Turkalert vero insurance ltd v australian prestressing services pty ltd

Nicholas Maiorana & Priya Paquet | August 2013 | Insurance & Financial Services

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Costs of preventing further damage insured or not?

Summary

Background/Facts

The recent NSW Court of Appeal decision of Vero Insurance Ltd v Australian Prestressing Services Pty Ltd emphasises that an insured under a policy for material damage will not necessarily be entitled to indemnity under that policy for any costs incurred in preventing damage to the insured property unless specifically provided for within the policy wording.

In January 2003, the Department of Public Works and Services (DPWS) engaged the first respondent, Australian Prestressing Services (APS), to undertake remediation works in Centennial Parklands in Sydney (Works Contract). The works included reconstruction of the Kensington culvert through which water flowed from the Kensington Pond into the Randwick City Council stormwater system. APS engaged the second respondent, Bedi Enterprises, as a contractor.

The Works Contract required the construction of a cofferdam to hold back the water in the Kensington Pond from the area where the remediation works were to be carried out.

The Court of Appeal also affirmed well-established authority that terms will not be implied into a contract of insurance where the implication of such a term contradicts an express term of the policy.

Vero Insurance Limited (Vero) insured the DWPS under a Contract Works and Public Liability Contracts Commenced Insurance Policy (the Policy). The Policy provided cover in relation to construction works carried out pursuant to contracts awarded by the DPWS between 30 September 2002 and 30 September 2004.

The Policy provided cover for Material Damage (Section 1) and Public Liability (Section 2) limited to a period of 60 days and only up to $500,000.

An endorsement to the Policy contained an exclusion for ‘dewatering’ under Section 1.

The cofferdam was constructed before May 2003.

Between 13 and 17 May 2003 substantial rainfall raised the water level in the ponds, which caused the respondents to take urgent steps to prevent the cofferdam wall from failing. Those steps included diverting water from the Kensington Pond to prevent the wall from being breached, using suction pumps and siphons.

Steps were also taken to shore up the face of the cofferdam.

The respondents made a claim under the Policy to recover an amount in excess of $470,000 incurred in taking the urgent steps to prevent the cofferdam wall from failing. Vero accepted the costs for shoring up the wall but rejected the balance of the claim.

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Appeal by Vero

The trial judge was required to determine whether the respondents were entitled to an indemnity under any provision of the Policy, whether the dewatering exclusion applied, the applicable limits of liability and excesses and the quantum for recovery.

The Court of Appeal considered the application of the general insuring clause and temporary protection extension, the operation of the dewatering exclusion, the existence and application of any implied term in Section 2, the applicable excess and the amount of overhead expenses recoverable.

The respondents were successful in the District Court. Gibson DCJ found in their favour awarding $361,608.75, together with pre-judgment interest of $178,914.60.

The trial judge made these findings: a. The costs and expenses sought to be recovered were incurred in preventing loss or destruction of or damage to ‘Property Insured’ and therefore were within the scope of cover of the insuring clause of Section 1- Material Damage. b. The works were necessary to avoid further loss and indemnity was available under the general insuring clause. c. The dewatering exclusion was held not to apply. Her Honour found the costs incurred to protect the cofferdam by removing or diverting water from Kensington Pond were not costs associated with the operation of any dewatering equipment or costs of dewatering operations. In considering the construction of this exclusion her Honour had regard to the terms of the Works Contract and expert evidence. d. Her Honour rejected the respondents’ claim in respect of implying a term under Section 2 of the Policy. She did so because the costs were within the scope of the insured risk at Section 1 and there was no reason to imply the term to give the contract business efficacy.

The Insuring Clause The general insuring clause at section 1 of the Policy provided:

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Trial Judge

“The insurance by this Policy indemnifies the Insured against Loss, Destruction of or Damage to Property Insured occurring during the Construction Period arising from any cause not hereinafter excluded…”

‘Property Insured’ was defined as including all temporary works and structures while ‘Loss, Destruction of or Damage to Property Insured’ was defined to mean physical loss or, physical destruction of, or physical damage to Property Insured.

The Court of Appeal held that, with the exception of expenses incurred in shoring up the cofferdam wall, none of the costs in issue were incurred in the repair or restoration of insured works or structures. Importantly, the Court held that the general insuring clause did not indemnify the respondents in respect of costs incurred in preventing loss or damage to insured property.

The Court upheld Vero’s appeal in holding that the costs incurred in protecting the cofferdam wall by diverting water from Kensington Pond were not covered under the general insuring clause.

The Temporary Protection Extension However, the Court then considered whether the respondents were entitled to an indemnity under the Temporary Protection extension in respect of those costs. The Temporary Protection extension provided:

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Temporary Protection and/or Government Expenses The insurance automatically extends to cover costs and expenses necessarily and reasonably incurred by or on behalf of the insured for: a. Shoring up, propping, underpinning or other temporary protection of the Property Insured, deemed necessary by the Insured or by a professionally qualified person to avoid further Loss, Destruction or Damage to the Property Insured occurring;

b. consequent upon any Loss, Destruction of or Damage to Property Insured being indemnified under this Policy and subject to limitation shown in the Schedule.”

Vero submitted there was no physical damage to the cofferdam or the cofferdam wall. As such, it was contended that the insured could not have considered the temporary protection works necessary to avoid further loss or damage and the relevant expenses could not answer the description of being consequent upon such loss or damage.

The Court considered expert evidence as to the type of damage and noted there were already signs of seepage from the dam wall. The expert gave evidence that the purpose of diverting water from the Kensington Pond was to prevent further damage to the cofferdam wall. This damage included water overtopping the dam and causing further erosion to the wall.

The Court found there was some damage to the wall and the work carried out to prevent further damage was deemed necessary, with the result that the ensuring costs were consequent upon the existing damage. That damage was held to have endangered the integrity of the cofferdam through the prospect of further damage and the Court found that on that basis the respondents should be indemnified for the costs of diverting the water pursuant to the Temporary Protection extension to Section 1 of the Policy.

The Dewatering Exclusion The dewatering provision of the Policy provided the following: Dewatering The Company will not indemnify the insured against any costs associated with the installation and operation of any dewatering equipment or any other costs of dewatering operations.

Vero submitted that the ordinary meaning of ‘dewatering’ is ‘to remove water’ from one place or thing and that the word should be given this meaning when construing this exclusion. It was also submitted that ’dewatering equipment’ is not concerned with the purpose for which the equipment is being installed or operated and neither was the expression ‘dewatering operations’ concerned with the purpose for which that activity is undertaken. Thus, it was alleged the respondents’ use of siphons and pumps to move water from one place to another triggered an application of this exclusion.

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Vero Insurance Ltd v Australian Prestressing Services Pty Ltd [2013] NSWCA 181 Nicholas Maiorana & Priya Paquet | August 2013

The trial judge had regard to the terms of the Works Contract and expert evidence in ascertaining the meaning of dewatering.

The Court of Appeal found there was no need to do so as it was necessary to have regard to contextual facts known to both parties. This included the negotiations between Vero and APS’s broker.

The Court of Appeal was of the view that the use of the word ‘other’ in the second part of the clause informed the description of the ‘equipment’ in the first part. The Court held that the expression ‘dewatering operations’ carried the same meaning as it carries in a construction contract, which is different from monitoring of water levels and flood control. The Court found that these activities, whilst involving the diversion of water from one place to another, encompassed a broader range of activities than dewatering, given the understanding between the parties. Accordingly, the Court held that the costs and expenses fell outside the dewatering exclusion.

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Vero Insurance Ltd v Australian Prestressing Services Pty Ltd [2013] NSWCA 181 Nicholas Maiorana & Priya Paquet | August 2013

The respondents submitted that a term should be implied under Section 2 of the Policy that would have the effect of providing an indemnity to them for works carried out at their expense to minimise the extent of damage. In accordance with established authority, the Court found that such a term will not be implied to give business efficacy if it contradicts any express term.

The Court held that the implied term contended for was inconsistent with the express term that an insured was to ensure that loss was minimised once a claim was made.

Definition of Storm The Court also considered the applicable limit of liability and excess pursuant to the Policy.

There was an excess of $50,000 in relation to a claim for damage caused by ‘storm, tempest or earthquake’ and $25,000 in respect of all other claims. The Court distinguished a storm event from torrential or heavy rain. It found that the weather conditions resulting in the damage to the cofferdam wall did not meet the description of storm or tempest. An excess of $25,000 was therefore held to apply.

Decision of the Court Appeal The Court of Appeal ordered that the judgment in favour of the respondents be set aside and that judgment be entered for $250,000 plus pre-judgment interest up to 27 April 2012.

As the respondents remained successful in their claim, Vero was ordered to pay the respondents’ costs of the trial. However, the parties were ordered to lodge written submissions in relation to the costs of the appeal.

Implications 1. An insured will not be entitled to indemnity under a Policy for material damage in respect of costs or expenses incurred in preventing damage to insured property unless the wording includes specific provision for such cover.

2. When considering Policy wording, whether it is an insuring clause or an exclusion or condition, the court will construe the wording to give the Policy business efficacy and will consider the intention of the parties at the time of entering into the contract of insurance.

3. Terms will not be implied into a contract of insurance where the implication of such a term contradicts an express term of the Policy.

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Existence of an Implied Term

4. The definition of ‘storm’ has been distinguished from heavy or torrential rain and is a matter that should be considered when dealing with indemnity issues in claims involving heavy rainfall or storms.

For more information, please contact: Priya Paquet Senior Associate T: 02 8257 5729 M: 0434 115 260 priya.paquet@turkslegal.com.au

Nicholas Maiorana Lawyer T: 02 8257 5774 M: 0415 992 907 nicholas.maiorana@turkslegal.com.au

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