GIO General Limited v Centennial Newstan Pty Ltd  NSWCA 13
The New South Wales Court of Appeal has again recently considered the general construction of indemnity and insurance clauses, common in commercial contracts, in the decision of GIO General Limited v Centennial Newstan Pty Ltd.
The facts of the claim are relatively straightforward. The plaintiff in the lower proceedings, Mr McDonald, suffered injury when his leg was crushed whilst working on the longwall installation at the Fassifern coal mine. The mine was operated by Centennial Newstan Pty Ltd (Centennial). Centennial had an agreement with Longwall Advantage Pty Ltd (Advantage) for the supply of labour to work at the mine.
Mr McDonald was employed by Labourforce Pty Ltd (Labourforce) who had an agreement with Advantage, for the provision of labour to fulfil Advantage's obligations to Centennial. Claims were pursued by Mr McDonald against Centennial, Labourforce and Advantage. In addition, Centennial pursued a claim against GIO General Limited (GIO), the public liability insurer of Advantage, after GIO had declined coverage.
At first instance, the primary judge found in favour of Mr McDonald as against all three defendants. With respect to contribution, the trial judge found Centennial should bear 100% of the damages, which had been agreed by the parties in the sum of $550,000.00 less a deduction of workers compensation payments made totalling $137,622.44. Importantly, with respect to the issue on appeal, the primary judge found in Centennial's favour in relation to its claim against GIO, finding that GIO was liable to indemnify Centennial under the Advantage policy of insurance.
GIO appealed against the finding it was obliged to indemnify Centennial. To understand the arguments on appeal, it is necessary to briefly understand the relevant policy wording. The insuring clause covered liability for, relevantly, personal injury, occurring during the period of cover and geographical limits and caused by or arising out of an occurrence in connection with 'your' business.
The term You/Your/Insured was specifically defined in the policy wording to include, relevantly:
'every principal in respect of the principal's liability arising out of the performance by or on behalf of the Named Insured of any contract or agreement for the performance of work for such principal, but only to the extent required by such contract or agreement and in any event only for such coverage and liability as provided by this policy'
There was no dispute that Advantage was a named insured under the GIO policy, or that Centennial was a principal under the policy. Similarly, there was no suggestion the injury to Mr McDonald did not arise 'out of an Occurrence in connection with Your Business' as required under the policy's insuring clause.
The issue on appeal was therefore whether the agreement between Centennial and Advantage was to be interpreted in such a manner as requiring Advantage to take out insurance which would cover Centennial for its liability in this instance (ie liability arising from its own negligence). As the policy wording expressly followed the intent of the agreement, if it did, then Centennial would be entitled to coverage under the extended definition of You/Your/Insured under the GIO policy and, if not, it would not.
The Court of Appeal ultimately dismissed the appeal, finding that Centennial was entitled to coverage under the GIO policy. Given the interpretation of the agreement between Centennial and Advantage was critical to that decision, it is necessary to understand, in some detail, the relevant sections of that agreement.
The agreement considered was a one page document with numerous attachments and, although undated, was executed by Advantage on 28 April 2008 and Centennial on 10 July 2008. The operative provisions stated, relevantly:
'The contract incorporates the following documents in decreasing order or priority to the extent of any inconsistency:
- Centennial Standard Conditions of Contract (Ver 17) - Part A
- Schedules Part C (if any)
- Attachments - Part D
- Attachment 1 - Centennial Standard Contractors Site Regulations (Ver 34) - Part d (if applicable);
- Attachment 2 - Centennial Coal Policies;
- Attachment 3 - Contractor's Insurance Details'
The agreement also contained the following prior to the execution section:
'This Agreement is made subject to all terms and conditions set out in the Attachments and Schedule, which is hereby made a part of the Agreement by reference, and the particulars set out on this page, all of which form the basis of the Agreement between Centennial and the Contractor'.
The Standard Condition of Contract contained, at clause 8, indemnity and insurance obligations, as follows:
'8.1 You must indemnify Centennial and agree to hold and save Centennial harmless from all claims for:
(a) injury to or death of any of your personnel, except to the extent that a claim for such injury or death arises as a result of the negligence of Centennial or a breach of this contract by Centennial;
(b) damage to or destruction of any property belonging to You or in Your possession or under Your control except to the extent the Claim for such damage or destruction arises as a result of Centennial's negligence or breach of this contract by Centennial;
(c) injury to or death of any person (including employees, agents or sub-contractors of Centennial) or damage to or destruction of any property (including property of Centennial, its agents or sub-contractors) caused by an (sic) negligent acts or omissions by You or Your personnel or a breach of this contract by You;
(e) without limiting clause 8.1(a)…breach by You or Your personnel of any of your obligations under the Contract or any negligent act or omission by You or Your personnel relating to the performance of the Contract.
8.3 You and your personnel must maintain workers compensation insurance as required by applicable Laws and public liability and (unless agreed otherwise by Centennial in writing) professional indemnity in accordance with the table of minimum requirements set out in clause 8.4 below, together with any other insurance specified on the purchase order. If requested by Centennial at any time, You must provide such evidence as Centennial reasonably requires that You and Your Personnel are insured in accordance with this Contract.'
At clause 8.4 of the agreement, it was noted, relevantly, the minimum insurance requirements included a public liability policy with a limit of $10M for work performed on the surface and underground.
In addition to the indemnity and insurance requirements contained in the standard conditions, clause 43 of the Site Regulations (contained in attachment D to the agreement), and titled 'Insurance and Indemnity', stated the following:
'43.1 The Contractor must have insurances referred to in the contract whenever performing its obligations under the Contract and for the period (if any) set out in the Contract after the Contractor has performed all of its obligations under the Contract.
43.2 Special Insurance Requirements
43.2.1 All insurance policies must be with insurers which are subject to the prudential supervision of Australian Prudential Regulation Authority.
43.2.2 Unless otherwise agreed in writing by the Principal, public and product liability policies must note the Principal and all subcontractors as interested parties and must cover the respective liabilities of each of those parties to each other and to third parties. The policy must cover each indemnified party to the same extent as it would if each of the parties had a separate policy of insurance.
43.3 Evidence of Insurance
The Contractor must provide evidence of insurances prior to performing any work and whenever requested to do so.
43.4 Failure to Insure
If the Contractor neglects, fails or refuses to obtain any insurance policies as required by the Contract or the Standard Contractors Site Regulations the Contractor must indemnify the Principal for any loss or damage suffered by the Principal arising out of or in connection with the Contractor's failure to obtain the required insurance.
43.5 Inconsistency with Contract
To the extent of any inconsistency between the provisions set out in this clause 43 and the provisions of any Contract, the provisions of the Contract will prevail.'
Gleeson JA, who delivered the main judgment in the matter, noted the appeal turned on a single issue, namely 'whether Advantage was required by cl 43.2.2 of the Site Regulations to provide insurance cover, the extent of which would indemnify Centennial against its liability to pay damages and costs to Mr McDonald, arising in the circumstances of the incident at the Fassifern coal mine'.
A preliminary issue raised by GIO on appeal, but not at first instance, was that the Site Regulations did not form part of the agreement between the parties. This argument was dealt with swiftly on appeal, with Gleeson JA concluding not only that it had no merit, but also that it ought not be allowed to be raised as a new point on appeal.
In determining the intent of clause 43.2.2 of the Site Regulations, Gleeson JA noted as a starting point the Court must consider the whole of the agreement and all clauses ought be interpreted in a manner which renders them 'harmonious with one another'. In doing so, the scheme of insurance and indemnity obligations under the agreement was interpreted as follows:
- The insurance requirements in clauses 8.3 and 8.4 could be considered a base level requirement;
- Clause 43.1 reinforces the requirements under clause 8.3 and 8.4 while ever Advantage is 'performing its obligations under the contract';
- Clause 43.2.2 extends the obligation to note Centennial and all sub-contractors of Advantage as interested parties under the policy and were covered for 'their own interests in the terms specified';
- The cover was for 'the respective liabilities of each of those parties to each other and to third parties'. 'Those parties' includes the 'interested' parties under the policy and relevantly therefore includes Centennial; and
- The indemnity contained in clause 43.4 was to support the additional insurance requirement, and was in addition to the indemnity contained at clause 8.1.
In considering the meaning of 'the respective liabilities of each of those parties to each other and to third parties', Gleeson JA acknowledged that both parties accepted that 'respective liabilities' was not without limitation, and found that limitation to be contained in the express terms of clause 43.1 of the Site Regulations, being the liabilities of those parties to each other or to third parties 'whenever Advantage was supplying labour to Centennial for the carrying out of longwall maintenance at the Fassifern coal mine'.
At the appeal, GIO argued the words 'respective liabilities' ought be interpreted as liability arising as a result of the negligence of Advantage or one of its contractors, and not the liability of Centennial for its own negligence. GIO advanced four matters to support their contention, all of which were rejected by Gleeson JA. Dealing with each in turn, Gleeson JA noted:
- The obligations contained in the Site Regulations were not inconsistent with the obligations contained in the Standard Contract Conditions but, rather, are supplementary;
- Contrary to GIO's submission, when the obligations were read as a whole, it was erroneous to conclude the policy did not require Centennial and any sub-contractors of Advantage to be afforded the same cover as Advantage;
- The reference to 'respective' in the phrase 'respective liabilities' is not a reference to the respective rights of the parties under the policy; and
- It was not correct to submit it was an improbable outcome that Advantage would provide cover for Centennial's liabilities to any third party which did not arise as a result of the services being performed by Advantage, and where Advantage had no control over the activities being conducted, as the obligation was limited, as the intent of the insurance obligation was not asserted to be that broad.
GIO also argued clause 43.2.2 was required to be determined in the same fashion as in Erect Safe Scaffolding (Australia) Pty Ltd v Sutton,1 in which McClellan CJ at CL stated:
'The approach taken in each of these decisions is that in the absence of express words, the obligation under an insurance clause in a contract which is provided to support an indemnity clause will not require the subcontractor to maintain insurance against loss occasioned by the head contractor's negligence.'
Importantly, with respect to principles to be applied generally to the interpretation of indemnity and insurance clause generally, Gleeson JA stated:
'This statement of McClellan CJ at CL in Erect Safe Scaffolding v Sutton is not to be understood as a statement of principle, but merely an observation concerning the 'approach' taken in a number of authorities when construing the obligation under an insurance clause which is provided to support an indemnity clause, His Honour's observation was also qualified by the need to have regard to the express words of the insurance clause under consideration.'
Gleeson JA then went on to outline the reasons upon which the present case could be distinguished from Erect Safe Scaffolding v Suttonin concluding that decision was not informative of the outcome reached. These reasons included:
- The terms of the agreement in each case are 'quite different';
- Whilst there is synergy in the indemnity and insurance obligations contained in clauses 8.1, 8.3 and 8.4 of the agreement, the obligation in clause 43.2.2 was a supplementary special insurance clause;
- In Erect Safe Scaffolding v Sutton, the insurance obligations were intended to support the contractual indemnity, whereas in this matter, the special insurance obligation contained in clause 43.2.2 was 'intended to provide cover to Centennial and all subcontractors of Advantage beyond the scope of the indemnity afforded to Centennial under cl 8.1 of the Standard Conditions'; and
- Such a construction is supported by the presence of the additional indemnity at clause 43.4 of the Site Regulations, which would be moot if the clause 43.2.2 insurance obligation was merely intended to support the clause 8.1 indemnity.
Having reached the above conclusions, Gleeson JA noted the final determination rested upon whether Mr McDonald, an agent of Advantage, fell within the words 'third parties', or whether those words were intended to cover only parties external to Advantage or its subcontractors. Gleeson JA concluded the words 'third parties' did include an agent of Advantage, stating:
'whenever Advantage was supplying labour for maintenance works at the Fassifern coal mine, Centennial, as the operator of the coal mine, was exposed to potential liability in negligence for injury suffered by employees, agents and subcontractors of Advantage. It is not improbable, as contended by GIO, that the parties intended Centennial would receive cover of the same character under the Policy in respect of liabilities for its own negligence to employees, agents and subcontractors of Advantage, such as Mr McDonald (an agent of Advantage).'
The appeal was consequently dismissed, leaving GIO to indemnify Centennial for its liability under the primary judgment.
Conclusions / Principles
The facts of this matter, in particular the documents which comprised the contract and the manner in which they inter-related, are quite unique and, in that sense, the decision is unlikely to be of any significant value in attempting to interpret different clauses in different agreements.
The key lesson to be learnt from the decision is the commentary from Gleeson JA regarding the effect of the decision of Erect Safe Scaffolding v Sutton, and the emphasis placed upon the need to ensure that each matter is determined on its own facts and wordings of the clauses under consideration.
It is critical therefore that in dealing with such claims, whether pursuing them or defending them, the relevant clauses are carefully considered in light of the facts and the intent of agreement as a whole prior to forming a view.