TGI Australia Limited v QBE Insurance (Europe) Limited [2007] NSWSC 1254

New South Wales Supreme Court

CITATION : TGI Australia Limited v QBE Insurance (Europe) Limited [2007] NSWSC 1254 This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S) : 30 October 2007 JUDGMENT OF : Hammerschlag J

EX TEMPORE JUDGMENT DATE : 30 October 2007

DECISION : Summons dismissed with costs.

CATCHWORDS : CONTRACT – Construction of clause in insurance contract

TGI Australia Limited (ACN 000 041 458) PARTIES : Allianz Australia Insurance Limited (ACN 000 122 850) QBE Insurance (Europe) Limited ERC Frankona Reinsurance (III) Limited

FILE NUMBER(S) : SC 50049/2007

COUNSEL : I.M. Jackman SC with D.F.Villa (First & Second Plaintiffs) D.L. Williams SC with D.S. Weinberger (First & Second Defendants)

SOLICITORS : Kennedys Lawyers (First & Second Plaintiffs) McCabe Terrill (First & Second Defendants)

- 12 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

HAMMERSCHLAG J

TUESDAY 30 OCTOBER 2007

50049/07 - TGI AUSTRALIA LTD & ANOR v QBE INSURANCE (EUROPE) LTD & ANOR

EX TEMPORE JUDGMENT

Introduction

1 HIS HONOUR: The facts which give rise to this controversy are not in dispute. 2 In about 1999 Rail Infrastructure Corporation ("RIC") (formerly Rail Access Corporation) contracted with Barclay Mowlem Constructions (NSW) Limited or a related company, ("Barclay Mowlem"), to carry out certain works at Redfern railway station. 3 Barclay Mowlem held two insurance policies which were current in July 1999. 4 The first was a policy ("the underlying insurance") with the first plaintiff, TGI Australia Ltd, which covered it up to $2.5M for any occurrence during the period of insurance which caused bodily injury and/or personal injury for which Barclay Mowlem became legally obliged to pay damages. 5 The second was a policy with the second plaintiff, Allianz Australia Insurance Limited, ("the umbrella insurance"), which covered it for liability in excess of the amount recoverable under the underlying insurance up to $20M for any one occurrence. 6 RIC held a policy, current in July 1999, obtained through London Insurance and Reinsurance Market Assurance ("the LIRMA policy") with the first defendant QBE Insurance (Europe) Limited, the second defendant ERC Frankona Reinsurance (III) Limited and Independent Insurance Company Ltd. The last mentioned company failed and is not a party to these proceedings. The first and second defendants each undertook one third of the risk under the LIRMA policy. 7 On about 10 July 1999, during the course of the work, Mr Garry Buckman sustained a serious head injury and by his tutor commenced proceedings in this Court against Barclay Mowlem and RIC. 8 On or about 18 October 2004 Barclay Mowlem and RIC entered into an apportionment agreement (embodied in an exchange of correspondence) under which the amount of any liability to Mr Buckman would be apportioned 80 per cent to Barclay Mowlem and 20 per cent to RIC. In addition, it was agreed that solicitors who had been acting for Barclay Mowlem in the proceedings would act on behalf of both Barclay Mowlem and RIC. It was agreed that it remained open for the first plaintiff to seek contribution from any other party or any other insurer in respect of the liability which had arisen. 9 The proceedings by Mr Buckman were settled. 10 Pursuant to the settlement, Barclay Mowlem and RIC, under indemnity from the plaintiffs, paid him $3.2M, plus an amount of $365,784 for funds management, and an amount of $385,000 for his costs of the proceedings. In addition, the plaintiffs paid Barclay Mowlem's and RIC's costs of defending the proceedings in the amount of $272,753.24 . 11 The plaintiffs assert that Barclay Mowlem was an insured under the LIRMA policy in respect of its liability to Mr Buckman and that the defendants were obliged to indemnify it accordingly. 12 The plaintiffs claim that the defendants are liable to contribute rateably to the amounts paid by them on behalf of Barclay Mowlem to Mr Buckman. They assert further that the defendants are obliged to make contribution with respect to the costs incurred by them in defending his claim. 13 The contribution sought from each defendant is one third of half of what was paid by the plaintiffs, which amounts to $572,230.07. The Issues 14 There are two issues. The first and principal issue is whether, on the proper construction of the terms of the LIRMA policy, Barclay Mowlem was an insured under it. The second issue is if Barclay Mowlem was an insured under the LIRMA policy, whether RIC was liable for a share of the defence costs and had indemnity in respect of those costs from the defendants so that the defendants were obliged to make contribution to the plaintiffs in respect of the plaintiffs' payment of those defence costs. Was Barclay Mowlem an insured under the LIRMA policy? 15 The cover provisions in the LIRMA policy are divided into two sections. 16 Section I is entitled "Primary Broadform Public & Products Liability Insurance". Paragraph 1.1 is entitled "Liability" and is in the following terms: "1.1 Liability Subject to the Limit of Liability stated in the Schedule, the Insurer will pay to the Insured or on the Insured's behalf all sums which the Insured shall become legally liable to pay by way of damages (excluding punitive, exemplary or multiple damages) by reason of: i. Personal Injury ii Property Damage iii Advertising Liability occurring during the Period of Insurance as a result of an Occurrence in connection with the Insured's business." 17 Section II is entitled "Primary Contract Works Third Party Liability Insurance". Under the heading "Insuring Clause", par 1.1A provides as follows: "1.1 A The Insurer will indemnify the Insured for all amounts which the Insured shall become liable to pay in respect of or arising out of or by reason of: (a) Personal Injury or (b) Property Damage as a result of an Occurrence during the Period of Insurance arising out of or in connection with or in relation to: - Any Insured Contract." 18 There is no issue that Mr Buckman's accident was an Occurrence under the LIRMA policy. 19 The LIRMA policy contains no definition of Insured Contract. 20 Under Section I there is a deductible of $100,000 in respect of each and every loss. There is nil deductible under Section II in respect of Personal Injury losses. 21 The insured under the LIRMA policy is the "Insured named in the Schedule". Under the heading "Insured", the Schedule provides as follows ("the Definition"): " Section I RAIL ACCESS CORPORATION including subsidiary or controlled companies now or previous existing or hereafter formed or acquired. Section II 1. RAIL ACCESS CORPORATION, RAIL SERVICES AUSTRALIA and ALLIANCE CONTRACTORS 2. Any Firm or Company now or subsequently constituted which is or becomes a subsidiary, associated or controlled company under the control of the Named Insured or over which the Named Insured has or assumes active management. 3. Any Person, Firm or Company with which any of the foregoing in 1 or 2 above enter into a Joint Venture, Partnership or similar Contract, Agreement or Arrangement. The foregoing in 1, 2 and 3 are hereinafter referred as the 'Named Insured'; Additional Insureds 4. Any 'Principal' being any principal or proprietor or other person or organisation (by whatever name) for or on behalf of whom an Insured Contract is carried out. 5. (i) Contractors and/or Sub-contractors including, but not limited to, manufacturers, suppliers, lower tier sub-contractors and any other person, firm or company whom any of the foregoing in 1, 2, 3 or 4 above have agreed to include as an Insured in this Policy, or are required to indemnify, hold harmless or release from liability by virtue of any contract or agreement; (ii) Any successor or permitted assign of any of the foregoing in 1, 2, 3, 4 or 5(i) above, subject to prior agreement by the Lead Insurer, whose agreement shall not be unreasonably withheld; (iii) Any director, partner, officer or employee and/or family of any of the foregoing in 1, 2, 3, 4, 5(i) and 5(ii) above whilst acting with the authority or on behalf thereof; 6. Railcom, but only with respect to Section I of this Policy; 7. Architects, engineers or other consultants and/or their employees; in conjunction with any insured contract; 8. Any other person, firm or company having an insurable interest pursuant to this Policy; All for their respective rights interest and liabilities." 22 It is not in issue that Barclay Mowlem was in the relationship of a Contractor with RIC. 23 There is also no issue that no person described in 1, 2, 3 or 4 of the Definition had agreed to include Barclay Mowlem as an Insured in the LIRMA policy and that none of them were required to indemnify, hold harmless or release from liability Barclay Mowlem by virtue of any contract or agreement. 24 The question of construction which arises is whether cl 5(i) of the Definition requires that for a person to be an Insured under it, one of the persons described in pars 1, 2, 3, and 4 of the Definition must have agreed to include that person as an Insured in the LIRMA policy ("an inclusion agreement") or must have agreed to indemnify, hold harmless or release that person from liability by virtue of any contract or agreement.