Recovery of mitigation costs Recovery of mitigation costs

Recovery of mitigation costs

29 October 2013 | Public & Product Liability
Vero Insurance Ltd v Australian Prestressing Services Pty Ltd [2013] NSWCA 181

Under the doctrine of mitigation of damages, a person who has suffered an injury or loss ought to take reasonable action, where possible, to avoid additional injury or loss. This may extend to taking steps to avoid an imminent or reasonably anticipated loss.

On 21 June 2013 the New South Wales Court of Appeal held that you must consider the language of the relevant policy in deciding whether costs reasonably incurred by an insured in preventing an imminent loss are recoverable. While mitigation costs may not always be payable to an insured under a policy this decision highlights the fact that it is important to look at the particular terms of each individual policy and the facts and circumstances of each case in deciding whether or not indemnity should be granted to an insured.

In this case, Australian Prestressing Services Pty Ltd (APS) contracted with the Department of Public Works and Services (DPWS) to undertake remediation works in the Centennial Park, Sydney (the Parklands). Those works included the reconstruction of a culvert. The work required the construction of an earthen wall or cofferdam to hold back the water in the Kensington Pond from the area, (which included the existing culvert) where the remediation works were to be carried out. The cofferdam wall was constructed before May 2003 and between 13 and 17 May 2003 substantial rainfall was experienced in the catchment area of the Parklands. This substantial rainfall caused the water level in the ponds to rise and required the respondents to take urgent steps to prevent the cofferdam wall from failing. Had the wall failed, it would have led to serious flooding of adjoining residential and other areas. Water was pumped out of and diverted from Kensington Pond so as to prevent that wall from being breached and additional steps were taken to shore up the face of the cofferdam with timbers, boulders, concrete and geofabric ("the works").

Vero insured DPWS under a “Contract Works and Public Liability Contracts Commenced Basis Insurance Policy” (the policy). DPWS made a claim under the policy for the costs incurred for “the works”. Vero accepted liability for the cost involved in shoring up the wall but rejected the remainder on the basis that a dewatering exclusion applied.

The trial judge held that the general insuring clause provided cover and that DPWS was entitled to an indemnity pursuant to that clause. The trial judge also held that the dewatering exclusion did not apply.

Vero appealed.

The NSW Court of Appeal ultimately had to decide whether the claim fell within the insuring clause, whether costs incurred fell within the dewatering exclusion and whether there was a relevant liability limit and specific excess under the policy.

The general insuring clause under section 1 of the policy provided coverage “...against Loss, Destruction of or Damage to Property Insured occurring during the Construction Period ...” The cost of pumping the water out of the site were not able to be recovered under the general insuring clause because the clause related only to physical loss or destruction or damage to the wall.

This expense was however held to fall within the temporary protection extension. The temporary protection extension in section 1 provided:

“This insurance automatically extends to cover costs and expenses necessarily and reasonably incurred by or on behalf of the Insured for:

(a) shoring up, propping, 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;
(b) ....
consequent upon any Loss, Destruction of or Damage to Property Insured being indemnified under this Policy and subject to limitation shown in the Schedule.”

The Court said that the evidence justified a finding that by the time the respondents had incurred expense in removing or diverting water that there was physical damage to the cofferdam wall which was insured under the temporary protection extension in the policy.

The dewatering exclusion was also held not to apply. The dewatering exclusion stated that “The Company will not indemnify the Insured against any costs associated with the installation and operation of any dewatering equipment or any other costs of dewatering operations”. The Court held that the expenses incurred to protect the cofferdam wall were not associated with the operation of any dewatering equipment or dewatering operations.

The temporary protection extension had a liability limit of $250,000 therefore the amount of $361,608.75 that was awarded at first instance by the trial judge was reduced to $250,000.


Robert Samut

Robert Samut