The intention of the parties is paramount when determining the scope of a liability exclusion clause

07 October 2022

The Court found that QBE’s proposed construction of NTI’s 'Tool of Trade' exclusion clause was not consistent with the intention of the parties of the NTI insurance policy.

In issue

  • Application for contribution between insurers;
  • Whether an exclusion in defendant insurer’s policy engaged;
  • Proper construction of the exclusion clause.

The background

QBE Insurance (Australia) Ltd (QBE) sought a declaration that National Transport Insurance Ltd (NTI) was liable to make a 50% contribution in respect of an amount QBE paid to defend and settle a claim against its insured, George’s Loader Hire Pty Ltd (GLH).

GLH owned a Volvo L120E Plant Loader (Loader) which it supplied to a contractor to use in connection with railway maintenance works in the Hunter Valley in New South Wales (Site).

The claim against GLH arose on 17 November 2014, when Mr Renall (a worker on the Site) was injured when he attempted to remove a rail closure which was being lifted and mobilised by the Loader (Incident). The Loader was stopped at the time of the Incident, however, according to the driver of the Loader, it was about to continue mobilising the rail closure when the Incident occurred.

At the time of the Incident, GLH maintained a General and Products Liability Insurance Policy (QBE Policy) as well as an NTI Fleet Insurance Policy (NTI Policy). QBE’s total costs of indemnifying GLH with respect to the Incident were a little over $1 million. Although no claim was made by GLH under the NTI Policy, QBE contended that the NTI Policy also responded to the claim made against GLH in respect of the Incident.

Both QBE and NTI agreed that if indemnity was available to GLH with respect to the claim, contribution should be apportioned on 50/50 basis. In dispute was whether a 'Tool of Trade' exclusion was enlivened by the circumstances of the Incident.

The exclusion stated that NTI would not pay 'for liability incurred or caused by operating as a mechanical Tool of Trade'. 'Tool of Trade' was defined under the NTI policy to mean '… the operation of Your Motor Vehicle whilst engaged in and undertaking its designed purpose of excavating, digging, grading, drilling, spraying, scraping, pumping, vacuuming, suction, lifting, or like operations' (Exclusion).

The decision at trial

The Court highlighted the importance of paying close attention to the words used in the Exclusion when considering its operation and scope. Judge Stevensen found that the inclusion of the words 'like operations' suggested that the intention of the parties was to exclude not only liability arising at the actual moment of the nominated activities, but also liability arising while the designed purpose of the Loader was being implemented; by engaging in those or similar ('like') operations.

The key issue was therefore whether GLH’s liability to Mr Renall was 'incurred or caused by' 'the operation of [the Loader] whilst engaged in and undertaking its designed purpose of … lifting, or like operations'.

The Court accepted that the NTI Policy intended to exclude cover for the risks associated with GLH’s operation of each of its vehicles for their 'designed purpose' as 'Tools of Trade' as opposed to their use as motor vehicles.

The Court found that any liability of GLH to Mr Renall was incurred whilst the Loader was still engaged in and undertaking the implementation of the Loader’s designed purpose (ie: lifting and mobilising the railway closure) and the Exclusion was therefore enlivened by the circumstances of the Incident.

QBE was not entitled to any contribution from NTI.

Implications for you

The judgement acts as a reminder that the Court will look to the intention of the parties when considering the operation of all aspects of an insurance policy, including exclusion clauses. The Court will take a practical approach, considering the intended commercial operation of the policy when it was first underwritten. Catch words such as 'like operations' are likely to expand the scope of exclusions clauses and should be appropriately considered when underwriting policies and/or determining whether cover is available under a policy in response to a claim.

QBE Insurance (Australia) Limited v NTI Limited [2022] NSWSC 1273

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