1 In late 2009 the Golden Downs forest near Nelson was badly
damaged by fire. The forest owner sued the owner of a neighbouring
property (Three Tuis Limited) and a neighbouring occupier (Mr
Garnett), alleging that either Three Tuis or Mr Garnett had spread
ash and embers from Mr Garnett's two tourist cabins without
checking if they were still smouldering.
2 Mr Garnett held an insurance policy with TOWER Insurance
Limited, and applied to join TOWER as a third party to the High
Court proceeding. He argued that, if the fire was his fault, then
he was entitled to cover under his policy. TOWER disagreed, and
applied for summary judgment as a defendant against Mr Garnett.
TOWER argued that the fire arose in connection with Mr
Garnett's two tourist cabins, and was therefore not covered by
the policy because it applied only to 'farming
3 Even on the high summary judgment threshold, TOWER succeeded
in proving that the fire had been caused by Mr Garnett spreading
ash and embers from his two cabins. TOWER then pointed to a number
of features which meant the claim was not covered:
The policy was for business liability.
The policy defined 'business' as the particular type of
'farming operation' being undertaken by Mr Garnett.
Mr Garnett's partner had told TOWER, before a renewal, that
they would seek insurance from an other provider for the two
4 The High Court agreed with TOWER, and said that the claim
failed because it arose from Mr Garnett's tourist business, not
his farming operation. The commercial operation of the tourist
cabins was not covered by the policy.
5 Mr Garnett then tried to rely on Section 11. He said that
Section 11 applied because the policy excluded or limited
TOWER's cover in the relevant circumstances. TOWER argued that
Section 11 did not apply at all, because the relevant policy
limitation (occurrences in connection with farming operations) did
not merely limit existing cover, but was more fundamental because
it defined the risk that TOWER had agreed to cover in the first
6 The High Court again agreed with TOWER, and said that Section
11 could not operate to give Mr Garnett cover for a kind of
liability which TOWER had never agreed to cover to begin with, i.e.
in relation to non-farming operations.
7 This decision follows the approach taken by the High Court in
Hall v FP North1 where the Court decided that the
clause in question defined the scope of cover in the first place
rather than excluding a liability in particular circumstances that
would otherwise have been covered.
8 We now have two recent cases that apply this distinction. Both
Nelson Forests v Three Tuis and Hall v FPNorth are helpful for insurers. The High Court has twice
drawn a clear distinction between policy terms that define the kind
of risk which the insurer agreed to cover, and policy terms that
define circumstances in which an otherwise covered risk is
9 Insurers should however take note that the line between the
two species of clauses can be very fine. Modern policies often have
a wide operative clause followed by exclusions which narrow the
scope of cover. Whether these exclusions define the kind of risk
the insurer agreed to cover in the first place, or define
circumstances in which an otherwise covered risk is excluded, can
be a difficult point. It is reasonably clear that exclusions that
apply temporally (e.g. excluding cover whilst the driver is under
the influence) fall into the latter category.
10 A policy should be both structured and worded to make it as
clear as possible which clauses define the kind of risks to be
covered in the first place, and which are merely define
circumstances in which those covered risks are excluded. A range of
policy drafting techniques can be employed, as headings and labels
may not be sufficient by themselves.
11 Insurers should ensure that their policy wordings maximise
the approach to interpreting Section 11 taken by these two recent
High Court cases.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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