When drafting exclusions, unless the party being excluded is specifically identified, the exclusion is not limited to works owned by or in the possession of the insured. Policies will be interpreted based on the ordinary meaning of the language used, and parties should ensure that they have an evidentiary basis to support alternative policy constructions.
In issue
- Whether a Contract Works exclusion in a contractors Liability Policy is limited to those parts of the works owned by or in possession of the Insured that makes the claim under the policy.
The background
Prestige Form Group NSW Pty Ltd (Prestige) and Richard Crookes Constructions (RCC) entered into a subcontract for the provision of formwork and associated works related to 2 Oran Park. Prestige erected the formwork onto which the concrete was poured.
Two days after Prestige completed the formwork for Basement 1 (being the first level above Basement 2, the lowest level), the formwork failed whilst concrete was being poured into it by a third party contractor. The failure caused the concrete slab on Basement 1 to collapse into Basement 2.
RCC notified Prestige that, as a result of the collapse, the works had been damaged.
Prestige sought indemnity under its contractors liability insurance policy with QBE. QBE denied the claim on the basis that the policy excluded indemnity 'in respect of or in any way connected with any liability in respect of damage to property which consists of or forms part of the Contract Works'.
'Contract Works' was defined so as to include the formwork.
The decision at trial
Prestige submitted that the exclusion should be narrowly construed so as to restrict its application solely to Prestige’s contract works, and not works pursuant to any subcontracting. Prestige relied on the definitive article 'the' before ‘contract works’ in order to make this distinction, rather than 'any' or 'all'. The Court found that the ordinary and natural meaning of the words in the exclusion did not favour Prestige’s narrow construction. The word 'the' was not sufficient to support a distinction between Prestige’s works and RCC’s works.
Additionally, the Court found that the language used in other exclusions in the policy specified 'the Insured'. For example, the ‘Faulty Workmanship’ exclusion pertains to work 'done or undertaken by the Insured'. In this instance, there is a clear indication of whom the exclusion applies to, in contrast with the Contract Works exclusion in question.
Finally, the Court accepted QBE’s submission that there was nothing uncommercial about its interpretation. It highlighted instances where cover would nevertheless be available to Prestige.
Implications for you
There are a number of aspects to policy interpretation. Perhaps chief amongst those is to construe language according to its natural and ordinary meaning. There needs to be something else to depart from that starting position. Here, as the Court aptly put it, there was 'too slender a hook to bear the weight' of Prestige’s submission to depart from the starting principle.
Prestige Form Group NSW Pty Ltd v QBE European Operations PLC [2023] FCA 749
