In December 2001 Mr Hubbard suffered minor burns whilst working
for Mr Wells (a plumbing subcontractor) on a construction site in
Sydney. Mr Hubbard sought damages from Mr Wells who joined his
business liability insurer, Wesfarmers Federation Insurance
(Wesfarmers) to proceedings. The business
liability policy covered liability to independent contractors but
not employees. At first instance, the Court held that Mr Hubbard
was a subcontractor and Wesfarmers was liable under the policy and
consequently Wesfarmers was ordered to pay the judgment sum and Mr
Wesfarmers appealed on the basis that Mr Hubbard was in fact an
employee and not a subcontractor and the costs clause in the policy
did not cover Mr Well's costs. The NSW Court of Appeal
unanimously agreed that Mr Hubbard was in fact an employee and the
judgment for Mr Hubbard was set aside.
Of relevance to insurers was the Court's treatment of the
costs clause in the policy. That clause provided as follows:
"If you are entitled to be indemnified under this
policy for a claim made against you, we pay the reasonable legal
costs incurred with our prior written consent in defending or
settling the claim."
Despite the absence of a liability to Mr Hubbard, Mr Wells
sought an order that Wesfarmers pay his defence costs. Mr Wells
argued that the reference to a claim in the clause meant that
indemnity should be construed by reference to the actual claim made
by Mr Hubbard and as long as the claim itself was formulated as one
which engaged the policy, the conditions in the clause were
satisfied. Wesfarmers argued that the insuring clause indemnified
against a 'liability' to pay compensation, that this was a
precondition to a claim for costs and in this case no such
liability arose and therefore there could be no indemnity for
The Court distinguished policies that contained different
language, but on the facts of this case the Court held that the
clause did not apply to 'liabilities' but to
'claims' and as no exclusions applied, Wesfarmers should
respond under the policy and indemnify Mr Wells for
"reasonable legal costs incurred with prior written
consent in defending or settling the claim".
Points to note: Underwriters need to be mindful of the language
used for costs coverage and whether they wish to extend cover for
costs in the event that an insured is ultimately found not to be
entitled to indemnity for the claim under the policy.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).