National Vulcan & Ors v Transfield; National Vulcan & Ors v Connell Wagner; National Vulcan & Ors v Coffey Partners International

CATCHWORDS : INSURANCE - exclusions under policy for damage to property owned by the insured - is the exclusion relevant where a subcontractor's property is damaged by another party covered under the same insurance contract - did the insurers make a binding election to indemnify the head contractor by way of correspondence CE Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 Commonwealth Construction Co Ltd v Imperial Oil Limited (1977) 69 DLR (3d) 558 Darlington Futures Ltd v Delco Australia Pty Limited (1986) 161 CLR 500 Glebe Island Terminals Pty Limited v Continental Seagram Pty Ltd (1993) 40 NSWLR 206 Re FAI General Insurance Co Ltd & Fletcher Construction Ltd (1998) 10 ANZ Ins Cas 61-403 Federation Insurance Ltd v Wasson (1987) 163 CLR 303 Ferguson v Miller [1978] 1 NZLR 819 Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] 2 Qd R 390 Generals Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 CASES CITED : Griffies v Griffies (1863) 8 LT 758 Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR(NSW) 231 McCann v Switzerland Insurance Australia Limited (2000) 75 ALJR 325 Murray v Hall (1849) 7 CB 441 Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61-235 Romay Automotive Ltd v Dominion of Canada General Insurance Co (1974) 43 DLR(3d) 346 Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 Stolberg v Pearl Assurance Co Ltd (1971) 19 DLR(3d) 343 Re Vergata et al v Manitoba Public Insurance Corporation (1976) 67 DLR(3d) 527 Weightman v Noosa Shire Council [1999] QSC 368 WorkCover Queensland v Royal & Sun Alliance Insurance Australia Ltd (2001) 11 ANZ Ins-Cas 61-489 CA 40927/02: National Vulcan Engineering Insurance Group Limited (First Appellant/First Cross-Respondent) Assicurazioni Generali SpA (Second Appellant/Second Cross-Respondent) Gordian Runoff Limited (formerly known as GIO Insurance Limited) (ACN 052 179 647) (Third Appellant/Third Cross-Respondent) Transfield Pty Limited (Respondent/Cross-Appellant)

CA 40928/02: National Vulcan Engineering Insurance Group Limited (First Appellant) PARTIES : Assicurazioni Generali SpA (Second Appellant) Gordian Runoff Limited (formerly known as GIO Insurance Limited) (ACN 052 179 647) (Third Appellant) Connell Wagner Pty Limited (Respondent)

CA 40929/02; CA 40930/02; CA 40931/02: National Vulcan Engineering Insurance Group Limited (First Appellant) Assicurazioni Generali SpA (Second Appellant) Gordian Runoff Limited (formerly known as GIO Insurance Limited) (ACN 052 179 647) (Third Appellant) Coffey Partners International Pty Limited (ACN 003 692 019) (Respondent) FILE NUMBER(S) : CA 40927/02; 40928/02; 40929/02; 40930/02; 40931/02 A J Sullivan, QC/D Weinberger (Appellants/Cross-Respondents) COUNSEL : M A Pembroke SC/T M Faulkner (Respondent/Cross-Appellant, Transfield) J E Sexton, SC (Respondent, Connell Wagner) F Corsaro, SC (Respondent, Coffey Partners) Moray & Agnew (Appellants/Cross-Respondents) SOLICITORS : Holding Redlich (Respondent/Cross-Appellant, Transfield) Arnold Bloch Leibler (Respondent, Connell Wagner) Minter Ellison (Respondent, Coffey Partners)

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 50093/02; SC 50094/02 FILE NUMBER(S) : LOWER COURT McClellan J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40927/02 CA 40928/02 CA 40929/02 CA 40930/02 CA 40931/02

SANTOW JA IPP JA YOUNG CJ in Eq

11 NOVEMBER 2003 National Vulcan Engineering Insurance Group Limited & Ors v Transfield Pty Limited National Vulcan Engineering Insurance Group Limited & Ors v Connell Wagner Pty Limited National Vulcan Engineering Insurance Group Limited & Ors v Coffey Partners International Pty Limited (three matters)

Judgment 1 SANTOW JA: INTRODUCTION AND OVERVIEW On 8 August 2002 Justice McClellan made orders under Pt 31 r2 for certain questions to be decided separately and in advance of all other issues in the proceedings. Those separate questions were decided on the basis of a statement of agreed facts. These agreed facts in broad terms embrace a situation where Transfield Pty Limited ("Transfield") was head contractor for a major railway project, the other two respondents were sub-contractors and were included with a large number of entities and persons for coverage by a single policy with a cross-liability clause. The relevant insurance policy is referred to as a "contractors' floater insurance policy" with multiple Insureds. Following two incidents, claims were made in various combinations between various of the Insured. They were essentially claims by and against the respondents inter se . Because there was an exclusion under the policy for liability " for damage to property owned by the Insured " this question arose: Did this exclusion apply where one of the Insured was claiming for liability it incurred for property damage to another of the Insured? 2 The separate questions referred to above dealt with two issues: (a) the proper construction of that exclusion 3(b) in the Policy; and (b) whether the insurers had made a binding election to grant indemnity to Transfield in any event. 3 On 17 September 2002, McClellan J published reasons for judgment and on 26 September 2002 made orders, whereby he determined the separate questions as follows (i) exclusion 3(b) was construed so as to entitle the respondents to indemnity under the policy and a declaration to that effect was made; and (ii) although unnecessary for decision in light of his construction of exclusion 3(b), McClellan J held that the Insurers had not made a binding election to grant indemnity to Transfield. 4 All parties have consented to the appellants having leave to appeal the holding in 3(i) above against the Insurers and to Transfield having leave to cross appeal against the holding in 3(ii) above in favour of the Insurers. Leave was given and the appeals and cross-appeal were heard together. They are, respectively, from so much of McClellan J's judgment and orders as relate to the construction of exclusion 3(b), and from so much of McClellan J's judgment and orders as relate to the claimed election.

APPEAL AND CROSS-APPEAL - SALIENT FACTS 5 The three respondents are Transfield Pty Limited, Connell Wagner Pty Limited and Coffey Partners International Pty Limited. The principal question in the appeals is whether McClellan J was in error in answering in the affirmative the following question. Whether the proper construction of exclusion 3(b) in Section C of the contractors' floater policy has the effect that: "(a) Transfield Pty Ltd is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Pearce and Elliott, being the claims more particularly referred to in the table annexed hereto; (b) Connell Wagner is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Transfield, Pearce and Elliott, being the claims more particularly referred to in the table annexed hereto; (c) Coffey is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Transfield, Pearce and Elliott, being the claims more particularly referred to in the table annexed hereto." 6 McClellan J held that the exclusion clause, which provided that "this section shall not apply to liability: … (b) for damage to property owned by the Insured" was to be constructed so that "the Insured" in this context referred only to the party which has the obligation to make the payment and which will be the party which makes the claim; see White, 54 [57] of judgment. It followed that the words "property owned by the Insured" meant here to exclude the property owned by the party making the claim. 7 On the cross-appeal concerning election, based on the Statement of Agreed Facts, the question answered in the negative by McClellan J was whether in the events that happened, the insurer had made an election which would disentitle it to deny liability under the policy to Transfield. Those events were recorded by the trial judge as follows (White, 56 [62]): "(a) prior to 14 June 2002, Transfield made a claim under Section C of the Policy in respect of its liability for the claims made against Transfield by reason of the damage to the property of Pearce and Elliott; (b) on 14 June 2002, the Insurers declined indemnity to Coffey Partners in reliance on Exclusion 3(b) (letter dated 14 June 2002 from Moray & Agnew to Minter Ellison); (c) on 17 June 2002, Moray & Agnew wrote to Transfield's solicitors, Holding Redlich, and said "we are instructed to assume conduct of Transfield's defence of the third party claims" and requested Holding Redlich's entire files in relation to the claims by Pearce and Elliott; (d) on 25 June 2002, Moray & Agnew wrote to Holding Redlich and said "we confirm that our clients extend indemnity to Transfield in respect of the Gray, W & D Elliott Earthmoving Pty Ltd and D N Pearce Plant & Maintenance Pty Ltd matters" and said they were looking forward to receiving Holding Redlich's entire files; (e) on 4 July 2002, Moray & Agnew wrote and said "we confirm that our clients have revoked the grant of indemnity to your client in relation to the claims by W & D Elliott and D N Pearce Maintenance claims has been revoked. The basis of the denial of indemnity is exclusion cl3(b)." 8 I turn now to the other salient facts which were either agreed or not disputed. They are in substance conveniently set out in the trial judge's reasons.

(a) Transfield Pty Limited was the head contractor for a major civil project. The other plaintiffs and now respondents were either subcontractors or consultants to Transfield. The defendants and now appellants are the insurers of Transfield and of the other respondents.

(b) By a contract of insurance made on or about 19 July 1996 described as a Contractors' Floater Policy No 95050032 (Policy), the underwriters agreed to insure, subject to the terms and conditions of the Policy, the following (among others): Transfield Holdings Pty Limited and all subsidiary and controlled and Joint Venture companies, and their subcontractors and all principals and all other interested parties as may be required, for their respective rights, interests and liabilities. A copy of the policy is Annexure 'C' to the affidavit of Justin Orsborn sworn 31 July 2002.

(c) On 18 November 1996 Transfield Contractors Pty Limited ACN 000 854 688 (formerly known as Transfield Pty Limited) ("Transfield") entered into a contract with Transfield Bouygues Joint Venture ("TBJV") to construct a section of the New Southern Railway being 158 metres of reinforced concrete tunnel under the Princes Highway, Cahill Park and Qantek sites at Tempe ("Project").

(d) Transfield was, at all relevant times, a subsidiary of Transfield Holdings Pty Limited.

(e) The following entities were subcontractors or consultants engaged by Transfield on or in relation to the Project during the period of the Policy:- (i) W & D Elliott Earthmoving Pty Ltd ("Elliott"); (ii) D N Pearce & Maintenance Pty Ltd ("Pearce"); (iii) Connell Wagner Pty Ltd ("Connell Wagner"); and (iv) Coffey Partners International Pty Ltd ("Coffey").

(f) On 22 October 1997 a portion of the eastern wall sheet piling in the Cahill Park site failed, flooding part of the Project ("First Incident").

(g) On 24 February 1998, an incident occurred in the vicinity of the southern wall sheet piling in the Cahill Park site (Second Incident).

(h) Each of Transfield, Connell Wagner and Coffey deny: (i) all liability and responsibility for the First and Second Incidents and all questions of liability for the First and Second Incidents are to be determined at a later stage of the proceedings; (ii) the quantum of all claims made by all parties against them.

(i) Each of the First and Second Incidents was an Occurrence happening in the Geographical Limits during the Period of Insurance in connection with the Construction Operations and/or Other Business Operations and/or Products Liability/Completed Operations and/or Property Insured detailed in the Schedule, within the meaning of the Policy.

(j) As a result of the First and/or Second Incidents:- (i) certain property of Pearce, namely a dredge, was damaged; (ii) certain property of Elliott, namely a Caterpillar excavator, was damaged; and (iii) certain property owned by Transfield, namely a part of the cofferdam sheet piling and certain plant and equipment was damaged, and various claims have been made against Transfield, Connell Wagner and Coffey for compensation for loss and damage.

(k) By reason of the damage to the property of Pearce, Elliott and Transfield and by reason of the claims made against Transfield referred to in (j) above, claims for compensation for "loss of and/or damage to and/or destruction of property and/or Loss of Use thereof" within the meaning of Section C of the Policy have been made by: (i) Pearce against Transfield, Connell Wagner and Coffey (proceedings 55003/02); (ii) Elliott against Transfield, Connell Wagner and Coffey (proceedings 50122/01); (iii) Transfield against Connell Wagner and Coffey (proceedings 50146/00, 50122/01 and 55003/02); (iv) Connell Wagner against Coffey (proceedings 50146/00, 50122/01 and 55003/02) and Transfield (proceedings 50122/02 and 55003/02); and (v) Coffey against Connell Wagner (proceedings 50146/00, 50122/01 and 55003/02) and Transfield (proceedings 50122/01 and 55003/02).

(l) Each of Transfield, Connell Wagner and Coffey has made a claim under Section C of the Policy in respect of its liability for the claims referred to in para (j) and para (k) above.

(m) Subject to the proper construction and operation of Exclusion 3(b), each of Transfield, Connell Wagner and Coffey is entitled to indemnity pursuant to Section C of the Policy.

(n) On 14 June 2002 underwriters invoked Exclusion 3(b) to deny indemnity to Connell Wagner and Coffey in respect of their alleged liability to Transfield. (facsimile 14 June 2002 from Moray & Agnew to Minter Ellison).

Questions for determination by trial judge 9 The trial judge formulated separate questions for determination as follows:

(1) Whether or not the proper construction of Exclusion 3(b) in Section C of the Contractors' Floater Policy No 95050032 has the effect that: (a) Transfield Pty Limited is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Pearce and Elliott, being the claims more particularly referred to in the table annexed to the judgment; (b) Connell Wagner is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Transfield, Pearce and Elliott, being the claims more particularly referred to in the table annexed to the judgment; (c) Coffey is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Transfield, Pearce and Elliott, being the claims more particularly referred to in the table annexed to the judgment.

(2) Whether, in any event, by reason of the conduct of underwriters communicated to Transfield in the letters dated 17 June and 25 June 2002 from Moray & Agnew to Holding Redlich, underwriters have made a binding election to grant indemnity to Transfield pursuant to Section C of the Policy in respect of the claims made against Transfield for its liability arising out of damage to the property of Pearce and Elliott. 10 The first question is the subject of appeal by the Insurers while the second is the subject of cross-appeal by the Insured Transfield.

The terms of the policy 11 The insurance policy insured a number of entities which were defined in the Schedule to the policy as follows: "Exben Pty Ltd, Transfield Holdings Pty Limited and all subsidiary and controlled and Joint Venture companies, and their subcontractors and all principals as they may appear and all other interested parties as may be required, for their respective rights, interests and liabilities (as more detailed in the attached schedule)." [emphasis added] 12 Included in the relevant schedule under the heading Additional Interests under A as "additional insureds" are 37 third parties, like Pacific Power and Sydney Water. Then under B are listed by category "Principals, Property Owners, Proprietors, Project Managers, Superintendents, Engineers, Engineers' authorised representatives, consultants, lessors and others for their respective rights, interests and liabilities". 13 By way of overriding provision, the schedule concludes: "It is further agreed and declared that the Insurers hereby waive their rights of subrogation against the additional insureds, their officers, employers, agents and representatives."

The policy has three sections. 14 Section A provides insurance for loss or damage to "property of every kind and description (stated as Property Insured in the Schedule) owned by the Insured or for which the Insured may be responsible." Because of the extended meaning of "Insured", the property of both subcontractors and consultants would be insured under this section of the policy. 15 Section B (which relates to some of the property insured under Section A) covers "legal liability under the terms of any contract maintenance or defects liability clauses for loss and/or damage" in identified circumstances. 16 The insuring clause for Section C of the policy is in the following terms: "1. Insuring Clause The Insurers hereby agree, subject to the limitations, terms and conditions hereinafter mentioned, that they will: (a) Pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as compensation for:

(1) bodily injury and/or illness (including death at any time resulting therefrom) and/or Personal Injury and/or Advertising Liability suffered or alleged to have been suffered by any person or persons; (2) loss of and/or damage to and/or destruction of property and/or the Loss of Use thereof; in respect of and/or arising out of Occurrences happening anywhere in the Geographical Limits during the Period of Insurance in connection with the Construction Operations and/or Other Business Operations and/or Products Liability/Completed Operations and/or Property Insured detailed in the Schedule.

(b) Defend in the name of and on behalf of the Insured any claim or suit against the Insured to recover damages in respect of and/or arising out of occurrences covered hereby. (c) Pay in addition to the Limit of Liability expressed in the schedule:

(1) for immediate medical and/or surgical aid and/or for temporary repair and/or shoring up of property made necessary by any occurrence covered hereby; (2) all expenses incurred by or with the permission of Insurers for Investigation, negotiation and defence of claims and suits; (3) all expenses incidental to the appeal from any judgment against the Insured, and all costs taxed against the Insured, in any suit for damages on account of any judgment in such suits. (4) all expenses incurred by Insurers or the Insured for representation of the Insured at any Coroners Inquest or Court of Criminal Justice plus all expenses incidental to the appeal from any judgment." 17 A definition of "Occurrence" is contained in cl 1 of the "General Conditions". It covers in section A "an event, or continuous or repeated exposure to conditions, which results in loss and/or damage to and/or destruction of property provided the Insured did not intend that said loss would result". In section C it includes "loss of and/or damage to and/or destruction of property and/or the loss of use thereof". 18 Clause 3 of Section C of the Policy provides the exclusions to that section. The proper construction of cl 3(b), is the central issue. In particular the following question arises where a party, one of "the insured" under the policy, causes damage to the property of another party also one of "the Insured" so that the first party becomes liable to pay compensation to the second party (in terms of 1(a) of the Policy): Is the first party precluded from claiming under the policy for its liability for that property damage by reason of the exclusion in cl 3(b)? 19 Clause 3 is in the following terms: "Exclusions Applicable to Section C This Section shall not apply to liability: (a) for bodily injury and/or Personal Injury sustained by any person arising out of and/or in the course of his employment by the Insured under a contract of service or apprenticeship with the Insured. However, this exclusion shall not apply to:

(i) a liability of others which has been assumed by the Insured under contract; (ii) any liability arising out of the infringement by the Insured of the Trade Practices Act, 1974 or equivalent legislation of a State of Territory; (iii) any other liability not insured by a workers' compensation policy;

(b) for damage to property owned by the Insured; (c) caused by reason of the existence, maintenance, or use of aircraft or self-propelled marine craft or self propelled vessels exceeding 8 metres in length owned, maintained, hired, used or controlled by or for the Insured; This exclusion shall be deemed not to apply to:

(i) constructional plant or equipment or other Items of the Property Insured whilst temporarily mounted upon any marine craft or vessels, (ii) the use of or existence of explosives on or from any marine craft or vessels whether in, over or under water or otherwise, (iii) vessels operated by independent contractors.

(d) compulsorily insurable under any legislation governing the use of motor vehicles. However, this exclusion shall not apply to constructional plant and equipment whilst on the Worksite provided such constructional plant and equipment is not insured in accordance with any applicable legislation governing the use of motor vehicles; (e) arising out of Completed Operations and Products Liabilities for loss or damage to property which formed part or all of the insured's construction contracts or goods or products but this exclusion shall be limited to the part which is defective or deficient and shall not apply to any other part or parts of such construction contracts or goods or products lost or damaged in consequence thereof. (f) for loss of use of or for the repairing or replacing or recalling of any defective product(s) or any part(s) thereof used or supplied by the Insured in the Construction Operations or Other Business Operations except to the extent that cover is provided for in Exclusion (e) of Section C of this policy. (g) arising out of;

(i) personal injury or bodily injury or loss of, damage to, or loss of use of property directly or indirectly caused by seepage, pollution or contamination, provided always that this para (i) shall not apply to liability for personal injury or bodily injury or loss of or physical damage to or destruction of tangible property, or loss of use of such property damaged or destroyed where such seepage, pollution or contamination is caused by sudden, unintended and unexpected happening during the Period of Insurance. (ii) the cost of removing, nullifying or cleaning-up seeping, polluting or contaminating substances unless the seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the Period of Insurance. (iii) fines, penalties, punitive or exemplary damage.

This exclusion shall not extend this Insurance to cover any liability which would not have been covered under this Insurance had this exclusion not been attached. (h) in respect of advertising for:

(i) failure or performance of contract, but this shall not relate to claims for unauthorised appropriation of ideas based upon alleged breach of an implied contract; (ii) infringement of registered trade mark, service mark, or trade name, other than titles or slogans, by use thereof on or in connection with goods or services sold, offered, for sale or advertised; (iii) incorrect description of any articles or commodity; (iv) mistake in advertised price.

(l) arising from shipbuilding and/or ship repairing contracts of the Insured. (j) arising out of any breach of the duty owed in a professional capacity by the Insured and/or persons for whose breaches of such duty the Insured may be legally liable, but this Exclusion does not apply to:

(i) bodily injury and/or illness (including death at any time resulting therefrom) and/or personal injury suffered or alleged to have been suffered by any person or persons and/or loss of and/or damage to and/or destruction of property and/or the loss of use thereof resulting therefrom, or (ii) the rendering of or failure to render professional medical advice by medical persons employed by the Insured to provide first aid and other medical or welfare services." [emphasis added] 20 Provision is made in cl 7 for subcontractors to be insured for the purpose of Section C. Cl 7 is in the following terms: "7. Subcontractors In respect of operations performed by subcontractors and/or sub-subcontractors for the Insured, such subcontractors shall be deemed to be included in the name of the Insured. However, Section C does not cover any Occurrence which at the time of such Occurrence is insured by or would but for the existence of this Insurance be insured by any other Insurance or Insurances, except in respect of any excess beyond the amount which would have been payable under such other Insurance or Insurances had this Insurance not been effected." 21 Clause 2(c) deals with the notification of a claim and provides: "2(c) Any notice of claim given to the Insurer by any party insured under this Policy shall be accepted by the Insurer as a notice of claim given on behalf of all other parties insured under this Policy." 22 Provision is made in relation to subrogation in cl 5. The clause is in the following terms: "5 Subrogation Subject to the provisions of Pt8 of the Insurance Contracts Act, 1984 upon the payment of any claim under this Insurance, save as provided in the Cross Liability Clause, the Insurers shall be subrogated to all the rights and remedies of the Insured arising out of such claim against any person or corporation whatsoever except that the Insurers hereby waive all rights which they may have acquired by payment of a claim under this Insurance to recover the amount so paid from any person or corporation with whom the Insured, prior to the Occurrence of the loss or damage shall have agreed in writing to waive their rights to recovery in respect of any loss or damage which may be caused by such person or corporation to the property described in this Insurance. Notwithstanding the above the Insurers hereby waive all rights of subrogation or action which they may have or acquire against any of the insureds covered herein." 23 Of particular relevance to the present dispute is the cross-liability clause. The clause provides: "10. Cross Liability Each of the persons comprising the Insured shall for the purposes of this policy be considered as a separate and distinct unit and the words "the Insured" shall be considered as applying to each of such persons in the same manner as if a separate policy had been issued to each of them in his name alone and the Insurers waive all rights of subrogation or action which they may have or acquire against any of such persons. Provided that nothing in this clause shall be deemed to increase the limit of the Insurers' liability under this policy in respect of any one occurrence."

Provision is made in cl 11 in relation to breach by any insured of the general conditions. It is in the following terms: "11. Breach The failure by any Insured to observe obligations of disclosure, good faith and/or compliance with the terms of the Policy shall not prejudice the insurance in regard to any other of the Insured."

Contention of the Parties 24 The appellants accept that Connell Wagner and Coffey fall within the insuring clause as an "Insured" whereby the Insurers agreed, subject to the limitations, terms and conditions mentioned, to pay on behalf of "the Insured" all sums which "the Insured" shall become obligated to pay as compensation for loss of and/or damage to and/or destruction of property and/or loss of use thereof. The appellants then contend that, as the cofferdam sheet piling was owned by another Insured, Transfield, (an agreed fact), the insuring clause cannot apply to liability for damage to its property. Thus the appellants submit that the expression "the Insured" when used in the exclusions clause 3(b) is to be construed as meaning all of the Insured under the policy, or alternatively is to be construed as meaning: (a) the "contracting Insured"; or (b) all of the Insured other than the one making the claim under the Policy. 25 The appellants' contention is that any other construction will result in exclusion 3(b) being otiose and would not give a businesslike interpretation to the policy. This result is said to be in accordance with the principles applicable to construing a policy of insurance as a commercial contract taking into account the commercial circumstances which the document addresses and the objects which it is intended to secure; McCann v Switzerland Insurance Australia Limited (2000) 75 ALJR 325 at 329 [22] per Gleeson CJ. It is accepted that the clause is construed contra proferentem in the case of ambiguity (Darlington Futures Ltd v Delco Australia Pty Limited (1986) 161 CLR 500 at 510; Glebe Island Terminals Pty Limited v Continental Seagram Pty Ltd (1993) 40 NSWLR 206 at 231). But it is submitted that, contrary to the assumption made by the trial judge at [59], there was no evidence that the policy was drafted by the insurers. 26 The principles applicable to the construction of such an insurance contract were not in fact in dispute, save as to implications of the exclusion of 3(b) being otiose under the construction favoured by the trial judge, a proposition not accepted by the respondents.

RESOLUTION OF APPEAL 27 It will be apparent from the foregoing that the Insurer's appeal concerns the proper construction of exclusion 3(b) in the policy. McClellan J held that, in exclusion 3(b), the words "property owned by the Insured" means the property owned by the party making the claim (White, 54). 28 The essence of the trial judge's reasoning is that where a policy as here provides insurance to relevant parties "for their respective rights, interests and liabilities" under a cross-liability clause and where each party is to be considered as a separate entity "in the same manner as if a separate policy had been issued to each of them" then the exclusion clause must refer to the same party as is "the Insured" and to that party alone, being the particular Insured that makes the claim. 29 At [58] the trial judge faces the difficulty put by the Insurers in these terms: "the Insurer submits that this contract leaves clause 3(b) with no work to do - one cannot be liable for damage to your own property. However, there are circumstances where obligations to others may arise in relation to property which you own. The property may be leased or mortgaged, giving rise to rights in third parties. Furthermore, as the plaintiff points out, damage to the property of one of the plaintiffs may be the occasion for damage to others who use that property." 30 The trial judge makes the observation (White, 55 [59]) that "no doubt the Insurer when drafting the policy was eager to ensure that a claim, not otherwise sustainable under section A of the policy [covering property owned by the Insured] could not be made under section C [covering property owned by third parties] where damage was sustained to the Insured's own property and accordingly, being cautious, the exclusion was included to provide against that possibility, however remote." 31 The trial judge defines the purpose of the policy of insurance in similar terms to that articulated in Commonwealth Construction Co Ltd v Imperial Oil Limited (1977) 69 DLR (3d) 558 at 562-3: "... On any construction site ... there is ever present the possibility of damage by one tradesman to the property of another and to the construction as a whole. Should this possibility become reality, the question of negligence in the absence of complete property coverage would have to be debated in court. By recognising in all tradesmen an insurable interest based on that very real possibility, which itself has its source in the contractual arrangements, opening the doors of the job site to the tradesmen, the courts would apply to the construction field the principle expressed so long ago in the area of bailment. Thus all the parties whose joint efforts have one common goal, eg the completion of the construction, would be spared the necessity of fighting between themselves should an accident occur involving the possible responsibility of one of them." Commonwealth Construction Co Ltd v Imperial Oil Ltd (1977) 69 DLR (3d) 558 at 562-63.

I agree that this description is apt to describe the commercial circumstances which the policy addresses. 32 Thus the trial judge concludes that had it been intended to exclude the property of other Insureds than the Insured making the claim, the exclusion in clause 3(b) would have had to read either "any Insured" or "an Insured" rather than "the Insured". 33 In my opinion the trial judge's conclusion was correct, though it is necessary to consider the reasons for that conclusion more closely. 34 The starting point is to deal frontally with the principal argument raised by the appellants. It is that there would be no point to clause 3(b) in excluding the property of the Insured were that to mean only property of the particular Insured making the claim. This argument is based on the wording of Clause 1 of Section C: "1. Insuring Clause The Insurers hereby agree, subject to the limitations, terms and conditions hereinafter mentioned, that they will:

(a) Pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as compensation"

The argument is that the Insured can never be legally obligated to pay itself compensation for damage incurred to its own property, as one cannot become liable to oneself.. 35 The trial judge makes brief reference to the possibility of such a claim. Perhaps the simplest example would be a claim where the Insured appellant in a state of reckless negligence, damages jointly-owned property with the result that the other owner thereby suffers damage and becomes entitled to compensation. It would be expected that the Insured, being the co-owner causing the damage, could not claim under the policy, by reason of exclusion 3(b). That is an example where one can be liable to damage to one's own property, at the hands of a co-owner. It is true that one co-owner cannot complain against another co-owner going on to the land since they share unity of possession so precluding trespass. Yet even in that example, trespass does lie against a co-owner who has "ousted" another from the premises, as by forcible ejectment; Murray v Hall (1849) 7 CB 441; 137 ER 175. Likewise, one co-owner cannot complain that another co-owner is committing "waste" since the right to commit waste is a normal incident of ownership; Griffies v Griffies (1863) 8 LT 758 and the more general discussion in "Land Law" by Peter Butt 4th ed (LBC 2001) at [1435-6]. However, a co-owner cannot use this immunity from waste to excuse an active "wilful destruction" (Ferguson v Miller [1978] 1 NZLR 819 at 826. So if a co-owner, for example, were to remove from the co-owned property a support to a house erected on it, the other co-owner could certainly complain. 36 These examples are not wholly fanciful in a construction project as here envisaged. So one could envisage a sub-contractor owning property in common with another sub-contractor or more likely with its co-subsidiary, or indeed even with Transfield. That jointly owned property could be employed in the construction of the works envisaged. Through the negligence of one co-owning sub-contractor that property could be damaged. That sub-contractor, being the Insured, would be precluded from claiming under the policy in respect of damage it caused to the jointly owned property as that property would meet the description of "property owned by the Insured making the claim". 37 The policy under section C refers to "Third Party Liability" the scope of which is described in summary form on page 4 of the policy (White, 90). It would clearly be incongruous for that liability to be covered which was not true third party liability. I refer here to the examples above relating to co-owned property between Insureds. Under section A of the Policy where the Insured appellant does own the property and can claim in respect of it, there are a discrete set of exclusions and limitations. It would be incongruous indeed if these could be bypassed by recourse to claiming under section C free of those exclusions. They represent separate regimes. 38 I should add that in the examples I gave earlier concerning damage being recoverable against an insured appellant in respect of jointly owned property for loss deliberately brought about, the definition of "Occurrence" contains the proviso that "the Insured did not intend that such loss would result". However, a reckless or negligent exercise of an insured appellant's co-ownership powers could still constitute an "Occurrence". 39 The trial judge gave as a further example that "property may be leased or mortgaged giving rise to rights in third parties". One could envisage action brought against an Insured by a lessee or mortgagee following negligent damage to leased or mortgaged property constituting an "Occurrence" which was within the Geographical Limits … in connection with Construction Operations …". This would be for damage each suffered by reason of the appellant Insured having negligently damaged the property in question, thereby denying access to the property by the lessee or putting in jeopardy the mortgagee's capacity to recover its money by enforcing its security over the damaged property. But for the exclusion in Clause 3(b) it is arguable that the policy would answer. This is because the assumed liability of the Insured is by reason of damage to its property, albeit the lessee or mortgagee frame their claim for compensation by reference to their loss as lessor or mortgagee of the damaged property. Indeed it is significant that there is an express exclusion in Section A but not Section C for recovery for "any loss or use or occupancy …". Those examples are not so far-fetched as to preclude the exclusion clause being needed to prevent such claims being made. 40 It suffices to identify a potential purpose to the narrower version of the exclusion in clause 3(b) by the particular examples of its application. Moreover, if instead the exclusion were as wide as the appellants contend it would clearly frustrate the envisaged commercial purpose of a single master policy covering all persons involved in the project. The enormous number of persons and entities covered by the master policy would make it highly likely that many claims will involve two parties covered by that policy. This is particularly apparent where one considers that not only are sub-contractors covered by the master policy but also Transfield. Moreover, there are an enormous number of "additional interests" including a number of State and Commonwealth authorities. Any of their property could be involved in loss or destruction by reason of an "Occurrence". So also the individuals included within the policy cover being project managers, superintendents, engineers, consultants and lessors. To have project-wide cover could only work commercially if all their property was covered by the insurance in circumstances where third party damage occurs as envisaged by section C. 41 I agree with the submissions made by Connell Wagner, namely that one commercial purpose of the insurance is to provide cover for all parties involved in the projects undertaken by the principal contractor so as "to avoid that which has occurred in the present case, namely, the parties involved suing each other in respect of an incident which occurs during the course of a particular project".

Thus "the principal contractor is likely to continue to have a business/professional relationship with its sub-contractors in relation to the immediate project or other projects and does not wish to have those relationships affected by litigation or, indeed, to be involved in litigation due subrogated claims by its insurers". 42 There are further reasons which support the trial judge's conclusion. When in clause 1 of section C the Insurers commit "to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay" as well as defending any claim or suit against the Insured to recover damages, one would expect the words "the Insured" to have the same meaning in section C when it comes to stating exclusions, namely the Insured who claims under the policy. Indeed clause 3(a) also logically must operate on that basis when it excludes "bodily or personal injuries sustained by any person … in the course of his employment by the Insured". Here, there is no need for any stretch of the imagination to envisage circumstances where employees of the Insured would claim under the policy but for the exclusion in clause 3(a). 43 Thus as each of exclusions 3(a) and (b) operate as an exception to the cover provided by section C, each must be construed in the same manner; Stolberg v Pearl Assurance Co Ltd (1971) 19 DLR(3d) 343 at 346-7; Weightman v Noosa Shire Council [1999] QSC 368 at [62] Ambrose J. 44 Similarly, the "liability" in relation to which exclusion 3(a) and 3(b) operates is and can only be the liability of the particular insured entity which makes a claim under section C. 45 Further, to construe "the Insured" in Exclusion 3(b) as meaning "any of the insured entities" is inconsistent with: (a) the use of the definite article; (b) the use elsewhere in the Policy of different language where it is intended to refer to insured entities generally or any one or all insured entities: · "any party insured under this Policy" (General Condition 2(c)) [White, 110]; · "all other parties insured" (General Condition 2(c)) [White, 110]; · "any of the Insureds" (General Condition 5) [White, 100-111]; · "additional Insureds" (General Condition 6) [White, 111]; · "each of the persons comprising the Insured" (General Condition 10) [White, 111]; · "any Insured" (General Condition 11) [White 112]; · "any other of the Insured" (General Condition 11) [White, 112]; · "Transfield holdings Pty Limited and/or any other named Insured" (Endorsement 2(a) [White, 113]; and · "the Insured parties" (Endorsement 2) [White, 114]. 46 Moreover, the term "Insured" is defined on page 1 of the Policy [White, 87] in the following terms: "Exben Pty Ltd, Transfield Holdings Pty Ltd and all subsidiary and controlled and Joint Venture companies, and their sub-contractors and all principals as they may appear and all other interested parties as may be required, for their respective rights, interests and liabilities (as more detailed in the attached schedule ) ." [emphasis added] 47 Where more than one person is insured "for their respective rights, interests and liabilities", the policy is a composite policy, not a joint policy: Federation Insurance Ltd v Wasson (1987) 163 CLR 303 at 309-311; Generals Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 at 406-408 (Court of Appeal). 48 In the case of liability insurance, such words mean that, of the named insured entities, the insured entity whose interest is involved in a particular claim, is the insured in respect of it. This is equivalent to saying that the person who seeks the indemnity is the insured in respect of that particular claim: Stolberg v Pearl Assurance Co ltd (supra) at 346 (Supreme court of Canada); Re FAI General Insurance Co Ltd & Fletcher Construction Ltd (1998) 10 ANZ Ins Cas 61-403 at 74,430 (White J). 49 Furthermore, construing Exclusion 3(b) as referring only to the insured entity which makes the particular claim is expressly reinforced by General Condition 10 [White, 111-112], which provides: " CROSS LIABILITY Each of the persons comprising the Insured shall for the purposes of this policy be considered as a separate and distinct unit and the words "the Insured" shall be considered as applying to each of such persons in the same manner as if a separate policy had been issued to each of them in his name alone and the insurers waive all rights of subrogation or action which they may have or acquire against any of such persons. Provided that nothing in this clause shall be deemed to increase the limit of the Insurers' liability under its policy in respect of any one occurrence." [emphasis added]

See also Endorsement No. 7 [White, 116]. 50 Had a separate policy been issued to Transfield in its name alone, there would be no basis for contending that the reference in Exclusion 3(b) to "property owned by the Insured" meant anything other than property owned by Transfield. 51 A two step approach to construing an exclusion such as Exclusion 3(b) in light of the Cross Liability clause has been enunciated by the Full Court of the Supreme Court of Western Australia in Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 at 321-324 especially at paragraph [148] per Wheeler J, with whom Malcolm CJ (at 300) and Ipp J (at 310) agreed. That two-step approach is as follows: (i) first, the prima facie effect of the "Cross Liability" clause requires the reference to the " Insured " in the exclusion clause to be read as a reference only to the insured entity making the particular claim; but (ii) secondly, one then asks whether there is anything in the wording, nature or context of Exclusion 3(b) which requires it to be read in some other way. 52 For the reasons stated above, the wording, nature and context of Exclusion 3(b) requires the reference to "the Insured" to be read in accordance with the prima facie meaning, namely the insured entity making the particular claim. There is nothing in the wording which requires it to be read in some other way. 53 It was put that if there were any doubt as to the construction of Exclusion 3(b), it must be resolved against the Insurers: see for example CE Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 541-542 (Deane J). However, that contra proferentem principle cannot be invoked where one has no evidence as to whether the insurer or the insured were the proferens; Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR(NSW) 231 at 233. But that argument is not needed in support of the trial judge's construction of the exclusion. 54 The appellants refer to cases which they cite as supporting the construction that the exclusion in 3(b) must refer to all those entities or persons covered by the definition of "Insured". The first of these, a Canadian case Romay Automotive Ltd v Dominion of Canada General Insurance Co (1974) 43 DLR(3d) 346 was a case of a liability insurance policy in which only two persons were named as insured. The policy contained an exclusion of the insurer's liability in respect of damage to property owned by "the Insured". One insured negligently damaged the property of the other. The Insurer was held by the Ontario High Court to be able to rely on the exclusion. The Court reached its conclusion by reference to the word "Insured" as defined by the policy. 55 An immediate difficulty in relying upon this case is the fact that there were only two entities covered by the insurance clause as the Insured and there was no cross-liability clause as indeed was expressly noted at 352-3. The context was very different from a project master policy of this kind. Similar comment can be made in regard to the case Re Vergata et al v Manitoba Public Insurance Corporation (1976) 67 DLR(3d) 527. It concerned an exclusion of the liability in connection with the death of "the Insured" where the court held that it was the intention to exclude liability to an Insured with respect to a claim by the contracting Insured against one to whom the cover extended. 56 Putting to one side other Canadian cases to similar effect, the case which most assists the appellants is WorkCover Queensland v Royal & Sun Alliance Insurance Australia Ltd (2001) 11 ANZ Ins-Cas 61-489. 57 That decision by Wilson J in the Supreme Court of Queensland involved a determination as to whom the expression "the Insured" referred in circumstances where the "sub-contractor clause" and "cross-liability clause" were identical in their terms. 58 The facts were as follows: 59 BMC, the head contractor, had public liability insurance which defined "the insured" to include it and its subcontractors. An employee of one of the sub-contractors injured himself. The policy excluded claims for injury sustained by any person in the course of his employment of the insured. The policy contained a cross-liability clause. The question for the court was whether the insurer had an obligation to indemnify BMC (which was not the employer) or whether the insurer could rely on the exclusion which excluded cover for injury sustained by any person arising out of the course of employment by the insured. The court held, in circumstances where it was clear that the injury was suffered by an employee of a sub-contractor, the exclusion should be construed as excluding liability for injury in the course of employment by "any one of the insured" (p75-657). The court reached this conclusion by reference to clause 7 of the policy which included sub-contractors in the expression "the Insured" in equivalent terms to the wording of clause 7 of Transfield's policy. 60 The decision in this case did not involve a complex project with not only sub-contractors but also a large range of other State and Commonwealth Government entities including the Commonwealth of Australia. One might envisage circumstances in which a head contractor might take out insurance which did not cover claims against it in respect of either its employees or its sub-contractor's employees. That said, to the extent that the reasoning in the WorkCover decision is inconsistent with the reasoning adopted by McClellan J and elaborated in these reasons, and taking into account particularly the reasoning which placed such importance on the cross-liability clause in Speno Rail Maintenance Australia Pty Limited (supra) I am persuaded that I should not follow the WorkCover case.

Conclusion 61 I consider that the proper construction of exclusion 3(b) of section C of the policy entitles each of Transfield, Connell Wagner and Coffey to indemnity, as concluded by the trial judge on the basis that the exclusion when referring to "the Insured", refers only to the party which makes the claim under the policy.

Cross-Appeal concerning election 62 Given my conclusion in regard to the principal question in this appeal, it is not strictly necessary that I should deal with the alternative basis pressed by Transfield by way of cross-claim for reaching the conclusion that the policy does answer in the case of each of Transfield, Connell Wagner and Coffey, a basis which the trial judge declined to accept. 63 The trial judge rejected the contention that the Insurer had made an election which would disentitle it to deny liability under the policy to Transfield, in the events recorded by the trial judge which I have set out earlier at [7]. 64 I agree with the reasoning of the trial judge, following McPherson JA and Dowsett JA in Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] 2 Qd R 390. It was that acceptance by the insurer of a claim by an Insured to which the policy does not extend cover cannot amount to an election. Of course the question only arises in the event that the policy does not extend cover. In light of the conclusion that it does extend cover, that question is in any event moot. Finally I would distinguish this situation from that dealt with by Handley JA in Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1995) 8 ANZ Ins Cas 61-235. There the election concerned an insurer receiving a claim who was entitled to avoid the policy or reject the claim for breach of a condition, thereby requiring the insurer to make an election. That circumstance is very different from the present position where the assumption (for the purposes of this issue) is that the policy does not answer.

Conclusion 65 The cross-appeal should be dismissed.

OVERALL CONCLUSION 66 I consider that the appeal by the appellants should be dismissed and the cross-appeal by Transfield Pty Limited should be dismissed. 67 So far as costs are concerned, the respondents have succeeded on the principal question in this appeal, the cross-appeal being simply an alternative basis for Transfield but not the other respondents to have succeeded. In all the circumstances I consider that the appellants should pay the respondents' costs of the appeal and Transfield should pay the cross-respondents costs' of the cross-appeal. However, I would defer the cost orders coming into effect for fourteen days should any party wish to make submissions in regard to costs as the matter of costs was not addressed upon the appeal or in the written submissions.

ORDERS 68 1. Appellants' appeal dismissed. 2. Cross-appeal by Transfield Pty Limited dismissed. 3. Subject to 5. below, the appellants to pay the respondents' costs of the appeal. 4. Subject to 5. below, Transfield to pay the cross-respondents' costs of the cross-appeal. 5. The above cost orders are deferred from coming into effect for fourteen days should any party wish to make submissions in regard to costs as the matter of costs was not addressed upon the appeal or in the written submissions. 69 IPP JA: I agree with Santow JA. 70 YOUNG CJ in Eq: I agree with Santow JA. **********

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