Federal Court of Australia

Acciona Infrastructure Australia Pty Ltd v Zurich Australian Insurance Limited [2023] FCAFC 47

ORDERS

THE COURT ORDERS THAT:

1.    It is declared that, on its proper construction, the term “location insured” as it appears in Exclusion 3.12 of a written policy of insurance dated 27 June 2014 issued by the respondents to the Named Insured being Roads and Maritime Services means the location of the loss or damage caused by the event referred to in that exclusion which is covered under the policy.

2.    The applicants pay the respondents’ costs of the determination of the separate question.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    This matter was referred to the Full Court for determination by a direction of the Chief Justice made on 1 March 2023 pursuant to s 20(1A) of the Federal Court of Australia Act 1976 (Cth). It concerns the interpretation of a policy of insurance between Zurich Australian Insurance Limited, Allianz Australia Insurance Ltd, and XL Insurance Co SE, collectively referred to as “the Insurers”, and New South Wales Roads and Maritime Services. The entities Acciona Infrastructure Australia Pty Ltd and Ferrovial Construction (Australia) Pty Ltd, collectively referred to as “the Contractors”, are insureds under the policy and seek indemnity under it.

2    The Contractors are now engaged in litigation with the Insurers in relation to damage to road construction works being carried out by them as a result of the occurrence of extensive rainfall at or near to those works in June 2016. By orders made on 9 December 2022, the Chief Justice directed that the determination of the issues in the proceedings, save for the question referred to this Court, be undertaken by a referee. The question of interpretation referred to this Court is pivotal to many issues in the proceedings and may resolve, or assist in resolving, a substantial part of the questions before the referee.

Background

3    The parties have agreed to the following facts for the purposes of the hearing:

1.     AGREED FACTS

(A)     THE PARTIES

1.     The applicants (Contractors) carry on businesses of building and construction.

2.     The respondents (Insurers) carry on business as insurers.

3.     The third respondent was formerly known as XL Insurance Company Plc.

(B)    THE POLICY

4.     On or about 27 June 2014, NSW Roads and Maritime Services entered into a contract of insurance with the Insurers, described as a ‘Construction Risks – Material Damage Project Insurance Policy’ (Policy).

5.     A copy of the Policy is contained at Annexure A of this statement.

(C)     THE RMS CONTRACT AND THE PROJECT

6.    In or about July 2014, the Contractors, as joint venturers in an unincorporated joint venture, entered into a design and construct project deed with NSW Roads and Maritime Services (RMS Contract) under which they agreed to perform works (Project Works), including the construction of a 19.5 kilometre stretch of dual carriageway road between Warrell Creek and Nambucca Heads in northern New South Wales.

7.     The RMS Contract was in writing and comprised of:

(a)    a Design and Construct Project Deed numbered IC-DC-C91-1;

(b)     the various schedules thereto collectively numbered IC-DC-C91-2; and

(c)     documents exhibited thereto or otherwise incorporated by reference.

8.     The RMS Contract is hundreds of pages in length. (The parties are conferring as to which pages, if any, of the RMS Contract are to be put before the Court.)

9.     The area of the Project Works extended both to the south and the north of the Nambucca River.

10.     In or about July 2014, the Contractors commenced to carry out the Project Works.

(D)     WEATHER STATIONS

11.     Two automatic weather stations were established on the site of the Project Works:

(a)    an automatic weather station located south of the Nambucca River (Site Southern Automatic Weather Station); and

(b)     an automatic weather station located north of the Nambucca River (Site Northern Automatic Weather Station).

12.     At material times, the Bureau of Meteorology (BOM) operated at least two weather stations situated to the east of the Project Works and north of the Nambucca River:

(a)    the Bellwood Nambucca Heads BOM station (059150); and

(b)    the Nambucca Heads Bowling Club BOM station (059024).

13.     The Bellwood Nambucca Heads BOM station and the Nambucca Heads Bowling Club BOM station are the two weather stations operated by the BOM which are nearest to parts of the Project Works located north of the Nambucca River.

14.     Annexure B is a marked-up map showing the location of the Project Works, the Site Southern Automatic Weather Station, the Site Northern Automatic Weather Station, Bellwood Nambucca Heads BOM station and Nambucca Heads Bowling Club BOM station.

(E)     JUNE 2016

15.     During the first week of June 2016, a complex atmospheric low pressure system developed over the Tasman Sea off the eastern coast of Australia and interacted with an extensive upper level trough over eastern Australia and an atmospheric high pressure system over New Zealand (2016 East Coast Low).

16.     The 2016 East Coast Low resulted in very heavy rainfall and flooding in areas of the east coast of Australia on or about Saturday, 4 June and Sunday, 5 June 2016.

17.     The Site Southern Weather Station recorded rainfall between approximately 6:00 am on 4 June 2016 and 6:00 am on 5 June 2016 that exceeded a rainfall event with a minimum return period of 20 years within the meaning of the Policy for that location.

18.     The Site Northern Weather Station had power supply problems from 2:35 am to 7:35 am on 5 June 2016 and did not record rainfall during that period.

19.     During the period between approximately 6:00 am on 4 June 2016 and 6:00 am on 5 June 2016, the Bellwood Nambucca Heads BOM station and the Nambucca Heads Bowling Club BOM station did not record rainfall which exceeded a rainfall event with a minimum return period of 20 years within the meaning of the Policy for those locations.

2.    CONTENTIONS

20.     The Contractors contend that the rainfall and flooding referred to in [16] above caused damage to the Project Works, both to the south and to the north of the Nambucca River.

21.     The Insurers contend that the exclusion in clause 3.12 of the Policy applies in relation to claimed damage to the Project Works to the north of the Nambucca River.

The nature of the litigation between the parties

4    The underlying detail of the Contractors’ claim is long and complex, but the issue may be distilled to a simple explanation.

5    The Contractors are added insureds under a Construction Risks – Material Damage Project Insurance Policy, purchased from the Insurers by the principal on the project, New South Wales Roads and Maritime Services, in respect of the relevant project works. Their claim is for indemnity in respect of their expenses of mitigation action to protect the contract works, and loss through damage to those works requiring reinstatement and/or repairs made necessary by, and/or arising on, three distinct occasions of unusually heavy rainfall during the construction period of the works, as referred to in the policy. In addition, they claim for the substantial costs of the preparation of the claims and for losses consequential upon the Insurers’ failure to indemnify them.

The relevant policy terms

6    Clause 1.1 of the policy provides:

1.1     Insured Property

The Insurers will indemnify the Insured in accordance with the Basis of Settlement, against Damage to the Insured Property other than from a cause specifically excluded, occurring at the Project Site or in transit within the Territorial Limits during the Construction Period.

7    “Damage” is defined in the policy as meaning “physical loss, destruction or damage”.

8    “Insured Property” is defined to include, amongst other things, “Contract Works”, being “property of every description used or to be used in part of or incidental to or having any connection whatsoever with the Project”.

9    The expression, “Project Site”, is defined in the policy to mean:

[T]he situation(s) stated in the Schedule against this item and any other situation where the Insured is performing the works or has property stored or being processed together with all surrounding areas in connection with the Project. Project Site shall extend to include overseas situations stated in the Schedule or subsequently endorsed onto this Policy.

10    The policy Schedule includes an item, “Project Site”, against which it is stated:

Warrell Creek to Nambucca Heads as described in more detail in the scope of works. The work comprises Design and Construction of the upgrade of the existing highway to a four lane divided carriageway between the Allgomera deviation, south of Warrell Creek and Nambucca Heads. It also [comprises] new bridges over Warrell Creek and the Nambucca River at Macksville, floodplain bridges and culverts across sections of the Gumma floodplain and as more particularly defined in the scope of works in the contract attached including variations thereto.

11    Although the policy uses the word, “Project”, in a number of places, it is not defined. However, the Schedule includes an item with that name, against which it is stated:

Contracts relating to the Warrell Creek to Nambucca Heads project as more particularly defined in the scope of works in the contract including variations thereto.

12    Clause 4.3(b) of the policy limits the liability of the Insurers in the following manner:

4.3    Limits of Liability

…

(b)     The liability of the Insurers for any one Event at any one situation shall not exceed the Limits of Liability and the accumulative amounts of the Sub-limits of Liability stated in the Schedule

13    The “Limits of Liability” stated in the Schedule for “any one Event at any one situation” is $523 million. The various “Sub-limits - Applicable to Material Loss or Damage” are likewise stated to apply “in respect of any one Event at any one situation”.

14    The word, “Event”, is defined to mean “an occurrence or series of occurrences consequent upon or attributable to one source or original cause”.

15    In the Exclusions section of the policy it is provided, inter alia:

3.    Exclusions applying to this Policy

This Policy does not provide indemnity in respect of:

…

3.12     Earthwork Materials and Pavement Materials

It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the Insurers will not indemnify the Insured for loss or damage due to rain on earthwork materials and or pavement materials, except where such loss or damage is due to an event with a minimum return period of 20 years for the location insured on the basis of the 24 hour statistics prepared by the Bureau of Meteorology for the nearest station to the location insured, or such other independently operated weather station situation near or adjacent to the location insured.

Other matters

16    It was common ground in these proceedings that the length of the stretch of the dual carriageway to be constructed by the Contractors was approximately 19.5 kilometres, and it can be inferred that the Warrell Creek to Nambucca Heads site was at least that size. It can also be inferred that the parties to the policy had knowledge to that general effect. It was common ground that the relevant “situation”, being effectively that part of the Project Site where the road construction work was being performed, was a lengthy and narrow strip of land including within it the roadworks and certain associated land on either side of the roadway.

17    An essential element of the dispute is that the recordings at the weather stations which were nearest to the location where there was damage to the works north of the Nambucca River following intense rainfall on a particular occasion in June 2016, being the Nambucca Heads Bowling Club BOM Weather Station and the Bellwood Nambucca Heads BOM Weather Station, indicated that the relevant rainfall event during which the damage occurred was not a one-in-twenty-year event, while the Site Southern Automatic Weather Station, which was some distance from where that damage occurred, did record such an event at that site.

The contentions

18    These facts gave rise to the essential issue between the parties, being the meaning of the expression, “location insured”, as used in cl 3.12 of the policy. The Contractors contended that it should mean “the situation that comprises a ‘Project Site’ defined by the Policy and within which the loss or damage due to rain on earthwork materials or pavement materials occurred”. On that assumption, it was submitted that the exception to the exclusion in cl 3.12 applied and cover existed in respect of the damage resulting from the rainfall event in June 2016. Conversely, the Insurers submitted the expression, “location insured”, is limited to the location of the damage to earthwork materials and pavement materials which are the subject of the claim. On this construction, the exception to the exclusion would not apply in respect of the damage occasioned in June 2016 because the nearest weather station to the damage did not record a rainfall event with a minimum return period of 20 years.

19    The principles relating to the construction of policies of insurance are now well known: Liberty Mutual Insurance Company Australian Branch t/as Liberty Specialty Markets v Icon Co (NSW) Pty Ltd (2021) 396 ALR 193, 231 – 232 [151] – [152]. They do not require repeating, especially in this case where no dispute has arisen as to their nature or content.

Consideration

The purpose of cl 3.12

20    The purpose of cl 3.12 is to exclude policy cover for damage to earthwork materials and pavement materials arising from rainfall. In turn, that exclusion is limited by an exception in respect of damage caused by rainfall of a specified degree, albeit that the degree is ascertained from the rainfall experienced in a certain location and characterised by reference to the historical rainfall data for that location. The provision’s structure is such as to exclude cover for damage to particular materials by what might be described as general rainfall, but to preserve cover by way of an exception when the damage is caused by an uncommonly heavy rainfall event. The relevant expression, “location insured”, is used in the description of the particular special circumstances in which cover is preserved. The provision describes those special circumstances by reference to the statistics revealed by a nearby weather station, which is identified with desirable particularity involving the use of the relevant expression.

21    The issue then becomes whether the description of the weather station to be used in this exercise through the expression, “location insured”, should be understood to mean the weather station most proximate to the location where the special rainfall caused the relevant harm, or the weather station most proximate to the Project Site as a whole, which could conceivably be more than 19 kilometres from the scene of the special rainfall and resultant damage and further away from the site of the damage than another weather station.

22    Although it is plain that the purpose of the exclusion and exception is to limit the cover to damage caused by unusually intense rainfall events, that observation alone is of limited assistance. It begs the question how the intensity of the event is to be measured in the first place.

A construction supported by logic and business efficacy

23    As a matter of common sense, it might be thought that, in an exclusion dealing with cover for damage to certain materials by unusually heavy rain, the chosen area for ascertaining what is unusual as to its heaviness would be that area at or about which the damage occurred. It is common ground that the Project, being road construction, extended over a lengthy geographical area within which the intensity of a single rainfall event might vary considerably from place to place. In these circumstances, it is difficult to see the logic in ascertaining the intensity of the event causing the damage, to which the insurance would apply, by reference to the intensity of the same event obtaining at some distant part of the Project Site. That, however, would be the effect of the Contractors’ submissions. It is much more logical to fashion the description of the degree of the relevant rainfall intensity by reference to rainfall which had been experienced at, or at least relatively near to, the location of the resulting loss or damage. See Derrington & Ashton: The Law of Liability Insurance (LexisNexis, 3rd ed, 2013) at 402 – 403 [3-51] as to the use of logic as an aid to construction. Prima facie, the logical operation of the exclusion and its exception suggests that they are concerned with the sequelae of an intense rainfall event which has occasioned damage at a particular location, and the ascertainment of whether the rainfall event meets the insured description by reference to data from a weather station proximate to that location.

24    It can be observed that the policy assists the insureds in discharging their obligation of showing that the damage is within the scope of the policy by not requiring exact proof that the rainfall event at the location where the damage was sustained met the identified characteristic, and instead making it sufficient to show that the rainfall received at a proximate weather station did. The insureds, equally, are entitled to rely upon the historical data for that proximate weather station to demonstrate that the event was one with a minimum return period of 20 years, rather than attempting to locate such data for the precise location where the damage occurred. That may not relieve the insureds from having to demonstrate that the one-in-twenty-year rainfall event, as recorded by the nearest weather station, was the cause of the damage but it might generally be hypothesised that the nearer the weather station is to the site of the damage the easier it will be to establish the relevant nexus. On the other hand, if reliance were to be placed on the weather station nearest to the Project Site, being the Site Southern Weather Station, some many kilometres away, difficulties may arise in establishing that the event recorded there caused the damage to the materials. Whether these cause and effect scenarios actually exist is a matter for another occasion.

25    A similar factor to be considered is the businesslike practicality of the competing constructions. The works may be severely damaged by a one-in-twenty-year event as recorded by a weather station proximate to the damage but, on the Contractors’ construction, the exception would not be triggered if no such event was recorded at the station nearest to the Project Site, albeit that the station in question may be many kilometres from the location where the damage occurred. In other words, cover will only be available where the required rainfall event is recorded at the station nearest to the Project Site, regardless of the intensity of the rainfall at or proximate to the location where the damage is sustained. The unbusinesslike nature of this outcome tends to negate the suggestion that it was intended by the policy.

26    The process of investigating the commercial consequences of the competing constructions, as referred to in Re Sigma Finance Corp (in administrative receivership) [2010] 1 All ER 571, has no reasonable application here. The commercial consequences of the exclusion and modifying exception here rely on the parties’ choice of the site to be used in the measurement of the intensity of the rainfall. That was something on which the Contractors’ mutual position, through the head insured, could well have varied depending on the extent and circumstances of the cover that they wished to have. By analogy, parties to an insurance policy may agree on total replacement of a damaged building, which of course has a potentially serious consequence when compared to cover for only loss of value of the insured asset, but both might nevertheless be valid commercial choices. Here, for all that is known, the parties may have been prepared to agree that the comparison point should have been the whole Project Site area or the limited locality of the damage, and while the consequences may have differed between those alternatives, that does not predicate that one must have been agreed upon rather than the other.

27    A construction conforming to logic and the adoption of business efficacy might arguably prevail over the clear expression of a contrary construction. However, here, the language of cl 3.12 admits of a reasonable conformity with that logic and business efficacy. The “location insured” can sensibly be understood as the location insured in respect of the particular claim, being that location where the damage occurred for which the insurance would be relevant. That location would be relevant to the insurance since it would, in fact, be the occurrence of the damage there that would operate to trigger the insurance cover.

The text of cl 3.12

28    Conceivably, the parties’ mutual intention may have been that the intensity of the rainfall that caused the relevant harm should, for the purpose of the exception to the exclusion, be ascertained by reference to the data measured at the weather station nearest to any part of the whole area of the Project Site. This competing construction should be considered by reference to the language used.

29    The meaning of the expression, “location insured”, is not abundantly clear, though there is enough indication of what was probably intended to avoid a finding of ambiguity. While the use of the word, “insured”, in the expression might be taken as indicating a reference to the whole of the Project Site, since that was the area the subject of the overall insurance cover under the policy, there is no reason why it cannot apply as well to the place where the damage occurred so as to trigger the application of the insurance cover, subject to the exclusion.

30    The other element of the expression, “location”, might be thought to have some significance. In ordinary understanding, it connotes a degree of exactness which, in this context, would align it with the more limited area where the event in respect of which the expression is used, the particular occurrence of heavy rainfall, has actually occurred. The identification of the place of the relevant weather station as requiring proximity to the location insured has the purpose of requiring that the datum point for assessing whether the relevant event meets the policy description is related to the location of the damage.

31    It might be noticed that, if the parties had intended to refer to the area of the entire project, it would have been easy for them to do so by use of the term, “Project Site”, which was the subject of specific definition in the policy. That, instead, a different expression was used which, in form, has a connotation of a more limited, more exact, flavour opens up an implication that it was not intended to refer to the whole area of the Project: Derrington & Ashton: The Law of Liability Insurance, op cit, 374 – 375 [3-17].

32    The Contractors’ attempt to equate the expression, “location insured”, to the defined term, “Project Site” (which expression in turn refers to various “situations”), encounters difficulties. There can be no significant indication of what was intended by the expression, “location insured”, when used in a particular exclusion with a particular purpose, by comparison with another expression used in the insuring promise for a different purpose. That a different expression would apply to the same thing in a different provision that discusses other matters for different purposes is a substantial assumption which should require serious explanation. The Contractors themselves recognise, for instance, in paragraph 18 of their written submissions, that the word “event” has totally different meanings in different provisions of the policy, a result made plain by the purpose and context in which the word is used.

33    In the promising clause, the reference to the geographical feature of the cover ensures that cover is provided to the entire Project Site, and even to areas outside it (including where the insured’s property is in transit), since the purpose of that clause is, amongst other things, to identify the entire area encompassed by the broad description of the cover, within which occurrences may take place at more specific locations. But merely because the concept is adopted in that clause for that purpose, it cannot be equated to another geographical feature which is relevant to a description intended to define the operation of an exclusion which will be engaged by a particular occurrence at a specific location within the entire Project Site. The description of the geographic scope of the cover is general in purpose, while that of the exclusion is special. It may also be observed that this distinction is consistent with the difference in the language used, as the insuring promise makes reference to the “Project Site” while the exclusion refers to the “location insured”. It is futile to suggest that the mere reference to the “Project Site” in various other parts of the policy for the purpose of those parts should control the meaning of a different expression in a distinct part of the policy, the purpose of which does not suggest any such meaning.

34    The point may be illustrated by reference to cl 4.3(b), which places a limit on the amount of cover for an Event. There, like the word, “location”, the word, “situation”, is used to refer to the area of the relevant occurrence or occurrences for which cover is provided, rather than to the whole of the Project Site. It is implied that the word does not refer to the entire Project Site since the inclusion of a reference to “situation” demonstrates the choice of a more exact area than the entire area of the Project Site. The context of the discussion of the harmful occurrence plainly turns the focus of its terms to the particular geographical area where the damage took place.

35    The Contractors also sought to draw some comfort from the observation that construing the “location insured” to mean the place where the relevant harm from rainfall occurred conflicts with the parties’ purported choice that the “focus” of the exception be “a rainfall ‘event’ and not individual occurrences of damage”. This is an artificial division of the subject matter of the provision, which is dealing with the occurrence, at a place, of harm that might or might not be covered, according to the operation or otherwise of the exclusion, and the occurrence of the rainfall that caused it. The related elements of the harm and its cause may well be described geographically together in a limited way. Indeed, the form of a unified concept, whereby the “location” encompasses the rainfall and the harm that it caused, is not a very difficult connection to adopt.

36    The basic error in the Contractors’ approach is articulated in paragraph 15 of their written submissions. It reads:

The general scheme of the policy is thus to treat Warrell Creek to Nambucca Heads as one situation or location. It also contemplates the possibility that there may be other situations “where the Insured is performing the works or has property stored or being processed”.

37    The proper description of the policy’s “general scheme” is that it treats Warrell Creek to Nambucca Heads as one “situation” when it is intended to refer to a general matter, such as the scope of the area to which the cover applies, and then it is usually referred to in terms of the “Project Site”. But even then, this may be varied by the use of different language for a particular purpose, such as in extending that scope to places where the insureds are performing the works or have property stored or being processed. The correct recognition of the general reference to the “Project Site” for such general purposes dictates that it was not intended to apply when issues relating to particular, more limited locations are the point of the context. A fortiori, when in that context a different expression is used, one redolent of some precision.

38    That is even more significant in this case, since the relevant expression is used exclusively in the description of the location of the weather station at which, for the purpose of the exception, the intensity of the harmful rainfall was to be ascertained, and proximity is an element of the description. As this calls for further precision, it is unsurprising that, instead of repeating a lengthy phrase referring to the location of the harm caused by the rainfall and its cover by the policy if it were to meet the criteria described, and instead of referring to the bare description, “location”, the provision used the compendious “location insured”. The use of that expression has the added virtue of making it clear that the location to which the issue of proximity was to be applied was necessarily to be one that was within the insurance cover, rather than a location where the insureds’ works that were harmed might be outside the cover. The use of “insured” may not have been entirely necessary, but its presence is better explained as being merely to provide finer precision, rather than being to render the expression, “location insured”, synonymous with a different expression used in different parts of the policy for different purposes. The inclusion of the word, “insured”, should not be treated as the basis of a convoluted attempt to have its accompanying word, “location”, mean the entire Project Site in accordance with a suggested “general scheme” as to the meaning of the respective subject matters of those words, a conclusion which is not supported by reason.

The argument based on “situation”

39    In the course of his submissions, Counsel for the Contractors focused attention on the definition of “Project Site” and, specifically, on the fact that it was ambulatory in nature, picking up the situation stated in the Schedule and “any other situation where the Insured is performing the works or has property stored or being processed together with all surrounding areas in connection with the Project”. He submitted that the policy contemplated that there may be a number of situations where the insurance would apply and, on the facts of the present case, the site referred to in the Schedule was that which was relevant to the present claim. From this, it was submitted that the reference to “location insured” in cl 3.12 should be read as a reference to the relevant “situation” within the scope of the defined meaning of “Project Site” where the damage is caused. So the submission went, the data from the weather station nearest to that locale would then provide the foundation for assessing whether the rainfall event which caused the damage had the required characteristics. It was submitted that, in the present circumstances, recourse would be had to the Site Southern Automatic Weather Station as it was geographically closest to the “situation”, being the road works area from Warrell Creek to Nambucca Heads.

40    The attempt to substitute the word “situation” for the words “location insured” in cl 3.12 encounters the same difficulties as does the attempt to substitute the words “Project Site”. It should be rejected for that reason alone. Most significantly, it does not overcome the illogicality that results from seeking to ascertain whether damage was caused by a one-in-twenty-year rainfall event by reference to the rainfall at a distant weather station, ignoring that which is most proximate. Similarly, the adoption of that construction would still have the consequence of denying cover for damage caused by a one-in-twenty-year rainfall event, conclusively established by the data from a proximate weather station, merely because a weather station significantly further from the damage did not record it. Again, it would have been easy for the parties to have used the word “situation” in cl 3.12 as opposed to “location insured”, had the provision been intended to have that effect.

41    The Contractors sought to overcome that latter difficulty by identifying that cls 3.12, 3.13 and 3.14 do not have grammatical congruence with the chapeau to cl 3 as a whole. This, it was submitted, indicated that the policy was the combination of a standard form document and certain added exclusions, with the consequence that greater latitude should be given to infelicitous expression. Whilst the premise can be accepted, the conclusion should not be. Necessarily, the reading of the policy as a whole requires that the literal operation of the opening words of cl 3, “This policy does not provide indemnity in respect of:”, and the opening words of cl 3.12 be modified to provide a sensible meaning. That, however, is a matter of running together the words in each which indicate that the policy excludes particular types of damage or damage caused in a particular way. It does not require any alteration to the words of cl 3.12 which describe the location of the reference point for determining whether the event in question had the required character. The mere fact that cl 3.12, amongst other clauses, was added to a standard policy does not mean that the words used should not, to the extent it is possible, be given their ordinary meaning. That is especially so when that meaning results in the clause’s logical and businesslike operation.

42    Counsel for the Contractors also sought to draw support from cl 4.3(b), which limits the liability of the Insurers for any one “Event” at any one situation to the Limits of Liability as expressed in the Schedule. It seemed to be submitted that, if the expression, “location insured”, was not read as “situation”, it would follow that, for the purposes of that clause, the “situation” would be broken down into several parts, thereby undercutting the purpose of the limits. However, the purpose of the descriptor, “location insured”, is to identify the place within or in relation to a “situation” at which an intense rainfall event occurs and from which a proximate weather station is to be identified in order to measure that event. The fact that the event may occur, and the resultant damage may arise, at only part of the situation has no relevance to the operation of cl 4.3(b). The “location insured” is not the same as the “situation”, save only that it will be within one of the situations. Accordingly, the limits applicable in respect of each situation under cl 4.3(b) apply regardless of the geographical scope of the “location insured”.

A further possible construction of cl 3.12

43    The parties to the litigation proceeded upon the basis that the words in cl 3.12, “prepared by the Bureau of Meteorology for the nearest station to the location insured, or such other independently operated weather station situation near or adjacent to the location insured”, raised a true alternate choice between the several identified weather stations, with the relevant one being that nearest to the “location insured”. As the litigation proceeded upon that assumption, it should be determined accordingly. Nevertheless, an alternative interpretation was raised late in the course of the hearing, being that the exception would apply if the one-in-twenty-year rainfall event was recorded either at the Bureau of Meteorology weather station nearest to the location insured or at an independently operated one near or adjacent to the location insured. This latter construction was relied upon by the Contractors as supporting their interpretation of the clause.

44    It is not necessary to determine whether this alternative construction is open on the wording of cl 3.12 because, even if it was, it would not assist the Contractors’ case. On the contrary, the expression “near or adjacent to” increases the required specificity of the “location insured”, thereby preferring the interpretation that it is the actual site of the damage rather than the situation or Project Site. Also, there were no independently operated weather stations near or adjacent to the location of the damage, such that they have no relevance to the issues under consideration. That returns the discussion to identifying the Bureau of Meteorology stations and, for the reasons referred to above, the question is which is nearest to the location of the damage. In any event, neither of the Bureau of Meteorology weather stations recorded rainfall with a minimum return period of 20 years.

Preferred construction

45    It follows that the preferred construction of cl 3.12 is that, where damage to earthwork materials or pavement materials has been caused by a rainfall event, in order to establish whether the policy responds to the damage, the parties are to have reference to the weather station (whether operated by the Bureau of Meteorology or independently) nearest to the place where the damage was sustained in order to ascertain whether the 24 hour rainfall statistics for the day on which the damage occurred show an event with minimum return period of 20 years. The expression, “location insured”, should be construed as that place within the Project Site where the loss or damage in respect of which the claim is made has occurred.

The result

46    It follows that the Insurers are entitled to relief in the nature of a declaration as to the meaning of the expression, “location insured”, in the following terms:

It is declared that, on its proper construction, the term “location insured” as it appears in Exclusion 3.12 of a written policy of insurance dated 27 June 2014 issued by the respondents to the Named Insured being Roads and Maritime Services means the location of the loss or damage caused by the event referred to in that exclusion which is covered under the policy.

47    There is no reason why costs should not follow the event and the applicants should pay the respondents’ costs of the hearing of the separate question.

Associate:    

Dated:    28 March 2023