Thompson v NSW Land and Housing Corporation - [2012] NSWSC 864 - NSWSC 2012 case summary — Zoe

NSWNSWSC

Thompson v NSW Land and Housing Corporation

[2012] NSWSC 864

Supreme Court of NSW|2012-08-02|Before: Hislop J

View original source

At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2012-08-02

Before

Hislop J

Catchwords

Common law - personal injury - insurance - costs Cases Cited: Australian Casualty Co Limited v Federico [1986] HCA 2

Source

Original judgment source is linked above.

Catchwords

Common law - personal injury - insurance - costs Cases Cited: Australian Casualty Co Limited v Federico [1986] HCA 2

Judgment (13 paragraphs)

[1]

Introduction 1The plaintiff sought damages from the defendant for injuries allegedly sustained when pest control services were provided by Pestkil Pty Limited, (now known as ACN 005 511 062 Pty Limited, ("Pestkil")) at premises rented by the plaintiff from the defendant. 2The plaintiff was unsuccessful in those proceedings. Judgment was entered for the defendant. The plaintiff was ordered to pay the defendant's costs of the principal proceedings. 3The proceedings gave rise to three cross claims: (a) the defendant (cross claimant on first cross claim) v Pestkil (cross defendant on first cross claim); (b) Pestkil (cross claimant on second cross claim) v the defendant (first cross defendant on second cross claim); (c) Pestkil (cross claimant on second cross claim) v Gerling Australia Pty Limited (now known as HDI-Gerling Australia Insurance Company Pty Limited ("Gerling")) (second cross defendant on second cross claim). In this judgment a reference to the cross claim or second cross claim includes any amendment thereof. 4No orders were made as to the disposal of the cross claims or as to the costs thereof pending agreement by the parties or further submissions. Agreement was not reached and further submissions have been provided.

[2]

[3]

The second cross claim - Pestkil v Gerling 7Gerling issued a policy of public liability insurance ("the policy") in respect of the period 30 June 2000 to 30 June 2001. It accepted that, subject to the terms and conditions of the policy, Pestkil was insured thereunder. 8Pestkil made a claim against Gerling under the policy. It sought indemnity against Pestkil's alleged liability on the first cross claim. Gerling denied the claim. 9The provisions of the policy relied upon by Pestkil are as follows: Section C: "The Insurer hereby agrees, subject to the limitations, exclusions, terms and conditions hereinafter mentioned to:

Pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay for or in respect of: (a) Personal Injury (as defined) suffered or alleged to have been suffered by any person or persons; (b) ... happening anywhere in the Territorial Limits stated in the schedule during the duration of the policy in connection with the Insured operations, and caused by or contributed to by and/or arising out of an occurrence or occurrences."
Defend at their expense (and in addition to the limit of Liability) and 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 any Occurrence for which cover is provided by this Insurance... 3(b) Pay, in addition to the limit of Liability expressed in the Schedule: all expenses incurred by the Insured with the permission of the Insurer incidental to the investigation, negotiation, presentation and/or defence of claims and suits or appeals which are the subject of indemnity under this Insurance. 3(c) Pay, in addition to the Limit of Liability, expressed in the Schedule: all costs and expenses awarded against the Insured or agreed to be paid by the Insured with the Insurer's consent in connection with or arising out of any Liabilities covered by this Section." 10Pestkil submitted that by denying the claim Gerling rendered of no effect the provisions of the policy requiring Pestkil to obtain Gerling's permission pursuant to Section C3(b) or consent pursuant to Section C3(c). Gerling did not contend to the contrary. 11Pestkil submitted Gerling breached Section C cl 2 of the policy by failing to defend, at Gerling's expense, the claim made against Pestkil under the first cross claim. As a result of Gerling's breach, Pestkil has suffered loss and damage being the costs it has paid in defending the claim brought against it. The claim to relief by Pestkil was for damages for the breach of cl 2 and cl 3(b) being the value of the costs and disbursements incurred in the defence plus interest thereon, less the value of any costs order obtained by Pestkil against the defendant. 12Pestkil also claimed damages, being the costs incurred by it in prosecuting the second cross claim against the defendant and Gerling. 13Gerling relied upon Section C cl 7 to deny liability to Pestkil. Clause 7 provides: "This section shall not apply to liability:
for personal injury or illness, or property damage, arising out of discharge, dispersal, release or escape of smoke, vapours, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants, pollutants into or upon land, atmosphere or any water course or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental, which takes place at a clearly identifiable point in time during the duration of the policy." 14This was the only issue raised by Gerling in opposition to the Pestkil claim. 15Gerling accepted that it had the onus of proof in relation to the application of the exclusion clause; that it must establish that the substance which was discharged or released met the description of either a toxic chemical or irritant and that, applying the contra proferentem rule, the construction least favourable to Gerling should be adopted against it. 16Pestkil and the defendant submitted that cl 7 had no application for five reasons. These are discussed hereunder:

[6]

Reason 3 (a)It was submitted in order for cl 7 to apply that the termiticide must meet the characterisation described within the clause, namely that it was a "toxic chemical" or "other irritant". The termiticide which was applied was an emulsion which contained one part Biflex to 100 parts water. The emulsion does not meet the description of either a toxic chemical or irritant. The emulsion is required to be classified in accordance with the approved criteria for classification of hazardous substances. It is this classification which gives the substance its characterisation. Dr Bisby, the expert on this aspect of the matter, said in his report: "Applying the criteria to the termiticide spray as used by the Pestkil operatives at Mr Thompson's dwelling in 2000 and 2001, then if it was diluted to having less than one litre of the Biflex product made up into (diluted with) 100 litres of emulsion spray (or pro rata), then the spray or liquid used

did not meet the criteria for classification as toxic or very toxic or harmful;
did not meet the criteria for classification as irritant;
did not meet the criteria for classification as a hazardous substance

In that case, it could be held that the spray liquid is non toxic and non irritant." In the result the evidence establishes that the emulsion, being the substance dispersed or released, did not meet the characterisation of either a toxic chemical or an irritant. Alternatively, Gerling having the onus of proof, has not established that the emulsion did meet the characterisation of a toxic chemical or an irritant. (b) Gerling submitted the product used was Biflex. The manufacturer's data sheet listed Biflex as a S6 poison which was harmful if swallowed or inhaled and may be irritating to the eyes and skin; that Biflex should not be harmful to humans, used properly and with the recommended precautions taken, does not determine the question raised by the clause, that is whether a toxic chemical or an irritant were dispersed; they plainly were. On the proper construction of the policy Peskil is not entitled to indemnity, and its cross claim fails. (c) The active ingredient in Biflex is bifenthrin, which constitutes less than 100% of Biflex and probably less than 50%. It may be that Biflex or bifenthrin, considered by itself, is a toxic chemical or an irritant. However, this is beside the point as Biflex was used in a diluted form, being mixed with water in the ratio one part Biflex to 100 parts water. It is the toxicity of the diluted solution in the circumstances of exposure which must be considered. It is the emulsion in this case which has to be classified, not the individual components of the emulsion. I accept the evidence of Dr Bisby and find that the emulsion, as used, and as intended to be used by Pestkil, was properly categorised as non toxic and non irritant with the consequence that cl 7 was inapplicable.

[7]

Reason 4 (a) An accident "is something which happens without intention or design. When used with reference to something which causes injury, it means an unexpected and unintended mishap" - Australian Casualty Co Limited v Federico [1986] HCA 2; (1986) 160 CLR 513. It was submitted that if, contrary to the submissions of Pestkil and the approach and opinion of Dr Bisby, the appropriate focus was the individual ingredients of the emulsion as claimed by Gerling, then the escape of those ingredients was sudden and accidental. In these circumstances exclusion cl 7 has no application by reason of the write back clause which was contained in cl 7 in the following terms: "but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental, which takes place at a clearly identifiable point in time during the duration of the policy." (b) Gerling submitted the operative words in the write-back clause are "sudden" and "accidental". There is no place for that concept in this case as on each occasion Pestkil attended the property and dispersed the relevant chemical for its intended purpose over a period of time. Unlike Australia Paper Manufacturers Limited v American International Underwriters [1994] 1 VR 685 where the Victorian Court of Appeal found that the adjectives accidental, unexpected and unintended qualified only the particular "happening" in relation to the subject policy, the words "sudden" and "accidental" qualified the words "discharge", "dispersal", "release" or "escape". There is no relevant analogy with the APM decision. Nothing in the conduct of the Pestkil operations was thus characterised; the toxic chemical was dispersed intentionally and deliberately in a controlled manner. (c) The evidence of Pestkil, which I accept, established that it took considerable care in its application of the emulsion so as to prevent any escape of it. If escape of the ingredients occurred, it was both sudden and accidental in the sense described in Federico. In that event, the write-back clause has application so as to preclude the application of exclusion cl 7.

[8]

Reason 5 (a) It was submitted the intent in obtaining the policy was to obtain insurance against public risk for the defendant and its contractors and subcontractors. To construe the exclusion clause as submitted by Gerling would be to exclude contractors and subcontractors from cover where they were legitimately performing their work in a normal manner. The exclusion must be read having regard to the commercial purpose of the policy (see Gleeson CJ in McCann v Switzerland Insurance Australia Limited [2000] HCA 65, (2000) 203 CLR 579 at [22]) and the Law of Liability Insurance by Derrington and Ashton (2nd ed, 2005) at 3-43 and its history - Carlingford Australia General Insurance Limited v EZ Industrial Limited [1988] VR 349 at 352. The court may decline to give effect to the apparent literal meaning of words used in the contract where to do so would result in an absurd construction which the parties cannot have intended. An exclusion in virtually identical form was the statutory requirement of policies in New York. As noted in Autotronic Systems Inc. v Aetna Life and Casualty 456 9 NYS 2d 504 (1983): "The clear purpose of the statutorily required exclusion is to strengthen New York's environmental protection standards by imposing the full risk of loss due to personal injury or property damage from pollution upon the commercial or industrial enterprise that does the polluting and by eliminating the enterprise's option of spreading that risk through insurance coverage...This purpose would not be served by applying the exclusion to insureds who are not engaged in the industrial or commercial activity that produce the pollution." (b) Gerling submitted that cl 7 was not described as a pollution clause. The origins of the clause can be of no more than historical interest and it is not legitimate to act on any assumption as to the purpose of the clause. That a clause is relevantly the same or similar to a clause which had some identified purpose in another country long ago could hardly be relevant. The clause should be given its ordinary literal meaning and should not be read down on the basis that in Australia in recent years it was only intended to cover pollutants. (c) In my opinion, a literal construction of exclusion cl 7 would produce a result which would be contrary to the commercial expectations of the parties, contrary to common sense and would have the effect of virtually depriving the policy of the primary cover for contractors such as Pestkil. Accordingly, in my opinion, cl 7 should be read down having regard to its history so as not to apply to the present situation. 17In my opinion, cl 7 did not exclude Gerling's liability to indemnify Pestkil in respect of the costs incurred by it in defending the cross claim brought against it by the defendant, or in prosecuting the second cross claim against the defendant and Gerling. 18Pestkil is also entitled to an order for its costs of the cross claim against Gerling, such costs following the event.

Thompson v NSW Land and Housing Corporation

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (13 paragraphs)

Parties

Cases Cited (5)

Cited By (1)