Australia: Joint Venture Operators Of A Mine Denied Indemnity For Consequential Loss Under Industrial Special Risks Insurance Policy In The Absence Of Physical Damage To Property

Last Updated: 1 September 2008

A recent decision of the Victoria Court of Appeal underscores the importance of seeking appropriate legal advice when inserting additional clauses into policies of insurance.1 When inserting additional clauses, it is important to ensure that account is taken of the structure of the policy to avoid ambiguities and to ensure the clause achieves the purpose intended by the parties.

Physical connection an essential ingredient

The dramatic events giving rise to the decision are well known. The matter concerned the events of Anzac Day 2006, when a seismic disturbance caused a rock fall at the Beaconsfield Mine in Tasmania.

Beaconsfield Mine was owned by a number of companies operating as a joint venture (the joint venture), which was insured by QBE Insurance Australia Ltd (QBE). On Anzac Day 2006, an inspector exercising authority under the Workplace Health and Safety Act 1995 (Tas) ordered, pursuant to s38 of that Act, the cessation of all mining activities until further notice. The joint venture alleged that the cessation order was made because of the rock fall, however QBE denied this.

The joint venture sought indemnity under its Industrial Special Risks Insurance Policy (the Policy) for the losses suffered due to the interruption to their business during the mine closure, claiming the circumstances of the closure were an 'insured peril'. The joint venture relied on clause 23 in the Policy, which provided as follows.

23. Civil Authority

Notwithstanding anything contained herein to the contrary, the Property Insured under this Policy is also covered against the risk of loss, destruction or damages arising from the actions of any civil authority during a conflagration or other catastrophe and for the purposes of preventing, minimising or retarding same and shall also include the closure of any Premises/operations by any civil authority due to the operation of a peril insured against.

Clause 23 was inserted at the request of the insurance broker acting in the interests of the joint venture.

QBE denied indemnity. The joint venture brought a proceeding against QBE, seeking to enforce the policy. QBE pleaded its defence on two principal grounds (in addition to a number of other grounds). The first reason they denied indemnity was because the order given to cease all mining activity was not a consequence of: ... any loss, destruction of or damage to 'Property Insured' within the meaning of the policy2 . The second reason was because the actions taken by the inspector resulting in the mine closure: ... were not for the purpose of preventing, minimising or retarding any conflagration or other catastrophe.3

At trial, the Court considered the question of the proper construction of clause 23 of the Policy as a preliminary question. The Court construed the clause in accordance with the general principles of contractual interpretation and ultimately favoured the construction urged by QBE. The outcome was, however, by no means straightforward because the wording of the clause was uncertain and ambiguous. Ultimately, the trial judge concluded that clause 23 was not engaged because there was no: ... physical loss, destruction or damage to 'Property Insured'. This finding was made having regard to the structure of the Policy. The Court found, in effect, that physical damage was a condition precedent to Indemnity for the consequential loss, i.e. an essential ingredient was physical loss, destruction or damage to Property Insured (as defined in the policy).

The Court, having found that clause 23 was not engaged, found in favour of QBE. The joint venture appealed the decision.

On appeal structure of policy determinative

The parties did not dispute the factual background or that the policy should be interpreted by applying general principles of contractual interpretation. The issue in dispute on appeal was how the general principles of contractual interpretation were applied by the trial judge to interpret clause 23.

The Court of Appeal acknowledged that the interpretation of clause 23 was not clear cut. Pagone AJA said: ... Neither of the two competing constructions of clause 23 is, as the trial judge showed, either free from difficulty or manifestly correct. The Court of Appeal noted that the construction advocated by the Joint Venture found support in a literal interpretation, but gave rise to other anomalies, while the construction advocated by QBE found support in the structure of the policy, but not the literal interpretation.

The joint venture raised numerous arguments, including the absence of the word "physical" before the words "loss, destruction or damages" and the inclusion of the words "also covered against" to persuade the Court that the clause had been engaged. While the Court acknowledged that each of the arguments had force, it found none to be determinative. The Court found that these arguments minimised the significance of the structure of the policy, which ultimately it found to be determinative.

The Court of Appeal found clause 23 extended the cover provided by the Policy. In this regard, the Court said: ... There seems little doubt that the words 'arising from' identify the causal connection between the risk identified and both 'the actions' and 'the closure' referred to in the clause. The Court said the critical question for determination on appeal was: ... whether the clause also intended to enlarge the risk insured against as well as to identify the additional events which might give rise to loss destruction or damage[s] [sic].

Ultimately, the Court of Appeal found clause 23 extended the coverage, but it found that it did so within the context of the structure of the Policy. The Court was not prepared to accept that clause 23 covered the risk for all such "loss, destruction or damages" because to do so would have significantly departed from the structure of the policy. The structure of the policy was informed by sections of the policy containing the policy cover, in particular sections 1 and 2. Section 1 provided cover for "physical loss, destruction or damage" while section 2 extended cover to include the Property Insured being "physically lost, destroyed or damaged".

The Court of Appeal found, of the competing interpretations, the interpretation adopted by the trial judge was correct. The appeal was dismissed with costs.

This decision confirms that, consistent with the general principles of contractual interpretation, an insurance policy will be construed in the context of the policy as a whole, having regard to the structure of the policy.

A lesson for the insured

The clear lesson from this decision was put as a note of caution by Pagone AJA in his judgment:

The only evidence of surrounding circumstances concerning the drafting of the policy was that clause 23 was inserted at the request of an insurance broker acting as agent of the joint venturers at the material time. ... Nothing turns upon this fact although it may explain why the language of clause 23 might not sit comfortably with the rest of the policy. The circumstance that clause 23 may have been written by a person different from the author of the rest of the document, ... does, however, provide an occasion to sound a caution to those adding clauses to pre-existing documents to ensure that their intentions take account of the structure into which additions are made to ensure, as much as possible, that ambiguities and uncertainties are avoided.4

As part of a risk management program, it is important that organisations review their policies from time to time to ensure that the cover provided is consistent with the intended purpose. This case demonstrates the particular importance of undertaking a review where isolated changes to policies have been made without having regard to the policy as a whole.


1 Allstate Exploration NL v QBE Insurance (Australia) Ltd [2008] VSCA 148 (21 August 2008)

2 Allstate Explorations NL & Ors v QBE Insurance (Australia Ltd [2007] VSC 380 10 October 2007 at p3

3 Ibid

4 Allstate Exploration NL v QBE Insurance (Australia) Ltd [2008] VSCA 148 (21 August 2008)


Wendy Blacker

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Ray Giblett

t (02) 9931 4833



David Slatyer

t (07) 3231 1532


Jim Demack

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