Strategic Property Holdings No 3 Pty Ltd v Suncorp Metway Insurance Ltd [2009] ACTSC 8 (13 February 2009)

Last Updated: 16 March 2009

STRATEGIC PROPERTY HOLDINGS NO 3 PTY LIMITED v

SUNCORP METWAY INSURANCE LIMITED

[2009] ACTSC 8 (13 February 2009)

INSURANCE – contract of insurance – exclusion clause – interpretation – limitation on accidental damage – damage subsequent to an excluded event – not excluded from limitation for accidental damage.

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579

Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522

Zurich Australian Insurance Limited v Regal Pearl Pty Ltd [2006] NSWCA 328 (27 November 2006)

Johnson v American Home Assurance Company [1998] HCA 14; (1998) 192 CLR 266

Prime Infrastructure Management Pty Ltd v Vero Insurance Ltd & Ors [2005] QCA 369 (30 September 2005)

Vero Insurance Ltd & Ord v Prime Infrastructure (DBCT) Management Pty Ltd [2006] HCA Trans 142 (10 March 2006)

Australian Casualty Co Ltd v Frederico [1986] HCA 32; (1986) 160 CLR 513

Fenton v Thorley & Co Ltd [1903] AC 443

Insurance Law in Australia, (3rd ed, 1999), Sutton

The Macquarie Dictionary, (3rd ed, 1998)

No. SC 674 of 2006

Judge: Gray J

Supreme Court of the ACT

Date: 13 February 2009

IN THE SUPREME COURT OF THE )

) No. SC 674 of 2006

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: STRATEGIC PROPERTY HOLDINGS NO 3 PTY LIMITED (ACN 103 751 677)

Plaintiff

AND: SUNCORP METWAY INSURANCE LIMITED (ACN 079 695 966)

Defendant

ORDER

Judge: Gray J

Date: 13 February 2009

Place: Canberra

THE COURT ORDERS THAT:

1. The application be dismissed with costs.

1. The plaintiff, Strategic Property Holdings No 3 Pty Limited (Strategic), was a nominated insured under an industrial special risks insurance policy held with the defendant, Suncorp Metway Insurance Limited (Suncorp), concerning the property and building comprising the Australian Defence Academy at Weston Creek. The insurance policy was for the period 1 July 2005 to 22 May 2006.

2. On 30 January 2006, there was a major collapse of the roof on the northern end of one of the buildings on the property due, in general, to the failure of the roof trusses. Substantial damage occurred to the building. A claim upon the insurance policy in respect of this event was made on 31 January 2006. These proceedings arise out of that claim.

Background

3. The following is a summary taken from the parties’ agreed statement of facts.

4. The Australian Defence Academy at Weston Creek comprises a relatively new complex, which replaced a set of old buildings. The new buildings were constructed in two stages, the first in the early 1990’s and the second being completed in 2001. The Geddes Building (the building), which is the building the subject of the insurance claim, was constructed in 2000-2001 by Baulderstone. The design and construction of the building occurred under the auspices of the Commonwealth Department of Defence.

5. The building is 111m long and has two storeys at the southern end and three storeys at the northern end, being the end where the 30 January 2006 collapse occurred. The building has a reinforced concrete frame clad with masonry and has a tiled roof truss system. A trussed roof is a system where a number of trusses are used to support the roof load, that is the concrete roof tiles, and to support the mechanical services, suspended ceilings, insulation, cabling and, in parts, equipment of a building. While each of the trusses is a standalone structural component in a roof, all are interdependent with each able to only support a specific load.

6. A “truss” is a structure comprising one or more triangular units which are constructed with straight slender members whose ends are connected at joints. An individual truss is a standalone structural component in a roof system but is dependent on the adjoining trusses and is, in itself, designed to support a set of specific loads. This means that, if one or more parts of an individual truss fail, it loses its capacity to support a set of specific loads. The truss then reverts to an undersized and inadequate beam.

7. In the present case, there were design and construction inadequacies which led to the failure of the trussed roof system and the eventual collapse of the roof.

8. The following is agreed:

(i) Once the truss end connection failed, the truss reverts to be an undersize beam and sheds the load to the adjoining trusses which in turn fail. The result is an “unzippering effect” as each truss or group of trusses simply fail without warning.

(ii) Analysis of the failure indicates that due to eccentric loading of the heel joint over the top plate, the timber was over stressed by up to 200% which accounted for the initial failure. As trusses shed the load to adjoining trusses, the overload would rapidly rise until catastrophic failure occurs.

(iii) This type of failure was occurring in each of the separate roof structures that make up the Building’s entire roof system and whilst it has not resulted in general collapse, general failure of the entire roof will soon follow. Trusses with maximum load are also failing.

(iv) The Building’s trusses were not plumb; they were leaning towards the centre of each [of] the Building’s separate roof structures as the load was being distributed from the centre area of failure.

(v) The trusses have uniformly been installed incorrectly; they were in failure mode with several trusses having completely failed.

(vi) The sequence of failure commenced with one truss failing generally in the middle of the roof section with the failure point being one or both heel plate connections. The failure of the one truss then induced progressive failure in the adjoining trusses on each side of the failed truss until general failure occurs.

9. After the roof collapse, the defendant commissioned an engineering firm, Lewis & Associates, to investigate the plaintiff’s claim and prepare a report to assist in the determination of its liability. Lewis & Associates prepared two reports, one dated 8 March 2006 and the other 30 June 2006. The plaintiff sought to tender those reports and they were admitted subject to the defendant’s objection that they were irrelevant as the parties had put in an agreed statement of facts.

10. Having now had the opportunity to reflect on the objection and consider the reports, it seems to me that the real issue is whether the reports are necessary for the determination of the matter before me. I do not see any material difference between the reports and the parties’ agreed statement of facts. However, the reports do give additional background information which I have found helpful. I admit the reports subject to any conflict between the reports and the agreed statement of facts being resolved in favour of the latter.

The insurer’s response to the claim

11. The defendant responded to the claim. By a letter dated 31 March 2006 from its solicitors, Sparke Helmore, it was advised that Suncorp had determined that:

... your policy coverage does not extend to cover the cost of replacement of the roof trusses and adjoining supports. The resultant damage to the roof is covered under section 1 of the Policy as it comes within the proviso to section 4(c) and 4(e) of the Perils Exclusions.

12. Suncorp made a further determination in respect of the Sub Limits of Liability referred to in the policy:

Under Section 1 of the Policy any glass which needs replacing due to the Geddes’ roof collapse is insured to its replacement value. Accidental damage is limited to $200,000.00. Our client considers that the roof’s collapse comes within the definition of accidental loss, destruction or damage provided in the Policy. There is also allowance for removal of debris to the limit of $1,500,000.00.

Section 2 of the Policy indemnifying you against business interruption includes an allowance of $26,148,000 for loss of rent.

13. In Strategic’s further amended originating application filed in court on 28 November 2007, Strategic seeks:

1. A declaration that the Sub Limit for “Accidental Damage as Defined” does not apply to the plaintiff’s claim for indemnity from the defendant under the Industrial Special Risks insurance policy between the parties for damage to the Australian Defence Academy, Weston Creek ACT on or about 30 January 2006.

1A. Or alternatively a declaration that the perils exclusion clause 4 in the Industrial Special Risks insurance policy between the parties for damage to the Australian Defence Academy, Weston Creek ACT on or about 30 January 2006 does not apply to damages to the insured property occasioned by a peril not otherwise excluded in the policy which is both

1. subsequent damage to the damage excluded in perils exclusion clause 4 and also
2. damage resulting from an event covered by perils exclusion clause 4.

1B. Or alternatively a declaration that the perils exclusion clause 4 does not apply to the plaintiff’s claim for indemnity from the defendant under the Industrial Special Risks insurance policy between the parties for damage to the Australian Defence Academy, Weston Creek ACT on or about 30 January 2006.

14. When read with the letter in which Suncorp partially admitted the claim, it can be seen that the declaration sought by way of declaration 1A is clearly not necessary in view of Suncorp’s determination that the “resultant” damage to the roof “comes within the proviso to sections 4(c) and 4(e) of the Perils Exclusions”. As will be seen, that declaration only seeks to recite that circumstance if the “resultant” damage referred to in the determination is read, as I think it must be, to the “subsequent” damage to which the policy refers.

15. As far as declaration 1B is concerned, no submissions were put to me to say why the perils exclusion clause 4 including the proviso did not apply in this case. In fact, the declaration is contradictory to the declaration sought in 1A and the circumstance admitted by Suncorp. Both these declarations seem to proceed from a misunderstanding of the effect of Suncorp’s determination set out in the letter of 31 March 2006 to which I have referred.

16. To make what I am saying clearer, it is necessary to set out the relevant provisions of the Policy.

The Policy

17. The policy describes itself as an “Industrial Special Risks Insurance Policy”. In Insurance Law in Australia, (3rd ed, 1999) Sutton, the author comments (at 717):

9.24 It is becoming an increasingly common practice for firms and corporations in a substantial way of business to have special forms of policies which have been specially negotiated on their behalf by insurance brokers and which are tailored to meet their particular requirements. These policies provide cover for a variety of risks such as loss or damage to buildings and property; burglary and loss of money insurance; personal injury (widely defined) to officers and other employees of the assured; public liability; products liability; consequential loss through business interruption following on property damage; fidelity guarantee; loss of or damage to electronic equipment; and machinery/boiler insurance. The certificate of insurance lists the parties, the period of insurance, the maximum liability and any excess (or “deductibles”) payable by the assured in each section, a brief description of the property insured and the amount of the premium, while the schedule attached to the certificate provides full details of the cover. There are general conditions and general exclusions covering the whole of the various types of insurance (with the frequent inclusion of a waiver of subrogation rights against directors or employees of the assured), and these are supplemented by special clauses applicable only to a particular type of risk. Indorsements modifying either general or special conditions may be attached. [Footnote omitted]

18. The policy in this case seems to be of this nature and the comment which follows this description of the nature of the policy seems to be particularly apt in the present case:

The result is a conglomeration of terms which often gives rise to difficulties of interpretation in respect of a claim under the policy. [Footnote omitted]

19. In the present case, the policy commences with a covering page setting out the insured, the policy number and client number and period of insurance.

20. The opening paragraph provides:

This Policy incorporates the Schedule, Sections, Definitions, Conditions, Exclusions, Endorsements, Memoranda and Warranties (if any) and any other terms herein contained which are to be read together and any word or expression to which a specific meaning has been given in any part of this Policy shall bear this meaning wherever it may appear unless such meaning is inapplicable to the context in which the word or expression appears.

21. The next paragraphs provide:

WHEREAS the Insured named in the Schedule has paid or agreed to pay to the Insurer(s) specified below the Premium shown on the Schedule, now the Insurer(s) agree(s), subject to the terms, Conditions, Exclusions, Memoranda, Warranties, limitations and other provisions contained herein or endorsed hereon, to indemnify the Insured as specified herein against loss arising from any insured events which occur during the Period of Insurance stated in the Schedule or any renewal thereof.

PROVIDED THAT the total liability of the Insurer(s) at any one Situation shall not exceed the appropriate Limit or Sub Limit(s) of Liability as stated in the Schedule or such amount(s) as may be substituted therefore by endorsement or memorandum hereon or attached hereto and that each Insurer specified below shall only be liable to contribute to any loss covered by this Policy that proportion of the loss as is specified beside its name.

PROVIDED further that in respect of each loss or series of losses arising out of any one event there shall be deducted from the amount of the claim as finally determined the amount of the Deductible if any and the liability of the Insurer(s) shall be limited to the amount of loss if any in excess of such Deductible but not exceeding the Limit or Sub Limit of Liability aforesaid.

22. The operative part of the policy set out in the opening paragraph is the agreement of the insured to pay the premium and the insurer to indemnify the insured against the “insured events” occurring during the period of insurance. The provisos which follow in the succeeding paragraphs set the limits and sub limits of liability and provide for certain sums to be deducted from the amount of the claim in certain events.

23. There follows pages 2 to 16 of the document which are each headed “ISR POLICY SCHEDULE”.

24. Page 2 of 16 is a Schedule setting out a summary of the policy as to the insured, the business, the premises and the period of the insurance. It also sets out the premium and the declared values.

25. Page 3 of 16 sets out “LIMIT(S) OF LIABILITY” as the maximum for any one loss and subject to any “lesser Limit(s) of Liability specified elsewhere in this Policy”.

26. Page 4 of 16 sets out “SUB LIMIT(S) OF LIABILITY”. Under “SECTION 1 – MATERIAL LOSS OR DAMAGE”, among other items, are:

GLASS Replacement Value

ACCIDENTAL DAMAGE AS DEFINED $200,000.00

REMOVAL OF DEBRIS $1,500,000.00

Under “SECTION 2 – CONSEQUENTIAL LOSS”, among other items, are:

LOSS OF RENT $26,148,000.00

27. Page 5 of 16 sets out certain amounts that the insured is to bear in respect of a claim under the heading “DEDUCTIBLES”. The indemnity period and details of the insured are also set out.

28. Page 6 of 16 contains no heading but is set out in the following form:

Definition:

The terms Accidental loss, Destruction or Damage shall not include loss, destruction or damage caused by Fire, Lightning, Explosion, Implosion, Smoke, Impact, Aircraft or articles dropped therefrom, Riots, Strikes, Civil commotion, Storm, Tempest, Rainwater, Flood, Water or other Liquid Discharge or Leakage, Sprinkler Leakage, Earthquake, Subterranean Fire, Volcanic Eruption, Malacious [sic] Acts, Burglary, Theft, Breakage of Glass, Transit or any peril excluded by this policy.

29. What next follows over pages 7 of 16 to 11 of 16 is a “SCHEDULE OF ASSETS” listing details of properties at Milsons Point, Ultimo, Castle Hill, Newcastle, Wollongong, Lane Cove and Shellharbour.

30. Page 12 of 16 is exactly the same as page 3 of 16, “LIMIT(S) OF LIABILITY”. Page 13 of 16 is the same as page 4 of 16, “SUB LIMIT(S) OF LIABILITY”. Page 14 of 16 is the same as page 5 of 16, “DEDUCTIBLES (without specifying the insured)”. Page 15 of 16 is the same as page 6 of 16 containing the “Definition”.

31. The repetition of these pages is explicable by reference to the separate page, 16 of 16, headed “SCHEDULE OF ASSETS”. That page gives details and declares the total asset value of the Australian Defence College as $27,500,000.00. It is clear that pages 3 to 16 of the Schedule are to refer to the assets scheduled at page 7 of 16 and pages 12 to 15 to the assets at page 16 of 16.

32. Those pages are followed by a further 36 pages paginated from 6 to 41. The first of those pages is headed :

SECTION 1

MATERIAL LOSS OR DAMAGE

33. Under that heading is the following:

THE INDEMNITY

In the event of any physical loss, destruction or damage (hereinafter in Section 1 referred to as “damaged” having a corresponding meaning) not otherwise excluded happening at the Situation to the Property Insured described in Section 1 the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, indemnify the Insured in accordance with the applicable Basis of Settlement.

34. That page, and the following pages to page 16, set out various particulars of what is covered by the indemnity, the property insured, and the basis of settlement among other things. At page 16, the page is headed:

SECTION 2

BUSINESS INTERRUPTION

That page, and the pages following to page 24, deal with various matters generally related to the basis of settlement in circumstances where the damage from a cause or event results in interruption or interference in the insured’s business.

35. At page 25 and following there is a section headed “EXCLUSIONS TO ALL SECTIONS”. In this section of the policy there are set out two sets of exclusions, “Property exclusions” and “Perils exclusions”. “Property exclusions” detail the property that the policy does not cover (often by reference to its situation rather than property as such). “Perils exclusions” details certain events by reference to their characteristics such as war, radiation from nuclear waste, flood (other than caused by earthquake), incorrect siting of buildings from specified events, theft as specified, spontaneous combustion, fraud, strikes, erosion and the like, kidnapping and bomb threats, hoaxes and extortion. The list that I have given is not entirely comprehensive but indicates the assortment of events covered. There are also a number of events that are listed but which have provisos which provide for the peril, the subject of the exclusion, to not apply if the qualification that is set out in the proviso exists.

36. It is clause 4 of the “Perils exclusions” that is relevant to these proceedings and that provides:

The Insurer(s) shall not be liable under Sections 1 and/or 2 in respect of:

...

4. physical loss, destruction or damage occasioned by or happening through:

(a) moths, termites or other insects, vermin, rust or oxidation, mildew, mould, contamination or pollution, wet or dry rot, corrosion, change of colour, dampness of atmosphere or other variations in temperature, evaporation, disease, inherent vice or latent defect, loss of weight, change in flavour texture or finish, smut or smoke from industrial operations (other than sudden and unforeseen damage resulting therefrom).

(b) wear and tear, fading, scratching or marring, gradual deterioration or developing flaws, normal upkeep or making good.

(c) error or omission in design, plan or specification or failure of design.

(d) normal settling, seepage, shrinkage or expansion in buildings or foundations, walls, pavements, roads and other structural improvements, creeping, heaving and vibration.

(e) faulty materials or faulty workmanship.

Provided that this Exclusion 4(a) to 4(e) shall not apply to subsequent loss, destruction of or damage to the Property Insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion.

Construction of the policy

37. The principles of construction that I should apply were not challenged by the plaintiff. On behalf of the defendant, I was referred to what Gleeson CJ said in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22]:

A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. [Footnotes omitted]

That passage is quoted with approval in the joint judgment in Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 and by the NSW Court of Appeal in Zurich Australian Insurance Limited v Regal Pearl Pty Ltd [2006] NSWCA 328 (27 November 2006) at [41].

38. I also have regard to what Kirby J said in Johnson v American Home Assurance Company [1998] HCA 14; (1998) 192 CLR 266 at [19]:

1. An insurance policy is a species of commercial contract. It must be interpreted so as to give the words used their ordinary meaning. The primary duty of a court is to discern from the language, structure and apparent purpose of the document what it means. Subject to any special statutory rules governing the approach to interpretation and any interpretative rules lawfully contained in the policy itself, a court should give the words used their ordinary operation. But it should be an operation which takes into account the commercial and social purposes of an insurance policy. Wherever possible, an absurd or manifestly unjust result will be avoided upon the hypothesis that such would not have been intended by the parties. Because the primary search is for the ordinary and fair meaning to be attributed to the words used , no court is authorised, under the guise of construction, to make a new contract for the parties which is at odds with the terms of the contract to which they have agreed. In this respect, the primary rule for the construction of insurance contracts is no different from that which governs other written instruments. Maxims and rules of construction, developed by courts as tools to aid in the task of elucidation, are subordinate to the primary duty of construction. This is always to search for meaning of the words used. If, in those words, there is only one meaning, a court may not reject it simply because it regards the result as unfair or otherwise undesirable. [Footnotes omitted]

The construction of the perils exclusion clause

39. The question of the construction of an identical provision to clause 4 of the Perils exclusions clauses in this Policy was considered by the Queensland Court of Appeal in Prime Infrastructure Management Pty Ltd v Vero Insurance Ltd & Ors (Prime Infrastructure) [2005] QCA 369 (30 September 2005). As I understand the defendant’s submissions, the construction that the majority judges in Prime Infrastructure (McMurdo P, with whom Mullins J agreed) placed upon clause 4 is accepted. That makes it unnecessary for me to consider the contrary view expressed in the dissenting judgment of Jerrard JA particularly as the reasoning and conclusion in that judgment would mean that the plaintiff’s claim, in whole, would be excluded. An application for special leave to appeal to the High Court was refused by Gummow and Crennan JJ on the ground that:

There are insufficient prospects of success on an appeal in displacing the construction which the relevant provisions ... were given by the majority in the Court of Appeal of Queensland (see [2006] HCA, Trans 142, 10 March 2006).

40. In Prime Infrastructure, the court was concerned with faulty workmanship by way of a defective weld on a very large machine which lifts coal from stockpiles and which is called a reclaimer. The reclaimer collapsed onto two conveyer belts causing extensive damage.

41. The conclusion favoured by McMurdo P is that (see [27], [28] and [29] :

... the preferable meaning of “peril” in the proviso is to apply its ordinary meaning, that is, an exposure to injury, loss or destruction, risk, jeopardy or danger. That meaning is also consistent with the meaning generally given to the term “peril” in the maritime insurance law cases to which I have referred. In my view, for the proviso to apply, there must be damage occasioned by a peril separate to the peril in perils exclusions cl 4.

... It is useful to now state my view of the effect of the proviso to perils exclusions cl 4 giving its words their ordinary meaning in a commercial contract for insurance purposes. Perils exclusions cl 4 does not apply to damage to the insured property / occasioned by a peril not otherwise excluded in the policy / which is both subsequent damage to the damage excluded in perils exclusions cl 4 / and also damage resulting from an event covered by perils exclusions cl 4. ... It follows that the appellants will succeed in their appeal unless the damage to the insured property was caused by a peril not otherwise excluded under the policy and the damage (which resulted from an event in perils exclusions cl 4) was subsequent damage to the damage excluded in perils exclusions cl 4.

Very little in this proviso is entirely clear but it can also confidently be stated that the words “occasioned by or happening through” should be given a wide meaning to encompass a wide scope of casual relationships ... [Footnotes omitted]

42. As to what was encompassed by the provision referring to “subsequent loss, destruction of or damage” McMurdo P said at [38]:

... In my view, the word “subsequent” in the proviso in this case does not require that the damage be not only later in time but also distinct and separate; “subsequent” has its ordinary meaning, namely, causing or occurring later or after or following in order.

43. Her conclusion in the case before her is set out in [42]:

It follows that the proviso means on the facts here the damage consisting of the rapid ductile (tearing) fracture and collapse of the reclaimer leg, reclaimer and further damage to the conveyor belts is subsequent damage to the insured property occasioned by a peril (the risk that the faulty weld and resulting fatigue fracture could sever the flange and diaphragm and develop into a rapid ductile (tearing) fracture causing collapse of the reclaimer leg, reclaimer and damage to other property in the collapse process); that peril was not otherwise excluded under the policy and the subsequent damage resulted from an event referred to in perils exclusions cl 4 (faulty workmanship to the weld). The proviso excludes the subsequent damage from perils exclusions cl 4 so that the appellants are liable to indemnify the respondent in respect of it.

44. In respect of the application of the proviso to Perils exclusions clause 4, the parties seemed to be at such cross purposes that no-one articulated the peril that was a “not otherwise excluded” peril resulting from the design and construction inadequacies that had been identified.

45. That would not seem to matter as the defendant had accepted that those inadequacies would entitle it to exclude liability to indemnify the defendant in respect of replacement of the roof trusses and adjoining supports, but accepted that the resultant damage to the roof was covered by the proviso to Perils exclusions clause 4 (see Suncorp’s determination set out at [11]).

The issue in this case

46. What the defendant does contend in this case is that the peril, which the defendant accepts is not excluded by the Perils exclusions clause 4, is subject to the limitation of $200,000.00 which applies when the event (or peril) covered by the policy is “accidental damage” as defined in the policy. That is not a matter which was considered by the Queensland Court of Appeal in Prime Infrastructure.

The sub limit on accidental damage

47. In fact, the insurer has paid out up to its limits of liability for the removal of debris and loss of rent occasioned by the collapse of the roof. Both of these aspects of the claim are the subject of the provision in the policy concerning “sub limit(s) of liability”. The only issue in contention in this case is whether the sub limit of liability expressed at page 4 of 16 of the ISR Policy Schedule as $200,000.00 applied to the other damage said to be subsequent and occasioned by a peril not otherwise excluded under the policy.

48. I have earlier set out the reference at page 4 of 16 of the ISR Policy Schedule to “ACCIDENTAL DAMAGE AS DEFINED” with its sub limit to replacement value of $200,000.00 and page 6 of 16 which is prefaced by “Definition”. I was hesitant at first to regard that definition as necessarily applicable to the “Accidental damage” in the sub limit. Looking at the document as a whole, the language used and the objectives sought to be achieved by the document, I am now satisfied that the “Accidental damage as defined”, which limits the insurer’s liability, is that which falls within the “Definition” (the Definition). The Definition is non-exclusive. That is, it says what it does not include. The Macquarie Dictionary gives “accidental” the meaning, “happening by chance or accident, or unexpectedly”. In Australian Casualty Co Ltd v Frederico [1986] HCA 32; (1986) 160 CLR 513 at 527 (Frederico), Wilson, Deane and Dawson JJ remarked:

As a matter of ordinary language in this country, an “accident” (from the Latin accidens) means very much what the etymologist would expect. It is something which happens without intention or design. ... In that context, the ordinary and natural meaning of the word still corresponds with Lord Macnaghten’s definition in Fenton v Thorley & Co Ltd [[1903] AC 443 at 448] which, although propounded in a Workmen’s Compensation Act case, has commonly been accepted as applicable to the use of the word in public liability and other insurance policies: “an unlooked-for mishap or an untoward event which is not expected or designed”: see, to the same effect, Lord Lindley [[1903] AC at 453].

49. Frederico was concerned with “bodily injury caused by accident”. The present case is concerned with something occurring independently. For that reason, Lord Macnaghten’s definition, that is cited with approval, is particularly apt to this case.

50. The events excluded from the Definition are ones that can be described as happening by chance or unexpectedly. They are, of course, what the policy is insuring against and if the damage is caused in such a way, by excluding them from what is defined as accidental damage, no sub limit of liability will apply.

51. If it happens that an event outside of those events set out in the Definition causes damage, then the insurer has limited its liability by excluding those events that the policy is designed to cover. This would appear to be the proper way to view the policy in the commercial circumstances that is sought to be addressed by the document. In other words, the excluded events in the Definition are what the policy is insuring against without a limit on the insurer’s liability for such events. However, damage occasioned by an event not listed but which can ordinarily be described as accidental is made subject to a limit on the insurer’s liability. It follows that such an event could include an event to which the proviso to clause 4 of the Perils exclusions applies if the Definition applies to it.

52. The policy is a “Special risks” policy. It might have been expected that those special risks be listed, albeit with exclusions. The fact is that the policy does not do so. Perhaps that is because it is derived from an all risks policy where the apparently broad coverage is significantly limited by property and perils exclusions. In any event, it is clear from the circumstances that the policy seems to be addressing that the events that are excluded from the Definition are, in effect, the risks that the policy is intended to cover.

53. The plaintiff contended that the concluding words of the definition which exclude from accidental damage “any peril excluded by this policy” would mean that the sub limit would not apply in this case. The submission, as I understand it, is that the proviso to clause 4 of the Perils exclusions removed as an excluded peril, the “faulty workmanship” that is described in clause 4(e). That means that “faulty workmanship”, which was the source of the subsequent damage, is not included in the Definition. However, that analysis ignores the fact that what the plaintiff assigns as the “peril” of faulty workmanship, would not be a “peril excluded by this policy”.

54. What is difficult to understand, and what was not satisfactorily explained to me, is why the Definition excludes from “accidental damage”, “any peril excluded by this policy”. If the peril is excluded, then the policy does not apply to that event and there would appear to be no reason to regard it, in effect, as an event for which the insurer will be liable. The only explanation that I can offer is that the phrase was included to ensure that damage from perils excluded by the policy could not be said to, at least, be accidental damage under the policy.

55. There are a number of events listed in the policy as “Perils exclusions” which have provisos or qualifications attached to them.

56. Perils exclusions clause 1 provides that the insurer shall not be liable for:

1. physical loss, destruction of or damage to the Property Insured

(a) directly or indirectly occasioned by or happening through or connected with war, invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection military or usurped power

(b) resulting from confiscation, nationalisation, requisition or damage to property by or under the order of any Government or Public or Local Authority

Notwithstanding the provisions of Peril Exclusion 1(b) the Insurer(s) shall be liable for the loss, destruction of or damage to, or the cost of removal of, sound property at the Premises for the purpose of preventing or diminishing imminent damage by, or inhibiting the spread of, fire or any other peril insured against under this Policy. [My emphasis]

57. In contrast, Perils exclusions clause 3 provides:

3. physical loss, destruction or damage occasioned by or happening through:-

(a) flood, which shall mean the inundation of normally dry land by water overflowing from the normal confines of any natural watercourse or lake (whether or not altered or modified), reservoir, canal or dam.

(b) water from or action by the sea, tidal wave or high water.

Provided that Perils Exclusions 3(a) and 3(b) shall not apply if loss, destruction or damage is caused by or arises out of an earthquake or seismological disturbance. [My emphasis]

58. Neither of these examples give support to the plaintiff’s submission that the “faulty workmanship” that is an excluded peril remains in place as a peril excluded by the policy as that term is used in the Definition of “accidental damage”.

59. In the case of the qualification to Perils exclusions clause 1, the event could not generally be described as accidental as it is done for a purpose and presumably intentionally. One would not expect that the expression “or a peril excluded by this policy” in the Definition as being necessary to ensure that this event should not be subject to the limitation or accidental damage. It is not an event that can be regarded as occurring without intention or design.

60. In the case of the proviso to Perils exclusions clause 3, it is equally clear that the event would be included in the list of events which are not included in the definition of “accidental damage” that is, it would be the event of “earthquake” listed in the events that are not included under the Definition and, in that case, would not fall within the limitation on accidental damage.

61. If a similar analysis is applied to each of the events described in subparagraphs (a) to (e) to the Perils exclusions clause 4, it can be seen that their capacity to be defined as accidental damage under the policy will depend on the event not falling within the included events in the definition and satisfying the criterion of being otherwise accidental.

62. Generally, the damage occasioned by the events described in clause 4 of the “Perils exclusions” would not in ordinary parlance be described as “accidental damage”. The events are a miscellany of events covering termite and insect damage (paragraph (a), wear, tear and deterioration (b), design errors and failures (c), settling, seepage and vibration (d) and faulty materials and workmanship (e). The description by exception in paragraph (a) of “smut or smoke from industrial operations (other than sudden and unforeseen damage resulting therefrom as smoke)” seems to reinforce the intention that damage from at least that event would not be regarded as accidental damage.

63. What is important, as far as this case is concerned, is that the proviso to clause 4 provides that each of the events listed in paragraphs (a) to (e) does not apply to subsequent damage. It is that subsequent damage which is damage caused by “a peril (not otherwise excluded)” that must be described as otherwise accidental to the events not included in the Definition of “accidental damage” so as to fall within the Definition. In that event, the accidental damage limitation would apply to this event.

64. The insurer’s determination that the damage sustained by what seems generally agreed to be the “faulty workmanship” in clause 4(e), is to the roof trusses and adjoining supports. It is that damage that amounts to a peril that causes the subsequent loss. That peril is one that is not “otherwise excluded” and is not an included event in the Definition of accidental damage. All the subsequent damage to the property caused by this peril may fairly be regarded as “an unlooked-for mishap or an untoward event which is not expected or designed” (see Fenton v Thorley & Co Ltd [1903] AC 443 cited in Frederico supra). That subsequent damage was not an inevitable consequence of the faulty workmanship which caused the damage to the roof trusses and adjoining supports. That being so, it is accidental damage within the Definition and the sub limit of liability applies to it.

65. In my view, it is not appropriate to make the declarations sought by the plaintiff. The application is dismissed with costs.

I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.

Associate:

Date: 13 February 2009

Counsel for the plaintiff: Mr F J Purnell SC

Solicitor for the plaintiff: Ken Cush & Associates

Counsel for the defendant: Mr C S Leahy SC

Solicitor for the defendant: Sparke Helmore

Date of hearing: 22 February 2008

Date of judgment: 13 February 2009