Federal Court of Australia XL Insurance Company SE, trading as Brooklyn Underwriting v Kerembla Pty Ltd [2023] FCAFC 183 Appeal from: Kerembla Pty Ltd v XL Insurance Company SE, trading as Brooklyn Underwriting [2023] FCA 769 File number: NSD 768 of 2023 Judgment of: LEE, Stewart and cheeseman jj Date of judgment: 23 November 2023 Catchwords: INSURANCE – indemnity sought pursuant to public and product liability insurance policy – claim in relation to collision of mining equipment with bridge – where parties accepted insuring clause responds to claim – proper construction of "write-backs" to an exclusion clause – where primary judge did not err in finding appellant liable to indemnify respondent – appeal dismissed Cases cited: Aorangi v Brambles Aust Ltd [2001] QCA 200 Dalby Bio-Refinery Ltd v Allianz Australia Insurance Limited [2019] FCAFC 85 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Johnson v American Home Assurance Company (1998) 192 CLR 266 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 Selected Seeds Pty Ltd v QBEMM Pty Ltd [2010] HCA 37; (2010) 242 CLR 336 Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 44 Date of hearing: 21 November 2023 Counsel for the applicant: Mr M T McCulloch SC and Ms T A Berberian Solicitor for the applicant: Carter Newell Lawyers Counsel for the respondents: Mr D Villa SC and Mr P F Santucci Solicitor for the respondents: Morgan English Commercial Lawyers ORDERS NSD 768 of 2023 BETWEEN: XL INSURANCE COMPANY SE TRADING AS BROOKLYN UNDERWRITING ARBN 083 570 441 Applicant AND: KEREMBLA PTY LTD ACN 140 340 334 First Respondent QBE INSURANCE (AUSTRALIA) LIMITED ACN 003 191 035 Second Respondent order made by: LEE, stewart and cheeseman jJ DATE OF ORDER: 23 November 2023 THE COURT ORDERS THAT: 1. The appeal be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT THE COURT: A INTRODUCTION AND BACKGROUND FACTS 1 This appeal is brought against a declaration made by the primary judge that the appellant, XL Insurance Company SE, trading as Brooklyn Underwriting (XL), is liable to indemnify the first respondent, Kerembla Pty Ltd (Kerembla) pursuant to a Public and Product Liability Insurance Policy (Policy), in respect of losses arising from an incident in 2021 (Claim). 2 The complete background facts are uncontroversial, are set out in detail in the primary judgment (J) (at [2]–[4]), and do not require repetition. It suffices to note that an excavator was being transported from a mine site owned and operated by Hunter Valley Operations Pty Ltd (HVO) to Kerembla's depot. The excavator had been loaded by employees of Kerembla onto the back of a trailer attached to a prime mover. During transit on a public road between the HVO site and Kerembla's depot, there was a collision between the excavator and a bridge owned by HVO. HVO pursued Kerembla in relation to the damage caused to the bridge and Kerembla made the Claim under the Policy. B THE REASONING OF THE PRIMARY JUDGE 3 The primary judge commenced (at J [5]) by setting out the salient terms of the Policy including the insuring clause, which provided as follows: 2.1 What we cover We agree (subject to the terms, Claims Conditions, General Conditions, Exclusions, Definitions and Limits of Liability incorporated herein) to pay to You or on Your behalf all amounts which You shall become legally liable to pay as Compensation in respect of: (a) Personal Injury, and/or (b) Property Damage; and/or (c) Advertising Injury; happening during the Period of Insurance within the Geographical Limits, in connection with the Business or Your Products and/or work performed by You or on Your behalf and caused by or arising out of an Occurrence. (Emphasis in original). 4 His Honour then turned to the relevant exclusion clause: We do not cover any liability: … 3.22 Vehicles for Personal Injury and/or Property Damage arising out of the ownership, possession or use by You of any Vehicle: (a) which is registered or which is required under any legislation to be registered, or (b) in respect of which compulsory liability insurance or statutory indemnity is required by virtue of legislation (whether or not that insurance is effected); but Exclusions 3.22(a) and (b) shall not apply to: … (d) any Vehicle (including any tool, implement, machinery or plant forming part of or attached to or used in connection with such vehicle) whilst being operated or used by You or on Your behalf as a Tool of Trade at Your premises or on any Worksite. (e) the delivery or collection of goods to or from any Vehicle. (f) the loading or unloading of any Vehicle. (g) any Vehicle temporarily in Your custody or control for the purpose of parking. (h) Property Damage caused by or arising out of the movement of any Vehicle (which is required to be Conditionally Registered in accordance with the law of any State or Territory in Australia) in the event of Your inadvertent and unintentional failure to effect Conditional Registration. (Emphasis added). 5 His Honour also set out some definitions contained in the Policy which, for present purposes, relevantly included: "Tool of Trade" means a Vehicle that has tools, implements, machinery or plant attached to or towed by the Vehicle and is being used by You at Your premises or on any Worksite. Tool of Trade does not include any Vehicle whilst travelling to and from a Worksite or Vehicles that are used to carry goods to or from any premises. "Vehicle" means any type of machine on wheels or on self-laid tracks made or intended to be propelled by other than manual or animal power, and any trailer or other attachment to be used in conjunction with or drawn by any such machine. "Worksite" means any premises or site where work is performed for and/or in connection with the Business together with all areas surrounding such premises or site and/or all areas in between such premises or site that You shall use in connection with such work. (Emphasis in original). 6 It is convenient to supplement the primary judge's list of relevant definitions by adding the definition of "Business" which the primary judge addressed (at J [12]). "Business" is defined in the Schedule to the Policy as relevantly including, inter alia, mining and civil drilling, exploration drilling and "all activities incidental thereto". The definition of Business is expressly extended to include "the ownership of premises and/or the tenancy thereof by You": subcl 1(b). 7 His Honour noted that XL accepted that the insuring clause responded to the Claim but relied upon the exclusion clause to deny indemnity (at J [9]). Kerembla also accepted that subcll 3.22(a) and (b) of the Policy applied but relied upon the "write-back" provided by subcll 3.22(d) and (f) (at J [9]). The primary judge rejected Kerembla's argument based upon subcl 3.22(f) (which is the subject of a notice of contention) (at J [18]–[20]). For the reasons that follow, however, it is only necessary to deal with the attack on the conclusion reached by the primary judge as to the applicability of subcl 3.22(d) (writeback) (emphasised at [4] above) to dispose of this appeal. 8 The primary judge's reasoning (at J [10]–[17]) involved the following two steps. 9 First, it was not in dispute that the damage arose out of the use by Kerembla of a "Vehicle" and thus fell within the exclusions in subcll 3.22(a) (because of registration or the requirement for registration) and (b) (because compulsory liability insurance was required). 10 Secondly, the writeback operated because both the prime mover and trailer were being used as a "Tool of Trade" because: (a) they were Vehicles that had plant (the excavator) attached; and (b) they were being used on a "Worksite" (the incident took place on a road in between premises or sites where work was performed in connexion with the "Business" of Kerembla). 11 Hence, upon a proper construction of the Policy, it was sufficient to engage cover if the prime mover and the trailer were being operated or used by Kerembla as a Tool of Trade on any Worksite at the time of the incident, and it was unnecessary for Kerembla to establish that every element of the Vehicle (defined to include any tool, implement, machinery or plant attached to it) was actually being used or operated at the time of the incident (at J [17]). C THE APPEAL 12 XL raises five grounds of appeal, which it accepts can be summarised into three closely related contentions of error: (1) the insured risk is damage to property arising out of the use of a Vehicle required to be registered or have compulsory insurance and the writeback does not apply to the prime mover and trailer in the circumstances giving rise to the Claim (Grounds 1, 2 and 3) (Use Contention); (2) the definition of Tool of Trade contains a second and third negative requirement, namely that the Vehicle which is the Tool of Trade must not be travelling to or from a Worksite and that it must not be a Vehicle that is used to carry goods to or from any premises (Grounds 1, 2 and 4) (Tool of Trade Contention); and (3) the definition of Worksite could not properly be understood to include the road where the incident took place (Grounds 1, 2 and 5) (Worksite Contention). 13 During oral argument, XL sought to raise a fourth contention by reviving an argument which it made before the primary judge to the effect that Kerembla's own premises at Muswellbrook did not fall within the definition of Worksite. 14 The primary judge rejected Kerembla's submission on this point (at J [12]). His Honour concluded that there was no basis in the language used in the definition of Worksite to confine the concept in the way in which XL sought to do. Although XL did not challenge this finding in its notice of appeal, Kerembla was able to meet the argument, and the appeal proceeded on the basis of a challenge to the finding that Kerembla's Muswellbrook premises fell within the definition of Worksite. We will refer to this additional challenge as the Kerembla Premises Contention. 15 This appeal is not a dispute about principle, but rather the application of principle. There is no need to canvass the proper approach to construction of contracts such as the Policy. We need only refer to the well-known cases as to construction: see Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 (at 510 per Mason, Wilson, Brennan, Deane and Dawson JJ); Johnson v American Home Assurance Company (1998) 192 CLR 266 (at 272–276 [19] per Kirby J, albeit in dissent); McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 (at 589 [22] per Gaudron J); Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 (at 528–529 [15]–[16] per Gleeson CJ, McHugh, Gummow and Kirby JJ); Selected Seeds Pty Ltd v QBEMM Pty Ltd [2010] HCA 37; (2010) 242 CLR 336 (at 344 [29] per French CJ, Hayne, Crennan, Kiefel and Bell JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 (at 116–117 [46]–[52] per French CJ, Nettle and Gordon JJ); and Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 (at 656–657 [35] per French CJ, Hayne, Crennan and Kiefel JJ). 16 Specifically, it is not in dispute that where there are two available readings of an insurance policy, preference should be given to a reading that limits rather than expands an exclusion clause: Dalby Bio-Refinery Ltd v Allianz Australia Insurance Limited [2019] FCAFC 85 (at [32] per Allsop CJ, Beach and Anastassiou JJ); see also Darlington Futures v Delco (at 510 per Mason, Wilson, Brennan, Deane and Dawson JJ). 17 It is convenient to proceed directly to the substance of XL's arguments by reference to the four contentions outlined above. D THE FOUR CONTENTIONS AND CONSIDERATION D.1 Use Contention XL's Submissions 18 XL submits the writeback has operative effect only when the excavator is being used as a Tool of Trade. It is said the approach of the primary judge involved a "discordant construction" as the object of the writeback clause was the excavator, not the prime mover and trailer. The construction his Honour arrived at is said to have "robbed the exclusion of having any meaningful and businesslike effect". 19 This was developed by asserting the evident purpose of the exclusion clause was to deny cover whenever claimed property damage arose out of "the ownership, possession or use by You of any Vehicle … which is registered" except when that Vehicle was "being operated as a Tool of Trade at Your premises or at any Worksite". The evident intention was to exclude property damage occurring while the trailer and prime mover were being used on a public road to transport goods (in this case, the excavator). In this respect, it is said the definition of Worksite is important, because when read harmoniously within the exclusion clause, the writeback is limited to Kerembla's premises or a Worksite where the Vehicle is being operated or used as a Tool of Trade. 20 It is further submitted that the requirement that the "Vehicle is being operated or used" as a Tool of Trade most naturally conveys the meaning that the Vehicle can objectively be said to be operating when using its "tools, implements, machinery or plant attached to or towed by it at the premises or Worksite". For example, an excavator would be operating as a Tool of Trade while excavating using a bucket, blade, hammer, auger or other "tool, implement … or plant" attached to it. A prime mover or a trailer would not naturally be considered a Tool of Trade to be used at Kerembla's premises or on any Worksite through the use of "tools, implements, machinery or plant attached to or towed by [it]". Rather, it is submitted, their purpose is to transport a Tool of Trade, in this case the excavator, to a Worksite. Consideration 21 This contention can be dealt with briefly for reasons explained by the primary judge and by having proper regard to the language used. 22 As his Honour noted (at J [10]), the writeback begins with a reference to "any Vehicle". As defined, Vehicle includes "the Prime Mover and the Trailer, both of them being types of machines on wheels" (at J [10]). It also includes the Excavator, being a type of "machine on self-laid tracks" (at J [10]). In construing the exclusion clause (including the writeback) according to its ordinary and natural meaning, read in the light of the Policy as a whole, there is nothing discordant or apparently uncommercial about the writeback applying generally to Vehicles as defined. 23 The foundational submission of XL that the "the object of the writeback was the excavator, not the prime mover and trailer" rises no higher than an assertion as to what the parties must have intended to be the ambit of XL's liability. This is an unsound approach to the construction of a policy of insurance. Indeed, as Chesterman J (with whom McPherson JA agreed) observed in Aorangi v Brambles Aust Ltd [2001] QCA 200 (at [29]): [t]he words of the policy are the only sure guide to what they intended to be the scope, and the limit on the scope, of cover. The clause should not be read with any preconception as to what the parties (or the insurer) "must" have intended to be the ambit of its liability. 24 To the extent it is useful to speak in terms of the "objects" of the writeback, the text requires the conclusion that all Vehicles (including the prime mover, trailer, and excavator) are objects or the focus of the writeback. Once the starting point of XL's Use Contention is exposed as incorrect, the rest of the arguments fall away. There is no error evident in the approach of the primary judge. D.2 Tool of Trade Contention XL's Submissions 25 XL submits the exclusion clause continues to operate whenever a Vehicle is travelling to or from a Worksite, for example, on the public road upon which the prime mover and trailer were operating, between the HVO site and Kerembla's depot. 26 The prime mover and trailer were hauling the excavator and thus were "carrying goods to or from any premises". It is said the expression "Vehicles that are used to carry goods to or from any premises" comfortably includes a trailer onto which an excavator is loaded for the purposes of being hauled by the prime mover. 27 Although the primary judge accepted that a literal reading supported this above submission, his Honour considered that to give the phrase such a meaning and effect would be to negate the operation of the writeback (at J [15]). 28 XL asserts this was an error because there was no reason to construe the writeback "any more liberally". Moreover, it is submitted the combined effect of the words used in the exclusion clause and the definitions was to exclude registered Vehicles when they were transporting goods. 29 Put another way, it is said the definition of Tool of Trade contains "a second and third negative requirement", namely that the relevant Vehicle must not be travelling to or from a Worksite and that it must not be a Vehicle used to carry goods to or from any premises. These two "negative requirements" were inserted in the definition of Tool of Trade for the avoidance of doubt. Consideration 30 As Kerembla correctly submits, the primary judge accepted that the prime mover and trailer came within the definition of Tool of Trade, defined by reference to the concept of a Vehicle. XL is correct in pointing to the fact that his Honour accepted that the second element of the second sentence of Tool of Trade did not include Vehicles used to "carry goods" and, on a literal reading, the excavator could be treated as a good being carried. But, as his Honour went on to explain, the limitation of such a reading was that it would (at J [15]): render nugatory or substantially undermine the first sentence of the definition of "Tool of Trade". Tools, implements, machinery or plant which are attached to or towed by a Vehicle, will invariably be "goods" within the legal concept of that term, and if they are attached to or towed by the Vehicle then they would be carried. In my opinion, the word "goods" should be construed so as not to include "tools, implements, machinery or plant attached to or towed by the Vehicle". Similarly, the word "carry" should be construed so as not to include the transporting of things which are "attached to or towed by the Vehicle". Without those qualifications, the first sentence of the definition of "Tool of Trade" would be left with little or no operative effect. 31 The writeback had work to do. The construction adopted by his Honour is not only far from commercially absurd but is preferable. But even if this put the matter too highly, and both constructional choices were open, the primary judge's conclusion is consonant with preference being given to an available reading that limits rather than expands the ambit of the exclusion clause (see [16] above). D.3 Worksite Contention XL's Submissions 32 Finally, XL submits the definition of Worksite initially requires the "site where work is performed for/or in connection with the Business" to be identified and then to add to it "all areas surrounding such premises or site or areas in between such areas or site". 33 The purpose of the words "all areas surrounding" and "all areas in between" is to give breadth to the definition of a Worksite, provided those additional areas are used in connexion with the work being performed on the Worksite. The concept of a Worksite is said to be a singular location with the additional words provided to give cover where the Worksite was not a single piece or contiguous pieces of land. The example of a jib of a crane passing over adjacent property to the site at which the crane is located as a Tool of Trade was used to illustrate the intended operation of the clause. 34 Properly construing the insuring clause, the exclusion clause and the writebacks together, what is intended to be covered is property damage which occurs in connexion with Kerembla's business when such damage can be said to arise out of the ownership, possession or use of a Vehicle which is required to be registered, when it is being operated as a Tool of Trade at a Worksite. It cannot, it is submitted, apply to locations in between the Worksite and Kerembla's depot "as a matter of common sense". Consideration 35 The Worksite Contention does not withstand analysis. 36 There is always a need to approach the task of divining meaning by avoiding readings which are devoid of common sense. But the notion that the only cover is as XL asserts is not obvious, let alone so obvious that any alternative reading defies common sense. It is perfectly rational that parties in the position of XL and Kerembla would bargain for a broad or extended definition of Worksite, including areas between premises and a site. More particularly, given the term describes places where Vehicles are used, it is far from obvious the parties would bargain to exclude cover in relation to areas between premises or sites (such as roads) where those Vehicles are driven. Indeed, one can go further; there is merit in Kerembla's submission that the reading adopted by the primary judge makes better sense "because it treats non-contiguous premises or sites that are part of a single operation (commonplace in the mining industry) as a single 'Worksite' provided they are places that 'You shall use in connection with such work'". 37 The primary judge did not err in concluding, in effect, that while a Vehicle is travelling on a work journey from a work premises to a work site, it is always on a Worksite. The fact that the work journey involved the use of a public road (being the most direct route between the HVO site and the depot (see J [12], [14])) is neither here nor there. D.4 Kerembla Premises Contention XL's Submissions 38 As mentioned, it emerged during oral argument that XL also sought to challenge the primary judge's conclusion (at J [12]) that Kerembla's own premises fell within the definition of Worksite. 39 It was difficult to delineate between the Tool of Trade Contention and the Kerembla Premises Contention. As we apprehend it, the submission seeks to leverage off the phrase "and is being used by You at Your premises or any Worksite" in both the writeback provision (subcl 3.22(d)) and the definition of "Tool of Trade" to submit that there is a distinction between "Your premises" on the one hand and "Worksite" on the other hand. XL submitted that at the time of the incident, the Kerembla depot was not a Worksite, whereas the HVO premises at which work had been performed was. We understand that the Kerembla Premises Contention is directed to neutralising the impact of the critical phrase in the definition of Worksite: "Worksite" means any premises or site where any work is performed for and/or in connection with the Business together with … all areas in between such premises or site that You shall use in connection with such work. 40 As the submission went, the road could not be covered as an area relevantly in between Worksites if the Kerembla premises was not itself a Worksite. Consideration 41 The Kerembla Premises Contention must be rejected for the reasons explained by the primary judge (at J [12]). His Honour concluded that Kerembla's Muswellbrook premises comprised its primary office, depot and workshops. Further, that work was performed at these premises for, and in connexion with, the Business, including activities incidental to Kerembla's drilling work and ownership or tenancy of the premises (at J [12]). 42 XL sought to rely on the distinction drawn between "Your premises or on any Worksite" in the writeback provision and the definition of "Tool of Trade". That distinction is not included in the definition of Worksite, which then feeds into the writeback provision. The straightforward meaning of the words employed in the definition of Worksite together with the breadth of the definition of Business has the necessary result that Worksite will always include premises or sites where work is performed for and/or in connexion with the Business. The Kerembla premises fall within the definition of Worksite as it is engaged by the relevant writeback clause. 43 XL's attempt to rely on the phrase "Your premises or on any Worksite" to qualify the plain meaning of the definition of Worksite is rejected. That phrase is not used in the definition of Worksite. In the context of a writeback clause which operates to confine the scope of an exclusion clause, the definition of Worksite must be given its natural and plain meaning, rather than seeking to import words to exclude from that definition premises that also satisfy the description "Your premises". To adopt this approach results in reading the writeback in a way that limits rather than expands the exclusion clause which it qualifies (see [16] above). E ORDERS 44 It necessarily follows that it is unnecessary to deal with the notice of contention and the appeal must be dismissed with costs. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Lee, Stewart and Cheeseman. Associate: Dated: 23 November 2023