The case of GIO General Limited v Centennial Newstan Pty Ltd NSWCA 13 underlines the importance of insurers giving a practical commonsense interpretation to their extensions to principals. It also shows the necessity of examining the particular facts of each case, including the precise wording of both the policy extension and the contractual terms between the insured and principal.
In this case Centennial operated a mine and had an agreement with Advantage for the supply of labour to work at the mine. The injured plaintiff was employed by Labourforce (a related company to Advantage), which had an agreement with Advantage to supply labour to fulfil Advantage’s obligations to Centennial.
GIO was Advantage’s public liability insurer. The definition of “insured” extended to principals “but only to the extent required by such contract or agreement.”
Insurance and indemnity clauses were included in the agreement between Centennial and Advantage. Relevantly the insurance clause in the agreement required Advantage to take out public liability insurance, and pursuant to cl 43.2.2 of the Site Regulations (forming part of and attached to the agreement) was additionally required to “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 plaintiff was injured and sued all three companies. The trial judge found against all three defendants and in the contribution proceedings apportioned liability 100% to Centennial.
GIO denied indemnity to Centennial and was consequently joined by Centennial as a third party in the proceedings. Centennial was successful in the ensuing third party proceedings against GIO for full indemnity under Advantage’s policy. GIO appealed.
Gleeson JA, who delivered the main judgment in the NSW Court of Appeal, noted that the court “must have regard to the whole of the terms of the Agreement” and that the “words of every clause must, if possible, be construed so as to render them all harmonious with one another”.
The arguments raised by GIO on appeal included the following:
- That the Site Regulations requiring an extension to principals did not form part of the agreement or alternatively were not applicable to the agreement. The appeal court disagreed.
- That the words “respective liabilities” ought to mean arising as a result of the negligence of Advantage or one of its contractors and not the liability of Centennial for its own negligence. The appeal court disagreed.
- That the Site Regulations were required to be interpreted in the same manner as in Erect Safe Scaffolding (Australia) Pty Ltd v Sutton  NSWCA 114 in which McClellan CJ stated: “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.”
- Gleeson CJ said that the statements in Erect Safe were “not to be understood as a statement of principle, but merely an observation concerning the “approach” taken in a number of authorities when construing the obligation under an insurance clause which is provided to support an indemnity clause. His Honour’s observation was also qualified by the need to have regard to the express words of the insurance clause under consideration.” He then went on to distinguish the case and said that the Erect Safe decision “is not determinative of the construction to be given to cl 43.2.2 of the Site Regulations.”
- That the plaintiff, as an agent of Advantage, did not fall within the words “third parties” in cl 43.2.2 of the Site Regulations. Gleeson CJ disagreed and held that such an interpretation did not involve a strained construction.
The appeal court therefore dismissed GIO’s appeal, leaving it liable to fully indemnify Centennial as principal.
The arguments by GIO on appeal raise interesting questions regarding the interpretation of insurance clauses and their interaction with the corresponding indemnity clauses. Notably, however, they were uniformly unsuccessful. The resultant decision of the High Court appears to represent what we would suggest is the conventional interpretation of these clauses and comes close to contradicting the NSW Court of Appeal decision in Erect Safe case, which may have led some insurers to take a more hopeful view of the extent of the obligations under their policy extensions than was really open to them.
For more information on this update or any other insurance matters please contact Vidal Hockless or Felicity Keays on (08) 9321 3755.
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