Contractual Indemnities – The Saga Continues

In Rusbridge v. Lake Fox Limited [2024] QSC 279 Justice Freeburn re-examined the interplay between a contractual indemnity and an agreement to insure in the context of a personal injury claim.

The injured party was a truck driver for Lake Fox which had contracted with Orica to provide transport services. He was injured at Orica’s premises when he left his hand on the footplate of a stabilizer leg as it was retracting.  He sued Orica who settled his claim for $248,421.00.  Orica then proceeded against Lake Fox alleging that it had breached the terms of the contract between them by failing to obtain an insurance policy that covered Orica for this claim.

While Lake Fox did have a public liability policy, it did not identify Orica as an additional insured.  This left Lake Fox to argue that any contractual requirement for it to take out insurance did not extend to providing cover to Orica for its own negligence in circumstances where the indemnity clause in the contract did not itself require this. In other words, to resort to the “Erect Safe” “principle”.[1]

The Contract

(a)…

(b)      broadform public and product liability insurance with a limit of indemnity of not less than $20,000,000.00 for each and every occurrence… which covers the liability of [Lake Fox] (including to Orica) in respect of:

...

(ii)  the bodily injury of, disease, or illness (including mental illness) to, or death of, of any person ….

Arising out of the performance of this Agreement (including the provision of the Transport Services) by [Lake Fox].”

The court noted that that clause on its own, did not assist Orica and merely required Lake Fox to maintain insurance covering its own liability to a third person who suffers personal injury.  However, the following subparagraph of the contract extended the obligation as follows:

“The insurance policies required shall include Orica as an additional insured or a person to whom the benefit of the insurance extends for its respective rights and interests.”

The Ruling

The judge noted at [23] that:

“The purpose of interpretation does not allow a court to force upon a provision of a private legal document a meaning that the words of the provision cannot fairly or reasonably bear, and to substitute for the bargain actually made one which the court believes could better have been made.”

As to the once favoured Erect Safe principle, its decline in application in both Queensland and New South Wales continues, with the Judge commenting at [25] that:

“The court is not bound by the outcome in another case involving a similar but not identical contract. Given that the ultimate question for the court is the meaning of the particular document in issue, dependent on construing it as a whole and with reference to any evidence that is admissible extrinsic evidence peculiar to that document, it is very difficult to see how a decision on the meaning of one document could ever be strictly binding in relation to another…”

With respect to the agreement to insure, the court commented that the text was clear and that there was no ambiguity.  The Court noted the following submission by Lake Fox’s Counsel:

“this indemnity was originally pleaded but abandoned.[2] So, there is no dispute the indemnity doesn’t extend to Orica’s own acts of negligence. The only dispute is whether the insurance clause, via the backdoor, so to speak, picks up that indemnity, that there was – in a case where the indemnity doesn’t exist there is still an insurance obligation for a transport operation to take out cover that covers an explosive manufacturer for its broad business and that can’t be so … on any sensible view of the contract.”

The Court rejected that approach at [28] stating:

"The concession that there is no ambiguity is a concession that was rightly made. The text of clause 21.3 of the agreement required Lake Fox to effect the relevant insurance in Orica’s name as an additional insured or otherwise as a party entitled to that cover”.

The court further commented at [28] that:

“A reasonable businessperson would have understood the text of clause 21.3 to mean that Fox was obliged to fulfill the requirement that the insurance cover be extended to Orica.  Any other interpretation would involve a failure to give primacy to the text and to give the clause a meaning that it cannot fairly or reasonably bear.”

Implications

Whilst the court reiterated here that each contract must be read on its own terms, it seems this is close to the final nail in the coffin of the so called Erect Safe principle.

Even in the advent of statutory intervention such as 236B of the WCRA, an agreement to insure remains a powerful device for a party in a superior bargaining position to divest itself of risk and will remain a headache for the party in the inferior bargaining position which must go out and obtain cover for another party for that party’s own negligence – even though how that first party complies with the duties it owes is usually something entirely out of the second party’s control.

The Court was also entirely unsympathetic to the difficulties and costs in obtaining such a broad additional cover for an entirely unrelated party about whom an insurer may know very little. Attempts to introduce evidence of such things were shut down with the court commenting at [51] that:

“None of that has any relevance to the issues in dispute.  Much of it also record either “background” or subjective views of Lake Fox or its arrangements with its broker none of which qualifies as mutually known facts”.

As to evidence from Lake Fox’s broker as to the difficulties in placing such cover, the Court said at [52]:

“If it were relevant the evidence does not go very far.  It is little more than [brokers] subjective views rather than proper evidence that the insurance could not be placed or even that it may be difficult to place”.

It was said that those views were not relevant in any event because the contract required Lake Fox to extend the cover of its broadform public and product liability policy to Orica.  The fact that that might have been difficult or even impossible to do, does not matter - “what matters is the contractual obligation”.

The outcome then was that Orica recovered the entire sum of its settlement with the Plaintiff after a deduction for the excess that would have been payable under Lake Fox’s policy.

This is a stark reminder to those in industries facing the imposition of onerous contractual obligations from large corporations in superior bargaining positions not to just bury their heads in the sand on this issue and to seek either the removal of such clauses or if this is not possible, to contact their broker or insurer to ensure cover is in place.