It’s all in the context – the Full Court of the Federal Court considers construction of insurance contracts
The Full Court of the Federal Court overturned the findings of Chief Justice Allsop and held that insurer Liberty was liable to indemnify Swashplate for damage to a helicopter in transit from Mississippi to Queensland.
- Whether Swashplate was entitled to indemnity under an insurance contract.
- The construction of an insurance contract with respect to when the risk attaches.
- What significance ought to be given to the placement slip stating the period of insurance was from 19 May 2018?
On 24 May 2017, Austbrokers, an Australian insurance broker, arranged an insurance facility with Liberty Mutual Insurance Company. The facility provided for the terms on which Liberty agreed to issue single transit insurance for helicopters to insureds represented by Austbrokers, as well as the premiums that were payable for each transit (‘Facility’). The terms of the Facility were recorded in a master placement slip (‘Master Slip’) which incorporated a policy wording and certain specified conditions and exclusions. Relevantly, the Master Slip described insurance in terms that incorporated the Institute Cargo Clauses (A) 2009 (“ICCA”).
Swashplate was an insured represented by Austbrokers. In 2018, Swashplate purchased a helicopter located in Mississippi in the USA. The helicopter was to be delivered to Swashplate in Mississippi in May 2018, and Swashplate arranged for the helicopter to be transported to Queensland, Australia. Austbrokers arranged insurance for the transit of the helicopter and a Placement Slip was provided by Austbrokers to Liberty that provided the period of insurance was from 19 May 2018 to the date of arrival in Queensland. The Placement Slip was accepted by Liberty. The helicopter was damaged in transit because of insufficiency or unsuitability in the way it was packed for transport, and Swashplate sought insurance cover. Liberty disputed that Swashplate was entitled to indemnity. The relevant act which resulted in the damage to the helicopter occurred on 18 May 2018 Mississippi time, but on 19 May 2018 Queensland time.
Liberty’s primary position was that the insurance attached on 19 May 2018 Mississippi time. As such, the terms of an exclusion clause which excluded cover for loss or damage caused by insufficiency or unsuitability carried out prior to the attachment of the insurance applied. Swashplate’s position was that the insurance applied to the whole of the transit, and that because of a static cover extension, for a further period of up to five days before loading. As the packing of the helicopters occurred in this period, the defective packing occurred after the risk had attached and the insurance policy responded.
The decision at trial
At first instance, Chief Justice Allsop determined that Swashplate was not entitled to indemnity. He considered that the terms of the Placement Slip and the incorporated ICCA wording should be understood by reference to the Master Slip and the future commercial undertakings that it envisioned - namely, a single transit helicopter cargo policy. The Master Slip anticipated insurance for ‘risks attaching’ from 23 May 2017 to 22 May 2018, (local standard time) which, by reference to the way the ICCA terms described the way risk attaches (namely, movement in the place of storage for immediate loading), led to the conclusion that the reference was to the time and date at the place where the relevant activity occurred (i.e. Mississippi time).
He considered Swashplate’s argument that the period of insurance identified in the Placement Slip was indicative only failed to give contractual force to the words marking out the commencement of cover, and it failed to give Underwriters any knowledge of when they would come on risk for static cover. He considered that it was difficult to be precise about when the transit clause (which provided cover that would attach when the helicopter was moved to be loaded for the commencement of transit) commenced, and that the specification of a commencement date provided greater certainty about when cover commences. He thought an approach which construed the period of insurance as identifying a precise date when static cover commenced would allow all provisions of the wording to apply. On this basis, the exclusion applied, as the helicopter was packed prior to the commencement of 19 May 2018 in Mississupi.
The Decision on appeal
The Court of Appeal reviewed the reasoning of Allsop CJ, and disagreed with his interpretation. The Court of Appeal held that the practical effect of his reasoning was that it would be possible for there to be a hiatus in cover in circumstances where static cover was to start on the specified date, but where loading did not occur for more than five days. Such an interpretation would be uncommercial, and contradicted the emphasis Allsop CJ placed on the importance of certainty about when the cover commenced. It would also mean that the packing exclusion would apply, even though the period of insurance had commenced.
The Court of Appeal considered the context in which the Placement Slip was to be construed, and held that the period of insurance described in the Placement Slip specified the basis upon which the particular transit was said to be within the period of insurance specified in the Master Slip, and did not identify when insurance cover commenced and terminated. In coming to this view, the Court of Appeal noted:
- The ICCA took effect on 1 January 2009 as standard industry clauses that covered all risks for a single transit. It was a voyage policy as the risk attached from when the subject matter was first moved for loading and terminated on completion of unloading or at a point when the subject matter was placed in storage and transit ceased. It excluded liability for damage caused by defective packing prior to the attachment of the risk and allowed for the possibility that insurance might be arranged after risk has attached per the ICCA terms.
- Austbrokers arranged a Facility by which it could place insurance for helicopter transit, and the Facility provided agreed terms of insurance and a schedule of premiums. The terms it incorporated included the ICCA. It also included the static cover extension. The Facility was for insurance for risk attaching between specified dates, and it did not contemplate that cover commenced from a nominated date. Rather, it provided cover for a single transit, the duration of which commenced and terminated as described in the ICCA but extended to include static cover.
- The Facility contemplated insurance placed by Austbrokers issuing a Placement Slip for single transit to Liberty. If the Placement Slip conformed, cover would be issued. What the Placement Slip needed to conform to was the period of insurance specified in the Master Slip.
- The period of insurance was defined in the Master Slip by reference to the risk attaching in the manner described in the incorporated ICCA terms. This period could not be described definitively until the first movement of the subject matter was known. Accordingly, when issuing the Placement Slip, Austbrokers could do no more than provide an estimate as to when this date would be, and it could not be expected that the dates on the Placement Slip specified the date when Liberty went on risk as this was governed by the terms of the policy.
Implications for you
This case serves as an important reminder that the terms of an insurance contract must be considered in their totality, and highlights the difficulties this can pose when said terms are spread across a multitude of policies and documents. For brokers and insurers, it is a reminder that while the period of insurance defined on a Placement Slip will typically be operative and define the scope of an insurer’s risk, this will not always be the case, particularly for voyage policies where it may not be possible to definitively state when the voyage commences or ends.