In the Full Federal Court decision of Liberty Mutual Insurance Company Australia Branch trading as
Factual Background
Building and construction company
On
The proceedings in the Federal Court related to the disputes between Icon and its two thirdparty liability insurers:
Decision at trial
In relation to the Liberty policy, Icon argued that a Condition within the policy, when engaged, effected Contracts Commencing cover - such that within the terms of the policy, in each policy year, Icon obtained cover for all contracts declared in the relevant policy year for the life of those contracts and, most importantly, during the defects liability periods of those contracts.
Icon also argued that if it was not entitled to indemnity under the written terms of the policy, as properly construed, it was entitled to have the policy rectified in order to give effect to the common intention of Icon and Liberty (this being that the policy would act as a Contracts Commencing policy and so provide cover during the defects liability period).
The Primary Judge was not persuaded that the Condition in question could be read in such a way as to give effect to Contracts Commencing cover. However the Primary Judge did accept that the parties had a mutual intention that Contracts Commencing coverage was to be given, and declared that the Liberty Policy be rectified to reflect the common intention of the parties.
He therefore held that cover under the Liberty Policy extended to the Incident, which occurred during the defects liability period.
As to the
Cross Appeal
Icon argued that the Primary Judge erred in his interpretation of the Condition, and submitted that the Condition was textually clear and extended cover to the defects liability period for contracts that were incomplete at the date of expiry, so long as the appropriate instructions were given. Icon further submitted that this interpretation of the Condition was consistent with the commercial purpose of the insurance required by it as a commercial construction contractor, whose risks and liabilities extended to the defects liability period.
In the event of ambiguity in an insurance policy, the Full Court held that it should be resolved by having regard to the context (including the market) in which the parties are operating. The Full Court agreed with Icon in respect of the commercial purpose of the insurance.
The Full Court allowed the cross appeal finding that Icon had obtained run-off insurance cover from Liberty under Condition 15 of the policy for the
Liberty Appeal
Having allowed the Appeal, the Full Court was not required to resolve Liberty's Appeal other than by setting aside the orders made by the Primary Judge - as they were inconsistent with Icon's rights under the subject Condition and success on the cross-appeal. However, the Full Court did address the Appeal of Liberty and ultimately held that the finding that the parties knew of each other's intentions, and that the Contracts Commencing intention was commonly held, was clearly available to the Primary Judge.
Conversely, Icon submitted that if there had been an intention to exclude a whole building from the definition of 'Product' then one would expect a clear statement to that effect.
The Full Court found the absence of words clearly denoting the building and construction process to be significant although not determinative. The Full Court relied on the findings in HDI Global Speciality SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 [28] to find that where words are ambiguous, the context of the agreement must be analysed.
As such, The Full Court turned to the context of the
The Full Court found that the Primary Judge erred in finding that the definition of "Completed Operations" was not made redundant by the Primary Judge's definition of "Product". The result of this error led the Primary Judge to dismiss the significance of the distinction between "Completed Operations" and "Products" as they relate to the exclusions.
The Primary Judge held that the exclusions would not apply to construction contracts, and that the contract itself was a "Completed Operations" - and therefore did not consider the exclusions which it found to only apply to a "Product".
The Full Court accepted
The Full Court ultimately allowed the Appeal on the basis that the Primary Judge should have considered the contextual background in circumstances where the meaning of ordinary words were not clear.
Key Take Away
- The Full Court maintained that in the event of ambiguity in an insurance policy, the context (including the market) in which the parties are operating, as well as the commercial purpose of the policy, must be considered (Icon's Cross Appeal); and
- Similarly, the Full Court considered that the context of Insurance Policies must always be considered in circumstances where the definition of ordinary words are not clear (
QBE Appeal). - The Full Court ultimately prefers Policy Interpretation which refers to extrinsic contextual material where Policy terms are not clear.
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