The recent decision of Zhang v Popovic [2016] NSWSC 407 highlights the difficulties for insurers in enforcing policy exclusions in circumstances of ambiguity.

Background

On 16 September 2007 Cheng Nian Zheng (the plaintiff) suffered catastrophic injuries after being crushed beneath a metal ramp of a trailer. The plaintiff was at the Patrick Terminal at Port Botany when he was approached by the first defendant, Vlado Popovic (Popovic) who sought his assistance in securing Popovic’s trailer (the trailer) to his truck via a ramp using a hydraulic lifting device. Popovic was aware that the ramp could not be elevated normally and required additional force, either manually or to the hydraulic system. Popovic operated the hydraulic lifting device to move the ramp of the trailer into position while the plaintiff assisted him by manually pushing the ramp upwards. Suddenly the clevis mount on the trailer which supported the hydraulic lifting device snapped, causing the ramp to fall and crush the plaintiff beneath it.

Liability of the defendants

The plaintiff relevantly sought to recover damages against:

  • Interfreight (Australia) Pty Ltd (the employer) – Popovic’s employer
  • Calabro Real Estate Pty Ltd (the owner) – the owner of the trailer
  • ROC Services (NSW) Pty Ltd (the installer) - the company who had installed the hydraulic system on the trailer 13 months earlier
  • National Transport Insurance by its manager NTI Ltd (NTI) - the insurer of Popovic, his employer and the owner

The trial judge found that Popovic knew that there was a problem with the ramp and nonetheless enlisted the plaintiff’s help and allowed him to stand under the ramp as they attempted to raise it. Popovic (and his employer through him) owed the plaintiff a duty to take reasonable care for his safety. Popovic was found to be in breach of his duty of care as he had been instructed by his employer not to stand under the ramp during his initial training and had not only permitted the plaintiff to do so, but did so in circumstances where he was in a position of superior knowledge that there was a problem with lifting the ramp.

The employer was vicariously liable for Popovic’s negligent actions and was also negligent on its own account for the defective weld to the clevis mount and for failing to provide Popovic with proper instructions in respect of how to conduct himself to protect his own safety and the safety of others in the vicinity of the trailer where there was difficulty with the ramp.

The relationship between the owner and the employer was not made clear to the court and the owner failed to establish that it had delegated its duty to repair and maintain the vehicle to the employer. The trial judge was satisfied that the owner had been negligent in their maintenance and repair of the trailer given the defective weld and that this negligence had resulted in the injuries to the plaintiff.

It was the plaintiff’s primary case that the installer had installed the clevis mount, however the trial judge was satisfied on the evidence that it had not and that the mount was already in place prior to the installation of the hydraulics system. The alternative case against the installer was that it was negligent in its overall design of the hydraulic system and ought to have obtained expert opinion as to how the clevis mount could be tested to ensure it was strong enough to bear the weight of the ramp for the life of the trailer. The trial judge found that the installer did not owe any duty, contractually or otherwise, to undertake work outside that for which it had been contracted and it did not owe any duty of care to redesign or replace the clevis mount so as to support the hydraulic system for the life of the trailer. The installer gave evidence that they had tested the system 15 – 20 times and had visually inspected the mount. There was no evidence that the defect in the mount was visibly discernable at the time of their work and the installer was under no obligation to seek an engineer’s opinion as to the structural soundness of the clevis mount outside its own testing.

The defect exclusion

Popovic, his employer and the owner were all covered by a fleet motor policy (the policy) written by NTI. NTI contended that it was not liable to indemnify these defendants by reason of 3 exclusion clauses in the policy. Of the 3 exclusions, the trial judge determined that exclusion 2(b)(8) (the defect exclusion) was the only applicable exclusion clause. The defect exclusion provided:

“(b) We will not pay

(8) for any liability for death or bodily injury arising out of or in any way connected with a defect in Your Motor Vehicle or in a Motor Vehicle, but in Queensland only if it causes loss of control of the vehicle whilst it is being driven”

NTI submitted that liability was plainly “arising out of or in any way connected with a defect in” the trailer and was therefore excluded. The plaintiff contended that the defect exclusion was limited by the concluding words “whilst it is being driven” and as the trailer was not being driven at the time, the defect exclusion did not apply. NTI submitted that the effect of the comma before the words “but in Queensland” was to make the succeeding words irrelevant to a vehicle, such as the trailer, which is registered in New South Wales.

It was also argued that the defect exclusion did not apply to Popovic as his liability was not “arising out of or in any way connected with a defect” in the trailer as he was a mere driver of the trailer and not liable for any aspect of the defect itself.

The trial judge found that the defect exclusion was ambiguous as to whether the words “whilst it is being driven” applied to all or just some of the words after the comma. The entire clause showed that the draft person had not used commas in a consistent or orthodox way. Her Honor considered that she was required to construe the clause so as to avoid absurdity or commercial inconvenience having regard to the commercial purpose of the policy which required attention to be paid to “the genesis of the transaction, the background, the context, the market “in which parties were operating, as known to both parties[1].

The trial judge held that the surrounding circumstances can include the law itself, such as the compulsory third party (CTP) legislation in both Queensland and New South Wales. The trial judge held that the commercial purpose of the policy was to provide insurance cover for the vehicles listed in the schedule which was complementary to the cover provided by the CTP scheme. Using the contra proferentem maxim to assist in the resolution of the ambiguity, the trial judge found that NTI had failed to make it clear that the exclusion applied in the present case and was not persuaded that the words “whilst it is being driven” were confined to Queensland vehicles only, preferring an interpretation that the words are to be read as if a comma preceded them to indicate that the phase limits the operation of the exclusion. Such a construction advanced to the commercial purpose of the policy, taking into account the CTP scheme and was consistent with other exclusions in the policy.

For completeness, the trial judge held that Popovic’s liability arose out of and in connection with the defect, given the phrase “arising out of” and “in any way connected with” are words of wide import, because his failure to take steps notwithstanding his knowledge of the defect was what made him liable. That Popovic was not himself responsible for the defect was not the point.