December 19, 2022

In the recent decision of NTC Contracting Pty Ltd v Morton [2022] WASCA 160, the Western Australian Court of Appeal considered whether the scope of an indemnity clause may confine the scope of an insurance clause.

Bechtel (Western Australia) Pty Ltd (Bechtel) was engaged to construct a mining camp, and appointed ATCO Structures & Logistics Pty Ltd (ATCO) as the main contractor. ATCO engaged NTC Contracting Pty Ltd (NTC) under a subcontract to perform the earthworks for the construction of the camp.

Mr Morton, an employee of a labour hire company which supplied staff to NTC, allegedly fell into a trench whilst working on site and initiated proceedings against Bechtel and ATCO for negligence and breach of statutory duty.

Bechtel and ATCO subsequently joined NTC as a third party and claimed that NTC was in breach of the subcontract by failing to procure an insurance policy covering Mr Morton’s claims against them.

The subcontract between ATCO and NTC included clauses to the following effect:

  •    a clause requiring NTC to indemnify ATCO and its respective employees and agents against any damage, liability, costs arising out of a direct negligent act or omission caused by NTC in the carrying out of its works (Indemnity Clause); and
  •    a clause providing for NTC to effect and maintain a public liability policy, covering the respective rights and interests of Bechtel, ATCO and NTC and liabilities to third parties (Insurance Clause).

In the primary proceedings, it was accepted that Mr Morton’s claim did not arise out of a direct negligent act or omission caused by NTC. The primary judge accepted Bechtel and ATCO’s contentions regarding the scope of the Insurance Clause and found that that NTC’s obligation under the Insurance Clause was not limited to the provision of public liability cover for ATCO and Bechtel, only to the extent that they incurred any liability to third parties arising out of NTC’s negligence.

NTC appealed the primary judge’s finding, and claimed (among other things) that:

  •    on a proper construction of the subcontract, the only purpose of the Insurance Clause was to secure or support NTC’s indemnity obligations under the Indemnity Clause, thereby limiting the scope of the Insurance Clause; and
  •    the primary judge erred in construing the Insurance Clause as a standalone clause, rather than reading it down by reference to the Indemnity Clause.

NTC relied on recent authorities in which the court found that a head contractor had no right to recover from the subcontractor, in respect of damages occasioned by its own negligence, due to a prior indemnity clause limiting the scope of the insurance clause. The Court of Appeal found the contractual provisions and contractual setting of the present case to be materially different from those in the decisions relied upon by NTC, and ultimately dismissed NTC’s appeal.

The Court noted that it was not uncommon for a building contract between a principal and a head contractor to provide that one of them will take out a policy of insurance indemnifying all parties who may be involved in the works. The Court ultimately found that the Insurance Clause was a provision of significant elaboration and detail, and its construction did not support NTC’s contention that it only needed to procure public liability insurance to secure its own obligations under the Indemnity Clause.

The full decision can be found here.

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