Insurance of the ‘Situation’?

Oceanview Developments Pty Ltd trading as Darwin River Tavern & Darwin River Supermarket (Oceanview) v Allianz Australia Insurance Ltd trading as Territory Insurance Office [2020] FCA 852 (19 June 2020)

Insurers should choose words in the policy carefully since what may seem to be an appropriate choice of words, can lead to unintended consequences.

The Federal Court of Australia has found that the extent of coverage of an Industrial Special Risks insurance policy (Policy) was not limited to the value of the specific ‘Property Insured’, the ‘Declared Assets’ or to the ‘Businesses’ carried on by Oceanview (the Insured), but extended to coverage of the ‘Situation’.

Oceanview owned two very large lots of land (the land), each with several businesses on them.  Oceanview owned and operated most of, but not all, the businesses on the land.  One of the businesses on the land, which was not owned or operated by Oceanview, was a nursery.

On 29 September 2018, a fire caused extensive damage to properties, infrastructure, assets and businesses on the land, including damage to infrastructure for water and power, equipment and property that had been used in the nursery.

The insurer argued that the nursery, and it’s related infrastructure, was not covered under the Policy, as the nursery did not form any part of Oceanview’s business.

On review of all the Policy wording and the circumstances of this case, the Federal Court found that there was no restriction on the extent of the property insured by reference to some connection to Oceanview’s business.

The Federal Court found that the Policy provided indemnity for all the real and personal property of Oceanview at the Situation, which was found to include all the businesses on the land, including the nursery.  Schedule of Declared Assets was found to be non-contractual and so did not limit the extent of the insurance coverage to those assets.

This decision illustrates that despite insurer’s doing their due diligence and assessing the scope of their potential liability under an insurance policy, their liabilities can be extended further than anticipated based on how the Court defines a ‘Situation’.