What's the Situation? The Property is Insured!

Authors: Priya Paquet, Nina Abangan
Judgment date: 19 June 2020
Citation: 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
Jurisdiction: Federal Court of Australia

Background

This case concerned a claim for indemnity for property damage under an Industrial Special Risks Policy (ISR Policy) issued by Allianz Australia Insurance Ltd (Allianz) to Oceanview Developments Pty Ltd (Oceanview).

Oceanview owned a property in Darwin which consisted of Lots 2333 and 2334. Oceanview conducted various businesses including a hotel, supermarket, post office and service station on Lot 2333. A nursery business was conducted on Lot 2334, but Oceanview did not own that business.

On 29 September 2018, a fire caused damage to infrastructure at Lots 2333 and 2334, including damage to property that had been used in the nursery.

Some property that was damaged was used in or in connection with Oceanview's business while it was contended by Allianz that the property used in the conduct of the nursery business was not connected to Oceanview's business and therefore no cover was available for that damage.

The relevant terms

The ISR Policy contained two sections: material loss or damage; and, consequential loss.

Clause 1.1 of the Policy contained the indemnity clause for material loss and damage as follows:

In the event of any physical loss, destruction or damage … not otherwise excluded happening during the Period of Insurance 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".(emphasis added)

Clause 1.2 of the Policy set out the definition of "Property Insured" as follows:

All real and personal property of every kind and description (except as hereinafter excluded) belonging to the Insured or for which the Insured is responsible, or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which the Insured may acquire an insurable interest, or for damage to which the Insured becomes responsible or assumes responsibility to insure, after commencement of the Period of Insurance."
The Schedule described the 'Property Insured' as per the asset schedule and included Lots 2333 and 2334 while the Closing Endorsements described:

• The Business as "principally General Store consisting of Post Office and Fuel Stop, Tavern, Drive thru bottle shop and all other activities incidental thereto"
  
  
• The Situation as "principally Lots 2333 & 2334, 195 Darwin River Road, Darwin River and any other situation in Australia owned or occupied by the Insured for the purposes of the Business or elsewhere in Australia where used by the Insured or where the Insured is undertaking work or has goods or property".

Issues in dispute

Oceanview sought a declaration that the term "Property Insured" is not confined nor limited to the property described in the Schedule of Declared Assets or the property which is used in relation to Oceanview's business.

Allianz contended that the '"Property Insured" was limited to that which was described in the Schedule of Declared Assets which was provided to underwriters at the time of renewal. Allianz contended that it was clear the Policy was intended to cover property related to the Business identified in the Schedule: being the "General Store consisting of Post Office and Fuel Stop, Tavern, Drive thru bottle shop and all other activities incidental thereto".

Decision

Allsop CJ held that the proper construction of the Policy is that the material damage indemnity is not limited only to property relating to the businesses conducted by Oceanview.

The question of what falls under "Property Insured", that is the subject of indemnity, should be answered by construing clauses 1.1 and 1.2 in the context of the Closing Endorsement, the Schedule and the Policy provisions as a whole.

His Honour formed the view that the Schedule of Declared Values did not form part of the contractual documents to identify what is the Property Insured. Rather, it deals with the declared values.

Given the definition of The Situation extended to "any other situation in Australia owned or occupied [by Oceanview] for the purposes of the Business" and, further, "elsewhere in Australia where used by [Oceanview] or where [it] is undertaking work…", His Honour held that for the purposes of the indemnity clause, the significance of the term "Situation" is that that is where the damage occurred.

He was of the view that the indemnity clause does not require a relationship or defined connection between the Business and the Property Insured.

His Honour did note that there may be some issues with respect to a failure to disclose the nursery business that Allianz may need to consider but given the discreet point he was asked to rule on, His Honour made no findings in this regard.

Why this case is important

The practical implications of this decision is that 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.