The Background

On 1 July 2008, Treetops Lismore Pty Ltd (Treetops), as trustee of the Lismore Business Park Unit Trust (Trust), entered into a contract with the plaintiff, Malamit Pty Ltd (the Insured), for the provision of project development and management services at the Lismore Business Park development site (development). Mr Mitchell was the director, secretary and sole shareholder of Treetops. He was also the sole director of the Insured. The Insured held a professional indemnity Policy (Policy) with WFI Insurance Ltd t/as Lumley General (Insurer) for the period of 31 October 2009 to 31 October 2010.

In July 2010, there was a landslip at the development. As a result, Treetops brought an action against the Insured and others. The Insured then made a claim for indemnity under its Policy. The Insurer denied indemnity on the basis that Treetops was not a ‘third party’ for the purpose of the insuring clause, or alternatively, the claim came within one of three exclusion clauses in the Policy.

As a result, the Insured brought an action against the Insurer and its broker, claiming various forms of relief. These proceedings considered a single issue, namely, whether the Insurer was entitled to deny the Insured’s claim for indemnity.

The Decision

Both parties accepted that Treetops was not an insured under the Policy. Therefore, the Insured submitted that Treetops’ claim was one by a ‘third party’. The Insurer argued that Treetops was not a third party to the Policy because at all relevant times the Insured and Treetops were controlled by the same individual, Mr Mitchell. The Insurer further submitted that in determining the meaning of the term ‘third party’, the court is obliged to look at the context in which that phrase appears and that one should construe those words ‘according to their natural and ordinary meaning, in the light of the Policy as a whole’. This construction involved taking into account the balance of the Policy, including the various exclusions.

The court accepted the Insurer’s approach on policy construction and held that Treetops could not be considered to be a third party for policy purposes because an Insured (Mr Mitchell, as defined) owned 100% of the shares in Treetops and the entity was, therefore, a subsidiary under the Policy. As a result, the court upheld the Insurer’s denial of indemnity and dismissed the Insured’s claim. The evidence did not allow a determination about whether the Claim was brought ‘on behalf of or for the benefit’ of any Insured or Family member of the Insured, in accordance with the exclusions under the Policy.

Implications For You

The terms of a policy of insurance are to be construed in accordance with their natural and ordinary meaning in light of the Policy as a whole and this requires due weight to be given to the context in which the clause in question appears.

Malamit Pty Ltd v WFI Insurance Ltd & Ors [2016] NSWSC 1306