(i) give advice thereof to the Insurers as soon as possible;
(ii) take all reasonable steps to protect the Subject Matter Insured from further loss or damage."
" Memoranda Applicable to Section I
6. Sue and Labour
It is agreed that in the event of actual or imminent damage to the Subject Matter Insured the Insurers will pay the reasonable costs of emergency action in order to minimise or prevent damage to the Subject Matter Insured.
Provided always that:
(a) Insurers shall not be expected to pay any amount in excess of that which they would reasonably have been expected to pay in settlement of actual damage had such measures not have been taken.
(b) the maximum sum payable by Insurers under this Memorandum shall not exceed $10,000,000 for any one Occurrence or such higher amount as insurers may approve.
For the purposes of this Memorandum, "imminent" shall mean within fourteen (14) days of discovery."
9 The submission of the appellants at first instance and on appeal was that cl 18 of the policy constituted a separate construction contract between them and the respondents to carry out construction work. They said that the obligation under cl 18 to take all reasonable precautions to safeguard the subject matter insured and to prevent loss or damage would in certain circumstances obviously include the need to carry out construction work.
10 On appeal they also referred to cl 3 which is quoted above and which requires the insurer to take all reasonable steps to protect the subject matter insured. They also referred to the sue and labour clause in cl 6 of the memorandum, which I have also set out earlier. Neither of these clauses in my view provides any material assistance to the appellants' submissions.
11 The primary judge rejected the appellants' submission that the insurance policy contained a construction contract. Her Honour's reasons were expressed as follows
"15 The first paragraph of clause 18 is an agreement by the insurers that they are aware of the obligations imposed on the defendants by the project deed and other contracts for the Project following loss or damage. The second paragraph of clause 18 commencing "notwithstanding" imposes on the defendants the obligation to take the reasonable precautions. The clause must be read to give effect to the commercial purpose of the contract: Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 405 per McHugh JA (as his Honour then was). The commercial purpose of this Policy was to provide indemnity for the insured on the terms and conditions included in the Policy. The second paragraph of clause 18 was the imposition of a condition on the insured, which had to be satisfied prior to indemnity being available. It was not an agreement by the insured to carry out construction work for the insurer, but an agreement by the insured that in carrying out the construction work for the principals/owners they had to do so in a particular manner, that is, taking the reasonable precautions, in order to qualify for indemnity under the Policy."
12 I agree with her Honour's conclusion and with her reasons. As is evident from her Honour's reasons, the critical question is whether the requirement in cl 18 for the insured to take "reasonable precautions" for the purpose specified simply constitutes a condition precedent to the insured's right to indemnity under the policy or whether instead, or as well, it embodies a contractual promise by the insured to take the steps.
13 The proper approach to the construction of an insurance policy was identified in the following statement of Gleeson CJ in McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22] affirmed by the High Court in CGU Insurance v Porthouse [2008] HCA 30; (2008) 235 CLR 103 at [43]:
"A policy of insurance, even one required by statute, 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 is intended to secure."
14 As the parties agreed, the commercial purpose of the insurance policy here in question is to provide indemnity against certain loss and damage. The commercial purpose is not to enable the insurers to procure the performance of construction work.
15 The requirement to take reasonable precautions which admittedly might in certain circumstances involve the performance of construction work is designed to protect the insurers by limiting their obligations to indemnify the insureds. This role is made clear by cl 19 which immediately follows the clause relied upon by the appellants. In that clause compliance with the terms, conditions and limitations of the policy is made a condition precedent to any liability of the insurers to make payment under the policy.
16 Whether there is a promise, or to use the expression used in the definition of "construction contract" in the Act, undertaking to carry out construction work can in my view be tested by asking whether the insurers could sue the insureds for damages if the insureds failed to take reasonable precautions as required by cl 18. Clearly, in my view, they could not. That would not be in conformity with the commercial purpose of the policy and is not dictated by any language used by the parties.
17 The requirement of reasonable precautions is a condition of the insurer's obligation to indemnify, not a promise or undertaking by the insured to take those steps. In my view the appeal should be dismissed with costs.
18 ALLSOP P: I agree.
19 SACKVILLE AJA: I also agree.
20 ALLSOP P: The orders of the court are that the appeal be dismissed with costs.