What’s in a name?

It is not often an Australian Court’s judgment reads like a philosopher’s musings. It is even rarer in the context of insurance law.

The exception is Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114. In it, the Court pondered the meaning of ‘You’. Fortunately for the Court, that was a defined term in the Policy. Unfortunately for the Insurer, it had drafted the term more broadly than it had hoped.

Background to the dispute

The dispute started following a house fire occurring during renovation works.

When the fire started, Holgersson was on site as a subcontractor to the builder contracted to complete the works, Mosman Bay.

Tokio Marine was the insurer of an annual projects and legal liability insurance policy covering the works. Mosman Bay had submitted a proposal for insurance before commencing the works. Tokio Marine issued a policy with a schedule dated the same day as the proposal.

After the fire, the home owners commenced proceedings against a number of parties, including their home insurer, insurance brokers and Tokio Marine & Nichido Fire Insurance Co Ltd. Mosman Bay and Holgersson were later joined to the proceedings.

Tokio Marine granted indemnity to Mosman Bay. It then required Mosman Bay maintain proceedings against Holgersson. The issue in the appeal was whether this was permissible under the policy or whether Holgersson was entitled to rely on a ‘subrogation waiver’. The determining factor in this was whether Holgersson was an ‘Insured’.

The policy

The policy consisted of a standard form ‘Policy Wording’ document and a schedule.

The Policy Wording defined ‘You, Your and Insured’ as “the Person(s) or legal entity named in the Schedule.” Under a section that purported to describe the ‘Insured’ under the Policy, it named Mosman Bay and referred to “and all Principals, Contractors, and Sub-Contractors.”

It is in its discussion of whether Holgersson could be considered as ‘You’ for the purposes of the Policy that the Court veered into abstraction.

The decision

Tokio Marine’s primary argument was that only those parties to whom the Schedule referred to by a proper noun were ‘named’ in it. Court of Appeal rejected this submission, adopting a broader definition including ‘specified, mentioned, designated or described by class.’

Additionally, Tokio Marine submitted that the description of ‘Insured’ in the Schedule was so antithetical to the Policy Wording that it was an obvious error. Again, the Court rejected this argument. It’s basis for doing so was largely because it thought it, objectively, possible for the parties to have contracted for a definition in the Schedule that rendered those in the Policy Wording otiose.

Essentially, the Court was more willing to decide that boilerplate provisions were redundant than those in the Schedule. The Court said (at [68]):

Because, unlike the Policy Wording, the Schedule was evidently created specifically for this particular contract, we would more readily read a provision in the Schedule as having the effect that a particular provision of the Policy Wording has no room to operate, than we would read a provision of the schedule has no scope for operation.

Are extrinsic documents relevant?

One of the interesting aspects of this case was that Tokio Marine attempted to use the Proposal to show that neither Mosman Bay nor Tokio Marine intended the Policy to cover subcontractors like Holgersson.

As the Court held, this approach was more appropriate to a claim for rectification than construction. As to this point, the Court was quite clear (at [61]):

An instrument is not to be construed by tracing through the communications or negotiations preceding its making with a view to ascertaining which such communications led to inclusion, within it, of the clause or phrase the construction of which is in issue. The process of construction involves the search for the meaning of what the parties said in the instrument, not a search for what the parties meant to say.

The Court’s comments in this regard raised the question as to why, if it seemed clear that neither party intended the Policy to provide primary cover to subcontractors, Tokio Marine did not make a specific claim for rectification. Perhaps the lesson from this case for insurers is that in scenarios like this, they should.

What can be learned?

The main lesson for insurers appears to be to make sure policy schedules accurately reflect the bargain reached with insureds. More generally, any business that relies on standard form contracts, supplemented by schedules needs to take care in drafting to ensure the schedule does not undermine the intent enshrined in the standard terms.