Swashplate Pty Ltd v Liberty Mutual Insurance Company t/a Liberty International Underwriters

To what extent can a court have regard to non-contractual documents when interpreting an insurance contract. This is something that often causes difficulty in litigation over insurance claims. A recent Federal Court decision suggests that such document can be useful where they provide evidence of an insurance facility pursuant to which the insurance contract was made.

The decision was Swashplate Pty Ltd v Liberty Mutual Insurance Company t/a Liberty International Underwriters [2020] FCA 15. 

The proceeding concerned insurance arranged to cover the carriage of two helicopters by road and sea from Mississippi, USA to Queensland. Those insurance policies were placed pursuant to a facility agreed between the insured’s broker and the insurer almost 12 months before.

Background

In about May 2018, Swashplate Pty Ltd purchased the helicopters. Soon after, the helicopters were prepared for transport to Australia. 

They were loaded onto trucks at Picayune, Mississippi and driven to the Port of New Orleans, where they were loaded onto a ship for Australia. 

Both helicopters were damaged in transit. The damage was caused by the helicopters being improperly secured in their containers.

The helicopters were insured under two policies, each covering one of the helicopters. Liberty Mutual Insurance Company was the insurer. Swashplate claimed indemnity from Liberty for the costs of repairing each helicopter.

Liberty accepted indemnity in respect of the second-packed helicopter but not the first. It did so because its view was that the first helicopter was packed before cover under its policy commenced. The damage was thus excluded under the policy’s terms.

Swashplate brought the proceedings in the Federal Court of Australia where the parties agreed to a hearing of a separate question as to Liberty’s liability. Ultimately, Allsop CJ held that Swashplate was not entitled to indemnity. The nature of the facility under which the broker placed the insurance was important to His Honour’s decision.

The insurance Facility

Swashplate’s broker placed the policy with Liberty in May 2018, pursuant to an existing insurance facility arranged in May 2017. 

The facility provided for the placement of individual “Helicopter Cargo Insurance (single transit)” policies. These arrangements were recorded in a Master Slip. 

Master Slip set out the “Period of Insurance” for the facility as:

Risks attaching during the period

From:             23 May 2017

To:                22 May 2018   both days inclusive LST

(Although it was not defined, Allsop CJ accepted that ‘LST’ meant local standard time.)

The placement slip under which the policy was agreed was in substantially the same form as the Master Slip. However, a significant difference between the Master Slip and the placement slip was the latter’s recording of its “Period of Insurance” as:

From:            19 May 2018

To:                Date of Arrival at Sunshine Coast Airport QLD

Both the Master Slip and placement slip identified the applicable policy wording to be a Liberty policy wording incorporating the 2009 Institute Cargo Clauses (A) (2009 ICC(A)).

The 2009 ICC (A) provided the exclusion Liberty relied upon. This was contained in clause 4.3, which provides:

loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors)

Consequently, Liberty’s primary position was that insurance attached at 12am on 19 May 2018 (Picayune time). Allsop CJ accepted this submission. In doing so, he held that the placement slip’s Period of Insurance had contractual effect, rejecting Swashplate’s argument that it was merely indicative. I have written about that aspect of the judgment elsewhere. Here, I want to mention the significance given to the Master Slip.

The parties, and His Honour, accepted that the Master Slip was not a contractual document. But Allsop CJ went on to say (at [51]), “However, it is, without doubt, an aspect of the surrounding circumstances admissible to assist in the interpretation of the contract of insurance.”

His Honour continued (at [52]):

The operative placement slip was issued in furtherance of the extant commercial arrangement reflected by the Master Slip. A reasonable business person looking to the terms of the operative placement slip and the incorporated wording…would seek to understand the meaning and effect of them in the context of, and by reference to the Master Slip and the commercial undertakings in the future which is envisaged (of which the insurance of helicopter number 56044 was one example).

Practically, Allsop CJ referred to the Master Slip in determining the parties’ intention as to the operation of specific clauses, including one for Static Cover that Swashplate relied upon to argue the policy commenced earlier than the date on the placement slip. 

The Master Slip was also important in determining whether the time zone used to determine when the policy commenced was that in Mississippi or Eastern Australia (the answer: Mississippi).

In applying the evidence provided by the Master Slip, Allsop CJ took great pains to affirm that he was not giving it effect as a contract. It was merely a tool for understanding the parties’ intentions. Unfortunately, it did not work out well for Swashplate.

Allsop CJ did not provide any authority for his use of the Master Slip as evidence of the parties’ intentions in entering the policy. It is likely that here its use was justified by the ambiguity caused by the placement slip’s “Period of Insurance” and various terms that may have extended cover to an earlier time. If that was the case, it brings the matter into the exception to the parole evidence rule set out by Mason J in Codelfa Construction Nominees Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350. However, in many cases, parole evidence will not be admissible to construe a contract that is clear on its face.

Update - Full Court Appeal

In August 2020, the Full Court of the Federal Court upheld Swashplate’s appeal in Swashplate Pty Ltd v Liberty Mutual Insurance Company t/as Liberty International Underwriters [2020] FCAFC 137. I have written a substantive case note of the appeal for the September edition to the Australian Insurance Law Bulletin. (That case note has now been published in ILB Vol 36 No5).

It is sufficient to note here that the main difference between the Full Court and Allsop CJ was the former’s view that the insurance created by the placement slip was a transit policy rather than a time-based cover. In that context, the Full Court held that the placement slip’s ‘period of insurance’ merely placed the cover within the period covered by the facility set out in the Master Slip.