Indemnity – is cover extended to an “Interested Party” or “Principal”?

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by David Slatyer, Partner

 

On 24 April 2024 the Federal Court granted Hansen Yuncken (HY) a declaration that it was entitled to cover under a policy obtained by its subcontractor Choices Flooring (Choices) from Hollard Insurance Company (Hollard).  This was in respect of a claim for personal injury damages, by a subcontractor of Choices, against HY;  see Hansen Yuncken v The Hollard Insurance Company [2024] FCA 398.

 

The Facts

HY was principal contractor for the refurbishment of commercial premises in Hobart.

It subcontracted Choices for flooring works, and Choices in turn subcontracted part of its work (i.e.. laying carpet) to Mr McConnon.

Mr McConnon was injured on site and brought proceedings against HY, alleging unsafe access to the site and unsafe directions for unloading the carpet.

HY’s agreement with Choices required it to have public liability insurance which named HY “as an interested party and entitled to the benefit of indemnity”.

 

The Policy

Choices had a business policy with Hollard, which policy comprised the Policy Wording and Schedule (which included a Business Insurance Certificate (insurance certificate)).

The policy wording stated that persons covered were (referred to as “you/your”):

  • “shown on the insurance certificate” and
  • extended to cover others “if you have advised us of them, and we have named them on the insurance certificate”.

The insurance certificate identified the “insured” to be “Reed Christian Holdings Pty Ltd” trading as “Choices Hobart…and all parties for whom the Insured undertakes to insure for their respective rights, interests and liabilities”.

Also, the business liability section of the policy wording provided an extension to “you/your”, for “every principal of yours, in respect of that principal’s liability caused by the performance of work for that principal…”.

Shortly after issuing the policy, Hollard also provided a Certificate of Currency, which noted an “Interested Party” of “Hansen Yuncken as Principal”.

 

The Principal’s Extension

It was decided by Derrington J that Hollard was not required to indemnify HY pursuant to the principal’s extension in the liability cover.

Although it was accepted HY was a “principal” of the insured Choices, in the sense of being a principal contractor, His Honour determined that the extension of cover did not apply in this case because:

  • “the performance of work for that principal”, in the extension, must be a performance of work by the insured (Choices), and not anyone (such as Mr McConnon);
  • “caused by”, in the extension, requires a proximate cause;
  • HY’s liability to Mr McConnon was not caused by Choices’ work for HY; rather (as alleged in his proceedings) it was caused by HY providing unsafe access to the site and unsafe directions for unloading the carpet.

HY failed in its submission that a narrow application of “caused by” in this context would mean that a principal’s extension would have very little scope. While Derrington J said there was some force in that argument, His Honour said that a “myriad of possibilities arise where the clause might have effect”; and further “Where a contractor performs work in a negligent manner which results in damage to others whom the contractor also owes a duty of care, the clause will provide cover. In this way, the clause does not have a narrow scope of operation, rather it has a scope which is appropriate to the relationship as between principal and contractor”.

 

The Policy Wording and the Insurance Certificate

Derrington J decided that HY was, however, entitled to cover because of the effect of the wording and insurance certificate, as follows:

  • HY was “shown on the insurance certificate”, because the insurance certificate provided “…and all parties for whom the Insured undertakes to insure for their respective rights, interests and liabilities” (with Choices having agreed to insure HY).
  • HY was not required to be specifically named, rather only generally described; s20 Insurance Contracts Act.

His Honour did not accept Hollard’s arguments that the indemnity HY might enjoy under the policy is qualified by the Certificate of Currency which stated “Hansen Yuncken as Principal”.  The Certificate of Currency came after the policy was issued, and was not part of the policy.  Also, the fact there was a principal’s extension in the liability section didn’t preclude HY from being entitled to cover by the operation of other parts of the policy, properly construed.

Also rejected was the argument that for the liability cover to apply the occurrence of injury had to be “in connection with” the insured’s (i.e. Choices’) business.  His Honour said it could be in connection with HY’s business, as HY was a separate insured meeting “you/your”.  In any event, “in connection with” was wide enough to mean the occurrence of injury to Mr McConnon was so related to Choices’ business, as it had subcontracted Mr McConnon to perform part of its work.

For further information, please do not hesitate to contact us.

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