Contractual interpretation – insurance contracts
– defined terms – bolded terms defined to have special
meaning – where term appears unbolded, it is to be
interpreted in accordance with natural and ordinary meaning In the
recent decision of Cruise Oz Pty Ltd v AAI Ltd,1Justice Carmody of
the Supreme Court of Queensland considered whether an insurance
agreement covered flood damage sustained at a trade show. In
resolving this dispute, His Honour considered:
whether showgrounds constitute "your premises" for
the purposes of the exclusion clause under section 3 of the
the process for determining the "most favourable
clause" where a "Two Section Exclusion Clause" in
the agreement prescribed that, where two or more insuring clauses
might respond to the relevant claim, the most favourable clause
This decision provides a cautionary illustration that, where an
insurance agreement defines bold terms to have a specific or
technical meaning, it will be difficult to establish that unbolded
terms should not be interpreted in accordance with their natural
and ordinary meaning.
Cruise Oz Pty Ltd (the applicant) and Vero
Insurance (the respondent), entered into an
insurance agreement on 12 June 2013. On 26 and 27 March 2014 the
applicant exhibited 15 caravans at the Mudgeeraba Showgrounds for a
trade show. On 27 March, part of the showgrounds were submerged
during significant rain causing substantial damage to 3 vehicles,
and causing the other 12 to be written off. The respondent in large
part, declined the claims under both s 1(A) and s 3 of the
agreement. The responded submitted that the claim under s 3 should
be rejected on the basis of the definition of "your
premises," and because s 1(A) was the more favourable claim
under the Two Section Exclusion Clause, s 3 could not apply.
The decision on appeal
The correct meaning of "your
The term "your premises" was defined in the
definitional schedule to the policy in broad terms that would
extend the exclusion of cover to the vehicles while situated at the
showgrounds. However, the interpretative clause of the policy
prescribed that all words in bold had the definition prescribed in
the definitional schedule. "Your premises" was not bolded
in the relevant paragraph of the policy and in the absence of that,
Carmody J "inferred that any words which are not in bold do
not possess a special defined meaning". He concluded that
"your premises" ought be afforded its natural and
ordinary meaning which would not extend to the showgrounds:
The respondent argued that the failure to bold "your
premises" was a mistake. This argument was rejected by the
Court on the basis that there was insufficient evidence there was
no unconscionable conduct by the applicant which would justify
fundamentally modifying the agreement for a unilateral mistake, and
using the natural meaning did not make the agreement uncommercial
or inequitable: -.
The Court held that the natural and ordinary meaning of
"your premises" includes at least a stable, durable and
continuous occupation of a building or part of a building that
houses a business. Therefore the trade show was not within the
natural and ordinary meaning of "your premises." The
respondent was unsuccessful in arguing that such an interpretation
was uncommercial, or that "your premises" should be
interpreted in the same way in both s 1(A) and s 3, or that
premises could be construed to include a trade show: -.
The "Two Section Exclusion Clause"
The most favourable clause for an insurance claim should be
determined with reference to the nature and circumstances of the
claim: -47]. A clause that allows some recovery is much more
favourable than a clause that permits a large recovery but is
excluded in the circumstances by an exclusion clause: . Section
1(A) could not be considered the more favourable clause as the
flood damage exclusion clause made it unlikely to succeed.
Moreover, the two section exclusion clause is only relevant where
two sections apply, and in this circumstance only s 3 applies:
The Court also held that the part payments made under s 1(A) do
not preclude the applicant from claiming under the more favourable
clause of s 3: .
Implications for the interpretation of insurance contracts
In an insurance document where only bolded terms are defined to
have a specific or technical meaning, it will be difficult to
establish that unbolded terms should not be given their natural and
ordinary meaning. Evidence of the insurer's subjective
intention to the contrary may not be sufficient to show a common
intention of the parties.
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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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