The recent NSW Court of Appeal decision in GIO General Limited v Centennial Newstan Pty Ltd is a powerful reminder of the breadth of a typical obligation found in many contracts requiring one party to extend its public liability insurance to cover the other party.

In this case, Centennial, which operated near Newcastle, entered into an agreement with labour hire company Advantage for the supply of labour to perform work at Centennial’s coal mine. One such worker supplied by Advantage, Mr McDonald, was injured when his leg was crushed while working on the longwall installation at the mine. He brought proceedings against both Centennial and Advantage for negligence. The primary judge found that the injury was caused solely by the negligence of Centennial and hence, it should bear 100% per cent of the liability.

Centennial, in turn, claimed the indemnity from GIO, the public liability insurer of Advantage. In doing so, Centennial relied on the following provision in the agreement:

“… [Advantage’s] public and product liability policies must note the Principal [Centennial] and all subcontractors as interested parties and must cover the respective liabilities of each of those parties to each other and to third parties. The policy must cover each indemnified party to the same extent as it would if each of the parties had a separate policy of insurance.”

GIO has advanced various arguments why the above clause does not require Advantage to insure Centennial for liability arising from Centennial’s own negligence, including that it was “overwhelmingly improbable” that the parties intended that Advantage would maintain insurance cover in respect of Centennial’s own negligence. The Court of Appeal unanimously rejected GIO’s arguments, saying that the above clause “was clearly directed to providing Centennial with cover of the same character under the Policy for its own interests in the performance of the Agreement by Advantage” and found that GIO was liable to indemnify fully Centennial in respect of its liability to Mr MacDonald.

It is worth noting that the above clause is not an uncommon provision in services, supply and construction contracts. Contractors and suppliers should be aware that agreeing to such clauses may result in serious exposure to their insurer in respect of liability suffered by their customer – even if it was caused by the customer. Of course, insurers who pay out such claims may ultimately seek to recover some of their losses from the contractor or supplier by way of future increases in premiums.

One other curious aspect of this case was that the above clause was well-hidden in one of the attachments called “Site Regulations” to the contract. As such, this is also a good lesson to businesses and their lawyers to review contracts carefully in their entirety.

For more information on this case, or for assistance with contract reviews and negotiations, contact Stanislav Roth on 0428 328 452 or stanislav.roth@sourcelegal.com.au.

A copy of the article can be downloaded here.

By | Published On: 16th October, 2014 | Categories: Contract law, Guides |