Not named but still covered – subcontractor covered under Contract Works Policy

The usual limitation on cover for those subcontractors who expressly require insurance has long been thought of as being sufficient to narrow the scope of cover. A recent decision of the Western Australian Court of Appeal has confirmed that such a limitation may not apply where the 'Named Insured' includes a class of persons which the subcontractor could fall within.

 

Author: Isabel Cusumano
Judgment date: 8 August 2019
Citation: Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson t/as Holgerssons Complete Home Service [2019] WASCA 114
Jurisdiction: Supreme Court of Western Australia – Court of Appeal

Background

In February 2015, Frederick and Jennifer McMurray entered into a contract with Mosman Bay Construction Pty Ltd (Mosman Bay) to undertake renovations to their property at Mosman Park in Perth WA (the property). Mosman Bay entered into a subcontract with Hans Bo Kristian Holgersson (Holgersson) for the interior painting of the property.

Mosman Bay held an Annual Projects Construction and Legal Liability Insurance Policy (the Policy) with Tokio Marine & Nichido Fire Insurance Co Ltd (Tokio) in relation to the works at the property.

On 16 January 2016, a fire occurred at the property causing damage.

Mr and Mrs McMurray brought proceedings against others including Tokio on the basis that the Policy provided cover for Mosman Bay including its subcontractors. Tokio subsequently joined Holgersson to the proceedings seeking recovery.

The dispute

Holgersson alleged he was an insured under the Policy and that Tokio was prevented from suing him.

The Policy Schedule listed the Insured as ‘Mosman Bay Construction Pty Ltd and all Principals, Contractors and Sub-Contractors’.

The definition of ‘You’ in the Policy Wording was ‘the Person(s) or legal entity named in the Schedule’.

The definition of ‘Named Insured’ included all contractors and sub-contractors, not being You, but only to the extent that Mosman Bay was required to insure those contractors or sub-contractors under the relevant contract.

Holgersson alleged that he fell within the class of insured persons listed in the Policy Schedule and therefore fell within the definition of ‘You’.

Tokio argued that Holgersson was not named by proper noun in the Policy Schedule and that as such he did not fall within the definition of ‘You’. In addition, they argued that Holgersson did not fall within the definition of ‘Named Insured’ as the subcontract with Mosman Bay did not require insurance to be taken out in his favour.

The question of whether Holgersson was an insured under the Policy was referred to the court for preliminary determination.

On 10 May 2018, the primary judge found that Holgersson was an insured. Tokio appealed this decision.

Decision

The Western Australian Court of Appeal dismissed Tokio’s appeal and upheld the primary judge’s decision.

The court found that:


  • Holgersson fell within the class of persons ‘named’ as insured in the Policy Schedule and that being so ‘named’ he fell within the definition of ‘You’.
  • Unlike the Policy Wording, the Policy Schedule was created specifically for the particular construction contract entered into by Mosman Bay and its language should be given preference in the event of any conflict with the wording.
  • Tokio’s construction of the Policy Schedule was narrow and rendered its wording redundant. The Court preferred a broader interpretation of the Policy Schedule which allowed a person or entity to be ‘named’ by reference to a class.
  • The Policy should be given a business-like interpretation that makes commercial sense given the cover being offered. In particular, the word ‘named’ is not confined to a proper noun and should be used in its ordinary sense such as ‘specified, mentioned, “designated or described’.

Why this case is important


  • When interpreting Contract Works and Construction Policies, courts will consider the purpose of the Insurance cover being offered and the commercial circumstances surrounding the claim.
  • The limitation in the wording to apply cover to those contractors who expressly require insurance has been thought to be sufficient, but such a limitation would not apply where the 'Named Insured' includes a class of persons which the contractor would fall under so that they fall within the definition of 'You.'
  • In order to limit their risk, Insurers may need to consider removing the ‘catch all’ of listing all principals, contractors and subcontractors in the Policy Schedule as a failure to do so may result in the Policy being interpreted in a way that was not intended.
  • It is important for underwriters to clearly name on the Policy Schedule which principals, contractors or subcontractors they wish to include in the definition of the Insured.

Contributors

Isabel Cusumano Associate