Insurers should take care in specifying situations in which endorsements and special conditions apply within their policies.

A recent decision provides a useful reminder of the principles of construction of insurance contracts, namely, that:

  1. The insured bears the onus of invoking the cover afforded under the policy together with any proviso to any exclusion, whilst the insurer bears the onus of invoking the exclusion.
  2. Insurance contracts are construed using the same principles that apply to commercial contracts.
  3. Special conditions added to a standard form contract are given greater weight unless otherwise agreed between the parties. A specific provision is usually given greater weight than a general provision.
  4. Clauses in dispute should be given their ordinary and natural meaning, read in light of the contract as a whole and the object of the contract.
  5. Contracts should be construed in a way that a clause is not rendered otiose.
  6. A court is entitled to consider headings and marginal notes when interpreting a clause, unless the contract states otherwise. However, the wording of the clause must prevail.
  7. The contract must be read in its commercial setting so as to fulfil and not restrain its commercial purpose.
  8. The contra proferentem rule is to be adopted by the court as a last resort to remove ambiguities where the approaches outlined above have failed. The contra proferentem rule provides that, in interpreting documents, ambiguities are to be construed unfavourably to the drafter.

Background

In Crown Equipment Pty Ltd v ACN 098 568 702 Pty Ltd [2013] QSC 24, RPM was engaged by Crown Equipment to provide labour hire to their business. Negligent work practices by one of RPM’s employees resulted in injury to, and subsequent payout of, a Crown Equipment employee. WorkCover issued RPM with a Contribution Notice and the claim was referred to the insurer (QBE). QBE tried to impose a higher deductible on the claim under endorsements to the policy.

The court considered whether QBE was able to impose a higher deductible ($50,000 rather than a $5,000 deductible) on claims made by the insured, based on endorsements to the insurance policy.

Findings

QBE was entitled to impose the $50,000 deductible on the claim under the endorsement. Although the terms - employees, principal, subcontractor, and contractor - were not defined, the clause was intended to capture the range of relationships within which RPM would be engaged. This included RPM’s relationship with Crown Equipment. The Court considered that the clause would be futile if it was not interpreted to include the labour-hire relationship as there would be few situations to which the clause would apply.

QBE was not entitled to impose the higher deductible for ‘recovery of payments’ under Worker’s compensation legislation. This was because the endorsement wording focused on liability for recovery of worker’s compensation payments under s 207 of the Workers’ Compensation and Rehabilitation Act 2003 (Qld). This did not apply because Crown Equipment’s claim was for recovery of damages, not for payments under the Act.