The Victorian Supreme Court case of Orica Australia Pty Ltd v Limit (No 2) Ltd  VSC 65 provides guidance on the obligation of an insured to mitigate their loss and the extent to which an insured can act in its own commercial interests. The case also aids in clarifying the meaning of “include” in insurance policies. The case affirms that an insured can have regard to its own interests and must take reasonable steps to mitigate its loss. The construction of “include” was taken to be its ordinary, business-like meaning and not so as to identify exhaustively the coverage of the policy.
Orica Australia Pty Ltd chartered a vessel (MV Poolgracht) for the transportation of bagged ammonium nitrate from Canada to Australia. The cargo shifted during the voyage causing the vessel to list which required the vessel to deviate from its planned course in order to re-stow the cargo. The owner of the vessel claimed compensation from Orica to the order of $2.4 million and Orica in turn claimed upon its insurance indemnity under the contract of insurance in respect of the compensation it paid to the owners. The underwriters, Limit (No 2) Limited, paid only a portion of this amount claiming that a substantial part of the loss was not covered by the policy. The underwriters took this position asserting that Orica failed to mitigate its loss or failed to establish that the disputed amounts claimed were causally related to the incident.
Entitlement to indemnity - the meaning of “include”
The source of entitlement by Orica for indemnity from the underwriter arose from an insurance policy for charterer’s liability. This policy stated that payment of “compensation to third parties following an accident or occurrence involving a vessel… shall include” and then went on to enumerate circumstances in which compensation may be claimed. The Court was required to determine the effect of the word “include” and thus clarify the breadth of the policy. The Court could see no reason to construe the word “include” as being used in the sense of “mean and include” so as to identify exhaustively the ambit of coverage provided by the policy. It was held that “the words used in the policy are to be given their ordinary meaning unless there is reason to do otherwise, and given a business like interpretation.”
Mitigating loss - the obligation of the insured
The Court considered the issue of Orica’s impugned failure to mitigate loss or failure to establish that the loss was caused by the insurable event. The vessel listed in US territory where it was required to anchor and berth. It was a requirement of the US Coast Guard that the cargo either be discharged or re-stowed before it was allowed to set sail. The owner of the vessel required Orica to find a fast solution and proposed complete discharge of the cargo at the port. For the owner this was more financially feasible but this had substantial financial and business losses for Orica who required the cargo immediately in Australia. The matter in dispute was whether Orica was required to accept the owner’s proposal and effectively subordinate its own commercial interests to that of the insurer and, as a corollary to this, whether if it failed to accept the proposal it was no longer insured as the costs were brought about by a commercial decision instead. The Court held three main propositions:
- that in dealing with insured loss, the insured is entitled to have regard to its own interests;
- the insurer was required to show that the cause of the loss was “not the peril insured against, but the failure of the insured to take reasonable steps to protect it”; and
- the insurer is required to “make an affirmative case that causally links what is sought against the insurer with something beyond the insured event, sufficient to break the link between loss and insured event.”
It was held that Orica had legitimate regard to its own interests in order to come to the most financially effective solution for the company. The Court held that all “costs incurred were causally occasioned by the incident. The incident was caused by the defective stowage.” As such, judgment was in favour of Orica and the orders sought were awarded.
This case reaffirms that the obligation to mitigate a loss extends only to what is reasonable in the circumstances. In considering what is reasonable, regard may be had to the commercial interests of the insured. Furthermore, “include” in insurance policies is taken to have its ordinary meaning and is not employed to add to or exhaust the circumstances covered by such policies.