Whether the definition of 'insured' in the insurance policy extended to insure a sub-subcontractor and whether a sub-subcontractor was an 'agent' of the 'Named Insured'.
- The New South Wales Supreme Court considered the construction of a general liability policy of insurance, concerning whether a sub-subcontractor (plaintiff) was an 'insured' or 'named insured' as defined in the policy for the purposes of the insuring clause. Additionally, the Court considered whether the plaintiff was the agent of a subcontractor and therefore a 'named insured'.
In May 2017 Rohrig (NSW) Pty Ltd (Rohrig) entered into a Works Period Agreement with Rhino Commercial Stripouts Pty Ltd (Rhino) to complete structural demotion works. Around May or June 2018 Rohrig issued Rhino with a Works Order requiring Rhino to procure and perform certain demolition works at the Gordon Hotel (the hotel). At the relevant time Rhino had no employees, which were instead supplied by the plaintiff.
Both Rhino and the plaintiff formed part of the wider Rhino Group of companies and Mr Ryan Murphy was at all material times the managing director and controlling mind of both Rhino and the plaintiff.
On 30 July 2018 three employees of the plaintiff were undertaking some of the specified works at the hotel when a fire occurred and caused damage to neighbouring properties. Proceedings (x2) were commenced against Rohrig and both are being defended by Allianz on behalf of and in the name of Rhino.
The plaintiff was subsequently joined as an additional defendant in both proceedings and sought an indemnity in relation to the defence of those proceedings from the defendant insurer, Allianz.
The defendant accepted that both Rohrig and Rhino were a 'Named Insured', the latter also by virtue of being a 'subcontractor' as the word was used in the definition of Named Insured.
The plaintiff argued at trial that it fell within the definition of 'Named Insured' because either:
- 'subcontractor' includes sub-subcontractor, the plaintiff being a sub-subcontractor of Rohrig or subcontractor of Rhino; or
- The plaintiff was an 'agent' of Rhino, a sub-contractor.
The decision at trial
The only issue, in this proceeding, was the proper construction and application of the definition of 'insured' in the Allianz policy and whether it extended to insure the plaintiff.
In that regard, the Court did not accept that 'subcontractor' included 'sub-subcontractor' and determined that 'Named Insured' was only intended to include legal entities that had a direct legal relationship with Rohrig. In reaching this conclusion, the definition of 'Insured' in the policy of insurance was construed as a whole. The court held that if a broader meaning was given to 'subcontractor' within the meaning of 'Named Insured', that would render other parts of the definition a nullity, particularly subsequent references to sub-subcontractors. It was also observed that the policy still covered sub-subcontractors if they satisfied the requirements of clause 3(c) or fell within some other provision.
Interestingly, it was also not accepted that the plaintiff was a subcontractor of Rhino, as Rhino gave directions and instructions on site day to day to the plaintiff’s employees and so it could not be said that Rhino had handed over responsibility of the works to the plaintiff.
The alternative argument made by the plaintiff was that it was a 'Named Insured' because it was an 'agent' of Rhino, which was a sub-contractor. The term 'agent' was not defined in the policy and as such it was a question of construction regarding the intention of coverage. It was submitted by Allianz that the word should be given its ordinary legal meaning.
The Court adopted a practical construction of the term 'agent' and did not consider the plaintiff to be Rhino’s agent as it was not doing Rhino’s work on its behalf nor was it authorised to perform Rhino’s contractual obligations. Rather, the plaintiff was contracted to provide labour only (which Rhino utilised to meet its own contractual obligations).
Additionally, the Court held that the plaintiff had not demonstrated that Rhino was contractually obligated to take out insurance for the plaintiff, and observed that the contract between the entities was informal and oral.
Implications for you
This decision highlights the importance of identifying the particular factual matrix, together with considering legal authority in policy interpretation, as well as possible unintentional consequences pertaining to policy coverage. Whilst it was not accepted in this scenario that the plaintiff was an agent of Rohrig under the Policy, the outcome may have been different if for instance the subcontractor had subcontracted out the totality of the works such that they did not exercise any effective control of the works as the intermediary. A sub-subcontractor should not assume their risk is covered by the party that contracts them or the principal contractor.