On 25 December 2011, a storm resulted in an inundation of hail and rain which led to pooling under the concrete slab of Ms Guastalegname’s home. As a result of the pooling, there was a heave of the clay soil causing it to expand and raise the concrete slab, subsequently lifting the walls and roof frame of the building, leading to cracking and other damage to the home.
Ms Guastalegname claimed indemnity under her ‘Home Building Insurance’ policy with AAMI for the cost of repairing the damage to her home. AAMI admitted that the storm was an insured event and had caused the inundation which resulted in the heave and the damage of the home. However, indemnity was denied on the grounds that a general exclusion clause in respect of loss or damage “arising from or involving soil movement or settlement” applied. Therefore, the sole issue for the Court to determine was whether the term ‘heave’ fell within the ordinary meaning of ‘soil movement’, and thus, whether the general exclusion clause had application.
Expert evidence was provided to determine the technical definition of the term ‘heave’, being the upward movement of the earth supporting a building because of the expansion of clay soil. It was determined that the technical definition of ‘heave’ would fall within the literal meaning of ‘soil movement’.
The Court acknowledged that the correct way to interpret an exclusion clause was to construe it by reference to its natural and ordinary meaning, affirming the approach taken in Darlington Futures Ltd v Delco Australia Pty. Justice Hargrave stated that consideration must be given to the context and purpose of the policy and the parties’ knowledge of surrounding circumstances.
Ms Guastalegname contended that ‘heave’ would not fall within the natural and ordinary meaning of ‘soil movement’ as the succeeding words in the exclusion clause – ‘or settlement’ – act to limit the exclusion to physical movement of a mass of soil to a different location, or alternatively, settlement of soil.
Justice Hargrave relied upon numerous principles of contractual interpretation when looking at the context of the policy and general exclusion clause to confer the natural and ordinary meaning of the soil movement clause. In reading the policy as a whole, Justice Hargrave determined that AAMI’s intention to exclude indemnity for damage caused by any kind of soil movement was clear.
Justice Hargrave confirmed that the technical definition of ‘heave’ falls within the natural and ordinary meaning of ‘soil movement’, therefore concluding that the damage caused to the building as a result of the storm and subsequent heave is excluded.
Nunzia Guastalegname v Australian Associated Motor Insurers Ptd (trading as AAMI)
|This decision highlights that when considering exclusion clauses in a contract of insurance, the natural and ordinary meaning of the words and their context are the prime considerations.|