A recent decision of the New South Wales Court of Appeal1 reminds us that (1) contractually assumed exclusions of liability must be carefully considered in the context of the other bases on which the policyholder may have been liable in any event, and (2) disclosure of some relevant but general information (enough to put the insurer on notice if it wanted more) may be sufficient to defeat an insurer’s non-disclosure defence.
The broader factual context for the decision is somewhat convoluted and involved multiple claims and parties. The key facts relevant to the insurance claim were as follows:
- Southern Colliery Maintenance (SCM) provided labour services to Endeavour Coal pursuant to a “Special Services Agreement” (SSA). SCM warranted that the services that would be performed by appropriately qualified and trained personnel, with due care and skill, and indemnified Endeavour for any breaches of the SSA, as well as any negligence of SCM or liability arising from the injury of an SCM employee.
- An injured employee claimed against SCM (as his employer) and Endeavour (as occupier of the site). Endeavour cross-claimed against SCM, alleging negligence and breach of various SSA warranties. The cross claim was on three bases (1) under the SSA indemnity; (2) damages for breach of contract (i.e. the SSA warranties); and (3) contribution/indemnity as a joint tortfeasor.
- SCM recovered its liability to its employee under its worker’s compensation policy, but claimed under its public liability insurance with QBE for its liability to Endeavour. QBE declined cover and at first instance, SCM successfully recovered from QBE. QBE appealed.
QBE’s key arguments to avoid the claim were that:
- The policy excluded liability assumed under the terms of a contract, unless the insured was liable absent such terms (this is a fairly typical exclusion).
- SCM had not disclosed the existence of the SSA indemnity, which QBE alleged was material to QBE’s decision to insure.
QBE failed on both points.
In relation to the exclusion for contractually assumed liability, the Court found that SCM was sued by Endeavour for breach of the contractual obligations in the SSA, other than just the indemnity, including its failure to provide properly trained employees that would exercise due care and skill. The Court found that Endeavour’s liability as occupier would have existed absent the indemnity, such that the exclusion did not apply.
In relation to non-disclosure, the issue turned on a letter in QBE’s possession on another claim under the policy which identified the existence of the SSA and suggested that it may contain an indemnity. The Court had to consider whether the letter was sufficient to discharge SCM’s duty of disclosure.
The Court held that the disclosure duty will be satisfied if the policyholder discloses sufficient information to the attention of the underwriter, such that the underwriter is in a position to determine if further information should be sought. Disclosing less than all of the information known by the insured will not detract from this position. Here, the letter referred to a counterparty in another claim seeking an indemnity from SCM and to the existence of the SSA. It was then incumbent upon QBE, if it wished to know more, to seek out the terms of that indemnity, which it failed to do, thereby waiving compliance with the duty of disclosure.