Insurer avoids liability for storm damage under soil movement exclusion5 September 2017 | Insurance Issues
Heave of soil beneath foundation slab following storm constituted soil movement and was excluded from cover under home building policy.
- Whether soil heave fell within the natural and ordinary meaning of soil movement
- Whether the soil movement exclusion applied
The plaintiff was the registered proprietor and occupier of the land, building and improvements situated at 23 Petrik Drive, Keilor. The plaintiff obtained a Home Building Insurance policy (the insurance policy) from the defendant insurer. The policy covered the plaintiff for loss, damage and destruction in relation to various events, including storm damage subject to a number of general exclusions relating to the movement of soil.
On 25 December 2011, a storm caused water to inundate the land and the building. The water pooled under and around the concrete slab of the building. As a result, heave of the clay soil under the foundation slab occurred. This caused soil expansion and raised the slab, resulting in damage to the house, including cracking and lifted walls and roof frames.
The plaintiff claimed indemnity under the policy for the cost of repairing the damage to home. Whilst the defendant admitted that the storm caused the water inundation, it formed the view that the consequent slab heave caused the soil expansion and damage to the home. The defendant denied indemnity on the basis of the general exclusion in the policy that related to damage caused by soil movement.
The sole issue for determination was whether or not the soil movement exclusion applied. That is, whether or not ‘heave’ fell within the natural and ordinary meaning of soil movement.
In interpreting the insurance policy, the court interpreted the relevant provisions of the policy in accordance with the general principles when interpreting commercial contracts. The court noted that interpretation required ‘the Court to consider what reasonable persons in the position of the parties would have understood the words to mean by reference to the text of the agreement, the surrounding circumstances known to the parties and the purpose or object of the transaction’.
Interpretation should be undertaken in a ‘common sense’ and ‘non-technical way’ and exclusion clauses should be construed according to the ordinary and natural meaning of the words, in accordance with long held principles of contractual interpretation.
The court noted that based on the expert evidence the parties agreed on the literal and technical meanings of some of the words relevant to the exclusions. The court concluded that ‘on the basis of the agreed meanings, it is clear that ‘heave’, ‘settlement’, ‘subsidence’ and ‘landslide’ fall within the literal or technical, meaning of ‘soil movement’.
The court concluded that damage to a building caused by any kind of soil movement is excluded and as heave falls within the nature and ordinary meaning of the soil movement exclusion, and as it was the cause of the damage to the plaintiff’s house, the claim was not covered by the policy.
Implications for you
This decision does not change the current state of the law, however, it illustrates how a court will interpret a contract of insurance, especially in regard to an exclusion clause. It is a reminder that interpretation is performed in accordance with the natural and ordinary meaning of the word. It is a reminder to ensure that careful attention is taken when deciding on contract wording, particularly in relation to exclusion clauses.