief in relation to the issue. 37 Reference was made to Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 in which Handley JA at 418-419 took the view that the principles in Jones v Dunkel apply when a party by failing to examine a witness in chief on some topic indicates, as the most natural inference, that the party fears to do so. 38 That occasion did not arise in the instant circumstances because neither the pleading nor the evidence of Shadbolt raised as an issue the conclusion of a contract of insurance between the respondent and the appellant arising out of the conduct of the parties. 39 Furthermore, an inference that the evidence of the underwriter would not have assisted the respondent may, not must, be drawn in appropriate circumstances (Cafe v Australian Portland Cement Pty Ltd (1965) 83 WN (Pt 1) (NSW) 280 at 286-287). It is inappropriate, in my view, to draw that inference in circumstances where the matter was not put to the man in charge of the relevant underwriting department. In my view no inference adverse to the respondent under the Jones v Dunkel principle should be drawn in this case. 40 In any event, even if the inference were open that the underwriter who processed Shadbolt's proposal would not have given evidence supportive of the respondent's case, that inference alone would not, in my opinion, outweigh the clear inference to be drawn from the other material discussed above that Shadbolt alone was insured by the respondent. 41 The appellant relied upon Austcan Investments Pty Ltd v Sun Alliance Insurance Ltd (1991-1992) 57 SASR 343. Upon the purchase of a property at Mile End in the name of the plaintiff, a company controlled by McLean and McKenzie, instructions were given to an insurance broker to secure suitable and adequate cover over the property, which he did. Subsequently, insurance was taken out with the defendant in the name of Shantora Properties Pty Ltd, a company controlled by McLean, over a shop at Angaston. Insurance was later sought from the defendant with respect to other properties owned by various companies controlled by McLean or McKenzie or both of them, including the Mile End property. In February 1984, the defendant issued a cover note with respect to the Mile End property and the other properties as per a particular policy. That policy was the one previously issued to Shantora Properties Pty Ltd covering the shop at Angaston. At 358-359 King CJ said: "It is true that the name Austcan Investments Pty Ltd at no time prior to the fire appeared on the policy or any of the relevant documents. It is clear, however, that from February 1984 onwards, the broker intended to obtain insurance of the Mile End property and the insurer intended to cover that property. The broker's duty to his clients McLean and McKenzie was to take out effective insurance and it must be taken to have intended to take out such insurance on behalf of the owner of the Mile End property whether or not it was fully aware of the identity of that owner. I think moreover that it is the fair and probable inference from the documents to which I have referred that the insurer was indifferent to the identity of the particular company which it was insuring and was willing, and intended, to insure such of the McLean companies as owned each particular property insured."

Independent Timber Importers v Mercantile Mutual Insurance

At a glance

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Decision date

Before

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Judgment (12 paragraphs)

Parties

Cases Cited (5)

Cited By (10)