The recent decision in AAI Limited t/as Vero Insurance v GEO Group Australia Pty Limited  NSWCA 110 affirmed what we’ve known all along: courts will read a coverage clause objectively in the context of the whole insurance contract.
But does this context include extrinsic material? According to the New South Wales Court of Appeal, it certainly does.
Does a failure to provide services involve the conduct of those services?
GEO Group Australia (GEO) privately operates Parklea Correctional Centre (Parklea).
In February 2010, Mr Mace was arrested for various armed robbery offences. Refused bail, he was transferred into protective custody at Parklea. Upon arrival, Mr Mace informed staff that he was taking medication for schizophrenia and depression. Despite this, GEO failed to properly assess him for the obvious risk of self-harm.
Just four days after arriving at Parklea, Mr Mace jumped off an upper landing and suffered serious injuries. No psychologist or counsellor had made any contact with him and he was not provided with medication for his chronic schizophrenia.
Mr Mace brought a claim against various parties, including GEO. GEO claimed under its insurance policy, underwritten by Vero, and Vero denied indemnity.
The key issues in dispute were whether the non-provision of relevant services could trigger the policy where:
- the insuring clause provided Vero was liable to indemnify GEO for claims “resulting from the conduct of the Healthcare Services”; and
- the definition of ‘Healthcare Services’ included “the provision of services and treatment including services and treatment provided by psychologists and counsellors”.
At first instance, the Supreme Court held that the broad insuring clause in the policy covered claims arising from GEO’s provision of Healthcare Services to inmates. Considering GEO’s contract with the State and the processes and procedures formulated by GEO to fulfil its obligations, the primary Judge determined that such services included both positive acts by treating psychologists and omissions. In particular:
- the wide ambit of “resulting from” and “conduct” extended far beyond healthcare services to, and treatment of, particular individuals; and
- GEO’s omission, in failing properly to assess and then mitigate Mr Mace’s risk of self-harm, stemmed from the general healthcare services it provided to all inmates.
Vero appealed but the Court of Appeal affirmed the decision. In doing so, the Court of Appeal noted, with apparent approval, that the primary judge’s conclusion was “supported by documents which govern GEO’s contractual obligations…and the evidence as to the systems it put in place in order to satisfy those obligations.” Indeed, the Court of Appeal itself referred to the contractual obligations and to GEO’s systems and concluded:
- GEO was engaged to provide healthcare services to inmates at Parklea;
- GEO’s failure to assess Mr Mace was an omission in the course of the provision of healthcare services to inmates; and
- accordingly, Mr Mace’s injuries arose from GEO’s conduct of healthcare services.
Policy to be read as a whole and in its commercial context
The Court of Appeal looked at the whole insurance contract in finding that the word “conduct” extended to both acts and omissions. The Court paid particular attention to the “Aggregation of Claims and Fidelity Claims” clause, which permitted aggregation in claims arising from omissions and a series of omissions.
But what’s most interesting is that the Court of Appeal affirmed the primary judge’s approach to looking at material outside of the policy when interpreting the coverage clause. The Court looked at GEO’s contractual obligations to the State to determine its responsibilities to inmates. It then used these obligations, and evidence of the systems put in place to fulfil them, to figure out what the policy was intended to cover.
The Court determined that the broad language of the coverage clause was to be read in line with both the balance of policy and relevant external materials.
Lessons for insurers
The Court concluded that loss arising from the non-performance of relevant services can “result from” an insured’s conduct in providing services. Although this case concerned interpretation of a medical negligence policy, the principles applied by the Court have broader relevance for policy drafters.
The courts will objectively interpret coverage clauses in a manner consistent with other terms of the insurance policy and in the commercial context of the cover as determined by reference to extrinsic sources. Underwriters need to keep this in mind to ensure that the scope of the cover is accurately defined to achieve the intended result and avoid any nasty surprises.