GIO General Limited v Centennial Newstan Pty Ltd
The recent NSW Court of Appeal decision of GIO General Limited v Centennial Newstan Pty  NSWCA 13 contains some useful points to note for the insurance industry regarding the construction of a contract between an insured contractor and its principal and the circumstances in which cover was extended to the principal.
Centennial Newstan Pty Ltd (Centennial) operated a coal mine at Fassifern, near Newcastle. Centennial had entered into an agreement with Longwall Advantage Pty Ltd (Advantage) for the supply of labour to perform work at Centennial’s coal mine (the Agreement). Advantage supplied the labour to Centennial through a separate agreement with another company, Longwall Labourforce Pty Ltd (Labourforce). Labourforce was the employer of Mr McDonald, whose services were supplied to the Centennial coal mine as a result of the Agreement.
In 2008, Mr McDonald was injured when his leg was crushed while working on the longwall installation at the Fassifern coal mine. He brought proceedings in the District Court against Centennial, Labourforce and Advantage for negligence and each of the three entities brought claims against each other for contribution and indemnity. Advantage maintained a “Combined Business Policy” (the Policy) with the appellant (GIO). Centennial therefore sought indemnity from GIO, claiming that it had the benefit of the Policy.
The definition of “You/Your/Insured” in the Policy wording extended to “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.”
It was common ground between the parties that Advantage was a named insured under the Policy and that Centennial was a principal.
The first instance decision
The trial judge at first instance had determined that Centennial, Labourforce and Advantage were each liable to Mr McDonald and that for the purposes of contribution, Centennial should bear 100% of the liability. The trial judge was of the view that the Agreement operated in such a way so as to require Advantage to provide insurance cover which would indemnify Centennial as principal. GIO appealed, arguing that the obligation on Advantage to effect insurance in favour of Centennial pursuant to the Agreement did not include liability arising from Centennial’s own negligence.
In order to understand the arguments raised by GIO, together with the ultimate decision of the Court of Appeal, it is necessary to consider the way in which the various indemnity and insurance clauses in the documents which together constituted the Agreement interacted with each other. The Agreement contained numerous attachments as Schedules including the Centennial Standard Conditions of Contract (the Standard Conditions) and the Centennial Standard Contractors’ Site Regulations (the Site Regulations).
Clause 8.1 of the Standard Conditions stated that Advantage must indemnify Centennial and agree to hold 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…caused by an [sic] negligent acts or omissions by You or Your personnel or a breach of this contract by You.”Clause 43.2 of the Site Regulations set out “Special Insurance Requirements” and provided pursuant to subclause 43.2.2 that:
“Unless otherwise agreed in writing by the Principal [i.e. Centennial], 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.”
Clause 43.4 of the Site Regulations contained an additional indemnity to the effect that “If [Advantage] neglects, fails or refuses to obtain any insurance policies as required by the Contract or the Standard Contractors Site Regulations [Advantage] must indemnify the Principal for any loss or damage suffered by the Principal arising out of or in connection with [Advantage’s] failure to obtain the required insurance.”
The Court of Appeal decision
Delivering the leading judgment in the Court of Appeal decision, Gleeson JA stated that the appeal turned on the single issue of whether Advantage was required by clause 43.2.2 to provide insurance cover to indemnify Centennial against its liability to Mr McDonald.
The Court of Appeal rejected GIO’s argument that Clause 8.1 of the Standard Conditions operated to exclude cover in the event of liability arising from Centennial’s own negligence. It held that Clause 8.1 of the Standard Conditions needed to be read in conjunction with the indemnity and insurance clauses contained in other documents which together constituted the Agreement, in particular the Site Regulations.
Gleeson JA stated that the Court must consider the entire Agreement; this included the numerous Schedules to the Agreement. He noted, in particular, that “The words of every clause must, if possible, be construed so as to render them all harmonious with one another.”
Consequently 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.” This interpretation and construction of the relevant clauses was supported by the existence of the additional and wider indemnity clause in Clause 43.4 of the Site Regulations. The indemnity in Clause 43.4 would be otiose if the insurance obligation in Clause 43.2.2 served only to support the narrower indemnity pursuant to Clause 8.1 of the Standard Conditions.
Accordingly, GIO’s appeal was dismissed. The Court of Appeal agreed with the trial judge, determining that it was not “overwhelmingly improbable that the parties intended that Advantage would maintain insurance cover in respect of Centennial’s own liability for negligence to an employee, agent or subcontractor or Advantage”. Specifically, Clause 43.2 of the Site Regulations which contained special insurance requirements backed up by the indemnity in Clause 43.4 “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.”
GIO was therefore liable to cover the claim made by Centennial as a result of the principal’s liability extension in the definition of “Insured” in the Policy.
Key points to note
Where the definition of “Insured” in a policy extends to any principal, careful consideration needs to be given to the interaction between the various indemnity and insurance clauses in any agreement between the insured and the principal.
Here, the contract in question between Centennial and Advantage was essentially a one page document to which a number of different Schedules were attached (including the Standard Conditions and Site Regulations) which were thereby incorporated into the contractual terms. The case serves as a useful reminder that where there are multiple indemnity and insurance clauses contained within various documents which together constitute a written contract between principal and insured, these must be construed in accordance with the facts. The intent of the parties will be evidenced by the agreement taken as a whole.
The Court made it clear that its preference is to interpret the overall agreement in such a way which renders competing clauses “harmonious with one another”, if at all possible.
It is therefore important not to read or to rely upon indemnity clauses in isolation.
The case also underlines the need to ensure that indemnity and insurance clauses are carefully drafted from the outset in order to avoid potentially unintended consequences for the parties concerned.