Reported Decision : (2003) 12 ANZ Insurance Cases 61-547 New South Wales Supreme Court CITATION : Transfield Pty Limited v National Vulcan Engineering Insurance Group Limited & Ors Connell Wagner Pty Ltd v National Vulcan Engineering Insurance Group Ltd & Ors [2002] NSWSC 830 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50093/02; 50094/02 HEARING DATE(S) : 19 August 2002 JUDGMENT DATE : 17 September 2002 Transfield Pty Limited (Pltf) Connell Wagner Pty Limited (Pltf) PARTIES : Coffey Partners National Vulcan Engineering Insurance Group Limited (1D) Assicurazioni Generali SpA (2D) Gordian Runoff Limited (3D) JUDGMENT OF : McClellan J M A Pembroke SC/TM Faulkner (Pltf - Transfield) COUNSEL : J Sexton SC (Pltf - Connell Wagner) F Corsaro SC/A Ridley (Coffey Partners) A J Sullivan QC/D S Weinberger (Def) Holding Redlich (Pltf - Transfield) SOLICITORS : Arnold Bloch Leibler (Pltf - Connell Wagner) Minter Ellison (Coffey Partners) Moray & Agnew (1D, 2D & 3D) CATCHWORDS : INSURANCE - policy covered subsidiary companies and subcontractors - construction of policy - effect of an exclusions clause and cross liability clause - election - whether insurer elected to grant indemnity by reason of its conduct Stolberg v Pearl Assurance Co Ltd (1971) 19 DLR (3d) 343 Weightman v Noosa Shire Council [1999] QSC 368 Federation Insurance Ltd v Wasson (1987) 163 CLR 303 General Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 Re FAI General Insurance Co Ltd & Fletcher Construction Ltd (1988) 10 ANZ Ins Cas 61-403 Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 McCann v Switzerland Insurance Australia Limited (2000) 75 ALJR 325 Hi-fert Pty Ltd v Unisea Shipping Adriatic Inc (1998) 165 ALR 265 Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476 Re Strand Music Hall Co Limited ex parte European & American Finance Co Ltd (1865) 35 Beav 153 Workcover Queensland v Royal & Sun Alliance Insurance Australia Ltd (2001) 11 ANZ Ins Cas 61-489 Wadsley v City Mutual Life Assurance Society Ltd [1971] VR 140 CASES CITED : Romay Automotive Ltd v Dominion of Canada General Insurance Co (1974) 43 DLR (3d) 346 Re Vergata et al and Manitoba Public Insurance Corp (1976) 67 DLR (3d) 527 Hartford Fire Insurance Co v Saskatchewan Mutual Insurance Co (1967) 59 DLR (2d) 649 V L Credits Pty Ltd v Switzerland Insurance Co Ltd [1990] VR 938 Fletcher Organisation Pty Ltd v CML Fire and General Insurance Co Ltd (1987) 4 ANZ Ins Cas 60-805 C E Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1992-1993) 176 CLR 535 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Commonwealth v Verwayen (1990) 170 CLR 394 C E Heath Underwriting & Insurance (Aust) Pty Ltd v Campbell Wallis Moule & Co Pty Ltd [1992] 1 VR 386 Nigel Watts Fashion Agencies Pty Ltd v GIO General Limited (1995) 8 ANZ Ins Cas 61-235 Turner v Labafox International Pty Ltd (1974) 131 CLR 660 Khoury v Government Insurance Office (NSW) (1984) 164 CLR 622 Freshmark Limited v Mercantile Mutual Insurance (Australia) Limited (1994) 2 Qd R 390 ACN 007838584 Pty Ltd v Zurich Australian Insurance Ltd (1997) 69 SASR 374 DECISION : See para 90 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McCLELLAN J TUESDAY, 17 SEPTEMBER 2002 50093/02 TRANSFIELD PTY LTD v NATIONAL VULCAN ENGINEERING INSURANCE GROUP LTD & ORS 50094/02 CONNELL WAGNER PTY LTD v NATIONAL VULCAN ENGINEERING INSURANCE GROUP LTD & ORS JUDGMENT 1 HIS HONOUR: Transfield Pty Limited was the head contractor for a major civil project. The other plaintiffs were either subcontractors or consultants to Transfield. The defendants are the insurers of Transfield and the others. I shall refer to the defendants as "the insurer." 2 The court has two separate questions before it for determination. For the purpose of determining those questions, the parties have tendered an agreed statement of facts. The agreed facts are as follows: 1. By a contract of insurance made on or about 19 July 1996 described as a Contractors' Floater Policy No 95050032 (Policy), the underwriters agreed to insure, subject to the terms and conditions of the Policy, among others, Transfield Holdings Pty Limited and all subsidiary and controlled and Joint Venture companies, and their subcontractors and all principals and all other interested parties as may be required, for their respective rights, interests and liabilities. A copy of the policy is Annexure 'C' to the affidavit of Justin Orsborn sworn 31 July 2002. 2. On 18 November 1996 Transfield Contractors Pty Limited ACN 000 854 688 (formerly known as Transfield Pty Limited) (Transfield) entered into a contract with Transfield Bouygues Joint Venture (TBJV) to construct a section of the New Southern Railway being 158 metres of reinforced concrete tunnel under the Princes Highway, Cahill Park and Qantek sites at Tempe (Project). 2A. Transfield was, at all relevant times, a subsidiary of Transfield Holdings Pty Limited. 2B (deleted) 3. The following entities were subcontractors or consultants engaged by Transfield on or in relation to the Project during the period of the Policy:- (a) W&D Elliott Earthmoving Pty Limited (Elliott); (b) D N Pearce & Maintenance Pty Limited (Pearce); (c) Connell Wagner Pty Limited (Connell Wagner); and (d) Coffey Partners International Pty Limited (Coffey). 4. (deleted) 5. On 22 October 1997 a portion of the eastern wall sheet piling in the Cahill Park site failed, flooding part of the Project (First Incident). 6. On 24 February 1998, an incident occurred in the vicinity of the southern wall sheet piling in the Cahill Park site (Second Incident). 6A. Each of Transfield, Connell Wagner and Coffey deny: (a) all liability and responsibility for the First and Second Incidents and all questions of liability for the First and Second Incidents are to be determined at a later stage of the proceedings; (b) the quantum of all claims made by all parties against them. 7. Each of the First and Second Incidents was an Occurrence happening in the Geographical Limits during the Period of Insurance in connection with the Construction Operations and/or Other Business Operations and/or Products Liability/Completed Operations and/or Property Insured detailed in the Schedule, within the meaning of the Policy. 8. As a result of the First and/or Second Incidents:- (a) certain property of Pearce, namely a dredge, was damaged; (b) certain property of Elliott, namely a Caterpillar excavator, was damaged; and (c) certain property of Transfield, namely a part of the cofferdam sheet piling and certain plant and equipment was damaged, and various claims have been made against Transfield, Connell Wagner and Coffey for compensation for loss and damage. 9. By reason of the damage to the property of Pearce, Elliott and Transfield and by reason of the claims made against Transfield referred to in paragraph 8 above, claims for compensation for "loss of and/or damage to and/or destruction of property and/or Loss of Use thereof" within the meaning of Section C of the Policy have been made by: (a) Pearce against Transfield, Connell Wagner and Coffey (proceedings 55003/02); (b) Elliott against Transfield, Connell Wagner and Coffey (proceedings 50122/01); (c) Transfield against Connell Wagner and Coffey (proceedings 50146/00, 50122/01 and 55003/02); (d) Connell Wagner against Coffey (proceedings 50146/00, 50122/01 and 55003/02) and Transfield (proceedings 50122/02 and 55003/02); and (e) Coffey against Connell Wagner (proceedings 50146/00, 50122/01 and 55003/02) and Transfield (proceedings 50122/01 and 55003/02). 10. (deleted) 11. Each of Transfield, Connell Wagner and Coffey has made a claim under Section C of the Policy in respect of its liability for the claims referred to in paragraphs 8 and 9 above. 11A. (Deleted) 12. (Deleted) 13. (Deleted) 14. (Deleted) 15. Subject to the proper construction and operation of Exclusion 3(b), each of Transfield, Connell Wagner and Coffey is entitled to indemnity pursuant to Section C of the Policy. 16. On 14 June 2002 underwriters invoked Exclusion 3(b) to deny indemnity to Connell Wagner and Coffey in respect of their alleged liability to Transfield. (facsimile 14 June 2002 from Moray & Agnew to Minter Ellison). 17. (Deleted) 18. (Deleted) 19. (Deleted) 3 The separate questions for determination are as follows: 1. Whether or not the proper construction of Exclusion 3(b) in Section C of the Contractors' Floater Policy No 95050032 has the effect that: (a) Transfield Pty Limited is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Pearce and Elliott, being the claims more particularly referred to in the table annexed hereto; (b) Connell Wagner is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Transfield, Pearce and Elliott, being the claims more particularly referred to in the table annexed hereto; (c) Coffey is entitled to indemnity pursuant to Section C of the Policy in respect of the claims made against it for its liability arising out of damage to the property of Transfield, Pearce and Elliott, being the claims more particularly referred to in the table annexed hereto. (The relevant table is annexure "A" to these reasons). 2. Whether, in any event, by reason of the conduct of underwriters communicated to Transfield in the letters dated 17 June and 25 June 2002 from Moray & Agnew to Holding Redlich, underwriters have made a binding election to grant indemnity to Transfield pursuant to Section C of the Policy in respect of the claims made against Transfield for its liability arising out of damage to the property of Pearce and Elliott. 4 The insurance policy insured a number of entities which were defined in the Schedule to the policy as follows: Exben Pty Limited, Transfield Holdings Pty Limited and all subsidiary and controlled and Joint Venture companies, and their subcontractors and all principals as they may appear and all other interested parties as may be required, for their respective rights, interests and liabilities (as more detailed in the attached schedule)." 5 Included in the relevant schedule are, inter alia, "Engineers, Engineers' authorised representatives, consultants." 6 The policy has three sections. 7 Section A provides insurance for loss or damage to "property of every kind and description (stated as Property Insured in the Schedule) owned by the Insured or for which the Insured may be responsible." Because of the extended meaning of Insured, the property of both subcontractors and consultants would be insured under this section of the policy. 8 Section B (which relates to some of the property insured under Section A) covers "legal liability under the terms of any contract maintenance or defects liability clauses for loss and/or damage" in identified circumstances. 9 The insuring clause for Section C of the policy is in the following terms: "1. Insuring Clause The Insurers hereby agree, subject to the limitations, terms and conditions hereinafter mentioned, that they will: (a) Pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as compensation for: (1) bodily injury and/or illness (including death at any time resulting therefrom) and/or Personal Injury and/or Advertising Liability suffered or alleged to have been suffered by any person or persons; (2) loss of and/or damage to and/or destruction of property and/or the Loss of Use thereof; in respect of and/or arising out of Occurrences happening anywhere in the Geographical Limits during the Period of Insurance in connection with the Construction Operations and/or Other Business Operations and/or Products Liability/Completed Operations and/or Property Insured detailed in the Schedule. (b) Defend in the name of and on behalf of the Insured any claim or suit against the Insured to recover damages in respect of and/or arising out of occurrences covered hereby. (c) Pay in addition to the Limit of Liability expressed in the schedule: (1) for immediate medical and/or surgical aid and/or for temporary repair and/or shoring up of property made necessary by any occurrence covered hereby; (2) all expenses incurred by or with the permission of Insurers for Investigation, negotiation and defence of claims and suits; (3) all expenses incidental to the appeal from any judgment against the Insured, and all costs taxed against the Insured, in any suit for damages on account of any judgment in such suits. (4) all expenses incurred by Insurers or the Insured for representation of the Insured at any Coroners Inquest or Court of Criminal Justice plus all expenses incidental to the appeal from any judgment." 10 Clause 3 of Section C of the Policy provides the exclusions to that section. The proper construction of cl 3(b), which provides an exclusion for property owned by the Insured, is the occasion for controversy in the present case. 11 Clause 3 is in the following terms: "Exclusions Applicable to Section C This Section shall not apply to liability: (a) for bodily injury and/or Personal Injury sustained by any person arising out of and/or in the course of his employment by the Insured under a contract of service or apprenticeship with the Insured. However, this exclusion shall not apply to: (i) a liability of others which has been assumed by the Insured under contract; (ii) any liability arising out of the infringement by the Insured of the Trade Practices Act, 1974 or equivalent legislation of a State of Territory; (iii) any other liability not insured by a workers' compensation policy; (b) for damage to property owned by the Insured; (c) caused by reason of the existence, maintenance, or use of aircraft or self-propelled marine craft or self propelled vessels exceeding 8 metres in length owned, maintained, hired, used or controlled by or for the Insured; This exclusion shall be deemed not to apply to: (i) constructional plant or equipment or other Items of the Property Insured whilst temporarily mounted upon any marine craft or vessels, (ii) the use of or existence of explosives on or from any marine craft or vessels whether in, over or under water or otherwise, (iii) vessels operated by independent contractors. (d) compulsorily insurable under any legislation governing the use of motor vehicles. However, this exclusion shall not apply to constructional plant and equipment whilst on the Worksite provided such constructional plant and equipment is not insured in accordance with any applicable legislation governing the use of motor vehicles; (e) arising out of Completed Operations and Products Liabilities for loss or damage to property which formed part or all of the insured's construction contracts or goods or products but this exclusion shall be limited to the part which is defective or deficient and shall not apply to any other part or parts of such construction contracts or goods or products lost or damaged in consequence thereof. (f) for loss of use of or for the repairing or replacing or recalling of any defective product(s) or any part(s) thereof used or supplied by the Insured in the Construction Operations or Other Business Operations except to the extent that cover is provided for in Exclusion (e) of Section C of this policy. (g) arising out of; (i) personal injury or bodily injury or loss of, damage to, or loss of use of property directly or indirectly caused by seepage, pollution or contamination, provided always that this paragraph (i) shall not apply to liability for personal injury or bodily injury or loss of or physical damage to or destruction of tangible property, or loss of use of such property damaged or destroyed where such seepage, pollution or contamination is caused by sudden, unintended and unexpected happening during the Period of Insurance. (ii) the cost of removing, nullifying or cleaning-up seeping, polluting or contaminating substances unless the seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the Period of Insurance. (iii) fines, penalties, punitive or exemplary damage. This exclusion shall not extend this Insurance to cover any liability which would not have been covered under this Insurance had this exclusion not been attached. (h) in respect of advertising for: (i) failure or performance of contract, but this shall not relate to claims for unauthorised appropriation of ideas based upon alleged breach of an implied contract; (ii) infringement of registered trade mark, service mark, or trade name, other than titles or slogans, by use thereof on or in connection with goods or services sold, offered, for sale or advertised; (iii) incorrect description of any articles or commodity; (iv) mistake in advertised price. (l) arising from shipbuilding and/or shiprepairing contracts of the Insured. (j) arising out of any breach of the duty owed in a professional capacity by the Insured and/or persons for whose breaches of such duty the Insured may be legally liable, but this Exclusion does not apply to: (i) bodily injury and/or illness (including death at any time resulting therefrom) and/or personal injury suffered or alleged to have been suffered by any person or persons and/or loss of and/or damage to and/or destruction of property and/or the loss of use thereof resulting therefrom, or (ii) the rendering of or failure to render professional medical advice by medical persons employed by the Insured to provide first aid and other medical or welfare services." 12 The question in the current proceedings is whether the exclusion in cl 3(b) operates so that a party, which is insured under the policy, and which causes damage to the property of another party, which is also insured under the policy, cannot seek indemnity under the policy. 13 Provision is made in cl 7 for subcontractors to be insured for the purpose of Section C. Clause 7 is in the following terms: "7. Subcontractors In respect of operations performed by subcontractors and/or sub-subcontractors for the Insured, such subcontractors shall be deemed to be included in the name of the Insured. However, Section C does not cover any Occurrence which at the time of such Occurrence is insured by or would but for the existence of this Insurance be insured by any other Insurance or Insurances, except in respect of any excess beyond the amount which would have been payable under such other Insurance or Insurances had this Insurance not been effected." 14 An issue may arise in the ultimate proceedings with respect to the meaning and application of the words "operations performed by subcontractors." However, if those words present a difficulty, it does not presently need to be resolved. 15 The policy is controlled by a number of general conditions. Some of them are of relevance to the current controversy. Clause 2(c) deals with the notification of a claim and provides: "2(c) Any notice of claim given to the Insurer by any party insured under this Policy shall be accepted by the Insurer as a notice of claim given on behalf of all other parties insured under this Policy." 16 Provision is made in relation to subrogation in cl 5. The clause is in the following terms: "5 Subrogation Subject to the provisions of Part 8 of the Insurance Contracts Act, 1984 upon the payment of any claim under this Insurance, save as provided in the Cross Liability Clause, the Insurers shall be subrogated to all the rights and remedies of the Insured arising out of such claim against any person or corporation whatsoever except that the Insurers hereby waive all rights which they may have acquired by payment of a claim under this Insurance to recover the amount so paid from any person or corporation with whom the Insured, prior to the Occurrence of the loss or damage shall have agreed in writing to waive their rights to recovery in respect of any loss or damage which may be caused by such person or corporation to the property described in this Insurance. Notwithstanding the above the Insurers hereby waive all rights of subrogation or action which they may have or acquire against any of the insureds covered herein." 17 Of particular relevance to the present dispute is the cross-liability clause. The clause provides: "10. Cross Liability Each of the persons comprising the Insured shall for the purposes of this policy be considered as a separate and distinct unit and the words "the Insured" shall be considered as applying to each of such persons in the same manner as if a separate policy had been issued to each of them in his name alone and the Insurers waive all rights of subrogation or action which they may have or acquire against any of such persons. Provided that nothing in this clause shall be deemed to increase the limit of the Insurers' liability under this policy in respect of any one occurrence." 18 Provision is made in cl 11 in relation to breach by any insured of the general conditions. It is in the following terms: "11. Breach The failure by any Insured to observe obligations of disclosure, good faith and/or compliance with the terms of the Policy shall not prejudice the insurance in regard to any other of the Insured." Submissions of the plaintiffs 19 Transfield accepted the primary burden of submissions on behalf of the various plaintiffs. Only Transfield raised the issue of election. A summary of the plaintiffs' submissions follows. 20 Section C of the policy provides insurance cover for liability for damage occasioned to persons or entities other than the party insured, occasioned by the actions of the party insured. The exclusion in cl 3(b) forms part of Section C of the policy and has no operation in relation to Sections A or B. 21 The expression "the Insured" where appearing in the Section C Insuring Clause refers to the particular insured entity which makes a claim under Section C, namely the entity which is legally obligated to pay compensation or against whom a claim or suit to recover damages has been brought. 22 Equally, the plaintiffs argue that where the same expression "the Insured" appears in Exclusion 3(a) and Exclusion 3(b), its meaning and scope can only sensibly be the same as that which it bears in the Insuring Clause. The Insuring Clause (Clause 1) and the Exclusions Clause (Clause 3) operate together to define and limit the scope of cover. As Exclusion 3(b) operates as an exception to the cover provided by Section C, it must be construed in the same manner as the Section C Insuring Clause 1: Stolberg v Pearl Assurance Co Ltd (1971) 19 DLR (3d) 343 at 346-7; Weightman v Noosa Shire Council [1999] QSC 368 at 62 (Ambrose J). 23 Further, the plaintiffs submit that the "liability" in relation to which Exclusion 3(a) and Exclusion 3(b) operate is, and can only be, the liability of the particular insured entity which makes a claim under Section C. For those reasons, the reference in Exclusion 3(b) to "property owned by the Insured" means the property owned by the Insured who makes the particular claim under Section C. 24 The plaintiffs further submit that to construe "the Insured" in Exclusion 3(b) as meaning "any of the insured entities" is inconsistent with: (a) the use of the definite article; (b) the use elsewhere in the Policy of different language where it is intended to refer to insured entities generally or any one or all insured entities, attention being draw to the following: · "any party insured under this Policy" (General Condition 2(c)); · "all other parties insured" (General Condition 2(c)); · "any of the Insureds" (General Condition 5); · "additional Insureds" (General Condition 6); · "each of the persons comprising the Insured" (General Condition 10); · "any Insured" (General Condition 11); · "any other of the Insured" (General condition 11); · "Transfield Holdings Pty Limited and/or any other named Insured" (Endorsement 2(a); and · "the Insured parties" (Endorsement 2). 25 It is further submitted that where more than one person is insured "for their respective rights, interests and liabilities", the policy is a composite policy, not a joint policy: Federation Insurance Ltd v Wasson (1987) 163 CLR 303 at 309-311; General Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 at 406-408. 26 Accordingly, in the case of liability insurance, such words mean that, of the named insured entities, the insured entity whose interest is involved in a particular claim, is the insured in respect of it. The plaintiffs submit that this is equivalent to saying that the person who seeks the indemnity is the insured in respect of that particular claim: Stolberg v Pearl Assurance Co Ltd (at 346); Re FAI General Insurance Co Ltd & Fletcher Construction Ltd (1988) 10 ANZ Ins Cas 61-403 at 74,430 (White J). 27 It is further submitted that the conclusion that Exclusion 3(b) is referring only to the insured entity which makes the particular claim is expressly reinforced by General Condition 10, which provides for cross liability. 28 Endorsement No 7 to the policy, which is in identical terms to General Condition 10, reflects a similar intent. 29 Had a separate policy been issued to Transfield in its name alone, there would be no basis for contending that the reference in Exclusion 3(b) to "property owned by the Insured" meant anything other than property owned by Transfield. 30 Finally, it is submitted that in correspondence with others, the Insurers have asserted that in Exclusion 3(b), "the Insured" means "the primary insureds under the policy, namely Exben Pty Ltd, Transfield Holdings Pty Ltd and all subsidiary and controlled and Joint Venture companies" (letter dated 14 June 2002 from Moray & Agnew to Minter Ellison). Even if construed in this way, Exclusion 3(b) has no application to Transfield's claim under Section C, which is in respect of property owned by Elliott and Pearce. 31 It is submitted that if the Insurers are able to avoid their obligation to indemnify Transfield under Section C, they must demonstrate that the reference in Exclusion 3(b) to "property owned by the Insured" means property owned by any insured entity. Such a construction is contrary to both principle and authority: Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 at 323 (Wheeler J); Stolberg v Pearl Assurance Co Ltd (at 346) Re FAI General Insurance Co Ltd & Fletcher Construction Ltd at 74, 431-3 (White J). The submissions of the insurer 32 The cofferdam which failed was owned by Transfield and the policy does not respond to liability for property owned by the Insured (see Exclusion 3(b)) and furthermore, clause 7 of the policy provides for the purpose of identifying "the Insured" as follows: "In respect of operations performed by subcontractors and/or sub-subcontractors for the insured, such subcontractors shall be deemed to be included in the name of the Insured." 33 The insurer submits that being a commercial contract a policy of insurance should be given a businesslike interpretation. Interpretation of a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the object which it is intended to secure (McCann v Switzerland Insurance Australia Limited (2000) 75 ALJR 325 at 329 (para 22) per Gleeson CJ). 34 In construing a contract, all parts of it must be given effect to where possible and no part of it should be treated as inoperative, otiose or otherwise surplus (Lewison, 2nd ed, para 6.03; Laws of Australia Vol 25, Chapter 25.3, pra 8; Hi-fert Pty Ltd v Unisea Shipping Adriatic Inc (1998) 165 ALR 265 at 266-277; Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476 at 517 (para 152) and 541 (para 230); Re Strand Music Hall Co Limited ex parte European & American Finance Co Ltd (1865) 35 Beav 153 at 159; 55 ER 853 at 856). 35 The insurers submit that the expression "the Insured" when used in this exclusion is to be construed as meaning all of the insured under the policy. Alternatively, it should be construed as meaning: (a) the "contracting insured"; or (b) all of the insured other than the one making the claim under the Policy. Any other construction will result in exclusion 3(b) being otiose and would not give a businesslike interpretation to the Policy. 36 Emphasis is placed on the submission that the insurers rely on an exclusion which on its face must apply to claims being made by other than the contracting insured, because "the insured" cannot be liable to itself. 37 It is further submitted that the interpretation preferred by the insurer is consistent with authority, in particular, Workcover Queensland v Royal & Sun Alliance Insurance Australia Ltd (2001) 11 ANZ Ins Cas 61-489. together with Wadsley v City Mutual Life Assurance Society Ltd [1971] VR 140, Romay Automotive Ltd v Dominion of Canada General Insurance Co (1974) 43 DLR (3d) 346; Re Vergata et al And Manitoba Public Insurance Corp (1976) 67 DLR (3d) 527; Hartford Fire Insurance Co v Saskatchewan Mutual Insurance Co (1967) 59 DLR (2d) 649. Previous decisions 38 A contract must, of course, be construed having regard to the language used by the contracting parties. However, previous decisions in which courts have construed similar contractual provisions may provide useful guidance. 39 In Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd and Zurich Australian Insurance Ltd & Anor v Speno Rail Maintenance Australia Pty Ltd, (2000) 23 WAR 291, the Full Court in Western Australia considered clauses similar to those which require consideration in the present case, in the context of liability for injury to an employee. 40 The brief facts of present relevance were that Nolan was employed by Speno to carry out repair work on Hamersley's railway line. Hamersley was negligent and Nolan was injured. 41 Speno had arranged insurance which extended cover to Hamersley. However, the policy contained an employer's liability exclusion clause in the following terms: "(Zurich – the insurer) shall not be liable for claims in respect of: (1) EMPLOYER'S LIABLITY Personal injury to any person: (a) arising out of or in the course of the employment of such person in the service of the insured." 42 Zurich resisted the claim made on the insurance policy, relying on the exclusion clause. The trial judge found that as Nolan was employed by Speno, the exclusion clause applied to exclude liability. This finding was overturned by the Full Court which applied the cross liability clause in the policy, which was relevantly the same as cl 10 in the present policy. Although Nolan was the employee of the insured Speno, he was not the employee of Hamersley and accordingly, the employer's liability exclusion clause did not impact upon Zurich's liability to indemnify Hamersley against the claim by Nolan. 43 Wheeler J noted that this conclusion is consistent with the decisions in Weightman v Noosa Shire Council (at 368); Stolberg v Pearl Assurance Co Ltd (at 343) and V L Credits Pty Ltd v Switzerland Insurance Co Ltd [1990] VR 938 and, although arguably not consistent with the decision in Fletcher Organisation Pty Ltd v CML Fire and General Insurance Co Ltd (1987) 4 ANZ Ins Cas 60-805, that case could be distinguished as the relevant insurance policy did not contain a cross-liability clause. 44 In Workcover Queensland v Royal & Sun Alliance Insurance Australia Limited (at 61-489), Wilson J was called upon to consider a policy with an exclusion clause similar to the present exclusion clause and a cross-liability clause which was the same as the present cross-liability clause. His Honour reached a conclusion which appears contrary to that of the Full Court in Speno. 45 In Workcover, Leica Bride Pty Ltd, a labour hire company, which employed Slagle, was the subcontractor of Barclay Mowlem Construction Pty Ltd. As a subcontractor, Leica Bride was an insured under the relevant policy. Wilson J said of the exclusion clause: "Exclusion cl 3(a) should be construed as excluding liability for injury in the course of employment by any one of the insured (including Leica Bride). I am fortified in this approach by cl 12 of the general conditions of the policy which provides: (the clause was relevantly the same as the cross-liability clause in the present policy). In other words, the policy is to be construed as if there were a separate policy issued to each insured. Counsel for the applicant relied on the decision of White J in Re FAI General Insurance Company Limited v Fletcher Construction Australia Limited (1998) 10 ANZ Insurance Cases 61-403. There her Honour held that a clause similar to exclusion cl 3(a) should be construed from the point of view of the insured making the claim – ie as if 'insured' in the clause meant (in the present context) Barclay Mowlem. However, in that case there was no clause similar to exclusion cl 7 in the Royal policy." p 75,657 46 Clause 7 of the relevant policy made provision for subcontractors in similar terms to that provided in cl 7 of the present policy. 47 There are two matters in this passage which require comment. 48 With respect, I have difficulty in understanding the role which it is suggested cl 7 has in the construction of the particular exclusion clause. Although cl 7 confines the recovery under the policy, where other insurance of a subcontractor will respond to a claim, I do not understand how it can assist in determining whether the policy will otherwise respond to the claim of the subcontractor. To the contrary, the clause assumes that the policy will respond to the subcontractor's claim, unless there is other insurance. 49 Accordingly, I see no reason why cl 7 requires a construction of the cross-liability clause which is inconsistent with the ordinary meaning of the words in that clause. 50 The second matter is that his Honour rejected the reasoning of White J in Re FAI General Insurance. That decision and his Honour's reasoning was approved in Speno. 51 Both parties sought support for their submissions in Canadian decisions. The plaintiffs relied upon the decision of the Supreme Court of Canada in Stolberg v Pearl Assurance Co Ltd (at 346), and the defendant to Romay Automotive Ltd v Dominion of Canada General Insurance Co at 346; Re Vergeta et al And Manitoba Public Insurance Corp at 527 and Hartford Fire Insurance Co v Saskatchewan Mutual Insurance Co at 649. 52 Stolberg involved an insurance policy which excluded liability for injury to an employee of the Insured. There was no cross-liability clause. However, the court, upholding an appeal, found that the employee being referred to in the exclusion clause was confined to an employee of the entity making the claim. 53 Hall J reasoned that: "To deny recovery by appellant it would, in my opinion, be necessary to read the phrase 'sustained by any employee of the Insured' as if it read 'sustained by any employee of any of the Insured'. The 'Insured' under the terms of the policy, as amended by the endorsement, is any one or more of four persons named in the endorsement. The policy insures the insured against liability imposed by law upon 'the Insured', ie any one or more of the four persons. In the present case 'the Insured' upon whom liability had been imposed by law was the appellant, and the appellant alone. No liability had been imposed by law upon any of the other three persons by reason of the death of King. The exception, in respect of any claim under the policy, must be construed in the same manner as the clause defining the coverage in respect of that claim, as it is an exception from that coverage. The 'Insured' for the purpose of that exception must, in respect of such claim, be the same 'Insured' as the one or the ones who rely upon the coverage. In respect of the present claim only the appellant is the 'Insured' who has coverage under the policy. Consequently, in respect of this claim, he must be the 'Insured' who is referred to under the exception clause, and, that being so, the exception only applies if indemnity is sought by a person covered by the policy in respect of liability imposed upon him as a result of a claim made by his employee in respect of injuries sustained while engaged in his duties as such employee. That was not the situation in this case." 54 In Romay Automotive, O'Driscoll J distinguished Stolberg and came to a contrary conclusion, finding that it was critical in Stolberg that a "third party" had obtained a judgment against the insured. With respect, I have difficulty in accepting the proposition that a critical factor in the decision is whether the claim which is made is a mere claim or is supported by a judgment. 55 Both Vergata and Hartford Fire Insurance involved motor vehicle accidents where liability was complicated by reason of schemes which provided insurance for motor vehicle related accidents. I do not find those decisions of assistance in resolving the present matter. The preferred construction 56 In my opinion, the plaintiffs' approach to the matter should be preferred. The policy provides insurance to relevant parties "for their respective rights, interests and liabilities." Informed by the cross-liability clause, each party is to be considered as a separate entity "in the same manner as if a separate policy had been issued to each of them." 57 Section C of the policy provides that the insurer will pay all sums which the Insured shall become legally obligated to pay in the relevant circumstances. The Insured in this context must be a reference to the party which has the obligation to make the payment and will be the party which makes the claim. The exclusion clause can only operate in relation to that claim and it follows that the Insured referred to in cl 3 must be the party making the claim. 58 The insurer submits that this construction leaves cl 3(b) with no work to do – one cannot be liable for damage to your own property. However, there are circumstances where obligations to others may arise in relation to property which you own. The property may be leased or mortgaged, giving rise to rights in third parties. Furthermore, as the plaintiff points out damage to the property of one of the plaintiffs may be the occasion for damage to others who use that property. 59 No doubt the insurer when drafting the policy was eager to ensure that a claim, not otherwise sustainable under Section A of the policy, could not be made under Section C, where damage was sustained to the insured's own property and accordingly, being cautious, the exclusion was included to provide against that possibility, however remote. If there be any doubt, it must be resolved in favour of the insured (see C E Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1992-1993) 176 CLR 535 at 541-542. 60 In my opinion, for the exclusion to have the operation suggested by the insurer, it would have to read either "any Insured" or "an Insured" rather than "the Insured". 61 The purpose of the policy of insurance was plainly to provide insurance to Transfield and other parties involved with relevant Transfield projects. Although separate policies could have been issued this had obvious practical difficulties. By issuing one policy, which contained a cross-liability clause, the relevant parties could each be insured by a policy which responds to any particular claim made by a party. The commercial objective has been described elsewhere in these terms. "… On any construction site … there is ever present the possibility of damage by one tradesman to the property of another and to the construction as a whole. Should this possibility become reality, the question of negligence in the absence of complete property coverage would have to be debated in Court. By recognising in all tradesmen an insurable interest based on that very real possibility, which itself has its source in the contractual arrangements, opening the doors of the job site to the tradesmen, the Courts would apply to the construction field the principle expressed so long ago in the area of bailment. Thus all the parties whose joint efforts have one common goal, eg the completion of the construction, would be spared the necessity of fighting between themselves should an accident occur involving the possible responsibility of one of them." Commonwealth Construction Co Ltd v Imperial Oil Limited (1977) 69 DLR (3d) 558 at 562-63. Election – the relevant events 62 The chronology of relevant events is as follows: (a) prior to 14 June 2002, Transfield made a claim under Section C of the Policy in respect of its liability for the claims made against Transfield by reason of the damage to the property of Pearce and Elliott; (b) on 14 June 2002, the Insurers declined indemnity to Coffey Partners in reliance on Exclusion 3(b) (letter dated 14 June 2002 from Moray & Agnew to Minter Ellison); (c) on 17 June 2002, Moray & Agnew wrote to Transfield's solicitors, Holding Redlich, and said "we are instructed to assume conduct of Transfield's defence of the third party claims" and requested Holding Redlich's entire files in relation to the claims by Pearce and Elliott; (d) on 25 June 2002, Moray & Agnew wrote to Holding Redlich and said "we confirm that our clients extend indemnity to Transfield in respect of the Gray, W & D Elliott Earthmoving Pty Ltd and D N Pearce Plant & Maintenance Pty Ltd matters" and said they were looking forward to receiving Holding Redlich's entire files; (e) on 4 July 2002, Moray & Agnew wrote and said "we confirm that our clients have revoked the grant of indemnity to your client in relation to the claims by W & D Elliott and D N Pearce Maintenance claims has been revoked. The basis of the denial of indemnity is exclusion clause 3(b)." Transfield's submissions in relation to election 63 Transfield's submissions with respect to election were generally as follows: 64 There is an election where a person: (a) has two inconsistent rights ( Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 641 (Stephen J) and 655-6 (Mason J); Commonwealth v Verwayen (1990) 170 CLR 394 at 407-8 (Mason CJ) and 421 (Brennan J)); and (b) has knowledge of the facts giving rise to the inconsistent rights ( Sargent v ASL Developments Ltd at 645-6 (Stephen J) and 658 (Mason J)); and (c) acts in a manner consistent only with the exercise of one of those two rights and inconsistent with the exercise of the other ( Sargent v ASL Developments Ltd at 646 (Stephen J) and 656 (Mason J)). 65 If Exclusion 3(b) applies to Transfield's claim under Section C of the Policy, then as at 14 June 2002, the Insurers had a right to invoke that exclusion and deny liability to Transfield. 66 Having been notified of the claims by Pearce and Elliott, the Insurers had knowledge that Transfield's claim was in respect of damage to property owned by subcontractors of Transfield, namely Pearce and Elliott. 67 The Insurers' rights under the Policy to: (a) conduct the defence in the name of Transfield (Section C clause 1(b)); and (b) require Transfield's co-operation with the Insurers in the defence of the claim and assistance in the conduct of suits (Section C Clause 5); are rights which could not be invoked in the event of a refusal of indemnity. They could not be invoked without extinguishing the Insurers' right to invoke Exclusion 3(b); CE Heath Underwriting & Insurance Australia Pty Ltd v Campbell Wallis Moule & Co Pty Ltd [1992] 1 VR 386 at 393-395; Nigel Watts Fashion Agencies Pty Ltd v GIO General Limited (1995) 8 ANZ Ins Cas 61-235 at 75,653 (Handley JA). 68 By stating on 17 June 2002 that they were instructed to assume conduct of Transfield's defence and requesting Holding Redlich's entire files to be provided to Moray & Agnew, the Insurers acted in a manner consistent only with a grant of indemnity and inconsistent with a denial of liability, as Moray & Agnew had no independent right to assume conduct of Trasnfield's defence or request Holding Redlich's privileged files in relation to the claims by Pearce and Elliott. 69 The election is constituted by the assertion of the rights. It is immaterial whether the assertion of rights is acted upon; Turner v Labafox International Pty Ltd (1974) 131 CLR 660. Detriment is not required for an election: Sargent v ASL Developments Ltd at 647 (Stephen J); Commonwealth v Verwayen at 422 (Brennan J). 70 Further, Moray & Agnew's letter dated 25 June 2002 contained an unequivocal statement that indemnity was granted. This was additional conduct consistent only with a grant of indemnity and inconsistent with a denial of liability. Communication of the election will be sufficient without more; Sargent v ASL Developments Ltd at 647 citing O'Connor v SP Bray Ltd (1936) 36 SR (NSW) 248 at 261 (Stephen J). 71 The election is irrevocable once communicated to the other party: Sargent v ASL Developments Ltd at 646-7 (Stephen J) and 655-6 (Mason J); Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 451; Commonwealth v Verwayen 421-2 (Brennan J). In other words, upon exercise of the rights set out in paragraph 66 and the occurrence of the conduct referred to in paragraph 69, the inconsistent right under Exclusion 3(b) was extinguished. From that time onwards, the Insurers were no longer able to invoke Exclusion 3(b) to deny indemnity under Section C to Transfield. The insurer's submissions in relation to election 72 The insurer responded by submitting that there is no arguable basis upon which it can be said that the insurers have elected to grant indemnity under the policy. 73 Election only arises where a person is confronted with two truly alternative rights or sets of rights (Khoury v Government Insurance Office (NSW) (1984) 164 CLR 622 at 633). 74 It is submitted that an insurer in deciding whether a claim does or does not fall within the terms of a policy is not electing between two truly alternative rights which it has. In truth, if the claim falls within the terms of the policy, the insurer has no "right" to refuse indemnity, rather it has an obligation to grant indemnity. 75 Thus, in making an initially erroneous decision that a claim either falls within the terms of the policy or does not so fall and communicating that decision, an insurer is not choosing between two rights which it has. It is simply communicating its view of its contractual obligations. 76 Further, there is no evidence (or agreed fact) that the insurer had knowledge of the facts entitling it to deny liability at the time it made its alleged election. On this basis, also, the election argument must fail. (see Khoury v GIO at 634). 77 It may be that by making such a decision and communicating it to the insured, the insurer is making a representation which could result in a binding estoppel. 78 However, rightly, Transfield does not argue that any such estoppel has arisen because no estoppel can arise in the absence of detriment to the insured, of which there is no evidence. Has the insurer elected 79 Because of the view I have come to in relation to question 1 it is strictly unnecessary to answer this question. However, the matter has been fully argued and my answer may have utility. 80 There are acknowledged difficulties with the application of the doctrine of election. Mason J said in Sargent: "Any discussion of the principles governing the circumstances in which a party's words or conduct may preclude him from exercising a legal right which he possesses is beset with difficulties. They have their origin in the differences to be found in the various doctrines (election, waiver and estoppel) which may come into operation and in the differing concepts which each doctrine has at times been thought to embrace." P 655 81 Turning to the doctrine of election, his Honour said: "A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights ie when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract." p 655 82 When the election involves a decision as to whether or not to continue an existing relationship, or bring it to an end, it is relatively straightforward to apply the doctrine. However, when all that occurs is that one party makes a choice which does not alter the relationship in any fundamental manner, problems can arise. Those difficulties have been confronted previously in relation to claims under polices of insurance. 83 The fact that the doctrine of election will operate in relation to a contract of insurance is plain. See Khoury v Government Insurance Office (NSW) at 622 where at p 633 in the joint judgment of Mason, Brennan, Deane and Dawson JJ, their Honours said: "A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one of them by acting 'in a manner which is consistent only with his having chosen to rely on (the other) of them', per Lord Diplock Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd (1971) AC 850 at p 883." 84 In Nigel Watts Fashion Agencies Pty Limited v GIO General Limited at 61-235 Handley JA said: "The doctrine (of election) in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it assets rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim. See Yorkshire Insurance v Graine [1922] 2 AC 541, Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 633 and Reid v Campbell Wallis Moule & Co Pty Ltd & Ors (1990) VR 859 per Tadgell at 868-9, 872-875 and the cases there cited." (76,650) 85 Factual circumstances similar to the present case have given rise to some difficulty in the absence of an estoppel. In Freshmark Limited v Mercantile Mutual Insurance (Australia) Limited (1994) 2 Qd R 390, the insurer insured a trailer and a claim for its damage was made by the insured. Although the trailer was damaged in circumstances not covered by the insurance policy, the insurer authorised repairs. Subsequently the insurer stopped the repair work and denied liability. 86 Fitzgerald P, who was in the minority, said: "In my opinion, the appellant was confronted with two mutually exclusive courses of action between which it was required to make a choice … In this matter, it was not disputed that it had the requisite knowledge at the material time (cf Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622, 633-634), and its actions were consistent only with an intention to accept liability under the policy and inconsistent with the exercise of its right to deny liability." p 395 87 McPherson JA took a different view. Because the terms of the policy meant that a claim could never arise, he found that there were no inconsistent rights available to the insurer, which could give rise to an election. Although the insurer was able to make a choice, it was not a choice between inconsistent rights. His Honour said: But that is not this case. The defendant was not confronted with the option of choosing between two alternative and inconsistent rights, nor did it elect to pursue one of those rights to the exclusion of the other. There was no choice between a right to accept liability under the policy, and a right to reject liability. That is so because there never was any liability under the policy, and consequently no right or even power under the policy to reject that liability. It would not, I think, be a correct use of language, or a correct application of the doctrine of election, to speak of the defendant as having elected to exercise its right not to reject the plaintiff's claim. What the defendant (like everyone else) enjoyed might be regarded as an immunity from claims that were not within the scope or terms of the policy; but, properly considered, it could not be accurately described as a right that it had a choice or option not to exercise." p 395 88 I prefer the reasoning of McPherson J. In my opinion, the acceptance by the insurer of a claim by an insured to which the policy does not extend cover cannot amount to an election. This is to be contrasted with the circumstance identified by Handley JA in Nigel Watts where the policy would respond to the claim but for an entitlement in the insurer "to avoid the policy or reject the claim for breach of condition." Of course, although there may be no election, there could be an estoppel. The situation may be otherwise if the insurer has formed the view that the claim does not fall within the policy but nevertheless continues to conduct the insured's defence (see ACN 007838584 Pty Ltd v Zurich Australian Insurance Ltd (1997) 69 SASR 374). 89 In the present case, I have found that the insurer is liable to indemnify the plaintiffs in relation to the relevant claims. However, if it were otherwise, in my opinion, the insurer has not made an election which would disentitle it to deny liability under the policy. Although it may have exercised a choice whether to accept liability under the policy, that was not a choice between two inconsistent rights. There is nothing to suggest that it did not act to reject the claim as soon as it formed the view that it was not liable under the policy. 90 I answer the separate questions as follows: 1(a) yes. 1(b) yes. 1(c) yes. 2. 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