COMINO v MERCANTILE MUTUAL INSURANCE (AUST) LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY and HANDLEY JJA, and BROWNIE AJA 27 February 1997, 27 February 1997 [1997] NSWCA 73 INSURANCE — liability insurance — application by third party claimant for leave to proceed against insurer — Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s6 LAW REFORM (MISCELLANEOUS PROVISIONS) ACT 1946 (NSW) s6 — application for leave to proceed against insurer In 1987 the appellants commenced proceedings in the Supreme Court against Mr Hunter claiming damages for faulty repairs to their trucks. In 1993 Mr Hunter became bankrupt and the appellants applied for leave to proceed against Hunter's insurer under s6 of the Law Reform (Miscellaneous) Provisions Act 1946 (NSW). The Master declined to grant leave, finding that the claims against the policy would fail because of certain exclusion clauses. The appellants appealed by leave. HELD: (1) A final decision on the construction of the policy was not required when determining whether to grant leave to proceed. (2) There was an arguable case that the claims against the policy could be made out at trial.. (3) The appeal was allowed and leave to proceed granted. Handley JA This is an appeal by leave of this Court granted on 8 July 1996 against a decision of Master Greenwood. The learned Master dismissed an application by the appellants for leave to commence proceedings against the respondent, Mercantile Mutual Insurance (Australia) Ltd which had issued a Business Pak policy in 1982. The policy covering Mr Ian Hunter, a truck repairer, was in force from 23 February 1983 to 19 January 1984. Proceedings brought by the appellants against Mr Hunter have been pending in the Supreme Court since 1987. Mr Hunter became bankrupt early in 1993 and this led the appellants to commence proceedings under s6 of the Law Reform (Miscellaneous) Provisions Act 1946 for leave to bring an action against the insurer to enforce the charge created by s6 over the policy issued to Mr Hunter which they allege covered their claims against him. The facts alleged by the appellants are that in 1983 when they were in business as road carriers, they left their two trucks with Mr Hunter to be repaired. As a result of faulty workmanship both trucks broke down during the currency of the policy while being driven on public roads. The public liability section of the policy provided the following cover: "THE COMPANY AGREES TO PAY to or on behalf of the insured all sums which the insured shall become legally liable to pay for compensation in respect of: CONTINGENCIES: 1. bodily injury (which expression includes death and illness) 2. damage to property (which expression includes loss of property) occurring during the Period of Insurance as a result of an accident and happening in connection with the Business stated in the Schedule... ". 2 UNREPORTED JUDGMENTS This obligation was subject to certain exclusions which I will deal with presently. The claims which the appellants press against the insurer are arguably in respect of damage to property being their trucks, which occurred during the period of insurance as a result of an accident. The appellants' claims are not only for the physical damage caused by the allegedly defective workmanship, but also for economic loss suffered as a result of the breakdowns. While the consequential economic loss is not damage to property, it is in my judgment "compensation in respect of... damage to property". The words "in respect of' have been said to have "the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer". See State Government Insurance Office v Rees (1979) 144 CLR at 561 per Mason J. A question arises as to the identity of the accident for the purposes of this policy. At one stage Mr Huntington submitted, as I understood him, that the defective workmanship was the relevant accident and the policy only operated on this basis. One would assume that the defective workmanship was accidental in the sense that it was not deliberate, but as presently advised I do not see how the defective workmanship could constitute "damage to property... occurring during the period of insurance as a result of an accident...". In my judgment the defective workmanship as such was not damage to property. On the other hand it seems arguable that the mechanical breakdowns either caused or resulted from "damage to property occurring during the period of insurance as a result of an accident". The meaning of the words "accident" and "accidental" and the like in insurance policies are considered from the point of view of the insured. See Lombard Australia Ltd vy NRMA Insurance Ltd (1968) 72 SR NSW 45. There can be no doubt that the breakdowns were accidents so far as the appellants and the insured were concerned. In my opinion therefore the claims of the appellants which are pressed against the insurer are within the general cover provided by this section of the policy. It remains to consider the effect of the relevant exclusions. Exclusion (c) (iii) applies to "claims in respect of damage to property... in the physical or legal control of the insured...". The respondent submitted that any defective workmanship occurred while the trucks were in the physical or legal control of the insured, and that such defective workmanship constituted damage to property occurring as a result of an accident so that exclusion (c)(iii) denied any cover. While the defective workmanship may have been accidental from the point of view of the insured and the appellants, there was no damage to the trucks at that stage. If there was any damage at that stage cover could be denied for it. However this exclusion does not apply to the further damage caused when the breakdowns occurred because at that stage the trucks were no longer in the physical or legal control of the insured. Exclusion (d) denied cover in respect of "claims in respect of the cost of rectifying faulty workmanship to any goods...". The appellants acknowledge that this exclusion denies cover for the actual cost of rectifying defective workmanship, but submit that it does not deny cover in respect of the damage or further damage to the trucks caused by that defective workmanship. This distinction has been recognised in public liability policies. See Graham Evans and Co (Qld) Pty Ltd v Vanguard Insurance Co Ltd & Ors (1986) 4 ANZ Insurance Cases 60689. Although the language of the policy in that case was URJ COMINO v MERCANTILE MUTUAL INSURANCE (AUST) LTD (Priestley JA) 3 different, it is arguable that the terms of exclusion (d) do not prevent the insurer being liable under the general cover in this section of the policy for the physical damage to the trucks caused by the defective repairs and workmanship and for the appellant's economic losses consequential thereon. Insofar as the Master held otherwise, I must respectfully disagree. The remaining exclusion is exclusion (f) which applies in respect of "claims arising out of any liability assumed by express warranty or agreement unless such liability would have attached to the insured notwithstanding such express warranty or agreement". The precise operation of this exclusion in the facts of this case is not clear. However the respondent is entitled to resist proceedings brought by the appellants pursuant to leave granted under s6 by relying on the terms of any exclusion. Claims in tort are not denied by this exclusion and it is arguable that claims under an implied contractual term are not excluded merely because there was an express promise or warranty in the same terms. This Court should not become involved in framing or reframing the draft statement of claim foreshadowed by the appellants, nor should this Court undertake the task of framing an appropriate condition intended to reflect the terms of exclusion (f), or apply it to the facts of this case. The appellant's legal advisers will need to have regard to its terms in any pleading filed pursuant to leave granted by this Court because any claim caught by exclusion (f) will fail. I would not refuse relief to the appellants because of exclusion (f). I propose therefore that the appeal should be allowed, and that leave be granted for the appellants to commence an action against the respondent to enforce the statutory charge over the insurance policy issued to Ian Hunter previously referred to. Mr Huntington sought a special order as to costs but in my judgment there is no reason to depart from the usual rule. I propose that the appeal be allowed with costs and that the respondent be ordered to pay the costs of the proceedings before the Master. Priestley JA In my opinion the arguable matters identified in Mr Justice Handley's reasons were sufficient to have required the granting of leave under s6 of the Law Reform (Miscellaneous) Provisions (Act) upon the basis that Mr Justice Handley has described as appropriate for the granting of leave in this case. I therefore agree that the appeal should be upheld. I agree generally with the observations made by Mr Justice Handley dealing with certain requests made by the respondent on the appeal in the event of the appeal succeeding and agree therefore with the particular orders that have been proposed by Mr Justice Handley. Brownie AJA I agree with the orders proposed by Mr Justice Handley and generally with his reasons. I would for myself add one minor qualification, that what we are asked to decide today relating to exclusion cl(c)(iii) is necessarily decided on a tentative basis. Having regard to the limited material now before us it seems to me to be quite likely that the exclusion clause does not operate but it ought to be clear I think that the parties are at liberty to litigate that issue on the ultimate trial. Priestley JA The orders of the Court therefore are as proposed by Mr Justice Handley. 4 UNREPORTED JUDGMENTS The appeal should be allowed, and leave be granted for the appellants to commence an action against the respondent to enforce the statutory charge over the insurance policy issued to Ian Hunter previously referred to. The appeal is allowed with costs and the respondent is ordered to pay the costs of the 5 proceedings before the Master. Counsel for the appellant: J M Harris Solicitors for the appellant: Emil Ford & Co 10 Counsel for the respondent: P Huntington Solicitors for the respondent: Corrs Chambers Westgarth