In the December 2007 edition of Insurance Focus, we looked at the case of Allstate Exploration NL v QBE Insurance (Australia) Ltd  VSC 380 which considered the interpretation of an industrial special risks policy arising from the collapse at the Beaconsfield Gold Mine in Tasmania. The case was recently heard on appeal (Allstate Exploration NL v QBE Insurance (Australia) Ltd  VSCA 148) where the insurer's denial of indemnity was upheld.
Following the much publicised collapse at the Beaconsfield Gold Mine in Tasmania on 25 April 2006, Allstate Exploration NL (Allstate) (joint venturers of the mining operations) sought indemnity under an industrial special risks (ISR) policy issued by QBE Insurance (Australia) Ltd (QBE) for business interruption losses resulting from the mine closure after the collapse. The mine closure was the result of miners being trapped and the ensuing rescue operation, as opposed to any physical damage to the mine. QBE denied indemnity under the policy.
At first instance the trial judge, taking into account the structure of the industrial special risks policy, concluded that the clause under which Allstate sought indemnity was not triggered unless it was demonstrated that there were circumstances of physical loss, destruction of or damage to insured property and, on the basis that Allstate had not demonstrated such circumstances, ultimately found in favour of QBE.
Allstate appealed the trial judge's decision and the resulting litigation culminated in a determination by Justice Pagone on appeal (with whom Justices Buchanan and Dodds- Streeton agreed) as to the proper interpretation of the policy. The Court agreed with the trial judge and upheld QBE's denial of indemnity.
The interpretation of clause 23, headed 'Civil Authority', was central to the appeal:
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.
As with most ISR policies, a significant feature of the policy was its division into two sections. Section 1 provided cover for property damage. Section 2 provided consequential loss type cover, for loss and damage arising from the interruption or interference with Allstate's business, as a result of property damage.
Allstate argued that the mine closure following the collapse was 'due to the operation of a peril insured against' and that accordingly it was entitled to indemnity.
QBE argued that the closure of the mine was not due to any physical loss, destruction of or damage to 'property insured' and that such circumstances were required if Allstate was to be covered by the policy.
The interpretation of the policy urged by Allstate was supported by a literal reading of clause 23 but gave rise to difficulties in the context of the policy as a whole. Conversely, the interpretation of clause 23 which QBE argued should apply was consistent with the structure of the policy as a whole, but required that the clause not be read literally.
The Court considered the meaning of the policy:
- Giving it a business-like interpretation.
- From the perspective of people in the position of the parties by reference to the text, the surrounding circumstances and the purpose of the transaction.
- With the interpretation of the words and the resolution of ambiguity to be in a common sense and non-technical way, giving the agreement a commercially sensible construction and having regard to the words used in the agreement as a whole.
Allstate argued that, by virtue of the words 'arising from', clause 23 gave rise to a free-standing component of cover, independent of the cover under sections 1 and 2.
QBE argued that clause 23 only identified additional causes which could give rise to loss of the type covered under sections 1 and 2 and did not enlarge the scope of the indemnity under the policy.
The Court agreed with QBE's interpretation, holding that the clause did not enlarge the risk insured against with regard to consequential loss, in the absence of property damage. The Court considered the structure of the policy and the fact that it provided for two classes of coverage, being property damage and consequential loss arising from property damage.
The Court also considered the competing interpretations in the context of two exclusions in the policy.
The first exclusion clause excluded liability for physical loss, destruction of or damage to the Property Insured resulting from certain action 'by or under the order of any Government or Public or Local Authority' unless it is the result of actions taken by or under Government order for the purpose of 'preventing or diminishing imminent damage by, or inhibiting the spread of, fire or any other peril insured against' under the policy.
The second exclusion clause excluded liability for physical loss, destruction or damage to the Property Insured resulting from the cessation of mining operations caused by strikes and other labour disturbances.
The Court found the interpretation urged by QBE was consistent and harmonious with the exclusions.
Allstate also argued that clause 23 should be read in two distinct parts providing cover for two different actions by a civil authority, as follows:
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
- [the cover] shall also include the closure of any Premises/operations by any civil authority due to the operation of a peril insured against.
The Court held that the language of the clause was not capable of withstanding such an interpretation and that the interpretation's artificiality was demonstrated by the need to insert the words 'the cover', at the start of the second paragraph.
The Court took the view that the more natural interpretation of the clause was as follows:
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.
Allstate also argued that the use of the plural 'damages' in clause 23 demonstrated an intention by the parties to distinguish the cover in clause 23 from that in sections 1 and 2 (which used the words 'damage' and 'damaged' respectively) and as such supported Allstate's interpretation that clause 23 provided free-standing cover. In declining to interpret the clause in this way, the Court determined that the use of 'damages' was merely a typographical error.
The case illustrates the importance which a Court places on the structure of a policy of insurance, where the policy wording exhibits ambiguities and competing interpretations. It should be noted that the clause in question was one which extended, as opposed to circumscribed or excluded, cover. Had the clause in question been an exclusion clause, it may have been interpreted contra proferentum, against the interests of QBE as the author of the policy.
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