ZURICH INSURANCE CO LTD v. QBE HONGKONG & SHANGHAI INSURANCE LTD

DCMP 1511/2020

[2022] HKDC 578

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1511 OF 2020

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JUDGMENT

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1.  These proceedings were brought by the plaintiff, the insurer for the second tier subcontractor Pak Hing Air Conditioning Works (“Pak Hing”), for a number of declarations against the defendant, the insurer for the principal contractor Paul Y. General Contractors Limited (“Paul Y”). The following background facts are not in dispute,

(a)  that on 10 July 2014 a labourer was injured while working under the employment of a subcontractor of Pak Hing, Asia Air Conditioner Engineering Co, in the construction site of the Proposed Tanner Hill Retirement Housing Department, 8 Tanner Road, North Point;

(b)  pursuant to an Employees Compensation Commercial Policy taken out by Pak Hing with the plaintiff (“Zurich Policy”), a total settlement sum of $940,166.10, representing his claims for employee’s compensation, common law damages and legal costs, was paid out to the injured labourer as an employee in the employ of the subcontractor of Pak Hing defined under condition W204;

(c)  a further Employee’s Compensation Insurance Policy was taken out by Paul Y with the Defendant (“QBE Policy”);

(d)  Newland Engineering Limited (“Newland”) was the nominated subcontractor of Paul Y.

2.  Essentially, the plaintiff seeks full indemnity of the paid out settlement sum from the defendant by virtue of an escape clause under the Zurich Policy. Alternatively, and if there were double insurance for the liabilities of Paul Y and the third tier subcontractor, the plaintiff seeks 50% contribution from the defendant by virtue of the respective rateable proportion clauses under both policies. The defendant, on the other hand, says that it has no liability to pay altogether.

3.  Mr Victor Gidwani, leading Mr Conan Shek, counsel for the plaintiff, have made a number of submissions in support of its claims. Putting matters in perspective, in my view, the dispute really comes down to the construction of the terms in the “Named Insured” under Certificate of insurance in the QBE Policy, which states as follows,

“Hong Kong Housing Society as Principal and/or Paul Y. Engineering Group Ltd. and/or all its subsidiaries and/or Paul Y. General Contractors Ltd. as Main Contractor and/or all its sub-contractors of any tier to be appointed from time to time.”

4.  On the face of this clause, the QBE Policy does not provide coverage for the nominated subcontractors of Paul Y while providing coverage for subcontractors chosen by it as the principal contractor.

5.  In that regard, Mr Gidwani starts with and places great emphasis on what he describes as the “Full Coverage Clause” in the QBE Policy which makes specific provision under the endorsement that the policy was extended to cover nominated sub-contractors as the insured. This clause however is subject to an express requirement by the employer, Hong Kong Housing Society, for such a policy to be taken out.

6.  Whether or not such a requirement was expressly, or expressively as the word chosen in the clause, provided turned to the terms of the main contract entered between Hong Kong Housing Society and Paul Y, specifically clause 5.03 in Bill No. 1 Preliminaries. The relevant part of the clause 5.03 provides that,

“…the Main Contractor shall at his own expense take out and maintain an Employees’ Compensation insurance policy covering against all liabilities arising from death, accident or injury to any workmen or other persons in the employment of the Main Contractor and any sub-contractor of any tier and the Employer shall not be liable for any damages or compensation in respect thereof…” (emphasis added)

7.  It is the contention of Mr Gidwani that a wide interpretation is to be given to “all its sub-contractors of any tier” so that the clause refers also to a nominated subcontractor of Paul Y, in this case, Newland. Mr Gidwani argues in the following way,

(a)  that all parties understood Newland was a subcontractor of Paul Y;

(b)  there was not an express term in any of the contracts between the employer and Paul Y to the effect that a nominated sub-co contractor was not also a sub-contractor;

(c)  in the subcontract entered between Paul Y and Newland, Newland was defined as “The Subcontractor”;

(d)  “Nominated Sub-Contractors” was a defined term under Clause 27 of the 1986 Contract Conditions being persons, specialists or others nominated by the architect who are to be the sub-contractors employed by the main contractor. The clause then refers nominated sub-contractor as a sub-contractor whom the architect would not nominate if reasonable objection was made by the main contractor.

8.  Pausing here, I shall make mention that in the endorsement to the QBE Policy, there was included what is described as the “Contingent Coverage Clause”, the relevant part of which provides as follows:-

“…the Company will indemnify the Insured against liability at law…to employees in the employ of Nominated Sub-contractors, and/or all their sub-contractors of all tiers engaged in connection with contracts undertaken by the Insured in the event that the Insured and/or the Nominated Sub-contractors and/or all their sub-contractors of all tiers are not covered obey or otherwise indemnified under any other valid Employee’s Compensation Insurance…”

9.  There is also a “Zurich Excess Clause” endorsed to the Zurich Policy with provides at sub-paragraph (4) that: -

“Notwithstanding claims settlement conditions (D) of this policy – other insurance, if at the time of any claim under this policy there is any other insurance indemnifying any person or insured or insureds who are entitled to be indemnified under this policy, the policy is not to be be called upon in contribution and, subject to the policy limit of liability, is only to pay any amount if and so far as not recoverable under such other insurance.”

10.  I am not persuaded by the submissions of Mr Gidwani. The starting point must lie with the terms of the QBE Policy. I agree with Ms Christina Lee, counsel for the defendant, that the use of language in the QBE Policy is clear and unambiguous as to delineate nominated subcontractors and other subcontractors. One simply has to notice the use of the phrase “Nominated Sub-contractors and/or all their sub-contractors of all tiers” in the contingent coverage and full coverage clauses in the endorsement to the QBE Policy. If nominated sub-contractors were meant to be the same as sub-contractors, it would simply be unnecessary to include the words “Nominated Sub-contractors” in the first place when “all sub-contractors of all tiers” would have provided sufficient coverage.

11.  It follows from this that a clear election had been made in the QBE Policy to exclude nominated sub-contractors from coverage, and so giving rise to the precise parties to be insured under the “Named Insured” in the Certificate of Insurance. Obviously, as I also find, the QBE Policy was to comply with clause 5.03(1) of Bill No. 1 Preliminaries to the main contract entered between the employer and Paul Y. The point Mr Gidwani makes about Newland being defined merely as a subcontractor in the Subcontract with Paul Y is neither here nor there.

12.  It also follows from this that the other arguments of Mr Gidwani fall away. I do not see how the submissions surrounding double insurance or the rateable portion clauses can bring his case any further.

13.  I have no hesitation to accept the submissions of Ms Lee, who has helpfully referred to the decision of Chiu Man Kwan v Bank of China Group Insurance Co. Ltd, DCMP 211 of 2008, and find that the plaintiff must take the Contingent Coverage Clause in the QBE Policy as it finds it which means that the Zurich Excess Clause does not come into play. Parties are simply bound by the expression provisions in their policies.

14.  Accordingly, I dismiss the plaintiff’s summons with costs to be taxed if not agreed, with certificate for counsel.