Centennial entered into an agreement with Longwall Advantage (Advantage) for the supply of labour to a coalmine operated by Centennial in New South Wales. There was a separate contract under which Advantage obtained some of the labour from Labourforce.

A worker was employed by Labourforce and was injured in the coalmine in 2008. The worker issued proceedings against Centennial, Advantage and Labourforce and each party was found to have breached its duty of care to the worker. However, in determining contribution, the Court decided that Centennial should bear 100% of the liability.

Centennial had made a claim on Advantage’s insurance policy held with GIO. GIO denied indemnity to Centennial and so Centennial joined GIO to the proceeding as a third party. The trial judge determined that Centennial was entitled to indemnity.

GIO’s policy extended liability cover to Centennial as the ‘principal’ with respect to its liability arising out of the performance of the contract with Advantage “but only to the extent required by such contract or agreement”.

Clause 8.3 of the agreement between Centennial and Advantage required Advantage to maintain public liability insurance. Clause 43.2.2 additionally required that:

Unless otherwise agreed in writing by [Centennial], public and product liability policies must note [Centennial] 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.”

The question on appeal was whether the agreement required Advantage to take out public liability insurance to cover Centennial’s liability.

GIO raised a number of arguments on appeal and in particular argued that the contract should be interpreted in accordance with the principles laid down by the New South Wales Supreme Court in Erect Safe Scaffolding (Australia) Pty Ltd v Sutton. In that case McClellan CJ said:

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.

In rejecting GIO’s submission the New South Wales Court of Appeal found that McClellan’s statement reflected an “approach to be taken”, rather than a “statement of principle”. The Court held that McClellan’s decision in Erect Scaffolding was not determinative of the interpretation of cl.43.2.2 in the present case.  The Court found that the relevant clause was “clearly directed to providing Centennial with cover of the same character under the Policy for its own interests in the performance of the Agreement by Advantage.”

In making its decision the Court emphasised that when approaching the construction of a contract it is important to look at the express words of the agreement.  The Court will construe the clauses of a contract so as to render them ‘harmonious’ with one another. In this regard it is important to look at the agreement as a whole.

GIO General Limited v Centennial Newstan Pty Ltd

‘Insurance Clauses' in commercial contracts continue to be controversial. The interpretation of them depends significantly on the particular words used.