Australian Rail Track Corporation Limited v QBE Insurance (Europe) Limited [2012] NSWSC 952

Australian Rail Track Corporation Limited (ARTC) was responsible for managing a rail network in New South Wales known as the Country Regional Network (the network). Two claims were brought against ARTC in its capacity as manager of the network, as a result of two separate incidents. The first incident resulted in injuries to Mr Asimus, a worker whose employer had been engaged by ARTC to undertake re-sleepering works on the network (the Asimus claim). The second incident involved a derailment at Breeza that resulted in claims being brought by the owners of the rolling stock and cargo affected by the incident (the Breeza claim).

ARTC’s responsibility for managing the network arose under an agreement that ARTC had entered into with two statutory authorities: the State Rail Authority of NSW (SRA) and the Country Rail Infrastructure Authority (CRIA). Under the agreement, SRA and CRIA arranged third party liability insurance in respect of claims arising out of or in connection with the agreement. SRA, CRIA and ARTC were named insureds on the policy.

ARTC sought indemnity under the policy in respect of the Asimus and Breeza claims. Underwriters accepted both claims. However, underwriters advised that cover was subject to the application of a “Self Insured Excess Provision” which, according to underwriters, applied an excess of $2.5 million to each of the claims.

Item 6 of the policy’s schedule specified the self-insured excesses applicable to each and every occurrence and claim. The excesses applicable varied depending on whether they were “in respect of” either (i) Rail Corporation New South Wales, (ii) CRIA, (iii) SRA or (iv) Constructions (Clearways) activities. There were no excesses specified to be in respect of ARTC. On that basis, ARTC argued that there was no excess payable by them.

Unfortunately for ARTC, the New South Wales Supreme Court disagreed and found that there was an excess of $2.5 million payable by ARTC for each of the Asimus and Breeza claims.

In coming to this decision, the Court said that the natural, unambiguous meaning of the words used in the policy must be given effect, notwithstanding that the result may seem unreasonable, and notwithstanding that it is suspected that the parties intended something different. Although no excess was stated to be applicable in respect of ARTC, the Court found that the wording of the policy clearly applied an excess.

General Condition 1 of the policy provided that:

"Insurers shall only be liable for that part of any one Occurrence/claim or series of such Occurrences/claims arising out of any one originating cause under this Policy, including Defence Costs, which exceeds the amount of the Self-Insured Excess (including Defence Costs) stated in Item 6 of the Schedule...”

The Court found that the wording of that clause provided that underwriters could be liable only for “that part” of the insured’s liability that exceeded the amount of the self-insured excess. It held that these words contemplated that there MUST be an excess applied by Item 6. Accordingly, the court held that an excess would apply to all claims made by any insured under the Policy.

With this in mind, the Court found that Item 6 of the schedule did not stipulate the excesses for the entities named in the schedule. Rather, it was intended that the relevant excess be determined by reference to whether the relevant Occurrence was “in respect of” the named entities.

The court then found that ARTC’s entitlement to cover arose only with respect to its liabilities in connection with the network, and its agreement with SRA and CRIA. Therefore, any claim made by ARTC under the Policy was “in respect of” either SRA or CRIA. As a result, a $2.5 million excess was applicable in respect of each claim.

This is a useful reminder of the primacy of the policy wording when considering the scope and extent of cover provided. It should also serve as a salutary lesson to those who seek to rely on insurance that has been arranged by others: extra care should be taken to consider the terms and adequacy of the cover being provided. At the very least, a quick check of the applicable excesses, limits and sub-limits ought to be made so as to confirm that the insurance will, in fact, provide the cover intended in respect of all or a significant portion of any claims.