Axa wins liability dispute

The NSW Appeal Court has ruled an Australian engineering firm was not insured for a "cap and collar" (C&C) agreement which required it to pay a mill owner $US2 million ($A2.63 million) for weld joint failures.

Acting Justice Reginald Barrett found Axa Corporate Solutions Assurance Pty Ltd was correct to deny liability because two exclusion clauses covered Weir Services Australia Pty Ltd's (WSA) payment to Phil Gold Processing and Refining Corp's (PG) semiautonomous grinding mill in the Philippines.

He said the damage was not an "occurrence" as defined by the policy or, if it was, the welds were a professional service, which was specifically excluded. Appeal Court Justices John Meagher and Richard White disagreed with AJ Barrett's finding about "occurrence" and the C&C contract but agreed WSA's work fell under the professional services exclusion and also denied the appeal.

The Appeal Court heard WSA had refurbished PG's 1970s-era mill from December 2007 to April 2009. In July 2011, welding failed and severely damaged the mill.

PG contended one or both of two factors caused the damage: inadequacy of welding conducted during the refurbishment; and failure to detect, during the refurbishment, that pre-existing welding needed renewal.

PG took WSA to arbitration but, before a finding was issued, WSA entered into the C&C agreement to limit damages to $US10.725 million if found liable (the cap) or to pay $US2 million (the collar) if cleared.

The arbitration cleared WSA and it and lodged a claim with Axa for the C&C payment and legal costs. WSA sued when Axa denied liability but lost a NSW Supreme Court trial.

WSA's broadform liability policy covered personal injury and property damage. One clause required property damage to be caused by an "occurrence"; another indemnified WSA for costs and expenses awarded against it. The policy contained exclusions for professional services and product defects.

Justice David Hammerschlag dismissed WSA's claims, finding no "occurrence" had resulted in property damage; legal expenses incurred in the arbitration were not covered; the professional services exclusion applied; and the C&C agreement was not a "settlement agreement on which WSA could rely to establish legal liability".

WSA appealed, arguing Justice Hammerschlag had erred when he found WSA's cover did not extend to the C&C agreement. It also argued Justice Hammerschlag erred when he found the welding a professional service.

On 16 May, the Appeal Court dismissed WSA's appeal.

It said the product contained a defect because the welding work (including investigation and assessment) had been performed in an unworkmanlike way and therefore WSA was not covered for damage to the welded component and the mill as a whole.

AJ Barrett said while Justice Hammerschlag was wrong to clear Axa of liability for the $US2 million payment, the exclusion clauses negated that liability.

He found the weld failure was from wear and tear and therefore was not an unexpected occurrence as defined by the policy. AJ Barrett also found WSA could not argue its professional services to PG were for planning and overseeing the refurbishment and did not extend to manual work like welding.

"There may have been a view in times long past that the only professions suitable for gentlemen were the church, the army and the law," he said. "Today the concept of a profession is very much amplified.

"The [refurbishment] as a whole was an engineering assignment. [WSA's] services were engineering services and therefore professional services."

Justice Meagher said the collar was "payable in return for a promise not to enforce a potential future determined liability, rather than in settlement of an asserted liability to pay compensation. Although WSA was ‘legally liable' to pay that amount under its agreement with PG, the collar was not an amount WSA was legally liable to pay [as] compensation for physical damage to property".

WSA was ordered to pay Axa's costs.

Weir Services Aust Pty Ltd v Axa Corporate Solutions Assurance [2018], NSWCA 100, 16/05/2018