Site Search: 

“Product Liability – Insuring clause – exclusion clause for liability accepted under contract”: Zurich Australian Insurance Limited -v- Regal Pearl Pty Limited [2006] NSWCA 328

Share
Share on facebook
Share
Share on twitter
Twitter
Share on linkedin
LinkedIn
Author: Susan Hill
Judgement Date: 27th November, 2006
Citation: Zurich Australian Insurance Limited -v- Regal Pearl Pty Limited [2006] NSWCA 328
Jurisdiction: NSW Court of Appeal
In Brief
  • In this case, the Court of Appeal considered the meaning of the insuring clause under a contract of insurance and whether cover for “liability for personal injury” was capable of meaning liability “in respect of”.  
  • The Court of Appeal decided that in the policy the word “for” means “in respect of”.
  • The Court of Appeal also considered the meaning of an exclusion clause under the policy which excluded liability accepted under a contract.  It was decided by the Court of Appeal that claims under an implied warranty of quality and fitness contained in the Sale of Goods Act 1923 were not excluded as warranties contained in the Sale of Goods Act did not constitute an acceptance of a liability of a kind contemplated by the exclusion clause.
Background
  • The respondent (“Regal Pearl”) conducted a restaurant.  A number of customers became ill when they consumed prawns served at the restaurant.
  • Regal Pearl had purchased the prawns from a wholesaler, Tai Kwan, which had purchased the prawns from an importer, Great Ocean Products.
  • Tai Kwan held an insurance policy with Zurich Australian Insurance Limited (“Zurich”).
  • Regal Pearl sued Tai Kwan in negligence and contract.  
  • Tai Kwan sought indemnity under its policy with Zurich.
  • Zurich declined indemnity and Tai Kwan conducted the proceedings on its own account.  
  • Tai Kwan was held liable to Regal Pearl for breach of the implied conditions of merchantable quality and fitness contained in s19 of the Sale of Goods Act.
  • Tai Kwan was not able to meet the judgment.
  • Regal Pearl then commenced proceedings seeking direct access to the Zurich policy pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946.
  • The scope of cover provided by the insuring clause under the policy was as follows:

“All amounts that an Insured Person becomes legally liable to pay in compensation for … Personal Injury or Property Damage … from an Occurrence that happens in connection with Your Products.”

  • Zurich argued that the expression “liable to pay in compensation for … Personal Injury” did not respond to the liability between Tai Kwan and Regal Pearl which was a liability in contract rather than negligence.
  • Secondly, there was an exclusion clause under the policy which excluded cover for any liability:

“that is accepted under any contract requiring:

 ….

(b) the acceptance of liability except liability that would have existed even if the contract accepting the liability did not exist, or

(c) the waiving or limitation of the Insured Person’s rights of recovery against another party.”

  • Zurich resisted Regal Pearl’s application.  There were ultimately two bases on which it was argued the policy did not respond to the claim made by Regal Pearl.
  • Zurich argued that the implied terms of the contract between Tai Kwan and Regal Pearl contained in the Sale of Goods Act constituted an acceptance of a liability of a kind contemplated by para (b) of the exclusion clause.
  • Furthermore, under its contract of sale with Great Ocean Products, Tai Kwan accepted all liabilities for claims arising from use of the goods and Tai Kwan was required to indemnify Great Ocean Products for any claims arising out of defects in the goods.  Zurich argued that this was an acceptance of liability within para (b) and a waiver or limitation of rights within para (c) of the exclusion clause.
Decision of Trial Judge
  • Cooper AJ was of the view that the insuring clause extended the liability of the insurer to indemnify the insured in respect of its liability to pay monies to a third person arising out of its products which caused injury to others.  Accordingly, his Honour was satisfied that the insuring clause covered the liability of Tai Kwan to indemnify Regal Pearl even though that liability could be described as economic loss.  
  • His Honour held “this is because that liability happens in connection with Tai Kwan’s products and the liability is caused by or arising out of any of the insured’s products”.
  • It was further noted the words “caused by or arises out of any of the insured’s products” was found in the definition of Products Liability under the policy.
  • His Honour’s judgment turned on the combined effect of the words in the insuring clause itself, ie: “that happens in connection with your products”, with the definition of Products Liability which included the words “caused by or arises out of any of your products”.
  • In relation to the exclusion clause, his Honour took the view that it meant that if Tai Kwan entered into an agreement which waived or limited its rights of recovery against another party then Zurich was not required to indemnify it.
  • His Honour held that the exclusion clause did not apply because Tai Kwan’s liability to Regal Pearl was not for personal injury or property damage.  The liability was for indemnity for economic loss.
Court of Appeal Decision
  • Zurich appealed the decision.  
  • The Chief Justice delivered the unanimous decision in which the court held that, in relation to the insuring clause, the expression “for personal injury” was capable of meaning “in respect of”, depending on the context.  In the case of any ambiguity, the relevant context must be considered: Darlington Futures Limited v Delco Australia Pty Limited (1986) 161 CLR 500.
  • The court held that in the Zurich policy, the word “for” means “in respect of”.
  • The authorities indicated that the formulation “in respect of” is wider than “for” and accordingly will extend to claims made other than by the person insured: Unsworth v Commissioner for Railways (1958) 101 CLR 73 and National Vulcan Engineering Insurance Group Limited v Pentax Pty Limited [2004] NSWCA 218 affirmed.
  • The Court of Appeal rejected Zurich’s argument that the word “for” in the context of an insurance policy should be read narrowly so that, absent the words “with respect to” an insuring clause would only respond when proceedings were instituted by an injured person.  That argument was held to be incorrect.  
  • His Honour noted the insured’s business as a wholesaler meant that it would, in almost all circumstances, be sued by a retailer rather than by a consumer.  An interpretation of the insuring clause that restricted its application to direct claims by consumers and which excluded indirect claims would give Tai Kwan no cover in the most likely circumstances in which it was exposed to risk.
  • Furthermore, the words “that happened in connection with your products” qualified the event or occurrence rather than the injury and suggested the policy was intended to have a broader, rather than a narrower, scope.
  • Furthermore, the policy was expressly extended to a “principal” of the insured and it therefore could not be said that the policy was concerned only with liability in tort.
  • The appeal with respect to the insuring clause was dismissed.
  • In relation to the exclusion clause, his Honour held:

“The use of the word ‘accepted by’, where twice appearing, together with the reference to any such contract `requiring acceptance’ indicates that something distinctive and out of the ordinary, by way of additional liability, must arise before the exclusion clause takes effect.  The implied terms of merchantable quality and fitness for purpose with respect to product liability are so common that only clear words will be found to exclude them in a policy purporting to give cover for product liability”.

  • His Honour found that the exclusion clause in this policy did not contain any such clarity.  His Honour further observed that “the commercial purpose of providing cover against risks in a product liability policy should, absent clear words to the contrary, be understood to encompass the range of obligations normally associated with such liability in Australian law.  The wording of the policy presently under consideration does not contain any clear words to the contrary”.
  • His Honour further observed that the exclusion clause, the subject of the appeal, was not a provision which denied cover whenever an insured entered into an arrangement which adversely affected the subrogation rights of an insurer.  The exclusion could not apply to the present case and the appeal was accordingly dismissed.
Implications
  • The courts will place a broad interpretation on a policy’s insuring clause and will take into account the commercial purpose of an insurance policy to provide cover for product liability claims.
  • Accordingly, “liability for personal injury” was held by the Court of Appeal to extend to the economic loss which Regal Pearl had suffered as a result of Tai Kwan’s breach of contract. 
  • An exclusion clause relating to liability assumed by agreement does not extend to implied terms as to merchantable quality and fitness for purpose under the Sale of Goods Act.

 

Contributors

No data was found

Site Search: