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DMS Maritime Pty Limited v Navigators Corporate Underwriters Limited

[2020] QSC 382

DMS Maritime Pty Limited v Navigators Corporate Underwriters Limited[2020] QSC 382

SUPREME COURT OF QUEENSLAND

CITATION:

DMS Maritime Pty Limited v Navigators Corporate Underwriters Limited [2020] QSC 382

PARTIES:

DMS MARITIME PTY LIMITED

ACN 078 359 065

(plaintiff)

v

 

NAVIGATORS CORPORATE UNDERWRITERS LIMITED (AS SOLE CORPORATE MEMBER OF SYNDICATE 1221 AT LLOYD’S, FOR THE 2014 YEAR OF ACCOUNT)

(first defendant)

BRIT UW LTD (AS SOLE CORPORATE MEMBER OF SYNDICATE 2987 AT LLOYD’S, FOR THE 2014 YEAR OF ACCOUNT)

(second defendant)

MARKEL CAPITAL LIMITED (AS SOLE CORPORATE MEMBER OF SYNDICATE 3000 AT LLOYD’S, FOR THE 2014 YEAR OF ACCOUNT)

(third defendant)

QBE INSURANCE (EUROPE) LTD (AS SOLE CORPORATE MEMBER OF SYNDICATE 1036 AT LLOYD’S, A SUB-SYNDICATE OF SYNDICATE 2999 AT LLOYD’S, FOR THE 2014 YEAR OF ACCOUNT)

(fourth defendant)

FILE NO/S:

BS 9333 of 2019

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

18 December 2020

DELIVERED AT:

Brisbane

HEARING DATE:

30 June 2020

JUDGE:

Bond J

ORDER:

  1. The separate question “Is the relevant contract of insurance governed by the Marine Insurance Act 1909 or the Insurance Contracts Act 1984?” should be answered as follows:

The relevant contract of insurance is governed by the Marine Insurance Act 1909.

  1. I will hear the parties as to costs.

CATCHWORDS:

INSURANCE – GENERALLY – OTHER MATTERS – where a separate question for determination before trial is whether a contract of insurance is governed by the Marine Insurance Act or the Insurance Contracts Act – where the Insurance Contracts Act excludes from its operation contracts of insurance to which the Marine Insurance Act applies – where the Insurance Contracts Act allows disaggregation of one contract of insurance into separate groups of provisions such that the exclusion provisions of that Act apply to each group of provisions separately rather than the contract of insurance as a whole – where the plaintiff entered into a contract with the Commonwealth for the design, manufacture and supply of a fleet of boats and the subsequent provision of in-service support for them – where the plaintiff entered into a primary layer policy and excess layer policy with the defendants to insure various categories of liability the plaintiff might have pursuant to its contract with the Commonwealth – where one category of liability insured by the excess layer policy included the plaintiff’s liability as a ship-repairer – how the excess layer policy should be disaggregated into groups of provisions – whether the relevant group of provisions should be characterised as a contract of insurance against losses incident to maritime adventure to which the Marine Insurance Act applies

Insurance Contracts Act 1984 (Cth), s 9

Marine Insurance Act 1909 (Cth), s 7, s 9

Uniform Civil Procedure Rules 1999 (Qld), r 483

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; [1986] HCA 14, considered

Continental Illinois National Bank & Trust Co of Chicago v Bathurst (The “Captain Panagos DP”) [1985] 1 Lloyd’s Rep 625, considered

DMS Maritime Pty Limited v Royal and Sun Alliance Insurance Plc [2018] QSC 303, cited

Gibbs v Mercantile Mutual Insurance (Australia) Limited (2003) 214 CLR 604; [2003] HCA 39, applied

Royal and Sun Alliance Insurance Plc v DMS Maritime Pty Limited [2019] QCA 264, cited 

Secunda Marine Services Limited v Fabco Industries Limited [2006] 3 FCR 3, cited

COUNSEL:

B O’Donnell QC for the plaintiff

D McLure SC, with G Coveney, for the defendants

SOLICITORS:

Herbert Smith Freehills for the plaintiff Kennedys for the defendants

Kennedys for the defendants

CONTENTS

INTRODUCTION 4

THE STATUTORY FRAMEWORK5

THE RELEVANT PROVISIONS OF THE MIA5

THE RELEVANT PROVISIONS OF THE ICA8

THE CHARACTERISATION EXERCISE IN RELATION TO BUNDLED INSURANCE CONTRACTS9

THE LIABILITY FOR WHICH THE PLAINTIFF SEEKS INDEMNITY11

THE TERMS OF THE ACPB CONTRACT11

THE PLAINTIFF INCURS LIABILITY TO THE COMMONWEALTH15

THE RELEVANT INSURANCE POLICIES16

THE DOCUMENTS OF WHICH THE POLICIES WERE COMPRISED16

THE PRIMARY POLICY17

The contractual description and classification of the risks insured17

The contractual declarations18

The conditions applicable to section 1 “Hull Interests”20

The conditions applicable to section 2 “Marine Contractual &/or Legal Liability”24

The conditions applicable to section 3 “Miscellaneous Third Party Liabilities / Products Liability”26

THE EXCESS POLICY27

The contractual description and classification of the risks insured27

The contractual declarations28

The conditions applicable to subsection a) “Excess hull & machinery” and subsection c) “Excess contingent products / shiprepairers liabilities”28

The conditions applicable to subsection b) “Excess contractual liabilities”3030

The conditions applicable to subsection d) “Excess products liabilities”31

THE PLEADED CASES AND THE DEPARTURES THEREFROM32

ANALYSIS35

WHAT IS THE APPROPRIATE GROUPING OF PROVISIONS?35

CHARACTERISATION OF THE RELEVANT CONTRACT OF INSURANCE37

CONCLUSION40

TABLE 1: THE DOCUMENTS OF WHICH THE PRIMARY POLICY WAS COMPRISED41

TABLE 2: THE DOCUMENTS OF WHICH THE EXCESS POLICY WAS COMPRISED45

Introduction

  1. [1]
    In 2003, the plaintiff and the Commonwealth of Australia entered into a contract (the ACPB contract) pursuant to which the plaintiff agreed to design, manufacture and supply Armidale Class Patrol Boats and, critically for present purposes, also to provide in-service support to the boats for a 15-year service period after commissioning.
  2. [2]
    The HMAS Bundaberg was one of a fleet of 14 such boats supplied by the plaintiff pursuant to that contract.  On 11 August 2014, whilst it was in the possession of the plaintiff’s subcontractor for the purpose of being worked on under the contract, it was destroyed by fire.  The plaintiff says that happened because of the negligent performance of welding work by its subcontractor. 
  3. [3]
    Under the ACPB contract, the plaintiff was subject to three relevant contractual obligations.  First, it was obliged to bear the risk of, and to indemnify the Commonwealth against, “… any loss or damage to the [Bundaberg]” which occurred whilst it or any of its subcontractors was in possession of the boat for the purpose of carrying out requisite work under the contract and to the extent the loss or damage occurred as a result of the plaintiff or any subcontractor carrying out that work.  Second, it was obliged to “promptly replace or otherwise make good any loss of … the [Bundaberg]” at its cost if the loss occurred during the period in which it bore the risk of loss or damage.  Third, it was obliged to insure that liability.
  4. [4]
    The plaintiff and the Commonwealth agreed that the circumstances in which the Bundaberg had been destroyed were such as rendered the plaintiff liable to the Commonwealth pursuant to the ACPB contract.  However, they were in dispute about the proper measure of the plaintiff’s liability.  Ultimately, they settled their dispute on the basis that the plaintiff agreed to pay the Commonwealth a settlement sum of $31.5 million.
  5. [5]
    Pursuant to insurance policies entered into in February 2014, Royal and Sun Alliance Insurance Plc agreed to indemnify the plaintiff for all sums which the plaintiff became liable to pay by reason of its legal liability as ship-repairer for loss of or damage to any vessel or craft which was in the plaintiff’s care, custody or control for the purpose of being worked upon.  There were two relevant insurance policies:  Royal and Sun Alliance had subscribed as to 100% of a primary layer insurance policy (the primary policy) and as to 50% of a first excess layer policy (the excess policy).
  6. [6]
    My decision in DMS Maritime Pty Limited v Royal and Sun Alliance Insurance Plc [2018] QSC 303 resolved in favour of the plaintiff its dispute with Royal and Sun Alliance as to whether Royal and Sun Alliance was obliged to indemnify the plaintiff under the two policies for its share of the settlement sum.  An appeal was dismissed: see Royal and Sun Alliance Insurance Plc v DMS Maritime Pty Limited [2019] QCA 264.
  7. [7]
    The present proceeding is somewhat of a sequel to those two decisions.  Although I will shortly consider the terms of the policies in more detail, it will suffice presently to observe that the present defendants subscribed as to the other 50% of the excess layer which was governed by the excess policy.  The plaintiff claims to be entitled to be indemnified by the defendants pursuant to their underwriting of that policy.
  8. [8]
    After allowing for the primary layer and Royal and Sun Alliance’s 50% of the excess layer, the plaintiff claims $11,689,432.82 from the defendants. The defendants admit that if the Court determines they are liable to indemnify the plaintiff, then they are liable to pay to the plaintiff amounts which total $11,689,432.82.  However, amongst other things, the defendants deny that they are liable to indemnify the plaintiff because they contend the plaintiff breached its duty of disclosure prior to entry into the excess policy, thereby entitling them to avoid the policy ab initio. They contend that they exercised that right on 27 January 2016.
  9. [9]
    A question arises in the proceeding as to whether the excess policy is relevantly governed by the Insurance Contracts Act 1984 (Cth) (the ICA) or by the Marine Insurance Act 1909 (Cth) (the MIA), the plaintiff contending for the former and the defendants for the latter.  The question is significant because determination of which Act applies has a direct bearing on –
    1. (a)
      the scope of the duty of disclosure to which the plaintiff was subject; and
    2. (b)
      whether the defendants must establish prejudice pursuant to s 28 of the ICA in respect of any established non-disclosure.
  10. [10]
    On 19 May 2020, and pursuant to r 483 of the Uniform Civil Procedure Rules, I made an order that the following question be heard as a separate question:

Is the relevant contract of insurance governed by the Marine Insurance Act 1909 or the Insurance Contracts Act 1984?

  1. [11]
    For reasons which follow, the separate question should be answered as follows:

The relevant contract of insurance is governed by the Marine Insurance Act 1909.

The statutory framework

  1. [12]
    I turn first to identify the statutory framework in order to explain the characterisation question to which the framework gives rise.  I will return to the question of the application of the statutory framework after having identified the particular considerations relevant to the characterisation question in the circumstances of the present case.

The relevant provisions of the MIA

  1. [13]
    The MIA commenced on 1 July 1910.  The following provisions – which govern the contracts of insurance to which it applies – have not since been amended:
    1. Application of Act
    1. (1)
      This Act shall apply to marine insurance …
    2. (2)
    1. Marine insurance defined

A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.

  1. Mixed sea and land risks
  1. (1)
    A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.
  2. (2)
    Where a ship in course of building, or the launch of a ship, or any adventure analogous to a marine adventure, is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall apply thereto; but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined.
  1. Marine adventure and maritime perils defined
  1. (1)
    Subject to the provisions of this Act, every lawful marine adventure may be the subject of a contract of marine insurance.
  2. (2)
    In particular there is a marine adventure where:
    1. any ship, goods, or other movables are exposed to maritime perils. Such property is in this Act referred to as insurable property;
    2. the earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefit, or the security for any advances, loan, or disbursements, is endangered by the exposure of insurable property to maritime perils;
    3. any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils.

Maritime perils means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind, or which may be designated by the policy.

  1. [14]
    It follows that, under the MIA, the question of whether the MIA applies to a particular contract of insurance requires a determination of whether the contract of insurance is one whereby the insurer undertakes to indemnify the assured against the losses incident to maritime adventure, including, in particular, losses incident to –
    1. (a)
      the exposure of any ship, goods, or other movables to the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind, or which may be designated by the policy;
    2. (b)
      the endangerment of the earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefit, or the security for any advances, loan, or disbursements, by the exposure of insurable property to the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind, or which may be designated by the policy; or
    3. (c)
      the incurrence of any liability to a third party by the owner of, or other person interested in or responsible for, insurable property, by reason of the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind, or which may be designated by the policy.
  2. [15]
    As Gleeson CJ observed in Gibbs v Mercantile Mutual Insurance (Australia) Limited (2003) 214 CLR 604 at 610, the identification of a contract as one of marine insurance sometimes gives rise to difficulty because of the mixed nature of the cover provided by the contract.  The Chief Justice went on to observe, by reference to Leon v Casey [1932] 2 KB 576 and Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, that in such cases the problem is to be resolved as one of characterisation, viewing the policy in its entirety. The passage from Con-Stan to which the Chief Justice was referring was the passage at 242-3 in which Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ stated (emphasis added):

A contract which indemnifies the assured against losses incident to a marine adventure does not cease to be a contract of marine insurance because it also protects the assured against land risks which are incidental to a sea voyage (s. 8(1)). But a contract indemnifying the assured against losses which are not substantially incident to marine adventure is not a contract of marine insurance [Leon v Casey [1932] 2 KB 576 at 590].

No evidence has been led to illustrate the importance of such part of the transit risk as involved the carriage of goods by sea in the context of the whole policy. An examination of the terms of the policy indicates that it is but one small part of one section of the cover afforded. It cannot be said, therefore, that the policy, viewed in its entirety, is one which indemnifies the assured against losses that are substantially incident to marine adventure. Accordingly, the policy does not fall within the ambit of s. 59 of [the MIA]. 

  1. [16]
    It is important to appreciate that the question is not whether a policy, the characterisation of which is in question, looks like a traditional marine insurance policy.  Rather, the critical question is whether the perils (i.e. the risks) insured by the policy may be regarded as perils consequent on or incidental to the navigation of the sea.  This point was made by Mustill J (as his Lordship then was) in Continental Illinois National Bank & Trust Co of Chicago v Bathurst (The “Captain Panagos DP”) [1985] 1 Lloyd’s Rep 625 at 631-2 in these terms (references to the MIA provisions substituted for the provisions of the Marine Insurance Act 1906 (UK), and emphasis added):

Thus, one turns to ask in the present case, not whether the insurance created by the M.I. policy looks like a traditional marine insurance (which it does not); nor whether the cover resembles the list at the end of [s 9 of the MIA] (which again it does not); but rather, whether the perils insured under that policy are, at least in the main, “consequent on or incidental to the navigation of the sea”. It seems to me that they are; that the M.I. policy in its unorthodox way therefore serves to insure a marine adventure; and that, accordingly, it is a contract of marine insurance, within the meaning of [s 7 of the MIA]. In principle, therefore, the M.I. policy is subject to all the relevant provisions of [the MIA].

  1. [17]
    The requisite characterisation task involves evaluating the nature of risk insured, not the loss giving rise to the claim.  For the risk to be characterised as a peril “consequent on or incidental to the navigation of the sea” it is not necessary that the risk be a risk which occurs at sea.  These points were made in Gibbs v Mercantile Mutual Insurance –
  1. (a)
    at [21] per McHugh J[1] (emphasis added):

Primarily, a policy of insurance will not insure in respect of a marine adventure unless the ship the subject of the policy will be used for voyages that involve traversing the open sea. An adventure involving a ship that is not intended to leave a river is not a marine adventure for the purpose of the [MIA]. That does not mean that an insurance policy insuring the risks involved in a marine adventure cannot cover risks that occur in rivers, creeks, bays, inlets, harbours, dry docks or ports. A policy insuring against the risks of a marine adventure may even cover a risk occurring on land. But before a risk qualifies as a risk of a marine adventure, and comes within the primary scope of the [MIA], it must be incidental to or a consequence of a voyage or intended voyage on the open sea. In form, a policy may be identical with a marine policy and insure against the same kind of risks as a marine insurance policy. But, unless the risk involves, or is incidental to, or a consequence of, a voyage on the open sea, it will not be insuring the risks of a marine adventure so as to come within the primary operation of the [MIA].

  1. (b)
    per McHugh J at [46] (emphasis added):

But for the risk to be a marine risk for the purpose of the Act, it must be incidental to or consequent on a sea voyage. Thus, marine policies may cover risks involved in loading and unloading cargo, may cover the hazards of docks, ports, harbours and rivers, may cover even the risks associated with the building of a ship. And in the course of time, marine policies have come to cover the risk of liability to third parties caused by the perils of the sea. But all these extended risks are risks that are incidental to, or consequent on, the use or intended use of ships engaged in the international or coasting trade or at all events risks incidental to ships on voyages across the open sea.

  1. (c)
    at [194] per Hayne and Callinan JJ (emphasis added):

As cases like Phillips v Barber illustrate, events occurring when a vessel is not at sea may not be caused by perils of the seas, but may be events consequent on exposure to maritime perils. Once it is accepted that maritime perils are not limited to perils occurring while the vessel is at sea, the fact that the “Lone Ranger” was never intended to operate in the open ocean is not determinative. What is, is the nature of the risk. The question is not where did the event happen but what was the risk against which the insurer agreed to indemnify the insured. Under the contract of insurance did the respondent undertake to indemnify the appellants against marine losses: the losses incident to marine adventure?

The relevant provisions of the ICA

  1. [18]
    The ICA commenced in 1986.  The ICA’s long title is:

An Act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly, and for related purposes

  1. [19]
    The ICA was intended to apply to reform and to modernise the law in relation only to certain contracts of insurance.  The determination of the contracts of insurance to which the ICA applies turns on the operation of the inclusionary and exclusionary rules set out in the ICA.
  2. [20]
    Putting to one side contracts of insurance entered into before the commencement of the Act (as to which, see s 4), the first rule is to include within the application of the ICA contracts of insurance and proposed contracts of insurance the proper law of which is the law of Australia or one of its States or Territories.  Section 8(1) of the ICA states the first relevant inclusionary rule in these terms:

 Application of Act 

  1. (1)
    Subject to section 9, the application of this Act extends to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends.
  1. [21]
    Each of the primary policy and the excess policy provided that the insurance shall be governed by and construed in accordance with the law of Australia and that each party agreed to submit to the exclusive jurisdiction of the courts of Australia in the event of a dispute arising under the contracts.  It was common ground that the proper law of the primary policy and the excess policy is the law of Australia and that, subject to s 9, the ICA would extend to each policy.
  2. [22]
    Section 9 of the ICA relevantly sets out exclusionary rules and also exceptions to the exclusionary rules.  It provides as follows:

9  Exceptions to application of Act

  1. (1)
    Except as otherwise provided by this Act, this Act does not apply to or in relation to contracts and proposed contracts:
    1. of reinsurance; or
    2. of insurance entered into, or proposed to be entered into, by a private health insurer within the meaning of the Private Health Insurance Act 2007 in respect of its health insurance business within the meaning of Division 121 of that Act; or

(ba)   of insurance entered into, or proposed to be entered into, by a private health insurer within the meaning of the Private Health Insurance Act 2007 in respect of its health-related business within the meaning of section 131-15 of that Act that is conducted through a health benefits fund (as defined by section 131-10 of that Act); or

  1. of insurance entered into, or proposed to be entered into, by a friendly society; or

(ca)   of insurance entered into, or proposed to be entered into, by the Export Finance and Insurance Corporation, other than short-term insurance contracts within the meaning of the Export Finance and Insurance Corporation Act 1991 that are entered into on or after the commencement of this paragraph; or

  1. to or in relation to which the Marine Insurance Act 1909 applies; or
  2. entered into or proposed to be entered into for the purposes of a law (including a law of a State or Territory) that relates to:
  1. workers’ compensation; or
  2. compensation for the death of a person, or for injury to a person, arising out of the use of a motor vehicle; or
  1. entered into or proposed to be entered into:
  1. for the purposes of a law (including a law of a State or a Territory) that relates to workers’ compensation; and
  2. to provide insurance cover in respect of an employer’s liability under a rule of the common law that requires payment of damages to a person for employment-related personal injury.

(1A) If a contract of insurance, or a proposed contract of insurance, includes:

  1. provisions (the first group of provisions) that would, if they comprised a single contract or proposed contract, form a contract referred to in any of paragraphs (1)(a) to (f); and
  2. provisions (the second group of provisions) that would, if they comprised a single contract or proposed contract, form a contract other than a contract referred to in any of paragraphs (1)(a) to (f);

then subsection (1) applies as if the first group of provisions and the second group of provisions were each a separate contract or proposed contract.

(1B) Despite subsection (1A), if a contract of insurance, or a proposed contract of insurance, includes:

  1. provisions (the first group of provisions) for the purposes of a law referred to in subparagraph (1)(f)(i); and 
  2. provisions (the second group of provisions) that provide insurance cover of the kind referred to in subparagraph (1)(f)(ii); 

then subsection (1) applies as if the first group of provisions and the second group of provisions were together a separate contract or proposed contract.

(1C) If:

  1. (a)
    a provision (a related provision) of a contract of insurance, or a proposed contract of insurance, relates to or affects the operation of a group or groups of provisions included in the contract or proposed contract; and 
  2. (b)
    because of subsection (1A) or (1B), subsection (1) applies as if that group or those groups of provisions were a separate contract or proposed contract; 

then the related provision is, for the purposes of subsection (1), to be regarded as a provision included in that separate contract or proposed contract.

The characterisation exercise in relation to “bundled” insurance contracts

  1. [23]
    Section 9(1) provides that the ICA does not apply to contracts of insurance[2] which fall within one or other of the types of insurance cover specified in sub-ss 9(1)(a) to 9(1)(f).  Where a  contract of insurance provides cover for only one kind of risk, the question whether the contract falls within the excluded type of cover will give rise to a question of the characterisation of the contract in its entirety, in the manner contemplated by Gleeson CJ in Gibbs v Mercantile Mutual Insurance.
  2. [24]
    However, sub-ss 9(1A), (1B) and (1C) of the ICA now reveal that sometimes the characterisation exercise must be performed at a level other than at the level of the contract in its entirety. 
  3. [25]
    That will occur where it may be said of a single contract of insurance that it includes two groups of provisions, one of which could, if it comprised a single contract, be characterised as a contract which would fall into any of sub-ss 9(1)(a) to 9(1)(f), and one of which could not.  If that disaggregation can be done, then the ICA will not apply to the first group, but it will apply to the second group.  In such cases, the characterisation must be performed at the “group of provisions” level, not at the level of the contract in its entirety.
  4. [26]
    Consideration of the text of s 9 alone suggests that the purpose of the disaggregation provisions is to address the application of the ICA to contracts of insurance which provide different kinds of insurance cover within the one contract.
  5. [27]
    That view is confirmed when one has regard to the explanatory memorandum for the bill which introduced sub-ss 9(1A), (1B) and (1C) of the ICA.  The purpose for the introduction of those subsections was relevantly explained as being to amend the ICA so that:

contracts of insurance that include elements of cover that are exempted from the ICA, as well as cover that falls under the ICA, are treated as exempt from the Act only in respect of the exempt elements.

  1. [28]
    The explanatory memorandum went on to state:

Part 3 — ‘Bundled’ Contracts generally

  1. 1.24A contract of insurance may contain one or more types of cover to which the ICA would not apply if they were contained in individual contracts, together with one or more types of cover to which the ICA would apply if they were contained in individual contracts.
  2. 1.25As was the case for the bundled contracts of insurance dealt with specifically in Part 2 of Schedule 1 described above, the Review Panel recommended that the exemption from the scope of the ICA in subsection 9(1) of the Act be applied to each type of cover in a bundled insurance policy as if it were a separate contract.
  3. 1.26To give effect to the recommendation made by the Review panel new subsections 9(1A), 9(1B) and 9(1C) have been inserted into section 9(1). [Schedule 1, Item 9, subsections 9(1A), 9(1B) and 9(1C)]

Example 1.1

Under the new subsections, contracts of insurance that contain more than one type of cover, one of which is exempted (Cover A) and one of which is not (Cover B), would contain some terms that relate solely to Cover A, some that relate solely to Cover B and some that relate to both Cover A and Cover B.

To create ‘unbundled’ contracts for the purposes of applying the exemption provisions, two notional contracts would be constructed. The first notional contract would comprise only those terms of the initial contract that are relevant to Cover A. The notional contract would also contain, because of subsection 9(1C), any terms of the initial contract that are relevant to both Cover A and Cover B.

Similarly, the second notional contract would comprise those terms of the initial contract that are relevant to Cover B only and the terms that are relevant to both Cover A and Cover B.

When the contents of the notional contracts are determined, the exemption provisions in subsection 9(1) are applied to each as if that contract were a separate contract of insurance or proposed contract of insurance.

It may be that there are more than two types of cover bundled within a contract of insurance, in which case more than two notional contracts of insurance will need to be developed at the first stage. However, irrespective of whether there are two or more kinds of exempt covers, or two or more kinds of non-exempt covers, or both, the result of applying the unbundling process in subsections 9(1A) and 9(1C) is that only those contractual terms that relate to the exempt cover type(s) are exempt from the operation of the ICA.

  1. [29]
    To my mind, the worked example provided in the explanatory memorandum is helpful.  I would adopt it as an explanation of the process of characterisation which, on its proper construction, the text of the statute permits. 
  2. [30]
    The necessary outcome of the application of the disaggregation provisions of s 9 of the ICA is that –
    1. (a)
      if s 9(1A) applies to a contract of insurance, the contract may be disaggregated into two groups of provisions;
    2. (b)
      the exclusionary rule in s 9(1) will apply to each group of provisions as though each group were a separate contract of insurance; 
    3. (c)
      the first group of provisions would be the exempt group of provisions and the second group would not be so regarded; and
    4. (d)
      the ICA would not apply to or in relation to the exempt group of provisions, but would continue to apply to the non-exempt group.
  3. [31]
    A consideration not addressed either by the text of the statute or by the explanatory memorandum is how the grouping of provisions (i.e. the construction of the notional contracts) should be done with a view to determining the question of the application of the ICA to an insurance contract (or to one of its component parts). 
  4. [32]
    A complicated insurance contract with multiple sections and provisions might permit a differential outcome to that question depending on which provisions were selected so as to be notionally grouped together.  But the legislature must have intended that the question of whether or not the ICA applies to a part of an insurance contract is capable of objective ascertainment by the application of the law to the contract.  It could not have intended that the application of the ICA could turn on a unilateral (and after the fact) formulation of a grouping of provisions by one of the contracting parties in the context of a dispute over the application of the ICA.
  5. [33]
    Given the evident purpose of the disaggregation provisions is to address the application of the ICA to insurance contracts which provide different kinds of insurance cover within the one contract, the course which must have been contemplated is that the grouping of provisions would be consistent with the contractual intention, objectively ascertained, as to the nature of insurance cover provided by the contract concerned and how it might be conceptually subdivided.

The liability for which the plaintiff seeks indemnity

The terms of the ACPB contract

  1. [34]
    The ACPB contract was a written contract made on 17 December 2003 comprising, amongst other parts:
    1. (a)
      the conditions of contract; 
    2. (b)
      Attachment A, “Statement of Work” (the SOW); 
    3. (c)
      Annexure A to the SOW, “Ship Specification”; and 
    4. (d)
      Attachment M, “Glossary”.
  1. [35]
    By cl 1.6.1 of the conditions of contract, the plaintiff contracted to design, manufacture, produce and deliver the Patrol Boats.  “Patrol Boats” was defined to mean the patrol boats described in the Ship Specification.  Clause 3.2 of the conditions of contract set out the plaintiff’s obligations in relation to design, development and production of the Patrol Boats, including that they be produced in accordance with the Ship Specification.  The Ship Specification required that the Patrol Boats would be capable of performing the specified functional and operational requirements “for an average life in excess of 20 years”. 
  2. [36]
    Amongst other things, the SOW described the role of the Patrol Boats in these terms: 

1.2.1.1  The Patrol Boat Force will provide the primary patrol and response element of the integrated National Civil Surveillance Program.  In addition to its patrol and response role, the Patrol Boat Force will also provide a surface surveillance capability that contributes to wide area surveillance as part of broader Defence objectives. The primary role of the Patrol Boat Force will be to provide the capability for patrol and response in order to enforce relevant Australian and international laws at sea, and respond to suspected illegal activities occurring within Australia’s Marine Jurisdictional Zones and on the high seas in latitudes not exceeding 50 degrees. The capability to operate in higher latitudes is not mandatory.

1.2.1.2   In order to achieve this role, the Patrol Boat Force will be capable of undertaking the following tasks

  1. patrol;
  2. response;
  3. surveillance;
  4. surface contact detection, identification and interception;
  5. boarding of vessels using members of the Patrol Boat crew as boarding parties;
  6. sea boat operations for ferrying personnel and equipment to other vessels or ashore while the Patrol Boat is under way and making way;
  7. apprehension of vessels;
  8. escort to port apprehended vessels;
  9. tow to port apprehended vessels;
  10. the provision of steaming parties comprising members of the Patrol Boat crew to sea ride on apprehended vessels;
  11. maritime search and rescue, and
  12. aid to vessels in distress.

1.2.1.1  In addition to the patrol, response and surveillance roles in clause 1.2.1.2 above, the Patrol Boat Force will undertake a range of military tasks in both peacetime and during military contingency operations.  These include:

  1. the provision of support to embarked military forces, eg. transportation, insertion and extraction of Special Forces units and their associated equipment; communications relay for shore based units;
  2. participation in Australian and foreign military exercises;
  3. regional engagement deployments;
  4. the provision of support to government agencies such as the Defence Science and Technology Organisation;
  5. disaster relief operations in Australia and overseas;
  6. Defence Aid to the Civil Community
  7. medical evacuation; and
  8. the collection of environmental data.
  1. [37]
    The contemplated “Areas of Operation” of the patrol boats were also further identified in cl 2.1.3 of the SOW in these terms:

2.1.3 Areas of Operation

2.1.3.1.1 The Patrol Boat Force shall be able to conduct surveillance, patrol and response operations throughout Australia’s Marine Jurisdictional Zones and on the high seas by day and by night in all conditions of visibility. Operational areas will include Australia’s offshore islands and territories which lie to the north of latitude 50 degrees south, the SW Pacific Ocean and the South Tasman Ridge. The ability to operate in Australia’s Antarctic Territories and sub Antarctic Islands is not required. Surveillance, patrol and response levels of effort will be distributed over the six areas illustrated in Figure 1.

2.1.3.1.2 The Patrol Boat Force shall also be able to be deployed to South East Asia and the South West Pacific for regional exercises and cooperative operations. South East Asian activities are directed towards visits to the smaller ports of Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The South West Pacific region extends East to longitude 160 degrees West and North to latitude 15 degrees North and includes 12 nations.

  1. [38]
    This was further elaborated upon in cl 5.2 of the Ship Specification in these terms: 

The Patrol Boat, including all its internal and external systems and equipments, be designed and constructed to operate in all areas within Australia’s Marine Jurisdictional zones and on the high seas (including Christmas and Cocos Islands, the Southwest Pacific Ocean and the South Tasman rise, but not Australia’s Antarctic Territories and sub Antarctic Islands or in high seas above 50 degrees latitude) … .

The Patrol Boat shall meet the Classification Society, national and international regulations for operating at a minimum distance of 1000 nautical miles from the nearest port or safe anchorage.

  1. [39]
    The ACPB contract differentiated between a “Production Phase” and a “Support Phase”.  The Production Phase was defined as the period commencing on the “Effective Date” (namely the date the ACPB contract was signed – 17 December 2003) and (unless it was earlier terminated) ending on the date the last Patrol Boat was commissioned under the contract.  The Support Phase was defined as the period commencing on the date the first Patrol Boat was commissioned and ending (unless the ACPB contract was earlier terminated) on the last day of the “Service Period” for the last Patrol Boat commissioned under the contract.  The Service Period for each Patrol Boat was defined as the period commencing on the date it was commissioned and ending 15 years after that date.  The contract provided for the possible extension of that 15-year period by 5 years, which is consistent with the specification requirement for an average life in excess of 20 years.  Also consistent with this was the contractual reference to the planned service life of the fleet being 20 years following acceptance of the last Patrol Boat.
  2. [40]
    I interpolate that the primary policy and the excess policy were entered into during the Support Phase of the ACPB contract.
  3. [41]
    Clause 1.6.1 of the ACPB contract provided that, during the Support Phase, the plaintiff was obliged to provide the “Integrated Support System” and to perform the “Integrated Support Activities” in such a way that the Commonwealth, in operating the Patrol Boats, could achieve the “Required Availability”.The plaintiff was obliged to do so “on the terms of the [ACPB contract] and comply with all of its other obligations under the [ACPB contract] (including its obligations under the SOW).”[3] The “Required Availability” was defined by reference to the provisions in the SOW which specified certain operational availability outcomes as specified in a “Fleet Activity Schedule”.  Amongst other things, the Patrol Boat fleet had to meet a specified number of calendar days per year (and per month) of availability.[4]
  4. [42]
    The “Integrated Support System” was defined as the planned system by which the fleet would be enabled to achieve the operational and performance outcomes provided for in the ACPB contract as further described in Annexure B to the SOW.  Amongst other things, Annexure B to the SOW –
    1. (a)
      required the plaintiff to “implement and upkeep a comprehensive and fully integrated support system, that enables the ACPB to achieve the operational and performance outcomes of the [ACPB contract]”;[5]
    2. (b)
      required the plaintiff to ensure that the Patrol Boats were comprehensively supported anywhere within the areas of operation defined in the SOW, including at home ports, interim ports and at sea;[6]
    3. (c)
      required the plaintiff to conduct preventive and corrective maintenance to meet contracted performance levels and availability;[7]
    4. (d)
      specified that the Integrated Support System was required to support a particular specified target of “Mission Readiness” (which was defined in the Glossary as a measure of the operable state of the Patrol Boat systems) when the Patrol Boats were made available for a standard 42-day surveillance mission.[8]
  5. [43]
    By the Glossary, the Contract defined “Supplies” as “the Patrol Boats, the Integrated Support System and any other goods and services including Intellectual Property and Technical Data required to be supplied under the Contract and includes items acquired in order to be incorporated in the Supplies.”  The term was sufficiently widely drawn to incorporate the Integrated Support Activities.  “Integrated Support Activities” was defined as any things or tasks which the plaintiff was, or may have been, required to do to provide the Integrated Support System in accordance with the ACPB contract.
  6. [44]
    The ACPB contract also addressed who bore the risk of damage occurring to a Patrol Boat or anything else which fell within the definition of “Supplies” (thereby necessarily including the Integrated Support Activities during either the Production Phase or the Support Phase).  As to this:
    1. (a)
      by cl 6.8.1.1, the ACPB contract provided (emphasis added):

…, [the plaintiff] bears the risk of and shall indemnify the Commonwealth against:

a.   …; and

b.   after delivery of a Patrol Boat or any other Supplies, any loss or damage to the Patrol Boat or other Supplies:

i.   which occurs while [the plaintiff] or any Subcontractor is in possession of the Patrol Boat or other Supplies for the purpose of carrying out its Integrated Support Activities;

ii. to the extent it occurs as a result of [the plaintiff] or any Subcontractor carrying out its Integrated Support Activities to the Patrol Boat or other Supplies; or

  1. (b)
    by cl 8.3.1, the ACPB contract provided (emphasis added):

During the period in which [the plaintiff] bears the risk of loss or damage of anything under clause 6.8, [the plaintiff] shall promptly replace or otherwise make good any loss of, or repair the damage to, the thing at its cost unless [there followed exceptions from that promise which are not presently relevant].

  1. [45]
    Pursuant to cl 8.7.4 of the ACPB contract, the plaintiff was obliged to effect and maintain for the full period of the Support Phase under the contract a Ship Repairers’ Liability insurance policy.  The clause required the policy –
    1. (a)
      to be in the name of both the plaintiff and the Commonwealth and insure the plaintiff for its own acts or omissions and those of its subcontractors;
    2. (b)
      to cover the plaintiff for any claims made against it by the Commonwealth for loss of or damage to any Patrol Boats on which the plaintiff was working caused by the negligence of the plaintiff in connection with the plaintiff carrying out its obligations under the ACPB contract;
    3. (c)
      to be extended to include the liability assumed by the plaintiff under cl 6.8.1.1b of the ACPB contract.
  2. [46]
    I pause to note that the plaintiff’s liability under cl 6.8.1.1b of the ACPB contract does not turn on the existence of negligence; that the plaintiff’s obligation under cl 8.7.4 required it to enter into an insurance policy referred to as a “Ship Repairers’ Liability Policy”; that the obligation required that policy to cover for claims for loss caused by negligence; but that the obligation that the “Ship Repairers’ Liability Policy” be extended to include the liability assumed by the plaintiff under cl 6.8.1.1b of the ACPB contract required the plaintiff to ensure that the “Ship Repairers’ Liability Policy” would not require the proof of negligence.  It will appear that the primary policy and the excess policy did contain sections which included a “Shiprepairer’s Liability Clauses” but that they did require proof of negligence.

The plaintiff incurs liability to the Commonwealth

  1. [47]
    On or around 11 August 2014, the Bundaberg was undergoing repairs and maintenance pursuant to the ACPB contract by a subcontractor to the plaintiff.  While the Bundaberg was in the possession of the subcontractor, a fire occurred which destroyed the boat.  The plaintiff contended that the fire and resulting damage to the Bundaberg was caused by the subcontractor’s negligence in the manner in which it conducted welding work on the Bundaberg.
  2. [48]
    The Bundaberg was in the possession of the plaintiff’s subcontractor for the purpose of carrying out the Integrated Support Activities.  Accordingly, by reason of cl 8.3.1 of the ACPB contract, read with cl 6.8.1.1, the plaintiff became liable to the Commonwealth to “promptly replace or otherwise make good any loss of, or repair the damage to” the Bundaberg.
  3. [49]
    On or around 17 April 2015, the Commonwealth made a claim against the plaintiff for the destruction of the Bundaberg for $51,353,764, comprising $51,047,000 for cost of replacement of the boat and $306,764 for legal and other fees from the fire investigation.
  4. [50]
    On or around 10 June 2016, the plaintiff and the Commonwealth settled the Commonwealth’s claim by entering into a written settlement deed which provided for the plaintiff to pay the Commonwealth $31.5 million.

The relevant insurance policies

The documents of which the policies were comprised

  1. [51]
    A consolidated document which contained two separate policy documents with consolidated page numbering from pages 1 to 338 was tendered without objection.  The primary policy was comprised of the 43 documents identified in Table 1 appended to these reasons.  The excess policy was comprised of the 15 documents identified in Table 2 appended to these reasons.
  2. [52]
    Each policy – 
    1. (a)
      identified itself as a separate “contract of insurance” providing cover for the period 20 February 2014 to 20 February 2015;[9]
    2. (b)
      had a separate and distinct Unique Market Reference number or “UMR”;[10]
    3. (c)
      was self-contained, although the excess policy incorporated by reference some of the terms and conditions set out in the primary policy; and
    4. (d)
      had a separate execution clause which referred to the policy in terms consistent with the policy being a separate contract;[11]
    5. (e)
      was separately executed by the underwriting insurers, with Royal and Sun Alliance executing the primary policy, and Royal and Sun Alliance and each of the defendants executing the excess policy.[12]
  3. [53]
    The proceeding was argued before me[13]on the basis that two relevant contracts of insurance were entered into on or about 20 February 2014, the first contract of insurance being the primary policy and the second being the excess policy and both contracts being contained in the consolidated document to which I have referred.[14] The contract of insurance relied on by the plaintiff was the excess policy.
  4. [54]
    Because the answer to the separate question turns on a question of characterisation and on the application of the disaggregation provisions in sub-ss 9(1A), (1B) and (1C) of the ICA, it is necessary to pay careful attention to the way in which the policies were structured and how relevant risks were underwritten by their terms. 

The primary policy

  1. [55]
    The primary policy provided for an indemnity of $10 million, subscribed as to 100% by Royal and Sun Alliance.  It had a UMR of B080191256M14.

The contractual description and classification of the risks insured

  1. [56]
    Section 1, “Risk Details”,[15] was the contractual document which must be taken to have been intended by the parties to introduce a degree of coherence to what would otherwise be an incoherent collection of documents cobbled together from disparate sources but nevertheless intended to express the contractual terms of the one policy.
  2. [57]
    Amongst other things, Section 1 – 
    1. (a)
      classified the type of insurance provided by the primary policy as “Insurance of Marine Hull and Contractual/Liabilities Cover”;
    2. (b)
      defined the “Assured” as:

DMS Maritime Pty Ltd and/or Serco Australia Pty Limited and/or Serco Group PLC and/or Commonwealth of Australia including their contractors, subcontractors and/or subsidiary and/or associated companies as may be now or hereafter constituted.

  1. (c)
    described and classified the risks insured, by specifying that there were three sections to the cover, with two of them encompassing specified subsections;
  2. (d)
    identified the sums insured in relation to the sections and subsections; and
  3. (e)
    identified the conditions applicable to the discrete sections and subsections of cover.
  1. [58]
    As to the description and classification of the risks insured, Section 1 provided:

Section 1 – Hull Interests

Coverage hereon in respect of vessels owned or chartered by the Assured:

  1. Hull and Machinery.
  2. Increased Value and/or Disbursements
  3. Loss of Charter Hire
  4. Innocent Owners

Including new and/or acquired and/or managed and/or chartered vessels held covered at rates and terms to be agreed

Section 2 - Marine Contractual &/or Legal Liability

Coverage hereon in respect of the Assured’s legal and/or contractual liability in respect of specific contracts declared and agreed by Underwriters hereon. Further to include the Assured’s legal liabilities to Third Parties in respect of said contracts.

  1. Hull and Machinery.
  2. Consequential Costs under Contract following total loss.
  3. Contingent Products/Shiprepairers Liabilities.
  4. Combined General Liability.

Section 3 - Miscellaneous Third Party Liabilities / Products Liability

Coverage hereon in respect of the Assured’s direct third party legal liabilities as may be declared hereon.

  1. [59]
    Section 1 identified the conditions applicable to the different classifications of risk insured, partly by making specific reference to subsequent documents or clauses contained in the primary policy and partly by identifying some general conditions which applied to all sections of the policy.  I will explain how that was done by reference to each classification of risk insured. 

The contractual declarations

  1. [60]
    One matter which is convenient to deal with first is the subject matter of the various numbered declarations which were set out in separately numbered contract endorsements forming part of the primary policy.  The position of the respective endorsements and declarations within the policy is set out in Table 1.  As is apparent from that table, some numbers were not used.  Each endorsement identified the section of the primary policy to which the declaration applied and operated to supplement or provide detail in relation to the cover provided in the section.So for section 1, and amongst other things, the declarations identified the vessels which were the subject of the cover.  And for section 2, and amongst other things, the declarations identified the contracts concerned and set out information as to the nature of the underwriters’ agreement in respect of those contracts.  And for section 3, and amongst other things, the declarations identified the nature of the third party liability the subject of the cover.
  2. [61]
    There were ten relevant declarations as follows:

Decl. No.

Endors’t No.

Details 

1

1

Applicable to subsections 2(a) and 2(c)

Recorded that the underwriters noted and agreed the fact of the ACPB contract described as “for the Supply and In Service Support of the Armidale Class Patrol Boats”.  Further described the contract as “in respect of the Repair, Maintenance and Support of 14 Patrol Vessels following delivery to the Royal Australian Navy (under the Post Acceptance Modification Programme “PAM”)”.  Identified by name each of the 14 boats which were the subject of it (including the Bundaberg). 

Recorded that the underwriters noted and agreed that the plaintiff would undertake firing of weapons onboard the boats for weapons trial purposes. 

Recorded that from inception the underwriters agreed to delete exclusions 9(viii) and (x) from the Shiprepairers’ liability clauses.[16]

Made specific reference to cll 6.8.1.1, 8.2.1 and 8.3.1 of the ACPB contract and to the glossary in Attachment M.  (It should be noted that cll 6.8.1.1 and 8.3.1 are the clauses referred to at [44] above, by which the plaintiff accepted the risk of loss or damage to the patrol boats which occurred whilst the plaintiff or its subcontractor was in the possession of the boat for the purpose of carrying out the Integrated Support Activities.)

Noted also that the plaintiff brought the boats to the land-based facility for repair.

Applicable to section 3

Recorded the underwriters’ agreement to provide products liability cover in respect of the 14 boats the subject of the ACPB contract, including by identifying the particular insurance conditions applicable to that products liability cover and by extending the definition of the Assured to include “Austal Ships Pty Ltd”.

Attached, as part of the declaration, Products Liability Claims Made wording.  Although a different document, the wording was substantially identical to the separately included

Products Liability Claims Made wording made referable to subsection 2(c).[17]  

Decl. No.

Endors’t No.

Details 

2

2

Applicable to subsections 2(a) and 2(c) 

Recorded that the underwriters noted and agreed the fact of a services contract between the plaintiff and the Commonwealth for the repair, maintenance and support of eight Customs ACV Patrol Boats.  Identified by name each of the eight boats which were the subject of the contract. 

Specified some other information relevant to the terms and conditions of cover, including that the Assured was to undertake sea trials of the Customs vessels which would involve travelling approximately 10 nm from the dock and during which the boats would be under the plaintiff’s control, and that the insurers noted and agreed that the cover would continue unprejudiced accordingly.

3

3, 13, 16,

17, 19

Applicable to sections 1 and 2

Recorded that the plaintiff had entered into a Fleet Marine Services Contract with the Commonwealth which provided for the management and operation of vessels for general purposes for the Commonwealth.

For section 1, the declaration identified by schedule the various vessels owned by the plaintiff and by the National Australia Bank and by the Commonwealth intended to be encompassed within this cover, and that the interests covered were those dealt with by section 1, subsections (a), (b) and (d).

For section 2, the declaration identified by schedule the various items of Government Furnished Equipment which were the subject of the cover, and that the interests covered were those dealt with by section 2, subsections (a), (b) and (c).

For both sections, specified some other information relevant to the terms and conditions of cover.

4

4

Applicable to subsection 2(d)[18]

Recorded that the underwriters noted and agreed that on occasion the insured’s vessels the subject of declaration 3 were chartered out to third parties and that as required by contract such charterers would be included as additional assureds.

Specified the terms and conditions in respect of the assured’s “Combined General Liability” cover.

5

5

Applicable to subsections 2(a) and 2(c)

Records that from inception the declaration provided coverage for the Assured’s contractual and/or legal liability in respect of any ship-repair work for the Royal Australian Navy or minor work for other parties.  Specified some other information relevant to the terms and conditions of such cover.

6

6

Applicable to subsections 2(a) and 2(c)

Noted that the plaintiff had a five-year contract with the Commonwealth to provide services to support the Pacific Patrol Boat Program.  The contract included but was not limited to routine maintenance support services, generic maintenance and management services and third refit management.

Decl. No.

Endors’t No.

Details 

 

 

A schedule in the declaration identified the boats concerned and the particular Pacific Island countries which owned and used the boat.

Specified some other information relevant to the terms and conditions of such cover.

7

7

Applicable to subsections 2(a) and 2(c)

Noted that the plaintiff had entered into a subcontract with Austal Ships Pty Ltd to provide services and materials for the acquisition and in-service support of Cape Class Patrol Boats (being eight vessels that were being built by Austal Ships Pty Ltd as replacements to the vessels referred to in declaration 2).

Identified by schedule the eight boats concerned.

Specified some other information relevant to the terms and conditions of such cover.

8

8

Applicable to declarations 1, 2, 3, 6 and 7

Underwriters noted and agreed that coverage included storage risks (including worldwide transits) for declarations 1, 2, 3, 6, and 7.

Identified the particular insurance conditions applicable to that cover.

Specified some other information relevant to the terms and conditions of that cover.

9

9, 14

Applicable to subsections 2(a) and 2(c)

Underwriters noted and agreed that the plaintiff had contracted with SAAB to provide support services for certain weapons systems for the Royal Australian Navy.

Specified some other information relevant to the terms and conditions of such cover.

10

10

Applicable to section 3

Identified the particular insurance conditions applicable to Excess Professional Indemnity cover.

Specified some other information relevant to the terms and conditions of that cover, including by identifying contracts which were the subject of such cover (and in particular the ACPB contract).

The conditions applicable to section 1 “Hull Interests”

  1. [62]
    As I have identified at [58] above, this section provided that the “Hull Interests” component of risk cover provided coverage in respect of vessels owned or chartered by the Assured, and that the cover was to be regarded as categorised into four different subsections.
  2. [63]
    As to the conditions applicable to subsection 1(a), “Hull and Machinery”:
    1. (a)
      The conditions applicable to this component of risk cover were identified in these terms (footnotes added to provide cross-references to primary policy documents): 

Section 1 - Hull Interests

a) Hull & Machinery

In respect of Hull, Machinery, materials outfit, equipment and everything connected therewith of whatsoever nature forming part of or used in connection with the insured vessel, whether on board or elsewhere.

Institute Time Clauses - Hulls 1/10/83 Cl 280[19] with Clause 6.2.4 words “provided such repairers or charterers are not an Assured hereunder” deleted and Clause 8.1 amended to four-fourths. But for Declaration Number 3 - Fleet Marine Support Contract only[20] Clause 8.1 remains unaltered at threefourths.

Institute Additional Perils Clauses – Hulls 1/10/83 Clause 294[21]

Institute Machinery Damage Additional Deductible Clause 1/10/83 Clause 298.[22]

Equipment On-Shore Clause as attached.[23]

  1. (b)
    Key insuring conditions were those specified in the first paragraph in the quotation above and in the Institute Time Clauses – Hulls 1/10/83 Cl 280[24] referred to therein.  Clause 6 of that document stated that the insurance cover encompassed perils of the seas.
  2. (c)
    General conditions applicable to all four subsections of “Hull Interests” were identified in these terms:

General Conditions applicable to Section 1 a), b) c) and d) above.

Each vessel deemed to be a separate insurance.

It is hereby noted and agreed that this policy shall not be prejudiced by the practice of engaging helicopters in connection with the operation of the vessel.

It is hereby noted and agreed that this policy shall not be prejudiced by the practice of carrying explosives, ammunition and/or hazardous cargo.

Liberty to add Charterers/Hirers/Loss Payees and others as additional Named Assureds hereon.

Institute War and Strikes Clauses Hulls – Time 1.10.83 Cl.281[25] with paragraph 3 – Detainment period amended from 12 to 6 months.

Including loss or damage caused by vandalism, sabotage and malicious mischief.

London Blocking and Trapping Addendum LP0444[26] with line 2 amended from 12 to 6 months.

Protection and Indemnity War Risks Clauses (1/1/2002)[27] as attached.

Hull War, Strikes, Terrorism and Related Perils - Notice of Cancellation Administration Clause (JW2005/001B).[28]

Cancelling Returns Only.

Owners/Assured hereon have option to cancel insurance at pro rata daily return premium provided no claim or increase at current rates.

  1. (d)
    Amongst other things, declaration 3[29] recorded that the plaintiff had entered into a Fleet Marine Services Contract with the Commonwealth which provided for the management and operation of vessels for general purposes for the Commonwealth.  The declaration identified by schedule the various vessels owned by the plaintiff and by the National Australia Bank and by the Commonwealth intended to be encompassed within this cover. 
  2. (e)
    Finally, Section 1 of the primary policy specified, as general conditions applicable to all three sections of risk insured, the following:

Institute Radioactive Contamination, Chemical, Biological, Bio-Chemical and Electromagnetic Weapons Exclusion Clause; 10/11/03 Clause 370.[30]

Institute Cyber Attack Exclusion Clause; 10/11/03 Clause 380[31]

Brokers Cancellation Clause as attached.[32]

Cross Liability Clause as attached.[33]

Cross Liability Compliance Clause as attached.[34]

Waiver of Subrogation Clause as attached.[35]

10% Continuity Credit Clause as attached.[36]

Insurer Default Clause[37]

Sanction Limitation and Exclusion Clause JL2010/005 15 September 2010[38]

Claims Handling Clause

It is agreed that adjustments will be undertaken by the Willis in-house Average Adjuster with the cost of same to be borne by Underwriters.

For those Declarations which include the interest of the Commonwealth of Australia, it is noted and agreed to include:-

Losses if any are payable to the Commonwealth of Australia or their order.

Insurers will provide 30 days advance notice* to Commonwealth of Australia in event the coverage is to be lapsed or cancelled.

* Such notice is to be given through Willis Limited Marine as brokers.

Nothing in this Contract of Insurance shall be construed to be a condition precedent or a warranty (except where such warranty is imposed by statute) unless specifically stated to be one in this Contract of Insurance

  1. [64]
    As to the conditions applicable to subsection 1(b), “Increased Value and/or Disbursements”:
    1. (a)
      The conditions applicable to this component of risk cover were identified in these terms:

Section 1 – Hull Interests

b) Increased Value and/or Disbursements

Institute Time Clauses Hulls Disbursements & Increased Value (Total Loss Only including Excess

Liabilities).[39]

Subject to all terms and conditions of the Hull & Machinery Section a) as far as applicable.

  1. (b)
    Key insuring conditions were those specified in the Institute Time Clauses Hulls Disbursements & Increased Value (Total Loss Only including Excess Liabilities) referred to in the above quote.  Clause 6 of that document stated that the insurance cover encompassed perils of the seas.  Clause 6.4 provided that there was coverage for  “General Average, Salvage and Salvage Charges”, “Sue and labour Charges” and “Collision Liability (three-fourths)”, not recoverable in full under subsection 1(a).
  1. (c)
    Declaration 3[40] also applied to this subsection, thereby specifying the vessels the subject of this coverage.
  2. (d)
    General conditions applicable to all four subsections of “Hull Interests” were as per [63](c) above.
  3. (e)
    General conditions applicable to all sections of the policy were as per [63](e) above.
  1. [65]
    As to the conditions applicable to subsection 1(c), “Loss of Charter Hire”:
    1. (a)
      The conditions applicable to this component of risk cover were identified in these terms:

Section 1 – Hull Interests

c) Loss of Charter Hire

As per attached ABS wording LPO 454 including War.[41]

Policy to pay nominated amount for up to 120 days any one accident in all per vessel per year.

Automatic reinstatement of 120 days cover to apply to vessels not already the subject of claims for an aggregate of 120 days per insurance year.

It is hereby noted and agreed that the above Clauses are amended, where applicable, to include Owners Hull & Machinery conditions subject to prior agreement of Leading Underwriter hereon.

  1. (b)
    Key insuring conditions were those referred to in the above quote, in particular the Loss of Charter Hire Insurance including War clause,[42] but also those contained in

Institute Time Clauses – Hulls 1/10/83 Cl 280[43] and Institute War and Strikes Clauses – Hulls-Time 1/10/83[44] which were referred to therein.  Amongst other things, this provided cover for relevant vessels being prevented from earning hire.

  1. (c)
    Declaration 3[45] also applied to this subsection, thereby specifying the vessels the subject of this coverage. 
  2. (d)
    General conditions applicable to all four subsections of “Hull Interests” were as per [63](c) above.
  3. (e)
    General conditions applicable to all sections of the policy were as per [63](e) above.
  1. [66]
    As to the conditions applicable to subsection 1(d), “Innocent Owners”:
    1. (a)
      The conditions applicable to this component of risk cover were identified in these terms:

Section 1 – Hull Interests

d) Innocent Owners

Subject to Innocent Owner’s Interest Clauses Hulls – 1/9/97c, as attached.[46]

  1. (b)
    Key insuring conditions were those referred to in the above quote.  Essentially, the Innocent Owner’s clauses provided coverage for where an insurer reduced payment due to a stated cause (for example, breach of implied warranty of seaworthiness or condition in Vessel policy) where that cause occurred without the consent of the Assured.
  2. (c)
    Declaration 3[47] also applied to this subsection, thereby specifying the vessels the subjects of this coverage. 
  3. (d)
    General conditions applicable to all four subsections of “Hull Interests” were as per [63](c) above.
  4. (e)
    General conditions applicable to all sections of the policy were as per [63](e) above.

The conditions applicable to section 2 “Marine Contractual &/or Legal Liability”  

  1. [67]
    As I have identified at [58] above, this section provided that the “Marine Contractual &/or Legal Liability” component of risk cover was to be regarded as categorised into four different subsections:

Section 2 – Marine Contractual &/or Legal Liability

Coverage hereon in respect of the Assured’s legal and/or contractual liability in respect of specific contracts declared and agreed by Underwriters hereon. Further to include the Assured’s legal liabilities to Third Parties in respect of said contracts.

  1. Hull and Machinery.
  2. Consequential Costs under Contract following total loss.
  3. Contingent Products/Shiprepairers Liabilities.
  4. Combined General Liability.
  1. [68]
    The risk coverage of the section was further articulated in the “conditions” section of Section 1 “Risk details” of the policy in these terms:

This Section provides coverage in respect of Contractual Liability as may be declared and agreed by Underwriters hereon in respect of the Assured’s activities as designated contractor for the Royal Australian Navy/Commonwealth of Australia and/or as may be agreed.

Any claims hereon will be adjusted on the basis of :

[There followed an identification of particular terms and conditions by reference to each of the four nominated subsections, which will be identified further below.]

  1. [69]
    The clauses quoted in the previous two paragraphs revealed that purpose of this section of the cover was to provide cover for –
    1. (a)
      the Assured’s legal and/or contractual liability in respect of specific contracts as declared and agreed by the defendants;
    2. (b)
      the Assured’s legal liabilities to third parties in respect of such contracts;
    3. (c)
      the Assured’s contractual liability as may be declared and agreed in respect of the Assured’s activities as designated contractor under such contracts, 

adjusted on the basis of specific nominated terms and conditions.

  1. [70]
    As to the conditions applicable to subsection 2(a), “Hull and Machinery”: 
    1. (a)
      The conditions applicable to this component of risk cover were identified by a crossreference back to the corresponding conditions in respect of section 1 (which were quoted at [63] above):

Any claims hereon will be adjusted on the basis of :

  1. Hull & Machinery as per terms and conditions of Section 1 a) hereon.
  1. (b)
    Declarations 1, 2, 3, 5, 6, 7, 8 and 9 applied to this subsection of the policy.[48]
  2. (c)
    General conditions applicable to all sections of the policy were as per [63](e) above.
  1. [71]
    As to the conditions applicable to subsection 2(b), “Consequential Costs under Contract following total loss”:
    1. (a)
      The conditions applicable to this component of risk cover were identified in these terms:

Any claims hereon will be adjusted on the basis of :

  1. Following payment of a claim under Section 2 a) above, where the agreed value of a vessel has been paid in full as a total loss, this Section of the policy will reimburse the Assured for Consequential Costs incurred in order to fulfil their obligations under the relevant contract to provide services nominated therein.
  1. (b)
    Declarations 3 and 8 applied to this subsection of the policy.[49] 
  2. (c)
    General conditions applicable to all sections of the policy were as per [63](e) above.
  1. [72]
    As to the conditions applicable to subsection 2(c), “Contingent Products/Shiprepairers Liabilities”:
    1. (a)
      This was the subsection which responded in relation to the plaintiff’s claim against Royal and Sun Alliance.  It contains the specific “Shiprepairer’s Liability Clauses” to which I have earlier referred.  It will subsequently appear that it is the subsection incorporated by reference into the relevant part of the excess policy and the subsection on which the plaintiff relies to support its claim for indemnity against the defendants.  I will consider the insuring clauses pertinent to the plaintiff’s claim later in these reasons.
    2. (b)
      The conditions applicable to this component of risk cover were identified in these terms:

Any claims hereon will be adjusted on the basis of :

  1. Shiprepairers and Contingent Products Liabilities on the basis of:

London Shiprepairers Liability Clause LSW 169A[50]

Other Work Endorsement LSW 172[51]

Detention Endorsement LSW 170[52]

Personal Injury Endorsement LSW 171a – Amended as attached.[53]

Travelling Workmen Endorsement LSW 180[54]

  1. (c)
    Declarations 1, 2, 3, 5, 6, 7, 8 and 9 applied to this subsection of the policy.[55]
  2. (d)
    General conditions applicable to all sections of the policy were as per [63](e) above.
  1. [73]
    As to the conditions applicable to subsection 2(d), “Combined General Liability”:
    1. (a)
      The conditions applicable to this component of risk cover were identified in these terms: 

Any claims hereon will be adjusted on the basis of:

  1. As may be declared and agreed hereon.
  1. (b)
    Declaration 4[56] recorded the conditions of contract with respect of the Assured’s “Combined General Liability” by reference to a policy wording forming part of the declaration.  The declaration further stated:

General Liability exposures are predominantly shoreside locations from which DMS administers its marine contracts and the dockside warehouses used in carrying out the Marine Services operations. Whilst the customers assets are covered for loss or damage under the specific Declarations this Declaration covers the premises Public Liability inclusive of Advertising risk.

  1. (c)
    General conditions applicable to all sections of the policy were as per [63](e) above.

The conditions applicable to section 3 “Miscellaneous Third Party Liabilities / Products Liability”

  1. [74]
    This section provided:

Coverage hereon in respect of the Assured’s direct third party legal liabilities as may be declared hereon.

  1. [75]
    The conditions applicable to this component of risk cover were identified in these terms: “As may be declared each declaration”.  As to this:
  1. (a)
    Declaration 1[57] recorded the conditions by reference to certain clauses which were attached and which formed part of the declaration.  The attachment included Products Liability “Claims Made” wording.
  2. (b)
    One curiosity which does not need presently to be resolved is that immediately before the identification that the conditions applicable to Section 3 were “as may be declared each declaration”, appeared the words “… Contingent Products Liabilities as per Claims Made wording attached hereto. Retroactive date 31 March 2005.”.  It is not clear whether the intention was that those conditions form part of subsection 2(d) or section 3 of the policy.  It seems more likely, in light of the wording of the relevant part of Declaration 1, that the intention was that those provisions would form part of section 3.
  3. (c)
    Declaration 10[58] identified the particular insurance conditions applicable to Excess Professional Indemnity cover.
  4. (d)
    General conditions applicable to all sections of the policy were as per [63](e) above. 

The excess policy

  1. [76]
    The excess policy provided for an indemnity of $40 million in excess of $10 million, subscribed as to 50% by Royal and Sun Alliance and as to the remaining 50% by the first, second, third and fourth defendants in the proportions of 30%, 10%, 5% and 5% respectively.  It had a UMR of B080191586M14.

The contractual description and classification of the risks insured

  1. [77]
    As the equivalent section of the policy did in relation to the primary policy, in the excess policy Section 1 “Risk Details”[59] was the contractual document which must be taken to have been intended by the parties to introduce a degree of coherence to the documents forming part of the excess policy and incorporated into it by reference.
  2. [78]
    First, that section classified the type of insurance provided by the excess policy.  It will be recalled that the primary policy classified itself as “Insurance of Marine Hull and Contractual/Liabilities Cover”.  The excess policy classified itself in a different manner, namely as “Insurance of Marine Liability”. 
  3. [79]
    Second, it defined the Assured as:

DMS Maritime Pty Ltd and/or Serco Australia Ply Limited and/or Serco Group PLC including their contractors, subcontractors and/or subsidiary and/or associated companies as may be now or hereafter constituted and/or to be agreed.

Including The Commonwealth of Australia in respect of Declaration No.1 and No. 6 of the underlying policy. Including Austal Ships Pty Ltd for the Products Liability in respect of Declaration No.1 of the underlying policy.

Including The Commonwealth of Australia represented by the Australian Customs Service in respect of Declaration No. 2 of the underlying policy.

Including Austal Ships Pty Ltd in respect of Declaration No.7 of the underlying policy, but in respect of DMS Maritime Pty Ltd operations only as defined by written contract.

And associated and affiliated and subsidiary companies for their respective rights and interests.

  1. [80]
    Third, it described and classified the risks insured, but again it did so in a different manner to the way in which that was done in the primary policy.  This is best appreciated by contrasting how the two policies did so:

Primary policy

Excess policy

Section 1 – Hull Interests

Coverage hereon in respect of vessels owned or chartered by the Assured:

  1. Hull and Machinery.
  2. Increased Value and/or Disbursements
  3. Loss of Charter Hire
  4. Innocent Owners

Including new and/or acquired and/or managed and/or chartered vessels held covered at rates and terms to be agreed

Section 2 - Marine Contractual &/or Legal Liability

Coverage hereon in respect of the Assured’s legal and/or contractual liability in respect of specific contracts declared and agreed by Underwriters hereon. Further to include the

Excess marine contractual &/or legal liability Sub-Section a) Excess hull & machinery.

Sub-Section b) Excess contractual liabilities.

Sub-Section c) Excess contingent products

/ shiprepairers liabilities

Sub-Section d) Excess products liabilities

Primary policy

Excess policy

Assured’s legal liabilities to Third Parties in respect of said contracts.

  1. Hull and Machinery.
  2. Consequential Costs under Contract following total loss.
  3. Contingent Products/Shiprepairers Liabilities.
  4. Combined General Liability.

Section 3 - Miscellaneous Third Party Liabilities / Products Liability

Coverage hereon in respect of the Assured’s direct third party legal liabilities as may be declared hereon.

 

  1. [81]
    The excess policy did not provide any excess insurance cover corresponding to the cover provided in sections 1 or 2(d) of the primary policy.  However, it may be observed that –
    1. (a)
      subsection (a) of the excess policy provided excess insurance cover corresponding to the cover provided in subsection 2(a) of the primary policy;
    2. (b)
      subsection (b) of the excess policy provided excess insurance cover corresponding to the cover provided in subsection 2(b) of the primary policy;
    3. (c)
      subsection (c) of the excess policy provided excess insurance cover corresponding to the cover provided in subsection 2(c) of the primary policy; and
    4. (d)
      subsection (d) of the excess policy provided excess insurance cover corresponding to the products liability cover provided in section 3 of the primary policy.
  2. [82]
    Finally, as did the equivalent section in the primary policy, Section 1 “Risk Details” identified the conditions applicable to each of the four subsections of risk.
  3. [83]
    I turn now to examine what Section 1 “Risk Details” provided by reference to those four subsections of risk.

The contractual declarations

  1. [84]
    Again, it is convenient first to note that the excess policy also contained various numbered declarations which were set out in separately numbered contract endorsements.  The position of the respective endorsements and declarations within the policy is set out in Table 2.  As was the case in relation to the declarations for the primary policy, some numbers were not used.  But each endorsement which was used was essentially a reproduction of the same document used in the primary policy and was picked up and made applicable to the particular subsection of the excess policy. 

The conditions applicable to subsection a) “Excess hull & machinery” and subsection c) “Excess contingent products / shiprepairers liabilities”

  1. [85]
    The conditions applicable to these two components of excess risk cover were identified in these terms:

Sub-Section a) and c)

All terms clauses and conditions as per -

Section 2 Marine Contractual &/or Legal Liability - a) Hull & Machinery c) Contingent Products / Shiprepairers Liabilities of underlying Willis Ltd. policy 91256M14 written 100% by RSA, but only in respect of coverage provided under: 

Declaration No. 1[60] – Repair, Maintenance and Support of 14 Patrol Vessels following delivery to the Royal Australian Navy,

Declaration No. 2[61] – Repair, Maintenance and Support of 8 Customs ACV Patrol Boats, and to automatically follow amendments and settlements agreed thereunder in every respect.

Declaration No. 6[62] - Pacific Patrol Boat (PPB) Support Contract with the Commonwealth of Australia of the Primary Policy being – 

All activities in conjunction with services to support the Pacific Boat Programme including but not limited to routine maintenance support services, generic maintenance and management services and third refit management.

For this declaration sub-Section c) shall read Excess Contingent Products / Shiprepairers Liabilities and Marina Operators Liability arising out of the provision of berths or mooring spaces for the PPB at the Contractors premises, the hauling out, storage and standing, fueling and launching of PPB (whether before, during or after the work undertaken by the Contractor on the PPB).

Declaration No 7[63] - Subcontract for Provision of Services and Materials for the Acquisition and In-ServiceSupport of Cape Class Patrol Boat (CCPB) between Austal Ships Pty Ltd and DMS Maritime Pty Ltd dated 12 August 2011 [CCPB Head Contract 10203.

Notwithstanding the above this policy is in respect of the maintenance contract only. Austal Ships Pty Ltd retain responsibility and full insurance in respect of the construction risks and losses arising therefrom. Declaration No 9 - Saab Contract[64]

It is noted and agreed to cover hereon a further contract in respect of the support services of the Mini Typhoon and Toplite Systems (SCFPU Surface Contract Force Protection Units) which are also the subject of the Armidale Class Patrol Boat Contract. This work will provide support for the systems for up to a total of 4 RAN Vessels that are fitted with the SCFPU systems. It is further noted and agreed that firing operations could take place on various RAN platforms and at land based installations for acceptance testing purposes whilst under the control of the Royal Australian Navy at the Navy’s ranges which includes the West Head Gunnery Range.

  1. [86]
    On a literal reading of the provisions quoted in the previous paragraph –
    1. (a)
      all the terms and conditions of subsections 2(a) and 2(c) of the primary policy applied to subsection (a) of the excess policy; and
    2. (b)
      all the terms and conditions of subsections 2(a) and 2(c) of the primary policy also applied to subsection (c) of the excess policy;

in each case only in respect of the coverage provided under the respective nominated declarations. 

  1. [87]
    I think that would be an unlikely construction of the excess policy.  In view of the terms and structure of the primary policy and of the observations made at [81] above concerning the relationship between the two policies, I think that the more likely intention was distributive, such that –
    1. (a)
      subsection (a) of the excess policy included all the terms, clauses and conditions as per subsection 2(a) of the primary policy; and
    2. (b)
      subsection (c) of the excess policy included all the terms, clauses and conditions as per subsection 2(c) of the primary policy;

in each case only in respect of the coverage provided under the respective nominated declarations. 

  1. [88]
    It remains to note that Section 1 “Risk Details” of the excess policy also provided that there were conditions applicable to all sections of the excess policy, in these terms:

Conditions applicable to all Sections

Cross Liability Compliance Clause, as attached.[65]

Waiver of Subrogation Clause, as attached.[66]

Cross Liability Clause, as attached.[67]

Institute Radioactive Contamination, Chemical, Biological, Bio-Chemical and Electromagnetic Weapons Exclusion Clause (CL.370).[68]

Institute Cyber Attack Exclusion Clause (CL.380).[69]

Willis Ltd Brokers Cancellation Clause (576WIL00878).[70]

5% Continuity Credit Clause as attached.[71]

(Re)Insurer Default Clause as attached.[72]

Sanction Limitation and Exclusion Clause JL2010/005 15 September 2010[73]

Nothing in this Contract of Insurance shall be construed to be a condition precedent or a warranty (except where such warranty is imposed by statute) unless specifically stated to be one in this Contract of Insurance

The conditions applicable to subsection b) “Excess contractual liabilities”

  1. [89]
    The conditions applicable to this component of excess risk cover were identified in these terms: 

Sub-Section b)

In respect of Declaration 1, 2, 3, 6, 7 and 9 of the Primary Policy being -

Declaration No. 1[74] – Repair, Maintenance and Support of 14 Patrol Vessels following delivery to the Royal Australian Navy,

Declaration No. 2[75] – Repair, Maintenance and Support of 8 Customs ACV Patrol Boats, and to automatically follow amendments and settlements agreed thereunder in every respect.

Declaration No 3[76] - Fleet Marine Services Contract – The management and operation of vessels for general purposes for the Commonwealth of Australia.

Declaration No. 6[77] - Pacific Patrol Boat (PPB) Support Contract with the Commonwealth of Australia of the Primary Policy being - All activities in conjunction with services to support the Pacific Boat Programme including but not limited to routine maintenance support services, generic maintenance and management services and third refit management.

Declaration No 7[78] - Subcontract for Provision of Services and Materials for the Acquisition and In-ServiceSupport of Cape Class Patrol Boat (CCPB) between Austal Ships Pty Ltd and DMS Maritime Pty Ltd dated 12 August 2011 [CCPB Head Contract 10203.

This policy is in respect of the maintenance contract only and Austal Ships Pty Ltd retain responsibility and full insurance in respect of the construction risks and losses arising therefrom.

Declaration No 9 - Saab Contract[79]

It is noted and agreed to cover hereon a further contract in respect of the support services of the Mini Typhoon and Toplite Systems (SCFPU Surface Contract Force Protection Units) which are also the subject of the Armidale Class Patrol Boat Contract. This work will provide support for the systems for up to a total of 4 RAN Vessels that are fitted with the SCFPU systems. It is further noted and agreed that firing operations could take place on various RAN platforms and at land based installations for acceptance testing purposes whilst under the control of the Royal Australian Navy at the Navy’s ranges which includes the West Head Gunnery Range.

To follow the terms and conditions of the Standard Steamship Owners’ Protection and Indemnity Association (Asia) Limited Certificate of Entry No. 11088 in all respects including all changes and amendments thereto.

It is hereby noted and agreed that the Primary policy, issued by the Standard Club has a limit of USD 5,000,000 being the equivalent of AUD 5,320,000 at inception hereof.

In the event of any rate of exchange differences during the course of this policy then Underwriters will automatically accept under increase or erosion of the AUD equivalent value of the Underlying policy.

It is further noted and agreed that the underlying Standard Steamship Owners’ coverage shall consider all tugs chartered as being on charter under UK Standard Towage terms.

It is also noted and agreed to include the following Assured and Notice Period in respect of the Fleet Marine Services Contract being Declaration Number 3 on the Primary Policy:

Insurers will provide 30 days advance notice* to National Australia Bank Limited / Commonwealth of Australia in event the coverage is to be lapsed or cancelled.

* Such notice is to be given through Willis Limited Marine as brokers.

ln respect of Declaration Number 6 of the Primary Policy being – All activities in conjunction with services to support the Pacific Boat Programme including but not limited to routine maintenance support services, generic maintenance and management services and third refi management.

  1. [90]
    The conditions applicable to all sections of the excess policy quoted at [88] above would also apply here.

The conditions applicable to subsection d) “Excess products liabilities”

  1. [91]
    The conditions applicable to this component of excess risk cover were identified in these terms: 

Sub-Section d)

All terms clauses and conditions as per -

Section 3 Miscellaneous Third Party Liabilities of underlying Willis Ltd. policy 91256M13 written 100% by RSA, but only in respect of coverage provided under :

Declaration No. 1[80] – Products Liability of 14 Patrol Vessels following delivery to the Royal Australian Navy.

Underlying Conditions include:-

Products Liability Claims Made wording.[81]

Retroactive Date : 7th June 2005.

Coverage is provided hereunder, subject to policy terms and conditions, in respect of all acts or omissions of its approved contractors and subcontractors, employees, consultants and agents.

Excluding Terrorism absolutely.

Excluding Builders Guarantee.

Excluding other contractual liability unless such liability would have existed in the absence of said contract. Excluding absolutely Assured’s operations in United States of America.

Excluding United States of America jurisdiction.

Including Cross Liability / Omissions Endorsement.[82]

Contracts (Rights of Third Parties) Act 1999 Exclusion Clause JH2000/007.[83]

  1. [92]
    The conditions applicable to all sections of the excess policy quoted at [88] above would also apply here.

The pleaded cases and the departures therefrom

  1. [93]
    The relevant part of the plaintiff’s pleaded case was articulated in its statement of claim at paragraphs [11] to [12] and [54], as follows:
    1. Amongst the risks underwritten by both [the primary policy and the excess policy] was any contractual or other legal liability the plaintiff may have to the Commonwealth of Australia in respect of the repair and maintenance of 14 patrol boats pursuant to the ACPB Contract.

Particulars

The cover of this risk is identified in the following pages of the policy document, (using the page numbers 1 – 398):

  1. (a)
    Page 239, definition of “interest”, sub-section (c); [84]
  2. (b)
    page 240, conditions for sub-section (c);[85]
  3. (c)
    page 2, section 2(c), marine contractual and/or legal liability;[86]
  4. (d)
    page 5, conditions in respect of “section 2 – marine contractual and/or legal liability”, and sub-section (c);[87]
  5. (e)
    page 214 - 8, London Shiprepairers Liability Clause LSW 169A;[88]
  6. (f)
    page 268 - 270, endorsement 0001, including at p.270, vessels identified as part of endorsement.[89]
  1. The conditions of insurance cover in respect of the risk identified in paragraph 11 were the London Shiprepairers’ liability clause LSW 169A (set out at p.214 - 218 of the policy), which relevantly provided as follows:[90]

“Underwriters hereby agree, subject to the limitations, terms and conditions hereinafter mentioned to indemnify the Assured for all sums which the Assured shall become liable to pay by reason of the legal liability of the Assured as shiprepairers for:-

(i)   Loss of or damage to any vessel or craft which is in the care, custody or control of the Assured for the purpose of being worked upon including shifting and moving within the limits of the port at which the work is being carried out and including trial trips but not exceeding 100 miles from such port;

(vi)  Loss of or damage to third party property occurring in the course of or arising from the ship repairing operations of the Assured, 

where such liability results from negligence of the Assured, his servants, agents or sub-contractors occurring during the period of this insurance.”

Particulars

The incorporation of these conditions as governing the risk identified in paragraph 11 is evidenced by the following parts of the Insurance Policies:

  1. (a)
    page 240, conditions of subsection (c);[91]
  2. (b)
    page 5, conditions of section 2(c), marine contractual and/or legal liability;[92]
  3. (c)
    (c)   pages 214 - 8.[93]

 54.  The provisions of the Insurance Policies set out in paragraph 12 above:

  1. (a)
    do not provide indemnity against losses incident to marine adventure within the meaning of the Marine Insurance Act 1909;
  2. (b)
    provide indemnity against liability to third parties arising by reason of the conduct of repairing vessels, rather than by reason of maritime perils;
  3. (c)
    if they comprised a single contract of insurance would not comprise a contract of marine insurance within the meaning of the Marine Insurance Act;
  4. (d)
    pursuant to s.9(1A)(b) of the Insurance Contracts Act 1984, may be treated as a separate contract from the balance of the insurance contract for the purposes of the application of s.9(1) of the Insurance Contracts Act;
  5. (e)
    in the premises, are governed by the Insurance Contracts Act 1984.
  1. [94]
    It follows that the plaintiff’s pleaded case must be understood as resting on the contention that s 9(1A)(b) of the ICA operates so that the group of provisions on which the plaintiff relies would, if it comprised a single contract, form a contract other than a contract referred to in s 9(1)(d) of the ICA, namely other than a contract “to or in relation to which the Marine Insurance Act 1909 applies”.  If the plaintiff’s proposition could be made good, then pursuant to s 9(1A) of the ICA, s 9(1) would apply as if that group of provisions were a separate contract.  The result would be that the group of provisions would not be excluded from the operation of the ICA.
  2. [95]
    The defendants’ response to paragraphs [11], [12] and [54] was in the following terms:
    1. The defendants deny paragraph 11 of the statement of claim and say:
      1. (a)
        Section 2 of the Primary Policy provided cover described as ‘Marine Contractual &/or Legal Liability’ cover in respect of the plaintiff’s activities declared in Endorsement 001, including:
        1. Section 2(a), described as ‘Hull & Machinery’ cover, adjusted on the basis of Section 1(a) of the Primary Policy;
        2. Section 2(c), described as ‘Shiprepairers and Contingent Products Liabilities’ cover, adjusted on the basis of London Shiprepairers Liability Clause LSW 169A;
      2. (b)
        Sub-section (a) of the First Excess Layer Policy provided excess cover with respect to Section 2(a) of the Primary Policy;
      3. (c)
        Sub-section (c) of the First Excess Layer Policy provided excess cover with respect to Section 2(c) of the Primary Policy.
    2. As to paragraph 12 of the statement of claim, the defendants:
      1. (a)
        say that Section 2(a) of the Primary Policy and Sub-section (a) of the First Excess Layer Policy provided cover in respect of the plaintiff’s activities declared in Endorsement 001, adjusted on the basis of Section l(a) of the Primary Policy;
      2. (b)
        admit that Section 2(c) of the Primary Policy and Sub-section (c) of the First Excess Layer Policy provided cover in respect of the plaintiff’s activities declared in Endorsement 001, adjusted on the basis of London Shiprepairers Liability Clause LSW 169A.

 23.  The defendants deny the allegations in paragraph 54 of the statement of claim because:

  1. (a)
    the Insurance Policies are contracts of marine insurance within the meaning of s 7 of the Marine Insurance Act 1909 (Cth) (MIA);
  2. (b)
    the provisions of the Insurance Policies set out at paragraph 11 of this defence provide cover against marine losses within the meaning of s.7 of the MIA;
  3. (c)
    by reason of the matters referred to in subparagraphs (a) and (b) above:
    1. the MIA applies to the Insurance Policies;
    2. s.9(1A)(b) of the Insurance Contracts Act 1984 (Cth) (ICA) does not apply.
  1. [96]
    It may be observed that the defendants’ pleading did not engage directly with the allegations advanced by the plaintiff, save to advance the general proposition that s 9(1A)(b) of the ICA did not apply.  To the extent that the defendants’ argument is that one cannot disaggregate or “unbundle” the excess policy at all, and that no characterisation could be performed below the level of the excess policy taken in its entirety, then that argument runs up against the plain intendment of s 9 of the ICA and must fail.  My analysis of the two policies concerned reveals that there is no doubt that each of them contained one or more types of cover to which the ICA would not apply if they were contained in individual contracts, together with one or more types of cover to which the ICA would apply if they were contained in individual contracts.  In my view, s 9(1A) may be applied in respect of the excess policy.
  2. [97]
    There are only two questions of substance, namely, how the provisions should be grouped for the purpose of characterisation, and what should be the outcome of that characterisation.  On the first of those questions, each side departed from their pleading.
  3. [98]
    It became apparent during the course of argument that the plaintiff did not intend that the group of provisions to which it submitted s 9(1A)(b) applied was the group of provisions set out in paragraph [12] of the statement of claim (which is what paragraph [54] literally says).  The way in which the plaintiff ultimately sought to put its case may be identified by reference to its submission as to how the separate question should be answered.  Its written submissions put the answer in this way:

The relevant contract of insurance for the purpose of the claim to be indemnified in this proceeding is the group of provisions comprising subsection (c) of the excess layer insurance contract, as applied to endorsement number 1 to the contract. That group of provisions fall within section 9(1A)(b) of the Insurance Contracts Act 1984. That group of provisions of the insurance policy, and therefore the relevant contract of insurance for the purpose of this claim, is governed by the Insurance Contracts Act 1984.

  1. [99]
    Although the plaintiff’s  identification of the relevant contract of insurance departed from its pleaded case (in that it was broader than the group of provisions identified in paragraph [12] of the statement of claim), there was no objection to that course, and the defendants were content to meet the plaintiff’s case as framed by its argument.  For their part, the defendants did not limit their response to the contention that the excess policy on which they were liable had to be characterised as a whole.  They had alternative fallback positions: first, that the appropriate grouping of provisions was that which comprised subsection (a) and subsection (c) of the excess policy taken together, and second, that the appropriate grouping of provisions was that which comprised subsection (c) of the excess policy taken separately.  On either basis, the defendants’ contention was that such a grouping of provisions should be characterised as a group of provisions which would, if it comprised a single contract or proposed contract, form a contract to which the MIA applied.

Analysis

What is the appropriate grouping of provisions?

  1. [100]
    It will be recalled that s 9(1A) is in these terms:

 (1A)  If a contract of insurance, or a proposed contract of insurance, includes:  

  1. (a)
    provisions (the first group of provisions) that would, if they comprised a single contract or proposed contract, form a contract referred to in any of paragraphs (1)(a) to (f); and
  2. (b)
    provisions (the second group of provisions) that would, if they comprised a single contract or proposed contract, form a contract other than a contract referred to in any of paragraphs (1)(a) to (f);

then subsection (1) applies as if the first group of provisions and the second group of provisions were each a separate contract or proposed contract.

  1. [101]
    The differential application of s 9(1) to groups of provisions within a particular contract of insurance is only authorised if the conditions identified by sub-ss 9(1A)(a) and (b) are met.That will occur where the contract may be disaggregated in such a way that it may be said to include two groups of provisions, one of which could, if it comprised a single contract, be characterised as a contract which would fall into any of sub-ss 9(1)(a) to 9(1)(f), and one of which could not.  If that disaggregation can be done, then the ICA will not apply to the first group, but it will apply to the second group.
  2. [102]
    In their arguments before me, the parties did not seek to identify a first group of provisions and a second group of provisions in the way the section contemplates.  Rather, they simply sought to identify a group of provisions which they said was an appropriate grouping for the purposes of s 9(1A), and then debated whether it should be regarded as forming a contract to which s 9(1)(d) applied, the answer to the formulated separate question flowing from the outcome of that debate.
  3. [103]
    In ascending extent of grouping, the alternative arguments before me resulted in the defendants supporting, and the plaintiff opposing, the following propositions:
    1. (a)
      the group of provisions comprising subsection (c) of the excess policy, as applied to endorsement number 1, was a group of provisions which would, if it comprised a single contract, form a contract to which the MIA applied;
    2. (b)
      alternatively, the group of provisions comprising subsection (c) of the excess policy was a group of provisions which would, if it comprised a single contract, form a contract to which the MIA applied; or
    3. (c)
      alternatively, the group of provisions comprising subsections (a) and (c) of the excess policy was a group of provisions which would, if it comprised a single contract, form a contract to which the MIA applied.
  4. [104]
    However, the defendants’ first response to the plaintiff’s case was that the plaintiff could not be permitted to isolate, as a notional contract for the purpose of applying s 9 of the ICA, the group of provisions comprising subsection (c) of the excess policy (and, logically, the same argument would apply to the narrower group of provisions comprising subsection (c) as applied to endorsement 1).  On the defendants’ argument, the only relevant notional contract was the group of provisions comprising subsections (a) and (c) of the excess policy taken together.
  5. [105]
    The defendants justified this argument by advancing the proposition that, on the proper construction of the excess policy, subsections (a) and (c) should be regarded as “textually and conceptually integrated”.  They contended that the apparent objective of s 9(1A) of the ICA was to isolate separate types of cover in a bundled contract of insurance, and s 9(1A) should not be construed “in a way that isolates, in an un-businesslike manner, certain parts of an integrated cover”.
  1. [106]
    I have explained at [31] to [33] above my reasons for concluding that the grouping of provisions must be consistent with the contractual intention, objectively ascertained, as to the nature of insurance cover provided by the contract concerned and how it might be conceptually subdivided.  The difficulty I have with the defendants’ argument is that it does not seem to me to be inconsistent with the contractual intention, objectively ascertained, to take the course for which the plaintiff contends.  I do not accept that subsections (a) and (c) should be regarded as “textually and conceptually integrated”.  My detailed discussion of the way in which the policies were structured suggests that the notion that there was any conceptual integration in the cover extended by subsections (a) and (c), read together, must be rejected.  Moreover, the proposition involves a construction of the excess policy which I have rejected at [85] to [87] above.
  2. [107]
    Another argument which the defendants advanced in support of the notion that the subsections (a) and (c) must be regarded as conceptually integrated was that, unless subsections (a) and (c) were so regarded, it might be that subsection (c) by itself would not provide the plaintiff with liability insurance cover coextensive in all respects with the plaintiff’s liability to the Commonwealth under cll 6.8.1.1 and 8.3.1 of the ACPB contract (which, it will be recalled, required the plaintiff to indemnify the Commonwealth, regardless of whether or not the loss was caused by negligence).  There is no provision in the excess policy which could reasonably be construed as containing a promise by the insurers to provide liability cover coextensive in all respects with the plaintiff’s liability to the Commonwealth under cll 6.8.1.1 and 8.3.1 of the ACPB contract.  The qualification concerning negligence which, it will appear, is contained in cl 6 of the “Shiprepairer’s Liability Clauses”, may mean that the plaintiff did not fulfill its obligation to the Commonwealth under cl 8.7.4, which required that the “Ship Repairers’ Liability Policy” be extended to include liability assumed by the plaintiff under cl 6.8.1.1b of the ACPB contract.  But even if that were so, I am unable to see how the defendants’ argument is relevant to the question of the appropriate grouping for the purposes of s 9(1A) of the ICA.  It may well be that provisions in subsection (a) of the excess policy would respond in the event of a total loss to the Bundaberg caused by non-negligent conduct of the plaintiff or its subcontractors, thereby providing the plaintiff with broader cover than it obtained under the “Shiprepairer’s Liability Clauses”, but that does not demonstrate the conceptual integration for which the defendants contend. 
  3. [108]
    I reject the defendants’ argument that the only relevant notional contract was the group of provisions comprising subsections (a) and (c) of the excess policy taken together.
  4. [109]
    No specific argument was addressed to me on the differentiation between (1) the group of provisions comprising subsection (c) as a whole, and (2) that group as applied to endorsement number 1.  However, when one examines the structure of the excess policy, one sees that there was a differentiation between the cover provided, as between the contracts referred to in the different declarations.  It does not seem to me to be inconsistent with the contractual intention, objectively ascertained, to take the course of subdividing the group of provisions comprising subsection (c) as the plaintiff proposes. Accordingly, my conclusion is that the relevant contract of insurance for the purposes of answering the separate question is the group of provisions comprising subsection (c) of the excess policy, as applied to endorsement number 1.  Where I use the phrase “relevant contract of insurance” in what follows, that is the group to which I refer.

Characterisation of the relevant contract of insurance

  1. [110]
    The provisions of the relevant contract of insurance were:
    1. (a)
      those parts of the excess policy identified at [85] to [88] above;
    2. (b)
      the terms, clauses and conditions applicable to subsection 2(c) of the primary policy in respect of the cover provided under declaration 1, namely the terms identified at [67], [68] and [72] above; and
    3. (c)
      the relevant terms of declaration 1, the relevant aspects of which are noted in row 1 of the table set out at [61] above.
  2. [111]
    The critical question for me is whether the perils insured against by those provisions may be regarded as perils consequent on or incidental to the navigation of the sea.
  3. [112]
    Three matters should be recapitulated.
  4. [113]
    First, the specification of the nature of insurance coverage as set out in Section 1 “Risk Details” of each policy:
    1. (a)
      From the primary policy:

INTEREST:

Section 2 – Marine Contractual &/or Legal Liability

Coverage hereon in respect of the Assured’s legal and/or contractual liability in respect of specific contracts declared and agreed by Underwriters hereon. Further to include the Assured’s legal liabilities to Third Parties in respect of said contracts.

  1. Contingent Products/Shiprepairers Liabilities.

CONDITIONS:

Section 2 – Marine Contractual &/or Legal Liability

This Section provides coverage in respect of Contractual Liability as may be declared and agreed by Underwriters hereon in respect of the Assured’s activities as designated contractor for the Royal Australian Navy/Commonwealth of Australia and/or as may be agreed.

Any claims hereon will be adjusted on the basis of :

  1. ….
  2. Shiprepairers and Contingent Products Liabilities on the basis of: London Shiprepairers Liability Clause LSW 169A[94]

  1. (b)
    From the excess policy:

INTEREST:

EXCESS MARINE CONTRACTUAL &/OR LEGAL LIABILITY

Sub-Section c) EXCESS CONTINGENT PRODUCTS / SHIPREPAIRERS LIABILITIES …

CONDITIONS:

Sub-Section … c)

All terms clauses and conditions as per -

Section 2 Marine Contractual &/or Legal Liability - … c) Contingent Products / Shiprepairers Liabilities of underlying Willis Ltd. policy 91256M14 written 100% by RSA, but only in respect of coverage provided under : 

Declaration No. 1 – Repair, Maintenance and Support of 14 Patrol Vessels following delivery to the Royal Australian Navy,

  1. [114]
    Second, it is important to recall just what was the subject of declaration and agreement in declaration 1 in endorsement number 1.  As I have previously noted, the declaration – 
    1. (a)
      recorded that the underwriters noted and agreed the fact of the ACPB contract described as “for the Supply and In Service Support of the Armidale Class Patrol Boats”;
    2. (b)
      further described the contract as “in respect of the Repair, Maintenance and Support of 14 Patrol Vessels following delivery to the Royal Australian Navy (under the Post Acceptance Modification Programme “PAM”)”;
    3. (c)
      identified by name each of the 14 boats which were the subject of the contract (including the Bundaberg); 
    4. (d)
      recorded that the underwriters noted and agreed that the plaintiff would undertake firing of weapons onboard the boats for weapons trial purposes; 
    5. (e)
      made specific reference to the clauses in the ACPB contract referred to at [44] above, by which the plaintiff accepted the risk of loss or damage to a patrol boat which occurred whilst the plaintiff or its subcontractor was in possession of the boat for the purpose of carrying out the Integrated Support Activities; and
    6. (f)
      noted also that the plaintiff brought the boats to the land-based facility for repair.
  2. [115]
    Third, and consistently with that coverage,[95] including in particular the specific reference to the contractual liability covered, the “Shiprepairer’s Liability Clauses” specified, as the basis of adjustment, the terms on which the plaintiff relies in this proceeding (emphasis added):

6. COVERAGE

Underwriters hereby agree, subject to the limitations, terms and conditions hereinafter mentioned to indemnify the Assured for all sums which the Assured shall become liable to pay by reason of the legal liability of the Assured as shiprepairers for:-

  1. (i)
    Loss of or damage to any vessel or craft which is in the care, custody or control of the Assured for the purpose of being worked upon including shifting and moving within the limits of the port at which the work is being carried out and including trial trips but not exceeding 100 miles from such port;
  2. (ii)
    Loss of or damage to any other vessel or craft upon which the Assured is working except vessels or craft at sea other than whilst on trial trips;
  3. (iii)
    Loss of or damage to cargo or other things on or discharged from any of the vessels or craft referred to in (i) or (ii) above;
  4. (iv)
    Loss of or damage to machinery or equipment of any vessel or craft, whilst such machinery or equipment is removed from such vessel or craft and is in the care, custody or control of the Assured for the purpose of being worked upon, including whilst in transit between such vessel or craft and the premises of the Assured or whilst in transit to or from specialist repairers’ or manufacturers’ premises;
  5. (v)
    Removal of wreck;
  6. (vi)
    Loss of or damage to third party property occurring in the course of or arising from the ship repairing operations of the Assured,

where such liability results from negligence of the Assured, his servants, agents or sub-contractors occurring during the period of this insurance.[96]

  1. [116]
    For its part, the plaintiff sought to characterise the cover as liability cover, the broad nature of which was to insure the plaintiff for its work as a ship-repairer, and not as insurance falling within the definition of marine insurance.  But the difficulty with that proposition is that it assumes that insurance of a liability which an assured might have is somehow inimical to the conclusion that the insurance might nevertheless fall within the definition of marine insurance.  I agree that it is obvious that the insurance is liability insurance.  That is how the insurance describes itself (although it adds the adjective “marine”).  But that does not mean that the insurance cannot also be regarded as falling within the definition of marine insurance under the MIA.  McHugh J made that observation in Gibbs v Mercantile Mutual Insurance in the passage quoted at [17](b) above. 
  2. [117]
    The plaintiff pointed out that the terms of the Shiprepairer’s Liability Clauses were such that there were some maritime risks which were not the subject of cover.  Thus, cl 9(ii) specified an exclusion of cover for “any liability … being collision liability, towers liability or liability arising out of the navigation of any vessel or craft owned or operated by the Assured or any affiliated or subsidiary concern or party”.  But that much may be accepted.  The focus, however, must be on the nature of the risks which were insured.
  3. [118]
    It is also true, as the plaintiff emphasised in its submission, that the liability concerned was the plaintiff’s liability as a ship-repairer.  But it was not just liability which the plaintiff might incur as part of business as a ship-repairer.  Regard must be had to the considerations I have identified as the first and second points for recapitulation above.  The liability insured was the liability which the plaintiff might incur because it contracted to accept the risk of harm to the Patrol Boats the subject of the ACPB contract consequent upon its performing particular activities which it had contracted to perform pursuant to the ACPB contract, which activities were directed to a particular end.
  4. [119]
    The fact and terms of the ACPB contract were, by the terms of the excess policy, made explicitly relevant to the nature and scope of the risk insured.  It is by reference to the nature of the plaintiff’s contractual activities under the ACPB contract and to the nature of its contractual liability for those activities that one can understand and characterise the perils against which the defendants insured the plaintiff. 
  5. [120]
    As my discussion at [35] to [43] above demonstrates, the ACPB contract contemplated that the Patrol Boats would be designed and constructed so as to be capable of embarking on marine adventures in defined operational areas “throughout Australia’s Marine Jurisdictional Zones and on the high seas”.  Each of the Patrol Boats was engaged on a marine adventure.  The relevant contract of insurance was entered into during the Support Phase under the ACPB contract.  During that phase, the plaintiff promised to carry out the Integrated Support Activities in such a way that the Commonwealth, in operating the Patrol Boats, could achieve the “Required Availability” of the boats in relation to their role.  In other words, by the ACPB contract, the plaintiff contracted on terms which made its performance of the defined Integrated Support Activities to a particular contractual standard an integral part of the capacity of the Commonwealth to engage in the contemplated marine adventures.
  6. [121]
    The risks encountered in the marine adventures were not limited to risks encountered on the high seas, but extended to risks encountered in harbours, dry docks and ports, where the boats were to be maintained by the plaintiff in such a way as they could continue on their marine adventure and the plaintiff could discharge its contractual obligations.  Being the subject of work of that nature must be regarded as incidental to or a consequence of marine adventure.  The risk of a ship being damaged or lost by fire while the subject of work of that nature is a “maritime peril” within the meaning of s 9 of the MIA.[97]
  7. [122]
    The plaintiff contracted to accept the risk that, in the course of the plaintiff performing its Integrated Support Activities on the Patrol Boats in its possession, the Patrol Boats might be damaged and need to be replaced.  It contracted to accept the risk of a particular type of maritime peril coming to pass.  By the primary policy and the excess policy, the plaintiff insured itself against the loss which it would suffer (namely its liability to the Commonwealth) in the event of the peril coming to pass.
  8. [123]
    In my view, by the terms of the relevant contract of insurance, the defendants undertook to indemnify the plaintiff against losses which must be regarded as substantially incident to marine adventure.  The relevant contract of insurance should be regarded as constituting a contract of marine insurance within the meaning of s 7 of the MIA, having regard to the provisions of s 9 of the MIA.  Section 6 of the MIA provides that the MIA would apply to the relevant contract of insurance and ss 9(1)(d) and 9(1A) of the ICA would operate so that the provisions of the ICA would not apply to the relevant contract of insurance.

Conclusion

  1. [124]
    The separate question should be answered as follows:

The relevant contract of insurance is governed by the Marine Insurance Act 1909.

  1. [125]
    I will hear the parties as to costs.

Table 1: The documents of which the primary policy was comprised

Item

Document

Contents

Pg

Coversheet

 

1

Coversheet entitled

“Contract of

Insurance”

This specified the UMR; identified the Assured as the plaintiff; specified the type of risk was “Insurance of Liability”; and stated the period as “20 February 2014 to 20 February 2015”.

1

Contract sections

 

2

Section 1 entitled “Risk Details”

This section classified the type of insurance as “Insurance of Marine Hull and Contractual/Liabilities Cover”.  It specified the risks and sums insured and identified the conditions applicable thereto. As to the former, it provided:

Section 1 – Hull Interests

Coverage hereon in respect of vessels owned or chartered by the Assured:

  1. Hull and Machinery.
  2. Increased Value and/or Disbursements
  3. Loss of Charter Hire
  4. Innocent Owners

Including new and/or acquired and/or managed and/or chartered

vessels held covered at rates and terms to be agreed Section 2 - Marine Contractual &/or Legal Liability

Coverage hereon in respect of the Assured’s legal and/or contractual liability in respect of specific contracts declared and agreed by

Underwriters hereon. Further to include the Assured’s legal liabilities to Third Parties in respect of said contracts.

  1. Hull and Machinery.
  2. Consequential Costs under Contract following total loss.
  3. Contingent Products/Shiprepairers Liabilities.
  4. Combined General Liability.

Section 3 - Miscellaneous Third Party Liabilities / Products Liability Coverage hereon in respect of the Assured’s direct third party legal liabilities as may be declared hereon.”

2-7

3

Section 2 entitled “Information”

This section detailed the information provided to support the assessment of the risk at the time of underwriting.

8

4

Section 3 entitled “Security details”

Included the execution clause signed by Royal and Sun Alliance.

9-11

5

“Contract

Administration and

Advisory Sections”

Comprised:

  1. (a)
    Section 4 entitled “Subscription Agreement”;
  2. (b)
    Section 5 entitled “Fiscal and Regulatory”; and
  3. (c)
    Section 6 entitled “Broker remuneration and Deductions”.

12-18

Contract endorsements

 

6

Endorsement 0001

This document recorded “Declaration Number 1 - IN RESPECT OF SECTION 2(a) and (c)”.  Also included conditions in respect of section 3; a Products Liability Endorsement (Claims Made); a Cross Liabilities/Omissions Endorsement; and a Contracts Rights of Third Parties Act 1999 Exclusion Clause.

19-30

7

Endorsement 0002

This document recorded “Declaration Number 2 - IN RESPECT OF SECTION 2(a) and (c) only”.

31-35

Item

Document

Contents

Pg

8

Endorsement 0003

This document recorded “Declaration Number 3 – IN RESPECT OF SECTIONS 1 AND 2”.

36-67

9

Endorsement 0004

This document recorded “Declaration Number 4 – IN RESPECT OF SECTION 3 ONLY”, although it was probably intended to be a declaration applicable to section 2(d): see fn 18 above.

68-103

10

Endorsement 0005

This document recorded “Declaration Number 5 - IN RESPECT OF SECTION 2 a) and c) only”.

104-106

11

Endorsement 0006

This document recorded “Declaration Number 6 – IN RESPECT OF SECTION 2 a) and c)”.

107-114

12

Endorsement 0007

This document recorded “Declaration Number 7 - IN RESPECT OF SECTION 2 a) and c)”.

115-120

13

Endorsement 0008

This document recorded “Declaration Number 8”, which was expressed to apply in respect of declarations 1, 2, 3, 6 and 7. 

121-126

14

Endorsement 0009

This document recorded “Declaration No. 9 - IN RESPECT OF SECTION 2 (A) AND (C)”.

127-129

15

Endorsement 0010

This document recorded “Declaration Number: 10 – Excess Professional Indemnity – IN RESPECT OF SECTION 3)”.

130-134

16

Endorsement 0011

[Not used]. 

 

17

Endorsement 0012

[Not used].

 

18

Endorsement 0013

This document recorded “Declaration Number 3 – IN RESPECT OF SECTIONS 1 AND 2 – Fleet Marine Services Contract”.

135-163

19

Endorsement 0014

This document recorded “Declaration No. 9 - IN RESPECT OF SECTION 2 (A) AND (C) - Saab Contract”.

164-166

20

Endorsement 0015

[Not used].

 

21

Endorsement 0016

This document recorded “Declaration Number 3) - IN RESPECT OF SECTIONS l) and 2) -Fleet Marine Services Contract”.

167-169

22

Endorsement 0017

This document recorded “Declaration Number 3 - IN RESPECT OF SECTIONS l and 2 - Fleet Marine Services Contract”.

170-173

23

Endorsement 0018

[Not used].

 

24

Endorsement 0019

This document recorded “Declaration Number 3 - IN RESPECT OF SECTIONS 1 and 2 - Fleet Marine Services Contract”. 

174-176

25

Institute Warranties

Set out certain warranties regarding areas where vessels shall not sail.

177-178

Bespoke or amended wording and clauses, wording schedule(s) and/or declarations and any other attachments, as appropriate

26

Navigation

Limitations for Hull

War, Strikes,

Terrorism and

Related Perils

Endorsement

(JW200S/001A)

Set out further areas where vessels shall not sail because they are included in a specified list of areas of perceived enhanced risk.

179-181

Item

Document

Contents

Pg

27

Institute Time

Clauses – Hulls

1/10/83 CL280

Expressed cll 1 to 26 containing various insuring terms and exclusions.

182-191

28

Institute Additional

Perils Clauses – Hulls

1/10/83 CL294

Expressed cover additional to the Institute Time Clauses – Hulls cover identified in Item 27 above, for use only with those clauses.

192

29

Institute Machinery

Damage Additional

Deductible Clause

1/10/83 CL298

Expressed additional clauses referable to the Institute Time Clauses – Hulls cover identified in Item 27 above, for use only with those clauses.

193

30

Equipment on Shore Clause

Extended cover for the Assured’s liability in respect of on-shore equipment whether owned by it or not owned by it.

194

31

Institute Time

Clauses – Hulls

Disbursements and

Increased Value (Total Loss only, including Excess Liabilities) 1/10/83

CL290

Expressed cll 1 to 15 containing various insuring terms and exclusions.

195-199

32

Loss of Charter Hire

Insurance including

War (ABS 1/10/83

Wording) LPO454

Expressed cll 1 to 15 containing various insuring terms and exclusions.  Contains cross-references to Institute Time Clauses – Hulls cover identified in Item 27 above and to Institute War and Strikes Clauses cover identified in Item 34 below.

200-202

33

Innocent Owners’

Interest Clauses – Hulls 1/9/97c

Expressed recital A and cll 1 to 9 containing various insuring terms and exclusions.

203-206

34

Institute War and

Strikes Clauses –

Hulls-Time 1/10/83

CL281

Expressed cll 1 to 5 containing various insuring terms and exclusions.  Incorporated specified clauses from Institute Time Clauses – Hulls cover identified in Item 27 above.

207-209

35

London Blocking and

Trapping Addendum

3/84 LPO444

Expressed additional clause referable to the Institute War and Strikes Clauses – Hulls-Time 1/10/83 identified in Item 34 above.

210

36

Protection and

Indemnity Insurance – War (including crew)

Expressed cll 1 to 10 containing various insuring terms and exclusions.  Expressed to be subject to the Institute War and Strikes Clauses – Hulls-Time 1/10/83 identified in Item 34 above.

211-212

37

Hull War, Strikes,

Terrorism and Related Perils Notice of Cancellation Administration

Clause

(JW2005/001B)

Expressed cll 1 to 5 containing various additional clauses. 

213

Item

Document

Contents

Pg

38

Shiprepairer’s

Liability Clauses 1/90

LSW169A

Expressed cll 1 to 9 containing various insuring terms and exclusions.  This was the document which contained the insuring clause by reference to which Royal and Sun Alliance was found to be liable.

214-218

39

Other Work

Endorsement 05/89

LSW172

Expressed two clauses extending liability pursuant to the

Shiprepairer’s Liability Clauses identified in Item 38 above.

219

40

Detention

Endorsement 5/89

LSW170

Expressed an additional insuring clause referable to the

Shiprepairer’s Liability Clauses identified in Item 38 above.

220

41

Personal injury

Endorsement 1/90

LSW171A

Expressed an additional insuring clause referable to the

Shiprepairer’s Liability Clauses identified in Item 38 above.

221

 

Institute Radioactive

Contamination (etc) Exclusion Clause

CL370

Expressed an additional “paramount” clause entitled “Institute Radioactive Contamination, Chemical, Biological, Biochemical and Electromagnetic Weapons Exclusion Clause”.

 

42

Travelling Workmen Clause 5/89 LSW180

Expressed a clause extending cover provided by “this insurance”.

222

43

Products Liability

Endorsement (Claims

Made)

Expressed various insuring terms and exclusions indemnifying “the legal and/or contractual liability of the Assured for Claims arising from an Accident solely caused by Products”.

223-224

44

Various additional clauses

Expressed the following various unnumbered clauses applying generally to the policy:

  • Institute Cyber Attack Exclusion Clause CL380
  • Brokers Cancellation Clause 1/12/99
  • Cross Liability Clause
  • Cross Liability Compliance Clause CLCC WIL 20/05b
  • Waiver of Subrogation Clause CLCC WIL 20/05a
  • Continuity Credit Clause 1/12/99
  • Insurer Default Clause
  • Sanction Limitation and Exclusion Clause JL2010/005 

225-227

45

Institute War Clauses

(Cargo) 1/1/82

CL255

Expressed cll 1 to 14 containing various insuring terms and exclusions.

228-232

46

Institute Strikes

Clauses (Cargo)

1/1/82 CL256

Expressed cll 1 to 14 containing various insuring terms and exclusions.

233-236

47

Institute Notice of

Cancellation and War

Automatic

Termination of Cover Clause – Hulls, etc.

1/10/83 CL201

Expressed additional clause.

237

Table 2: The documents of which the excess policy was comprised

Item

Document

Contents

Pg

Coversheet

 

48

Coversheet entitled

“Contract of

Insurance”

This specified the UMR; identified the Assured as the plaintiff; specified the type of risk was “Insurance of Liability”; and stated the period as “20 February 2014 to 20 February 2015”.

238

Contract sections

 

49

Section 1 entitled “Risk Details”

This section stated that the type of insurance was “Insurance of Marine Liability”.  It specified the risks and sums insured and identified the conditions applicable thereto.  As to the former, it provided:

“EXCESS MARINE CONTRACTUAL &/OR LEGAL LIABILITY Sub-Section a) EXCESS HULL & MACHIINERY.

Sub-Section b) EXCESS CONTRACTUAL LIABILITIES.

Sub-Section c) EXCESS CONTINGENT PRODUCTS / SHIPREPAIRERS LIABILITIES

Sub-Section d) EXCESS PRODUCTS LIABILITIES”

239-244

Bespoke or amended wording and clauses, wording schedule(s) and/or declarations and any other attachments, as appropriate

 

50

Various additional clauses

Expressed the following various unnumbered clauses applying generally to the policy:

  • Cross Liability Compliance Clause CLCC WIL 20/05b
  • Waiver of Subrogation Clause CLCC WIL 20/05a
  • Cross Liability Clause
  • Continuity Credit Clause
  • Institute Radioactive Contamination, Chemical, Biological, Biochemical and Electromagnetic Weapons Exclusion Clause CL370
  • Brokers Cancellation Clause 1/12/99
  • Insurer Default Clause
  • Sanction Limitation and Exclusion Clause JL2010/005

These clauses, with the exception of the “Continuity Credit Clause”, were reproductions of the same clauses from the primary policy: see Table 1, Items 41 and 44.  The Continuity Credit Clause contained different values for the continuity commission and the credit balance threshold compared to the corresponding clause in the primary policy.

245-248

Contract sections (continued)

 

51

Section 2 entitled “Information”

This section detailed the information provided to support the assessment of the risk at the time of underwriting.

249-252

52

Section 3 entitled “Security details”

Included the execution clause signed by Royal and Sun Alliance and by the present defendants.

253-257

53

“Contract

Administration and

Advisory Sections”

Comprised:

  1. (a)
    Section 4 entitled “Subscription Agreement”;
  2. (b)
    Section 5 entitled “Fiscal and Regulatory”; and
  3. (c)
    Section 6 entitled “Broker remuneration and Deductions”.

258-265

Item

Document

Contents

Pg

54

Loss record (11 May

2005 to 20 February

2014)

Statement summarising net premium, the value of any paid or outstanding claims, and credit balance across the years 2005-2014.

266-267

Contract endorsements

 

55

Endorsement 0001

This document recorded “Declaration Number 1 - IN RESPECT OF SECTION 2(a) and (c)”.  Also included conditions in respect of section 3; a Products Liability Endorsement (Claims Made); a Cross Liabilities/Omissions Endorsement; and a Contracts Rights of Third Parties Act 1999 Exclusion Clause.  It was a reproduction of the same document from the primary policy: see Table 1, Item 6.

268-279

56

Endorsement 0002

This document recorded “Declaration Number 2 - IN RESPECT OF SECTION 2(a) and (c) only”.  It was a reproduction of the same document from the primary policy: see Table 1, Item 7.

280-284

57

Endorsement 0003

This document recorded “Declaration Number 3 – IN RESPECT OF SECTIONS 1 AND 2”.  It was a reproduction of the same document from the primary policy: see Table 1, Item 8.

285-316

58

Endorsement 0004

[Not used]. 

 

59

Endorsement 0005

[Not used]. 

 

60

Endorsement 0006

This document recorded “Declaration Number 6 – IN RESPECT OF SECTION 2 a) and c)”.  It was a reproduction of the same document from the primary policy: see Table 1, Item 11.

317-324

61

Endorsement 0007

This document recorded “Declaration Number 7 - IN RESPECT OF SECTION 2 a) and c)”.  It was a reproduction of the same document from the primary policy: see Table 1, Item 12.

325-330

62

Endorsement 0008

[Not used].

 

63

Endorsement 0009

This document recorded “Declaration No. 9 - IN RESPECT OF SECTION 2 (A) AND (C)”.  It was a reproduction of the same document from the primary policy: see Table 1, Item 14. 

331-333

Bespoke or amended wording and clauses, wording schedule(s) and/or declarations and any other attachments, as appropriate (continued)

 

64

Products Liability

Endorsement (Claims

Made)

Expressed various insuring terms and exclusions indemnifying “the legal and/or contractual liability of the Assured for Claims arising from an Accident solely caused by Products”.  It was a reproduction of the same document from the primary policy: see Table 1, Item 43. 

334-335

65

Various additional clauses

Expressed the following various unnumbered clauses applying generally to the policy: 

  • Institute Cyber Attack Exclusion Clause 10/11/03 CL380
  • Contractual extension clause 2013
  • Offshore extension clauses 2013

The Institute Cyber Attack Exclusion Clause was a reproduction of the same clause from the primary policy: see Table 1, Item 44 above.  The other two clauses were those referred to in Section 2, “Information”: see Table 2, Item 51 above.

336-338

Footnotes

[1]Even though McHugh J dissented in the result, his analysis still recognised that risks which occur other than at sea may be regarded as risks which are consequent on or incidental to the navigation of the sea

[2]The question of the application of the section to proposed contracts of insurance is not presently relevant so I will ignore it in the analysis which follows.

[3]A similar obligation was expressed in cl 3.9.1.

[4]Clause 2.3.0-1 of Annexure B to the SOW.

[5]Clause 2.1.0-1 of Annexure B to the SOW.

[6]Clauses 2.1.0-2 and 2.1.0-3 of Annexure B to the SOW.

[7]Clause 2.1.0-7 of Annexure B to the SOW.

[8]Clause 2.3.0-1 of Annexure B to the SOW.

[9]For the primary policy, see Table 1, Item 1. For the excess policy, see Table 2, Item 48.

[10]For the primary policy, see Table 1, Items 1-2. For the excess policy, see Table 2, Items 48-49.

[11]For the primary policy, see Table 1, Item 4. For the excess policy, see Table 2, Item 52.

[12]For the primary policy, see Table 1, Item 4. For the excess policy, see Table 2, Item 52.

[13]See plaintiff’s written submissions at [1] and transcript p 1-5 ln 9.

[14]This was inconsistent with the plaintiff’s statement of claim, which alleged that by a single contract of insurance the plaintiff was to be indemnified against certain risks pursuant to two insurance policies, namely the primary policy and the excess policy. That allegation was admitted by the defendant. No submission was made to me that it mattered whether there were one or two contracts of insurance.

[15]Table 1, Item 2

[16]See Table 1, Item 38.

[17]See Table 1, Item 43.

[18]  Declaration 4 actually states that it is applicable to section 3. However, given the conjunction between the description of the interest covered by subsection 2(d) and the “Combined General Liability” cover specified in the declaration, this declaration was probably intended to be a declaration which was applicable to subsection 2(d). That is how I will treat it.

[19]Table 1, Item 27.

[20]Table 1, Item 8.

[21]Table 1, Item 28.

[22]Table 1, Item 29.

[23]Table 1, Item 30.

[24]Table 1, Item 27.

[25]Table 1, Item 34.

[26]Table 1, Item 35.

[27]Table 1, Item 36.

[28]Table 1, Item 37.

[29]Table 1, Item 8.

[30]Table 1, Item 41.

[31]Table 1, Item 44.

[32]Table 1, Item 44.

[33]Table 1, Item 44.

[34]Table 1, Item 44.

[35]Table 1, Item 44.

[36]Table 1, Item 44.

[37]Table 1, Item 44.

[38]Table 1, Item 44.

[39]Table 1, Item 31.

[40]Table 1, Item 8.

[41]Table 1, Item 32.

[42]Table 1, Item 32.

[43]Table 1, Item 27.

[44]Table 1, Item 34.

[45]Table 1, Item 8.

[46]Table 1, Item 33.

[47]Table 1, Item 8.

[48]Declaration 8 applies indirectly to this subsection since it extends the cover provided by declarations 1, 2, 3, 6 and 7: see Table 1, Item 13.

[49]As per fn 48.

[50]Table 1, Item 38.

[51]Table 1, Item 39.

[52]Table 1, Item 40.

[53]Table 1, Item 41.

[54]Table 1, Item 42.

[55]As per fn 48.

[56]Table 1, Item 9. As to its applicability to subsection 2(d), see row 4 of the table at [61] above.

[57]Table 1, Item 6.

[58]Table 1, Item 15.

[59]Table 2, Item 49.

[60]Table 2, Item 55.

[61]Table 2, Item 56.

[62]Table 2, Item 60.

[63]Table 2, Item 61.

[64]Table 2, Item 63.

[65]Table 2, Item 50

[66]Table 2, Item 50.

[67]Table 2, Item 50.

[68]Table 2, Item 50.

[69]Table 2, Item 65.

[70]Table 2, Item 50.

[71]Table 2, Item 50.

[72]Table 2, Item 50.

[73]Table 2, Item 50.

[74]Table 2, Item 55.

[75]Table 2, Item 56.

[76]Table 2, Item 57.

[77]Table 2, Item 60.

[78]Table 2, Item 61.

[79]Table 2, Item 63.

[80]Table 2, Item 55.

[81]Table 2, Item 64.

[82]Table 2, Item 55.

[83]Table 2, Item 55.

[84]Table 2, Item 49.

[85]Table 2, Item 49.

[86]Table 1, Item 2.

[87]Table 1, Item 2.

[88]Table 1, Item 38.

[89]Table 2, Item 55.

[90]Table 1, Item 38.

[91]Table 2, Item 49.

[92]Table 1, Item 2.

[93]Table 1, Item 38.

[94]Table 1, Item 38.

[95]For completeness, I record that there was an exclusion clause 9(xiii) of “any liability … assumed under contract or otherwise in extension of the liability imposed upon the Assured by law in the absence of contract”. The plaintiff submitted, and I agree, that the clause was a printed clause incorporated by reference and would have to be read down so as not to be inconsistent with the express intention revealed by the first and second matters I have recapitulated.

[96]  The express requirement that there be negligence may well have meant that the plaintiff had not fully complied with cl 8.7.4 of the ACPB contract, because the plaintiff’s liability to the Commonwealth was not so qualified. But for characterisation purposes it does not seem to me to matter that the excess policy did not provide insurance cover coextensive in all respects with the plaintiff’s liability to the Commonwealth.

[97]  That conclusion flows simply from the text of the section. It also gains support from the observations made by McHugh J in Gibbs v Mercantile Mutual Insurance in the passage quoted at [17](b) above, and also by Harrington J in the Federal Court of Canada in Secunda Marine Services Limited v Fabco Industries Limited [2006] 3 FCR 3 at [51].

Close

Editorial Notes

  • Published Case Name:

    DMS Maritime Pty Limited v Navigators Corporate Underwriters Limited

  • Shortened Case Name:

    DMS Maritime Pty Limited v Navigators Corporate Underwriters Limited

  • MNC:

    [2020] QSC 382

  • Court:

    QSC

  • Judge(s):

    Bond J

  • Date:

    18 Dec 2020

  • Selected for Reporting:

    Editor's Note

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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