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Insurance, Professional Indemnity, Workplace Insurance
What’s employment got to do with it? Policy interpretation goes against employers in QLD
31 August, 2021
The Queensland Supreme Court refused to make a declaration that a professional indemnity policy should cover an insured for claims for compensation arising from alleged misleading and deceptive conduct under the Australian Consumer Law (ACL) while the insured acted as an employer, or prospective employer. This application concerned the operation of two exclusion clauses in the policy pertaining to the company’s liability as an employer, in circumstances where Employment Practices Liability cover had not been taken out as an optional extension of the policy.
Principles
- while clauses may be construed contra proferentum (against the draftsman, or insurer), this should remain a last resort only utilised after ascertaining the literal or grammatical meanings and evaluating them against the text, context and purpose of the contract
- the wording of a particular clause must be evaluated within the context of the policy as a whole, and particular regard will be had to what optional extensions were available to the insured party and the commercial effect of not taking out those extensions of cover
- when interpreting policies, the court will always avoid giving clauses an unnatural or illogical meaning which deprive that section of its commercial efficacy
Background
Corestaff NT Pty Ltd (Corestaff), operated a ‘labour-on-hire’ business whereby it hired workers from overseas for jobs in Australia, arranged their work visas and connected them to its client organisations for a fee.
At the time of this judgment, Corestaff faced a class-action against it by aggrieved parties that were offered terms of employment they say were misleading or deceptive. The parties accepted the terms of employment offered but had their employment subsequently terminated. Claimants involved in the class action against Corestaff alleged that:
- Corestaff made representations with respect to future matters that were misleading or deceptive or likely to mislead or deceive, thereby contravening s18 of the ACL
- in the alternative, Corestaff contravened s31 of the ACL which pertains to misleading conduct relating to employment.
Corestaff sought cover for any liability it may have from its professional indemnity insurer, IAL. IAL denied cover on the basis that cover was excluded for claims:
- ‘based upon, directly or indirectly arising from or attributable to the Policyholder’s liability as an employer’ (clause 7.9(a) of the policy)
- ‘arising out of or in respect of actual or alleged unlawful discrimination (or other unlawful act, error or omission) by any Insured against any Employee or employment applicant’ (clause 7.9(c) of the policy).
Importantly, cover for Employment Practices Liability was an optional extension available under the policy that had not been taken out and was defined in the policy to include ‘any actual or alleged wrongful or unfair employment-related … misrepresentation … [or] failure to employ’.
Corestaff argued that, inter alia:
- the phrase ‘liability as an employer’ did not catch conduct that occurred before the party was an employee
- the representations the subject of the claims were made prior to employment, and so clause 7.9(a) could not apply
- it was unnatural to interpret the words in parentheses in clause 7.9(c) in order to broaden the scope of the intention of the words preceding them.
Decision
The Court held clause 7.9(a) used broad language with the words ‘based upon, directly or indirectly arising from or attributable to’ that should be given due regard and operated beyond claims which directly arose out of an actual employment relationship.
It further considered that, because the pre-employment misrepresentations only became actionable if there was a liability under s236 of the ACL for consequent loss or damage, there was a sufficient nexus or causal connection between the misrepresentations and the employment of the claimants for this exclusion to apply.
Her Honour was also persuaded by the fact that additional cover was available to Corestaff which was not taken out and would have likely operated to cover Corestaff for the claims made against it. Her Honour referred to the fact that these were commercial parties and the words in the Employment Practices Liability section ‘Notwithstanding section 7.9a), b) or c), we Cover…’ gave a strong indication that, but for this additional cover, the exclusions would have effect.
The Court also adjudicated on the operation of clause 7.9(c) and accepted Corestaff’s argument that the commercial intention of the exclusion was to pertain specifically to unlawful discrimination, and the words in parentheses only operated to add additional scope to the words that preceded them. This construction was found to best accord with the test, context and purpose of the clause and was not applicable to the claims the subject of the application.
Based on the operation of clause 7.9(a), cover could be excluded and Corestaff was unsuccessful in its application.
Why this case is important
This decision provides a useful restatement and application of principles of policy construction developed over time and affirms a court’s commitment to giving these agreements commercial efficacy.
It is important to always consider whether a clause utilising broad language such as ‘directly or indirectly’, ‘arising from’ or ‘attributable to’ has been afforded a broad application to the circumstances of the claim or occurrence the subject of the request for cover.
This case represents a win for insurers where optional extensions of cover have not been taken out by insureds, and there is some ambiguity in the circumstances of the claim which could opt for an extension of cover despite that extension not being taken out. In those circumstances, an insurer should ask itself if it makes commercial sense that cover would still be available to an insured without it opting to pay a higher premium for the extension of cover that was offered.
