A Queensland transport company was held to be in breach of contract for failing to obtain a policy of insurance to cover a customer that it had contracted with to supply transport services to.
In issue
- The main issue for determination by the Supreme Court of Queensland was whether a contract between a transport company and a customer required the transport company to obtain insurance that covered the customer.
The background
Lake Fox Ltd (Lake Fox) and Orica Australia Pty Ltd (Orica) were co-defendants in a claim brought by Robert Rusbridge (the plaintiff) who was injured in the course of his employment with Lake Fox whilst at the premises of Orica. Orica and Lake Fox were parties to a transport services agreement (TSA) whereby Lake Fox provided transport services to Orica. Orica ultimately paid $228,421 to settle the plaintiff’s claim.
Orica commenced a claim for breach of contract alleging Lake Fox breached the terms of the TSA by failing to hold an insurance policy that covered Orica under the TSA.
Lake Fox disputed the interpretation of the TSA alleging it did not require it to take out insurance to cover Orica.
The decision at trial
Under clause 21 of the TSA, Lake Fox was required to obtain an insurance policy that not only covered itself but also included Orica as an additional insured or 'a person to whom the benefit of insurance extends'.
Whilst Lake Fox did obtain a policy of insurance, and the policy of insurance identified the TSA as an 'Approved Specific Customer Contract', the policy did not name Orica as an additional insured and there was a disclaimer in the policy which stated 'the Customer is not an insured party under this policy, is not a person to whom insurance cover provided by this policy extends'.
Lake Fox submitted that the operation of clause 21 was to be read down so that it limited or constrained the nature of the policy Lake Fox had to effect and that nothing in the TSA required Lake Fox to cover Orica’s own negligence and so such a term could not be implied or read into the TSA.
It also attempted to rely on the affidavits of its staff member, Bryan Thomas Smith, and Lake Fox’s insurance broker Michael Donaldson who were both involved in the negotiations of the TSA and arranging Lake Fox’s insurance.
The affidavits alleged that there were no discussions with Orica about assuming liability for their negligence, and that Smith had views about the respective bargaining power of Lake Fox and Orica. Furthermore, Donaldson alleged he was unaware of any insurer who would have covered Orica for its own negligence, or who would have been prepared to have Orica named as an additional insured.
Justice Freeburn rejected Lake Fox’s submissions on clause 21. His Honour found that that the terms of the TSA in clause 21 were clear and free of any ambiguity and required Lake Fox to effect the relevant insurance in Orica’s name as an additional insured or otherwise as a party entitled to that cover.
His Honour also held that the policy did not identify Orica as an 'additional insured', or as a co-insured, or as an insured at all. Lake Fox’s policy did not extend the benefit of the insurance to Orica.
Finally, His Honour ruled the affidavits were inadmissible because they were irrelevant to the issues at trial. The fact that extending the policy to Orica would have been difficult or impossible did not matter as the contractual obligations between the two parties were clear.
Implications for you
The decision stresses the importance of carefully reading the wording of service agreements and insurance policies to determine whether a party to a contract is required to extend insurance coverage to the other and whether the wording of the terms of the insurance policy extend the benefit of insurance to fulfil any contractual obligations.
