Insurers may become “gun-shy” about providing principal’s liability cover according to The Fold Legal, after the Court of Appeal found that an insurer was liable to pay a claim because the words in a principal’s liability policy went beyond their intention, insuring the principal for its own liabilities.
The Fold Legal solicitor director, Charmian Holmes, said insurers are likely to modify the wording of their principal’s liability cover in public liability policies to avoid incorrect interpretations, and brokers will need to examine which type of cover best suits their client as a result of the case involving GIO, in which GIO was found liable for the principal’s own activities.
Insureds, that have contracts with principals, can obtain public liability cover which contains principal’s liability protection. This cover protects the principal against any liability incurred as a result of the work performed by an agent. It is not intended to insure the principal for their own activities.
However, in GIO General Ltd v. Centennial Newstan Pty Ltd  NSWCA 1,
the insurer had agreed to insure the principal, Centennial, for its own legal liabilities arising out of the supply of labour hire – even though the loss was not caused or contributed to by the supplier, Longwall Advantage.
Longwall Advantage entered into an agreement in which Longwall Labourforce would carry out the work. When an employee was injured, the Court of Appeal ruled that the insured, Longwall Advantage, was required to provide insurance cover to indemnify Centennial against its liability to the injured employee and therefore GIO had to pay the claim, under principal’s liability cover.
Holmes said: “The supplier was required to obtain insurance cover that was wider than its obligation to indemnify the principal under the ‘hold harmless’ clause. The court concluded that the insurance clause should be considered separately to the indemnity and the words in the principal’s liability cover in the policy meant GIO had agreed to insure the principal for its own liabilities.”
Holmes said insurers may now be “gun-shy” about providing principal’s liability cover and brokers will need to assess the different types of principal’s liability cover available to see which is suitable for their clients. She urged brokers to always check the policy against the contract requirements.
“Hopefully, insurers will find a middle ground which ensures that suppliers can still get principal’s liability cover and it operates when the supplier's acts or omission or their work has caused loss or they have been negligent. If this is done, everyone will have a better understanding of precisely what is covered.”
Longwall Advantage had a combined business policy with GIO. As part of the policy, it had public liability cover, which included principal’s liability. When Centennial entered into an agreement with Longwall Advantage to carry out work on a Centennial coalmine, Longwall Advantage hired Longwall Labourforce to carry out the work. A Longwall Labourforce employee was injured in 2008.
The injured party brought proceedings against all three parties. In the first instance, the trial judge found that all three companies were liable and that, for the purposes of contribution, Centennial should be 100% liable. The judge said Advantage was required to provide insurance cover that would indemnify Centennial.
GIO appealed the decision, arguing that the obligation on Advantage did not include liability arising from Centennial’s negligence but the Court of Appeal sided with the trial judge.
Holmes said the contract between the principal, Centennial, and the supplier, Longwall Advantage, required the supplier to:
- Hold the principal harmless for losses arising out of the supplier’s negligent acts or omissions (except to the extent that they were caused by the principal); and
- Purchase insurance that insured the principal for their respective rights, and liabilities including liability to the supplier and any third parties to the same extent as it would if each of the parties had a separate policy of insurance.