The Liabilities of a Liability Policy

Key Point
  • An insured, seeking indemnification under a liability policy, bears the burden of establishing that it is liable, the amount of that liability and that the liability falls for indemnification under the policy.

In Weir Services Australia Pty Limited v AXA Corporate Solutions Assurance [2017] NSWSC 259, the Supreme Court of NSW examined a number of issues arising from a claim by an insured for indemnification under 3 liability policies.

Weir Services Australia Pty Ltd (Weir) was retained by Phil Gold Processing and Refining Corp (Phil Gold) to work on a grinding mill in the Philippines. The welding work performed by Weir disintegrated.

Phil Gold commenced arbitration proceedings against Weir, seeking damages for breach of contract and misleading or deceptive conduct.

Before the tribunal issued its Final Award, Weir and Phil Gold entered into a so-called “cap and collar” arrangement, under which Phil Gold agreed that if it was awarded damages, its maximum recovery from Weir would be capped at US$10,725,000 (the cap). Weir agreed to pay Phil Gold a minimum fixed amount of US$2,000,000 whatever the outcome of the arbitration proceedings (the collar).  The tribunal dismissed Phil Gold’s claim.  Weir paid the collar.

Weir held three insurance policies with AXA. The one the subject of this blog was an Australian Policy and was a broadform liability policy.

It provided cover for legal liability for “property damage” happening during the insurance period caused by an occurrence in connection with Weir’s business as well as costs and expenses incurred in the defence of a claim.

Weir sought indemnity from the insurer for the amount paid to Phil Gold for the collar payment and for its defence costs in the arbitration.

The insurer refused to indemnify Weir on the basis that the claim fell within the policy exclusions.

The Supreme Court of New South Wales dismissed Weir’s claim.

With respect to the claim for indemnification for the payment of the collar, the Court found that Weir had not demonstrated the actual existence and quantum of the liability. The cap and collar arrangement was viewed by the Court as consideration for capping Phil Gold’s recovery.  It allowed for different and significantly varied outcomes and could not be described as a reasonable settlement agreement establishing liability and quantum with certainty.

With respect to the claim for defence costs, Phil Gold’s claim was excluded by the professional services exclusion in the policy. The claim against Weir was characterised by the Court as a claim of liability caused by, or arising from, the rendering by Weir, or failure to render, professional engineering advice or service.  Hence, the exclusion applied.

Post by Paul Hendriks

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