Supreme Court New South Wales

• Medium Neutral Citation: Vero Insurance Limited v QBE Insurance (Australia) Limited [2011] NSWSC 593
• Hearing dates: 16 June 2011
• Decision date: 17 June 2011
• Jurisdiction: Equity Division - Commercial List
• Before: Einstein J

Decision

1. The report dated 18 October 2010 of Mr Stuart Donaldson SC, the referee appointed by the Court, be adopted.

2.That verdict and judgment be entered for the defendant against the plaintiff.

• Catchwords: ADOPTION of referee's report - Insurance contract - Section 45 Insurance Contracts Act- Exclusion clause - Meaning of "effected" - Named insured
• Legislation Cited: Civil Procedure Act 2005; Insurance Contracts Act 1984 (Cth); Supreme Court Rules 1970; Uniform Civil Procedure Rules2005; Workers' Compensation Act 1987
• Cases Cited: Barroora Pty Limited v Provincial Insurance Limited (1992) 26 NSWLR 170; Bellevard Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228; Chloride Batteries Australia Limited v Glendale Chemical Products Pty Limited (1988) 17 NSWLR 60; Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784; McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; Protean (Holdings) Limited & Ors v American Home Assurance Company (1985) 4 ANZ Ins. Cas 61-683; Ryde City Council v Touras (2007) NSWCA 218; Skinner & Edwards (Builders) Pty Limited v Australian Telecommunications Corp (1992) 27 NSWLR 567; Super Pty Limited v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549; Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1988) 165 CLR 107; Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2011] NSWSC 534; White Constructions (NT) Pty Limited v Commonwealth of Australia (1990) 7 BCL 193; Zurich Australian Insurance Limited v Metals & Manufacturing Pte Ltd (2009) 261 ALR 468
• Category: Procedural and other rulings
• Parties: Vero Insurance Limited (Plaintiff); QBE Insurance (Australia) Limited (Defendant)
• Representation: Mr A Hewitt SC (Plaintiff); Mr S Campbell SC (Defendant); Holman Webb (Plaintiff); Thompson Cooper Lawyers Pty Ltd (Defendant)
• File Number(s): 2009/326137

Judgment

The challenge to the referee's report

1 The plaintiff [Vero] seeks to challenge the findings of the Referee, Stuart Donaldson SC, to the effect that the plaintiff is not entitled to contribution from the defendant in respect of amounts paid by the plaintiff.

The principles

2 The Court in Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2011] NSWSC 534 has recently had occasion to revisit the principles applicable to applications of the kind now pursued.

3 Although the principles guiding adoption hearings of this nature set out by McDougall J in Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 [' Chocolate Factory' ] have been restated on numerous occasions by first instance judges of this Court and have received the endorsement of the Court of Appeal, they are in fact summaries of some of the key propositions referable to an adoption hearing identifiable from other (cited) authorities. I accept that it appropriate to refer to some of those primary authorities in further detail given their particular relevance to this adoption hearing.

4 Notable is the decision of Cole J in Chloride Batteries Australia Limited v Glendale Chemical Products Pty Limited (1988) 17 NSWLR 60 in which his Honour considered the nature of the Court's discretion on an adoption hearing under the former Part 72 Supreme Court Rules . His Honour held:

"The Court will have regard to the futility of a process of relitigating an issue determined by the referee in circumstances where parties have had an opportunity to place before the referee such matters as they desire. It will also have regard to cost. If a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of inquiry, the Court will have a disposition towards acceptance of the report, for to do otherwise would be to negate the purpose of and the facility of referring complex technical issues to independent experts for inquiry and report. This disposition may be enhanced in circumstances where the parties,... have had the opportunity to place before the referee such evidence and technical reports as they may wish. The Court may be more hesitant in this disposition if the report is provided by the expert in the absence of the parties having been given such an opportunity. The disposition must always yield to the requirements of justice, if it becomes apparent for any reason that to adopt the report would result in an injustice or unfairness to a party. These matters reinforce the view that each matter requires its own consideration." [at 67]

5 His Honour's decision was approved and applied by the Court of Appeal in Super Pty Limited v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549, and in particular the judgement of Gleeson CJ who said:

"What is involved in an application under Part 72 rule 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the referee to conduct the reference as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place." [at 563]

6 The Chief Justice upheld the views of Giles J (at his Honour then was), the first instance judge in that matter, in relation to the correct approach to disputed findings of fact where there is shown to be evidence available to support such findings or where there involves a choice between conflicting evidence [at 564]. The Chief Justice set out the views of Giles J at first instance at pages 553-555 of the judgment which included the following:

"For my own part, in the circumstances of this case I do not think that the referee's findings of fact should be generally re-agitated in the Court. As a broad proposition, depending on the circumstances of each case, the Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he did, particularly where the disputed questions are in a technical area where the referee enjoys an appropriate expertise." [set out at page 553]

7 Giles J also set out and adopted the views of Cole J in White Constructions (NT) Pty Limited v Commonwealth of Australia (1990) 7 BCL 193 as follows:

"...In this instance the Court should not embark upon a re-examination of the questions of fact upon which the referees have reported. There is obviously a large body of evidence upon which the referees could properly find as they did. The purpose of referees reporting to the Court on disputed questions of fact is rendered futile if the Court is to reconsider disputed questions of fact in circumstances where it is conceded that there is factual material sufficient to enable the referees to reach the findings they did. In circumstances where the Court, having closely scrutinised the referee's report, has a comfortable feeling of satisfaction that the factual issues have been properly explored and considered, in my view the Court should adopt the referee's report on findings of fact." [page 553-554]

8 Giles J at first instance had also held as follows:

"The report is a well reasoned report. It leaves me with satisfaction that the referee has carefully applied his mind to the findings of fact required of him, a feeling of satisfaction which is confirmed by the occasions earlier mentioned on which I was taken to the evidence before him, and I do not think that the whole purpose of the reference should be rendered futile by my acceding to the invitation to go to the evidence and make up my own mind, possibly with conclusions different from those to which the referee came. In particular, there must be involved in the fact finding process a large element of the referee's expertise in understanding the practices of the relevant area of the industry, and a large element of his assessment of the reliability of Mr Pejkovic on the one hand and the other witnesses on the other hand, including his assessment of reliability in the light of the documentary material before him. I did not have the benefit of those matters."[page 554-555]

9 Finally, as per Mahoney JA in Super v SJP (supra):

"The right to be heard does not involve the right to be heard twice. I am conscious that, in order that the judge can exercise a discretionary judgment of this kind, it may be necessary that the parties have the opportunity to refer to the relevant issues of fact and law and the evidence relevant to them. But the extent to which it is necessary for this to be done depends upon the circumstances of the case and the judgment of the judge. The judge has, I think, a broad discretion and may determine what is necessary to enable him to conclude that he has a sufficient understanding of the matters in question and when the argument has been sufficiently presented."[at 567]

10 More recently the Court of Appeal held in Bellevard Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228:

"It is important in this context to state how a party should approach the conduct of references. It is for the parties to make clear what their cases are. In appropriate cases, references are a tool for the convenient and expeditious conduct and despatch of controversies. Sometimes in technical matters the referee will not be legally trained. Here, the referees were a highly experienced former commercial judge of this Court and an architect. To effectuate the administration of justice in accordance with the overriding purpose in section 56 of the Civil Procedure Act 2005 , and to make efficient use of referees, parties are obliged to express with clarity the issues that they wish to ventilate and upon which the referee will report.

The nature of the review by the Court on adoption makes it imperative that referees deal with all matters referred to them. This makes it imperative, in turn, that parties express their cases clearly and without equivocation, ambiguity or opacity. If a party complains about how a referee has dealt with the issues on the reference, it may be difficult to persuade a judge that a referee has not dealt with an issue, or not dealt with it adequately, if that issue had not been placed before the referee with the requisite clarity." [per Spigelman CJ and Allsop P at [55] and [56]

Statement of agreed facts

11 It is convenient to commence by setting out the agreed statement of facts :

(1) By Policy No CR003365ZF issued through Marsh Pty Ltd, Vero Insurance Limited ("Vero") provided a Contracts Works and Public Liability Insurance Policy to the New South Wales Department of Commerce ("the Vero Policy").

(2) The "Named Insured" is defined in the Vero Policy as follows:

"Clients that the New South Wales Department of Commerce represents, as well as:

The State of New South Wales, the Minister for Commerce, the New South Wales Department of Commerce, other state and/or local government authorities, instrumentalities and/or agencies and/or

Contractors, sub-contractors, workmen, architects, engineers, project directors, project managers, construction managers, and practitioners of all like disciplines associated with the Insured Projects".

(3) "Insured Projects" in the Vero Policy is defined as:

"All works including temporary works under construction contracts awarded by Commerce or the Minister for Commerce, or their agents, or any construction commenced by Commerce itself or works awarded that Commerce undertake to insure as their role as Project Manager or Construction Manager, during the Duration of Policy unless excluded by notification from Commerce ..."

(4) The Vero Policy was current for the period from 30 September 2004 to 30 September 2006.

(5) Barclay Mowlem Construction Ltd (now known as Laing O'Rourke (BMC) Pty Ltd) ("BMC") was the head contractor for the construction of the Liverpool Hospital - New Mental Health Centre Project, which work was undertaken on behalf of the New South Wales Department of Commerce.

(6) BMC was a Named Insured under the Vero Policy.

(7) By Policy No QD0006366BFL issued by QBE Insurance (Australia) Ltd in favour of Barclay Mowlem Asia Ltd and all other parties as specified in the Policy under clause 4.1 ("the QBE Policy") the Named Insured were indemnified by QBE against legal liability to pay damages for compensation in respect of:

(a) Injury to any person;

(b) Damage to property; and

(c) Advertising Injury;

occurring within the Geographic Limits as a result of an Occurrence happening as a result of the Insured Construction Operations and/or Other Business Operations.

(8) The "Insured" is defined in the QBE Policy to mean:

(a) The Named Insured and/or;

(b) Any subsidiary company (including subsidiaries thereof) of the Named Insured and any other organization under the control of the Named Insured and over which it is exercising active management;

(c) Any director, officer, employee, partner, shareholder or voluntary worker of the Named Insured or of a company designated in paragraph (b) above, but only whilst acting within the scope of their duties in such capacity ..."

(9) "Construction Operations" is defined in the QBE Policy to mean:

"All contracts involving the construction or erection of buildings or other property or alteration or addition to property commenced by the Named Insured or an insured in paragraph (b) of the Definition of "Insured" during the Period of Insurance, subject to Memorandum 6.2."

(10) "Employee" is defined in the QBE Policy to mean:

"Any person under a contract of service or apprenticeship with the Insured".

(11) "Geographical Limits" is defined in the QBE Policy to mean:

"Anywhere in the World except the United States of America and Canada ...".

(12) Injury was defined in the QBE Policy relevantly to mean:

Bodily Injury including illness, disability, shock, fright, humiliation, mental anguish or mental injury and death. For latent bodily injury, such claims should be deemed to have occurred at the date of medical diagnosis which occurs during the period of Insurance".

(13) The Period of Insurance for the QBE Policy included the period of cover from 31 December 2004 to 31 December 2005.

(14) Subject to any exclusions or other limitations under the QBE Policy, BMC was an "Insured" under the QBE Policy.

(15) Mr Selia Im was an employee of Priceright Construction Pty Ltd ("Priceright"), a contractor engaged to undertake work at the Liverpool Hospital Project for BMC.

(16) On or about 11 February 2005 Mr Im was injured at the Liverpool Hospital site in the course of his employment with Priceright.

(17) By District Court Proceedings No 3230 of 2007 Mr Im sued BMC and Priceright with respect to the injuries he suffered.

(18) BMC was indemnified by Vero under the Vero Policy with respect to a claim by Mr Im.

(19) The District Court Proceedings were settled on the following terms:

(a) judgment for the plaintiff against BMC for $500,000 inclusive of costs and workers' compensation pay back;

(b) judgment for Priceright in respect of the plaintiff's claim; and

(c) BMC was at liberty to deduct from its judgment sum the sum of $100,000 being the payments made by Priceright pursuant to the Workers' Compensation Act, 1987.

(20) Total payments made by Priceright's workers' compensation insurer to Mr Im were $192,000 but as part of the settlement, they agreed to forego $92,000 representing the employer's liability in the matter.

(21) In consequence of the settlement Vero made payment under the Vero Policy of a total sum of $523,950.14 inclusive of defence legal costs.

(22) BMC paid $50,000.00 by way of excess under the Vero Policy.

(23) The Deductible under the QBE Policy is $350,000.00 for each and every Occurrence (inclusive of legal costs and expenses) for all claims.

(24) The limit of liability under the QBE Policy is $10 million any one Occurrence and in the aggregate during any period one Period of Insurance in respect of liability arising.

(25) The limit of liability under the Vero Policy is $20 million each and every Occurrence and unlimited in the aggregate during the Period of Insurance.

(26) Vero has claimed contribution from QBE alleging dual insurance of BMC for the same risk under the Vero Policy and the QBE Policy.

Background

12 The plaintiff indemnified Barclay Mowlem Construction Limited ("BMC") in respect of a claim for damages against BMC pursued in the District Court by Mr Im, arising out of injuries sustained by Mr Im on a construction site.

13 The litigation was conducted by the plaintiff and settled on behalf of BMC.

14 The plaintiff then sought contribution from the defendant in respect of the amount of the settlement monies paid by the plaintiff on behalf of BMC and costs incurred by the plaintiff in defending the proceedings.

15 The defendant denied that it was liable to contribute. Following commencement of the proceedings, the parties agreed that the matter would be referred to a Referee for the purposes of determining all issues in the proceedings. The amounts involved are small and the purpose of the reference at an early stage was to have the matter determined as quickly and efficiently as possible.

16 The reference involved interpretation of two contracts of insurance and application of the agreed facts in accordance with principles relating to contribution/dual insurance.

17 The issues for determination are set out in paragraph 1 of the Referee's Report. The three issues were:

(1) the application of the defendant's Policy;

(2) the amount of contribution that was recoverable by the plaintiff if the defendant's Policy would have responded on behalf of BMC;

(3) whether the amount paid by the plaintiff on behalf of BMC was reasonable.

18 The Referee determined all three issues and there is no challenge by either party to the findings on the second and third issues, being set out in paragraphs 79(b) and (c) of the Report.

19 QBE maintained that it was not liable to indemnify BMC because of the application of exclusion 5.21 and/or memorandum 6.1 in its Policy. Memorandum 6.1 applies to limit the coverage available under the Policy irrespective of the application of exclusion 5.21. Ultimately the referee accepted QBE's position.

20 In addition to recording agreement in connection with the terms of the Vero and QBE policies, the parties had agreed that:

(1) Barclay Mowlem Construction Limited ("BMC") was the head contractor for construction of the Liverpool Hospital - New Mental Health Centre Project, which work was undertaken on behalf of the New South Wales Department of Commerce;

(2) Mr Selia Im was an employee of Priceright Construction Pty Limited ("Priceright"), a contractor engaged to undertake work at the Liverpool Hospital under a subcontract with BMC;

(3) On or about 11 February, 2005, Mr Im was injured at the Liverpool Hospital site in the course of his employment with Priceright;

(4) Mr Im sued BMC and Priceright for recovery of damages in connection with the injuries which he suffered;

(5) BMC was indemnified by Vero with respect to Mr Im's claim, which was settled on the following terms:

(a) Judgment for the plaintiff against BMC for $500,000 inclusive of costs and Workers Compensation payback;

(b) Judgment for Priceright in respect of the plaintiff's claim;

(c) BMC was at liberty to deduct from its judgment the sum of $100,000 in respect of payments made by Priceright under the Worker's Compensation Act, 1987;

(d) Total payments by Priceright by way of Worker's Compensation were $192,000, but Priceright agreed to forego the recovery of the balance of $92,000 (after payment of the $100,000 referred to above). That compromise represented Priceright's contribution to the settlement.

21 The Vero policy under which indemnity was provided is Exhibit P9. Cover is provided under Section 1 of the Vero policy in connection with material damage and under Section 2 in connection with public liability. The preamble to the policy is in the following terms:

"In consideration of the Named Insured in the Schedule having paid or agreed to pay to the Insurer named hereon the Premium shown in the Schedule.

The Insurer agrees, subject to the terms, conditions, exclusions, memoranda, definitions, limitation and other provisions contained in herein or endorsed hereon, to indemnify the Insured against Loss, Destruction of or Damage to Property Insured, or liability to the extent and in the manner hereafter provided ..."

22 The Section 2 insuring clause provides cover in the following terms:

"1. The Insurer agrees to indemnify the Insured in respect of all amounts, not hereinafter excluded, which the Insured shall become legally liable to pay for:

(a) Personal Injury;

(b) Property Damaged

sustained during the Period of Insurance as a result of an Occurrence in connection with Insured Projects anywhere within the Territorial Limits specified in the Schedule."

23 Provision is also made in Section 2 of the Vero policy for indemnity in connection with defence costs in the following terms:

"1. The Insurers will, in addition to the indemnity provided under Insuring Clause 1.1 and 1.2 above, pay:

(a) all charges, expenses, and legal costs incurred with the written consent of the Insurer in the settlement or defence of any claim for compensation in respect of which the Insured is entitled to indemnity under this Policy."

The schedule to the Vero policy identifies the "Named Insured" in the following terms:

"Clients that the NSW Department of Commerce represents, as well as:

The State of NSW, the Minister for Commerce, the NSW Department of Commerce (Commerce), other State and/or Local Government authorities, instrumentalities and/or agencies and/or

Contractors, subcontractors, workmen, architects, engineers, project directors, project managers, construction managers and practitioners of all like disciplines associated with the Insured Projects."

24 The Vero policy also contains a definition of "Insured" which is relevantly in the following terms:

"Insured shall mean:

(a) The Named Insured noted in the Schedule being either:

i. any principal;

ii. the contractor;

iii. the project manager;

(b) and additional parties being:

i. any principal;

ii the contractor;

iii. the project manager

not being the Named Insured noted in the Schedule but being a legal entity with whom the Policy holder has entered into a contract for the performance of any part or parts of the Insured Projects, but only to the extent required by the contract;

(c) any director or employee of any entities noted in (a) and (b) above...

(d) any sub-contractor to entities noted in (a) or (b) above being a legal entity with whom such sub-contractor has entered into a sub-contract agreement for the performance of any part or parts of the Insured Projects, but only to the extent required by such sub-contract or sub-agreement ..."

25 The Vero policy schedule also contains a definition of "Insured Projects" which is relevantly as follows:

"All works including temporary works under construction contracts awarded by Commerce or the Minister for Commerce or their agents ... or works awarded that Commerce undertake to insure in their role as Project Manager or Construction Manager ..."

The Vero policy schedule defined the duration of the policy as the period from 30 September, 2004 to 30 September, 2006.

26 At the time of Mr Im's accident, BMC was also an insured under a policy issued by QBE. It is agreed as between QBE and Vero that BMC was a Named Insured under the Vero policy and that, subject to the operation of any exclusion, BMC was also an insured under the QBE policy.

27 The QBE policy wording is exhibit P10 and the policy schedule is exhibit P11. The insuring clause under the QBE policy is relevantly in the following terms:

"1.1 Legal Liability

In consideration of the Named Insured having paid or agreed to pay the premium stated in the Schedule and subject to the Terms, Definitions, Exceptions, Conditions, Provisions and Limits of Liability as set out in this Policy, the Insurer shall indemnify the Insured against the legal liability of the Insured to pay damages or compensation in respect of:

(a) injury to any person;

(b) damage to any property;

(c) advertising injury;

occurring within the Geographical Limits as a result of an Occurrence happening as a result of the Insured's Construction Operations and/or other Business Operations."

28 Under clause 1.2 of the QBE policy, indemnity is available for defence costs incurred with the written consent of the insurer. The clause further provides that:

"Even if the allegations of a suit are groundless, false or fraudulent, the Insurer has the right and duty to defend any suit against the Insured for Compensation to which indemnity under this Policy applies..."

29 The Insured is identified in the QBE policy schedule as "Barclay Mowlem Asia Limited". However, the policy wording contains a definition of the expression "Insured" which relevantly includes:

"(a) the Named Insured and/or

(b) any subsidiary company (including subsidiaries thereof) of the Named Insured or any other organisation under the control of the Named Insured and over which it is exercising active management;

(c) any director, officer, employee ... of the Named Insured or of a company designated in paragraph (b) above, but only whilst acting within the scope of their duties in such capacity;

(d) any person, principal, organisation, construction manager, project manager, superintendent, trustee or estate to whom or to which the Insured is obligated by virtue of a written contract to provide insurance as is afforded by this Policy, but only to the extent as provided in this Policy. Furthermore the additional "Insureds" stated herein shall not be afforded any cover provided under the Difference in Conditions/Difference in Excess Memorandum, which is for the sole benefit of the Insured's designated in paragraph (a), (b), (c) and (g) herein..."

Curiously, the definition of Insured does not include a subparagraph (g).

30 Clause 5 of the QBE policy wording sets out a number of exclusions. Exclusion 5.21 is in the following terms:

"The Liability of the Insurer to indemnify the Insured pursuant to clause 1.1 and to pay other costs pursuant to clause 1.2 shall not extend to any of the following:

.... 5.21 More Specific Insurance

Liability for which separate insurance protection has been effected by the Named Insured or an insured in paragraph (b) of the Definition of 'Insured' except as provided for by Memorandum 6.1 hereunder."

31 It is agreed between QBE and Vero that BMC was an insured under paragraph (b) of the definition of "Insured".

32 Clause 6 of the QBE policy wording sets out a number of memoranda including memorandum 6.1 which is in the following terms:

"6.1 Difference in Conditions and Excess (Deductible)

Notwithstanding anything contained in this Policy to the contrary, Insurers hereby agree that this Policy shall, in respect of Construction Operations where the principal, owner, head contractor or another (including the Named Insured) has effected more specific Contractor's Liability/Public Liability insurance (hereafter referred to as Primary Insurance'(sic), provide the following indemnity:

(a) Pay all losses not otherwise recoverable under those policy(ies)

(b) Pay all amounts in excess of that recoverable under those policy(ies);

(c) Pay the difference (if any) between the Excess (Deductible) under the Primary Insurance and the Excess (Deductible) that would have been applicable under this Policy if the contract has been insured hereunder;

provided that such losses and/or amounts would but for the existence of the specified policy(ies) be recoverable under this Policy and subject to the Limit of Liability stated in the schedule and provided that such cover is for the sole benefit of Insureds designated in paragraph (a), (b), (c) and (d) of the Definition of 'Insured' and is not for the benefit of sub-contractors or other contractors, principals or owners."

Exclusion 5.21

The approach taken by the referee to the all-important first issue

33 The referee's reasoning was as follows:

(1) The issue which is raised by the questions set out in paragraph 1 of the Issues for Determination is, in substance, whether clause 5.21 and/or memorandum 6.1 of the QBE policy operate so that cover under the QBE policy is excess cover only, providing indemnity for amounts not recoverable under the Vero policy. It is, of course, common ground as between QBE and Vero that in those circumstances, there can be no common burden such as might ground the recovery from QBE of contribution.

(2) Clause 5.21 can only operate to limit the liability of QBE to the extent permitted by section 45 of the Insurance Contracts Act, 1984 (Cwth). Section 45 is in the following terms:

"45(1) Where a provision included in a contract of general insurance has the affect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.

45(2) Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first - mentioned contract."

(3) There is no dispute as to the fact that the Vero policy was not "specified" in the QBE policy within the meaning of sub-section (2).

(4) The operation of section 45 was recently considered by the High Court in Zurich Australian Insurance Limited v Metals & Manufacturing Pte Ltd (2009) 261 ALR 468 where it was held [per French CJ, Gummow & Crennan JJ at [23] - [26]]:

"The "other insurance" provisions to which s 45 is directed are concerned with contracts of insurance "entered into" by the insured. The first constructional question is whether the words "entered into" limit the application of s 45 to "other insurance" provisions affecting contracts of insurance to which the insured is a party. The ordinary, relevant meaning of "enter into" is "take upon oneself (a commitment, duty, relationship, etc); bind oneself by, subscribe to, (an agreement)". That usage is reflected in the definition in s 11(9) of the Act which refers, albeit non-exhaustively, to "the making of an agreement by the parties to the contract". It is also reflected in the other sections of the Act referred to below.

Section 48 confers a statutory right of recovery upon a non-party referred to or specified in a general contract of insurance as a person insured or to whom cover extends. It does so directly. Its enactment predated the extension, by the decision of this Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd , of common law rights of recovery for non-party insured persons under an insurance policy. Section 48 does not deem such a person to be a party to the insurance contract thus attracting the rights conferred on a party. It does not purport to confer contractual or equitable rights upon such a person. There is therefore no basis in s 48 for assimilating the position of a non-party insured to that of a person who has "entered into" a contract of insurance within the meaning of s 45(1)....

Zurich submitted that s 45(1) should be construed as if the text read:

Where a provision ... has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured [ including a person entitled under s 48 ] has entered into [ an arrangement giving it cover under ] some other contract of insurance ... the provision is void.

That submission should not be accepted. The text of the provisions of the Act with which s 45 must be read points inexorably to the conclusion that s 45 is only concerned with "other insurance" provisions affecting double insurance where the insured is a party to the relevant contracts of insurance. It does not allow room for a construction which would include a non-party insured among the ranks of those who have "entered into" the relevant contract. The inclusion of persons not parties to the relevant contract would be inconsistent with the ordinary or any plausibly extended meaning of "entered into" in relation to contracts. In so saying, it must be acknowledged that the purpose of s 45 as appears from the ALRC report and the relevant explanatory memorandum is not so confined as to indicate such a construction. There is no distinction made in the report or the explanatory memorandum between "other insurance" provisions purporting to affect double insurance which includes non-party insurance, and double insurance where the insured is a party to the relevant contract. The most that can be said is that the report seems to have proceeded upon the assumption that the problem of "other insurance" clauses arose in cases in which the insured was a party to both contracts. However, notwithstanding the generality of the mischief to which s 45 was directed, the words "entered into" are not capable of encompassing a non-party insured."

34 QBE submits that:

(1) cover under the Vero policy was not "effected by" BMC and that, consequently, the operation of clause 5.21 is not attracted; or alternatively;

(2) if the cover was "effected by" BMC then it also "entered into" the contract of insurance and must be regarded as a party to the policy, and not merely a person entitled to cover under a policy to which it is not a party; so that consistently with the decision in Zurich Australian Insurance, section 45 of the ICA deprives clause 5.21 of any operation in the circumstances of this claim.

35 The meaning to be attributed the expression "effected by" is, of course, a question of construction. The principles to be applied in the construction of the policies of insurance were described in McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 per Gleeson CJ at [22] in the following terms:

" A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure..."

36 It is difficult to identify any clear commercial purpose which the parties sought to achieve by incorporating into clause 5.21 the requirement that the separate insurance be "effected by" the relevant insured under the QBE policy. The evident purpose of the provision was to exclude cover where alternative cover was available. It is not readily apparent why, in those circumstances, the parties wished to exclude cover under the QBE policy only if that other cover had been "effected by" the insured seeking indemnity.

37 While it could be suggested that the parties did not wish to exclude cover under the QBE policy in circumstances where the alternative cover was organised without any involvement on the part of the insured seeking indemnity, and consequently, may not meet the insured's reasonable requirements, the availability of "differences in conditions" cover under memorandum 6.1 suggests that there was no significant commercial imperative of that kind.

38 The policy recognises in clause 4.1(d) of the definition of "Insured" and in memorandum 6.1 that the Insured's activities are likely to involve situations where:

(1) principals and other contractors place cover which provides indemnity for BMC for losses arising out of a project in which BMC is involved; or

(2) BMC is obliged to place cover for the benefit of such principals and/or other contractors.

39 Clause 5.21 appears to be drafted in a manner that attempts to draw a distinction between those two situations, by excluding from the scope of cover losses attracting indemnity under policies effected by BMC (sub-paragraph (b) above) except to the extent provided by clause 6.1. Clause 5.21 does not operate so as to exclude cover under the QBE policy where insurance has been effected by another contractor or a principal for the benefit of BMC.

40 Memorandum 6.1 does not, by its terms, operate to exclude or confine cover. Rather, it extends the cover available under the policy to provide "difference in conditions" cover in defined circumstances. Cover under the memorandum is available in respect of "construction operations" where "more specific" cover (meaning, presumably, cover the scope of which is more confined to that contained in the QBE policy) has been "effected" by an insured or some other person including principals and head contractors. Notwithstanding that it is drafted in terms which suggest a wider operation, in substance, the memorandum operates only where cover has been excluded because separate insurance has been "effected by" a named insured.

41 Turning to the ordinary meaning of the language of clause 5.21, the Oxford English Dictionary relevantly defines the verb "effect" as follows:

"(a) To bring about (an event, a result); to accomplish (an intention, a desire).

...

(c) To carry out (a sale, a purchase); to buy and put into effect (a policy of insurance or assurance)".

42 Notwithstanding the reference in the dictionary definition to "buy", in my view it is plainly possible to "effect" insurance without becoming a party to a policy of insurance. When a broker places cover on behalf of a client it "effects" insurance within the usual meaning of that expression without becoming a party to the policy.

43 There is little by way of evidence as to how the Vero policy was placed and by whom. However, Exhibit P16 is a letter from Marsh Pty Limited to BMC dated 21 July 2004 headed "Insurance Invoice/Tax Invoice". It is common ground that the communication relates to the placement of cover with Vero.

44 While the relevant provision of the contract between BMC and the NSW Department of Commerce was not tendered, Exhibit P16 purports to paraphrase the contractual obligation which gave rise to the communication and it was not suggested by either party that it did not do so accurately. The obligation is described in the letter as follows:

"... The contractor shall put a policy of insurance into effect and maintain this policy by payment of the premium. The policy shall be for Insurance of the Works and Public Liability Insurance and shall be through Marsh Pty Limited ..."

45 The letter goes on to state that "the Policy number is CR 305008DF".

46 The first paragraph of the letter states that:

"NSW Department of Commerce ... have effected an Insurance Policy on your behalf, through Royal SunAlliance Insurance Australia Limited"

47 The reference to Royal SunAlliance Insurance Australia Limited is peculiar given that the other documents tendered suggest that by the time the letter was written, Royal SunAlliance Insurance had commenced trading as Vero. Nevertheless, as is stated above, there is no dispute as to the fact that Exhibit P16 relates to placement of cover with Vero.

48 The letter goes onto identify the premium, which is expressed as having been calculated as a percentage of an "awarded sum", which appears to be the contract sum in connection with the Liverpool Hospital Project. The letter also asks that BCM forward a cheque for payment of the premium to Marsh.

49 Exhibit D2 is also relevant in this context. The document is an endorsement to Vero policy no. CR305008DF0. It is dated 15 July 2004 and provides that:

"It is hereby declared and agreed with effect from 15 th July 2004 in respect of Department of Commerce Contract No. 0301103 for Construction of the Liverpool Hospital - New Mental Health Centre:

1. This Contract ... is accepted as an Insured Project under this Policy...".

The endorsement identifies the "Named Insured" in the same terms as the Vero policy schedule.

50 The Referee then held that the documents supported the following conclusions:

(1) under the terms of its contract with the NSW Department of Commerce for the construction of the Liverpool Hospital project, BCM covenanted to effect and maintain insurance;

(2) the Department of Commerce took steps, through Marsh Pty Limited, to facilitate performance by BMC of that contractual obligation by negotiating an endorsement to an earlier Vero policy so that it extended cover for contract works and public liability in respect of the Liverpool Hospital Project;

(3) Marsh invoiced BMC for the premium associated with the extension of the policy to provide cover in connection with the Liverpool Hospital Project;

(4) the cover so provided was incorporated in the renewal of the Vero policy for the period from 30 September, 2004 to 30 September, 2006.

51 He continued as follows :

(1) It should, in my view, be concluded that cover under the Vero policy for liability arising out of the Liverpool Hospital project was "effected" by BMC within the meaning of that expression in clause 5.21 of the QBE policy.

(2) Notwithstanding that NSW Department of Commerce participated in the process of placing the relevant cover, BMC was contractually obliged to obtain cover and did so through the agency of the Department and its broker.

(3) It also appears to have funded the extension of cover to incorporate the Liverpool Hospital project.

(4) It was submitted on behalf of Vero that, in the event that it was found that BMC had "effected" insurance within the meaning of clause 5.21 of the QBE policy, it must also be concluded that it was a party to the policy of insurance and not merely a non-contracting entity entitled to cover, for the purpose of applying that distinction as recognised in the decision in Zurich Australian Insurance .

(5) As is noted above, there is in the context of arrangements for placement of insurance, as elsewhere, scope for a party to "effect" insurance in a capacity which does not involve it becoming a party to the policy of insurance. Further, as the passages from the decision in Zurich Australian Insurance referred to in paragraph 19 above note, it is recognised in section 48 of the ICA, just as it was in the decision in Trident General Insurance Co. Limited v McNiece Bros Pty Limited , that policies of insurance commonly provide for the provision of indemnity to persons who are not parties to the policy.

(6) Whether or not a person entitled to indemnity under a policy is to be regarded as a party to the policy of insurance, is a question of construction of the policy [ Protean (Holdings) Limited & Ors. v American Home Assurance Company (1985) 4 ANZ Ins. Cas 61-683; Barroora Pty Limited v Provincial Insurance Limited (1992) 26 NSWLR 170].

(7) The issue as to whether BMC was a party to the Vero policy is complicated considerably in this case by the inclusion in the description of "Named Insured" in the schedule to the policy of "contractors, sub-contractors, workmen ... and practitioners of all like disciplines associated with the Insured Projects".

(8) The distinction between the "Named Insured" and the "Insured" under a policy is commonly drawn in order to distinguish between parties to the contract of insurance and other persons entitled to cover. The reference in the preamble to the Vero policy to the "Named Insured in the schedule" having paid or agreed to pay the premium suggests that such a division was intended by the Vero policy wording. However, the width of the entities identified as falling within the scope of the expression "Named Insured" in the schedule to the policy makes such an approach untenable.

(9) Notwithstanding the terms of the preamble, it is in my view plain that the wide range of entities falling within the scope of the definition of "Named Insured" did not become parties to any agreement with Vero, through the agency of the NSW Department of Commerce or otherwise.

(10) The status of BMC under the terms of the Vero policy is more of what is to are different to that of any other sub-contractor, worker, architect or "practitioner" associated with the insured project. The fact that it took steps to see that insurance was effected through Marsh Pty Limited and met the cost associated with the cover being extended to include the Liverpool Hospital project has no bearing on the construction of the agreement.

(11) Approaching the question as one of construction, BMC was merely one of a very broad class of entities entitled to indemnity under the Department's policy.

(12) It follows that although the insurance was "effected by" BMC, it did not "enter into" a contract of insurance with Vero in the sense contemplated by section 45 of the Insurance Contracts Act .

(13) Accordingly, clause 5.21 operates to exclude the claim by Mr Im from the scope of cover under the QBE policy, except to the extent that cover is available under clause 6.1.

(14) Any liability under clause 6.1 cannot, by its nature, attract an obligation to pay contribution to the primary insurer.

52 Hence the referee concluded that exclusion 5.21 of the QBE Policy acted to exclude any liability on the part of QBE under the terms of the Policy and, as such, the plaintiff was not entitled to contribution from QBE.

53 It may be seen that it had been agreed that BMC was a named insured for the purposes of exclusion 5.21. The Referee concluded (paragraph 25) that exclusion 5.21 excluded from the scope of cover losses attracting indemnity under policies effected by BMC to the extent provided by clause 6.1.

54 The Referee accepted (paragraph 28) that it was possible to effect insurance without becoming a party to the policy of insurance. He concluded (paragraph 37) that cover under the Vero Policy was effected by BMC within the meaning of that expression in clause 5.21 of the QBE Policy and thus the exclusion applied, subject only to it being rendered void by virtue of s.45 of the Insurance Contracts Act .

55 The referee had also made clear that the only answer to the exclusion could thus be that the exclusion was rendered void by s.45. Section 45 did not apply unless "the insured i.e. BMC had entered into some other contract of insurance" as that term is understood.

56 Section 45 was considered by the High Court in Zurich Australian Insurance Limited v. Metals & Manufacturing Pty Limited (2009) 261 ALR 468. Again, the Referee considered Zurich Australian Insurance and identified the issue as whether BMC had entered into some other contract of insurance. He concluded that BMC did not enter into the contract of insurance and thus s.45 did not apply to render the exclusion void.

57 The Referee did not consider it necessary to then consider the application of 6.1, other than suggesting that any liability under 6.1 cannot by its nature attract an obligation to pay contribution to the primary insurer.

58 The plaintiff also sought contribution in respect of costs incurred by it. The Referee did not accept that the plaintiff was entitled to contribution in respect of those costs (paragraph 48-54). Put simply, the plaintiff's Policy provided an indemnity to BMC in respect of costs incurred by BMC with the written consent of the insurer. BMC did not incur any costs or have a liability in respect of costs. The plaintiff itself incurred costs consequent upon its election to take over the conduct of the matter and defend the proceedings. No liability ever attached to BMC in respect of such costs. As such, there was no shared burden between the insurers of the liability attaching to a common insured. As the Referee found at paragraph 53, the payment made by Vero to its solicitors were not payments made to the insured. They did not operate to discharge a liability to the insured and cannot be regarded as operating to discharge a coordinate liability which is recognised as giving right to a contribution.

Standing back from the plaintiffs submissions

59 The challenge seems to be based on the assertion that the Referee should have made different findings on whether BMC effected the Policy with Vero and then whether it had entered into the contract of insurance as required by section 45.

60 As will have already been made clear, the referee considered the contractual terms and analysed the agreed facts and documents tendered in evidence. He reached his conclusions based on the well-understood meaning of the relevant words. The position adopted by the plaintiff on the challenge to the findings appears to be merely that the Referee should have come to an alternative view based on the plaintiff's arguments and authorities which it now seeks to rely on.

Returning to the principles to be applied

61 Whilst the Court has a wide discretion in relation to adoption or rejection of the Report, the Report should only be rejected with proper justification. Rejection of the Report is not justified by disagreement with the Referee's factual findings or inferences which follow those findings [ Ryde City Council v Touras (2007) NSWCA 218].

62 To my mind no error of principle has been demonstrated. It is not suggested that the Referee adopted an incorrect approach, failed to consider evidence, did not have the expertise or failed to give the parties an opportunity to present their argument.

63 There was very little dispute as to the meaning of exclusion 5.2.1 and memoranda 6.1. Rather, the Referee was required to determine, as a finding of fact:

(1) whether BMC effected "the insurance"; and

(2) whether BMC entered into the contract of insurance.

64 This involved a consideration of the documents tendered into evidence and the other agreed facts. The Referee's Report discloses that he embarked upon the process and his report demonstrates a process of reasoning leading to his conclusion.

65 I accept that the Court should only reconsider a question of fact if it is not satisfied that the reasons disclosed in the Report reasonably support the findings [ Skinner & Edwards (Builders) Pty Limited v Australian Telecommunications Corp (1992) 27 NSWLR 567].

66 However having closely endeavoured to follow the line of reasoning taken by the referee I am satisfied that his reasons reasonably support the findings.

67 There was no dispute between the parties that s.45 ICA could not apply unless BCM had entered into the contract. The Referee's finding that BCM had not entered into the contract was a finding of fact open to him and available on the evidence.

68 The plaintiff has not identified any error in the Report other than that the Referee made findings with which the plaintiff disagrees, based on the plaintiff's own interpretation of the evidence. I accept that is not a proper basis for challenging the Report.

Orders

69 The Court makes the following orders:

(1) The report dated 18 October 2010 of Mr Stuart Donaldson SC, the referee appointed by the Court, be adopted.

(2) That verdict and judgment be entered for the defendant against the plaintiff.

70 The parties will be given an opportunity to make submissions on costs.

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Decision last updated: 17 June 2011