“What the declared values of all property insured are is one thing; what was the property the subject of the indemnity is quite another.”
Those were the words of Allsop CJ of the Federal Court of Australia when the judge ruled in favour of the policyholder in Oceanview Developments Pty Ltd trading as Darwin River Tavern & Darwin River Supermarket v Allianz Australia Insurance Ltd trading as Territory Insurance Office [2020] FCA 852.
The case featured a claim for indemnity for property damage under an industrial special risks (ISR) policy, and revolved around whether “property insured” was limited to property listed in the schedule of declared assets or to property used in or related to the claimant’s business.
Oceanview, which owned land consisting of Lots 2333 and 2334 in Darwin, conducted hotel, supermarket, post office, and service station businesses on the first lot but did not own the nursery business conducted on Lot 2334. A fire in 2018 caused damage to pipes, tanks, drains, cables, switches, sockets, conduits, and other infrastructure for water and power, pots, stands, uprights, and other equipment and property that had been used in the nursery.
“To the extent that there appears to be electrical equipment and cabling in the vicinity of the nursery that assists with the business of the tavern or bottle shop,” noted the judge, “the insurer agrees that damage, to some degree, falls within the indemnity.
“The applicant claims, however, that under the terms of the policy it is entitled to be indemnified for all damaged property owned by it under the wide words of “property insured” under section 1 of the policy, whether or not that property is used in or in connection with any business currently carried on on the land.”
It was decided that the relevant clauses should be construed in the context of the closing (endorsement), the schedule, and the policy provisions otherwise as a whole in identifying the subject of indemnity.
Allsop CJ ruled: “Reading clause 1.2 into clause 1.1 and adjusting the wording and the closing (endorsement) for relevance and brevity, the indemnity under the wording was for damage, not otherwise excluded, happening at Lots 2333 and 2334 (the situation), to (all) real and personal property of every kind and description, except as excluded, belonging to Oceanview, or for which it was responsible or had assumed responsibility to insure.”
Commenting on the ruling’s implications, McCabe Curwood principal Priya Paquet wrote in a piece published by Lexology: “ISR insurers should be aware that courts may take a broad interpretation of ‘property insured’ in that: The significance of the term ‘situation’ for the purposes of the material damage section of a policy is that that is where damage occurs – there does not need to be a relationship or connection between the business and the property insured;
“Unless specified, declared values do not necessarily form part of the policy wording. Therefore, it is important to ensure that you specify the property to be covered; Property insured may not be restricted to property used in or in connection with an insured’s business if the definition extends to all property at the relevant situation listed on the schedule.”
