JDGD v Allianz Australia Insurance Limited

The issue to be decided

1. As a result of the agreements and admissions only one issue was left to be decided: "The parties agree the issue in the proceedings is whether the Policy Exclusion operates and applies so as to deny cover under the terms of the Policy to the plaintiff for Papas Painting's liability, and thereby denied the plaintiff the relief claimed in the proceedings."

The insurance policy

1. The insured is covered for its public liability. "Public liability means Your legal liability covered by the Policy but not arising out of Your Products."
2. The cover is stated in this way: "Subject to the Limit of Liability stated in the Schedule and the terms and conditions of this Cover Section, We will pay all sums that the Insured Person shall become legally liable to pay for compensation in respect of: - Personal Injury; - Property Damage; - Advertising Liability; happening during the Period of Insurance within the Territorial Limits as a result of an Occurrence in connection with Your Business or Products."
3. The relevant exclusion clause states: "We will not pay anything in respect of any alleged or actual liability: … 18. Asbestos arising directly or indirectly caused by, or contributed to by or arising from, asbestos or asbestos products or asbestos contained in any product."
4. The parties agree that the onus lies on the defendant to establish that the exclusion applies.

Does the exclusion apply?

1. I think the starting point is in the Statement of Agreed Facts and in particular at [22]: "The plaintiff suffered the following damage and losses: (i) the plaintiff's bed stock and other stock (bed quilt covers and linen) and some unsalvageable fit out materials it had installed in the Premises were damaged by asbestos contamination and were required to be disposed of; (ii) asbestos contamination clean-up fees; and (iii) the plaintiff suffered trading losses for the period the Premises could not be used by reason of the Prohibition Notice and until it obtained new premises to recommence trading."
2. I have already stated that the Prohibition Notice related to an area which had been contaminated by asbestos.
3. My initial reaction from [22] of the agreed facts was that the whole of the damage and losses suffered by the plaintiff were in some way, to be neutral at this stage, connected to asbestos. There was no, for example, water damage caused by overzealous cleaning.
4. Counsel for the plaintiff submitted however, that the plaintiff's case did not concede that [22] was an exclusive statement of damage. It was conceded that any non-asbestos related damage, for example due to water damage alone, could not be distinguished from the asbestos linked damage and would have been a minor component. The point was not made to excise an amount from the $900,000 and attribute it to non-asbestos related damage, but rather to strengthen its construction argument which I will return to below.
5. In Darlington Futures Ltd v Delco Australia Ltd (1986) 161 CLR 500; [1986] HCA 82, the High Court said, at p 510: "These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig, (at p.970; p.105 of ALL E.R.) the same principle applies to the construction of limitation clauses. As King C.J. noted in his judgment in the Supreme Court, a limitation clause may be so severe in its operation as to make its effect virtually indistinguishable from that of an exclusion clause. And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises."
6. The NSW Court of Appeal applied Darlington Futures in G L Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62 and added this in respect of the contra proferentum rule, at [27]: "The rule applies only when, having applied all other aids to construction, ambiguity remains."
7. As I understood the plaintiff's argument, it arose from two primary points, to some degree overlapping, together with a series of secondary submissions.
8. The primary points were: 1. It was necessary to read the introductory words under the heading "Exclusions" together with, as one effective sentence, the specific exclusion. Therefore, the exclusion clause should be read as: We will not pay anything in respect of any alleged or actual liability arising directly or indirectly caused by, or contributed to by or arising from, asbestos or asbestos products or asbestos contained in any product. 1. Read in this way the relevance of asbestos was to be seen as part of the requirement creating a liability and not as a component of the damages flowing from liability. On this basis, in the circumstances of this case, the liability arose from the application of high pressure water hosing to the roof and had nothing to do with asbestos. The fact that the damage flowing from the liability stemmed from the presence of asbestos, was irrelevant. 1. The wording of the exclusion, in particular the reference to "arising" was not sufficient to import into the exclusion wording such as "in connection with" which would have had the result of undeniably linking the damage to the liability.
9. In support of the above primary points the plaintiff referred me to different parts of the policy including the definition of "occurrence" and "property damage". The intent of these references was to distinguish the act of high pressure hosing from the presence of asbestos which had been in the roof for many years before the work was done.
10. The plaintiff submitted that there were four distinct parts to the establishment of liability: 1. high pressure water spraying was applied to the roof; 2. material containing asbestos was dislodged from the roof; 3. the material including water and debris entered the building; and 4. the material dripped into or around the building.
11. The plaintiff submitted that it was only the first of the four parts that was necessary to establish liability so that whatever relationship damages may have had to asbestos, that relationship was not relevant because the exclusion applied only to the manner in which liability had been established.
12. I understand the distinction the plaintiff was endeavouring to make but I think it is undone by the agreed facts at [23]-[25] as to the basis of Papas Painting's negligence: "23. Papas Painting and/or its employees for whom it was vicariously liable and who at all material times were acting within the scope of their duties, as prudent painters ought to have known (i) the roof was to be prepared for and waterproofed to prevent leaking into the Premises; (ii) water from the use of high pressure water spray would drain from the roof into and from the Premises; (iii) the corrugated bonded cement roofing was likely to be asbestos containing material ("ACM"), or should be assumed to be ACM unless and until further testing, and that using high pressure water spray upon the ACM could cause asbestos fibres to be released and enter, or flow from, the Premises. 24. By reason of the preceding paragraph, Papas Painting was liable in negligence and/or vicariously liable for the negligence of its employees, who at all material times were acting within the scope of their duties, as alleged by paragraph [8], subparagraphs 9 and (c), and subparagraphs 10, (c), (e), (f) and (g) of the Further Amended Statement of Claim filed 29 June 2023 ("the FASC") ("the negligence of Papas Painting"). 25. The negligence of Papas Painting caused the Plaintiff's loss and damage as alleged by paragraphs [7] and [11] of the FASC ("Papas Painting's liability")."
13. It can be immediately seen from, in particular [23], that the basis for liability was not just the use of a high-pressure water spray but also from the use of the spray on a roof which was "likely to be asbestos containing material ("ACM"), or should be assumed to be ACM … ." In other words, it was a fundamental ingredient of the agreed negligence that the high pressure hosing was applied to this particular roof.
14. Thus, the negligence creating the liability included the spraying of a roof likely to contain asbestos. Without this element, at least on the agreed facts, negligence would not necessarily have been established. This is stated in the clearest of terms in [25] of the agreed facts, quoted above.
15. I think my conclusion also deals with the plaintiff's second point concerning the use of the word "arising" as opposed to, for example, "in connection with", asbestos. Once the asbestos is seen as part of the negligence, and in turn the basis for liability, then it easily follows that the liability arises from, and is caused by, or contributed to by, asbestos.
16. The plaintiff submitted that "the exclusion does not apply to the circumstances of this case." The plaintiff continued: "If an exclusion clause is reasonably open to competing constructions, the preferred construction is one that avoids capricious, unreasonable, inconvenient or unjust consequences, having regard to the risks covered by the policy and, therefore, the purpose of the policy. The policy in this case was a Business Pack policy issued to Papas Painting Contractors for the purpose of covering liabilities it may incur in the course of its business as a painting contractor."
17. In my view there are no competing constructions. Once liability is seen as arising from a factor which includes asbestos the exclusion is straightforward and not ambiguous.
18. Besides ambiguity, the plaintiff also referred to the nature of the insurance policy, being one which, as a "Business Pack," was designed to protect the insured from public liability as it went about its normal business, in this case painting and cleaning. This submission is consistent with this passage from Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 where the Court of Appeal, after confirming the principles stated in Darlington Futures, added, at [192]: "In construing an exclusion clause, the court will take into account the principle that it would not give effective business operation to a contract if an exclusion clause inappropriately circumscribed the cover provided by the insuring clauses: Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 (at 394) per Kirby P; (at 402 - 403) per Glass JA; (at 405) per McHugh JA (Glass JA agreeing); Transfield Services (Australia) Pty Ltd v Hall; Hall v QBE Insurance (Australia) Pty Ltd (at [191]) per Campbell JA; (at [238]) per McClellan CJ at CL (Beazley JA agreeing)."
19. I completely agree with the plaintiff that business efficacy is a relevant consideration. If the purpose of the Business Pack is to allow the insured to go about its normal business of cleaning and painting, then an exclusion that prevents this conduct should not be interpreted to prevent that occurring.
20. However, I do not see the consideration as one which necessarily prevents an exclusion from certain events or factors that might arise in the course of the insured's normal business. It is the very essence of an exclusion clause that it excludes an occurrence or event that might otherwise occur while the insured was going about its normal business.
21. Both parties made submissions about the structure of the exclusion clause from a grammatical standpoint. For example, the plaintiff submitted: "A first point to note is that there appears to be a conjunction missing after the first "arising directly" in the phrase "arising directly or indirectly caused by, or contributed to by or arising from". It is not clear if what was intended was "arising directly [from] or indirectly caused by…." Or whether the first "arising" has been included in error, and what was intended was "directly or indirectly caused by, or contributed to by or arising from."
22. The defendant countered with: "It is usual for alternative verbs, such as "arose", "caused", "contributed" to be expressed collectively before a conjunction, such as the prepositions, "from", "with" or "by".
23. While this type of analysis can have a place in interpretation of a clause, such an analysis will only come after a conclusion that there is some ambiguity in the clause and that its meaning is not obvious from the words used.
24. In addition, as stated in Selected Seeds Pty Ltd v QBEMM (2010) 242 CLR 336; [2010] HCA 37, at [29]: "According to general rules of construction, whilst regard must be had to the language used in an exclusion clause, such a clause must be read in light of the contract of insurance as a whole, "thereby giving due weight to the context in which the clause appears"."
25. I think that reading this "contract of insurance as a whole" results in a clear objective intention to insure the business activities of the insured subject to the insurance not covering any risk in which asbestos is a contributing element.
26. The plaintiff referred to the exclusion in respect of "pollution" which is cl 19 in the exclusion clauses. The plaintiff said that what had occurred in this case was pollution, but this did not result in an exclusion because of the qualifications to sub pars (a) and (c) which are stated in cl 19.
27. The fact that the damage in this matter may have also fallen under the definition of pollution does not negate the same facts being subject to the exclusion clause about asbestos. Without any comment as to whether there was pollution under the policy, I do not see the relevance of the point to whether or not the asbestos exclusion clause is applicable.
28. The plaintiff also referred me to the "Wayne Tank" principle. In Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340. At [81] Allsop CJ expressed the application of the principle in this way: "Thus, the Court should first seek to identify a single proximate cause of the loss or damage. If a conclusion is reached that there are instead multiple proximate causes, and one is an insured event but the other is not, then the insured will be able to recover. However, where there are two proximate causes and these are concurrent and interdependent, and where one is an insured event and one is an excluded event then as a matter of construction of the policy the insured will not be able to recover. The causes are inseparable, and as one is excluded under the policy recovery will not be possible … ."
29. The plaintiff drew aid from the principle in this way: "Third, in determining whether a cause of loss is excluded, the Court should first seek to identify a single proximate cause of the loss or damage. It is only if there are two proximate causes which are concurrent, independent and inseparable, one of which is excluded, that the exclusion prevails (the "Wayne Tank principle"). The plaintiff contends that, in the circumstances of this case, properly viewed, "asbestos" is not a concurrent, independent and inseparable cause of Papas Painting Contractors' liability."
30. The defendant submitted that the Wayne Tank principle acted in its favour: "Papas Painting's liability is causally connected to asbestos. As such, to the extent the principle applies, the exclusion prevails to deny indemnity."
31. I agree with the defendant. Going back to [23]-[25] of the agreed facts, as I have said before, there can be little doubt that the actions of Papas Painting on a roof possibly containing asbestos was a proximate ingredient of its negligence and in turn of the loss and damage.
32. I hope I have dealt with all of the plaintiff's points, most of which emanated from the plaintiff's submission that liability arose, alone, from the negligent use of a high-pressure hose on the roof. I have rejected this proposition, in particular because of its inconsistency with the agreed facts.
33. The result is that the plaintiff's claim must fail. I make the following orders: 1. The further amended statement of claim filed on 29 June 2023 is dismissed. 2. The plaintiff is to pay the defendant's costs of the proceedings. 3. I will hear the parties if any alternative costs order is sought.

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