Australia: When is Extrinsic Evidence Admissible for the Purposes of Construing a Policy?

QBE Insurance Australia Limited v Vasic [2010] NSWCA 166

Summary

The New South Wales Court of Appeal ('NSWCA') has considered under what circumstances relevant extrinsic evidence would be received as an aid to construe the scope of a policy.

In this case, the insurers sought to rely on certain relevant extrinsic evidence in construing the scope of indemnity under the policy in question. First, the insurers produced a proposal form and policy wording of an insurance policy taken out by the insured with another insurer. Second, the insurers produced a statement of a broker as to its aim and genesis of the policy.

The NSWCA has ruled that extrinsic evidence of these matters could not be received as an aid to construction because they were not used or relied upon by the contracting parties in negotiating the contract in issue.

Background

The claimant (then a minor), accompanied his father on an overnight hunting excursion on a property in outback New South Wales ('the property'). His father came to the property for the purpose of hunting. The insured owned and managed the property. The claimant was injured in a fire at the accommodation provided by the insureds. The claimant brought proceedings against the insureds seeking damages for personal injuries. The insurers denied liability. They were joined to the proceedings. The insurers applied to determine whether, upon a true construction of the relevant policy ('QBE policy'), they were liable to indemnify the insureds.

The insuring clause in the policy provided that the insureds were covered for liability to third parties for bodily injury, or property damage, or both, caused by an occurrence in connection with the insureds' activity of allowing licensed shooters on their property for hunting only.

Arguments

The insureds contended that the policy covered liability incurred in connection with accommodation; it being incidental to the defined activity of hunting.

The insurers argued that the policy did not cover accommodation or any activity outside hunting. The insurers produced the earlier insurance policy with another insurer ('the earlier policy') to show that the aim and genesis of the subject policy was to cover a gap in the earlier policy that excluded liability for loss or damage arising from the use of firearms. Further, the insurers adduced a statement by an insurance broker (who was an agent of the Sporting Shooters Association, not either of the parties) to show that the policy wording adopted in the subject policy was developed as a gap cover insurance for the purpose of covering rural landowners for their liability for negligence to licensed shooters while hunting on their properties.

Primary Judge's decision

The primary judge ruled that, once licensed shooters attended the property for the subjective purpose of hunting then any loss and damage incidental to that purpose was covered. He agreed with the insureds' construction of the policy and gave weight to, among other things, the following surrounding circumstances: the remoteness of the property; the lack of nearby accommodation; and the need for licensed shooters to stay on the property during the hunt.

The primary judge rejected the insurers' reliance on extrinsic material or surrounding circumstance evidence. He considered the earlier policy could not be received as an aid to construction because there was no evidence to show that the insurers (or their agent) were aware of the existence of the subject policy. Similarly, the statement could not be received because there was no evidence that the parties had knowledge of how the subject policy was developed.

The primary judge concluded that the insurers were liable to indemnify the insureds. The insurers appealed, contending that the primary judge misunderstood the policy wording and failed to have regard to the relevant extrinsic evidence in arriving at his conclusions.

Decision of the Court of Appeal

The NSWCA has ruled that surrounding circumstances included what was known between the parties with respect to materials covering the object and purpose of the transaction, including its genesis, background, context, and the market (if any) in which the parties were operating. However, there must be mutuality of knowledge before those surrounding circumstances can be used as an aid in the construction and interpretation of a policy.

The notion of what is known to the parties involves attributing to a reasonable person what the parties knew in the context of their mutual dealings in order that the court might ascribe an objectively correct meaning to the text. Facts existing during the making of an insurance contract would not be received as part of the surrounding circumstances unless both parties knew them or those facts are notorious, that knowledge of them will be accepted.

The primary judge was found to have correctly rejected the insurers' extrinsic evidence. The insurers (and their agent) were neither aware of, nor relied upon, the earlier policy in preparing the subject policy. The broker's statement, although unchallenged, was no more than a statement of the subjective aims and intentions of a person who was not representing either contracting party.

The coverage clause covered the insureds for liability for different types of injury and damage caused by an occurrence which must have a connection with a certain activity. The event that occurred was in connection with that activity because, as was known to the insureds, the claimant's father was a licensed shooter who came on the property for the purpose of hunting.

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