NSWCA 55 (28 March 2018)
Exclusion for Assumed Liabilities
This case in part involved the consideration and effect of a standard liability exclusion dealing with an insured’s assumed liability.
The case also has lessons and insurance policy implications for insureds which are in the business of the supply of labour hire pursuant to written contracts.
QBE/386 was the general liability insurer of the labour hire company.
SCM was a labour hire company for a BHP company operating a colliery on the outskirts of southern Sydney.
Soon after commencement of employment, a new, young labour hire employee was injured in the mine after falling from a ladder.
While SCM had a team supervisor, it seems that the injured worker obtained negligible onsite training to avert the risk which he encountered.
The injured worker sued his employer and the colliery operator as occupier, seeking common law damages for the injuries which he suffered.
The colliery operator cross claimed against SCM.
SCM cross claimed against its public liability insurer in respect of the value of the settlement between SCM and the colliery operator.
The agreement between SCM and the colliery operator had an indemnity provision as follows:
i. Breach of Agreement
ii. Negligence on SCM’s part but also
any liability and/or any loss or damage of any kind whatsoever, arising directly or indirectly from……… injury……… of any of (SCM’s) employees.
SCM’s general liability policy had an exclusion in the following terms:
The policy did not cover liability:
Under the terms of a contract agreement or warranty, unless the insured would have been liable in the absence of such terms or warranty.
QBE/386 did not suggest that the exclusion operated to exclude SCM’s right to cover for SCM’s general breach of agreement.
The injured worker settled his claim against each of the defendants for $375,000, inclusive of costs.
As between themselves, SCM and the colliery operator agreed to split the settlement 60/40 respectively.
In addition, SCM agreed to settle with the colliery operator by indemnifying it in relation to its 40% and in addition, paying its costs of $40,000.
QBE/386 declined to indemnify SCM in respect of the component of settlement between SCM and the colliery operator.
The Trial Decision
QBE/386 was ordered to indemnify SCM in respect of SCM’s liability to the colliery operator.
For inelegant reasons, the Trial Judge found that the exclusion did not impede SCM’s right to indemnity.
Court of Appeal
The Court of Appeal agreed with the Trial Judge’s conclusion on the effect of the exclusion because SCM’s liability was easily characterised as a liability for breach of contract, regardless of the operation of the assumed liability under the contract.
The Appeal Judge who wrote the Court’s reasons said
“Liability will only be assumed under a contract, agreement or warranty if the only reason the insured is liable, is that assumption of liability. That is to say, the words, “unless the insured would have been liable in the absence of such terms or warranty”
are to be read with the word “assumed” and confirm that the exclusion is directed to liability which only rests (our emphasis) with the insured because of it’s voluntary act of assumption.
The Judge went on to say
It is clear that the liability claim by SCM against QBE is liability, was not assumed by it, but rather was liability for which SCM would have been liable in the absence of (the indemnity clause under the contract).
The interpretation of some insurance provisions can be complicated by the width of the insured’s underlying agreements which constitute the things which need to be interpreted in understanding how the policy might work.
It is obvious that while SCM presented all of the arguments from the start, which found favour with the Court of Appeal, the insurer was never persuaded by them.
Insurance brokers often receive requests to review contracts of indemnity. The case highlights the difficulties with which a broker can be presented.
That is why we hold ourselves out as being able to assist in that chain of enquiry.
It was not disputed that the insured never notified insurers of the existence or content of the particular agreement on which the case rested.
The insurer submitted that that constituted actionable non-disclosure entitling it to reduce its liability to nil.
While the matter came to be decided at a factual level, a different way, the Court did not have to decide what the consequences may be had there been no redeeming facts which allowed that point to be got around.
Where insurance is being organised by a broker for a labour hire supplier, the broker has an interest in requiring the insured to answer questions relevant to the existence of and nature of the labour supply contracts regardless of whether they contain provisions seeking to impose liability by way of indemnity.
QBE/386 submitted, and it seems to have been accepted, that had it been aware of the contract, it would have excluded the indemnity risk. We are not sure what it meant by that because it had already excluded a real assumed liability unless QBE was meaning to infer that it would have excluded cover for the insured’s liability to pay damages for ordinary breach of contract.
The trial between the insured and between SCM and QBE lasted 8 days and the Court of Appeal pithily observed that the cost of the trial would have far exceeded the amount in dispute.