Previous decisions
38 A contract must, of course, be construed having regard to the language used by the contracting parties. However, previous decisions in which courts have construed similar contractual provisions may provide useful guidance.
39 In Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd and Zurich Australian Insurance Ltd & Anor v Speno Rail Maintenance Australia Pty Ltd, (2000) 23 WAR 291, the Full Court in Western Australia considered clauses similar to those which require consideration in the present case, in the context of liability for injury to an employee.
40 The brief facts of present relevance were that Nolan was employed by Speno to carry out repair work on Hamersley's railway line. Hamersley was negligent and Nolan was injured.
41 Speno had arranged insurance which extended cover to Hamersley. However, the policy contained an employer's liability exclusion clause in the following terms:
"(Zurich - the insurer) shall not be liable for claims in respect of:
(1) EMPLOYER'S LIABLITY
Personal injury to any person:
(a) arising out of or in the course of the employment of such person in the service of the insured."
42 Zurich resisted the claim made on the insurance policy, relying on the exclusion clause. The trial judge found that as Nolan was employed by Speno, the exclusion clause applied to exclude liability. This finding was overturned by the Full Court which applied the cross liability clause in the policy, which was relevantly the same as cl 10 in the present policy. Although Nolan was the employee of the insured Speno, he was not the employee of Hamersley and accordingly, the employer's liability exclusion clause did not impact upon Zurich's liability to indemnify Hamersley against the claim by Nolan.
43 Wheeler J noted that this conclusion is consistent with the decisions in Weightman v Noosa Shire Council (at 368); Stolberg v Pearl Assurance Co Ltd (at 343) and V L Credits Pty Ltd v Switzerland Insurance Co Ltd [1990] VR 938 and, although arguably not consistent with the decision in Fletcher Organisation Pty Ltd v CML Fire and General Insurance Co Ltd (1987) 4 ANZ Ins Cas 60-805, that case could be distinguished as the relevant insurance policy did not contain a cross-liability clause.
44 In Workcover Queensland v Royal & Sun Alliance Insurance Australia Limited (at 61-489), Wilson J was called upon to consider a policy with an exclusion clause similar to the present exclusion clause and a cross-liability clause which was the same as the present cross-liability clause. His Honour reached a conclusion which appears contrary to that of the Full Court in Speno.
45 In Workcover, Leica Bride Pty Ltd, a labour hire company, which employed Slagle, was the subcontractor of Barclay Mowlem Construction Pty Ltd. As a subcontractor, Leica Bride was an insured under the relevant policy. Wilson J said of the exclusion clause:
"Exclusion cl 3(a) should be construed as excluding liability for injury in the course of employment by any one of the insured (including Leica Bride). I am fortified in this approach by cl 12 of the general conditions of the policy which provides:
(the clause was relevantly the same as the cross-liability clause in the present policy).
In other words, the policy is to be construed as if there were a separate policy issued to each insured. Counsel for the applicant relied on the decision of White J in Re FAI General Insurance Company Limited v Fletcher Construction Australia Limited (1998) 10 ANZ Insurance Cases 61-403. There her Honour held that a clause similar to exclusion cl 3(a) should be construed from the point of view of the insured making the claim - ie as if 'insured' in the clause meant (in the present context) Barclay Mowlem. However, in that case there was no clause similar to exclusion cl 7 in the Royal policy." p 75,657
46 Clause 7 of the relevant policy made provision for subcontractors in similar terms to that provided in cl 7 of the present policy.
47 There are two matters in this passage which require comment.
48 With respect, I have difficulty in understanding the role which it is suggested cl 7 has in the construction of the particular exclusion clause. Although cl 7 confines the recovery under the policy, where other insurance of a subcontractor will respond to a claim, I do not understand how it can assist in determining whether the policy will otherwise respond to the claim of the subcontractor. To the contrary, the clause assumes that the policy will respond to the subcontractor's claim, unless there is other insurance.
49 Accordingly, I see no reason why cl 7 requires a construction of the cross-liability clause which is inconsistent with the ordinary meaning of the words in that clause.
50 The second matter is that his Honour rejected the reasoning of White J in Re FAI General Insurance. That decision and his Honour's reasoning was approved in Speno.
51 Both parties sought support for their submissions in Canadian decisions. The plaintiffs relied upon the decision of the Supreme Court of Canada in Stolberg v Pearl Assurance Co Ltd (at 346), and the defendant to Romay Automotive Ltd v Dominion of Canada General Insurance Co at 346; Re Vergeta et al And Manitoba Public Insurance Corp at 527 and Hartford Fire Insurance Co v Saskatchewan Mutual Insurance Co at 649.
52 Stolberg involved an insurance policy which excluded liability for injury to an employee of the Insured. There was no cross-liability clause. However, the court, upholding an appeal, found that the employee being referred to in the exclusion clause was confined to an employee of the entity making the claim.
53 Hall J reasoned that:
"To deny recovery by appellant it would, in my opinion, be necessary to read the phrase 'sustained by any employee of the Insured' as if it read 'sustained by any employee of any of the Insured'. The 'Insured' under the terms of the policy, as amended by the endorsement, is any one or more of four persons named in the endorsement. The policy insures the insured against liability imposed by law upon 'the Insured', ie any one or more of the four persons.
In the present case 'the Insured' upon whom liability had been imposed by law was the appellant, and the appellant alone. No liability had been imposed by law upon any of the other three persons by reason of the death of King.
The exception, in respect of any claim under the policy, must be construed in the same manner as the clause defining the coverage in respect of that claim, as it is an exception from that coverage. The 'Insured' for the purpose of that exception must, in respect of such claim, be the same 'Insured' as the one or the ones who rely upon the coverage. In respect of the present claim only the appellant is the 'Insured' who has coverage under the policy. Consequently, in respect of this claim, he must be the 'Insured' who is referred to under the exception clause, and, that being so, the exception only applies if indemnity is sought by a person covered by the policy in respect of liability imposed upon him as a result of a claim made by his employee in respect of injuries sustained while engaged in his duties as such employee. That was not the situation in this case."
54 In Romay Automotive, O'Driscoll J distinguished Stolberg and came to a contrary conclusion, finding that it was critical in Stolberg that a "third party" had obtained a judgment against the insured. With respect, I have difficulty in accepting the proposition that a critical factor in the decision is whether the claim which is made is a mere claim or is supported by a judgment.
55 Both Vergata and Hartford Fire Insurance involved motor vehicle accidents where liability was complicated by reason of schemes which provided insurance for motor vehicle related accidents. I do not find those decisions of assistance in resolving the present matter.
The preferred construction
56 In my opinion, the plaintiffs' approach to the matter should be preferred. The policy provides insurance to relevant parties "for their respective rights, interests and liabilities." Informed by the cross-liability clause, 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."
57 Section C of the policy provides that the insurer will pay all sums which the Insured shall become legally obligated to pay in the relevant circumstances. The Insured in this context must be a reference to the party which has the obligation to make the payment and will be the party which makes the claim. The exclusion clause can only operate in relation to that claim and it follows that the Insured referred to in cl 3 must be the party making the claim.
58 The insurer submits that this construction leaves cl 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.
59 No doubt the insurer when drafting the policy was eager to ensure that a claim, not otherwise sustainable under Section A of the policy, could not be made under Section C, 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. If there be any doubt, it must be resolved in favour of the insured (see C E Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1992-1993) 176 CLR 535 at 541-542.
60 In my opinion, for the exclusion to have the operation suggested by the insurer, it would have to read either "any Insured" or "an Insured" rather than "the Insured".
61 The purpose of the policy of insurance was plainly to provide insurance to Transfield and other parties involved with relevant Transfield projects. Although separate policies could have been issued this had obvious practical difficulties. By issuing one policy, which contained a cross-liability clause, the relevant parties could each be insured by a policy which responds to any particular claim made by a party. The commercial objective has been described elsewhere in these terms.
"… 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 Limited (1977) 69 DLR (3d) 558 at 562-63.
Election - the relevant events
62 The chronology of relevant events is as follows: