The Chief Justice of the Supreme Court of WA recently restated the principles applicable to interpretation of policies of insurance in the case of WFI Insurance Ltd v Manitowoq Platinum Pty Ltd  WASCA 89.
Manitowoq Platinum Pty Ltd and JDE Roma Pty Ltd (Respondents) jointly ran a restaurant in Perth, which commenced trading in April 2008.
They contracted with a company, Boss Shop Fittings (Boss), to fit out the premises.
The Respondents noticed areas of water damage, within the defect liability period. It eventuated that Millstream Plumbing’s plumbing work had been carried out negligently and in breach of the relevant Australian Standards. Boss went into liquidation and was deregistered as a company after the Respondents brought proceedings against it.
The Respondents then brought proceedings against the insurer of Boss, WFI Insurance Ltd (Appellant) pursuant to Section 601AG Corporations Act 2001 (Cth).
At trial the Appellant denied it was liable to the Respondents as Boss had breached a condition of its insurance policy, which breach was causally connected to the liability Boss had incurred to the Respondents. In short, it was argued that Boss had been required, under the WFI policy, to comply with legislation and Australian Standards (policy condition) a breach of which voided the Appellant’s obligation to indemnify.
The trial judge concluded that Boss had not breached the policy condition, having constructed it as being limited to an obligation to take reasonable care to comply with legislation and Australian Standards. A breach of that obligation would effectively require reckless conduct on the part of Boss. The judge also held that, if Boss had breached the policy condition, such breach did not entitle the Appellant to refuse to indemnify Boss.
The Appellant appealed, challenging both conclusions.
Court of Appeal
Martin CJ, with Murphy JA and Chaney J assenting, held that Boss had breached the policy condition and that the Appellant was entitled to refuse indemnity on that basis.
It was held that the proper construction of an insurance policy turns upon consideration of its particular terms, in the context of the evident commercial purpose of that policy.
A question then is whether the particular construction of a clause, being strongly suggested by its terms, should be accepted, despite evident commercial purpose.
The Court considered the policy condition did not deprive the policy, as a whole, of any meaningful ambit of cover. The policy condition only excluded indemnity where:
- there had been a breach of duty in relation to performing work with due care and skill;
- that breach corresponded to a breach of the relevant legislation or the Australian Standards; and
- that breach was causally connected to the liability incurred by Boss.
The wording of the policy condition, in the context of the entire clause and the policy as a whole, suggested that the obligation was not limited to an obligation to take reasonable care or to not act recklessly (as the trial judge had found). An unqualified construction of the obligation imposed by the policy condition would not deprive Boss of all or most of the benefit of cover provided by the policy. Accordingly, it was appropriate to give the words of the policy condition their ordinary meaning.
This case serves to highlight that when considering the interpretation of insurance policies, Courts will consider its commercial purpose as well as its particular terms.
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