Hamcor Pty Ltd and Anor v The State of Queensland and Ors

Thynne & Macartney for the second and third defendants/applicants

[1] The second and third defendants ("the applicants") make application, pursuant to r 483, Uniform Civil Procedure Rules, for the separate determination of a question said to arise out of proceedings instituted by the plaintiffs ("the respondents") against the first, second and third defendants claiming damages for negligence.

[2] The question to be determined is whether the costs incurred by the respondents in remediating their own land in response to statutory notices and court orders, were capable of being the subject of indemnity under certain specified policies of insurance.

[3] The Court is to determine the separate question on the assumption of specified facts and documents, and in the event the respondents had been named as insured or as interested parties in the specified policies of insurance.

[4] The respondents do not oppose the separate determination of the question on the bases proposed by the applicants.

[5] The respondents are the owners of land at Narangba in the State of Queensland. In 2005, the land contained a chemical manufacturing plant operated by Binary Industries Pty Ltd ("Binary"). A director of that company was the second plaintiff.

[6] On 25 August 2005, the plant building and its contents were destroyed by fire. Queensland Fire and Rescue Services attended and brought the fire under control. In the course of doing so, large quantities of water became contaminated with chemicals. This water overflowed bungs and dams on the land, and escaped to surrounding State-owned properties and a creek, severely contaminating these places. A large quantity of contaminated water also remained on the land.

[7] By notice dated 20 October 2005, issued pursuant to the provisions of the Environmental Protection Act 1994 ("the Act"), the Environmental Protection Agency ("the EPA") required the respondents, as owners of the land "to conduct or commission work to remediate the contaminated land ... and nearby affected land". The work to be conducted or commissioned included a remediation action plan which was required to be submitted by 27 January 2006.

[8] By originating application filed in the Planning and Environment Court on 25 October 2006, the EPA successfully applied for orders requiring the respondents to remove the contaminated substances and clean relevant structures. As part of these requirements the respondents were required to use suitably qualified professionals and undertake appropriate investigations and precautions.

[9] Between 25 October 2006 and the present time, the respondents expended well in excess of $10 million in performing the remediation works. There remains outstanding matters concerning those notices.

[10] The Act provides a scheme in relation to polluted or contaminated land. This scheme empowers the EPA to give notice to the owner of polluted or contaminated land requiring remediation of that pollution or contamination.

[11] The powers given to the EPA are wide-ranging. They include the power to place any contaminated land on the Environmental Management Register, to undertake a site investigation of such contaminated land, and to require the owner of the land to conduct or commission work to remediate land on that Register.

[12] In 2011, the respondents commenced proceedings against the State of Queensland, as first defendant, and separate insurance brokers, as second and third defendants. The respondents claim, as against the first defendant, that the Queensland Fire and Rescue Service fought the fire negligently, thereby causing contamination to the land and its surrounding environment. The respondents allege this negligence led to the notice and orders, requiring remediation of the land at significant cost.

[13] The respondents claim, as against the applicants, that they owed them a duty of care in obtaining appropriate policies of insurance, which duty was breached, and that but for this breach of duty by the applicants, the respondents would have been able to secure, for their benefit, appropriate insurance cover for pollution and environmental risks associated with the land in an amount of not less than $10 million by either becoming insured or interested parties on specified policies.

[14] The respondents allege they have suffered damage as a consequence of the applicants' negligence in that they had no insurance cover for liability to pay compensation arising from pollution and environmental risks associated with the land, and have become liable to pay compensation, being the costs to remediate their own land pursuant to the EPA's notice and subsequent Court order.

[15] The respondents claim the steps they were required to take pursuant to the statutory notices issued by the EPA and the Court order, and the consequent costs incurred by them in taking those steps, constituted an event which would properly fall within the insuring clauses of the specified policies.

[16] The specified policies are three in number - a primary policy, an excess policy and an ISR policy. The primary policy, and the excess policy, are policies the second defendant had obtained for Binary in November 2003 for $2 million and $8 million respectively. Those policies commenced for the period 27 November 2003 to 27 November 2004, and were renewed for the period 27 November 2004 to 27 November 2005. Both policies were "claims made" policies.

[17] The respondents allege the ISR policy would have been reasonably available, and appropriate to the respondents, as owners of the land, and would have contained terms which would have provided the respondents with indemnity for costs and expenses necessarily and reasonably incurred in respect of damage to the land.

[18] The primary policy provided indemnity for public liability, pollution liability and products liability. It was a general condition of the policy that the insured give written notice to the insurers as soon as reasonably practicable "of any claim made against the insured (or any specific event or circumstance that may give rise to a claim being made against the insured) and which forms the subject of indemnity under this policy ...".

[19] The primary policy also contained a notification extension clause whereby notification by the insured of circumstances that may give rise to a claim which forms a subject of indemnity by the policy meant the insurers would, upon acceptance of such notification, deal with the claim as if it had been first made against the insured during the period of insurance.

[20] The operative clause of the primary policy provided:-

"The insurers will indemnify the insured against their liability to pay compensation for and/or arising out of injury and/or Damage (including claimants' costs, fees and expenses) ...

The indemnity only applies to claims first made against the insured during the period of insurance arising out of the business specified in the schedule.

For the purposes of determining the indemnity granted:

1.2 "Damage" means loss of possession or control of or actual damage to tangible property

1.3 "Pollution" means pollution or contamination of the atmosphere or of any water, land or other tangible property

[21] Section A of the primary policy dealt with public liability. Clause 7 provided the insured was indemnified "in accordance with the operative clause" but not against claims for and/or arising out of pollution or any product.

[22] Clause 8 contained an exclusion to the public liability section. It provided:-

"This section does not cover liability for claims arising out of:

8.1 the ownership, possession or use by or on behalf of the Insured of any motor vehicle or trailer for which compulsory insurance is required by legislation, other than claims:

8.1.1 caused by the use of any tool or plant forming part of or attached to or used in connection with any motor vehicle or trailer

8.1.2 arising beyond the limits of any carriageway or thoroughfare caused by the loading or unloading of any motor vehicle or trailer

8.1.3 for damage to any bridge, weighbridge, road or anything beneath caused by the weight of any motor vehicle or trailer or of the load carried thereon

8.1.4 arising out of any motor vehicle or trailer temporarily in the Insured's custody or control for the purpose of parking.

8.2 liability for which compulsory insurance is required by legislation governing the use of any motor vehicle or trailer

8.3 the ownership, possession or use by or on behalf of the Insured of any aircraft, watercraft or hovercraft (other than watercraft not exceeding fifteen metres in length and then only whilst on inland waterways)

8.4 damage to property owned, leased or hired or under hire purchase or on loan to the insured or otherwise in the insured's care, custody or control other than:

8.4.1 premises (or the contents thereof) temporarily occupied by the insured for work therein, or other property temporarily in the insured's possession for work therein (but no indemnity is granted for damage to that part of the property on which the insured is working or which arises out of such work)

8.4.2 employees' and visitors' clothing and personal effects

8.4.3 premises tenanted by the insured to the extent that the insured would be held liable in the absence of any specific agreement."

[23] Section B of the primary policy dealt with pollution liability. Clause 9 provided the insured was indemnified "in accordance with the operative clause" against claims arising out of pollution. Clause 10 provided an exclusion. It stated:-

"This section is subject to the exclusions to Section A insofar as they can apply, and also does not cover liability for:

10.1 claims arising out of or in connection with any Product

10.2 injury or damage caused by seepage, pollution or contamination, provided always that this exclusion shall not apply where such seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of insurance

10.3 the cost of removing, nullifying or cleaning up seeping, polluting or contaminating substances unless the seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of insurance.

10.4 fines, penalties, punitive and exemplary damages

(Nothing contained in exclusions 10.2, 10.3, and 10.4 shall extend to this insurance to cover any liability which would not have been covered under this insurance had these exclusions not have been applied)

10.5 Pollution which was the direct result of the insured failing to take reasonable precautions to prevent such Pollution."

[24] The excess policy referred back to the primary policy. Its limiting clause provided that liability only attached after the primary insurers had paid or been held liable to pay the full amount of their respective liability. The underwriters were then only liable for a further amount in excess of the primary limit up to the excess limit.

[25] The insuring clause of the excess policy provided:-

"Subject to the exclusions, conditions and other terms of this policy, the underwriters agree to indemnify the assured in respect of their liability to pay compensation (including claimants' costs, fees and expenses) for claims first made against the assured during the period of insurance for and/or arising out of injury and/or damage and occurring within the territorial limits specified in the schedule all as covered by and fully defined in the policy issued by the 'primary insurers' stated in the schedule."

[26] The ISR policy identified by the respondents indemnified the respondents in respect of specified costs and expenses. Relevantly, its terms would have provided:

"Subject to the liability of the insurer(s) not being increased beyond the Limit(s) of Liability already stated herein, the insurer(s) will also indemnify the insured for: ...

(f) costs and expenses necessarily and reasonably incurred in respect of: ...

(i) the removal, storage and/or disposal of debris or the demolition, dismantling, shoring up. propping, underpinning or other temporary repairs consequent upon damage to property insured by this Policy and occasioned by a peril hereby insured against;

(ii) the Insured's legal liability in respect of removal, storage and/or disposal of debris, notwithstanding Excluded Peril 8 in relation to premises, roadways, services, railway or waterways of others, consequent upon damage to the Property Insured by a peril hereby insured against, for such costs together with the cost of cleaning provided that such liability was not assumed by the Insured under an agreement entered into after the commencement of the Period of Insurance or any renewal thereof unless liability would have attached in the absence of such agreement.

Provided that the insurance under this section does not extend to any liability that the Insured may incur as a consequence of pollution of any kind;

(iii) the demolition and removal of any property belonging to the Insured which is no longer useful for the purpose it was intended, providing such demolition and removal is necessary for the purpose of the reinstatement or replacement of Property Insured under this section and is consequent upon damage to the Property Insured by a peril hereby insured against."

[27] The applicants contend the costs incurred by the respondents in undertaking remedial work in accordance with the notices issued by the EPA, and the subsequent Court orders, do not fall within the operative clause in the primary policy and, accordingly, do not fall within the purview of the excess policy. They further contend that those costs also would not properly fall within the insurance provisions of the ISR policy.

[28] The applicants contend the words "their liability to pay compensation for and/or arising out of ... damage ... to tangible property" in the operative clause in the primary policy, properly construed, required a liability "at law" to pay damages. As such, an entitlement to recover on the policy can only arise in the context of a claimant having a cause of action at law, against the insured, for the payment of damages as compensation.

[29] In support of that contention, the applicant relies on the principle that an award of damages is to compensate a plaintiff by putting that plaintiff in the position the plaintiff would have been if a defendant had not breached its obligations.[1] The applicants contend that viewed in this way, the scheme created under the Act, insofar as it relates to a person's own land, does not give rise to a liability to pay compensation within the terms of the operative clause of the primary policy.

[30] A right of indemnity would only arise where the respondents had paid compensation to a claimant. The costs of remediation, although costs legally incurred by the plaintiffs whilst complying with the notices, do not give rise to a liability to pay "compensation". Compensation, in context, can only refer to payments made where the payee has been wronged by the insured.

[31] In support of this interpretation, the applicants point to the provisions in the primary policy in respect of defence costs, which refers to "any claim made against the insured" and general condition 14.1 of the primary policy which again refers to "any claim made against the insured". The excess policy has a similar requirement in its insuring clause which again refers to a liability "to pay compensation ... for claims first made against the assured".

[32] The respondents contend the costs incurred in undertaking remediation work in accordance with the EPA's notice and subsequent Court orders properly fall within the terms of the primary policy, and therefore the excess policy. The primary policy is a composite policy of insurance providing insurance against public liability (Section A), pollution liability (Section B) and products liability (Section C). As the primary policy keeps respective perils insured by separate sections, it understandably excludes from one section claims covered by another section.

[33] The respondents contend the primary policy, relevantly to pollution cover, indemnified the insured "against their liability to pay compensation for and/or arising out of ... damage ...". "Damage" is defined as loss of possession or control of or actual damage to tangible property. Compensation is conceptually distinct from "damages". This is particularly so when construing it in the context of a policy covering separately the peril of liability in relation to pollution where that indemnity is distinct from a liability to pay compensation for public liability or products liability. The indemnity section of the pollution cover in the primary policy also indemnifies the insured against claims arising out of "pollution or contamination of the atmosphere or of any water, land or other tangible property ...".

[34] Further, the exclusion section, which did not cover liability for damage caused by seepage, pollution or contamination, or in respect of the cost of removing, nullifying or cleaning up seepage, polluting or contaminating substances, did not apply as the seepage, pollution or contamination was caused by a sudden, unintended and unexpected happening during the period of insurance.

[35] The respondents contend the coverage afforded by the pollution section of the primary policy is applicable to their claim as the contaminated fire water was "pollution" within the definition of that expression in cl 1.3 of the primary policy, and the notice issued under the Act and the orders subsequently made by the Planning and Environment Court were each a "liability", which connotes "being answerable, chargeable or responsible; under legal obligation".

[36] A policy of insurance is a commercial contract. Its construction is to be given a businesslike interpretation, having regard to the language used by the parties, the commercial circumstances which the insurance policy addresses, and the objects which it is intended to secure.[2]

[37] Where there is ambiguity, there is latitude for a liberal approach in favour of the insured. In that event, a Court may place upon the contract a construction which is reasonable and more in accord with the probable intention of the parties, provided the ordinary meaning of the words used in the policy permit this to be done.[3]

[38] The applicants rely on Yorkshire Water Services Ltd v Sun Alliance and London Insurance Plc & Ors[4] and Bartoline v Royal and Sun Alliance Insurance Plc[5] to support their contention that the expression "liability to pay compensation", in context, refers to liability at law in response to a claim from a claimant.

[39] However, the public liability policies under consideration in Yorkshire and Bartoline were materially different. They provided indemnity "against legal liability for damages" and "against legal liability for claimant's costs and expenses". The excess policy also dealt with sums which the insured became "legally liable to pay as damages or compensation".

[40] The express inclusion of the word "legal" in respect of liability, and of the words "for damages", make clear that any liability on the part of the insured had to be at law for damages. Such express terms do not exist in the policies under consideration in the present proceeding. The wording of the policies under consideration in Yorkshire and Bartoline are so materially different from the words in the policy under consideration in the present case that little assistance can be derived from those cases.

[41] A similar conclusion follows in respect of the decision relied upon by the respondent in Monarch Insurance Co Ltd v Steel Mains Pty Ltd.[6] That case concerned a materially different policy, in materially different circumstances.

[42] The separate question in the present proceedings can only be determined from a careful reading of the policies as a whole, having regard to their context and the perils sought to be covered by those policies. Consideration must be given to the proper construction of the primary policy, the excess policy and the ISR policy, in the context of the commercial circumstances and the intended objects. Each policy is also to be construed in the context of its being a whole document rather than individual parts.

[43] A consideration of the primary policy must first have regard to its structure. It is a composite policy. The insured is seeking indemnity in respect of three separate types of peril, public liability, pollution liability and products liability. Those circumstances mean the proper interpretation to be given to this commercial contract is not one bound by an interpretation of the indemnity provided in the public liability section, or in the products liability section. The proper interpretation is to be derived from a consideration of the pollution liability section, reading the policy as a whole. The terms of the primary policy must also be read having regard not only to the operative clause, but also the exclusion provisions.

[44] The definition of "pollution" in the operative clause includes contamination of land or other tangible property. The definition of "damage" includes actual damage to tangible property. There is nothing within those definitions which restricts the land or tangible property to that of third parties.

[45] Further, when read in the context of a policy providing indemnity in respect of three separate perils, and having regard to the specific definitions of damage and pollution within that clause, the words "liability to pay compensation" is broader than a legal liability to pay damages to another. A liability to pay compensation is conceptually distinct from "damages".[7]

[46] However, that liability must be in respect of "claims ... made against the insured" (my emphasis). The requirement that the liability arises out of claims made against the insured can only be consistent with claims for compensation made against the insured by third parties.

[47] Clause 8.4 of the primary policy excludes from indemnity claims arising out of damage to the insured's own property. Whilst that exclusion appears in Section A, which relates to public liability, clause 10 of the primary policy incorporates the exclusions in Section A of the policy into Section B, which relates to pollution liability, "insofar as they can apply".

[48] There is no reason why that designated exclusion cannot, and should not, apply to claims for damages to the respondents' own property caused by pollution. It is not inconsistent with the terms of the exclusions in clauses 10.2 or 10.3. This is particularly so having regard to the words which appear after clause 10.4, namely, that there is nothing in these exclusions which "shall extend this insurance to cover any liability which would not have been covered" had the exclusions not been applied.

[49] Further, the incorporation of the exclusions in Section A does not render nugatory the pollution cover provided in Section B. Section B of the primary policy provides pollution cover for damage to property of third parties but not to the property of the insured.

[50] The exclusion of claims arising out of damage to property owned by the insured is entirely consistent with the intention of the policy being that it not include coverage in respect of any claims for compensation arising out of damage to the insured's own property.

[51] The costs incurred by the respondents in complying with the notices issued by the EPA, and the subsequent Court orders, are costs met by the respondents in respect of their own property. They do not constitute a liability to pay compensation in respect of a claim made against the insured. The fact that they arise as the result of action taken by a statutory authority is insufficient to allow them to be properly categorised as a liability to pay compensation in respect of a claim made against the insured.

[52] Those costs were not capable of being the subject of indemnity under the primary policy. As indemnity under the excess policy only attached once there was liability under the primary policy, those costs were also not capable of being the subject of indemnity under the excess policy.

[53] Those costs were also not capable of being the subject of indemnity under the ISR policy identified by the applicants.

[54] That policy provided indemnity in respect of costs and expenses necessarily and reasonably incurred in respect of "the removal, storage and/or disposal of debris". The use of the term "debris" is consistent with a requirement that any indemnity relate to the cost of the removal storage and/or disposal of accumulated physical items. It is inconsistent with indemnity being given for the costs of remediation of pollution in respect of the insured's own property.

[55] This interpretation is supported by the express exclusion contained within the pleaded clause that the insurance "does not extend to any liability that the Insured may incur as a consequence of pollution of any kind". The position of those words is consistent with the intention of the parties being that clauses (f)(i) and (f)(ii) of the policy not extend to any liability the insured may incur as a consequence of pollution.

[56] Even if the respondents had been named in the primary policy, the excess policy or an ISR policy, the respondents would not have been entitled to indemnity under any of those policies for the costs it has incurred in remediating its own land.

[57] The answer to the separate question is "no".

[58] I shall hear the parties further in relation to the form of orders, and as to costs.

[1] See Essays on Damages, P D Finn at p 86.

[2] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22] per Gleeson CJ; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 at [15].

[3] See Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520.

[5] [2007] Lloyd's Law Reports (IR) 423.

[6] [1986] VR 381.

[7] Dixon v Calcraft (1892) 1 QB 458 at 463.