Hurlock & Ors v The Council of the Shire of Johnstone & Anor [2002] QCA 256

Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

(iii)Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant in the sum of $101,538.47 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal, and the cross-appeal to be assessed.

(iii)Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant in the sum of $141,550.97 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal, and the cross-appeal to be assessed.

(iii)Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant in the sum of $73,521.97 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal, and the cross-appeal to be assessed.

(iii)Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant in the sum of $136,322.17 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal, and the cross-appeal to be assessed.

INSURANCE - POLICIES OF INSURANCE - OTHER MATTERS - where respondent negligently sub-divided and sold flood prone land - where respondent sought indemnity from the local government insurance scheme - whether earlier complaints of flooding made to the respondent amounted to claims made for the purposes of the contract

INSURANCE - POLICIES OF INSURANCE - OTHER MATTERS - where appellant notified of claims against the respondent and the defences thereto - where the appellant did not take over the conduct of the actions or demur to them and subsequently admitted that the compromise of the claims by the respondent by consent judgment were `reasonable' - whether the appellant consented to or acquiesced in the settlement of the claims by the respondent and was therefore liable - Edwards v Insurance Office of Australia Ltd [1933] NSWStRp 61; (1933) 34 SR NSW 88 and Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603 considered

INSURANCE - POLICIES OF INSURANCE - OTHER MATTERS - whether the proper construction of the respondent's consolidated statement of claim included a claim under the "professional indemnity" provisions of the policy and that payments by the respondent to the plaintiffs for diminution of land value without physical damage to the property were within the cover provided by the policy

Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422, considered

Edwards v Insurance Office of Australia Ltd [1933] NSWStRp 61; (1933) 34 SR (NSW) 88, followed

GIO General t/as GIO Australia v Newcastle City Council (1996) 38 NSWLR 558, considered

GRE Insurance Ltd v QBE Insurance Ltd [1985] VicRp 9; [1985] VR 83, considered

Parker v Lewis (1873) LR 8 Ch App 1035, considered

Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1, considered

Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603, followed

Wytcherley v Andrews (1871) LR 2 P&D 327, considered

[1] WILLIAMS JA: These appeals were heard together and are brought by the appellant, The Local Government Association of Queensland Incorporated, against the judgment given in the actions at first instance in favour of the respondent, The Council of the Shire of Johnstone. The latter, by notice of contention, seeks to uphold the decision on additional grounds and also cross-appeals on the issue of quantum.

[2] Following flooding in the South Johnstone River which inundated properties in the subdivision known as Castor Park in 1996, 23 landholders commenced actions against the respondent alleging, inter alia, that it had been negligent in designing and constructing the subdivision and selling the land to them. There were four separate actions commenced, each essentially raising identical issues on behalf of the various plaintiffs. Work on the subdivision commenced in about 1989 and the land in question was sold by the respondent to the various plaintiffs from October 1991 until September 1995.

[3] In 1994 the respondent became a member of The Queensland Local Government Mutual Liability Pool ("the Pool") of which the appellant was the trustee. Members of the Pool were contractually bound to the Scheme Rules, and were entitled, on paying the appropriate contribution, to be protected by the terms of a document headed "Mutual Protection". To all intents and purposes that was a policy of insurance; it was said that for various reasons (which are not of present concern) it could not strictly be classed as a policy of insurance but it was analogous thereto. For purposes of these appeals the appellant can be regarded as the insurer of the respondent in accordance with a policy of insurance evidenced by the Scheme Rules and the document entitled "Mutual Protection".

[4] The flooding in 1996 caused some property damage to homes and buildings owned by some of the plaintiffs; in at least some of those cases there was a consequential diminution in value of the land. In other instances the only loss suffered by a plaintiff was a diminution in value of the land because it was prone to flooding. In the actions each of the plaintiffs sought damages against the respondent by way of compensation for the physical damage actually suffered and/or diminution in value of the land.

[5] Each plaint included an allegation that the respondent was negligent. On becoming aware of the flood in 1996 and realizing it might give rise to claims, the respondent notified the appellant of that fact; such notice was given on 24 April 1996. The receipt of that notice was admitted by the appellant in its pleading. The solicitor's letter threatening action dated 9 August 1996 was forwarded to the appellant by letter dated 14 August 1996; again that was admitted by the appellant in its pleading.

[6] The plaints in question were issued on 14 October 1997, 10 March 1998, 24 November 1998 and 11 December 1998. The respondent filed defences to each action, inter alia, denying liability, and also served a Third Party Notice on the appellant; in each case the respondent claimed against the appellant indemnity with respect to the claims of the plaintiffs. In each action the appellant filed a defence to the third party proceedings initially alleging that the respondent was not entitled to indemnity because of an exclusion clause, clause 18.

[7] The respondent was left with the conduct of its defence. The claims made by the plaintiffs were then compromised by a series of consent orders to which the plaintiffs and the respondent were parties; those orders were variously made between 10 May 1999 and 19 October 1999.

[8] After those compromises the respondent amended its third party notice in each action so that there was reference to the consent orders and the quantum specified in each order. There was no amended defence filed by the appellant.

[9] Thereafter a document entitled Defendant's Consolidated Statement of Claim against a Third Party dated 13 November 2000 was filed; it consolidated the claims made by the respondent against the appellant in each of the four actions. When the trial began the appellant had not filed a consolidated defence because the respondent had some objections to allegations contained in the draft consolidation which went beyond what had been pleaded in each of the four actions. There was argument at the outset of the trial about that and ultimately the appellant was given leave to file and deliver a Consolidated Defence which was marked Exhibit 1; the draft was amended in some ways before being finalised as Exhibit 1. That became the operative pleading on behalf of the appellant.

Before giving further consideration to the pleadings, and the issues which arose for determination by the learned trial judge, it is necessary to refer to relevant provisions regulating the respondent's right to indemnity.

[10] Relevantly the document headed "Mutual Protection" provided:

The Pool will pay to or on behalf of The Member all sums for which The Member shall become legally liable to pay by way of compensation in respect of

happening during the Period of Protection caused by an Occurrence in connection with the Business of The Member.

Professional Indemnity (This is a Claims Made Coverage)

(c) Any Claim or Claims first made against The Member and notified to The Pool during the Insurance Year arising out of any negligent act, error or omission whenever or wherever the same was or may have been committed or alleged to have been committed by The Member in the conduct of The Member's Business.

1. physical injury to or destruction of tangible property (which shall include loss of property) and the loss of use thereof at any time resulting therefrom, or

2. loss of use of tangible property which has not been physically injured or destroyed, (which shall include loss of property) provided such loss of use is caused by an Occurrence;

3. interference with any right of way, light, air or water.

Municipal or other Local Government Authorities, and all incidental and associated functions of The Member (including ... community housing scheme (also known as the Low Cost Housing Rental Scheme) ... and the like services).

An event, including continuous or repeated exposure to substantially the same general conditions, which results in ... Damage to Property neither expected nor intended from the standpoint of The Member.

(a) any writ, summons, application, third party proceeding or other originating legal or similar process, cross claim or counterclaim issued against The Member alleging breach of professional duty;

(c) any written or verbal demand alleging or implying breach of professional duty communicated to The Member under any circumstances.

14. Claims arising out of any negligent act, error or omission committed or alleged to have been committed by The Member except as provided in Professional Indemnity Section (c) of the Liability coverage.

CLAIMS NOT NOTIFIED DURING THE PERIOD OF PROTECTION

18. In respect of liability for Professional Indemnity under Section

(ii) of which The Member became aware, prior to the commencement of the Period of Protection and which a reasonable person in The Member's position would at any time prior to the commencement of the Period of Protection have considered may give rise to a Claim.

5(a) The Member shall not, without the consent in writing of The Pool, make any admission, offer, promise or payment in connection with any Occurrence or Claim, and if The Pool so desires, it shall be entitled to take over and conduct in the name of The Member the defence or settlement of any Claim.

(e) The Pool shall have full discretion in the conduct of any proceedings in connection with any claim and The Member shall give all information and assistance as The Pool may require in the prosecution, defence or settlement of any claim.

(f) Notwithstanding any of the above clauses (a) to (e) inclusive, The Member shall not be required to contest any legal proceedings unless a Queen's Counsel or a person of similar authority (to be mutually agreed upon by The Member and The Pool) shall advise that such proceedings should be contested, with the reasonable probability of success or partial success."

[11] There is nothing in the pleadings as between the respondent and the appellant or in any submission at first instance or on appeal suggesting either that the appellant took over the conduct of the proceedings (the four actions brought by the 23 plaintiffs) or that any advice was taken from a Queen's Counsel as to the reasonable probability of successfully defending those claims. The record of proceedings at first instance, and all that was said in argument on the appeal, is only consistent with the proposition that the appellant did not take over the conduct of those actions but left that responsibility with the respondent.

[12] The consolidated statement of claim alleges that the respondent made the appellant aware as soon as was reasonably practicable of the commencement of those actions and it is clear from the third party proceedings that the appellant was fully aware of all claims made against the respondent in the four actions and of the respondent's defence thereto. During the course of argument before this court senior counsel for the appellant acknowledged that at all material times the appellant had copies of the pleadings in each of the actions.

[13] Paragraph 14 of the consolidated statement of claim made the following allegation:

"The Defendant has reasonably agreed to compromise each of the Plaintiff's claims in this action, with each such compromise recorded in the terms of a consent judgment entered herein".

That allegation was expressly admitted by paragraph 13A of the consolidated defence.

[14] By paragraph 15 of the consolidated statement of claim the respondent claimed "to be indemnified against its liability to the Plaintiffs pursuant to the aforesaid consent judgments" and then set out full details of each of those consent judgments. The response to that in paragraph 14 of the consolidated defence was as follows:

"As to the allegations in paragraph 15 of the Consolidated Statement of Claim, the Third Party says:-

14.1 The Council's loss pertaining to the payments made to the Plaintiffs in the aggregate is $264,479.70.

14.2 The Council's loss in respect of the Plaintiffs' legal costs and outlays in the aggregate is $58,453.90.

14.3 The Council's costs and outlays in defending the principal action were $130,000.00.

14.4 The Third Party otherwise denies the allegations contained therein".

[15] In the course of opening before the learned trial judge, senior counsel for the respondent stated that on the pleadings the only issues for determination were whether the appellant was entitled to refuse to indemnify the respondent because of the operation of the exclusionary provisions found in clauses 14 and 18 of the policy. Shortly thereafter he referred to the fact that the respondent had "reached a compromise with each of the sets of plaintiffs" and said: "The Pool was made fully aware of the steps that the Council was taking in this respect. The Pool had not sought leave to contest the claim made by the plaintiffs against the defendant Council, but it didn't demur to any of the steps taken by the Council in the settlement with the Plaintiffs."

[16] Counsel for the appellant made no response to that, and it appears that the learned trial judge proceeded on the basis that the appellant had acquiesced in the settlements. It is significant that subsequent to those statements being made by senior counsel for the respondent there was argument about the consolidated defence, and some amendments were made to the draft before it was admitted as Exhibit 1. But there was no attempt made by counsel for the appellant to raise as an issue at that stage the contention that the appellant had not consented to the settlements.

[17] A consideration of the consolidated defence indicates that the following issues were raised thereby:

(1) Whether a claim (as defined in the policy) had been made in 1993 for flood damage so that (this being a claims made policy) the claim with respect to which indemnity was sought had been made prior to the respondent being covered by the policy. This was the issue effectively raised by paragraphs 4 and 7 of the defence, and was based on clause 14 of the policy;

(2) Whether the claims with respect to which indemnity was sought were excluded by operation of clause 18. This was effectively raised by paragraphs 7, 11 and 12 of the defence."

[18] The trial effectively proceeded with evidence being called with respect to each of those exclusionary issues.

[19] The plaintiffs in their actions particularised the negligence of the respondent as failing to conform with its own standards for residential subdivision immunity from flooding, that is immunity from flooding except for a one in twenty-five year frequency. It appeared that the respondent in designing the subdivision relied on some Main Roads Department data without carrying out its own checking, and in consequence the subdivision was prone to flooding on a one in three or one in five year frequency. It was in those circumstances that the respondent conceded liability and settled the claims; that, of necessity, involved an admission that it was negligent.

[20] As already mentioned there had been flooding of the subdivision after rain in 1993. A number of residents, including some who became plaintiffs, raised that issue by way of complaint with the respondent and an investigation was then made into the cause of the flooding. The respondent's engineers found that a drain had been blocked and that that was the cause of the 1993 flooding. The investigations carried out at that time did not reveal to the respondent the negligence in the design of the subdivision in that it did not reveal it was not immune from all but a one in twenty-five year flood.

[21] The appellant's contention was that the complaints to the respondent in 1993 constituted claims with respect to the negligence of the respondent concerning the design and construction of the subdivision and therefore the relevant claim was first made prior to the respondent becoming a member of the Pool; on that basis the appellant submitted that clause 14 operated to exclude liability. Further, or alternatively, the appellant contended that, given the 1993 complaints, a reasonable person in the position of the respondent ought to have then realised its negligence and appreciated that such negligence could give rise to a claim based on that negligence; the contention was that clause 18 thereby excluded liability under the policy.

[22] Given those issues, notwithstanding that the evidentiary onus probably was on the appellant, the respondent called engineering evidence to establish that the 1993 complaints were not based on negligence in design of the subdivision, nor should those complaints have put it on notice that it had negligently designed and constructed the subdivision. Those witnesses were cross-examined by counsel for the appellant with a view to establishing that at least by 1993 the respondent ought to have been aware, if indeed it was not aware, that it had negligently designed and constructed the subdivision and that claims for damages with respect thereto were likely to be made.

[23] It is important to note that the pleadings as between the appellant and the respondent did not put in issue negligence of the latter in the design and construction of the subdivision, nor was it an issue as to whether or not there was such negligence as justified the respondent in settling with the plaintiffs. Though reference was made in the course of cross-examination of the witnesses referred to above to the reliance initially placed on the Main Roads Department data all that questioning was only relevant to the issue whether in 1993 the respondent was, or ought to have been, aware of its earlier negligence.

[24] It is against that background that the following statements were made in the reasons for judgment of the learned trial judge (record 193, 201, 202):

"I should say at this point that I was impressed with Mr Graham Smith, the Shire Engineer at the time, and also with Mr Neil Collins, the consulting engineer from Lawson and Treloar. I accept their evidence on engineering matters. I note also that no expert evidence was called to contradict them. I am satisfied that it was reasonable in the circumstances for the Council to use the information provided by the Main Roads Department. I am satisfied that the Council competently and accurately designed and constructed the subdivision to the intended standard based on the Main Roads Department data. Unfortunately, as became apparent from the very extensive investigations carried out by Lawson and Treloar after the 1996 flood, the Main Roads Department data was inaccurate. As a result, the level of the allotments in the subdivision was significantly lower than that required to withstand a one in twenty-five flood event.

So far as the evidence before me is concerned, I am not satisfied that the plaintiffs' claims for negligence or breach of statutory duty would have succeeded. Rather, I find to the contrary. The opinion of Mr Collins was that it was reasonable for the Council to rely upon the Main Roads Department data in determining the appropriate level for the construction of the subdivision. There is no evidence to the contrary and I have no hesitation in accepting Mr Collins' opinion. I am, therefore, satisfied that the liability of the Defendant to the Plaintiffs could not have been based `on any negligent act, error or omission'.

As I hope I have made clear, in order to rely on Exclusion Clause 18, it is necessary to confine the Plaintiffs' claims against the Defendant to `liability by way of compensation in respect of any claim arising out of any negligent act, error or omission' (see broad form liability wording). In order to do that, the Third Party must rely on Exclusion Clause 14. For reasons I have given, I am not satisfied that Exclusion Clause 14 applies in that the claim for indemnity is not a claim `arising out of any negligent act, error or omission'."

[25] The conclusion that the respondent was not initially negligent is the subject of the Notice of Contention. By it the respondent asserts that it had made a claim under the "professional indemnity" provision of the policy, and that there was a "negligent act, error or omission" on its part with respect to the design and construction of the subdivision.

[26] The first point to make is that on the pleadings negligence with respect to the design and construction of the subdivision was not an issue for determination. With respect the learned trial judge appears to have misunderstood the purpose of the evidence which was led before him. Essentially it went to the issue whether in 1993 the respondent ought to have appreciated that the subdivision did not in fact comply with the intended design parameters. Insofar as the learned trial judge found that it was reasonable for the respondent's officers to conclude that the 1993 flood was solely explicable by the blocked drain his finding should be accepted. Though there was some challenge to that specific finding in the course of the appeal it was clearly open on the evidence, particularly given that the evidence called by the respondent was not contradicted. It follows that there was no "claim" made in 1993.

[27] Further, the respondent contends that the appellant consented to or acquiesced in the disposition of the actions by the entering of the consent judgments and that in consequence the appellant could not raise in the third party proceedings an issue as to the respondent's liability to the plaintiffs. In particular it was submitted by the respondent that in formally admitting that the respondent "reasonably agreed to compromise each of the plaintiffs' claims" the appellant consented to or ratified the respondent's conduct in conceding it was liable so that such liability could not be raised as an issue in the third party proceedings.

[28] There are a number of cases in which the question has been considered whether or not a party in the position of the appellant here was bound by the way in which the antecedent proceedings were resolved. Where that resolution was a judgment on the merits after a trial there is authority that the party in the position of the present appellant would be bound thereby. In Wytcherley v Andrews (1871) LR 2 P&D 327 Lord Penzance at 329 referred to the principle "that if a person, knowing what was passing, was content to stand by and see his battle fought by somebody else in the same interest, he should be bound by the result, and not be allowed to re-open the case." To similar effect is a passage in the judgment of Mellish LJ in Parker v Lewis (1873) LR 8 Ch App 1035 at 1059:

". . . I think that the law with reference to express contracts of indemnity is, that if a person has agreed to indemnify another against a particular claim or a particular demand, and an action is brought on that demand, he may then give notice to the person who has agreed to indemnify him to come in and defend the action, and if he does not come in, and refuses to come in, he may then compromise at once on the best terms he can, and then bring an action on the contract of indemnity. . . . It is obvious that when a person has entered into a bond, or bought land, or altered his position in any way on the faith of a contract of indemnity, and an action is brought against him for the matter against which he was indemnified, and a verdict of a jury obtained against him, it would be very hard, indeed, if, when he came to claim the indemnity, the person against whom he claimed it could fight the question over again, and run the chance of whether a second jury would take a different view and give an opposite verdict to the first."

[29] However, one cannot treat a consent judgment in the same way as a judgment on the merits after a trial; it must be regarded in the same way as a compromise or settlement of the proceedings in question. There are many cases in which the significance of such a compromise has been considered in later proceedings of the type in question here where the compromise has been relied upon as determinative of either or both the issues of liability and quantum. In that regard reference can be made to Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603, Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422, Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1, Edwards v Insurance Office of Australia Ltd [1933] NSWStRp 61; (1933) 34 SR NSW 88, and GRE Insurance Ltd v QBE Insurance Ltd [1985] VicRp 9; [1985] VR 83. Perhaps of most significance for present purposes is a passage in the judgment of Halse Rodgers J in Edwards at 98:

"In my opinion, the plaintiff, having been put in the position of having to take all steps in connection with the litigation of the claims against him at his own risk, is entitled to recover, as damages, such sums as he paid to settle those actions, provided that he shows that he acted reasonably in making the settlement. Evidence was tendered to show that the settlement was reasonable, including the advice of the solicitor now acting for the defendant company, and unless evidence were adduced to cut down that evidence I see no reason why he should not recover, in this action, the whole amount he paid in settlement. A lengthy argument was addressed to us, to the effect that, before he could recover on the policy, he must prove, to the satisfaction of the jury, the negligence of the driver, and his own consequent `legal liability', but, in my view, no such burden lies upon him. After the company's breach, by repudiation of liability in respect of the accident, he was bound to act reasonably, and, if a jury found that his settlement was reasonable, I think he was entitled to recover the sum paid in settlement."

[30] That passage is of significance if only because it was referred to, without any major criticism, by McHugh J at 613-4 and Gummow J at 625 in Unity Insurance v Rocco Pezzano. It can make no difference, in my view, that in Edwards the insurer had initially repudiated liability whereas here there was a mere standing by (with full knowledge) on the appellant's part leaving the conduct of the antecedent proceedings to the respondent.

[31] A reading of those cases convinces me that the compromise is binding on the insurer in circumstances such as these, unless it is demonstrated that the compromise was unreasonable or that there was some other valid defence available to it in the proceedings brought by the insured. McHugh J in Unity Insurance v Rocco Pezzano at 612ff correctly pointed out that establishing that the settlement was reasonable may not necessarily in all cases satisfy the relevant tests for causation and remoteness. But where, as here, the insured pleads that it "reasonably agreed to compromise" the antecedent proceeding and that is admitted by the insurer, it would be incumbent upon the insurer to specifically raise in its defence issues such as causation and remoteness if it wished to assert that the compromise was not binding on it. Ordinarily an admission that the compromise was reasonable would constitute a concession that there was a reasonable basis for admitting liability and the quantum agreed to was reasonable in all the circumstances. That is particularly so where, as here, the insurer had full knowledge of the antecedent proceedings and elected not to take over the conduct of the proceedings but to leave the insured in control of the defence.

[32] Here the appellant, as it was entitled to do, raised the exclusion clauses by its defence and they were the critical issues for determination at the trial. The respondent had also to establish that the policy responded to its claim. The respondent's liability to the plaintiffs was not in issue nor was the quantum of the respondent's claims provided the policy responded to the claim. The appellant did not contend either at trial or on appeal that it did not "consent in writing" to the compromise. Again the admission in these proceedings that the compromise was reasonable would, in my view, suffice for there to be compliance with condition 5(a) of the policy.

[33] Given the above reasoning the learned trial judge erred in concluding that the plaintiffs' claims for negligence against the respondent would not have succeeded. On all the material before the learned trial judge the conclusion had to be reached that the respondent was negligent in designing and constructing the subdivision and therefore liable in damages to the plaintiffs.

[34] The next question is whether or not the respondent's claim, as evidenced by its statement of claim against the appellant, was under the "professional indemnity" provisions of the policy. In his reasons the learned trial judge expressed the view that the respondent's claim was solely with respect to the "Public Liability (a)(ii) Damage to Property sections of the contract". The appellant seeks to uphold that finding on the appeal; it is put in issue by the Notice of Contention. The question is essentially one of law; it merely involves the proper construction of the consolidated statement of claim against the appellant. Paragraph 2(b) of that pleading clearly raises the professional indemnity provisions of the policy. There is then reference to breach of duty on numerous occasions throughout the pleading; it is sufficient to refer to paragraphs 7 and 10 thereof. In my view on any rational reading of the pleading the respondent was making its claim under either or both of the property damage and professional indemnity provisions of the policy.

[35] Given that in the circumstances there was negligence by the respondent with respect to the design and construction of the subdivision there was a valid claim pursuant to the professional indemnity provision unless the appellant established some exclusionary basis for avoiding liability.

[36] The learned trial judge concluded on the evidence that the appellant had not established a basis for either of the exclusionary provisions relied on operating. A consideration of the evidence leads me to conclude that such findings were justified; indeed any finding to the contrary would have been against the weight of the evidence.

[37] On appeal counsel for the appellant made two submissions:

1. The payments by the respondent to the plaintiffs were not within the cover provided by the public liability, damage to property, provisions of the contract;

2. Payments by the respondent to the plaintiffs for compensation for diminution in the value of their properties resulting from flooding were not within the cover provided by the public liability, damage to property, provisions of the policy.

[38] With respect to the first ground the argument centred on the reasoning in GIO General t/as GIO Australia v Newcastle City Council (1996) 38 NSWLR 558 and on appeal [1997] HCA 53; (1997) 191 CLR 85 as to the meaning of the term "Occurrence" in the expression "Occurrence in connexion with the Business of the Member". The submission was that a flood was not such an occurrence. Given that I have come to the conclusion that the respondent is entitled to indemnity pursuant to the professional indemnity provisions of the policy it is not necessary to deal with the submissions as to the meaning in this particular policy of the term "occurrence". It is sufficient to say that I can see no reason for departing from the way in which it was addressed in the Newcastle case.

[39] On the second issue, it was submitted that diminution in value was not "physical injury", given the relevant definition in the policy. The learned trial judge accepted that diminution in value alone could not constitute "physical injury", but he concluded that where actual physical damage had been occasioned consequential diminution in value could be recovered. The question so raised is not easy to resolve, and it is not necessary to do so for the purposes of resolving this appeal. For that reason I would leave the scope of operation of the policy in that regard to be resolved in future proceedings if it should arise.

[40] The final question is whether or not payments by the respondent to the plaintiff for diminution in value of the land where no physical damage was occasioned to property are within the cover provided by the policy where the claim otherwise succeeds with respect to the professional indemnity provisions thereof. Relevantly the appellant must pay to the respondent "all sums for which [the respondent] shall become legally liable to pay by way of compensation in respect of . . . any Claim . . . arising out of any negligent act . . . committed by [the respondent]". Given that wording the respondent is entitled to indemnity with respect to such damages as legally flow from its negligent conduct; in other words one applies the ordinary principles of assessment of damages in tort in order to determine the relevant quantum. Issues of foreseeability, causation and remoteness thus become relevant. There is no reason in principle why diminution in value of the land because it was flood prone as a result of the respondent's negligence would not ordinarily be recoverable. Given that there has been an admission that the plaintiffs' actions were reasonably compromised the quantum of each settlement is recoverable unless the appellant establishes that for some reason that can be avoided. No such defence has been made out. It follows that the respondent is entitled to recover those amounts paid out pursuant to the compromises for diminution in value of the land even where no physical damage thereto was occasioned. Counsel for the appellant did not contest the amounts claimed in the cross-appeals if this court arrived at that conclusion.

[41] It follows that the orders of the court should be:

(iii) Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant in the sum of $101,538.47 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal, and the cross-appeal to be assessed.

(iii) Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant for the sum of $141,550.97 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal and the cross-appeal to be assessed.

(iii) Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant for the sum of $73,521.97 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal and cross-appeal to be assessed.

(iii) Set aside the judgment appealed from and in lieu thereof give judgment for the respondent against the appellant in the sum of $136,322.17 together with interest thereon pursuant to s 47 of the Supreme Court Act 1995;

(iv) Order that the appellant pay the respondent's costs of and incidental to the action, the appeal and cross-appeal to be assessed.

[42] WHITE J: I agree with the reasons for judgment of Williams JA and with the orders which he proposes.

[43] WILSON J: I have read the reasons for judgment of Williams JA in which the relevant facts and the issues arising on the appeal are fully set out.

[44] There is only one area in which I differ from his Honour.

[45] Whether the respondent was in fact negligent was not in issue at the trial between it and the appellant, and the learned trial judge's finding that the plaintiffs would not have succeeded against it in negligence was quite gratuitous. Further, it is unnecessary on appeal to reach a conclusion on the respondent's liability in negligence to the plaintiffs.

[46] Under the professional liability limb of the "insurance policy"[1] the appellant was obliged to -

"... pay to or on behalf of the [respondent] all sums for which the [respondent] shall become legally liable to pay by way of compensation in respect of:

Professional Indemnity (This is a Claims Made Coverage)

(c) Any Claim or Claims first made against the [respondent] and notified to the [appellant] during the Insurance Year arising out of any negligent act, error or omission whenever or wherever the same was or may have been committed or alleged to have been committed by the [respondent] in the conduct of the [respondent's] Business."

[47] In considering whether the respondent's claim against the appellant was within the scope of that provision, one looks to the character of the plaintiffs' claims against the respondent, rather than to the nature of the respondent's liability (if any) to the plaintiffs. In other words, "arising out of any negligent act, error or omission" characterises the plaintiffs' claim against the respondent, not the respondent's liability.[2]

[48] The plaintiffs' claims were claims based on negligence. That being so, and the appellant having conceded that the respondent acted reasonably in compromising them, the respondent was entitled to indemnity under the policy, subject to the appellant's successfully raising one of the exclusions in the policy. It failed to do so.

[49] I agree with the orders proposed by Williams JA.

[1] Like Williams JA, I find it convenient, for present purposes, to treat the agreement between the appellant and the respondent as a policy of insurance. See para [3] of his Honour's reasons for judgment.

[2] Edwards v Insurance Office of Australia Ltd [1933] NSWStRp 61; (1933) 34 SR (NSW) 88 at 94 per Davidson J.