Insurance policies often aim to limit coverage for liabilities arising out of breach of contract, typically through specific clawbacks in the insuring clause or through general exclusions.

In Sydney Trains v Argo Syndicate AMA 1200, the New South Wales Court of Appeal provided important insights into how a public liability insurance policy covers contractual liabilities, particularly where those liabilities arise from third-party injuries.

The case arose after Ms Michael, a commuter, (Commuter) slipped on tiles at a train station installed by Infrastruction Pty Ltd, the contractor engaged by Sydney Trains (Contractor), sustaining personal injuries.

The Commuter successfully recovered $616,500 in damages from Sydney Trains.

In response, Sydney Trains pursued a claim against the Contractor for breaching implied contractual warranties, such as fitness for purpose. 

However, since the Contractor had deregistered, Sydney Trains sought indemnity directly from the Contractor's insurer, Argo Syndicate (Insurer). An action pursuant to section 601AG of the Corporations Act 2001 (Cth ).

The Insurer argued that its policy only covered negligence, not breaches of contract, and refused indemnity.

The Insurers position was that the relevant "Occurrence" was the breach of contract, and the injury to the Commuter was merely a background circumstance, irrelevant to the Contractor's liability to Sydney Trains.

However, the Court disagreed. They held that the "Occurrence" triggering the policy was the personal injury suffered by the Commuter when she slipped on the tiles - not the breach of contract.

Another issue was whether Sydney Trains' claim against the Contractor for breach of contract was covered by the policy's indemnity for "liability for injury".

The Insurer submitted that the word "for" was to be read narrowly, limiting coverage to claims directly compensating the injured party (i.e. claims from the Commuter against the Contractor). The Insurer asserted that Sydney Trains' claim, being a consequential claim for breach of contract, was not "Injury" under the policy.

The Court again disagreed. They held that the word "for" is a 'relational term' that must be interpreted in context. In adopting a 'businesslike interpretation' of the policy, the Court read the word "for" to be akin to "in respect of".

This broader construction meant that Sydney Trains’ claim for breach of contract was indeed “in respect of” the injury suffered by the Commuter and thus covered by the policy.

The Insurer argued that the policy’s exclusion for performance warranties (such as the implied warranty of fitness for purpose) precluded coverage; and that because Sydney Trains' claim was based on the Contractor's failure to supply tiles fit for purpose, the exclusion applied.

The Court rejected this argument as well. They interpreted the policy's exclusion narrowly, ruling that the exclusion did not apply to liabilities arising from third-party injuries, even if those liabilities were linked to implied contractual breaches.

The Court emphasised that a broader exclusionary interpretation would "leave very little work for the Policy to do", essentially nullifying much of the coverage intended by the policy.

The decision in Sydney Trains v Argo Syndicate AMA 1200 blurs the lines between negligence and breach of contract, broadening the scope of what public liability policies may cover. Insurers should note that courts may interpret policy terms expansively, extending coverage to liabilities arising from implied contractual terms — especially when third-party injuries are involved.

This ruling signals a shift toward more comprehensive coverage for contractors and underscores the importance of clear, precise policy wording. Insurers should carefully review and clarify policy terms and exclusions to avoid unintended exposure, particularly in cases involving contractor liability.