A single misused term buried in a construction liability policy has cost Allianz Australia Insurance Limited a seven-figure contribution claim against a fellow insurer.
The Federal Court ruled on September 17, 2026 that AIG Australia Limited owes Allianz nothing toward the payments Allianz made after a subcontractor's worksite gate fell on a traffic controller in Brighton, Victoria. Allianz had indemnified the subcontractor for more than $1.68 million in settlement payments and defence costs, with further assessed costs still outstanding.
The case turned on whether AIG's policy provided primary cover for the subcontractor - or only kicked in as excess insurance above any other policy already in play.
The underlying facts were not in dispute. In mid-2021, Icon SI (Aust) Pty Ltd - part of the Kajima Corporation-backed Icon construction group - contracted Built Tech Hoardings Pty Ltd to work on a Brighton building project. Built Tech held its own public liability cover with Allianz. Separately, AIG insured the broader Icon group under an annual public liability policy covering the Icon entities, their subcontractors, and other parties required by contract.
On July 1, 2022, a traffic controller employed by another company on site was seriously injured when a gate at the construction site - modified by Built Tech three days earlier - fell on her. She suffered significant physical and psychiatric injuries.
Two sets of proceedings followed in the Victorian County Court: one brought directly by the injured worker, the other by the Victorian WorkCover Authority. Allianz agreed to indemnify Built Tech for both claims. The worker's claim settled for $1 million plus party and party costs still to be assessed, and the WorkCover claim for $650,000 inclusive of all costs. Allianz also covered Built Tech's defence costs of $36,959.77 across both proceedings.
Allianz then turned to AIG, arguing that because AIG's policy also covered Built Tech, there was double insurance - meaning both insurers should share the burden.
The dispute came down to a single provision in the AIG policy: Condition 17, headed "Difference in Conditions." This is a type of clause common in construction insurance programmes. When it applies, it converts a policy from primary cover into excess-only cover wherever the insured already has another policy covering the same risk. If it applied to Built Tech, AIG's policy would sit above Allianz's - not alongside it - and there would be no double insurance at all.
The problem was the wording. Condition 17 referred repeatedly to "Named Insured" rather than the broader term "Insured." The AIG policy drew a clear distinction between the two. The "Named Insured" designation in the policy schedule covered the 15 specific Icon group entities, their affiliates and subsidiaries, plus a catch-all covering owners, principals, contractors, subcontractors and other parties "as required by contract or agreement." The definition of "Insured" was wider again, automatically pulling in all subcontractors of any tier, directors, employees, architects, consultants, and various other parties.
Allianz argued that "Named Insured" should be read narrowly - limited to the 15 Icon entities and their affiliates - which would exclude Built Tech from the Difference in Conditions clause, leaving AIG on the hook as a co-insurer.
AIG took the opposite tack. It said "Named Insured" in Condition 17 was obviously a mistake and should be read as "Insured," meaning the clause would apply to everyone the policy covered, Built Tech included.
Justice Derrington sided with AIG. The judgment found that applying Condition 17 only to Named Insureds - while leaving the much broader class of Insureds with full primary cover - produced what the court called a commercially absurd result.
The reasoning was straightforward. Under a literal reading, the Icon group entities that were the policy's known, assessed clients would be worse off than unknown third-party subcontractors who happened to qualify as Insureds. AIG would face uncapped primary exposure to an unknown number of parties it had never risk-assessed, while the very entities whose risk it had priced would be pushed into excess-only cover if they held other insurance. The court found this operation "commercially unsound" and, ultimately, an "absurdity" that no party to the contract could have intended.
The court also pointed to internal inconsistencies in Condition 17 itself. The provisos to the clause - dealing with unpaid claims under other policies and policy lapses - switched between "Named Insured" and "Insured," reinforcing the conclusion that the drafter had used the terms interchangeably by mistake.
Justice Derrington found the error was clear on the face of the policy, and that neither party could point to any commercial reason for drawing the clause so that it hit Named Insureds but not Insureds. The AIG policy also contained a built-in escape valve in its Condition 4, which allowed departure from a defined term wherever its specific meaning was "clearly inapplicable" in context. The court found that mechanism applied here as well.
As an alternative finding, the court also held that even on the ordinary meaning of the schedule, Built Tech qualified as a Named Insured. The schedule's catch-all wording - covering "all contractors and sub-contractors and other parties as required by contract or agreement" - captured Built Tech because Icon SI was contractually obliged under the head contract to procure insurance for its subcontractors as named insureds.
Allianz had argued this catch-all wording should be read out of the definition entirely, but the court rejected that. The schedule was drafted with deliberate specificity, and its structure - listing 15 named entities, then affiliates and subsidiaries, then the catch-all - reflected a clear intention to cast the Named Insured net wide. Removing the catch-all would leave "Named Insured" meaning the same thing as the narrower "Insured nominated in the Schedule," a separate expression used elsewhere in the policy to different effect. That could not have been intended.
The judgment noted repeatedly that the AIG policy - what the court described as what appears to be a broker's policy - was "poorly drafted" and contained "several infelicitous expressions." The defined terms "Named Insured," "Insured," and "Insured nominated in the Schedule" were used inconsistently across multiple clauses, and the premium adjustment clause also broke down if "Named Insured" was given its full defined meaning.
But poor drafting did not save Allianz. The court applied the well-established principle that it can correct obvious drafting errors by construction where the error and the intended meaning are both clear. Here, both were. The Difference in Conditions clause was meant to apply to all Insureds, and reading it that way was the only commercially sensible construction.
Allianz's application was dismissed. It was ordered to pay AIG's costs.
For claims teams and underwriters working with construction liability programmes, the case is a pointed reminder that a single mislabelled defined term in a Difference in Conditions clause can be the difference between splitting a loss and wearing the whole thing.
