Policy Construction: A broad approach to “Property Insured” under an ISR policy
This case considered whether the property insured under an Industrial Special Risk policy was confined to property specifically listed or used for the insured business, or to the property at the insured location.
Oceanview Developments Pty Ltd (the insured) held an ISR policy with Allianz Australia Insurance Limited (Allianz) in respect to premises situated in Darwin (consisting of Lots 2333 and 2334), where the insured carried on its businesses.
On 29 September 2018, a fire caused damage to the property at the premises, including damage to a nursery on Lot 2334. Despite the nursery business and infrastructure not being owned by it, the insured made a claim for indemnity under the material loss and damage section (section 1) of its ISR policy.
The indemnity (clause 1.1) under section 1 was in the following terms:
“In the event of any physical loss, destruction or damage … not otherwise excluded happening during the Period of Insurance at the Situation to the Property Insured described in Section 1, the Insurer(s) will, subject to the provision of this Policy including the limitation on the Insurer(s) liability, indemnify the Insured in accordance with the applicable Basis of Settlement.”
Under the heading ‘Property Insured’, clause 1.2 of the wording stated:
“All real and personal property of every kind and description (except as hereinafter excluded) belonging to the Insured or for which the Insured is responsible, or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which the Insured may acquire an insurable interest, or for damage to which the Insured becomes responsible or assumes responsibility to insure, after the commencement of the Period of Insurance.”
Relevantly, Allianz had issued a Closing (Endorsement) (the policy schedule) which defined the Insured, the Business, the Situation, and Declared Values. The policy schedule also contained a Schedule of Declared Assets (provided by the insured at the time of renewal) which referenced Lots 2333 and 2334, but did not form part of the policy.
The policy defined the Situation as:
“Principally Lots 2333 & 2334, 195 Darwin River Road, Darwin River and any other situation in Australia owned or occupied by the Insured for the purposes of the Business or elsewhere in Australia where used by the Insured or where the Insured is undertaking work or has goods of property”.
The Business was described as: “Principally General Store consisting of Post Office and Fuel Stop, Tavern, Drive thru bottle shop and all other activities incidental thereto”.
The insured sought a declaration that the “Property Insured” under clause 1.1 of the policy was not confined or limited to the Schedule of Declared Assets, or to property related to the Business.
The Decision at Trial
In support of its position, the insured focussed on what it considered to be the wide and plain words of clauses 1.1 and 1.2. It asserted that if the insurance was limited to the declared assets, the specific exclusion of certain property would have been unnecessary. It asserted further that coverage could not be confined by reference to the property’s use in or in connection with the operation of any of the businesses conducted by the insured because the Business (as defined in the policy schedule) was “principally” the general store. The description of the Business was general and indefinite, and did not limit “Property Insured”.
The insured argued that the policy’s form in the material loss and business interruption sections was deliberate, reflecting different types and widths of cover. The cover provided in other clauses in section 1 was also inconsistent with such a narrowing of the policy.
Allianz contended that section 1 of the policy only covered property relating to the insured’s businesses (and accordingly not the nursery), arguing that clause 1.2 sought to define “Property Insured”, and the broadly worded indemnity was directed to the policy’s proper subject matter; namely property relating to the insured’s Business. Although Allianz conceded that that Schedule of Declared Assets was not part of the policy, it said that it formed part of the essential contextual background for the policy’s construction.
Allsop CJ found in favour of the insured, concluding that there was no restriction on the extent of the Property Insured by reference to some connection with Business as defined in the policy schedule.
His Honour read clauses 1.2 and 1.1 together, finding that the Policy provided indemnity for “damage, not otherwise excluded, happening at Lots 2333 and 2334 (the Situation), to (all) real and personal property of every kind and description, except as excluded, belonging to [the insured], or for which it was responsible or had assumed responsibility to insure.”
The Court also observed that:
- The Lots were “principally” the Situation, and were plainly owned and occupied for the purpose of Business. Clause 1.1 did not provide any “relational definitional connection” between the Business and the Property Insured.
- The declared value of all property was one thing; the property subject to the indemnity was another. The Schedule of Declared Assets did not identify the Property Insured but noted its declared value.
- The decision of CIC Insurance Ltd v Barwon Region Water Authority (1999) 10 ANZ Ins Cas 61-425, which involved an ISR policy with similar terms, lent support to the insured’s assertion that the policy’s structure was such that the declared assets schedule only related to co-insurance provisions and the calculation of premiums.
- Other clauses in section 1 extended cover to property that had no relational connection with the insured’s Business.
- The above construction of the policy was not uncommercial.
Allsop J noted that Allianz would understandably feel aggrieved by the above policy construction, given it had not been informed by the insured about the nursery business. His Honour noted, however, that the insured’s failure to inform Allianz of the nursery business could nonetheless give rise to a non-disclosure issue or otherwise be dealt with through co-insurance provisions. Notably, these issues were not the subject of the proceeding and the court did not make any findings in relation to them.
Implications for you
This decision supports the position that Courts will generally interpret policy clauses directed to giving or expanding cover broadly and further, that if insurers seek to limit the cover available to an insured, the limitation must be expressed in clear language. In these circumstances, the cover offered by the insurer under the material damage section of an ISR policy would not be confined to property used for the purposes of the insured’s business unless clear and unequivocal words were used.
The decision also supports the position that cover under different sections of a policy (in this case, the property damage and business interruption sections) can be interpreted independently of each other.
The decision is a timely reminder for all parties to an insurance contract to ensure that there is clarity and agreement on the extent of cover available. In addition, insurers are reminded that any intended limitation on cover should be plainly and expressly stated in the policy or risk inadvertently exposing themselves to a broader class of claims.