Ningaloo Escape Pty Limited v The Hollard Insurance Company Pty Limited

The Cyclone and its Aftermath

1. The overhead wires and poles linking them suffered damage in the Cyclone. Exhibited to Mr Roscic's first affidavit (behind Tab 16) are a series of photographs taken by him after the Cyclone which graphically depict the damage to the property and, in particular, the EDS. In a letter between LMI Insurance Lawyers and the defendant dated 18 May 2015, it is stated that the Cyclone damaged in excess of 90% of the power cables forming part of the EDS. "The damage included cables torn from poles, broken cables, poles snapped off at the ground and insulators dislodged from the tops of poles".
2. This description is generally consistent with the observations made by Steve Moore deposed to in his affidavit affirmed 29 June 2016. Mr Moore was not cross-examined.
3. Mr Moore attended the Caravan Park in mid-March 2015 following the Cyclone to carry out an inspection of the EDS. The inspection took between two to three hours. He describes what he refers to as "extensive damage" to the EDS including the following: 1. the Ring Main and Spur Lines had been significantly damaged and numerous wires had been ripped from their poles and come down; and 2. four-five poles had either been ripped up out of the ground or broken.
4. In paragraph 25 of his affidavit, Mr Moore expressed the unchallenged opinion that at least 75-80% of the old EDS (including 60-80% of the Ring Main had been damaged).
5. In order to keep the Caravan Park operating, Mr Moore carried out a number of temporary repairs which were not intended for long term usage. Mr Moore, through his company called Network Power Solutions Pty Limited, prepared a quotation setting out the work required to reinstate the EDS and the cost of same. A copy of that quotation is in evidence in various places but most conveniently under Tab 23 of Mr Roscic's first affidavit.
6. The quotation was based upon the installation of the EDS below ground. In his affidavit affirmed 29 June 2016, Mr Moore set out the reason for that (paragraph 33 and following). After considering the applicable regulations and the like, Mr Moore formed the opinion that the works to be performed in order to reinstate the supply of electricity would be classified as a new installation by EnergySafety. This would require all works to comply with the relevant regulations and standards in force as at March 2015. The Network Power Solutions' quotation was based upon that fact.
7. The defendant does not dispute the fact that it was necessary to comply with new regulations and to install the EDS below ground. The additional cost of which is covered by the "Extra Cost" provision of the Policy, discussed below.

The Plaintiff's Claim

1. On 16 March 2015, the plaintiff made a claim under the policy ("the Claim") for costs incurred, or to be incurred, in relation to: 1. the reinstatement of the chalets as a result of the loss and damage to them comprising repairing the damage caused to the solar hot water system servicing chalets 8, 9 and 10, repairs to the structural damage to chalet 7 and repairs to minor physical damage to other chalets; 2. the reinstatement of the fuel station which had been damaged in the Cyclone; 3. the reinstatement of the EDS which necessitated the replacement of the entire EDS using a combination of subterranean electrical cables; 4. the removal of debris and landscaping associated with the clean up after the Cyclone.
2. Item (c) was disputed and is the subject of these proceedings.
3. On or about 13 May 2015, the defendant made a payment of $44,540.73 to the plaintiff in respect of: 1. bowser repairs; 2. satellite dish repairs; 3. cabin repairs; 4. net power repair consulting costs; 5. solar hot water system repairs; 6. debris removal costs; and 7. payment to LMI Group Pty Limited for claim preparation fees.
4. Since about 17 April 2015, the defendant has refused to indemnify the plaintiff in relation to damage to the EDS caused by the Cyclone.
5. The plaintiff claims that the defendant is obliged to indemnify it in respect of the costs of repair and reinstatement of the electricity.
6. Further, the plaintiff claims that, as a result of the defendant's refusal to indemnify it in respect of the damage to the EDS, the defendant has breached its contract of insurance with the plaintiff and, as a consequence, the plaintiff has suffered loss and damage.

The Defendant's Position

1. The history of insurance between the plaintiff and the defendant is set out in paragraph 6 of the Defence and is documented in Exhibit 1. The defendant first insured the plaintiff on the 31 March 2012 for declared assets of $1.8 million together with additional cover of $200,000.00 for landscaping etc.
2. The initial policy was renewed on 31 May 2013 and again on 31 May 2014.
3. The schedule for insurance ("Policy Schedule") sets out a list of declared assets totalling $2,000,000.00 being the total sum insured under the property damage section of the policy.
4. The defendant admits that the policy was issued on its behalf by its authorised representative, All Parks Insurance Pty Limited ("All Parks").
5. It is further admitted that the policy consists of the Policy Schedule and the Product Disclosure Statement ("PDS"), relevant portions of which are set out below.
6. The gravamen of the defendant's position is set out in paragraph 8 of the Defence, as follows: 8 As to paragraph 13 of the SOC, the defendant pleads as follows: (a) The Electricity Distribution System is not listed as a declared asset in the Policy Schedule; (b) On the proper construction of the phrase "all services to the buildings" in the definition of building in the Policy: (i) only the cables that link the buildings listed in the Certificate of Insurance (as declared assets) to the Electricity Distribution System are covered under Section 1 of the Policy; (ii) (apart from the cables referred to in subparagraph 8(b) above) the Electricity Distribution System is not covered under Section 1 of the Policy; (iii) alternatively: 1. only that part of the Electricity Distribution System that services the Chalets and the Fuel Station is covered under Section 1 of the Policy; and 2. the part of the Electricity Distribution System that services buildings not insured under the Policy (or other parts of the Caravan Park, including caravan sites) is not covered under Section 1 of the Policy; (c) Save as is pleaded above, paragraph 13 of the SOC is denied.
7. The central issue between the parties, therefore, is whether the cost of reinstating the EDS is covered by the Policy. In particular, whether the EDS was "services to the building" so as to come within the definition of building(s) under the policy. Set out below are the relevant provisions of the policy documents.
8. There is no dispute between the parties as to the extent of damage caused by the Cyclone or that the Cyclone was an Insured Event for the purpose of the policy.
9. Further, the defendant admitted (paragraph 13(a) of the Defence) that the Cyclone damaged the overhead wires and poles which form part of the EDS.
10. The defendant's case is that by reason of the payments made to the plaintiff to date, it has fully discharged its obligations to indemnify the plaintiff under the policy and that it has not wrongly refused to indemnify the plaintiff in respect of the damage caused by the Cyclone.
11. The Network Power Solutions' quotation was submitted to the defendant as part of the claim under the policy. By letter dated 17 April 2015, the defendant rejected the claim in those terms. Instead, it stated: In this situation we believe that the maximum cover available for services, if any, would be restricted to the power cable from the individual damaged insured chalets to the still-standing power poles. (Exhibit A, page 104).
12. There followed a series of correspondence between the parties comprising at least the following: 1. letter from LMI Legal to the defendant dated 18 May 2015 (Exhibit A, page 108); 2. letter from the defendant to LMI Legal dated 22 May 2015 (Exhibit A, page 117); 3. letter from LMI Legal to the defendant dated 26 May 2015 (Exhibit A, page 119); and 4. letter from the defendant to LMI Legal dated 30 June 2015 (Exhibit A, page 128).
13. The last letter from the defendant followed an Internal Dispute Resolution ("IDR") Committee Review of the decision by the insurer. The outcome of the review is best summarised by the following extract from the letter: After a thorough review of your claim, the IDR Committee is satisfied that Hollard's claim decision was correct, that the electricity distribution network does not constitute a service to the insured buildings and is therefore not covered under the policy. The insured is to be indemnified for any damaged cables between any of the insured chalets and the nearest pole forming part of the electricity distribution network.
14. The IDR Committee reasoned that although buildings included services "it is only when a building is connected to the distribution network by cable or similar, that a physical service to the building exists" and "Essentially the cable from the distribution network is the service to the building."
15. The insurer engaged an engineer, DWA (David Wills and Associates) to prepare a loss report in respect of the damage to the EDS.
16. DWA prepared reports dated 26 March 2015 and 10 April 2015. The plaintiff sought to rely upon those reports in support of the submission that the claim now made by the plaintiff was reasonable. I rejected the tender of those reports following objection by the defendant. It is perhaps now convenient to set out the reasons for that ruling.

Reasons for rejecting the tender of the reports by DWA

1. The plaintiff sought to tender as an annexure to Mr Roscic's affidavit of 16 May 2016 a report by DWA dated 26 March 2015 with relevant portions of the report redacted (Exhibit A, page 144). In addition, the plaintiff sought to tender an unredacted version of the report dated 26 May 2015 together with a second report of DWA dated 10 April 2015 which are annexed to the affidavit of Mr Roscic affirmed 19 April 2017.
2. The defendant objected to the tender of those reports. The basis of the objection was that the reports contained opinion evidence making them expert's reports and that the rules in respect of same had not been complied with. Particularly, the defendant complained that the witness had not complied with the Expert Code of Conduct as is required by Rule 31.23 of the Uniform Civil Procedure Rules 2005 and also that the witness was not to be made available for cross-examination.
3. The plaintiff invited the Court to "otherwise order" in accordance with Rule 31.23(4) and permit the evidence of the expert despite the fact that acknowledgement of the Code of Conduct had not been provided.
4. The Court was referred to a decision of McDougall J in Cahill v Kenna [2014] NSWSC 1763 (paragraph [26]-[60]).
5. In similar circumstances, Justice McDougall considered the same question. I have carefully considered the sections of the judgment to which I had been referred. I rejected the tender of the reports of DWA for the following reasons: 1. the opinion of the expert is unfairly prejudicial to the defendant in the manner in which it sought to be utilised. That is, to establish the value of the plaintiff's claim or the reasonableness of the claim as made. The plaintiff's claim is based, in the alternative, on the Amended Scott Schedule (Exhibit F). This document was created during the course of the trial. Plainly, it is not a document to which the author of the DWA report had access; 2. it was not proposed that the author of the expert reports would be made available for cross-examination. This would result in the Court receiving into evidence untested evidence not prepared for litigation but for another purpose; 3. the author of the reports did not acknowledge compliance with the Code of Conduct required by Rule 31.23. I refer to the remarks made by Justice McDougall as to the significance of this omission and adopt his Honour's views; 4. no attempt had been made to explain the expert's failure to comply with the Code of Conduct, although it is plain that the report was not prepared for use in litigation; 5. given (a) to (d) and the prejudice which would be caused to the defendant, I am not prepared to order otherwise under Rule 31.23(3).
6. Before returning to the other evidence in the case, I now set out the terms of the policy under which the claim is made.

The Insurance Policy

1. A copy of the relevant policy is annexed to the affidavit of James Frederick Roscic affirmed 13 May 2016 (Exhibit A). It appears at page 45 of the documents exhibited to the affidavit.
2. It is referred to as a Product Disclosure Statement ("PDS") to the Tourist Parks and Lifestyle Villages Insurance Policy issued by All Parks.
3. Section One defines buildings in the following terms: building(s) means: 1. lessors fixtures and fittings including fixed carpets; 2. all services to the buildings; 3. all structural improvements; 4. caravans owned by you; 5. railway tracks; at the location including fencing, gates and paths. Buildings do not include machinery, land, canals, roads, bridges, tunnels, dams, underground services, reservoirs (other than tanks) and their contents.
4. "Services" is not defined but, given its usual meaning, ought to include the supply of electricity.
5. Under clause 2 of Section One, the insurer identifies what is covered by the policy in the following terms: 2. What we cover We will cover you for loss or damage at the location directly caused by the events listed under "Insured Events" up to the limit shown on your Insurance Certificate in respect of physical loss of, or damage to: 1. building; 2. contents; 3. other interests as shown on your Insurance Certificate.
6. Clause 3 of Section One identifies the Insured Events for which coverage is provided. Insured Events include coverage for loss or damage to building and contents caused by wind and water. In respect of that coverage, clause 3 provides for an excess of $5,000 for such damage caused by a named cyclone.
7. Clause 6 of the policy sets out how the insurer will pay the claim. It provides as follows: How we will pay your claim Unless otherwise shown on your Insurance Certificate, claims will be settled on the basis of reinstatement and replacement, and extra costs as follows: Reinstatement and replacement Reinstatement and replacement will mean: 1. for buildings the reconstruction, repair or restoration of the damaged building, or at our option, the replacement of the building by a similar building, in either case, to a condition equal to but not better or more extensive than its condition when new. Unless otherwise specified on the Insurance Certificate, settlement will be based on indemnity value for: a. buildings greater than 15 years old that were either partially or fully constructed away from the location and were not originally constructed with a pitched roof; b. buildings where the age cannot be verified that were either partially or fully construed away from the location and were not originally construed with a pitched roof; c. buildings containing sandwich panel construction; and d. all caravans, regardless of age and any attachments thereto. 2 for other property (excluding stock) the repair of the damage and the restoration of the damaged portion of the property, or at our option, the replacement of the property by similar property, in either case, to a condition substantially the same as, but not better or more extensive than its condition when new; …
8. In addition, there is an "Extra cost clause" which provides as follows: Extra cost We will also pay the extra cost for the reinstatement of the damaged insured property (other than stock) necessarily incurred by you, to comply with the requirements of any statute or regulation or of any municipal or statutory authority, provided that: 1. we will not pay for any additional cost incurred in complying with any requirement which you were required to comply with prior to the damage being sustained; 2. the co-insurance condition of this section of the policy will not be applied to the amount payable under this clause; 3. if the cost of reinstatement of the damaged property is less than 50% of the cost of reinstatement, that would have been incurred if the property had been totally destroyed, the indemnity under this clause will be limited to the extra cost necessarily incurred reinstating only the portion damaged or sub limited shown on your Insurance Certificate, whichever is the greater. If a sub limit is not shown on your Insurance Certificate, our liability will be limited to the extra cost necessarily incurred in reinstating the damaged portion only.
9. Those are the operative provisions of the policy.

The Policy Schedule

1. The Schedule for Insurance (no 0000275) was MFI 4 and became Exhibit E.
2. Exhibit E was printed on 28 April 2014 and identified Yardie Homestead Caravan Park ("the Caravan Park") as the name of the client. The full name of the insured was that of the plaintiff.
3. The period of insurance was identified as 31 May 2014 to 31 May 2015 at 4pm. There is no dispute that the relevant event occasioning damage occurred within that period.
4. The occupation of the insured was referred to as caravan park operator. The premium was specified inclusive of taxes etc at $19,651.22.
5. The named insurer is the defendant.
6. Under the heading "Summary of Sections Insured" it is clear that insurance was taken out in respect of building and contents as well as legal liability. It is only the former which is relevant to the claim.
7. On page 2 of the Schedule, the plaintiff's buildings and contents are set out. The declared assets were: 1. chalets and park homes only at a declared value of $1,800,000.00; 2. petrol and fuel pump at a declared value of $200,000.00.
8. The EDS is not identified as an asset, declared or otherwise.
9. It is noted in that section that the Caravan Park is rated as being in a Cyclone Zone.
10. There is additional coverage for removal of debris and landscaping about which there is no dispute.
11. The excess is specified for a named Cyclone as being $5,000.00.

The Evidence

1. The plaintiff relied upon the following evidence: Exhibit A - four affidavits of Mr Roscic, referred to above; Exhibit B - an affidavit of Steve Moore affirmed 29 June 2016. As mentioned above, Mr Moore is the director of Network Power Solutions, the company who provided the quotation for the rectification works in March 2015; Exhibit C - report by Behrouz Ghorbanian, Independent Electrical Engineer dated 9 September 2016. Mr Ghorbanian was not required for cross-examination; Exhibit D - Joint Chronology; Exhibit E - Schedule for Insurance No 275 dated 28 April 2014; Exhibit F - Amended Scott Schedule.
2. The defendant relied upon the following evidence: Exhibit 1 - Underwriting History Documents; Exhibit 2 - Three reports by John Graham of Phase8 dated 12 December 2016, 24 April 2017 and 1 May 2017. This expert was not required for cross-examination.

Exhibit A - Four Affidavits of Mr Roscic

1. The affidavit evidence of Mr Roscic comprising the four affidavits referred to above was extremely comprehensive. He was required for cross-examination on a number of very discrete issues. He presented as an entirely reliable, honest and believable witness.
2. Perhaps the most contentious of his evidence was how he arrived at the figure of 58% in his calculations of determining the proportion of damage which was attributed to the Cyclone. In cross-examination, he stated: I believe we used some of it for trenching distances, and then some of it looking at actual physical costs and DWA report, I think, was part of it as well. I'm not a hundred per cent sure of all the sources that we used to get that. [T49.30-34].
3. He was then asked whether or not the figure of 58% was a simple reflection of trench lengths to which he replied: I think it might be done mostly on trench lengths, but it's probably not taking into account the actual cost of the stuff in the trench. [T49.36-39].
4. If there remained any doubt as to this question, in re-examination he was asked to explain the relevance of the 58% and he stated: … it's just measured, it's trenching that has been measured out with a wheel, walking along clicking over the metres and working out how much goes to an insured part and how much goes to an uninsured [1] part of the property. [T64.28-32].
5. I am satisfied that Mr Roscic, doing the best to tell the truth, should be accepted in his evidence that the calculation was based upon trench measurements, attributing the portion relating to the insured part of the Caravan Park and the uninsured part of the Caravan Park.

Exhibit B - Affidavit of Steve Moore

1. The affidavit of Mr Moore principally goes to the damage caused to the Caravan Park's EDS and the cost of rectifying same. He was not cross-examined on the contents of his affidavit and, to the extent relevant, I accept his evidence.
2. In particular, I accept: 1. the damage to the EDS was as described by Mr Moore; 2. that it was necessary to comply with current regulations and the like in order to effect the rectification; 3. that, in order to comply with the current regulations and the like, it was necessary to develop a subterranean system of electricity supply to the Caravan Park; 4. that, in the opinion of Mr Moore, the total costs would be as set out in the quotation dated 18 March 2015 ($670,569.49).

Exhibit C - Report of Mr Ghorbanian dated 9 September 2016

1. The report by Mr Ghorbanian provided a useful insight into the work undertaken at the Caravan Park and the need for the cables to be underground. In particular, he stated: Furthermore, my interpretation of EnergySafety, WAER and Wiring Rules … is that a fully underground distribution system in areas such as Exmouth with the likelihood of potentially strong cyclones is a compliance requirement. In particular: … I believe, a fully underground distribution system is an ideal power system configuration at Yardie Homestead Caravan Park.
2. It is clear that the report by Mr Ghorbanian established that it was necessary for the plaintiff to incur the extra costs involved in reinstating the EDS by use of underground cabling.
3. In any event, this issue is not disputed by the defendant.

Exhibit D - Joint Chronology

1. The Chronology prepared by the plaintiff was adopted by the defendant and became a Joint Chronology.
2. In determining this matter, I have had regard to the facts contained therein, save for any reference to the excluded reports by DWA.

Exhibit E - Insurance Schedule

1. This has been reviewed above.

Exhibit F - Amended Scott Schedule

1. The original Scott Schedule was further amended in the course of addresses to the extent that the "future costs" on page 13 of the document became costs that have now been incurred.
2. In the result, the total invoices paid by the plaintiff to be apportioned between insured and non-insured categories totalled $309,766.42.

Exhibit 1 - Underwriting History Documents

1. I have carefully read these documents, particularly those to which specific attention was drawn by the defendant. In my opinion, there was nothing remarkable about the history of the plaintiff's insurance of the Caravan Park which informs or otherwise assists in the interpretation of the contract.

Exhibit 2 - Reports by John Graham of Phase8

1. Report no 1 dated 12 December 2016 calculated the cost of restoration on the basis contended for by the defendant as $22,537.29.
2. Report no 2 dated 20 April 2017 is of limited use as the author was not able to distinguish between the invoices. It is noted, however, that the additional invoices referred to in Table 1 total $40,767.59.
3. Report no 3 dated 1 May 2017 is an attempt by Mr Graham to determine the apportionment by reference to the trench distance. He assessed the percentage of costs attributable to delivering services to the dwellings only equated to 32% and to the dwellings and the main feed 39%.
4. That is the totality of the evidence before the Court.

Issues in Dispute on the Pleadings

1. Counsel helpfully summarised the issues between the parties in the Schedule of Issues (MFI 2) as follows: 1. whether or not, and if so to what extent, the policy issued by Hollard to Ningaloo provided cover for damage to "services" to insured buildings"; 2. whether, and if so to what extent, the Electricity Distribution System (as it existed on and prior to 13 March 2015) was a "service" to the insured buildings for the purposes of the Policy; 3. to what extent was the Electricity Distribution System (as it existed on and prior to 13 March 2015) damaged as a result of Cyclone Olwyn on 13 March 2015; 4. whether Hollard was required to indemnify Ningaloo in relation to damage to the Electricity Distribution System as a result of Cyclone Olwyn, and if so in respect of what part or parts of the Electricity Distribution System was Hollard required to provide indemnity; 5. did Hollard wrongly refuse to indemnify Ningaloo in relation to damage to the Electricity Distribution System, or any part of that system, as a result of Cyclone Olwyn in breach of its obligations under the Policy; 6. to the extent that Hollard was required to indemnify Ningaloo for damage to the Electricity Distribution System or any part of that system as a result of Cyclone Olwyn, what was the value of that indemnity; 7. to the extent that Hollard was required to indemnify Ningaloo for damage to the Electricity Distribution System or any part of that system as a result of Cyclone Olwyn, was the cost of reinstating or replacing that system or any part of that system, by constructing a new underground Electricity Distribution System, covered under the "Extra Cost" clause in the Policy; 8. to the extent that Hollard is obliged to indemnify Ningaloo, but the value of that indemnity is limited to expenditure actually incurred by Ningaloo in connection with the reinstatement work undertaken by Ningaloo following Hollard's refusal to indemnify it, whether, and if so to what extent was that expenditure reasonably incurred; 9. to the extent that Hollard wrongly refused to indemnify Ningaloo in relation to damage to the Electricity Distribution System or any part of that system as a result of Cyclone Olwyn in breach of its obligations under the Policy, what is the quantum of damages to which Ningaloo is entitled.

The Interpretation of the Contract

1. The plaintiff's case is that the work which was undertaken was necessary in order to reinstate services to the insured buildings.
2. The defendant, relying in part upon the underwriting history, submitted that a reasonable business person armed with knowledge of the underwriting history would understand the definition of Buildings to mean that the cables and other physical property connecting the building to a service were covered by the policy. Further, it is submitted on behalf of the defendant that a reasonable business person would not understand that a substantial piece of infrastructure such as a private electrical distribution system was covered simply because of the definition of Buildings.
3. The basis for the submission identified by the defendant is said to be derived principally from a decision of the High Court in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37, (2015) 256 CLR 104 where French CJ, Neville and Gordon JJA summarised and restated the principles for construction applicable to all commercial contracts at paragraphs [46]-[51].
4. I note, in particular, paragraph [48]: 48 Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in the contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
5. The defendant's position is that this is not such a case and that reference should be had to the underwriting history in respect of the Caravan Park. I do not agree. I consider the terms of the contract to be quite clear and unambiguous.
6. Further, the defendant referred the Court to a decision of the English Supreme Court delivered 29 March 2017 (Wood v Capita Insurance Services Limited [2017] UKSC 24). In that decision, Lord Hodge (with whom the other Lords agreed) referred to the approach of contractual interpretation as a "unitary exercise …" "Where there are rival meanings, the Court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense". Lord Hodge referred to the unitary exercise as involving an iterative process by which each suggested interpretation is checked against the provision of the contract and its commercial consequences.
7. Lord Hodge stated "Textualism and contextualism are not conflicting paradigms in a battle for the exclusive occupation of the field of contractual interpretation". In my opinion, the text of the contract in question is sufficiently clear for its meaning to be determined on its face.
8. The plaintiff submitted, and I accept, that the question of a written contract's proper interpretation is an objective one and that evidence as to either party's subjective intention or understanding is irrelevant (Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 per Mason J at 352).
9. The plaintiff identified the relevant principles for the interpretation of insurance contracts by reference to the decision of the High Court in McCann v Switzerland Insurance Australia Limited in which Gleeson CJ made the point in (at [22]) that: A policy of insurance, even when required by statute, is a commercial contract and should be given a business-like interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure.
10. In addition, the plaintiff relied upon the more recent decision of the New South Wales Court of Appeal in Cordon Investments Pty Limited v Lesdor Properties Pty Limited [2012] NSWCA 184 in which Bathurst CJ with whom Macfarlan and Meagher JJA agreed, said at [52]: The principles underlying the constructing of written contracts are well established and it is not necessary to deal with them at length. A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction … (citations omitted) … at least in the case of ambiguity resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision … (citations omitted) …
11. It is further submitted by the plaintiff that the Court should have regard to all of the words used in the agreement "so as to render them all harmonious with another "(ABC v Australian Performing Right Association Limited (1973) 129 CLR 99 at 109) and to ensure the "congruent operation to the various components as a whole" (Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 at 529).
12. In the context of this dispute, the primary question is what meaning is to be ascribed to the words "all services to the buildings" which is included in the definition of buildings under the policy.
13. The plaintiff points to the definition of "service" in both the Oxford Dictionary and the Macquarie Dictionary. The Oxford Dictionary defines "service" relevant (relevantly) as follows: 2. A system of supplying a public need such as transport, communication, or utilities such as electricity and water …
14. The Macquarie Dictionary's definition is not significantly different.
15. The plaintiff submits that the provision of services to the insured buildings must be taken to include the provision of electricity to those buildings, regardless of where it is generated. I accept that characterisation of the word "services" in the context of the contract between the parties.
16. Accordingly, I find that the words "all services to the buildings" includes the supply of electricity to the insured buildings. Further, I find that the defendant was required to indemnify the plaintiff for the "reconstruction, repair or restoration" of the electricity service to the insured buildings.
17. Further, the plaintiff submitted that to the extent that the service was provided to the insured buildings it is covered under the policy irrespective of whether or not the service is also "to" buildings which are not insured. I also accept that submission, to find otherwise would impose an unworkable interpretation on the meaning of the words "all services to the buildings" under the policy. It would either have the effect of the defendant covering the cost of reinstating the services only to the insured buildings or, alternatively, excluding those services provided to the insured buildings if they also ran to buildings not covered under the policy.
18. As I understand it, the defendant's principal submission is that it ought only be responsible to indemnify the plaintiff for the cost of the physical components which connect the EDS to the insured building. With respect, this would lead to an unsatisfactory outcome where, although the physical components connected to the buildings might be replaced, the service of electricity to the insured buildings would not be restored. This could not be said to be a common sense interpretation of the contract much less one that is business-like. It would require the plaintiff to undertake other work for which it was not indemnified by way of "reconstruction, repair or restoration" of the supply of electricity to the buildings.
19. The defendant seeks to characterise the EDS as a separate asset which required separate declaration and insurance. With respect, I do not agree. The EDS is the means by which the service (namely, electricity) is delivered from the power station to the insured buildings. Merely repairing any damaged connection between the chalets or park homes and the EDS would not achieve the obvious outcome of the insurance to restore services to those buildings.
20. The defendant submits that regard must be had to the underwriting history of the Caravan Park's insurance policies. Notwithstanding my view that consideration of secondary material is not necessary in this case, the defendant has tendered the underwriting history which I have read. In my opinion, there is nothing in that material which assists in giving meaning to the relevant parts of the contract in dispute or to the intention of the respective parties. The position might be different if, for example, earlier policies had referred to the EDS as a separate asset, declared or otherwise.
21. The insurance policy covers all services to the buildings. I take that to mean that the insurer agreed to indemnify the plaintiff for the cost of restoring all services to the buildings which were insured. The defendant's interpretation of the contract does not achieve that outcome. In order to restore the supply of electricity to the buildings, it is necessary to take all steps required, in compliance with local regulatory obligations, to deliver electricity from the power source to the buildings. In this instance, that includes restoring connection between the power generator and the buildings. The work performed by or on behalf of the plaintiff as a result of damage caused by the Cyclone fall within that description and ought to be covered by the indemnity under the contract.
22. Finally, the defendant referred me to a decision of Caine v Lumley General Insurance Ltd [2003] NSWCA 4 in which McColl JA stated (Mason P and McClellan CJ at CL agreeing) at [48]: I also note that declarations of value in commercial insurance policies, such as those in the Schedule, are used as a basis for setting premiums and settling claims and are a means of minimising under insurance.
23. In the present case, the Schedule for Insurance clearly identifies the buildings insured. As stated, the definition of buildings means, inter alia, all services to the buildings. Had the defendant wished to narrow the scope of the definition of buildings it could easily have done so. It cannot be said that the premiums were not adequately set or that the plaintiff was underinsured when all that is sought is to rely upon the plain meaning of the policy drafted by the defendant.

Findings by reference to the issues in the case

1. In view of the foregoing analysis I make the following findings in respect of the issues identified by the parties:

Whether or not, and if so to what extent, the Policy issued by Hollard to Ningaloo provided cover for damage to "services" to insured buildings

1. I find that the policy issued by the defendant provided cover for the "reconstruction, repair or restoration" of the services to the insured buildings. I further find that the services include the supply of electricity. The extent of the cover is to reinstate the service so to restore the effective delivery of electricity to the buildings.

Whether, and if so to what extent, the Electricity Distribution System (as it existed on and prior to 13 March 2015) was a "service" to the insured buildings for the purposes of the Policy

1. I find that the EDS as it existed on and prior to 13 March 2015 was a service to the insured buildings for the purposes of the policy. It was by the EDS that the relevant service (electricity) was delivered to the buildings.

To what extent was the Electricity Distribution System (as it existed on and prior to 13 March 2015) damaged as a result of Cyclone Olwyn on 13 March 2015

1. I find that the EDS was damaged to such an extent that it required substantial repair in order to restore the supply of electricity to the buildings. In particular, I find that the work undertaken by the plaintiff to achieve reinstatement of the service was reasonable.

Whether Hollard was required to indemnify Ningaloo in relation to damage to the Electricity Distribution System as a result of Cyclone Olwyn, and if so in respect of what part or parts of the Electricity Distribution System was Hollard required to provide indemnity

1. I find that the defendant was required to indemnify the plaintiff in relation to the damage to the EDS as a result of the Cyclone to the extent necessary to achieve the "reconstruction, repair or restoration" of the service to the buildings specifically insured under the policy.
2. I do not consider the main sewer pump station a declared asset or otherwise insured under the policy and, therefore, I find that the defendant was not obliged to indemnify the plaintiff in respect of the cost of reinstating the EDS to the sewer pump station. To do so would require restoration of the service (electricity) to another service (sewerage).
3. Further, I find that the fact that the work undertaken to achieve reinstatement to the insured buildings may have benefitted other buildings not covered by the policy does not relieve the defendant of its obligation to indemnify the plaintiff under the policy in respect of both buildings which were insured.

Did Hollard wrongly refuse to indemnify Ningaloo in relation to damage to the Electricity Distribution System, or any part of that system, as a result of Cyclone Olwyn in breach of its obligations under the Policy

1. I find that the defendant did wrongly refuse to indemnify the plaintiff in respect of the damage to the EDS to the extent to which the EDS supplied electricity to the insured buildings.

To the extent that Hollard was required to indemnify Ningaloo for damage to the Electricity Distribution System or any part of that system as a result of Cyclone Olwyn, what was the value of that indemnity

1. The value of indemnity might best be described as the cost of "reconstruction, repair or restoration" of electricity services to the insured buildings up to the limit of the indemnity under the policy.

To the extent that Hollard was required to indemnify Ningaloo for damage to the Electricity Distribution System or any part of that system as a result of Cyclone Olwyn, was the cost of reinstating or replacing that system or any part of that system, by constructing a new underground Electricity Distribution System, covered under the "Extra Cost" clause in the Policy

1. I have extracted the Extra Cost clause above. I accept the uncontested evidence that, at the time of reinstatement, the Exmouth Department of Electricity Safety Inspector would no longer permit overhead power lines systems to be built. Accordingly, I find that the additional cost incurred in achieving the delivery of the service to the insured buildings by subterranean means is included in the indemnity under the policy.

To the extent that Hollard is obliged to indemnify Ningaloo, but the value of that indemnity is limited to expenditure actually incurred by Ningaloo in connection with the reinstatement work undertaken by Ningaloo following Hollard's refusal to indemnify it, whether, and if so to what extent was that expenditure reasonably incurred

1. Exhibit F is an Amended Scott Schedule prepared by the plaintiff. The total cost incurred by the plaintiff by way of invoices paid or incurred so as to be payable was $309,766.42 as at the day of trial. The amount claimed was 58% of each incurred item or $179,644.52. Included in that sum is the cost of work in restoring electricity to the sewerage pumping station. In view of the finding made above, I exclude that amount reducing the percentage recoverable to 40.6% or $125,765.17.
2. That is the amount claimed in the alternative claim (excluding the sewerage pumping station). I will deal with the adequacy of that approach to assessment below but in terms of answering this question, I find that that expenditure was reasonably incurred. I am fortified in that position by the fact that it is considerably less than the original quotation provided by Network Power Solutions Pty Limited ($670,569.49).

To the extent that Hollard wrongly refused to indemnify Ningaloo in relation to damage to the Electricity Distribution System or any part of that system as a result of Cyclone Olwyn in breach of its obligations under the Policy, what is the quantum of damages to which Ningaloo is entitled

1. Mr Roscic measured the total distance of the trenches dug in the course of reinstating the EDS to be 1,230 metres. The total distance of the trenches dug in order to restore the electricity supply to the chalets, the fuel station and the sewer pumping station was 713 metres or 58% of the total trenching distance. If one removes the cost of trenching to the sewerage pumping station then that figure reduces to 40.6%. Accordingly, I find that the costs incurred by the plaintiff in restoring the electricity service to the chalets and fuel station was 40.6% of $309,766.42 or $125,765.17.
2. The method of assessing the claim under the policy is not precise or ideal. In approaching the matter by reference to the total trenches dug and attributing a proportion based upon their location and connection to insured buildings, may be a crude approach but one which, in the circumstances, I considered satisfactory.
3. In its Written Submissions, the plaintiff set out some general principles relating to the assessment of damages in circumstances where precision cannot be achieved. (See generally Seddon Bigwood and Ellinghaus, Cheshier & Fifoot Law of Contract, LexisNexis Butterworths (10th Australian Ed.). They include: 1. difficulty involved in the assessment of damages does not relieve the Court from the task of estimating damages "as best it can" (McCrohon v Harith [2010] NSWCA 67 at [118]-[126]); 2. in the face of uncertain evidence, a "broad brush approach" should be taken (Rosser v Marine Ministerial Holding Corp [1999] NSWCA 72 at [65]); and 3. damages will not be awarded if the available evidence does not enable the Court to rise above mere speculation or guess work (McCrohon at [118]-[126]).
4. In relying upon those authorities, it is submitted on behalf of the plaintiff that: As such Ningaloo submits that the costs are best, and most pragmatically, apportioned according to the proportion of trenching work undertaken to restore electricity services to insured as opposed to uninsured parts of the Caravan Park.
5. I accept that submission and find that the approach adopted based upon the measurement of the total trench and the apportionment of same to insured buildings is the most reliable approach to the determination of the cost of the rectification works in this case.
6. I find that the quantum of damages to which the plaintiff is entitled is $125,765.17.

Interest

1. By the Amended Statement of Claim filed in Court with leave on 3 May 2017, the plaintiff claims interest pursuant to s57 of the Insurance Contracts Act 1984 (Cth).
2. It was indicated by the parties that they would attempt to agree interest once the principal judgment was determined.
3. I direct that within 14 days the parties submit either a joint submission on the question of interest or, alternatively, if agreement cannot be reached, then submissions as to same, not exceeding five pages in length.

Orders 1. judgment for the plaintiff in the sum of $125,765.17, plus interest; 2. the defendant to pay the plaintiff's costs of the proceedings; 3. the exhibits to be retained by the Court for 28 days; 4. liberty to apply within 14 days to vary the costs order, if necessary; 5. I direct that within 14 days the parties submit either a joint submission on the question of interest or, alternatively, if agreement cannot be reached, then submissions as to same, not exceeding five pages in length.

Endnote

1. This word appears as insured in the uncorrected version of the transcript. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 May 2018