Haphazard joinders of insurers: the Supreme Court dives into the interpretation of insuring clauses

In a recent win for insurers, the NSW Supreme Court considers whether a watercraft-related accident can trigger a defendant's home and business policy. The decision provides useful commentary on the requirements to join insurers to proceedings as well as how courts will interpret common insuring clauses. 

Authors: Gerry Tzortzatos, Renee Magee

Judgment date: 24 November 2020

Citation: Tasker v Munro [2020] NSWSC 1674

Jurisdiction: NSW Court of Appeal

Principles

• The requirements to join insurers to proceedings is three-fold: an arguable case against the defendant, an arguable case a policy responds, and the defendant's inability to meet a judgment: section 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the Act)

• While the threshold to grant leave under s 5 of the Act is low, the Courts are averse to do so where claims are clearly excluded from the policy based on undisputed facts or where the case against the defendant is untenable

Background

The principal proceedings involved a negligence claim brought by the plaintiff for catastrophic injuries he sustained after diving into shallow water from the defendant's houseboat at Nambucca River. As the defendant was impecunious, the plaintiff sought leave to join the defendant's home insurer, NRMA, as well as his business insurer, Liberty, to the proceedings.

The NRMA policy provided cover for "injury to someone else… in an incident that takes place in your home or at the site for which you or your family is responsible as an owner or occupier of your home or the site". The plaintiff argued NRMA's home policy ought to respond as the act of negligence (failing to warn of the risks of diving into water of unknown depth) occurred at the defendant's home prior to boarding the houseboat.

The Liberty policy provided cover for "injury as a result of an occurrence in connection with the insured's business". The Plaintiff argued that because the houseboat carried the same name as one of the defendant's defunct registered business names and may have been used to promote his business, this ought to fall within the policy's meaning of an injury incurred "in connection with" the business.

In respect of similar watercraft exclusion clauses in both policies, the plaintiff argued the houseboat was not in use at the time of the accident as it was moored and the liability arose from the defendant's failure to adequately warn and control his passengers rather than the use of the houseboat.

NRMA opposed the joinder for three reasons. Firstly, it argued the insuring clause was not triggered as the accident had not occurred at the defendant's property, but rather several kilometres away. Secondly, the policy contained an exclusion clause for accidents arising out of the use or ownership of watercraft. Finally, there was no case to meet as the risk of harm was obvious. The plaintiff ought to have known diving into water of unknown depth carried a risk of injury, especially when he knew the boat was moored in shallow water.

In denying its policy responded, Liberty maintained the defendant's business (sand extracting) had nothing to do with the plaintiff diving off the houseboat. In any event, its policy also contained a watercraft exclusion clause similar to NRMA's that would have excluded cover for the accident.

Decision

The Supreme Court¹ refused to grant the plaintiff leave to join NRMA and Liberty to the proceedings as it found not only did neither policy respond but there was also no arguable case against the defendant. The substance of the plaintiff's case, namely that the defendant had a duty to warn him of an obvious risk of diving into water of unknown depth,² was untenable.

In relation to the NRMA policy, the Court found that the territorial limitation in the policy would not be overcome by the fact that a breach of duty of care occurred at the home if the incident did not also occur at the home.

As for the Liberty policy, while there was insufficient evidence to suggest the business was connected to the use of the houseboat on this occasion, the Court held this was ultimately a matter to be determined at trial where all of the evidence on this issue could be heard.

With regards to the exclusions, the Court found that irrespective of whether the insuring clauses were triggered the watercraft exclusions would have operated to exclude cover. The Court rejected the plaintiff's contention the boat had ceased to be a watercraft by virtue of it being stationary noting that, of its very nature, use of a watercraft contemplates recreational activities in any form upon the adjacent waterways.

Why this case is important

Insurers should be reassured that Courts are not minded to grant joinders as simply a matter of course. The Act is intended to safeguard insurers from being unjustifiably joined to proceedings. Whilst the threshold to join insurers may be low, an often ill-considered and over-simplified requirement is for the plaintiff to prove it has an arguable case against the defendant.

The case also demonstrates the correct interpretation of a common form of insuring clause in home policies. Specifically, there is a geographic prerequisite regarding the location of the incident which caused the injury, rather than negligence which caused the incident.

The authors acted for NRMA in these proceedings.

¹ Justice Harrison
² Following from cases such as Wyong Shire Council v Vairy [2004] NSWCA 247 and Laoulach v Ibrahim [2011] NSWCA 402