AXA GLOBAL RISKS (UK) LTD v HASKINS CONTRACTORS PTY LTD

At trial, Puckeridge DCJ held that the insured property fell within the scope of the insuring clause and that the insured was entitled to be indemnified for the total cost of rebuilding both the eastern and western walls.

HELD: per Mason P (Bryson JA and Windeyer J agreeing) upholding the appeal in part and upholding the cross-appeal:

1. The policy responded to the eastern wall There was no proof of splitting or cracking before March 2000. There is a critical distinction between property that is liable to become damaged and property that is damaged. Although the eastern wall was defective when built, until the defects manifested themselves in injury to the structure there was no "physical damage to the property insured" within the meaning of the policy.

2. The appellant's submission on the quantum issue is rejected The insurer's submission that the insured was only entitled to recover for the cost that would be incurred if the old walls were reconstructed with their original faults should be rejected. A sensible, commercial and natural reading of the words "condition when new" is to read them as connoting a condition equal to the property damaged but freed only of the fatal defect(s) that led to such damage.

3. The cross-appeal relating to supervision of construction works is upheld On the evidence, the supervisory costs were necessarily incurred and the insurer was liable to indemnify.

4. Separate excesses were payable There should have been a separate excess with respect to each wall as the losses were separate, albeit that they stemmed from similar causes.

ORDERS:

1. Appeal upheld, but only as regards the excess point.
2. Cross-appeal upheld.
3. Insured to recover one half of its costs of the appeal.
4. The costs order in the insured's favour at trial is to stand. **************

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40591/2003 DC 10568/2001

MASON P BRYSON JA WINDEYER J

AXA GLOBAL RISKS (UK) LTD v HASKINS CONTRACTORS PTY LTD JUDGMENT

1 MASON P: This is a dispute as to whether an insurance policy responds. If it does, there are issues as to the quantum of indemnity and the application of an excess clause.

The Policy 2 The appellant (the insurer) insured the respondent (the insured) under a Contract Works and Liability Insurance Policy (the Policy). The period of insurance was from 31 December 1999 to 31 December 2000. 3 Section 1 of the Policy (Physical Loss or Damage) contains the following Insuring Clause: Underwriters will indemnify the insured in respect of all Physical loss or damage to the Property Insured occurring during the Period of Insurance arising from any cause whatsoever subject to the exclusions and conditions stated herein and as set out in the Schedule. Indemnity during any maintenance / defects liability period shall be limited to Physical loss or damage which originates from: (a) a cause arising prior to the commencement of the maintenance / defects liability period; or (b) an act or omission of the insured during the course of operations carried out in complying with the requirements of the maintenance and/or defects liability provisions of any insured Contract. The basis of indemnity under this Policy shall be the full cost of repairs, reinstating or replacing the Property Insured or any part thereof to a condition equal to its condition when new. Underwriters agree to allow appropriate levels of overhead charges and profit applicable to repair reinstatement or replacement.

4 The insured points to the distinction drawn between the insured event and its cause, as well as the provisions addressing the timing of relevant causes. 5 "Property Insured" is widely defined, including "the entire Contract Works whether permanent or temporary". 6 There are provisions defining the costs recoverable under a claim and provisions relating to the Excess which will be set out below when I address the quantum and excess issues. 7 There are several exclusions in relation to the cover for physical loss or damage, including: 1. Loss or damage to [sic] caused by wear and tear or gradual deterioration but this exclusion shall not apply to loss or damage which results from an occurrence caused by such wear, tear or deterioration. 2. Any costs of improvements to the original design, original plan, original specification, original materials or original workmanship, but this exclusion shall not exclude costs of reinstating loss or damage arising from error or omission in design, plan, specification, materials or workmanship. … 4. Loss or damage to the Property Insured after both practical completion of the entire contract and the expiration of any applicable Maintenance / Defects liability period. … 10. Any consequential loss, cost or expense, but this exclusion shall not apply to debris removal, professional fees, overtime, express freight, airfreight or any other expenses incurred to reinstate the Property Insured that has been lost or damaged….

8 It is notable that there is no general exclusion for defective workmanship (an exclusion found in some of the policies in the case law discussed below).

Facts 9 The insured was a construction company that, in May 1999, had entered into a building contract to construct a substantial subdivision project at Bayview. The contract works included two "Permacrib" timber crib retaining walls described as:

• the "western" wall or "road wall 1". 10 Construction of the walls had been subcontracted by the insured to Terra Services Pty Ltd (a company now in liquidation). The eastern wall was completed by October 1999. The western wall was commenced and completed in about March 2000, ie during the policy period. The difficulties that led to the demolition and reconstruction of the two walls occurred before practical completion of the relevant project (cf Exclusion 4). 11 During roadworks adjacent to the eastern wall in late 1999, a back-hoe/excavator machine damaged fairly small portions of the timber crib components of that wall (see photos at Blue 85). The insured's project manager, Mr Rippon, inspected the wall on 8 December 1999. He observed that the wall was intact, with no evidence of crushed or broken timber members apart from the minor damage caused during the roadworks (Blue 742). 12 Following a site inspection on 10 December 1999, the consulting engineers retained by the building owner (Young Consulting Engineers) forwarded a list of defects to the insured and the building owner. The list included the following: R1/P25 Crib Wall in Road 3 • Timber stretchers etc broken (several locations). R2/P1 Crib Wall, Road 3 • Timber headers and stretchers damaged.

13 The facsimile enclosing the list of defects referred to photographs that were "taken of the particular subject to clarify and illustrate the particular concern". There are two photographs, taken on 10 December 1999, that are labelled "R1/P25" and "R2/P1" respectively (Blue 85). These show purely external damage and they are entirely consistent with being pictures of the damage inflicted by the roadworks excavator and nothing more. Mr Rippon's unchallenged evidence (Blue 742) (apparently accepted by the primary judge) was to similar effect. 14 It was not until late February - early March 2000 that a different set of problems involving the walls were observed. These related to both walls and were broadly similar in their nature and ultimate consequences. 15 Minutes of a site meeting on 16 February 2000 record advice that several timber elements in the crib wall in Road 3 were broken and/or not adequately bearing on headers (Blue 87). 16 On 4 March 2000 Mr Talbot, a project engineer for the insured, sent a facsimile to Terra Services Pty Ltd. The sub-contractor's attention was drawn to a list of "defects and non-conformances" that included reference to numerous voids evident along the walls, particularly below the geofabric planting boxes. The voids required hand packing of infill material. 17 On 23 March 2000 Young Consulting Engineers sent a facsimile to the insured containing a more substantial list of defects in the crib retaining walls. The list included reference to splitting and crushing of headers and broken stretchers in the Road 3 wall (the eastern wall built in 1999); and to headers and stretchers rotated and/or twisted as well as crushing of some stretchers and headers in the Road 1 wall (the western wall built in 2000). The facsimile indicated that the defects were not regarded as minor. It had been decided to appoint independent consulting engineers, Sinclair Knight Merz, to provide third party assessment of the integrity of the walls with respect to the conformance to the specification and drawings, workmanship and long-term serviceability. 18 It was the insured's claim that this first manifestation of "distress" and "failure" in March 2000 was the occurrence that engaged the Policy (see Statement of Claim pars 7-8). 19 Sinclair Knight Merz Pty Ltd's report dated 24 March 2000 detailed several deficiencies in the two walls, especially the eastern wall (Blue 96). Some of the observed defects were undoubtedly of the nature of physical damage. They included the rotation or twisting of headers and the splitting or crushing of headers. 20 A copy of the report was forwarded to Terra Services on 28 March 2000. Subsequently Terra Services suggested that the defects were of a minor nature and that the walls met both the specifications and manufacturer's recommendation. Trial repairs were performed by Terra Services. These however were not acceptable (Blue 141). On 28 April 2000 the insured's Mr Rippon received a further facsimile setting out the rectification work required to by done by Young Consulting Engineers. That facsimile also referred to the crushing of a number of headers and stretchers in the western wall. 21 Terra Services was advised of the rectification work required, but it failed to carry it out. It later went into liquidation. 22 Site meetings in May 2000 record further evidence of crushing of individual timber members. The extent of the damage appeared to be growing. On 10 May 2000 Mr Rippon also observed that there was clear evidence of bowing in the vertical plane to most of the western wall. 23 In late May 2000 a draft report was obtained from Mr Allan Rose of Gardiner Willis and Associates Pty Ltd, consulting engineers (Blue 798ff). The report identified significant bulging in several locations in the western wall and a significant number of members of both walls that had suffered structural damage or failure. In the opinion of Mr Rose, there was no alternative other than to reconstruct the walls. 24 On Mr Rippon's instructions, the walls were demolished and reconstructed. The work on the western wall occurred between 1 June 2000 and 10 July 2000. The work on the eastern wall took place between 12 June and 5 August 2000. 25 Mr Rose closely inspected the two crib walls as they were demolished. He observed that no header support blocks had been provided. In his view, this was a major defect that had caused the crushing of the headers and stretchers at the front and rear of the wall. This was a clear breach of the manufacturer's written instructions, the project specifications and sound building practice. Mr Rose documented additional breaches of the project specifications and reasonable building practice. What he saw during demolition only confirmed his earlier view that the original walls had to be demolished and reconstructed. 26 Mr Rose gave evidence at trial consistent with the various reports that he provided in late 2000. His evidence was barely challenged and obviously accepted by the learned trial judge.

Key findings of the trial judge 27 Puckeridge DCJ accepted Mr Rose's evidence and held that the header support blocks were essential components of the timber crib construction. Their absence contributed to physical damage to other component parts of the structure which had an effect on the physical integrity of the structure as a whole (J38). 28 This damage to the insured property was held to fall within the scope of the Insuring Clause. 29 At trial, the insurer accepted liability for the western wall, but submitted that any damage to the eastern wall had not occurred during the period of insurance. The insurer submitted that the damage to this wall occurred as a result of poor workmanship by Terra Services prior to the commencement of the Policy on 31 December 1999. 30 The primary judge accepted Mr Rose's evidence that: … the combination of the eastern wall not being built in accordance with manufacturer specification details, incorrect backfill and absence of header support blocks resulted in substantial forces being applied to the eastern wall which disturbed the physical integrity of that wall and that the further disturbance was occurring during the period of insurance (J46).

31 His Honour appears to have drawn support for this conclusion from the terms of Exclusion 2 which were set out in the relevant portion of his judgment. He held that Exclusion 2 entitled the insured to be indemnified for the cost of rebuilding the eastern wall which cost arose from either an omission in specification material or workmanship. According to the insurer, Exclusion 2 had not been relied upon at trial. The insured relies upon it to bolster its argument on the correct approach to the quantum issue, but I find it unnecessary to wrestle with this submission. 32 Puckeridge DCJ held that it was reasonably required of the insured that the walls be rebuilt in accordance with the manufacturer's specifications and the project specifications and details (J40). He held the insured entitled to be indemnified for the total cost of rebuilding the eastern and western walls. 33 His Honour then addressed miscellaneous disputes as to quantum. The insured had itemised its claim in an annexure to the amended statement of claim. The figures accepted by the trial judge translated into a verdict for the plaintiff insured in the sum of $386,748.79. 34 There had been a dispute about the excess clause. When his Honour delivered his reserved decision he said that there should be an allowance for excess but only for the one excess fee. No reasons were given. 35 The issues in the appeal may now be addressed.

(i) Did the Policy respond in relation to the eastern wall? 36 The appellant submitted that the Policy did not respond in relation to the eastern wall because the relevant physical loss or damage occurred before the period of insurance. 37 This submission spanned legal and factual issues. In the main, it was based upon unchallenged findings of primary fact by the trial judge. 38 It was submitted that the findings established that the eastern wall was defective when built and doomed from the outset. The sub-contractor's materials and workmanship were so inadequate that collapse was inevitable from the time of construction. In particular, the absence of header support blocks meant that the splitting and cracking observed in March 2000 was always going to happen, as was the experts' decision that the wall had to be demolished and reconstructed. 39 The insurer accepted that this was an occurrence-based policy, but argued that the relevant occurrence happened in 1999, before the period of insurance. It submitted that the deficient collocation of building materials was itself physical damage. 40 The factual issue, raised in the alternative, was the submission that physical damage in consequence of inadequate construction had actually occurred in 1999. In my view, there is no support for this alternative contention. There was no proof of splitting or cracking before March 2000. The damage caused by the excavator in December 1999 was minor and never formed part of the insurance claim. The judge's references to "further disturbance occurring during the period of insurance" (J39, 46) do not state or imply that the earlier physical damage occurred before inception of the Policy. 41 The Court was taken to several cases said to illustrate the general proposition that insurance cover against "loss or damage", including "physical loss or damage", extended to physical alteration or change that impairs the value or usefulness of the thing said to have been damaged. These cases included Ranicar v Frigmobile Pty Ltd (1983) 2 ANZ Ins Cas ¶60-525, Graham Evans & Co (Qld) Pty Ltd v Vanguard Insurance Co Ltd (1986) 4 ANZ Ins Cas ¶60-689, Bayer Australia Ltd v Kemcon Pty Ltd (1991) 6 ANZ Ins Cas ¶61-026 and Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307. 42 In Ranicar, frozen scallops in the possession of the insured were rejected for export because they were found to have been stored at a temperature higher than that prescribed in the relevant export regulation. The insured was able to sell the scallops on the Australian market, but for less than would have been received had an export sale to a Canadian company been completed. In the Supreme Court of Tasmania, Green CJ held that there had been "damage to" the scallops within the insurance cover. He accepted evidence that the alteration in temperature had "undeniably involve[d] a physical change to a substance and … that change had the effect of removing one of the primary qualities which the scallops had - their exportability" (at p78,001). His Honour referred to several decisions in the criminal law as to the meaning of the word "damage". He concluded that the meaning to be given to the phrase "damage to" was (p78,000): … a physical alteration or change, not necessarily permanent or irreparable, which impairs the value or usefulness of the thing said to have been damaged.

43 Graham Evans was a decision of Foster J when a judge of the Supreme Court of New South Wales. The policy provided cover "in respect of occurrences … against all risks of physical loss of or damage to property of every kind… for which the Insured may be responsible". The insured contracted to paint the exterior surfaces of a high-rise block of units. The work required the application of a primer, followed by an undercoat, followed by a finishing coat. Not long after the painting work was finished it started to flake off in many areas in consequence of which the insured had to strip much of it away with a view to repainting. The evidence revealed that the main cause of the problem was that the primer coat had been applied in too dilute a form, in consequence of which it had failed to adhere properly to the concrete surface of the walls. As a result, the other two coats were prevented from adhering. Not surprisingly, the loss in relation to the outer coats was also held covered by the policy. The second and third coats of paint had been rendered useless and valueless because of the inadequacy of the primer coat. This constituted an occurrence in the form of physical damage, as required by the relevant insuring clause. 44 Graham Evans (and cases following it, including Walker Civil Engineering Pty Ltd v Sun Alliance & London Insurance Plc (1996) 9 ANZ Ins Cas ¶61-311 (Rolfe J), (1999) 10 ANZ Ins Cas ¶61-418 (CA)) illustrate that a policy of this nature may respond even though the cause of loss or damage was the fault of the insured or some party for which the insured was responsible. Naturally, such cover may be negated by a properly drawn clause excluding liability for defective workmanship, construction or design. This was the situation in Walker Civil Engineering. 45 Exclusion 2 in the instant Policy excludes certain costs of improvements to original design, workmanship or materials. But that Exclusion is not engaged and was not relied upon by the insurer. The insurer accepted that the Policy responded in relation to the western wall. 46 In Bayer Australia, cans of the insecticide helothian EC prepared and packed by the insured under contract to Bayer were contaminated with a herbicide known as velpar. The contamination occurred during the preparation and packing. Bayer sued the insured who sought indemnity under a policy giving cover with respect to "damage" occurring during the period of insurance, subject to various exclusions. The contaminated product was held to have been damaged because it had been physically altered due to velpar. Ranicar was applied. 47 In Guardian Assurance, excavation work imperilled adjacent buildings requiring them to be underpinned to avoid collapse. The under-pinning cost was held recoverable under a policy that indemnified the insured against "accidental loss of or damage to the Property Insured". The High Court held that the excavation was the property of the insured and that it was damaged by the fall of rock and earth. The cost of under-pinning in order to avoid the collapse of the adjacent office block was also recoverable because it was work necessary to be done in the remediation of the "damaged" excavation. Mason J (whose reasons were adopted by the other members of the Court) said (at 309): What is to my mind decisive is that the evidence establishes that the damage to the installations and office block disturbed the physical integrity and the enduring quality of the excavation itself. Unless and until the damage to the building and the installations was remedied the excavation was as susceptible to further collapse as it would have been had its walls not been secured. Had the work under consideration not been undertaken the excavation could not have been restored to its former condition. The costs in question therefore in my view reflect loss or damage sustained by the insured to the property insured.

(The case is not authority for the proposition that the need to underpin the office block was itself damage: cf appellant's submission at CA Tr p25. This submission overlooks the fact that the property that was insured and that was damaged was the excavation work.) 48 Each of these cases turned on its own facts. They illustrate that physical damage may have a cost impact that goes beyond addressing merely the integer of property that is physically marred. 49 But in none of the cases was the court concerned with a temporal issue as to when the physical damage actually occurred. For this and other reasons, none of the cases required consideration as to whether a particular event caused the policy to respond. It was clear on the evidence or simply beyond dispute that the scallops in Ranicar were physically changed by reason of storage at a temperature higher than minus 18º C; that the paint work in Graham Evans was wholly useless because of the physical problem with the primer coat; that the insecticide in Bayer was physically damaged by the velpar contamination and that the excavation works that collapsed in Guardian Assurance were themselves damaged property. 50 The insured accepts that the instant Policy responds when there is some injury to property (citing Graham Evans & Co v Vanguard Insurance Co Ltd (1987) 4 ANZ Ins Cas ¶60-772 at p74,693 per Dowsett J). It does not dispute that the eastern wall was defective when built. Its submission, however is that unless and until the defects manifested themselves in injury to the structure such as buckling, splitting or crushing there was no "physical damage to the property insured" within the meaning of the Policy. This occurred for the first time in about March 2000. I accept these submissions. 51 In oral submissions, senior counsel for the appellant gave the analogy of a fire policy covering a property in a remote location. If the property is destroyed by fire unbeknown to the owner who discovers the loss much later, the relevant occurrence still happened at the time of the fire, not its discovery. The analogy is inapt, because the observations of Mr Rose and others in 2000 did not lead to any inference that cracking or splitting occurred in the preceding year. 52 The insurer did not suggest that the Policy would not have responded merely because the original work and materials were defective. But it submitted that the judge's findings went further, in establishing that the eastern wall was doomed from its inception. So much may be conceded, but there remains a critical distinction between property that is liable to become damaged and property that is damaged. The Policy did not respond until physical damage actually occurred. The Insuring Clause extended to physical loss or damage "arising from any cause whatsoever". It cannot be rewritten merely because of the absence of an exclusion clause broad enough to cover the sub-contractor's bad work and inadequate materials.

(ii) The correct approach to the quantum issue 53 The insured sought to recover its costs of demolishing each wall and designing and constructing an adequate new wall. The new walls were erected where the old walls had stood and generally according to the same design and using the same materials. But unlike the old walls, they were constructed properly according to the manufacturer's system and the sub-contract specifications. 54 The issue of principle agitated by the insurer on the appeal was whether the insured was entitled to recover the reasonable cost of such walls, or whether (as the insurer contended) it was confined to the cost that would have been incurred if the old walls were reconstructed with their original faults. 55 In my view, the insurer's submission should be rejected for absurdity. 56 No one suggests that it would have been reasonable to erect walls with the substantial defects of their predecessors. For one thing, this might have exposed the insurer to a second set of claims if the new walls were to start collapsing during the period of cover. 57 The Insuring Clause stipulates that the basis of indemnity is to be "the full cost of repairs, re-instating or replacing the Property Insured… to a condition equal to its condition when new". See also the definition of "reinstatement" in Section 1(B) of the Policy (Blue 361). It would be an entirely forced reading of this language to construe it as suggested by the insurer. A sensible, commercial and natural reading of the words "condition when new" is to read them as connoting a condition equal to the property damaged but freed only of the fatal defect(s) that led to such damage. 58 There is an analogy with Colonial Mutual General Insurance Co Ltd v D'Aloia [1989] VR 161. A policy of fire insurance provided that if the insured buildings were destroyed by fire the insurer would pay to the insured "the costs incurred by the Insured in reinstating the Buildings in a condition equal to but not better or more extensive than their condition when new". The policy also required the insurer to pay the extra costs of reinstatement necessarily incurred to comply with relevant building laws. The Full Court of the Supreme Court of Victoria held that the issue of "reinstatement" was one of fact. Its starting point was a new building, the condition of which was "equal to" and no better or more extensive than the old. The Court said (at 167): The words 'equal to' mean, in our opinion, that the reinstatement does not necessarily have to conform precisely in appearance, structure and configuration to the destroyed building. But basically there must be 'equality' in the sense of size, structural quality, amenities, space, plumbing, electrical, gas and like installations. 59 The Court gave illustrations of reasonable "reinstatement" that produced a new building with requisite differences in value and configuration. 60 The insurer complains that the insured chose not to conduct its case as to quantum on the basis of proving the cost or value of what was destroyed. The insured was, however, within its rights because of the last two sentences of the Insuring Clause (set out above). Later provisions in the Policy also stipulate that it extends to include: A. Architects, Surveyors', Consulting Engineers', Project Management and other Fees Architects, Surveyors', Consulting Engineers', Project Management, legal and other fees and costs, together with the Insured's costs necessarily incurred in repair or reinstatement or replacement of any Property Insured consequent upon its loss or damage (including the preparation of claims). B. Debris Costs and Expenses Costs and expenses necessarily incurred by the Insured for: (i) Regaining access to the Contract Site (ii) Removal, storage and/or disposal of Debris and/or any of the Property insured which is no longer useful for the purpose for which it was intended and/or material foreign to the Contract (iii) Dismantling or demolition (iv) Cleaning, decontaminating and preparing the site, shoring up or propping (v) Temporary repairs and the restoration or resumption of original working conditions where loss or damage occurs in the vicinity of any Contract Site and it becomes necessary for the insured to remove, store and/or dispose of debris, wreckage or detritus in order to resume original working conditions. 61 The insured event occurred in 2000. The actual cost incurred by the negligent sub-contractor in 1999 is not the measure of the insured's loss in 2000.

(iii) The particular quantum issue relating to supervision of construction works 62 This issue arises on the cross-appeal, but follows conveniently from the point of principle just addressed. 63 The items of expenditure claimed by the insured included $101,250 with respect to supervision costs (see Items 75, 76, 78, 79 in the annexure to the statement of claim). On top of this, the insured claimed reasonable overheads and profit, invoking the trial judge's finding that 12.5% was a reasonable charge on this account. The total is $113,906. 64 The Policy entitled the insured to be indemnified in respect of: … Project Management, legal and other fees and costs, together with the Insured's costs necessarily incurred in repair or reinstatement or replacement of any Property Insured consequent upon its loss or damage (including the preparation of claims).

65 Mr Rippon gave evidence by written statement, subject to cross-examination. He provided a detailed explanation why there was a difference between Terra Services' original contract sum and the remediation cost claimed by the insured (Blue 764-7). 66 The work involved in demolishing the retaining walls was substantial and it had to be closely supervised to minimise damage to completed works. During reconstruction, Mr Rippon inspected the work generally at least half a dozen times a day. He met with sub-contractors and consultants. He was assisted in the supervision role by Mr Talbot, who carried out both engineering and supervisory functions during the rectification works (Black 55-6, 64-5). 67 During reconstruction, practically no other work could proceed because access was prevented by the demolition and reinstatement works (Black 56). 68 Mr Rippon estimated that all of his and Mr Talbot's time was taken up in supervising the demolition and reconstruction of the walls in the period from 1 June 2000 to 10 August 2000 (Items 76 and 79). Between 4 March and 1 June Mr Rippon spent about half of his time with activities preparatory to demolition and reconstruction of the walls (Black 63-4, Item 75, J59(a)). These estimates were not challenged in cross-examination and were apparently accepted by the primary judge, subject to what follows. 69 Puckeridge DCJ addressed the claim in respect of Items 75-79 at J59 to J64. Item 77 (J59(c)) is no longer pressed. 70 At J59 the judge summarised Mr Rippon's oral evidence. The insurer objects only to the summary concerning Item 79 (J59(d)). The judge found that the claim with respect to Mr Talbot after 1 June (Item 79) should be halved, because Mr Rippon stated that Mr Talbot would have been working on other projects at the time. Mr Rippon did not give such evidence. He said in effect that Mr Talbot would have been working full-time in relation to the demolition and reconstruction of the walls during the period in question (see Black 55-6, 64-5, 99-100). 71 There was no dispute at trial about the costing of the claims with respect to the services of Mr Rippon and Mr Talbot. The rates used in the calculations were taken from Haskins' costs records (Blue 536ff, 771-2, Black 63, 113). 72 The primary judge nevertheless rejected these items for the following reasons (J63-64): I do not consider that the plaintiff is entitled to be indemnified for overseeing work which would have occurred even in the event that Terra Services reconstructed the walls. Supervisory work had been carried out by Messrs Rippon and Talbot when Terra Services constructed the walls in the first place. Superannuation Workers' Compensation and provision of a car would have occurred in any event. The amount claimed is an estimate only and has not been paid. I note that project engineers and others also carried out supervisory work during the reconstruction and that Mr Rose was present on the site. I do not consider the amount claimed is a reasonable cost involved in replacing the property insured.

73 His Honour's reasoning is difficult to understand and it cannot, with respect, be accepted. It was irrelevant that Messrs Rippon and Talbot were involved in overseeing Terra Services work when the walls were first constructed. The question at issue was the reasonable cost of the reconstruction work. On the evidence, the costs of providing the supervisory services of Messrs Rippon and Talbot were necessarily incurred by the insured in the reinstatement work and only in that work. 74 It was true that Mr Rippon estimated the costs at $15,000 per month for himself and $12,000 per month for Mr Talbot (J61). The evidence (Black 113) was unchallenged and does not appear to have been rejected by the judge, despite the slightly dismissive reference to the amount claimed as "an estimate only". Mr Rippon disclosed the basis of his estimates. He was available to be cross-examined on them, but was not challenged. 75 It is unclear what the judge was getting at in his statement that the amount claimed had not been paid. It was Mr Rippon's estimate of the true cost of his services to his employer. It was based on salary that was actually paid as well as on-costs for superannuation, workers' compensation and the provision of a car. It was no answer that these costs would have occurred in any event, because they were incurred in a period when the employees were devoting their time to the supervision of the reconstruction work. Other work could not be done until the walls were rebuilt. 76 In my view, the insured amply demonstrated that the costs claimed in Items 75, 76, 78 and 79 were "costs necessarily incurred in repair or reinstatement of any Property consequent upon its loss or damage". In so concluding, I do not overlook the insurer's submission that "necessary" is not the same as "reasonable" (although the meaning is, in my view, tempered by reference to reasonableness and appropriateness: see generally Elcham v Commissioner of Police (2001) 53 NSWLR 7 at 18-20). 77 "Profit and overheads" at the rate of 12.5% were claimed and allowed generally (Red 7, Transcript 20 June 2003, pp1, 2). This Court was not taken to the evidence supporting this costing, but it does not appear to have been put in dispute by the insurer. What is disputed is the appropriateness of allowing this factor with reference to the supervision costs of Messrs Rippon and Talbot. The insurer submits that the factor is excluded by the Policy's reference to "costs" in cl A on p5 of the Policy (set out at [60] above). I disagree. Mr Rippon's evidence established what was obvious, namely that his employer incurred considerable overheads and on-costs on top of the salaries paid to himself and Mr Talbot. These appear to be what is reflected in the 12.5% "profit and overheads". 78 In the upshot the cross-appeal should be upheld. The insurer was liable to indemnify the cross-appellant by an additional sum of $101,250 plus 12.5% for overheads and profit, totalling $113,906. The judgment debt should be varied accordingly and should carry interest calculated in accordance with s57 of the Insurance Contracts Act 1984 (Cth).

(iv) The excess point 79 In the District Court the insurer submitted that if it was liable and failed on quantum there ought to be an excess of $50,000 applicable with respect to each wall. The insured submitted to the contrary. It succeeded, albeit that no reasons were provided by the primary judge on this issue. 80 The Policy had stipulated: Excess The Insured shall bear the following amounts in respect of each claim or series of claims arising out of the one event. $50,000 every loss

81 The Policy contains an Occurrence Clause in the following terms: It is agreed that any loss or damage to any Property Insured arising during any one period of 72 consecutive hours, caused by an insured peril shall be deemed as a single event and therefore to constitute one occurrence with regard to the Excess stated in the Schedule. For the purposes of the foregoing the commencement of any such 72 hour period shall be decided at the discretion of the insured providing that there shall be no overlapping in any two or more 72 hour periods in the event of loss or damage occurring over an extended period of time. Notwithstanding the above, it is hereby declared and agreed that where an occurrence or series of occurrences has arisen from substantially the same condition persisting for a period of time greater than 72 hours there shall be only one Policy Excess applied. 82 In this Court the insurer submitted that the Excess Clause was engaged and that the Occurrence Clause was not. The two walls were constructed at separate points of time, one being completely finished before the other was commenced. They were in different places. Different physical damage manifested itself and at different times. It was irrelevant that Terra Services had apparently committed similar breaches of contract when it erected each wall. It was also submitted that the insured bore the onus of establishing that its case fell within the aggregating situation addressed in the Occurrence Clause. 83 The insured relied upon the third paragraph of the Occurrence Clause. It submitted, correctly, that this paragraph contemplates that there may be more than one occurrence, provided the several occurrences can be described as a "series". This means a number of events of a sufficiently similar kind following one another in temporal succession (cf Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 21). 84 The only connection that must exist between each occurrence in the series is that it has arisen from "substantially the same condition persisting for a period of time greater than 72 hours". This requirement was satisfied, according to the insured, because the damage that each wall sustained during any one period of 72 consecutive hours caused by defective workmanship or materials constituted one occurrence. The condition causing damage to each wall was substantially the same, namely defective materials and workmanship. It follows that collectively the total damage to both walls constituted a series of occurrences arising from substantially the same condition persisting for longer than 72 hours. 85 I would uphold the insurer on the excess point. There should have been a separate excess with respect to each wall. The losses were separate, albeit that they stemmed from similar causes. But each wall had its own unique mix of defects leading to its instability. Each wall (with its variety of faults) was built separately. The "condition" referred to in the Occurrence Clause is a physical condition rather than a reference to a human agent.

Disposition 86 The appeal should be upheld, but only as regards the excess point. The cross-appeal should be upheld in the terms indicated above. In the upshot, the insured should recover one half of its costs of the proceedings in this Court, but the costs order in its favour at trial should stand. Since the judgment sum needs to be varied in two respects, with pre-judgment interest adjustments accordingly, the parties are directed to file Short Minutes within 14 days. 87 BRYSON JA: I agree with Mason P. 88 WINDEYER J: Although I find it extraordinary that an insurer should agree to indemnify an insured on the basis that, when a wall which was always badly built, falls down as a result of its being badly built, the falling down will be damage to property covered by the policy and the insured will be entitled to reinstatement by way of a wall properly built, I am satisfied for the reasons given by Mason P, that is the position. I agree with his judgment.

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