Strahinja Pandurevic v Southern Cross Constructions

Judgment concerning liability of QBE 1On 31 August 2011, I found in favour of QBE Insurance (Australia) Pty Ltd ("QBE") on the issue of its liability in this matter. I gave brief reasons then but undertook to give fuller reasons later. These are those reasons. 2The background to these proceedings, initiated between the plaintiff, Mr Pandurevic, and the first and second defendants, Southern Cross Constructions and Allmen Steel, is sketched in my judgment of 29 July 2011 by which Allmen Steel was granted leave to file a cross-claim against Southern Cross (the fourth cross-claim). Allmen Steel's insurer was QBE. The insurer for Southern Cross was Mechanical and Construction Insurance Pty Ltd ("Mecon"). QBE refused to indemnify Allmen Steel, relying upon a clause in the insurance policy to which I shall refer. That being so, Allmen Steel filed a cross-claim against Mecon, relying upon a provision in that policy which extended its indemnity to "principals and sub-contractors in contract with them who are not otherwise insured." Allmen Steel claimed that it fell within that provision (the first cross-claim). 3Mecon denied that it was liable on that basis but, in the event of a finding against it, it cross-claimed against QBE for contribution (the second cross-claim). QBE, in turn, cross-claimed against Mecon (the fifth cross-claim). Allmen Steel also protected its position by cross-claiming against QBE (the third cross-claim). 4In denying its liability to indemnify Allmen Steel, QBE relied upon cl 3.6.6 of the policy. Clause 3 dealt generally with exclusions, and cl 3.6 was directed to exclusion of "Employment Liability." By cl 3.6.6 indemnity was excluded in respect of "Personal Injury to volunteers, labour hire staff, contractors, sub-contractors or employees of such contractors or sub-contractors performing work for You or on Your behalf." ("You", of course, meant Allmen Steel.) 5Mecon contended that that clause was ineffective to exclude QBE's liability. For the purpose of the argument certain facts were agreed. It is not necessary to recite them, except to note that one of them was that Mr Pandurevic fell within the clause as labour hire staff or as an employee of a contractor or sub-contractor. 6Counsel for Mecon, Mr Sharpe, noted that under the heading "Coverage" in the policy, QBE undertook to pay in respect of personal injury or property damage all sums which Allmen Steel became "legally liable to pay by way of compensation": cl 2.1.1. It is necessary to set out the whole of cl 3.6, which provided: "3.6 Employment Liability 3.6.1 Personal Injury to any of Your Employees arising out of or in the course of their employment in Your business. 3.6.2 Personal Injury to any person who is deemed to be an Employee of You pursuant to any legislation relating to Workers' Compensation. 3.6.3 which (sic) You are entitled to seek indemnity under any policy of insurance required to be taken out pursuant to any legislation relating to Workers' Compensation, whether or not You are party to such contract of insurance. 3.6.4 liability imposed by the provisions of any Workers' Compensation legislation or any industrial award or agreement or determination. 3.6.5 arising out of Employment Practices. 3.6.6 Personal Injury to volunteers, labour hire staff, contractors, sub-contractors or employees of such contractors or sub-contractors performing work for You or on Your behalf." 7Mr Sharpe submitted that, given the nature of Allmen Steel's enterprise, the breadth of cl 3.6, particularly cl 3.6.6, was such that, if it were allowed to operate, the policy would not respond to any personal injury claim against the company. As he put it in oral argument, "... who else goes onto building sites but contractors, sub-contractors and the like?" 8He relied upon the following passage in the judgment of Gleeson CJ in McCann v Switzerland Insurance (2000) 203 CLR 579 at [22] (589): "A policy of insurance ... is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it was intended to secure." (Footnotes omitted.) He argued that, in endeavouring to give the policy a businesslike interpretation, it was apparent that no benefit was being provided by QBE if the terms of the exclusion clauses were strictly read and applied. 9He also relied upon the judgment of Jordan CJ in Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231. The Chief Justice said at 234: "A term in a policy of insurance which is expressed to be a condition may be a condition going to the operation of the policy as a binding document, or it may be a condition affecting only the insurer's liability to pay under what is admittedly a binding document ... . That is, it may be a condition a breach of which is intended to entitle the insurer to treat the policy as a document which never became binding on him, or to treat a policy which had become binding on him as no longer binding, or, on the other hand, it may be a provision a breach of which is intended merely to entitle him, according to the terms of the document, to refuse to make a payment under it, either because the breach prevented an accruer of liability to pay or because it operated to release the insurer from a liability which had in the first instance accrued ... . Which of these characters should be attributed to any particular condition or provision is a question of construction depending on its language and context. The mere fact that a provision is in terms called a condition precedent will not make it such if it is incapable of operating otherwise than as a condition subsequent or incapable of operating as a condition at all ... ." (References to authority omitted.) 10Seizing upon those last words, Mr Sharpe argued that cl 3.6.6 was "incapable of operating as a condition at all." He also relied on a further passage in the judgment of Jordan CJ at 237 to assert that QBE bore the onus of establishing that the clause was effective to deny indemnity, but I understand that to be common ground. 11Accordingly, he submitted, I should strike out cl 3.6.6 or, at least, hold that it did not apply in the circumstances of the present case. That being so, Allmen Steel would be covered by the QBE policy and could not be said to be "not otherwise insured" within the meaning of the relevant clause in the Mecon policy. 12Counsel for Allmen Steel, Mr Cooley, supported the submissions of Mr Sharpe but also put forward another approach to the issue. Clause 3.4 of the policy dealt with the exclusion of indemnity in respect of injury or damage caused by contractors or sub-contractors. It provided: "3.4 Contractors or Subcontractors Personal Injury or Property Damage arising directly or indirectly out of or caused by, contributed to by or arising from any act or omission of : 3.4.1 any contractor or subcontractor of Yours; or 3.4.2 any contractor or subcontractor of any contractor or subcontractor of Yours or any tier thereof; 3.4.3 any director, executive officer, employee or partner of any contractor or subcontractor (or any of their contractors or subcontractors) of Yours or any tier thereof. For the avoidance of doubt, this Exclusion does not apply to You for Your own liability for any act or omission of any contractor, subcontractor or any other person or entity in 3.4.1, 3.4.2 and/or 3.4.3 above in their performance of work for You." 13Mr Cooley focused upon the last paragraph, which appeared to preserve indemnity for Allmen Steel in respect of acts or omissions of contractors, sub-contractors or others working for it. Yet, he said, that same indemnity appears to be excluded by cl 3.6.6. However, he noted that cll 3.6.2, 3.6.3 and 3.6.4 were directed to liability under Workers' Compensation legislation, and he argued that that appeared to be "the tenor of the subject area," that is, of cl 3.6 as a whole. That being so, he said, cl 3.6.6 should be limited to circumstances in which Allmen Steel had to pay workers' compensation. 14To these arguments I found the response of counsel for QBE, Mr Izzo, to be persuasive. He pointed out that the passage in the judgment of Gleeson CJ in McCann which I have quoted is not a licence to rewrite an insurance contract, a proposition spelled out by Kirby J in the same case at 601 - 2. Nor does the judgment of Jordan CJ in Kodak provide any basis for severing a term of a policy on the basis that it appears to be inconsistent with the purpose of the policy. That case was concerned with the interpretation of what was expressed in the policy to be a condition to which the provision of indemnity was subject. The effect of the quoted passage is no more than that the consequence of the breach of such a term is determined not by what it is called but by how it should be construed, as the Chief Justice put it, "depending on its language and context." The last sentence in that passage was not contemplating that a term in a policy might be given no effect at all. 15However that may be, there is no need to call upon the principles of construction expressed in those decisions in the present case. As Mr Izzo submitted, the meaning of cl 3.6.6 is clear. It is part of a clause the intention of which is to exclude cover under the policy for injury to employees of Allmen Steel. The exclusion extends not just to employees in the strict sense, but also to deemed employees (cl 3.6.2) and, by cl 3.6.6, to persons in a relationship to Allmen Steel akin to employment. So much is apparent from the concluding words of cl 3.6.6, "performing work for You or on Your behalf." The term "volunteers" in the clause should be understood in that context. It applies to people working for or on behalf of Allmen Steel on an unpaid basis, such as work experience students or trainees. 16The clause evinces an intention that Allmen Steel should look elsewhere for insurance cover for personal injury to its employees, using that expression in a broad sense, but it does not deprive the policy of content. As Mr Izzo pointed out, the policy would still cover Allmen Steel's liability for personal injury to a variety of people, such as: members of the public, both on and off the building site; employees of a principal contractor, in this case Southern Cross; any contractor, or employee of any contractor, not performing work for or on behalf of Allmen Steel, for example, tradesmen or contractors on the site independently doing work for Southern Cross. Accordingly, the plain meaning of the clause gives a commercial operation to the policy consistent with the statement of principle of Gleeson CJ in McCann. 17In response to Mr Cooley's argument, Mr Izzo pointed out that there is no warrant for confining cl 3.6.6 to Allmen Steel's liability to pay workers' compensation, which is dealt with in other sub-clauses. Nor is there the suggested inconsistency between cl 3.6.6 and the last paragraph of cl 3.4. That paragraph contemplates that there might be situations in which Allmen Steel is responsible for the acts or omissions of its contractors or sub-contractors and, in that event, preserves indemnity for personal injury suffered by anyone who does not fall within the terms of cl 3.6.6. Accepting that people in the three categories referred to by Mr Izzo would not fall within that clause, the last paragraph of cl 3.4 is meaningful and effective. As Mr Izzo put it in oral submissions, that paragraph is concerned with who caused the injury, while cl 3.6.6 is about who suffers the injury. 18For these reasons I concluded that cl 3.6.6 was effective to exclude QBE's liability to indemnify Allmen Steel. Mr Izzo put an alternative case based upon s 45 of the Insurance Contracts Act 1984 (Cth), but that need not be determined. 19Accordingly, I dismissed the second cross-claim (brought by Mecon against QBE). That being so, the third cross-claim (by Allmen Steel against QBE) and the fifth cross-claim (by QBE against Mecon) did not need to be pursued, and each of them also was dismissed.