Written by Sam Pennell
Kerembla Pty Ltd v XL Insurance Company SE, trading as Brooklyn Underwriting [2023] FCA 769.
The Federal Court provided a timely reminder, to insurers and insureds alike, to carefully review policy wording when it discussed the implications of an exclusion clause with contentious wording in the decision of Kerembla Pty Ltd v XL Insurance Company SE, trading as Brooklyn Underwriting [2023] FCA 769. The decision was upheld by the Full Court of the Federal Court.
The decision was made in favour of the insured due to ambiguity and restrictions in the wording of the insurance policy.
Exclusion Clause/’Write-Back’ Clause
An exclusion clause is a term commonly included in a policy of insurance that excludes or restricts an insurer’s obligation to indemnify the insured in certain circumstances.
A ‘write-back’ clause is another term often included in a policy of insurance that can operate together with an exclusion clause. A ‘write-back’ clause can specify circumstances where indemnity may still be granted despite an exclusion clause applying.
Facts
- Kerembla Pty Ltd (“Kerembla”) provided mining services to the Hunter Valley Operations Mine (“Hunter Valley”).
- On 19 May 2021 Kerembla intended to transport an excavator from the Hunter Valley mining site to Kerembla’s headquarters.
- Kerembla’s employees loaded an excavator onto a trailer to be towed by a truck.
- The truck drove from the mining site to Kerembla’s headquarters along Lemington Road, a public roadway, which was the most direct route. Safety training had been provided earlier. Kerembla’s employees ensured all safety measures were considered in choosing the route and concluded the machinery was capable of being safely driven along the roadway chosen.
- There were multiple bridges on Lemington Road which the truck would need to travel underneath to reach its destination. Before commencing the trip, employees measured the height of the truck to be 4.3 metres. However, incorrect measurements were taken.
- The truck stopped before proceeding under the first bridge which was labelled at 5 metres. An employee measured the clearance height, concluded it was safe to proceed and the truck was able to safely travel under this bridge.
- The truck approached the second bridge which displayed a clearance sign of 4.9 metres. This time, as the truck proceeded under the second bridge, the truck collided with the bridge due to the incorrect measurement previously taken.
- There was damage to the bridge which was owned by the Hunter Valley.
- The Hunter Valley made a claim for damages to the bridge against Kerembla, and Kerembla lodged a claim with their insurer, XL Insurance (“the insurer”) for these damages pursuant to a public and product liability insurance policy.
- The insurer denied indemnity on the basis of an exclusion clause.
- Kerembla agreed the exclusion clause applied but submitted the ‘write-back’ clause was likewise applicable, and indemnity should be granted.
- A dispute arose between the insured and the insurer as to whether indemnity should be granted.
Issues Before the Court – the Meaning of the ‘Write-Back’ Clause
There was no dispute as to whether the policy of insurance applied to accidents of this nature. There was also no dispute as to whether the exclusion clause applied. The dispute surrounded a ‘write-back’ clause.
The ‘write-back’ clause read indemnity would be denied if the exclusion clause applied but for damages arising out of, amongst other things, the following circumstances:
- “Any Vehicle (including any tool, implement, machinery or plant forming part of or attached to or used in connection with such vehicle) whilst being operated or used by You or on Your behalf as a Tool of Trade at Your premises or on any Worksite.” or
- “The loading or unloading of any Vehicle.”
Kerembla argued indemnity should be granted as the ‘write-back’ clauses were triggered for numerous reasons.
The Court was required to determine if:
- The truck, trailer and excavator satisfied the definition of “any vehicle”;
- Whether the employees of Kerembla were operating the vehicle as a “tool of trade”;
- Whether the incident occurred on a “worksite”; and
- Whether the incident occurred whilst “loading or unloading” the vehicle.
To be successful Kerembla needed to successfully argue points 1, 2 and 3 all jointly applied, or in the alternative, point 4 applied in isolation.
Federal Court Judgment – Points 1-3
On the first point, the Court found the truck, trailer and excavator was encapsulated in the definition of “any vehicle”.
On the second point, “tool of trade” was defined in the policy as:
“…a Vehicle that has tools, implements, machinery or plant attached to or towed by the Vehicle and is being used by You at Your premises or on any Worksite. Tool of Trade does not include any Vehicle whilst travelling to and from a Worksite or Vehicles that are used to carry goods to or from any premises.”
This was a contentious issue as the first sentence of this definition, and the second sentence had contrasting applications.
The insurer submitted a literal reading of the term should be considered and argued the excavator was a “good” that was being carried, which would mean the ‘write-back’ clause did not apply.
The Court declined this argument and elected to consider the definition in the light of the policy as a whole rather than a literal reading. The Court held the first sentence of the definition of “Tool of Trade” would be left with little or no operative effect if the second sentence was construed literally. Thus, the Court was required to apply a broader interpretation to the second sentence to not undermine the application of the first sentence. It was this broader interpretation that led to the Court being satisfied with the application of this provision in favour of the insured.
On the third point, the issue was whether a public road, where the collision occurred, was to be considered a “worksite”. It was agreed between the parties that the Hunter Valley Mining site (where the trip commenced), was a worksite. The question became whether Kerembla’s HQ (where the trip was to conclude) was also a worksite. If so, based on the policy wording, it would follow that the public roadway in-between, where the collision occurred, would be considered a worksite.
Kerembla’s HQ consisted of a primary office, depot and workshops. It was accepted this location was incidental to drilling work and ownership or tenancy of premises, which led the Court to be satisfied with the final element of these provisions and finding in the insured’s favour that the “write-back” clause applied, and indemnity ought to be granted.
Federal Court Judgment – Point 4
The insurer was successful in their defence that the incident did not occur whilst “loading or unloading” the vehicle.
Kerembla submitted the relevant insurable event which resulted in the loss was the loading of the truck, rather than the collision with the bridge, in that the error in measuring the height of the trailer and excavator was in the course of loading the truck.
The Court rejected this argument and said if the parties had intended the clause to refer to property damage caused by or arising out of the loading or unloading of any vehicle, then the parties had readily available language in order to manifest such an intention. The omission of the words “caused by or arising out of” from the clause should be treated as intentional.
Although the Court found in favour of the insurer on this point, the commentary provides a reminder of the considerations made by the Court for claims of this nature, and the importance of the wording used when constructing a policy which will be considered if the matter proceeds before the Court.
Appeal Judgment
The insurer appealed and argued the Federal Court failed to consider multiple factors. However, the judgment was ultimately upheld.
The Court of Appeal agreed the ordinary and natural meaning of the definition was to be construed together with the intention of the term as drafted.
The Appeal Judge re-enforced the approach that where there is ambiguity in a clause, the insurer is to consider it in light of the policy as a whole and take a broad approach rather than a narrower approach.
Implications
The decision shows the Court’s reluctance to implement the literal meaning of a definition in isolation, especially in circumstances where such reading would render a separate portion of the policy meaningless.
In commenting on the principles of construction of the clause, his Honour Jackman, J at paragraph 8, in the initial decision of the Federal Court, referring to previous case law, stated:
“the insuring clause and any exclusion clause must be read together in a harmonious way so that due effect is given to both, and the right conferred by the former is not negated or rendered nugatory by the construction adopted for the latter; in relation to the construction of exclusion clauses, such a clause is to be construed according to its ordinary and natural meaning, read in the light of the contract as a whole”
The implications of these comments to insurers are they will need to ensure their policies are written without ambiguity and consider the intention of the clause and the policy as a whole, not merely the clause in isolation. These implications will be particularly relevant when writing exclusion clauses to limit indemnity in certain accident scenarios. If there is ambiguity, the clause will be interpreted broadly, which will be unfavourable to insurers who are attempting to restrict the scope of indemnity in certain circumstances.
If you wish to discuss this decision, please contact Doran Yacobi on 03 9947 4504 or any member of the Ligeti Partners team on 03 9947 4500.
