Abstract

Exclusion - Onus of Poof of Operation

Exclusion - Flood

Article

Onus of Proof of Operation of Exclusion

The burden of proving the application of an exclusion clause falls upon the insurer: Pye v Metropolitan Coal Co. Ltd [1934] HCA 9; (1934) 50 CLR 614; Trickett v Queensland Insurance Co Ltd [1936] AC 159 at 164; Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 at 545; Pye v Metropolitan Coal Limited [1934] HCA 9; (1934) 50 CLR 614 at 625.

The aim of construction of an exclusion is to discern the parties’ intentions objectively by reference to its words in the context of the whole document as a commercial contract in the commercial circumstances which it addresses and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579. It may also useful to consider its constituent parts: Wiesac Pty Ltd v Insurance Australia Limited [2018] QSC 123.

Flood Exclusion

If local run-off water enters a drainage system and then on to a point of discharge into a river, but if the river water levels are high enough and can impact the volume in the drains by preventing the local run-off from entering the river at the discharge point so that it will remain in the drains, and, depending upon the river level, river water might leave it and enter the drainage pipes, there may be some mixing of the waters. If water which is in the pipes is forced under pressure through cracks in the pipes and into the subterranean soils and then, together with groundwater already there forced further into premises, it will trigger an exclusion as to pysical loss, destruction or damage occasioned by or happening through flood, which shall mean the inundation of normally dry land by water escaping or released from the normal confines of any natural water course: Wiesac Pty Ltd v Insurance Australia Limited [2018] QSC 123.

‘Occasioned by or happening through’ has a wide meaning: Mercantile Mutual Insurance (Aust) v Rowprint Services (Victoria) Pty Ltd [1998] VSCA 147; Switzerland General Insurance Co Ltd v Lebah Products Pty Ltd (1982) 2 ANZ Insurance Cases 60-498; Cooper v General Accident Fire and Life Assurance Corporation Ltd (1922) 128 LT 481; Spinney’s (1948) Ltd v Royal Insurance Co Ltd [1980] l Lloyd’s Rep 406; Prime Infrastructure (DBCT) Management Pty Ltd v Vero Insurance Ltd [2005] QCA 369; Eastern Suburbs Leagues Club Ltd v Royal and Sun Alliance Insurance Ltd [2003] QSC 413, and  the cause need not be proximate. It is a more difficult question whether, and if so in what circumstances, the words include a mere link in a chain of causation that began with the proximate cause

In the above circumstances, the damage is damage “occasioned by or happening through” the flood, because the river water leaking from the drainage pipes had made its way to the basement and/or had pushed groundwater there. Even the entry of  that groundwater has been “occasioned by” or has “happened through” the river water’s being forced into the subterranean soil. But the local run-off is not water escaping the normal confines of the river: river water will have pushed it through the subterranean soils into the premises, and some damage will have been occasioned by it,

 

However, even if some of it is unforced by the pressure of the rising river water, if there are multiple inseparable causes of the harm and only one is caught by the flood exclusion, the insurer may rely upon the it: Wayne Tank and Pump Co Ltd v Employers Liability Insurance Corporation Limited [1974] 1 QB 57; Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd (1980) 147 CLR 142, unless the causes operated concurrently, but independently: McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; (2007) 157 FCR 402. The solution is to be found in the terms of any policy and the commercial context in which it was made. If the policy excludes damage caused in a particular way and the damage was caused in that way, whether or not there was another concurrent cause, according to the limits of the cover agreed upon, the loss falls outside the terms of the policy. As in the circumstances posited the harm was occasioned by river water, the exclusion is satisfied in this respect, albeit that other water may have contributed to the harm: Wiesac (supra).

‘Normally Dry Land’

In Wiesac there was an issue as to whether the subterranean soil and/or the premises were normally dry land. The expression includes land occupied by buildings and other land which is “normally dry” and extends the exclusion to circumstances where there is not direct inundation of the property, but loss to it is occasioned by or happened through the inundation of other normally dry land: Eliade Pty Ltd v Nonpariel Pty Ltd [2002] FCA 909; (2002) 124 FCR 1; LMT Surgical Pty Ltd v Allianz Australia Insurance Ltd [2014] 2 Qd R 118. A flooded area may be “normally dry land” despite its having been flooded the previous day: Eliade Pty Ltd. The expression must be construed in its context which, in the definition of ‘flood’ has the purposes of the exemption. In the context of the policy as a whole, ‘Flood’ is defined by a particular event or process - the inundation of land of a certain character by water escaping from a particular source - and by reference to the character of the land inundated, which is intended to have a more or less constant character, as indicated by the use of ‘normally’. The character of the land is measured not by reference to its particular or very occasional character following very abnormal rainfall but by its usual or normal character. Once it is accepted that rainfall is “normal”, no land other than that in completely arid areas would be “normally dry land”.

“inundate”

 In Wiesac there was a further issue as to inundation. Inundate is to overspread with a flood of water, to overflow, flood. The migration of flood water through subterranean soil, which is land, may amount to its inundation. Further, premises to which such water migrates may be normally dry land, and if harm is done to it by such migrating flood water, it will  have been relevantly inundated. The purpose of the exclusion is to exclude liability for damage caused by flooding, the inundation of the surface of normally dry land which includes the land on which the harm is caused.

Escape

Another issue was whether there was an escape of the relevant water. Escape is to issue from a confining enclosure, as a fluid, leakage, as of water, gas, etc., but it should be remembered that the exclusion referred to to pysical loss, destruction or damage occasioned by or happening through flood, which shall mean the inundation of normally dry land by water escaping or released from the normal confines of any natural water course. These terms limit the meaning of flood to the water’s escape from a river, etc., though the effect of the exclusion extends to harm occasioned by or happening through it. This plainly means that there must have been an inundation of normally dry land by water which escaped from the river, and the exclusion is triggered if that were to occasion or to cause the happening of the relevant harm, even if the harm is finally caused by other water. It is not necessary that the precise water which escaped be identified as having caused the harm, provided that it occasioned it. If, by reason of the inundation of normally dry land by water so escaping, other water is forced into premises and occasions loss or damage that would be loss or damage ‘occasioned by or happening through’ the escape caused by such a flood.

If flood is defined to mean overflow of water, which is narrower, the first question, whether the water which occasioned the harm was of that nature must be resolved, but if it is so the above reasoning applies: Provincial Insurance Australia Pty Limited v Consolidated Wood Products Pty Limited (1991) 6 ANZ Insurance Cases 61-066 at 77,193; (1991) 25 NSWLR 41 at 564; Hams & Anor v CGU Insurance Limited [2002] NSWSC 273; (2002) 12 ANZ Insurance Cases 61-525. There is no reason why it should not apply if the definition of flood used in the exclusion is met by the circumstances, but the water which escapes or overflows from the river which meets the definition differs from any surface water which the former may use as the means to occasion the relevant harm. However, if it does so the difference is irrelevant: Wiesac (supra).

Escaping is the act of the escape and escaping water must, for the purposes of the clause, be still in the act of escaping after leaving the confines of the river. The point at which it ceases to be escaping and has escaped is a matter of fact, but while it is still moving away from the river under its pressure, it is still escaping.

  Overflow

As a matter of ordinary use rather than law, a watercourse overflows its normal banks when all the water that would otherwise drain or fall into it cannot be contained in it because it is full. All the surplus water is then overflow, no matter whether or not some of it has at one time been within the banks and then forced out It should be interpreted in its broadest sense: K Sika Plastics Limited v Cornhill Insurance Co Limited [1982] 2 NZLR 50; Oakleaf v Home Insurance Ltd (1958) 14 DLR (2d) 535. A requirement, that the inundation be by water overflowing from the normal confines, was found to be restricted to inundation by water which has overflowed the banks where those banks are the normal confines, which may be wider than ‘banks’ LMT Surgical Pty Ltd v Allianz Australia Insurance Ltd [2014] 2 Qd R 118. This does not purport to address the position as to other water’s harm which is occasioned by water which comes within the definition of flood water: Wiesac (supra).