Can a principal look to a head contractor’s insurance policy to cover the principal’s own negligence?
This appeal concerned the scope of a contractor’s contractual obligation to obtain insurance for the benefit of both itself and its principal.
Centennial operated a mine near Newcastle. Labour for the mine was supplied to Centennial under a contract for the supply of labour services with a company called Advantage. Under that contract, Advantage was obliged to obtain certain insurances for the benefit of both itself and Centennial.
In pursuance of that contractual obligation, Advantage obtained a Combined Business Insurance Policy from GIO. The policy covered Advantage and, relevantly, any person to whom Advantage was “obligated by virtue of any contract or agreement to provide insurance such as is afforded by this Policy … but only to the extent required by such contract or agreement”.
A worker, Mr McDonald, was injured at the mine. Mr McDonald sued Centennial and Advantage. There were cross-claims between the defendants. Centennial also sought indemnity from GIO under the policy issued to Advantage. GIO denied indemnity.
At trial, the primary judge found that Centennial and Advantage were liable to Mr McDonald, but that for the purposes of contribution Centennial should bear 100 per cent of the liability. The trial judge also found that GIO was required to indemnify Centennial under the policy issued to Advantage. GIO appealed on the question of indemnity.
The issue on appeal concerned the scope of Advantage’s contractual obligation to obtain insurance for the benefit of Centennial. If, under the contract, Advantage was obliged to insure Centennial for Centennial’s own negligence, it was accepted that the policy would respond (there being no dispute about the scope of the insuring clause in the policy or the application of any exclusions under the policy).
GIO contended that the insurance clause covered Centennial in respect of Advantage’s negligence, but did not extend so far as to cover Centennial in respect of Centennial’s own negligence.
The Court of Appeal dismissed GIO’s appeal. The lead judgment was delivered by Gleeson JA.
His Honour was presented with a deceptively simple one-page contract but it incorporated by reference a series of schedules and attachments, not all of which were entirely consistent or congruent. The insurance clause was tucked away in one of the attachments. In order to construe the insurance clause in the context of the contract as a whole, his Honour undertook a detailed examination of the web of relevant provisions. This was, with respect, an orthodox approach. Nonetheless, his Honour’s judgment provides a useful reminder of the extent to which a court may be prepared to delve into the minutiae of contractual schedules and appendices in order to construe part of them in the context of a contract as a whole.
The noteworthy aspect of his Honour’s judgment was his Honour’s treatment of the Court of Appeal case of Erect Safe Scaffolding (Australia) Pty Ltd v Sutton  72 NSWLR 1. In that case, one of the issues was the scope of a contractual obligation to obtain insurance for the benefit of a principal (see  to ). After surveying relevant authorities, McClellan CJ at CL said (at ):
The approach taken in each of these decisions is that in the absence of express words, the obligation under an insurance clause in a contract which is provided to support an indemnity clause will not require the subcontractor to maintain insurance against loss occasioned by the head contractor’s negligence.
Gleeson JA rejected a contention that those comments should be seen as a statement of general principle. Instead, his Honour characterised those comments as conclusions drawn from the specific contract and policy before the Court in Erect-Safe. His Honour was therefore able to distinguish Erect-Safe on the facts.
It is not uncommon to find an insurance clause tucked away in commercial contracts. Ordinarily, as in this case, such a clause requires the head contractor to obtain a variety of insurances for the benefit of both itself and the principal.
In any given case there may be a question as to whether the head contractor is obliged to obtain insurance that extends so far as to cover the principal for the principal’s own negligence. The key message from this case is that there is no blanket rule that the answer is “no”. Rather, the starting point is “it depends”. What is needed in each case is a detailed examination of the contract and the policy in issue. Sometimes the outcome of that analysis will be “no” (as in Erect-Safe), but in other cases the answer will be “yes” (as in this case).
Jeremy Whelen – CommBar profile