XCHRX B + B CONSTRUCTION LTD. v. SUN ALLIANCE AND LONDON INSURANCE plc

HCA11977/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.11977 OF 1999

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J U D G M E N T

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FACTS

1. By a policy ("the policy") dated 3 January 1994 headed as "employee's compensation insurance", the defendant agreed, for the period of one year from 15 December 1993 to 14 December 1994, to indemnify Pak Kee "and his Contractors" against liability at law. Cheung Ping ("Cheung Ping") was a casual site worker employed by Pak Kee at the construction site over one month before the accident on 8 October 1994. One of his duties was to carry out H-piles driven works at construction sites. On 5 October 1994, the plaintiff entered into a contract with Pak Kee ("Sub-Contract"). Under the contract, Pak Kee agreed to provide the plaintiff labours for the carrying out of H-piles driven works. On the date of accident, 8 October 1994, Cheung Ping was assigned by Pak Kee to assist the plaintiff in the removal of a stack of H-piles stacked up at the Kowloon Bay site. Accident occurred and Cheung Ping was seriously injured.

2. In 1996, Cheung Ping brought an action of employees' compensation in the District Court against Pak Kee to recover employees' compensation for the injuries aforesaid sustained while working at site. Pak Kee was ordered to pay Cheung Ping employees' compensation in the sum of $198,846.13 and interest thereon in the sum of $9,002.82 and costs which were agreed in the sum of $12,000, all of which were indemnified by the defendant under the policy.

3. On or about 18 September 1997, Cheung Ping brought an action in the High Court ("the Main Action") against Pak Kee and the plaintiff to recover damages at law in respect of the aforesaid personal injuries, loss and damage he sustained. Pak Kee brought Third Party Proceedings ("Third Party Action") against the plaintiff to recover the compensation paid mentioned in the above paragraph.

4. The plaintiff invited the defendant through their respective solicitors to take over the conduct of the plaintiff in the Main Action but the defendant declined to do so. The defendant did however take over the conduct of Pak Kee's defence in personal injuries action and the conduct of Third Party Action.

5. On 3 July 1999, judgments were given in favour of Cheung Ping against the plaintiff for the sum of $759,797.05 in the Main Action, in favour of the Pak Kee against the plaintiff for the sums of $198,846.13, $9,002.82 and $12,000 in the Third Party Action. The plaintiff was further ordered to pay Cheung Ping his costs of the Main Action, Pak Kee its costs in defending the Main Action, Pak Kee his costs in bringing the Third Party Action including its costs of defending the plaintiff's counterclaim in the Third Party Action.

6. In the Action herein the plaintiff on 9 August 1999 issued a summons under O.14 and O.14A of Rules of High Court for final judgment against the defendant. On 1 September 1999, the defendant issued a summons under O.18, r.19 of Rules of the High Court for the plaintiff's Statement of Claim to be struck out and under O.14A of Rules of the High Court for certain questions of law to be answered and if answered in the affirmative, for judgment to be entered against the plaintiff. The present hearing is of both summonses.

7. The plaintiff's case is that by the terms of the policy, the plaintiff is entitled to be indemnified by the defendant in respect of the sums payable in the Main Action and Third Party Actions including the costs and their own costs in these actions.

ISSUES

8. Whether the plaintiff is entitled to be indemnified by the defendant turns on the construction on the said policy. For the sake of convenience, it is necessary to set out the relevant parts of the policy.

9. The insurance is headed as "employee's compensation insurance". The policy provides, inter alia, as follows :

" Whereas the Insured carrying on the Business described in the Schedule and no other for the purpose of this insurance by a proposal and declaration which shall be the basis of this contract and is deemed to be incorporated herein has applied to the Company for the insurance hereinafter contained and has paid or agreed to pay the Premium as consideration for such insurance

Now this Policy Witnesseth that if any employee in the Insured's immediate service shall sustain bodily injury by accident or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business

The Company will subject to the Jurisdiction Clause and the other terms exceptions and conditions contained herein or endorsed hereon (all of which are hereinafter collectively referred to as the Terms of this Policy) indemnify the Insured against liability at law (including liability under the Legislation set out in the Schedule) to pay compensation and claimant's costs and expenses in respect of such injury and will in addition pay all costs and expenses incurred with its written consent."

10. It is provided in the Exception 1 to the policy that the Company shall not be liable in respect of, inter alia, the Insured's liability to employees of contractors to the Insured.

11. The Schedule to the policy provides further that the policy does not indemnify the Insured in respect of any claim arising in connection with, inter alia :

" water diversion (other than work of a temporary and minor nature in respect of occasional surface water only), dam construction or work within or behind dams, pile driving, work in compressed air or diving"

12. The aforesaid Schedule further describes the class of insurance as "Employees' Compensation". The Insured is described as "Pak Kee Transportation Company Limited and His Contractors". The Business is described as "Transp./Forwarding Agent/Site Contractor". The Legislation is described as "Employee's Compensation Ordinance". The Period of Insurance is stated to be from 15 December 1993 to 14 December 1994.

13. The issues of this case can be summarised as follows :

1) Who is covered by the policy?

2) What liability does the coverage extend? In other words, does it extend to liability vis-à-vis employees in the immediate employment of the plaintiff or in the immediate employment of Pak Kee only?

3) Does Exception 1 (of excluding liability in respect of the Insured's liability to employees of contractors) apply in excluding the plaintiff from coverage under the policy?

4) Does the exception in relation to pile driving provided in the Schedule to the policy apply in excluding the plaintiff from coverage under the policy?

1) Who is covered by the policy?

14. Mr Wong, SC, Counsel for the plaintiff, relies upon a number of rules of construction. He submits that an insurance policy is to be construed objectively having regard to the ordinary meaning of the words used, the intention of the parties to be gathered from the words used. In case of doubt, the wording of an insurance contract is to be construed against the party who seeks to rely on it in order to diminish or exclude his obligations thereunder and against the party who proposed it for inclusion in the contract, In Youell v. Bland Welch & Co. Ltd [1992] Lloyd's Rep.127, Staughton LJ said at p.134 as follows :

" There are two well established rules of construction, although one is perhaps more relied on with success than the other. The first is that, in case of doubt, wording in a contract is to be construed against a party who seeks to reply on it in order to diminish or exclude his basic obligation, or any common law duty which arises apart from contract. The second is that, again in case of doubt, wording is to be construed against the party who proposed it for inclusion in the contract: it was up to him to make it clear."

15. He said that the ordinary and natural meaning of the word "contractors" is not "sub-contractors down the line" or "contractors down the line" or "sub-contractors" but all type of contractors, main as well as sub-contractors. He relies specifically on Petrofina (UK) Ltd v. Magnaload Ltd [1983] 2 Lloyd's Rep.91 in which it was held that, in the context of that case, "sub-contractors" included "sub-contractors" as well as "sub-sub-contractors". He also places the emphasis on the word "his". He submits that by reference to the word "his", it definitely includes the plaintiff because the plaintiff would be his contractor.

16. He also relies on the fact that Pak Kee regularly entered into contracts with the plaintiff and it is a term of the sub-contract that it is the obligation of Pak Kee to take out compensation in the joint names of both Pak Kee and the plaintiff. Thus, despite the fact that the policy was taken out by Pak Kee before the sub-contract was entered into, the policy was one of these Polices taken out by Pak Kee in the course of regularly entering into sub-contract works of the category in question. The policy must have been intended to cover the present action.

17. On the other hand, Mr Bharwaney, Counsel for the defendant, submits that cover is only provided if an employee in the insured's immediate service shall sustain bodily injury by accident arising out of or in the course of his employment by the insured in the Business. The emphasis here is in the Business. The Business is defined in the schedule to be "transportation/forwarding agent/site contractor". This limitation coupled with the words "his contractors" would direct the court to the only construction that the policy is intended to cover Pak Kee's liability to his own employees in the course of Pak Kee's transportation/forwarding agent/site contractor business as well as the liability of contractors to Pak Kee carrying out such business, i.e. contractors down the chain. This is reinforced by the fact that it is absent any endorsement extending the cover to indemnify the principal against his liability to employees of Pak Kee under s.24 of the Employees' Compensation Ordinance.

18. I accept the submission of Mr Wong, SC, that by construing the words "his Contractors" objectively and having regard to the ordinary and natural meaning of the words used, the policy should have been intended to cover the plaintiff. The word "Contractors" should include contractors of all types. It would not be in accordance with the ordinary and natural meaning of the words used by qualifying the word to contractors down the chain. Had the otherwise been so intended, the defendant could have easily made it clear by using the words "contractors down the line" or "sub-contractors".

19. I also accept the submission of the plaintiff that in construing the policy, one should take into account the fact that it was the obligation of the Pak Kee under the sub-contract to effect insurance for his labour and for those of his own sub-contractors and the workmen's compensation insurance shall be taken out in the joint names of Pak Kee and the plaintiff. This is relevant in construing the policy in the present case. It reinforces the contention of the plaintiff that they are one of the insured under the policy. In this regard, it is irrelevant that the policy was taken out before the sub-contract. There had been a regular course of dealings between the plaintiff and Pak Kee.

20. Before leaving the matter of sub-contract, I have one more observation to make. Mr Bhurwaney submits that the reference in the sub-contract to taking out a policy in the joint names of the plaintiff and Pak Kee is difficult to understand, because there is no suggestion of any joint employment. There can be no joint insurance on liability in the absence of any joint employment. Joint liability only arises in joint employment or in a partnership. He submits that, in the absence of joint employment, it does not make sense to have a policy covering liability in joint names.

21. I take a different view on this matter. The intention of taking out the policy in the joint names of Pak Kee and his contractors must be that each party is insured in respect of his respective rights and interests. The respective right and interest of the plaintiff in the present case is coverage against its liability towards Cheung Ping at law. It does not require any joint employment in order to render it sensible the reference that policy is to be taken out in joint names. It could still make sense in the way as I have just said.

22. In any event, if there is any doubt as to the proper construction of the policy, I am of the view that the rule, that in case of doubt, the wording of an insurance contract is to be construed against the party who seeks to rely on it in order to diminish or exclude his obligations thereunder, shall be applicable in the present case. As I have said, it is always open to the insurer to make it clearer. If words, so wide as the present case is concerned, is used, I must say the insurer must bear the burden and detriment of it. This is a well-established rule that I feel bound to apply it to the present case.

2) What liability does the coverage extend? In other words, does it extend to liability vis-à-vis employees in the immediate employment of the plaintiff or in the immediate employment of Pak Kee only?

23. Having decided who is to be covered under the policy, I have to decide what liability the coverage extends, i.e. whose employee is to be covered.

24. Mr Bhurwaney submits that if the policy includes the plaintiff, i.e. contractors up the chain, the starting point for construction of the policy should be by taking the policy as if the Pak Kee was the only insured under the policy. If the Pak Kee was the only insured under the policy, Pak Kee would be indemnified for the claim made by the employee in the immediate service of Pak Kee for sustaining injury by accident during the period of insurance and arising out of and in the course of his employment in the business of transportation/forwarding agent/site. The effect of extending the coverage to another insured would only provide separate and independent cover to that named insured towards liability claimed by the employee who is in the immediate service of that insured. It could not be construed as offering indemnity to a named insured in respect of liability to an employee in the immediate service of another named insured. If third party liability, i.e. liability of main contractor under s.24 of Employees' Compensation Ordinance had been so intended, there should have had an endorsement providing cover such. This construction is reinforced by the existence of Exception 1 which purports to exclude from cover liability of Insured towards employee of contractor to the Insured.

25. In a nutshell, the submission of Mr Bhurwaney is that it would be against the meaning of this term of the policy if indemnity is to be given to the plaintiff in respect of its liability towards employee of another insured, i.e. Pak Kee. Liability towards third party is not one covered by the policy. I agree that the emphasis of "in the immediate service" is material, but that does not necessarily arrive at the construction as Mr Bhurwaney submits. If one goes to the schedule of the policy, the schedule relates to the business, transportation, forwarding agent, site contractor, and the legislation Employees Compensation Ordinance, as mentioned above. Then the category of staff are those in the direct employment of Pak Kee. Accordingly, there is no question of Pak Kee taking out insurance with the view of covering liability of any insured towards employees of one other than Pak Kee itself. The liability is vis-a-vis the employees of Pak Kee and Pak Kee alone, because that is the intention to be gleamed from the schedule, from the employees designated in the schedule. Nowhere in this policy does one get any indication that this policy is to extend to cover those employees. The indication which is consistent with the contractual scheme is that it extends only to the employees of Pak Kee.

26. I must then continue to consider the questions of whether Exception 1 excludes coverage towards the claim of Cheung Ping against the plaintiff, and whether the plaintiff is excluded from coverage as falling within the excepted types of works as listed in the Schedule.

3) Does Exception 1 apply in excluding the Plaintiff from coverage under the policy?

27. Since I have accepted the submission of Mr Wong, SC, that the coverage extends to liability vis-à-vis employees in the immediate service of Pak Kee only, the exception should also be so construed. Exception 1 of the policy should only be to the effect that the defendant shall not be liable in respect of Pak Kee's liability towards employees of contractors to Pak Kee, e.g. the plaintiff. In other words, the insured therein mentioned in the exception refers to Pak Kee. Accordingly, the Exception does not apply in excluding the plaintiff from coverage under the policy.

28. The answer to question (3) is "no".

4) Does the exception in relation to pile driving provided in the Schedule to the policy apply in excluding the plaintiff from coverage under the policy?

29. I now turn to the Schedule of the policy in which certain types of works are set out in connection with which the policy would not indemnify the claim. They are "water diversion (other than work of a temporary and minor nature in respect of occasional surface water only), dam construction or work within or behind dams, pile driving, work in compressed air or diving."

30. The relevant one here is the pile driving. The question here for me to decide is whether there was pile driving carried out by Cheung Ping on the date of accident. It was decided in the judgment of Suffiad J of the Main Action, HCPI 963/97, at p.163 that :

"..... for about a month at a site in Ma On Shan. One week before the accident, he was transferred to work at the Kowloon Bay site where the ..... so that the H-Piles could be lifted by cranes to the desired spots within the site."

31. Cheung Ping was injured when executing that work. It is clear that he was not engaged in pile driving work when he was injured and the Exception really has no application. This is reinforced by the fact that if one looks at the policy in question ― the schedule to the policy, the business of Pak Kee includes transportation, forwarding agent, and site contractor. So Cheung Ping really is inherent as part and parcel of this site operation of Pak Kee and is therefore not within the Exception under that clause.

32. Accordingly, the answers to question (4) is "no".

CONCLUSION

33. Since I accept the submissions of Mr R. Wong, SC for the plaintiff, there shall be an Order in terms of the plaintiff's O.14 summons and the defendant's summons under o.18, r.19 is accordingly dismissed with an Costs Order nisi on both summonses and the Action herein to the plaintiff, to be taxed if not agreed.