An insured operated a BP service station (why do we still call self-serve petrol outlets ‘service’ stations?) in Sydney. Petrol leaked from the site into a nearby sewer, and eventually, there was an explosion of petrol vapour.

The insured arranged and paid for works to both rectify the sewer and to prevent further petrol leakage. It then went to its public liability insurer for reimbursement of the $1.2 million which it had spent, but indemnity was refused and litigation ensued.

A NSW Supreme Court judge decided that although the insured had spent the money before it had received a third party demand, its liability for damages had crystallised when the damage occurred.

Further, it made no difference that some leaking had occurred before the insurer came on risk because the relevant damage was caused by the explosion rather than by the leaking itself.

Although the insured had a statutory obligation to repair the sewer damage, it also had a liability for damage caused by its negligence or nuisance. The insured had discharged such liability by rectifying the damage. So the damage fell within the operative clause of the policy and the insured was entitled to indemnity in respect of the amount which it had spent on rectifying the damage.

However, the judge declined to allow the majority of the claim, which was for the cost of preventing further leakage because that was not part of the cost of rectifying the explosion damage.

Finally, the insurer attempted to rely on a policy limitation of ‘pollution liability’, which limited cover to pollution as the direct result of a sudden, specific and identifiable event. The judge found that the petrol leakage was the result of such an event because the major leakage occurred during a couple of months following the failure of a valve.

Amashaw Pty Ltd v Marketform Managing Agency

Pollution liability claims can be problematic because the contamination often occurs over a prolonged period of undetermined duration. In this case, the task for the judge was made easier by the fact that the claim revolved around damage caused by an explosion of accumulated petrol vapours.