In brief - Insurer bears complete liability and costs of serious injury claim
In Zhang v Popovic  NSWSC 407
, the NSW Supreme Court found that an insurer's vehicle exclusion clause was grammatically ambiguous and in considering the policy's commercial purpose, preferred an interpretation where the punctuation in the exclusion clause limited its operation. As a result, it did not apply and the insurer bore the full cost of the judgment.
Zhang v Popovic holds lessons for insurers and all parties to serious injury claim
In an insurance context, personal harm claims arising from incidents that involve motor vehicles, trailers, forklifts and other pieces of industrial equipment often require consideration to be given to whether a statutory policy of insurance or other type of policy will respond. Such claims can involve a detailed analysis of the operation of the relevant statutory third party insurance scheme, and the complex interplay between it and the vehicles' exclusion clauses in the liability policy.
As always, the precise factual circumstances and the policy wording are paramount. Scrutiny of all aspects of the policy, including grammar and punctuation, can produce the difference between an insured and uninsured loss.
The NSW Supreme Court's decision in Zhang v Popovic
highlights the responsibility of insurers and underwriters to clearly express the intended purpose of an exclusion clause to avoid a finding that it is ambiguous and therefore ineffective. In this case, the Court held that a vehicle exclusion clause did not operate to exclude cover for a claim arising out of the use of a vehicle and a liability policy was applied to cover otherwise uninsured losses under a complementary statutory third party insurance.
Leaving aside the insurance issues in the case, Zhang v Popovic
also provides an interesting analysis of the duty of care applicable to the driver, driver's employer, owner and maintenance contractor relevant to injuries arising from a vehicle's defects.
Welded clevis mount fails causing trailer ramp to fall on man underneath it
On 16 September 2007, Mr Zhang (the plaintiff) attended Patrick Terminal at Port Botany to collect a shipping container. While waiting to collect his container, Mr Zhang observed another driver having difficulty securing the ramp on his trailer and went over to assist him.
As Mr Zhang stood under the ramp to manually push it up while the driver operated the hydraulic system, the weld of the clevis mount (to which the hydraulic ram was affixed) failed and the ramp fell on Mr Zhang, causing serious injury.
Mr Zhang brought a claim for damages against various people and entities connected with the trailer: Vlado Popovic, the truck driver; Calabro Real Estate Pty Limited, the registered owner of the trailer; Interfreight (Aust) Pty Ltd, Mr Popovic's employer and user of the truck and trailer in the course of its freight business; and Popovic Haulage Pty Ltd, a company associated with Mr Popovic.
Truck driver breached duty of care as he was aware of risk
In regard to the claim against the truck driver, the Court found that Mr Popovic knew that the ramp was not functioning properly.
In those circumstances, Adamson J held that he breached his duty of care to Mr Zhang by accepting his assistance to manually raise the ramp and allowing him to stand under the ramp, which exposed Mr Zhang to the foreseeable risk that the ramp would fall and injure him.
Employer found vicariously liable, as well as negligent in maintenance work and instructing employee
In addition to her Honour finding Interfreight vicariously liable for the negligence of its employee, Mr Popovic, her Honour also found Interfreight liable in its own right as:
- it negligently performed the weld that had failed in a defective manner
- it failed to instruct Mr Popovic on how to protect the safety of himself and others who might be in the vicinity of the trailer. Her Honour was satisfied that if appropriate instructions were given to Mr Popovic, he would have ensured that Mr Zhang stayed away from the area under the ramp which would have prevented the incident
Trailer owner found negligent but claims against third-party contractor fail
The Court found that Calabro was negligent in the maintenance and repair of its trailer, and that its negligence was a relevant cause of the failure of the weld which resulted in the injuries to Mr Zhang.
The Court found that the primary claim against ROC Services (NSW) Pty Ltd (which had performed work on the trailer 13 months before the incident), that it had negligently installed the left clevis mount, failed as her Honour was not satisfied that it installed that mount.
Her Honour further found that the secondary claim against ROC, that it breached its duty of care by failing to ensure that the clevis mount that was already welded to the trailer was adequate to support the load, failed as she was satisfied it had discharged its duty of care by testing the system multiple times during the installation of the hydraulic system.
Her Honour found that ROC:
- performed the job it was retained to do, that is to install the hydraulic cylinders and a motor to lift and lower the trailer’s ramps
- did not owe any duty of care to Interfreight to redesign and redo work to ensure the clevis mounts were able to support the hydraulic system for the life of the trailer
Judgment was entered in ROC’s favour on Mr Zhang's claim and on all cross claims to which it was a defendant.
Liability insurer's exclusion clause found to be grammatically ambiguous
National Transport Insurance (NTI), the liability insurer of Mr Popovic, Calabro and Interfreight, was joined to the action pursuant to section 6
of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)
NTI accepted that the Fleet Motor Policy covered any liability of Mr Popovic, Interfreight or Calabro to Mr Zhang, but contended that it was not liable to indemnify the parties by reason of the operation of the vehicle exclusion clauses, and principally exclusion clause 2(b)(8), which provided:
(b) We will not pay:
(8) for any liability for death or bodily injury arising out of or in any way connected with a defect in Your Motor Vehicle or in a Motor Vehicle, but in Queensland only if it causes loss of control of the vehicle whilst it is being driven; …
NTI submitted that in the circumstances of the incident, the exclusion clause applied as liability arose "out of or in any way connected with a defect in" the trailer.
The opposing parties submitted that the exclusion clause was ambiguous because the concluding words of the exclusion "whilst it is being driven" caused uncertainty over whether the qualification applied to all preceding words or only to vehicles in Queensland where a defect caused loss of control.
Her Honour considered the grammatical construction of the exclusion clause, particularly the use of punctuation, and found it was ambiguous. In support of her finding, Her Honour said (at ):
In my view, exclusion 2(b)(8) contains the ambiguity referred to above, since it is not clear whether the words "whilst it is being driven" apply to all preceding words or just to the words after the comma. Although it might be said that the construction for which the opposing parties contended would be stronger if there were a second comma before the word "whilst", the clause itself shows that the draftsperson has not used commas in either a consistent or orthodox way. For example, the penultimate comma in the concluding words of the clause does not appear to serve any purpose. Moreover the last two commas do not serve as parenthesis for the words between them.
Commercial purpose of policy complements statutory third party insurance cover
The Court adopted an interpretation of the exclusion clause with regard to the commercial purpose of the policy, which required considering "the genesis of the transaction, the background, the context, the market" in which the parties understood they were operating (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Her Honour found that the commercial purpose was to provide insurance cover on various bases for the vehicles listed in the schedule which complemented the cover provided by statutory third party insurance.
It was noted that the regulatory statutory third party insurance schemes in both New South Wales and Queensland will only apply, in general terms, to vehicles being driven. Therefore, if the exclusion operated to exclude liability arising out of or in connection with a defect in the vehicle "whilst it is being driven", the policy complements the statutory third party insurance schemes and does not create double insurance.
Contra proferentem applied and statutory schemes for compulsory third party insurance considered
Her Honour applied the maxim of contra proferentem
(where the preferred meaning works against the party who drafted the wording in cases of ambiguity) to interpret the meaning against the interests of NTI.
Her Honour was not satisfied that the words of the exclusion clause were intended to be confined to vehicles in Queensland, and preferred an interpretation where the punctuation in the exclusion clause limited its operation. The Court held that this construction advanced the commercial purpose of the policy, and took into account the statutory schemes for compulsory third party insurance which formed part of the "surrounding circumstances" that it could take into account.
The Court ultimately found that the exclusion clause did not apply. Judgment was entered for Mr Zhang, Mr Popovic and Calabro against NTI (noting that Interfreight Haulage was deregistered). The effect was that NTI bore the full cost of the judgment.
Underwriters and draftspeople must ensure policy's intention is clear and unambiguous
It remains to be seen whether this decision will be appealed. However, it offers a clear message to underwriters and draftspeople about the importance of language, grammar, punctuation and consistency in drafting to ensure that the intention of the policy is clear and articulated in an non-ambiguous way.
In this case, a detailed analysis of the policy wording and the commercial purpose sitting behind the policy resulted in the insurer bearing complete liability for the claim, including the legal costs of multiple parties and cross claims.
A comma can be a costly omission.