- In construing a contract of insurance, preference is given to a construction supplying a congruent operation to the various components of the whole. The contract should be construed with a view to resolving inconsistencies and giving effect to all of its terms.
- Exclusions are to be construed on the basis that they cut out something otherwise covered by the general recitals and provisions.
In 2008, Treetops Lismore Pty Ltd (Treetops) contracted with Malamit Pty Ltd (Malamit) to provide project management services in relation to the Lismore Business Park development.
In 2009, WFI Insurance Ltd (WFI) issued a professional indemnity policy to Malamit and Blue Dolphin Racing Pty Ltd as trustee for the MA and LA Mitchell Investment Trust (Blue Dolphin).
In July 2010, there was a landslip at the Lismore Business Park and in 2014, Treetops brought a claim for damages in the Supreme Court of New South Wales against consulting engineers who were retained to carry out engineering work in relation to the development.
The engineers denied liability and alleged that Malamit and others were concurrent wrongdoers for the purposes of the Civil Liability Act 2002 (NSW).
On 21 January 2015, Treetops filed an Amended Summons joining Malamit as a defendant.
Malamit had notified WFI of circumstances that might give rise to a claim in 2010. In 2015, WFI denied indemnity.
Malamit’s problem was Mark Mitchell. Mr Mitchell was simultaneously a director of Treetops, the sole director of Malamit, and one of two shareholders in Blue Dolphin, which in turn owned Malamit.
WFI denied indemnity on two bases. First, that Treetops was not a third party as required by the definition of “Claim” in the policy. Second, the claim was excluded as it was brought by Treetops which was a subsidiary of an insured, Mr Mitchell.
The policy defined a claim as “any civil proceeding brought by a third party against the Insured for compensation”.
Meagher J concluded that WFI had agreed to indemnify multiple parties (including Malamit, Blue Dolphin and their past and present directors and employees, including Mr Mitchell) for any civil proceeding brought by a third party.
The Court of Appeal said the best way to determine who a third party was in this case was to have regard to the specific exclusion for claims brought by an insured and to proceed on the premise that the purpose of an exclusion is to cut out something that would otherwise be covered.
If the drafters of the policy considered they needed to exclude claims by insureds, that meant that in the absence of such an exclusion, such claims would have been covered. If claims by insureds were not otherwise covered, there would be no need to exclude them.
On that basis, the Court of Appeal concluded that a third party in this case simply meant someone other than the particular insured (Malamit) against whom the proceeding is brought.
Unfortunately for Malamit, what the exclusion can giveth (in clarifying the ambit of a third party), it can also taketh away. The policy excluded not only claims by an insured, but also claims by any subsidiary of an insured, relevantly defined as any corporate identity in which the insured owns or controls 50% of the issued voting shares.
Mr Mitchell was the sole director of Malamit, acted in the course of its project and development management business, and owned all of the shares in Treetops. Accordingly, he was an insured under the policy and Treetops was his subsidiary.
The Court of Appeal said that the likely purpose of such an exclusion in a policy, which indemnifies several insureds engaged in the conduct of a professional business, was to avoid the risk of collusion or assistance between the insureds in relation to such claims.
This case reinforces the importance of interpreting insurance policies as a whole in the commercial context in which they are entered.
 Bathurst CJ, Beazley J and Meagher JA.