Judgment date: 15 June 2010
El Hayek v Vasic [2010] NSWSC 634
New South Wales Supreme Court1
Judgment date: 15 July 2010
QBE Insurance Ltd v Vasic [2010] NSWCA 166
New South Wales Court of Appeal2
In Brief
- In approaching the construction of an insurance policy, a court must determine the meaning the document would convey to a reasonable person with the background knowledge available to the contracting parties. The court must also have regard to the purpose and object of the transaction.
- Evidence of facts existing when a contract was made will not usually be admissible as part of the surrounding circumstances as an aid to construction unless they were known to both parties.
Background
On 3 July 2003, the plaintiff Ahmed El Hayek, then aged 16, went with his father to Mulga Creek Station (Station) at Byrock. Since 2000, the Station had hosted parties of sports shooters hunting for feral animals.
On arrival at the Station, the plaintiff was directed towards the former shearer's quarters which provided the accommodation for the visiting hunters. In the early hours of 4 July 2003, the shearer's quarters caught alight. The plaintiff suffered severe injuries in the ensuing fire.
The owner of the property, Josslyn Vasic (Insured) had a policy of liability insurance. Her insurer, QBE, denied indemnity.
Supreme Court
At first instance, Garling J in the Supreme Court, affirmed that an insurance policy is a commercial contract and should be given a businesslike interpretation having regard to the language used by the parties and the commercial circumstances behind the policy. Garling J reinforced that in approaching the construction of an insurance policy, a court must ascertain the meaning which the document would convey to a reasonable person with all of the background knowledge available to the contracting parties whilst at the same time having regard to the purpose and object of the transaction.
There was also a dispute regarding which documents constituted the policy and whether a broker involved in effecting the insurance was the agent of the Insured or the Insurer. Those issues were determined in favour of the Insured, in large part because the judge said he "would have expected some direct evidence to be led" on the issue and the statement of "the person best placed to give direct evidence ... contained no evidence addressed to this issue".
The Insured's policy covered her for:
The Insured argued that the words "in connection with" had to be read broadly and were sufficient to encompass anything which was reasonably incidental to the activity of hunting. The Insured submitted that any occurrence directly related to the hunting, including anything reasonably incidental such as sleeping overnight in accommodation provided on the property, was covered.
QBE argued for a more narrow construction submitting that the word "only" at the end of the clause was significant and required the event to be causally and temporally related to hunting before coverage was available. As this accident did not occur whilst the plaintiff was actively engaged in hunting, the Insurer said the policy did not respond.
The Insured had a policy covering the rural property with another insurer but this policy excluded claims involving the use of firearms. The Insurer asserted that its policy covered the "gap" in insurance resulting from this exclusion and called evidence from the Chief Executive of the Sporting Shooters Association of Australia as to the "genesis" of the gap cover.
Garling J did not accept QBE's interpretation and noted:
- The reference to hunting relates to the reason the Insured was allowing shooters onto the property, not to the particular conduct or activity of the shooters whilst on the property.
- This interpretation was supported by the relative remoteness of the property from nearby towns or accommodation. The court said it was not unreasonable to contemplate that hunters who go to remote properties for hunting will stay on those properties.
- Without something such as the Insured's claims history, which may suggest some motivation on the part of the Insurer to limit the coverage, the word "only" in the phrase "for the purpose of hunting only" does nothing more than clearly define the nature of the activity.
- The evidence as to the "gap" cover did not impose any limitation on the ambit of cover under the Insurer's policy.
For the reasons outlined above, the court determined that the Insured was entitled to indemnity in respect of the plaintiff's claim and the Insured was not in breach of any of the conditions of the policy.
The Court of Appeal
The decision of the Court of Appeal was delivered exactly a month after the decision of the Supreme Court. In a unanimous decision the Court upheld the Supreme Court decision.
The Court, however, expanded on the issue regarding the documents that constituted the policy. The Insurer sought to rely on evidence from an officer of SS Insurance Brokers that the policy was developed as 'gap insurance' to cover liability of licensed shooters that was excluded from the Insured's property cover and a significant percentage of public insurance policies.
The Insurer's problem was that there was no evidence it or the Insured were aware that was the purpose of the policy. The Insurer tried to argue that the scope of admissible material in the task of interpretation of a written contract was not restricted to circumstances known to both parties. The Insurer said it may include evidence that is said to indicate the purpose or object of the transaction, including its genesis, background, context and market, without such matters being known by the parties themselves or by both of them.
The Court categorically rejected this submission noting that it was:
The Court said that if the parties' intention had been to limit cover to the licensed shooter only and only for the activity of hunting, a different policy wording and structure would have been appropriate.
Implications
In interpreting a policy of insurance, it is crucial to look at the commercial circumstances the policy was intended to address. Any insurer seeking to rely upon an alleged breach by an Insured of failing to take all reasonable precautions must be able to point to some fact or circumstance going well beyond a casual want of care or casual act of negligence as that is the very thing insured against.
Where an insurer or broker is providing some form of gap cover, great care must be taken in describing what is to be covered by the gap policy. It is also vital that all parties to the agreement are aware of the true nature of the policy if some form of limited cover is intended.
Where an Insurer seeks to rely on evidence as to the "genesis" or purpose of the particular policy, evidence is required as to what the parties new in the context of their mutual dealings. Evidence as to the subjective aims and intentions of a person who "created" the policy, who was not a party nor representing a party to the particular policy is inadmissible to prove the purpose of the policy.
1 Garling J
2 Allsop P, Giles JA, MacFarlan JA
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