The dangers posed by punctuation: a comma prevents Insurer relying on defects exclusion in motor vehicle policy22 February 2017 | Insurance Issues
NSWCA upholds decision that insurer cannot rely on defects exclusion in fleet motor vehicle policy to avoid liability.
Proper construction of exclusion clause relating to defects
On 16 September 2007, Mr Zhang was seriously injured when a large metal ramp attached to a trailer fell onto him. The cause of the ramp falling was that a weld attaching a hydraulic ram supporting the ramp, failed. Mr Zhang commenced proceedings against: the driver of the truck pulling the trailer (Mr Popovic); the owner of the trailer (Calabro Real Estate); the insurer of the driver’s deregistered employer (NTI); and the company which had installed the hydraulics which supported the ramp (ROC).
The Decision at Trial
Following a trial confined to liability, Mr Zhang succeeded against all parties except ROC.
The Issues on Appeal
NTI sought leave to appeal against the finding that it was liable to indemnify its insured and Mr Zhang appealed against the judgment in favour of ROC.
The Decision on Appeal
The relevant exclusion clause provided that NTI would not pay: “…for any liability for death or bodily injury arising out of or in any way connected with a defect in Your Motor Vehicle, but in Queensland only if it causes loss of control of the vehicle whilst it is being driven.” NTI argued that there was no ambiguity in this clause and that the words “whilst it is being driven” only applied “in Queensland”. NTI therefore argued that the trial judge was wrong to refer to the context, including the statutory regime, to determine the application of the exclusion clause.
The Court of Appeal rejected the submission that there was no ambiguity in the clause. Although NTI’s construction was the more natural reading of it, the clause was complex and imperfectly drafted with imprecise punctuation resulting in ambiguity. Therefore, the trial judge was correct to consider the purpose of the policy in the context of the state statutory CTP schemes. Adopting this approach, NTI’s construction of the exclusion clause would mean that the policy would respond to Mr Zhang’s accident if it occurred in Queensland but not in NSW when neither CTP scheme applied. The considerations of context and purpose outweighed the most natural meaning of the poorly drafted clause.
The Court of Appeal held that, in any event, the application of the contra proferentum maxim would produce the same result.
The Court of Appeal held that NTI was not entitled to rely on the defects exclusion to avoid liability to indemnify its insured for damages in favour of Mr Zhang.
Implications for You
The placement of a comma in an exclusion clause resulted in the imposition of significant liability for the insurer in this case. Attention to seemingly insignificant detail is critical when drafting exclusion clauses and very careful and close attention needs to be paid to ensure that the use of grammar, punctuation and language produces a clear and certain meaning. Where it does not, the court may well have regard to the context and commercial purpose of an insurance contract together with any relevant legislative context to resolve any ambiguity.