When is a claim ‘for’, rather than ‘in respect of’, property damage?

Legal Directions

Downer EDI Rail Pty Ltd v John Holland Pty Ltd [2018] NSWSC 326

Atlantis supplied components used, as part of a building project, to construct two underground rainwater detention tanks. One tank later collapsed and was replaced. Surface depressions developed over the second tank, which led to an allegation that it would also fail.

These events resulted in litigation in the NSW Supreme Court between various parties involved in the project, including the builder of the tanks. Those parties brought claims against Atlantis, seeking to recover the economic loss they would suffer if liable to compensate parties higher up in the contractual chain as a result of property damage suffered by the site owner.

Atlantis held an insurance policy with cover for public and products liability. As it was in administration, the court had, pursuant to NSW legislation allowing for direct claims against a liability insurer, permitted such a claim against Atlantis’s insurer.

The court ultimately found that Atlantis was not liable. Despite this, it made a number of observations concerning the relevant insuring clause in the policy. That clause provided cover for:

All amounts which You shall become legally liable to pay as Compensation in respect of … Property Damage … and caused by or arising out of an Occurrence in connection with Your Business.

The insurer argued, by reference to an English decision, that ‘in respect of’ property damage meant ‘for’ property damage, such that cover was only provided for liability to the owner or lessee of the damaged property. However, the court adopted the reasoning of an Australian decision, which the judge described as being to the opposite effect. It had held that a claim for economic loss could be a claim ‘in respect of’ property damage. It was only necessary that the liability for damages be on account of property damage.

Despite this, the court said that the policy would not respond. ‘Compensation’ was relevantly defined to mean ‘monies paid or … to be paid by judgment … for … Property Damage’. This meant cover was only provided if a judgment was entered against Atlantis ‘for’ property damage that was also ‘in respect of’ property damage. With one exception, the parties claiming against Atlantis accepted that their claims were not ‘for’ property damage they had suffered. The exception was the builder of the tanks, who argued that if the tanks were damaged as soon as the components supplied by Atlantis were installed, then its claim was ‘for’ property damage as it owned the tanks at that point. However, the evidence did not establish that that had in fact occurred. On that basis, the court indicated that the policy would not have responded to the claims against Atlantis.

This case illustrates how expressions such as ‘for’ and ‘in respect of’ inform the scope of cover provided by an insuring clause. It also underlines the importance of looking at the meaning of defined terms used in such a clause, when forming a view on the breadth of cover it provides.

Further information / assistance regarding the issues raised in this article is available from the author, Scott Krischock, Special Counsel or your usual contact at Moray & Agnew.

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