Construction of the exclusion clause
The defendants' submissions on the construction of the exclusion clause
116Mr Birch submitted that clause 7.24 must be read in light of the contract as a whole and with regard to its commercial purpose and effect ( Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500 and McCann v Switzerland Insurance (2000) 203 CLR 579). He argued that the purpose of the policy was to provide public liability insurance to a dive operator who, in the contemplation of the parties to the policy, would use a dive boat for the conduct of much of the business. Further, the very nature of the cover must have been intended to respond to circumstances where there had been conduct by the insured that could give rise to liability. Such conduct, he argued, would commonly be negligent conduct by the insured or one of its officers or employees.
117He submitted that negligent conduct, as in the instant case, often amounts to criminal conduct. The fact that the legislature has chosen to criminalise the conduct does not determine the question whether it falls within an exclusion clause in terms of exclusion clause 7.24.
118Mr Birch submitted that the word "criminal" ought be construed in the context of the whole phrase in which it appears: "any alleged or actual fraudulent, dishonest, malicious, wilful or criminal act or omission of the insured..." It ought take its flavour from the preceding words, each of which has an element of intent. He submitted that where the element of intention was lacking from the criminal act, for example because it was the product of inadvertence or negligence rather than intention, it was not intended to be covered by the policy.
119Mr Birch also relied on Section C of the Policy, which provides for legal expenses to be paid in certain circumstances, including "pleas of mitigation for a criminal defence against the insured". There is a special exclusion clause, clause 3.9, in Section C, which excludes "dishonest, fraudulent, malicious or deliberate acts or omissions". He submitted that it would be anomalous if the insured could be covered for legal expenses in relation to a plea in mitigation for dangerous navigation but not entitled to indemnity in respect of a claim for damages for negligence brought by the person injured as a result of the dangerous navigation.
120Guidance was to be obtained, in Mr Birch's submission, by the approach of the Court of Appeal in Australian Aviation Underwriting Pty Limited v Henry (1988) 12 NSWLR 121 ( Henry ), which demonstrated a preparedness of Courts to read down plain words where their plain meaning was discordant with the context in which they appeared, or the purpose of the insurance contract itself.
121In Henry , the relevant insurance policy contained an exclusion for claims arising from "an Insured Person's own criminal act". The words appeared in the following clause, at 122:
"This Policy does not cover death or disablement -
...
3. resulting from suicide or attempted suicide or intentional self-injury, or from deliberate exposure to exceptional danger (except in an attempt to save human life), or from an Insured Person's own criminal act , or sustained whilst the Insured is in a state of insanity;"
[Emphasis added.]
122The Court construed the word "criminal" as excluding acts of negligence, notwithstanding that they were also criminal. Part of the basis of the Court's reasoning was that the parties to the agreement must have contemplated that a substantial reason for the existence of the cover was an accident arising from the insured's negligence and it could not have been intended to exclude that liability by reference to criminal acts. In Henry , the trial judge found that "there was an inadvertent failure by the deceased to keep a proper lookout and to keep his motor vehicle on his correct side of the road so as not to drive it into the path of oncoming traffic" (at 123). Accordingly the exclusion clause did not apply once "criminal act" was read down.
123Mr Birch relied on the reasoning of the majority in Henry , as expressed in the following passage at 124 - 125, per Hope JA:
"It is trite that in construing insurance policies as in construing any other contract, words should generally be given their ordinary meaning. There are however many well-known exceptions to this rule, and one overriding qualification is that it is necessary to have regard to the context in which the words appear. The first relevant context in the present case is that the policy is, as it is intituled, a 'Personal Accident Policy' and that the bodily injury insured is injury which is caused by an accident. It is obvious that one of the very common ways in which an insured under such a policy would be likely to be injured by an accident would be by his involvement in a motor vehicle accident. These accidents can no doubt occur without the driver of either vehicle (if two vehicles are involved) committing any criminal offence, but as Bailhache J pointed out in Tinline ([1921] 3 KB 327), probably in the great majority of cases motor car accidents are due to the breach by the driver (I would add, or one of the drivers) of some enactment. In these circumstances, looking not merely at the language of exclusion 3 but looking at the context of the whole policy, some limitation should be read into the ordinary meaning of the words "from an insured person's own criminal act". Indeed the question which arises for decision is rather what limitation should be read in rather than whether any limitation should be read into these words."
124Mr Birch said that although Mr Todd was guilty of a criminal act, it was, in substance, a negligent act and if all negligent acts which were also criminal were excluded from cover, then the insured would be substantially deprived of any benefit from a policy, the main purpose of which was to insure against liabilities occasioned by negligent acts. Therefore, he submitted, the word "criminal" in the exclusion clause, should be read "intentionally criminal".
125He also drew my attention to the following passage from the judgment of Priestley JA, at 127 - 128:
"One factor which helps me reach this view is that problems of interpretation of the present kind have frequently arisen in the past, as the cases referred to by Hope JA show. Further, it seems to me likely that the insurer has been aware at least in a general and derivative way, of the various judicial decisions on policy clauses with a family resemblance to its own. On that basis it seems to me that the insurer having chosen not to express the policy in words that make the matter clear, has left the exclusion in a form which it knows may be read in the way in which it was in fact read by the trial judge in this case. The insurer having conducted its business on the basis of a policy so worded, it does not seem to me to be unfair that the policy should be understood as meaning, adversely to the insurer's arguments in this litigation, what the insurer knew it might well be thought to mean."
126Mr Birch said that Mr Todd's acts and omissions were negligent. Although he was driving the boat too fast in the circumstances, he was not travelling at an excessive speed per se . He was not intoxicated at the time of the accident. Although Mr Todd might invite criticism for not cleaning sea salt that had accumulated on the vessel's windscreen (discussed in more detail below), salt on the windscreen is the inevitable result of travel in this area. It was the combination of the sun at a particular angle and the salt-encrusted windscreen which affected Mr Todd's visibility. Mr Birch submitted that it would be wrong to characterise his conduct as "criminal", as this word is used in the policy when it ought be more accurately seen as negligent, notwithstanding that it amounted to a criminal offence.
127Mr Birch also drew my attention to the more recent decision of the Court of Appeal in Xerri v Kingmill Pty Limited (t/as Thrifty Car Rentals) (1998) 25 MVR 569 ( Xerri ) in which the Court of Appeal found that the claimant could not recover because the claim was excluded. In Xerri , the driver of the vehicle had commenced to do an illegal U-turn immediately prior to the collision which caused his death and which was the subject of the claim.
128In Xerri , the relevant exclusion clause was, in substance, that liability was excluded where there was a breach of clause 4(f), which provided:
"Vehicle must not be used or driven in contravention of the provisions of the Motor Traffic Act of the State of New South Wales..."
129Mr Birch submitted that the policy wording in Xerri was distinguishable from the instant case, which was closer to that in Henry .
Liberty's submissions on the construction of the exclusion clause
130Mr Sexton submitted, that even assuming the act of Mr Todd was a criminal act, the exclusion will only be engaged if he is a "person covered by clause 3". If Mr Todd is found to have been acting within the scope of his duties, then the policy will cover him, but he will be excluded from cover if his conduct falls within exclusion clause 7.24.
131Mr Sexton submitted that Henry turned on its own facts and the terms of the policy, and that Xerri was a better guide to interpretation of the policy in the instant case.
132Mr Sexton relied on what the Court of Appeal in Xerri said of Henry :
"The court was referred to passages in Australian Aviation Underwriting Ltd v Henry (1988) 12 NSWLR 121 at 124, 126, 127. While these passages indicate the ubiquity of the principles of public policy, they provide no support for the proposition that the court can avoid the terms of the policy by finding that an unintentional crime was involved. Henry recognises that an exclusion clause inserted by an insurer will be read contra proferentem , and applies that principle by reading down an exclusion relating to death resulting from 'an insured person's own criminal act' so as not to apply where that criminal act was negligent or inadvertent. See also Australian Associated Motor Insurers Ltd v Wright (1997) 10 ANZ Ins Cas 61-390. But Henry does not go any further. While the mere fact that a person commits a crime does not preclude reliance upon insurance cover, at least where the crime is unintentional ( Gardner v Moore [1984] AC 548), it would be entirely fallacious to invert this into the proposition that commission of an unintentional crime brings an insured within the cover of a policy that clearly excludes conduct of the relevant type."
133Mr Sexton said that, in any event, it would be wrong to regard the Crimes Act 1900 s 52B(3)(b) as an offence of negligence since the section did not use the word "negligently". He noted that it was relevantly identical to s 52A, the offence of dangerous driving causing grievous bodily harm and referred to the following passage from Jiminez v R (1992) 173 CLR 572, in which the majority said, at 579:
"For the driving to be dangerous for the purposes of s.52A there must be some feature which is identified not as a want of care but which subjects the public to some risk over and above that ordinarily associated with the driving of a motor vehicle, including driving by persons who may, on occasions, drive with less than due care and attention."
134He also referred me to R v Phirum Uch De Montero [2009] VSCA 255, in which the Victorian Court of Appeal, after undertaking a comprehensive review of the authorities, placed dangerous driving between negligent and culpable driving on a spectrum of wrongdoing. He submitted that the additional factors which made the navigation dangerous rather than simply negligent were consistent with the insurer's objective intention to exclude such conduct from cover.
135Mr Sexton also submitted that, although many acts associated with driving a boat may be both criminal acts even though they also amount to negligence, the activities covered by the policy concern many matters which might give rise to a claim for indemnity which would not amount to criminal offences. Therefore there was no need to read down the words "criminal act or omission", since the policy was not illusory even if the words are giving their plain meaning.