An insurance contract indemnifies an insured against claims “made against” them in relation to property damage. A government agency obtains an order requiring the insured to remediate contamination on their own land and land owned by others. Are the remediation costs covered by the contract? This issue was considered in Hamcor Pty Ltd v Queensland  QSC 9, in circumstances where land owners claimed that brokers had negligently failed to provide them with appropriate insurance cover.
The litigation had its origins in a fire at a chemical plant located on land owned by Hamcor Pty Ltd and an associated entity (collectively, Hamcor). Queensland Fire and Rescue Services brought the fire under control, but actions taken while fighting the fire contaminated water sources on Hamcor’s land. This water escaped to, and contaminated, neighbouring land owned by the Queensland Government. Queensland’s Environmental Protection Agency issued a statutory notice and obtained court orders requiring Hamcor to remediate the contamination.
Hamcor commenced proceedings against the state of Queensland, claiming that the contamination had been caused by the negligence of Queensland Fire and Rescue Services. Hamcor also claimed against two insurance brokers, alleging that their negligence had resulted in Hamcor not securing insurance that would have covered the remediation costs. As part of its claim against the brokers, Hamcor argued that the remediation costs would have fallen within the insuring clauses of three identified policies of insurance that would have been available to it. Two of those policies were “claims made” policies that had previously been obtained by the brokers on behalf of the plant’s operator, but had not been renewed and so did not cover the loss.
Question to be determined
The brokers argued that, even if the identified policies had been in place, the remediation costs would not have fallen within the scope of the policies. The brokers asked the Court to decide this as a separate question, before the hearing of the negligence claims.
The Court found in favour of the brokers. It concluded that, even if the identified policies had been in place, Hamcor would not have been entitled to be indemnified for their remediation costs. The only policy that could possibly have applied would have indemnified Hamcor “against their liability to pay compensation” in respect of damage to property, but was limited to “claims . . . made against the insured” during the period of insurance. Hamcor’s costs in complying with a remediation order made pursuant to a statutory notice was not a liability to pay compensation in respect of a claim “made against the insured”. This interpretation was consistent with the express exclusion, elsewhere in the policy, of claims arising out of damage to the insured’s own property.
In reaching its conclusion, the Court briefly considered the meaning of “compensation” and “damages”. The parties had competing views on the construction of these terms, with Hamcor submitting that “compensation” (the term used in the relevant policy), was a broader concept than “damages”. The Court agreed that “compensation” and “damages” were, in the circumstances, conceptually distinct, and that a liability to pay “compensation” was broader than a legal liability to pay “damages”. Ultimately, however, this did not assist Hamcor; the words “made against the insured” meant that Hamcor would only have been indemnified if it had been liable to meet a claim made against it by a third party.
As the Court observed, the words used in an insurance contract must be construed having regard to the structure and language of the contract as a whole, including both operative and exclusion clauses. This means that few disputes over contract construction turn on the meaning given to a single word or phrase. In this case, it was accepted that “compensation” was “conceptually distinct” from (and broader in scope than) “damages”, a finding which favoured Hamcor. However, the reference to claims “made against” the insured meant that the policy, read as a whole, would respond only where a third party had made a claim against Hamcor.