Australia: Broadform liability insurance policies and the efficacy of exclusion clauses: Selected Seeds v QBEMM

Last Updated: 2 October 2009
Article by Robert Samut

One for the home team.

This time last week the Queensland Court of Appeal handed down its decision in Selected Seeds Pty Ltd v QBEMM Pty Ltd & Anor. Barry & Nilsson ran the appeal on behalf of QBE who were successful in having the judgement entered against it set aside. The case ultimately turned on the courts interpretation of an "Efficacy Clause" contained in a QBE broadform liability policy. But really this case was about much more than efficacy clauses and broadform liability policies. It goes to the very heart of policy interpretation and the confidence that insurance companies can place on clearly worded products and their ability to price a risk accordingly. Our case report follows.

Selected Seeds Pty Ltd v QBEMM Pty Ltd & Anor [2009] QCA (22 September 2009)



Selected Seeds Pty Ltd (the insured) carried on business as a grain and seed merchant. It acquired what it thought was Jarra Grass seed from a Northern Territory supplier in late 2002, which in fact was predominantly Summer Grass seed. The difference was significant. Jarra seed was used to grow premium stock feed, while Summer Grass was a much lower quality stock feed. To the naked eye they looked identical.

After the insured acquired the seed the following the chain of supply took place:-

  • Insured sells "Jarra seed" to S&K Gargan [February 2003].
  • S&K Gargan plant the seed, resulting in a crop of grass and seed. S&K Gargan sell the "Jarra seed" to Michael Gargan [July 2003].
  • Michael Gargan undertook a similar process and on sold what he thought was Jarra seed to Landmark Operations Ltd, a farming merchandise supplier [October 2004].
  • Landmark Operations Ltd sold the seed to Mr and Mrs Shrimp [December 2004].

The Shrimps planted the seed expecting Jarra grass to shoot. After ascertaining that they in fact had a paddock full of Summer grass, the Shrimps issued proceedings against Landmark Operations in the Federal Court claiming damages for breach of contract, misleading and deceptive conduct and negligence. Ultimately the insured was joined to the proceedings. The Shrimp's loss was said to be:-

  • The cost of eradicating the Summer Grass from 340 hectares of the property.
  • Loss of use of the land during the eradication program (expected to take two years).
  • Loss of profits that would have been derived from the sale of Jarra Grass and seed.
  • The diminution in the value of their land (which was sold after proceedings were instituted).

The Federal Court proceedings were settled in March 2008. The insured contributed $150,000 to the settlement. It incurred some considerable expense in doing this - $685,806.32 in legal costs and outlays. The insured then sought to recover what it had paid to the Shrimp's plus its defence costs from QBE under the broadform liability policy.


The insuring clause was a typical broadform provision which provided:-

"Liability We will pay
(a) all sums which You become legally liable to pay by way of compensation; and
(b) all costs awarded against You;
in respect of Personal Injury or Property Damage happening during the Period of Insurance and caused by an Occurrence within the Territorial Limits in connection with Your Business."

"Occurrence" was defined in a standard fashion:-

"Occurrence means
An event which results in Personal Injury or Property Damage, neither expected nor intended from Your standpoint. All Personal Injury or Property Damage arising out of continuous or repeated exposure to substantially the same general conditions shall be construed as arising out of one Occurrence."

The policy also contained the following Efficacy Clause which read:-

"The following additional EXCLUSION is added to this Policy:-

This Policy does not cover any liability arising directly or indirectly from or caused by, contributed to, by or arising from:-

1. the failure of any Product to germinate or grow or meet the level of growth or germination warranted or represented by the insured; or

2. the failure of any Product to correctly fulfil its intended use or function and/or meet the level of performance, quality, fitness or durability warranted or represented by the Insured."


His Honour Justice McMurdo said that there were three questions to be answered:-

  1. Were the circumstances within the insuring clause?
  2. If so, was the plaintiff's liability within the efficacy exclusion?
  3. If both points were resolved in favour of the insured, was the insured entitled to all of its Federal Court costs?

It was common ground that the process of eradicating the Summer Grass and the loss of use of the land was "property damage" covered by the policy, and notwithstanding that there were a number of persons in between the insured and the Shrimps. His Honour held that the loss had a sufficient connection with the insured's business. The Occurrence was held to be the planting of the seed by the Shrimps. The claim fell within the insuring clause.

His Honour then considered whether the efficacy clause had been triggered so as to take the claim outside cover. It was agreed that only the second limb was potentially relevant. QBE submitted that the second limb applied because the liability arose from the failure of the seed to correctly fulfil its intended use or function ie. that it should produce Jarra Grass and Jarra Seed. His Honour disagreed and held that the insureds liability to compensate the Shrimps arose not from what the product failed to do (grow Jarra grass and seed) but from what it did (propagate Summer grass). He said:-

. . . to favour the construction argued by the insurers would substantially affect the extent of the cover although it would not clearly deny all benefit from the policy. If the exclusion were to apply whenever the insured's product had some impact upon a person or property which it would not have had if the product had fulfilled its intended use, then the extent of the operation of this exclusion would be far reaching indeed.

In my conclusion, upon the ordinary meaning of the words used, the efficacy exclusion does not operate to exclude the insurer's liability in this case."

His Honour went on to hold that the insured was entitled to payment of the $150,000 plus all reasonable costs and expenses incurred in the Federal Court proceedings.


The judgment of the Appeal Court was delivered by His Honour Mr Justice Fraser, with whom Justices Holmes and White agreed. Justice Fraser agreed that the claim came within the insuring clause. He then moved on to consider the application of the efficacy clause, and said:-

"The efficacy clause should be given its very broad, literal meaning, particularly because it is in the form of a separate endorsement to the printed policy, thus objectively suggesting an intention to adapt the standard terms of the policy. . . . . .

What was done to the land was the planting of seeds which did not function as intended. If the seeds had functioned as intended or fulfilled their intended use then there would have been no damage to the land."

The insured said that the efficacy exclusion ought to do no more than recognise the fact that the products liability policy is not intended to operate as a product guarantee, and should not extend to a case where a customer suffers loss because Jarra seed was contaminated by something else. The insured effectively argued that this was a case of negligence which the policy was intended and designed to cover. The Court disagreed.

Justice Fraser observed that the rules relating to the construction of insurance policies require exclusion clauses to be independently construed. He intimated a temptation to narrow the meaning of the efficacy exclusion so as to give greater coverage to the insured, however observed that he was obliged to give effect to the plain meaning of a term or provision contained in an insurance policy. The efficacy clause was not ambiguous. There was no scope for construing the policy in favour of the insured. The appeal was allowed, the trial judge's orders set aside and costs awarded to QBE.


Courts, when interpreting insurance policies, can tend toward an interpretation which favours coverage for the insured, particularly when the alternative is to remove a large part of the cover otherwise provided by the policy. Courts are particularly vigilant when it comes to interpreting exclusion clauses. The onus is on the insurer to show that the exclusion clause applies, and Courts will demand clear evidence to be provided in support.

The court must however always look to give effect to the written word, and the fact that a particular insured has interpreted a policy in a particular way is irrelevant. If the language used is clear then effect must be given to it, no matter how unreasonable the result may appear to the court or others. A court cannot rewrite a contract where the agreement is clearly expressed, and it is only where a literal construction would lead to a manifest absurdity that a court is able to reject it in favour of a more liberal construction.

In the matter at hand the Court of Appeal acknowledged that the efficacy clause significantly reduced the extent of cover for products liability, but did not totally obliterate it. The policy remained a broadform liability policy. The fact that much of the product cover ordinarily afforded by these types of policies was taken away by the efficacy clause was no basis for disregarding the clear effect of the exclusion clause. Insurers note: plain meaning means plain sailing, hopefully.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions