In April 2012, the respondents successfully recovered $361,608.75 from the appellant for costs incurred in preventing a cofferdam wall from collapsing at a construction site due to heavy rainfall. The respondents had been contracted by the Department of Public Works and Services to undertake construction works at Centennial Parklands under insurance provided by the appellant. After heavy rainfall in 2003, the respondents were forced to pump and divert water from the site to prevent the cofferdam wall from collapsing and flooding adjoining areas. The respondents made a claim under their insurance policy to recover the costs incurred in taking these steps but the appellants argued that the costs fell under an exclusion clause for “dewatering” operations. The primary judge held that the exclusion clause did not apply and that the respondents were entitled to an indemnity under the policy. The appellant appealed this judgment in Vero Insurance Ltd v Australian Prestressing Services Pty Ltd [2013] NSWCA 181 but only secured a reduction in the liability payable.

Judgment at first instance

The primary judge held that the respondents were entitled to an indemnity under the general insuring clause in s 1 of the policy which indemnified the respondents against “Loss, Destruction of or Damage to Property Insured occurring during the Construction Period arising from any cause not hereinafter excluded”. The primary judge held that as the costs sought to be recovered were incurred in preventing loss or damage to the insured property, they fell within the scope of the insured risk. Her Honour relied on the decision of McPherson JA in Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60 as authority for the proposition that costs incurred by an insured in avoiding insured loss or liability were recoverable under an insurance policy. On appeal, Meagher JA criticised the primary judge’s reliance on this decision, stating that the outcome of Re Mining Technologies reflected nothing more than the “orthodox process of construction and application of the language” of the particular policy1. His Honour argued that in the circumstances of the present case, the construction and application of the policy’s terms provided no basis for concluding that the respondents were entitled to recover the costs and expenses incurred in pumping water out of the site. The policy only indemnified against the loss or destruction of, or physical damage to, the site’s structure, and the respondents had not incurred costs repairing or restoring any of those structures. Accordingly, the appellant successfully appealed the primary judge’s finding that the respondents were entitled to an indemnity.

Meagher JA did find, however, that the costs and expenses in issue fell under the temporary protection extension in s 1 which covered all costs and expenses “necessarily and reasonably incurred by or on behalf of the Insured for shoring up, propping up, underpinning or other temporary protection of the Property Insured, deemed necessary by the Insured or by a professionally qualified person or entity representing the Insured, to avoid further Loss, Destruction of or Damage to Property Insured occurring … consequent upon any Loss, Destruction of or Damage to Property Insured being indemnified under this Policy and subject to limitation shown in the Schedule”. Meagher JA held that the evidence showed that by the time the respondents had incurred expense in removing the water, there was physical damage to the cofferdam wall and the expenses were “deemed necessary” to prevent further damage to the wall. Accordingly, the respondents were entitled to an indemnity under the temporary protection extension in the policy.

Application of exclusion clause

The primary judge had also held that the dewatering exclusion clause did not apply as the expenses incurred to protect the cofferdam wall were not associated with the operation of any “dewatering equipment” or “dewatering operations”. Meagher JA reached the same conclusion, applying the ordinary and literal meaning of “dewater” as the removal of water from a place or thing. Meagher JA argued that the respondents had not used equipment for the purpose of removing water from the site to enable an activity or work to proceed in that place, but to prevent the cofferdam wall from collapsing2.

Implied term

On appeal, the respondents also contended in the alternative that a term covering the expenses in issue should be implied into the policy as a matter of law or to give business efficacy to the contract. However, Meagher JA found that the proposed implied term was inconsistent with existing express terms and could not be implied for that reason3.

Conclusion

In conclusion, the appellants were only successful in challenging the source of the respondents’ entitlement to an indemnity. Whereas the primary judge had sourced that entitlement in the general insuring clause under s 1 of the policy, Meagher JA found that the respondents’ entitlement stemmed from the temporary protection extension. The effect of this change was a reduction in the appellant’s liability as a $250,000 limit applied to any liability under the temporary protection extension. Accordingly, the $361,608.75 sum awarded to the respondents at first instance was set aside and judgment was entered for the sum of $250,000 instead. Accordingly, the appellant successfully challenged the basis on which the primary judge found for the respondents, but failed to completely avoid liability for the respondents’ costs and expenses.

The decision reaffirms the importance of interpreting and construing insurance policies according to their own particular terms, and avoiding the blind application of general principles enunciated in other cases.