The case of GIO General Limited v Centennial Newstan
Pty Ltd  NSWCA 13 underlines the importance of
insurers giving a practical commonsense interpretation to their
extensions to principals. It also shows the necessity of examining
the particular facts of each case, including the precise wording of
both the policy extension and the contractual terms between the
insured and principal.
In this case Centennial operated a mine and had an agreement
with Advantage for the supply of labour to work at the mine. The
injured plaintiff was employed by Labourforce (a related company to
Advantage), which had an agreement with Advantage to supply labour
to fulfil Advantage's obligations to Centennial.
GIO was Advantage's public liability insurer. The definition
of "insured" extended to principals
"but only to the extent required by such contract or
Insurance and indemnity clauses were included in the agreement
between Centennial and Advantage. Relevantly the insurance clause
in the agreement required Advantage to take out public liability
insurance, and pursuant to cl 43.2.2 of the Site Regulations
(forming part of and attached to the agreement) was additionally
required to "note the principal and all subcontractors as
interested parties and must cover the respective liabilities of
each of those parties to each other and to third
The plaintiff was injured and sued all three companies. The
trial judge found against all three defendants and in the
contribution proceedings apportioned liability 100% to
GIO denied indemnity to Centennial and was consequently joined
by Centennial as a third party in the proceedings. Centennial was
successful in the ensuing third party proceedings against GIO for
full indemnity under Advantage's policy. GIO appealed.
Gleeson JA, who delivered the main judgment in the NSW Court of
Appeal, noted that the court "must have regard to the
whole of the terms of the Agreement" and that the
"words of every clause must, if possible, be construed so
as to render them all harmonious with one another".
The arguments raised by GIO on appeal included the
That the Site Regulations requiring an extension to principals
did not form part of the agreement or alternatively were not
applicable to the agreement. The appeal court disagreed.
That the words "respective liabilities"
ought to mean arising as a result of the negligence of Advantage or
one of its contractors and not the liability of Centennial for its
own negligence. The appeal court disagreed.
That the Site Regulations were required to be interpreted in
the same manner as in Erect Safe Scaffolding
(Australia) Pty Ltd v Sutton  NSWCA 114 in
which McClellan CJ stated: "in the absence of express
words, the obligation under an insurance clause in a contract which
is provided to support an indemnity clause will not require the
subcontractor to maintain insurance against loss occasioned by the
head contractor's negligence."
Gleeson CJ said that the statements in Erect
Safe were "not to be understood as a
statement of principle, but merely an observation concerning the
"approach" taken in a number of authorities when
construing the obligation under an insurance clause which is
provided to support an indemnity clause. His Honour's
observation was also qualified by the need to have regard to the
express words of the insurance clause under
consideration." He then went on to distinguish the case
and said that the Erect Safe decision
"is not determinative of the construction to be given to
cl 43.2.2 of the Site Regulations."
That the plaintiff, as an agent of Advantage, did not fall
within the words "third parties" in cl 43.2.2 of
the Site Regulations. Gleeson CJ disagreed and held that such an
interpretation did not involve a strained construction.
The appeal court therefore dismissed GIO's appeal, leaving
it liable to fully indemnify Centennial as principal.
The arguments by GIO on appeal raise interesting questions
regarding the interpretation of insurance clauses and their
interaction with the corresponding indemnity clauses. Notably,
however, they were uniformly unsuccessful. The resultant decision
of the High Court appears to represent what we would suggest is the
conventional interpretation of these clauses and comes close to
contradicting the NSW Court of Appeal decision in Erect
Safe case, which may have led some insurers to take a
more hopeful view of the extent of the obligations under their
policy extensions than was really open to them.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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