Kerembla Pty Ltd v XL Insurance Company SE, trading as Brooklyn Underwriting

Federal Court of Australia|2023-07-07|Before: Mr P, Jackman J

XL Insurance Company SE is liable to indemnify the applicant pursuant to the Public and Product Liability Insurance Policy for the period from 28 February 2021 to 28 February 2022 with Policy Number BXLC-LIM-2018-002797 in respect of losses arising from or relating to the incident on 19 May 2021. THE COURT ORDERS THAT:
The applicant file and serve any written submissions and affidavit(s) on the question of costs by 21 July 2023.
The second respondent file and serve any written submissions and affidavit(s) in relation to costs by 4 August 2023.
The applicant file and serve any written submissions and affidavit(s) in reply by 11 August 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 These proceedings have been brought by Kerembla Pty Ltd (Kerembla) against two insurers, QBE Insurance (Australia) Ltd (QBE) and XL Insurance Company SE, trading as Brooklyn Underwriting (XL). The proceedings between Kerembla and QBE have been compromised on terms that the application against QBE be dismissed with no order as to costs, and I have made orders to that effect. This judgment deals with the remaining dispute between Kerembla and XL, in which Kerembla seeks a declaration that XL is liable to indemnify it pursuant to a Public and Product Liability Insurance Policy for the period from 28 February 2021 to 28 February 2022 (the Policy), in respect of losses arising from or relating to an incident on 19 May 2021 (the Claim). The proceedings do not concern the amount of any such indemnity.

The Incident 2 Kerembla specialises in large diameter and mineral exploration drilling services to the coal mining industry. Relevantly, Kerembla provided mining services under a contract with Hunter Valley Operations Pty Ltd (HVO). On 19 May 2021, while at the HVO mine site, employees of Kerembla loaded a JCB JZ140 excavator (Excavator) onto the back of a prime mover (Prime Mover) and trailer (Trailer), in readiness to transport the Excavator from the HVO mine site to Kerembla's premises in Muswellbrook, New South Wales, comprising Kerembla's primary office, depot and workshops. Kerembla selected the Trailer, Prime Mover and particular boom arm for the purpose of ensuring it could transport the Excavator on the Trailer on roads under a height of 4.3 m. Consideration had been given to the suitability of the route taken to and from the HVO site along Lemington Road. Lemington Road was the most direct route between the HVO mine site and Kerembla's premises at Muswellbrook. The machinery was capable of being safely carried on that route. Kerembla had work place safety processes and training in place for its staff and the operation of machinery. Kerembla developed Safe Work Method Statements (SWMS) for various tasks, including the loading of the Excavator. 3 On 19 May 2021, two employees of Kerembla, Mr Law and Mr O'Sullivan, reviewed the SWMS remotely at the HVO site before undertaking the task of loading the Excavator. They then loaded the Excavator onto the Trailer, which involved securing the Excavator to the Trailer with chains. They used a tape measure provided by a third employee, Mr Kennedy, and attempted to measure the height of the Trailer and Excavator, and believed (wrongly) that the Excavator was under 4.3 m. They then left the HVO site in order to transport the Excavator back to Kerembla's premises at Muswellbrook. Travelling along Lemington Road, they approached the first bridge with a clearance of 5 m. Mr Law stopped to let Mr O'Sullivan get out of the vehicle, and then drove slowly to allow Mr O'Sullivan to check the clearance, and Mr O'Sullivan reported a clearance of about 600 mm. Mr Law continued driving and the Excavator approached the second bridge (the Bridge), which displayed a clearance sign stating "4.9 m". When travelling under the Bridge, the Excavator collided with the Bridge, causing damage to the Bridge. 4 The Bridge is owned by HVO, which has made a claim against Kerembla in relation to the damage to the Bridge. Kerembla, in turn, has made a claim under the Policy.

Salient Terms of the Policy 5 The insuring clause provides as follows: 2.1 What we cover We agree (subject to the terms, Claims Conditions, General Conditions, Exclusions, Definitions and Limits of Liability incorporated herein) to pay to You or on Your behalf all amounts which You shall become legally liable to pay as Compensation in respect of: (a) Personal Injury, and/or (b) Property Damage; and/or (c) Advertising Injury; happening during the Period of Insurance within the Geographical Limits, in connection with the Business or Your Products and/or work performed by You or on Your behalf and caused by or arising out of an Occurrence. 6 The exclusion clauses provide relevantly as follows: We do not cover any liability: … 3.22 Vehicles for Personal Injury and/or Property Damage arising out of the ownership, possession or use by You of any Vehicle: (a) which is registered or which is required under any legislation to be registered, or (b) in respect of which compulsory liability insurance or statutory indemnity is required by virtue of legislation (whether or not that insurance is effected); but Exclusions 3.22(a) and (b) shall not apply to: … (d) any Vehicle (including any tool, implement, machinery or plant forming part of or attached to or used in connection with such vehicle) whilst being operated or used by You or on Your behalf as a Tool of Trade at Your premises or on any Worksite. (e) the delivery or collection of goods to or from any Vehicle. (f) the loading or unloading of any Vehicle. (g) any Vehicle temporarily in Your custody or control for the purpose of parking. (h) Property Damage caused by or arising out of the movement of any Vehicle (which is required to be Conditionally Registered in accordance with the law of any State or Territory in Australia) in the event of Your inadvertent and unintentional failure to effect Conditional Registration. 7 The following relevant definitions are given in cl 1 of the Policy: "Occurrence" means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury and/or Property Damage and/or Advertising Injury that is neither expected nor intended (except for the matters set out in (f) of the definition of Personal Injury) from Your standpoint. With respect to Personal Injury and/or Property Damage, all events of a series consequent upon or attributable to one source or original cause shall be deemed to be one Occurrence. … "Property Damage" means: (a) physical loss, destruction of or damage to tangible property, including the loss of use thereof at any time resulting therefrom; and/or (b) loss of use of tangible property which has not been physically lost, destroyed or damaged; provided that such loss of use is caused by or arises out of an Occurrence. "Tool of Trade" means a Vehicle that has tools, implements, machinery or plant attached to or towed by the Vehicle and is being used by You at Your premises or on any Worksite. Tool of Trade does not include any Vehicle whilst travelling to and from a Worksite or Vehicles that are used to carry goods to or from any premises. "Vehicle" means any type of machine on wheels or on self-laid tracks made or intended to be propelled by other than manual or animal power, and any trailer or other attachment to be used in conjunction with or drawn by any such machine. "Worksite" means any premises or site where work is performed for and/or in connection with the Business together with all areas surrounding such premises or site and/or all areas in between such premises or site that You shall use in connection with such work.

Principles of Construction 8 There was no dispute between the parties as to the general legal principles concerning the construction of contracts of insurance. Relevantly, the insuring clause and any exclusion clause must be read together in a harmonious way so that due effect is given to both, and the right conferred by the former is not negated or rendered nugatory by the construction adopted for the latter; in relation to the construction of exclusion clauses, such a clause is to be construed according to its ordinary and natural meaning, read in the light of the contract as a whole: Hakea Holdings Pty Ltd v Neon Underwriting Ltd [2023] FCAFC 34; (2023) 164 ACSR 591 at [103]-[104] (Jackman J, with whom Colvin and Button JJ relevantly agreed); Star Entertainment Group Ltd v Chubb Insurance Australia Limited [2022] FCAFC 16; (2022) 400 ALR 25 at [14] (Moshinsky, Derrington and Colvin JJ).

Application of the Policy to the Claim for Liability 9 XL accepts that the insuring clause responds to the Claim, but relies on exclusion clause 3.22 to deny indemnity. Kerembla accepts that the damage to the Bridge arose out of the use by Kerembla of a Vehicle or Vehicles which satisfy subcll 3.22(a) and (b). Kerembla relies on the write-back provided by subcll 3.22(d) and (f). I will deal with those write-backs in that order, although that is the reverse order in which Kerembla's submissions were presented.

Subclause 3.22(d) 10 Subclause 3.22(d) begins with a reference to "any Vehicle". The definition of Vehicle includes the Prime Mover and the Trailer, both of them being types of machines on wheels. It also includes the Excavator, being a type of machine on self-laid tracks. The bracketed words which next appear in subcl 3.22(d) are also apt to include the Excavator, being machinery which was "attached to" the Trailer, although as I have said, the Excavator was a Vehicle in its own right. The use of chains to secure the Excavator to the Trailer was a means of attaching the Excavator to the Trailer. 11 The Prime Mover and the Trailer were being operated or used by Kerembla at the time of the incident, although the Excavator was not being so operated or used at that time, but was merely sitting idle on the back of the Trailer. The questions which arise are whether the Prime Mover and the Trailer were being operated or used "as a Tool of Trade" and, if so, whether that was "on any Worksite". 12 Dealing first with the second of those issues, the definition of "Worksite" extends to "any premises or site where any work is performed for and/or in connection with the Business together with… all areas in between such premises or site that You shall use in connection with such work". The HVO site was a site where work was performed for or in connection with the Business of Kerembla. Although XL submitted that Kerembla's own premises at Muswellbrook did not fall within that concept, I cannot see any basis in the language used in the definition of "Worksite" which would so confine that concept. "Business" is defined in the Schedule to the Policy as including mining and civil drilling, exploration drilling and "all activities incidental thereto", and in cl 1 as including "the ownership of premises and/or the tenancy there of by You". The premises of Kerembla at Muswellbrook, comprising its primary office, depot and workshops, are premises where work is performed for or in connection with the Business, the definition of which includes activities incidental to Kerembla's drilling work and ownership or tenancy of premises. Accordingly, the concept of "all areas in between such premises or site" is apt to include the public road known as Lemington Road, being the most direct route between the HVO site and Kerembla's premises at Muswellbrook, where the collision with the Bridge occurred. The concluding words in subcl 3.22(d) "on any Worksite" are therefore satisfied. 13 Turning then to the question of operation or use "as a Tool of Trade", the Excavator was a tool, implement, machinery or plant which was attached to the Trailer and towed by the Prime Mover at the time of the incident. As I have said above, the Prime Mover and the Trailer were being used by Kerembla "on any Worksite", being Lemington Road, at the time of the incident. Accordingly, the Prime Mover and the Trailer satisfied the first sentence of the definition of "Tool of Trade". 14 The second sentence of the definition of "Tool of Trade" comprises two elements. In the first place, that sentence says that "Tool of Trade" does not include any Vehicle whilst travelling to or from a Worksite. Kerembla submits, and I accept, that those words do not include a Vehicle travelling between premises or sites where work is performed for or in connection with the Business, because such areas are defined to be a Worksite themselves. The notion of travelling "to or from" a Worksite applies to Vehicles travelling to a Worksite from a place that is not a "Worksite", and vice versa. That was not the case on Lemington Road, which as I have said above, was part of the definition of Worksite. 15 The second element of the second sentence of the definition of "Tool of Trade" refers to "Vehicles that are used to carry goods to or from any premises". Read literally, the Excavator was a kind of good which was being carried from some premises by the Prime Mover and Trailer at the time of the incident. However, a literal construction of that language would render nugatory or substantially undermine the first sentence of the definition of "Tool of Trade". Tools, implements, machinery or plant which are attached to or towed by a Vehicle, will invariably be "goods" within the legal concept of that term, and if they are attached to or towed by the Vehicle then they would be carried. In my opinion, the word "goods" should be construed so as not to include "tools, implements, machinery or plant attached to or towed by the Vehicle". Similarly, the word "carry" should be construed so as not to include the transporting of things which are "attached to or towed by the Vehicle". Without those qualifications, the first sentence of the definition of "Tool of Trade" would be left with little or no operative effect. Accordingly, in my view the Prime Mover and the Trailer were not being used to carry goods within the meaning of the second sentence of the definition of "Tool of Trade" at the time of the incident. 16 That conclusion is reinforced by the bracketed words in the text of subcl 3.22(d) itself. Those words have the effect that any tool, implement, machinery or plant attached to a vehicle is itself part of the Vehicle. It would make a nonsense of that aspect of subcl 3.22(d) if the machinery attached to the Vehicle fell outside subcl 3.22(d) because the Vehicle was used to carry the machinery, which is a kind of good. 17 Accordingly, in my opinion the various elements of subcl 3.22(d) are satisfied. That conclusion is not affected by the fact that the Excavator falls within the bracketed words in subcl 3.22(d) but was not being operated or used at the time. It is sufficient if the Prime Mover and the Trailer were being operated or used by Kerembla as a Tool of Trade on any Worksite at the time of the incident. It is not necessary for Kerembla to establish that every element of the Vehicle, as defined to include any tool, implement, machinery or plant attached to it, was actually being operated or used at the time of the incident.

Subclause 3.22(f) 18 Turning then to subcl 3.22(f), XL submits and I accept, that the words "loading or unloading" are verbal nouns which refer to the activities of loading or unloading. The loading of the Excavator was an activity antecedent to and preparatory for the operation and use of the Prime Mover and Trailer to transport the Excavator along Lemington Road. I accept XL's submission that the ordinary and natural meaning of subcl 3.22(f) was to exclude claims for damage arising out of the use of Vehicles unless it occurred during the activity of loading or unloading. The damage in the present case did not occur during the loading of the Vehicle. 19 Kerembla submits that subcl 3.22(f) must be construed harmoniously with the insuring clause in cl 2.1, such that subcl 3.22(f) means that the Policy will cover an Occurrence that gives rise to Property Damage caused by or arising out of the loading or unloading of a Vehicle. In other words, Kerembla submits that subcl 3.22(f) is intended to indicate circumstances that constitute the required elements of insuring cl 2.1. Kerembla then submits that the relevant Occurrence was the loading of the Vehicle, rather than the collision with the Bridge, and treats the error in measuring the height of the Trailer and Excavator as an aspect of the loading of the Vehicle. Kerembla submits that in order to constitute an Occurrence, the relevant event or condition need only be a necessary cause of the relevant incident, and need not be a sufficient cause of that incident, relying on Siegwerk Australia Pty (in liq) v Nuplex Industries Australia Pty Ltd [2013] FCAFC 130; (2013) 305 ALR 412; and Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100; (2018) 359 ALR 314 at [100] and [108] (Barrett AJA), contra Meagher JA at [7]-[8]. 20 In my opinion, subcl 3.22(f) should be read on its own terms, without trying to force language from the insuring clause into subcl 3.22(f). Subclause 3.22(f) is a write-back in relation to exclusion clauses 3.22(a) and (b). If the insuring clause is satisfied, then one need not return to the question of the insuring clause when construing the write-back in subcl 3.22(f). The point is reinforced by considering the language which has been used in subcl 3.22(h), which expressly refers to "Property Damage caused by or arising out of" particular matters. If the parties had intended that subcl 3.22(f) was intended to refer to Property Damage caused by or arising out of the loading or unloading of any Vehicle, then the parties had readily available language in order to manifest such an intention. The omission of the words "caused by or arising out of" from subcl 3.22(f) should be treated as intentional. While I am prepared to accept that the measuring of the height of the Excavator and Trailer was an aspect of the task of loading the Excavator, I do not regard the write-back in subcl in 3.22(f) as being applicable to the Claim in the present case.

Conclusion 21 Accordingly, I will grant the declaration sought by Kerembla. 22 The parties expressed a preference for dealing with the question of costs, including any lump sum costs order, after reading my reasons for judgment. Accordingly, I will make orders for the exchange of written submissions and affidavits on the question of costs, and I will decide that issue on the papers. Given that Kerembla is the successful party, it is appropriate that Kerembla goes first in that process. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.

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