CIC Insurance Ltd v Barwon Region Water Authority [1998] VSCA 77

2. For a number of years commencing on about 1 August 1993 the respondent water and sewerage Authority (and its predecessor, the Geelong and District Water Board) was insured by the appellant insurer against loss and damage to property belonging to it or for which it was responsible. The property primarily in issue in this appeal consists of three structures crossing either the Wormbete Creek or the Barwon River and carrying the Authority's pipelines. The three structures may be called:

(2) The Queen's Park Bridge pipeline, at Geelong; and

(3) The Queen's Park Suspension Pipe Bridge, also at Geelong.

The three structures differed in construction in that each of the first and third was owned by the Authority and was constructed and maintained to carry the Authority's pipelines across a watercourse. The second was a pipeline controlled by the Authority and attached to and forming part of a more substantial bridge, the Queen's Park Bridge, used by the public, which supported the pipeline across the Barwon on bearers extending out on one side only from the superstructure.

9. In November 1995 there was a flood affecting both the Wormbete Creek and the Barwon River, which burst their banks. The Wormbete Syphon and the Queen's Park Suspension Pipe Bridge were torn down in part, damaging the pipelines. The Queen's Park Bridge itself sustained no significant damage but the pipeline carried along its side was dislodged and thereby substantially damaged. The Authority claimed indemnity for damage to the Wormbete Syphon in the sum of $206,766.18, to the pipeline attached to the Queen's Park Bridge in the sum of $48,905 and to the Queen's Park Suspension Pipe Bridge in the sum of $2,962.57. The appellant insurer denied liability and, when the respondent sued, counter-claimed for additional premiums payable not merely for the three structures but also for previously undisclosed water and sewerage pipes worth $466,000,000. At trial the Authority succeeded. It recovered judgment on its claim and the counter-claim was dismissed. The insurer now appeals seeking to reverse that result, subject only to this: that if the Authority's claim is now held to be wholly unsustainable, the insurer does not press the counter-claim.

13. Although the policy in question provided cover only in respect of physical loss, destruction or damage to property and for related consequential loss, it extended for some 51 pages, presenting a disorderly layout of largely unnumbered clauses variously comprised in sections, conditions, exclusions, memoranda and endorsements. One might be forgiven for thinking that the document was put together at the last moment (albeit it was not issued until 2 December 1993) with the assistance of a word processor or possibly a computer, but one would doubt the use of the latter since none of the clauses varied in later memoranda and endorsements have been deleted, thus requiring several hours to work out those earlier parts of the policy which continue to apply and those which have been deleted. This may be gathered from the fact that the various parts of the policy appear in the following order, if it so may be described, immediately after the provision granting cover: "The Schedule"; "Section 1"; "Memoranda to Section 1"; "Section 2"; "Memoranda to Section 2"; "Exclusions to All Sections"; "Memoranda Applicable to All Sections"; "Conditions - Applicable to All Sections"; "Endorsements Attaching to and Forming Part of the Policy, Section 1 and Section 2"; "Exclusions - Applicable to All Sections of the Policy"; "Memoranda Applicable to All Sections"; and "Conditions Applicable to All Sections". Upon careful reading the latter three are also endorsements varying specific terms of the policy, but the lack of numbering and the use of a common typeface for the headings makes that difficult to grasp at first glance.

16. The policy was described as an "Industrial Special Risks Insurance Policy". Subject to the various terms, conditions, exclusions, memoranda, etc., some of which will be mentioned below, the appellant by the policy agreed, in consideration of the premium to insure the Authority "against loss arising from any insured events which occur during the Period of Insurance stated in the Schedule or any renewal thereof". The name of the appellant as "insurer" and its 100% "proportion" of responsibility appears at the foot of the page. What is called the "Schedule" extends over the next three pages but it appears to be more precisely a definitions clause. Thus it contains definitions or descriptions of, inter alia, "the Insured", "the Business", the "Period of Insurance" (1 August to 1 August in each year), "the Premium", the "Limits" and "Sub-limits" of liability, "Deductibles" (i.e. the excess clause) and "the Indemnity Period". Only three need be set out here. First "the Situation and/or Premises" is defined to mean:

"Anywhere in Australia, where the Insured has property or carries on business has goods or other property stored or being processed or has work done (including whilst in transit)."

Secondly, although "The Premium" is stated specifically to be $112,016.22 (for year 1993-4) it is also said to be "provisional and shall be adjusted" under the Policy, as in fact it was for each renewal. Finally "Declared Values" in the Schedule (but cf. the further clause set out in para.7 below) reads:

"(In accordance with the Basis of Settlement) Section 1 (All Property Insured) $97,963,000 Section 2 Increased Cost of Working/Claims Preparation Costs/Accountants Fees $ 1,000,000"

22. The expression "insured events" referred to in the covering clause was not defined but it appears to refer to the word "event" where appearing in the opening words of, and describing the loss and damage covered by, each of the "Indemnity" clauses in Sections 1 and 2. It is unnecessary to concern ourselves with the provisions relating to consequential loss set out in Section 2. However, in Section 1, headed "Material Loss or Damage", there are three unnumbered provisions called "The Indemnity", "The Property Insured" and "Basis of Settlement". Although the "Indemnity" clause is long, it is only necessary to refer to the opening paragraph for present purposes:

"In the event of any physical loss, destruction or damage (hereinafter in Section 1 referred to as 'damage' with 'damaged' having a corresponding meaning) not otherwise excluded happening at the Situation to the Property Insured described in Section 1 the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, indemnify the Insured in accordance with the applicable Basis of Settlement."

Likewise in the next clause it is only necessary to set out the first paragraph of the effective definition of the "Property Insured":

"All real and personal property of every kind and description (except as hereinafter excluded) belonging to the Insured or for which the Insured is responsible, or has assumed responsibility to insure prior to the occurrence of any damage, including all such property in which the insured may acquire an insurable interest during the Period of Insurance."

A note to the definition states that the term should be understood to include "money", "cheques", "postage stamps" and the like and an "Endorsement" some 33 pages later extends cover to include all "property insured" whilst in transit within Australia. It should be noted that there is no dispute that all the property for which the respondent had made a claim was property belonging to it or for which it was responsible.

29. Again it is only necessary to set out in full the first paragraph (a) of the "Basis of Settlement" referred to in the Indemnity clause:

"BASIS OF SETTLEMENT (a) On buildings, machinery, plant and all other property and contents (other than those specified below); the cost of reinstatement, replacement or repair in accordance with the provisions of the Reinstatement and Replacement and Extra Cost of Reinstatement Memoranda as set out herein."

Paragraph (a) also contains a proviso, which need not be set out and which deals in part with an "Extra Cost of Reinstatement Memorandum". However, it should be noted that paras.(b) to (i) make provision for settling claims for a variety of items, including "raw materials, supplies and other merchandise", "finished goods", "computer systems", "records", "securities", "moulds and dies", "glass" and "employees' clothing".

34. There then follows a series of more unnumbered provisions called "Memoranda to Section 1". They include a number of important provisions relating to "Declared Values", "Reinstatement or Replacement", and "Co-insurance". A (second) clause called "Declared Values", of importance at least in relation to the provisions relating to reinstatement or replacement, reads:

"The Schedule of Declared Values at each location (in accordance with the applicable Basis of Settlement) attaches to and forms part of this Policy for the purpose of the application of Co-Insurance."

There is an "Endorsement" relating to this clause stating that the values should not include "any allowances for Extra Cost of Reinstatement", and the like.

39. It is also important to notice the "Reinstatement or Replacement" clause which is applicable only to para.(a) of the Basis of Settlement for Section 1. For relevant purposes that reads:

"The basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the damaged property ... For the purpose of the insurance under this memorandum 'reinstatement' shall mean: (a) Where property is lost or destroyed: ... the replacement thereof by similar property ... (b) Where property is damaged; the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new."

The clause continues with a number of qualifications and explanations, most importantly in sub-clause (iii) which makes the property insured subject to a "Co-insurance clause". This is a reference to the sub-clause apparently appearing at p.11 of the policy, but that is in fact made subject to an endorsement appearing some 31 pages later which substitutes the following provision, which in turn and on the following page of the policy is varied by the insertion of the words emphasised below:

"The property insured under this Memorandum is separately subject to the following Co-insurance clause: In the event of damage to property insured hereunder at any situation caused by any event hereby insured against, the Insurer(s) shall be liable for no greater proportion of such damage than the total amount of the Insured's declaration of value of property at all situations on the day of commencement of the Period of Insurance or any relevant renewal period bears to the sum representing eighty-five (85) per cent of the cost which would have been incurred in reinstatement if the whole of such property had been destroyed on that day, but not exceeding the Limit of Liability expressed in the Schedule; provided that ... Provided further that the above clause shall not apply if the amount of the damage does not exceed five (5) per cent of the amount of the Insured's declaration aforementioned."

I should add that the substance of this provision, strictly speaking, does not apply in this case because it is agreed on both sides that the amount of the claim is less than five per cent of the relevant value, howsoever that should be calculated.

46. A not dissimilar clause, also unnumbered but confusingly headed "Co-insurance" in the memoranda to section 1, makes almost identical provision for items (b)-(i) of the Basis of Settlement. Again the original clause was deleted and a new but similar clause substituted by an endorsement, which it is unnecessary to set out as that clause is for present purposes inapplicable to the subject of this claim.

49. The policy then makes provision in Section 2 for cover for "Consequential Loss" over some seven pages and returns to presently relevant provisions in "Exclusions to all Sections" at p.23 of the policy. The first group are called "Property Exclusions" of which there are two only which are relevant, those exclusions reading:

"This Policy does not cover physical loss, destruction of or damage to the following property or loss under Section 2 resulting therefrom: ... 8. land, provided that this exclusion shall not apply to structural improvements on or in the land if such structural improvements are not otherwise excluded in this Policy. 9. bridges, canals, roadways and tunnels, railway tracks (other than on the premises occupied or used by the Insured), dams and reservoirs (other than tanks) and their contents ... "

It also should be noted that there follows a series of "Perils Exclusions" of which one, on the face of the policy, might appear to have been relevant in that it excluded loss destruction or damage occasioned by "flood", but, as is characteristic of this policy, the particular exclusion is deleted by an endorsement appearing some 22 pages later whereby there is substituted an exclusion for damage resulting only from "water from or action by the sea etc.".

54. There are but a few other relevant provisions. In a list of unnumbered "Memoranda applicable to all Sections" the following clause relating to the calculation of premiums appears:

"ADJUSTMENT OF PREMIUM (a) The Premium shown is provisional and is calculated on the Declared Values of : (i) Property Insured, (ii) Gross Profit and Insured Pay-Roll, on the day of commencement of each Period of Insurance. (b) The Insured undertakes to declare to the Insurer(s) within a reasonable time after the day of expiry of the Period of Insurance: (i) the value of Property Insured on the day of expiry of the Period of Insurance. For the purpose of this declaration, stock in trade and/or merchandise shall be taken at its average value during the Period of Insurance; (ii) the amount of the Gross Profit earned and Pay-Roll paid ... (c) The provisional premium should be adjusted by payment to the Insurer(s) of an additional premium or by allowance to the Insured of a return premium, as the case may be, calculated at the agreed rate on: (i) Fifty per cent (50%) of the difference between property declared in accordance with clauses (a)(i) and (b)(i); ..."

58. Finally, among a series of numbered "Conditions Applicable to all Sections", Condition 1 related to "Misrepresentation and Non-disclosure" upon which no direct reliance was placed by the appellant, and there were other conditions relating to matters such as cancellation, notification of claims, subrogation and precautions to prevent loss. As already noted, thereafter appeared the "endorsements" applicable to all parts of the policy.

62. The other circumstances giving rise to these proceedings are set out in the judgment of the learned trial judge. There is no dispute that the existence of any of the three structures was not the subject of any disclosure by the Authority to the insurer either before the original policy was entered into or before either of the two renewals was granted. Nor is there any dispute that the Queen's Park Bridge pipeline was not in itself a bridge, although a significant part of the dispute both at trial and on this appeal was whether the other two structures were or were not "bridges" within the meaning of the exclusion to the policy, for, if they were, the insurer was not liable for the damage to them.

65. The Wormbete Syphon structure supported a pipeline across the Wormbete Creek but it also carried a platform which provided access for vehicles of the Authority and its employees when carrying out their duties in relation to that structure. The Queen's Park Suspension Pipe Bridge consisted of concrete piers on either side of the Barwon with the necessary cables and cross-bracing to carry the pipeline across the river, but otherwise it could not be used for the passage of either employees or vehicles, so that it provided solely a means of taking the water from one side of the river to the other. The learned trial judge held that neither of these structures were "bridges" as contemplated by the policy as they did not have the characteristic of being used for the purpose of being used for transportation, primarily of the public.

68. On either interpretation, however, there was at least one structure (the Queen's Park Bridge pipeline) which it was said had not been disclosed in the sense that not one of the three structures appeared in any of the three schedules or declarations of value (as at 1 August) made by the respondent up to the time of the accident. For reasons not entirely apparent, the appellant has never relied on non-disclosure, as such, probably because it saw its only remedies as setting off or obtaining an order for payment of the differential in premium, a figure of little over $550, a sum which, at least for the year in question, it had waived shortly after this proceeding had commenced.

71. Instead the appellant insurer has relied on the respondent's failure to act towards it with the "utmost good faith", as required by s.13 of the Insurance Contracts Act 1984 of the Commonwealth ("the Act"). It said that the respondent had failed to "declare" the three structures, (or the one pipeline if the appellant's construction of exclusion clause 9 be accepted), at the beginning and end of each period of insurance as was required by the "Declared Values" clause and by the "Adjustment of Premium" clause. At no relevant time had any such declaration been made which identified any of the structures. None of the three "schedules of property values" was in fact prepared after the end of each year's period of insurance, although on paper they bore the date 1 August; rather, they appeared to have been made as part of the process of negotiating the insurance cover (in the first year, 1993) and of negotiating renewal of the policy in the later two years, 1994 and 1995. However it was conceded that the adjustment of premium declaration made in early 1997 included a sum representing the value of the three structures as at end of the year to 1 August 1996.

74. Although the "schedules of declared values" were said by the appellant to be important for a number of purposes including both the co-insurance clauses and the adjustment of premium clause, it is by no means clear how they operated in practice and what documents were seen to be the relevant declarations. Indeed the figure for "all property" appearing as such in the "Declared Values" in the Schedule to the policy by which all property insured was valued "in accordance with the Basis of Settlement" at $97,963,000 was not consistent with a "schedule" as at 1 August 1993 and, for reasons which are not clear, seems to have been an arbitrary figure chosen by the parties at the time cover was granted. There was very little material in evidence relating to the negotiation of the original policy other than the document which was tendered headed "Schedule of Property Values as at 1/8/93". It is a relatively detailed list of properties spreading over some four and a quarter pages, but the nature of the items or their addresses or locations of many of the items are not given. A number are described in the most general way such as "water pumping stations" ("anywhere in Board's district") valued at $3,090,000, "estimated pipes on site" valued at $3,000,000, "bores ground water" valued at $1,751,000, "fences anywhere in Board area" valued at $741,000, "water storage tanks" ("anywhere in Board area") valued at $1,000,000, "103 sewerage pump stations" and "3 ejector stations" ("anywhere in Board district") together valued at $11,700,000, "flow metering stations" valued at $56,000 ("plant"), "mobile change/tool sheds" ("anywhere in Australia") valued at $184,000 ("plant"), "telemetry equipment at various sites" valued at $861,000 ("plant"), "records at various locations" valued at $4,600,000 ("plant"), "tools of trade and personal property of employees" valued at $7,100 ("plant"), "various computer equipment" valued as "plant" at $4,000,000 and "Atco huts at various locations" valued at $51,200. The rest were somewhat more specific, at least as to location, but the above list shows how wide cover was intended to be and how difficult it would have been to identify every item comprehended by the "all property" clause. However the Schedule did not contain any reference to the three structures here in question or to any water or sewerage pipes placed in the ground.

77. When the question of renewal of the policy first arose, seemingly in June 1994, the brokers, Sedgwick Ltd., wrote to the Authority seeking instructions to obtain quotations and asking for the completion of a declaration. Indeed, the letter of 2 June 1994 said that certain declarations were "attached" which had to be "completed/updated" so as to obtain the necessary quotations, but, from a comparison of figures in the later certificate of renewal and the schedule of 1 August 1994, it seems that the attached draft declaration was not put in evidence. A renewal confirmation (dated 28 July 1994) stated that no proposal form needed to be submitted because of the "comprehensive information supplied" and recited the "asset values" at $104,316,109, on which the premium was struck at an agreed rate. The renewal certificate put in evidence dated 1 August 1994 made no reference to values but the confirmation itself was accepted by the appellant on 1 August 1994. There was a "schedule of property values as at 1/8/94" also put in evidence but the figures added up to $104,294,800, which was different, even if very slightly so, suggesting that it was the declaration of "value of property insured" submitted later for the adjustment of premium clause, but there was no other evidence as to how it came into existence.

80. The same procedure (in substance) seems to have been adopted for the year in question, that is the year commencing 1 August 1995. On this occasion negotiations appear to have commenced in April 1995 and on 1 May 1995 (and again on 1 June 1995) there appears to have been sent to the respondent a draft schedule of property values based on the 1 August 1994 values. After some negotiations a renewal confirmation was sent on 31 July 1995 and accepted by the appellant on 1 August 1995 which contained reference to total "asset values" of $104,826,900, which on this occasion was identical with the total values in a document headed "Barwon Region Water Authority - Schedule to Property Values as at 1/8/95", but which is otherwise undated and unsigned. Details of values of specific and general assets took much the same form as in the 1993 schedule. The values differed to some degree (e.g. "pipes on site" was reduced to $1,100,000) but not significantly overall. Whether any declaration was made for the premium clause for year ended 1 August 1995 is not clear, but, as I have said, a late declaration for year ended 1 August 1996 contained only total values.

83. The cost of reinstatement, set out earlier, was not in issue except for the cost of removing debris from the Wormbete Syphon site. That claim included the purchase and spreading of quarry rock over the access road to the site for use by a crane, the cost of the rock amounting to $5,885.90. The road on which the quarry rock was spread was needed to get access for a crane sufficiently large to move an old pipeline which still crossed the creek at that point but which had been decommissioned in 1989 when the new pipe had been installed. The two pipes were held together by a steel band and it was seen to be necessary to bring in a crane which would move the old pipe as a means of gaining access for the removal of debris which would enable repairs to the new pipe to be carried out.

86. As to the counter-claim, it should be noted that, after the writ was issued and some time after the last of the renewals expired in 1996, an officer of the Authority purported to make a declaration of values dated 1 April 1997 which is said to have included the value of the three structures now in issue. In fact the letter merely stated three total values as at 1 August 1996 of "buildings" at $82,991,900, of "plant" as $20,522,400 and of "stock" at $2,197,600. It was a matter of inference that the increase over the 1 August 1995 values represented the value of the three structures. In consequence there should have been an adjustment to increase the premium by $553.13. However, the action had then begun and the insurer waived that increase through the broker.

89. The insurer's counter-claim, however, covered a much wider scope in that it became aware for the first time as a result of these claims of the existence of a large number of pipes laid in land throughout the area under the control of the Authority. After its reconstruction under the name of the Authority the respondent became responsible for water supply and sewerage for an area in and around Geelong and the Bellarine Peninsula of about 8,100 sq. kms. Subject to the argument about the application of the exception relating to "land" and the improvements thereon, it should have been obvious to both insured and insurer that the Authority either owned or had under its control many kilometres of both water and sewerage pipes, being the network of piping for which it had primary responsibility. But like so many things which are obvious, that did not occur to either party until after the Authority's claim had been brought, perhaps because both took the same view of the meaning of the exclusion relating to "land". It is not clear how many kilometres are in question but the value placed on them for present purposes has been $247,000,000 for water mains and $219,000,000 for sewerage pipes, together with $1,000,000 for the three structures which led to this dispute. The counter-claim based on a rate of .0735% was said to amount to $340,024 per annum which, together with stamp duty and fire service levy, brought the counter-claim in all to $1,452,072. The evidence given at the trial was not entirely satisfactory as to what premiums the appellant would have been entitled to be paid. An expert witness, Warren Gray, merely said that the premium "would probably" have been struck at a rate of between one-half to two-thirds of the premium rate of .07325%, leading to a figure for additional premiums of somewhere between $726,036 and $968,048. That statement was confirmed by a former employee of the appellant, but in cross-examination it appeared that he knew nothing of the detail of the calculation.

93. The respondent made a claim against the appellant for indemnity in respect of the damage to the three structures, seeking payment of the sums referred to in paragraph 2 above. On those claims being rejected the respondent brought the present proceedings in the Commercial List of the Court. The appellant insurer raised a number of defences, many of which are no longer persisted in. For example, the appellant originally contended that none of the three structures was covered by the policy, whether or not any one or more of them was a bridge within the meaning of the exclusions. This general argument, which appeared to rely upon a construction of the policy in general, was not persisted in at trial. It is also to be noted that although the insurer pleaded and relied on the statutory duty of utmost good faith under s.13 of the Act, it did not plead non-disclosure of the three structures or of the other pipes under Part IV of the Act. As noted earlier, it also brought a counter-claim, agreed to be now dependent upon its failure successfully to raise any of the defences to the claim, for additional premiums in respect of the pipes as well as the structures.

96. The learned trial judge disposed of the proceedings by holding that all three structures were covered by the policy and further that neither the Wormbete Syphon nor the Queen's Park Suspension Pipe Bridge were bridges within the exclusion clause referred to above. The judge also held that there was no breach of the obligation to act with the utmost good faith as provided by s.13 of the Act. He also held in favour of the respondent in relation to two relatively small items relating to the cost of reinstatement, including the claim for $5,885.90 as the cost of supplying and spreading quarry rock on the access road. Because of his conclusions on the respondent's claim it was necessary for him also to consider the counter-claim. The appellant's counter-claim was dismissed, primarily because the learned judge held that all of the water mains and sewerage pipes were "land" within the meaning of exclusion clause No. 8.

100. Both at trial and in the course of argument on this appeal it has been seen as necessary to say something generally as to the construction of the policy before dealing with the specific questions of construction raised, in particular for the purpose of dealing with the insurer's argument as to want of good faith. No direct claim is founded on any breach of the policy's terms but the appellant relied on "breach" of the terms relating to declaration of values (and the respondent's failure to do so accurately) to show the Authority's want of good faith. Once again the Court has to construe a convoluted all risks property insurance policy, with only one additional head of liability, namely, related consequential losses: cf. the policy considered in Switzerland Insurance Aust. Ltd. v. Dundean Distributors Pty. Ltd. (C.A. February 1998, unreported). As I have already noted, the form of the policy, or at least that manifestation of it which has been provided to the Court, is one bound to lead to difficulties of construction. Much of the 51 page document is wasted by the failure to incorporate the endorsements into the policy itself. Traditionally, of course, many similar policies had attached to them slips and other endorsements which varied the language of a standard printed policy. However, at that time it was ordinarily possible to read the whole of the policy, although printed in very small type, on four or eight pages so that the endorsements could (relatively) easily be related to the principal provisions. In the present case this has been not possible in that the endorsements appear as a cascade of new and varied provisions at the end of the policy. One may have hoped, optimistically, that, with the advent of the computer, policies such as the present, which are merely typed or printed for the particular purpose and for the particular insured, and which are not required to follow a printed form, might be arranged so as to delete the irrelevant and superseded parts and to substitute in the correct position the matters added or varied by way of endorsement. These difficulties are contributed to by an almost complete lack of numbering of the clauses, except in the conditions and the two lists of exclusions, so that to determine the effect of the relevant endorsement one must look in the correct order for the earlier heading which most closely approximates to the heading appearing in the endorsement. To these difficulties may be added the use of the term "Declared Values" for what seem to be two different purposes in the policy.

103. However, I should first briefly summarise the scope and effect of the policy for the purposes of the present proceedings for reasons already mentioned. Although called an "industrial special risks" policy, the extent of cover granted is primarily against loss of or damage to the insured's property together with related consequential losses. One needs to distinguish a number of general provisions from a series of specific provisions relating to the two types of cover, section 1 making provision for "material loss or damage" and section 2 for "consequential loss". The single page opening clause which grants cover in the most general terms also recites the various sections, conditions, endorsements, etc. which make up the policy. The reader is sent immediately to other provisions in that, after stating the consideration by reference to the premium in the Schedule, the insurer agrees, subject to the terms etc. of the policy, "to indemnify the insured ... against loss arising from any insured events ...". The latter words are only given meaning in each of the two sections. The only other matter of substance on this first page is a proviso which limits the liability to the insurer "at any one situation" to that which is stated in the Schedule. However, as appears from the immediately following Schedule, the word "situation" is non-specific in that it is stated to cover "anywhere in Australia" where effectively the insured holds property or carries on its activities. Likewise the "limit(s) of liability" in the Schedule is of little consequence for the purposes of the present dispute in that for the year in question the limit of liability for "any one loss or series of losses arising out of any one event at any one situation" was $22 million. As stated above, the Schedule is in effect a definitions clause, providing definitions of such matters as "the Insured", the "Period of Insurance", "the Premium" and the "Deductibles", which in effect for present purposes provided for an excess of $5,000 to be borne by the insured. The Schedule is also the place where the expression "Declared Values" first appears but only, as is there stated, "in accordance with the Basis of Settlement", whatever that precisely means. Provisions for the "Basis of Settlement" appear in both Sections of the policy.

106. It is only in the detailed provisions set out thereafter in each Section of cover that one can grasp the nature of cover given under the policy, inasmuch as each sets out the nature of the "indemnity", the "property insured" and the "basis of settlement". The width of the present policy may be seen both from the cover provided in the indemnity under Section 1 for "any physical loss, destruction or damage" to the property insured and also from the terms of the definition of "Property Insured" as comprehending "all real and personal property of every kind and description", both that owned by the insured and for which it is responsible, subject only (1) to that which is specifically excluded and (2), by inference from the indemnity clause, to the limitation that it is confined to events happening "at the Situation", which as I have said is defined as anywhere in Australia where the insured carries on its activities. That the subject matter of the policy is not meant to be confined to items of property specified in the policy or set out in any "schedule" or "declaration" is made clear from the extensive range of items covered in the "Basis of Settlement" clause and by the specific inclusion in the definition clause of all property in which the insured "may acquire an insurable interest during the period of insurance", thereby bringing within its scope property which could not have been declared up to or on the day of the commencement of the relevant period of insurance. Notwithstanding that the argument of the appellant might appear to have suggested the contrary, I would conclude that the policy covered all the Authority's property regardless of the making of declarations for the various purposes for which they are required under the policy. This conclusion, as I would see it, is fundamental to an understanding of the manner in which the policy was intended to operate.

109. The width of the policy may, in particular, be gauged from the extensive list of items which were covered and set out in the "Basis of Settlement" clause. The latter clause differentiates between stocks, chattels, raw materials and the like, irrelevant for the purposes of the present claim, and the basis for indemnity on buildings, machinery, plant and all other property. That has been set out above and its terms are dependent upon the clauses providing for the cost of reinstatement, replacement or repair, in accordance with the specific memorandum also set out above headed "Reinstatement or Replacement". The significance of these other items in the Basis of Settlement clause, for which no claim is now made, is that each of those items was capable of being covered by the policy. Although many were not applicable to the Authority's activities, several were, such as "raw materials", "supplies", "computer systems records", "business books and other records", and "employees' clothing and tools of trade", as was reflected in the Schedules of declared values for each year, said to "form part of this Policy". It would be virtually impossible to produce a list of every item such as these, to identify a location for each and to give each a value. No such particularity could be demanded, if the policy was to provide the cover it purported to grant and which the insured could fairly demand. For its part the insurer could only require, in fairness, a broad approximation of the items and their values, for the purpose of the "declared values" clauses.

112. Under the "reinstatement or replacement" clause there is a difference between those claims where the insured seeks the indemnity value and where it seeks only reinstatement or repair, for in the former case the insurer has the option of paying the value or reinstating, replacing or repairing the property damaged. No such option was here sought to be exercised, but the first two structures were the subject of replacement claims and in relation to the Queen's Park Suspension Pipe Bridge the cost of repair only was sought.

115. The Basis of Settlement clause thus sends one to the memoranda, in this case those appended to section 1. The basis which is here provided is that the insured shall be paid the "cost of reinstatement of the damaged property", but that is subject to a number of complicated provisions which are set out in some detail above (para.6), but in essence, when property is lost or destroyed, the insured is entitled to replacement by "similar property", whereas, when it is damaged, it is entitled to the repair of the damage and restoration to condition as new. For the purpose of the present appeal, however, it is necessary to understand the qualification contained in the substituted "co-insurance clause", which seeks to give effect to the insured's declaration of value. It should here be noted, as is set out above, that there is a second co-insurance memorandum, which need not be examined in detail, but which is intended to have a similar effect upon claims other than the ones in issue in the present case.

118. I would understand the purpose of the two "co-insurance" clauses to be primarily a means of restricting an insured's right to recover where for one reason or another, deliberate or otherwise, the insured has failed to disclose, or put an appropriate value on, property to be insured. In marine, fire and other property insurance policies, clauses of this kind are common, although it may be said that in this country and in the United Kingdom they have been more frequently called "average" clauses in that the object of them is to average the loss for which indemnity is given to a proportion in value of the insured's property based on a comparison between the value of that for which the insured sought cover with that for which the insurer was in fact at risk. The term "co-insurance", although arguably a misnomer, is intended to reflect that the insured chooses to be its own insurer in respect of a proportion of property for which it fails to seek cover, whether or not that is based on a failure to place full value on the assets insured. There are many difficulties which arise in the drafting, construction and application of clauses of this kind, as has been pointed out over many years by a number of writers. One may refer, merely by way of example, to a work written by H.S. Bell in 1935, Contribution in Fire Insurance, where the author refers to some 24 earlier works or papers, describes the history of these clauses and refers to different practices in their drafting and operation in the United Kingdom, the United States and Australia. A simpler, more recent discussion of the operation of such clauses appears in MacGillivray and Parkington on Insurance Law, 9th ed. paras.23-32 to 23-53 and cf. the most recent and brief discussion in the Court of Appeal in Economides v. Commercial Assurance Co. Plc. [1998] Q.B. 587 at pp.603-604.

121. What was there said by Simon Brown, L.J. is of interest in this context, though admittedly it was by way of obiter dictum and in respect of a disclosure obligation different from that which appears in ss.21-33 of the Australian Act (at p.603):

"Ordinarily, therefore, it appears, under-insurance, so far from being regarded as material non-disclosure justifying the avoidance of the policy, results instead in averaging, or indeed in full recovery without penalty."

Cf. Appleman: Insurance Law and Practice, vol. 4A revd. (1969) paras.2604.10 and 3866. Thus in my opinion a decision by an insured to undervalue the property covered or, possibly, not to set out every item for which cover is sought in an "all property" policy is a matter to be dealt with (if at all) under the law relating to non-disclosure, reliance upon which was specifically disavowed at all stages of this proceeding by the appellant insurer. It will be a matter to be considered again in relation to the claim of want of good faith, but the point here to be made is that, unless the failure arises in circumstances which can be characterised as fraudulent (cf. s.28(2)), under-valuation and non-disclosure will not ordinarily prevent recovery and, in particular, the scope of an "all property clause" definition will not thereby be read down.

126. An essential element in the present "co-insurance" clauses is the amount which the insured declares to be the "value of property at all situations on the day of commencement of the period of insurance". Here it should be noted that the expression "declared values" operates in two different ways in the policy. First the Schedule defines "declared values" at a stated sum for the purpose of the "Basis of Settlement", but there is a further provision in the memoranda immediately before the reinstatement or replacement clause asserting that "the Schedule of Declared Values at each location ... attaches to and forms part" of the policy for the purpose of the application of the co-insurance clauses. As I would understand it, that schedule had to be in existence at the beginning of each year of cover so that under the original policy the "Declared Values" were (arguably) as fixed in the Schedule to the policy at $97,963,000 and thereafter were agreed before the commencement of each relevant renewal period.

129. In addition, however, the insured was obliged by the "adjustment of premium" clause to declare "the value of Property Insured on the day of expiry of the Period of Insurance" within a reasonable time after the day of expiry of each period. The difficulty in the present case was that one kind of declaration may have been used to operate for the purposes of the other inasmuch as there is no direct evidence of the making of declarations under the premium clause (at least until after these proceedings commenced), but the other schedule of "Declared Values" in each year appears to have been worked out as part of the negotiations leading up to the entry into, and thereafter the renewal of, the policy. In general terms the "schedule" in each year appeared to form part of the proposal, although that word was never used in the course of the negotiations and each schedule seems to have been prepared so as to operate from 1 August of each relevant year. This appears to have occurred in order to satisfy the requirements of the two co-insurance clauses whereby the calculations were in part to be made from that date. The figures so provided enabled a denominator of the required fraction to be calculated (whenever that was necessary), but that is, of course, not to deny that the insurer would also have seen the detailed information provided to it as relevant to the writing of the risk and its renewal.

132. However, the clause in the memoranda to section 1 stated that the "Schedule of Declared Values at each location" was to attach to and form part of the policy for co-insurance purposes. Whether such detail was strictly necessary, when the rest of the policy took the form that it did, may be doubted, but the explanation for the language of its terms may lie in the form of the reinstatement and co-insurance provisions before they were amended by the endorsements. Although there are only limited circumstances in which one may look at clauses which have been deleted before the signing or other execution of a document (see Centrepoint Custodians Pty. Ltd. v. Lidgerwood [1990] VicRp 36; [1990] V.R. 411 at 422-424), it would seem permissible here to look at those earlier conditions in order to provide an explanation for the form of the clause as it presently stands. Under the deleted provisions the calculation was made by reference to property insured "at any situation". So the calculation would then have had to be made by reference to the true value of all insured property at a particular situation in contrast, for that purpose, to that which the insured had declared to be its value at that situation.

135. The clause amended by the endorsement, however, referred to the "value of property at all situations". Nevertheless it was suggested, with what consequences it was never made clear, that the three structures here in question were each at a "situation" not the subject of any declaration or other disclosure by the respondent to the appellant. Apart from the fact that there was a limit of liability referable to "any one event at any one situation" fixed at $22million for the purposes of the relevant year, the reference in the indemnity clause of section 1 to loss, destruction or damage "happening at the situation" must be read in light of the definition of "the situation" in the Schedule. That makes clear that the "situation" as there expressed is anywhere in Australia where the insured has property or otherwise carries on its various activities. In my opinion those words cannot confine the right of recovery to "situations" which have been made the subject of a declaration by the insured. Of course the clause as to "Declared Values" referred to "each location", not "situation", but it may be doubted whether any difference in meaning were intended, as the word "location" is not otherwise used in the policy.

138. It was said that disclosure of each "location" was essential to the operation of the co-insurance clauses and of the clauses concerning the adjustment of the premium, but, though that may be true even if the word "location" be treated as if it were "situation", the appellant has not chosen to rely on any defence based on non-disclosure, save to the extent that non-disclosure has been called in aid of its defence based on want of good faith.

141. A "declaration" of the "value of property insured" was also required for the "Adjustment of Premium" clause, hidden away in the Memoranda applicable to both sections. It clearly could not be the same declaration (there called a "Schedule") as that required for the co-insurance clauses, in that it was to be made "after" the date of expiry of each relevant period. How long was required in practice was never made clear in the evidence but that is not important. What was important was the appellant's complaint that, if either kind of declaration was below the "true" value, it would not receive the premium to which it said it was entitled. But that is to misunderstand the nature of the policy. The insurer's protection was in the co-insurance clauses, at least in cases of significant under-valuation. It is recognised that, if an insured understates the value of property, it recovers less under clauses of that kind. The difference may not be precise, the clauses may not always operate (as here where the claim was under 5%) or operate fairly, but that is a matter for the insurer to negotiate with the insured: cf. s.44 of the Act.

146. That the respondent Authority was bound to act towards the appellant with the "utmost good faith" cannot be doubted: so much is now provided expressly by s.13 of the Act, and cf. ss.12 and 14. The respondent's failure to make full declarations so as to include the Queen's Park Bridge pipeline, and the other two structures if covered by the policy, was said by the appellant to establish a want of utmost good faith on the part of the respondent. The appellant argued that, inasmuch as there had been such a breach of the duty imposed on the respondent by s.13, the respondent could not rely upon that "provision" of the policy whereby the appellant promised to indemnify the respondent with respect to "all real and personal property of every kind and description" belonging to it or for which it was responsible. Although, from time to time, counsel on behalf of the appellant appeared to place heavy reliance on what were alleged to be the inadequate declarations made by the appellant under the policy as though those inadequacies might in themselves be treated as a breach of good faith, s.14(1) of the Act would appear to cast any such breach in terms of a party's "reliance ... on a provision of the contract". The form of that section required the argument to be put in this way: that the Authority's reliance upon that provision in the policy which gave a wide promise of indemnity in respect of "all property etc." constituted in all the circumstances a failure by the Authority "to act with the utmost good faith". Thereby, so it was said, s.14(1) of the Act denied the Authority the right to "rely on the provision" providing indemnity of that kind. It was the unenforceability of the relevant provision, as proscribed by s.14(1), which was the basis of the appellant's argument in this Court, whatever be the precise consequences of subs.(2) of s.14. From the viewpoint of the insured subs.(1) appears to concentrate on the making of the claim, and reliance for that purpose on one or more provisions of the policy, so that ordinarily a failure to make full disclosure in the annual declarations or otherwise would not be a breach of that duty in itself but could only be part of the circumstances which, so it may be argued, would make it a breach of good faith for the Authority now to rely upon that provision which gave indemnity with respect to "all ... property etc.". The essential question under ss.13 and 14 therefore is whether in all the circumstances the making of the claim constituted a failure by the respondent to act with the utmost good faith. The appellant insurer contended that it was.

149. Unfortunately, therefore, the argument appeared to proceed upon an assumption that non-disclosure could be relied upon in itself for the purpose of establishing a breach of duty under s.13. Thus it was argued that the breach of duty consisted in not disclosing ownership etc. of the three structures and by not including those matters in the returns at the start and finish of each period, in circumstances where no specific declarations relating to those structures had been made. To my way of thinking, in formulating the breach in that way, the appellant appeared to be seeking to go beyond the requirements for full disclosure contained in the Act and in particular in Part IV of the Act. Section 12, being the first of the statutory provisions dealing with the duty of utmost good faith, expressly says that Part II "does not have the effect of imposing on an insured, in relation to the disclosure of a matter to the insurer, a duty other than the duty of disclosure". On their face the words are curiously expressed but the reference to "duty of disclosure" is confined by the definition in s.11(1) of the Act to the duty referred to in s.21 of the Act, namely the first and principal section contained in Part IV relating to the duty of disclosure. The obligation to disclose imposed by that part of the Act is extensive but carefully worked out so as to have regard to the respective rights and obligations of insurer and insured. Section 12 is merely intended to ensure that ss.12, 13 and 14 do not place a higher duty on an insured than is otherwise required under Part IV. It does not, however, follow that failure to make proper disclosure may not be seen for certain purposes, at least, as a breach of the duty of utmost good faith, even if that might have the effect of providing an alternative remedy for a failure to make disclosure to those remedies which appear in Part IV. Although it may be argued that these are but two sides of the same coin leading to remedies which are not mutually exclusive, it is not necessary to resolve these matters.

152. The real vice in the appellant's argument is that it chose to characterise an absence of disclosure as indirectly amounting to a breach of good faith in reliance on the provision relating to the making of claims where want of disclosure has not been pleaded and was not explicitly relied upon except in this indirect way. The highest it was pleaded was as a failure to make the relevant declarations as required under the terms of the policy or, more precisely, that the respondent failed to declare any of the relevant properties. Those assertions, however, are assertions of breach of contract, not of non-disclosure. Nevertheless, those breaches were asserted to be the basis upon which the insurer alleged a want of utmost good faith. Again that may be so, but, as argued, the issue is whether the making of the claim was a breach of the duty of good faith. I cannot see that it was. The making of a claim seeking indemnity cannot ordinarily be described as an act lacking good faith in circumstances such as the present, unless there be some agreement not to sue or some other act which would make the taking of that step one wanting in good faith. At the time the claim was made the failures to make the required declarations had already taken place and were known, whether or not they amounted to non-disclosures, and they might in themselves have led to some remedy or defence which the insurer could rely upon. However, the making of the claim itself and the respondent's assertion that the property was covered by the policy were matters which had to be resolved by reference to other events and which would be and are to be resolved according to law. It is not a case of a fanciful or contrived claim being put forward, for this claim in both trial court and in this court has revealed many legal issues of nicety and difficulty, and the respondent cannot be said to have acted in breach of the duty of utmost good faith in merely making the claim and bringing it to court.

155. Moreover, the requirement for good faith in the sense described in ss.12, 13 and 14 has been held to connote an element of honesty, however widely that duty should otherwise be construed. The judge explicitly found that there was no want of honesty and in my opinion rightly so. That some lack of honesty had for this purpose to be proved was held to be a requirement of the section by the Western Australian Full Court in Kelly v. New Zealand Insurance Co. Ltd. (1996) 9 ANZ Ins. Cas. para.61-317, in which it was stated that the duty had or required "the essential element of honesty": per Owen, J. (with whom Kennedy and Steytler, JJ. concurred) at pp.76,519-76,520, being a decision of an intermediate court of appeal on the meaning of a Commonwealth statute. Even if I were to think such a conclusion wrong, it is not appropriate for this Court to reach a different interpretation of the section.

158. I repeat that I agree with the learned trial judge that there was no want of honesty proved in this case against the respondent or any of its officers. The respondent's oversight seems entirely understandable having regard to the amount involved and the extent and variety of the assets under its control. As observed earlier, the whole network of pipes in the district was overlooked, though, perhaps, their existence and the fact that they formed part of the "property" controlled by the Authority would have been obvious to both parties. Two of the structures were, as will appear below, "bridges" and all three were part of a large network of pipes and sewers buried in the ground which again arguably enabled them to be characterised as "land" except, for the few metres where they were here exposed and possibly are likewise exposed elsewhere. So what was seemingly obvious may, in the end, have been denied by an application of the words of the policy, in the minds of both parties.

161. It was said by counsel for the appellant that the omission to declare the three structures was not inadvertent in that Mr Malecki, the manager for administration of the Authority, had said in evidence that "it never crossed my mind to insure" the three structures. But this was in a response to a question as to why they were not included in the schedule of declared values for 1 August 1995. Thus it was a question directed to a decision as to what should have been included in a declaration for an "all property" policy. It was not a conscious decision not to insure, such as might make a subsequent claim dishonest or otherwise in breach of good faith. It was merely an oversight in making out the schedule. Indeed, as pointed out above, such oversights are often the reason for the taking out of "all property" policies of this kind and more importantly the very reason why co-insurance or averaging clauses are included. In broad terms that has the consequence that, if there are serious oversights, then the insured suffers the disadvantage of receiving a smaller payout without there being any loss of cover.

164. I should add that, even if I were wrong in my view as to the requirement of dishonesty, the learned judge held explicitly:

"Even if a failure to act with utmost good faith need not always be attended by dishonesty, I do not consider that there is in this case any failure by Barwon Water to act fairly and reasonably or any act by Barwon Water contrary to community standards of decency and fair dealing."

Nothing put forward on behalf of the appellant would deny the conclusion there reached by the learned judge. The grounds relating to want of good faith have not been made out.

Were any of the structures "bridges" under exclusion 9_?_

170. Next there must be considered the express exclusion relating to "bridges" relied upon by the appellant and contained in paragraph 9 of the exclusion clause. The appellant contended that, of the three structures, two constituted "bridges" and that in consequence it was under no obligation under this policy to provide indemnity for loss or damage to them. Those two were the Wormbete Syphon and the Queen's Park Suspension Pipe Bridge. (No claim was made, it will be recalled, for damage to the Queen's Park Bridge itself, but only for damage to the pipeline carried along the side of it, which was not argued to be a "bridge" in itself.) The learned trial judge considered that neither of the two structures constituted a "bridge" within the meaning of the sub-clause, for underlying the collocation of nouns appearing therein was a unifying concept of transportation, and more particularly public transportation. As expressed in his reasons for judgment, his Honour expressed the concept as "transportation by the public". This may have been a slip or a mistype for "transportation of the public", but it does not matter inasmuch as the latter meaning was supported by the respondent in this Court.

173. As the learned judge observed, the definition of "bridge" in the Macquarie Dictionary is:

"A structure spanning a river, chasm, road, or the like and affording passage."

His Honour also saw the definition in the Oxford English Dictionary as having a similar effect, as it was expressed:

"A structure forming or carrying a road over a river, ravine, etc., or affording passage between two points at a height above the ground ...".

Counsel for the respondent seemed willing to concede that, as the judge had held, each of the two structures in question was a bridge in ordinary Australian usage.

180. Nevertheless, on behalf of the respondent it was argued, as the learned judge has also held, that that ought not "to be the end of the matter" in that, by reference to its context, especially by having regard to the collocation of words which made up exclusion 9, the word "bridges" should be given a more restricted construction and meaning. So it was said, as his Honour found, that the words in the exclusion all showed a common characteristic, namely, that they each described a means of transportation of, or passage by, the public. Using this purposive means of interpretation, the word "bridges" was therefore here to be given a more limited meaning. At trial reliance for this purpose was placed by the respondent on the words "canals, roadways and tunnels, railway tracks ... ", all said to import a connotation of "transportation" primarily of the public. Even at that time the additional words "dams and reservoirs" were ignored.

183. The argument presented to this Court chose also to ignore the words "railway tracks". As the argument rested in part at least on the principle "noscitur a sociis", it is difficult on the face of the exclusion to see how either of the two selective uses of the related words in the exclusion could be justified. However, exclusion 9 can fairly be divided into three parts, which might at first sight be seen to assist such an interpretation, by substituting two semi colons for two commas, as follows:

"Bridges, canals, roadways and tunnels; railway tracks (other than on the premises occupied or used by the insured); dams and reservoirs (other than tanks) and their contents."

Such a means of approaching the interpretation of the exclusion was not resisted on either side.

189. The resulting grouping would therefore be "bridges, canals, roadways and tunnels", but I cannot agree that a reading of the word "bridges" in that context imports a requirement that they should be used for the purpose of transportation of, or passage by, vehicles and persons, whether by the public or otherwise. A "public" element clearly cannot be justified: none of the four words imports that element and the only word in the whole of exclusion 9 which possibly has such a connotation is "railway tracks", but even then private lines can be used (and certainly were in the past) solely for carrying goods of particular enterprises. Moreover, even dispensing with the requirement of a public element, I cannot accept that the word "bridge" should be restricted to transportation and passage of persons and vehicles. In any event the Wormbete Syphon was designed to and did carry both the vehicles and employees of the Authority for its purposes. Even if this process of reasoning here be appropriate, which I would doubt, the other words in this group do not seem of their nature to require that vehicles or persons be afforded passage. "Canals" would now, if not in the past, merely require that water be taken or be allowed to flow from one place to another; the word includes channels of any significant kind, but, ordinarily understood, it does not require those channels to be navigable: see Provincial Insurance Australia Pty. Ltd. v. Consolidated Wood Products Pty. Ltd. (1991) 25 N.S.W.L.R. 541. Again the word "tunnels" does not require that vehicles etc. be afforded passage through any such tunnel and it is frequently applied to structures carrying large quantities of water.

192. In the end this arid discussion of the connected words merely shows that the word "bridges", like the other terms in the exclusion, requires no more than that such structures should provide a means of passage in one form or another. Passage of water can appropriately be effectuated by canals and tunnels. Likewise that can be said of bridges, wherever they allow for the passage of water, or piped water, from one place to another. Perhaps at one time a bridge carrying only water would have been called an "aqueduct", but the best known example of that means of carrying water is the Pont du Gard. In truth what physically characterises a bridge is that which enables it to be identified as such, not what passes over a bridge from time to time. As long as the structure has been built to cross over a river, a ravine, a road or a railway, etc. then it is of little consequence whether people, vehicles, water or commodities are afforded passage by the bridge; it is sufficient that the structure itself crosses from one side of a river etc. to the other.

195. There is nothing in the use of the word "bridges" in exclusion 9 or in the policy which would throw doubt on this conclusion or which would require a narrower interpretation to be given to the word. It is not a case where there is some obvious choice of meanings or other ambiguity or uncertainty which would require a purposive meaning to be given to the word, dependent on its particular context. "Bridge" is an ordinary English word of wide and practical application and meaning. With due respect to those who have suggested the contrary, both the structures in question here are comprehended by the word "bridges", so that I would conclude that these grounds (1-4) of the notice of appeal have been made out by the appellant. Neither bridge was covered by the policy. I would merely repeat that it has not been argued that the pipe attached to the Queen's Park Bridge should also be excluded from cover by reason of exclusion 9, with the result that the respondent remains entitled to judgment for the lesser sum of $48,905 in respect of the Queen's Park Bridge pipeline, together with interest.

Costs related to removal of debris at Wormbete Syphon

199. Having reached the conclusion that the Wormbete Syphon was a "bridge" within the meaning of the exclusion clause 9, it was not covered by the policy. That being the case, the amount of the claim for damage to that structure is no longer relevant and it need not be discussed further. As presently advised, however, I can see nothing wrong in the learned judge's conclusions on the issue, even if it were necessary to resolve it.

203. The appellant insurer stated through its counsel that it would not pursue the counter-claim if it succeeded on the appeal in persuading this Court that none of the three structures were insured under the policy of insurance, but the respondent has maintained its judgment in respect of the Queen's Park Bridge pipeline, for which it is entitled to judgment. Even though the judgment is greatly reduced, it is still necessary to consider the insurer's counter-claim. The nature of the counter-claim was never clearly identified. The few paragraphs, 15-19, of the pleading assert a right to receive the premiums for the three years, but they also allege that that right flows solely from the fact that, if, as has now been held, the "property" (scil. any of the three structures) is covered by the policy, then not only that "property" but also all other pipelines owned or controlled by the plaintiff were covered by each of the policies over the three years. Consequently the Authority was obliged to pay premiums for insuring the property and pipelines in respect of each of the three years of cover. There are claims alternatively for damages or in debt for payment of the premiums based upon replacement values and calculated at the rate of .0735%, which seems to be taken from the rate struck in respect of the last year of cover, in each case amounting to a claim for $1,452,072.

206. It is difficult to see precisely how such a claim can be sustained in all the circumstances. Difficult questions of analysis arose inasmuch as the learned judge chose to dispose of the counter-claim by holding that "property exclusion" no. 8 relating to "land etc." took the pipelines outside the cover provided by the policy, at least in relation to all pipelines which were buried below the surface of land either owned by the Authority or within its control pursuant to easements. After a careful consideration of certain conceptually difficult cases his Honour held, first, that the pipes were "land" and, further, that they did not amount to "structural improvements on or in the land" within the meaning of the qualification to that exclusion. Thus, it was not necessary for his Honour to go further in examining the basis or other merits of the counter-claim.

209. Even assuming that the appellant could show that the learned judge was wrong in his findings as to the operation of exclusion 8, it faced grave difficulties in establishing its counter-claim. Either it had to assert, as it did on the face of its pleading, that there was a right to recover the additional premiums over the three year period as a debt or it had to rely on some breach by the respondent insured of its duty to the appellant insurer which would entitle it to recover damages to be calculated by reference to the lost premiums. No clause of the policy was specifically relied upon to establish the entitlement to the premiums. The failure to allege any such entitlement is not surprising for there were but two provisions in each of the policies which were relevant to the payment of premiums. The first was the specific "premium" quantified in the schedule which was stated in the covering clause to be the consideration for the giving of cover to indemnify the insured. In the original policy for the year commencing 1 August 1993 the total premium was $112,016.22 and in the subsequent years one might have expected to find the premium in either the renewal confirmation or the renewal certificate. For various reasons the renewal confirmation showed only a premium rate for the year in question, but that rate was said in evidence not to be the real rate which in fact was .0735%. The only other provision relating to premiums was the Adjustment of Premium clause which has been set out above in para.11. That clause, as stated above, was intended to deal with the difficulties inherent in an "all property" policy and in particular in the case of a policy where it is desired that items acquired during the insurance year should also be covered. The declarations of value at the beginning and end of each year were thereby intended to enable the "provisional premium" to be adjusted by making an adjustment based on 50% of the difference between the two declared values, so far as the cover presently under consideration is concerned. The provision was also subject to "any abnormal fluctuation in values" where the further premium is "to be agreed between the parties".

212. Neither of those provisions gave the insurer any right to claim the premiums here sought as a debt. If the result be thought to be strange, it must be recalled that any significant failure to declare all subject property would ordinarily have brought with it the consequences of either non-disclosure or of the "co-insurance" provisions whereby, under a policy of this kind, such a failure to make full declarations (assuming that to be the case) would result in greatly reduced recovery. In the present case such considerations did not apply to the claim because of the specific clause which exempts claims of less than 5% of total values from the averaging or co-insurance clauses.

215. Alternatively, the counter-claim may be seen as based upon breach of a term of the policy or of an obligation imported into the policy by reason of the provisions of the Act. The most obvious breach in present circumstances might be thought to have been a breach of the duty of disclosure but that has specifically not been relied upon, certainly in relation to the claim, and I would infer also for the purposes of the counter-claim. No such reliance on breach of the duty of disclosure was put forward in argument on the counter-claim and, if it were, it might be thought that the insurer was blowing hot and cold in relation to the same issues. Moreover, I would doubt that non-disclosure has ever been part of the appellant's direct case. I would suspect that this is because of what are believed to be the limited remedies afforded by division 3 of Part IV and, possibly, s.54 of the Act. The latter section and, specifically in this case, subs.(3) of s.28 would merely entitle the insurer to refuse to pay on the claim to the extent only that its liability would have been reduced to an amount which "would place him in a position in which he would have been if the failure had not occurred or misrepresentation had not been made". Breach of the duty of utmost good faith was of course relied upon and argued in this Court with vigour by way of defence to the respondent's claim, but a remedy under that part of the Act is arguably similarly restricted having regard to the terms of s.54(1) of the Act. I did not understand it to be relied upon as entitling the appellant to a positive remedy under the counter-claim.

218. Finally it may be thought that the appellant was relying upon the breach of the obligation to declare values both for the purpose of the adjustment of premium clause and the co-insurance clauses. Certainly in the outline of argument before this Court reliance is primarily placed on the fact that the pipes "had never been included in the schedule of declared values". If so, the claim must be one in damages which the appellant sought to quantify by reference to the premiums which otherwise would have to have been paid. Here, however, the appellant insurer faced a problem arising from the inadequacy of the evidence to establish its loss. Such evidence as there was came from an expert underwriter, Mr Gray, (confirmed in the baldest terms by a former branch manager of the appellant) who conceded that the respondent would not have required fire cover on the pipes but would probably have wanted cover against other risks. On that assumption he said that the respondent's broker "would probably have been able to negotiate a premium of 50% to two-thirds of the rate of premium charged for the ISR policy issued to" the respondent.

221. In my opinion such evidence is totally inadequate for the purposes of establishing a counter-claim of this kind and magnitude. There was clearly no basis for charging the full rate calculated at .0735%, and this evidence was so vaguely expressed that there was a suggestion before the trial judge that the quantum might have to be reserved for further or other consideration. There was no evidence as to the value of the pipes in the earlier two years, nor as to the application of the premium rates then used.

224. For that reason alone I would not have acceded to the appellant's counter-claim but in any event I do not accept, for reasons already stated, that it has been shown that there was a breach of the obligation to make declarations of value pursuant to the terms of the policy. The obligation was not one which was intended to deal with the existence or otherwise of property which had not been declared or requiring property to be declared at its full value; it was merely a means of bringing up to date the subject matter of the insurance both in terms of its cover and in terms of its value. Any failure to make a proper declaration was to be looked at in the first place by considering the terms of the adjustment of premium clause. Secondly, any failure had the consequences specifically provided for in the "co-insurance" clauses. It was a matter for the insured to determine the extent of cover which it sought under the policy, subject only (and this is a very large qualification) to its obligation to make full disclosure pursuant to the requirements of Part IV of the Act. The remedies under that Part are reflected in the relevant provisions of the Act and do not give rise to a claim for breach of contract, whether pursuant to any implied term or otherwise, and the exclusive nature of the remedies given thereunder is explicitly laid down by s.33. No doubt the appellant wished to bring a large counter-claim for the purpose of these proceedings, in preference to relying on any defence based on non-disclosure, but it has not satisfied me that there was any basis upon which it could make out that counter-claim.

227. It is therefore not necessary to canvass in detail the reasons of the learned judge and it is sufficient to say that in my opinion the counter-claim was rightly dismissed. The appeal should be allowed only so as to substitute, in place of the trial judge's orders on the claim, a judgment in favour of the plaintiff Authority in the sum of $48,905, together with interest. The appeal against dismissal of the counter-claim should be dismissed.

232. I have had the advantage of reading in draft the judgment prepared by Ormiston, J.A. I agree with what his Honour proposes for the disposition of this appeal, and I do so substantially for the reasons given by him.

235. It still troubles me, however, as it did during argument, that the Authority can claim successfully for damage to property which was never included in any of the recurrent declarations of value, required under the policy for the purpose of calculating premium. Mr. Derham's answer was that the averaging provision, contained within the so-called "co-insurance" clause, provided a sufficient recompense for the insurer (as that will probably work to reduce the amount of any pay-out under the policy, where the clause is called into operation), and of course any claim for property not earlier mentioned will ordinarily attract additional premium as the price of making the claim. But that scarcely meets the point that the insurer may well learn of property omitted from the declarations of value, only when it suits the insured to disclose the omission.

238. For my own part, I should have thought that there was an argument, given the provisions of this particular policy, that the three items of property for damage to which the Authority was now claiming were not insured under the policy because of the Authority's failure to include them, either directly or indirectly, in a relevant declaration of value. But if the argument could be raised, it does not fall for determination; for Mr. Derham pointed out in his careful submissions that, although the appellant appeared to take the point in paragraphs 4A and 5A of its defence, in fact the point was not argued below. Nor was it argued before us, Mr. Barnard expressly stating that, according to the appellant, the property in question was covered (meaning covered subject to any express exclusion), though in his submission the Authority could not assert it without a breach of good faith.

241. I would allow the appeal to the limited extent proposed by Ormiston, J.A.