The effect of memorandum 7 upon the scope of the indemnity provided by Section 2
86 The principal indemnity provision of Section 2 has already been quoted. For convenience of reference, it is restated below:
In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed 'Damage') and the Business carried on by the Insured being in consequence thereof interrupted or interfered with, the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.
87 As has been noted, the indemnity provision begins by describing an insured event. The event occurs when property used by Star at its Premises for its business is physically lost, destroyed or damaged by any cause not excluded. The provision then states that the loss, destruction or damage 'so caused' is 'hereinafter termed 'Damage' '. Therefore, unless otherwise extended, the term 'Damage' is confined to physical loss, destruction or damage resulting from a non-excluded cause. So, the first reference to loss in the indemnity clause is of that character. Therefore, the term 'Damage' is shorthand for the extent of the perils covered by the indemnity. It is all instances where there is physical loss, destruction or damage to property used by Star at its Premises howsoever caused, unless it is caused by an excluded event. It follows that the defined term 'Damage' is used to refer to the events the occurrence of which give rise to the right to the indemnity provided under Section 2. In that context, the term 'loss' is used as part of the description of the insured event. It is not referring to the loss that may be claimed. In that sense it is inapt to think of the reference to loss and the defined term Damage as a reference to loss and damage respectively in their familiar sense of a loss that is to be claimed. Rather, the term Damage (and the language 'loss, destruction or damage so caused' to which it refers) is describing the extent of the peril that is covered by the Policy. In the case of loss, it is physical loss of property used by Star in its business.
88 The term Damage is defined as referring to loss, destruction or damage 'so caused', namely 'by any cause or event not hereinafter excluded'. There are many exclusions. For example, the Perils Exclusions include in clause 1(b) an exclusion for 'physical loss, destruction of or damage to the Property Insured … resulting from … requisition or damage to property by or under the order of any Government or Public or Local Authority'. The exclusion itself is confined by the following write back provision:
Notwithstanding the provisions of Perils Exclusion 1(b) the Insurer(s) shall be liable for loss, destruction of or damage to, or the cost of removal of, sound property at the Premises for the purpose of preventing or diminishing imminent damage by, or inhibiting the spread of, fire or any other peril insured against under this Policy.
89 This deals, at least as to the spread of fire, with a subject matter that is also addressed by memorandum 7. It appears to be concerned with property claims, not with the subject matter of Section 2 which is claims for loss due to interruption to business. Much was sought to be made by the Insurers of the terms of the write back for the purposes of construction of the language used in memorandum 7. However, the exclusion is expressed in terms that engage with the principal indemnity which contemplates that claims will only arise where there is physical loss, destruction or damage to property. On any view, the language of memorandum 7 is making clear the extent to which that indemnity is extended. It may be effecting that extension by over-riding an exclusion or it may be simply providing for an additional peril that is covered or it may be doing both. Therefore, contrary to the contention advanced for the Insurers, the existence of the qualifying language to cl 1(b) of the Perils Exclusions does not provide any real assistance in understanding what was intended by memorandum 7. Whatever it says and however it operates, the nature of the memoranda is such that it has the potential to change the scope of the exclusion.
90 There is also an exclusion in cl 7 of the Perils Exclusions for physical loss, destruction or damage occasioned by or happening through any kidnapping, bomb threat, threat of contamination, hoax or extortion. Further, as has been noted, there is an exclusion for disease (quoted above). These exclusions (and others) operate by reference to the language of the general indemnity provided for in Section 2. Most use the terminology 'physical loss, destruction of or damage to [property]' in describing the perils excluded. By reason of their terms, the defined term Damage in Section 2 must be read as being qualified by these many exclusions. However, they offer little assistance when it comes to interpreting the memoranda to the indemnity in Section 2 because those memoranda can alter the extent of the Perils Exclusions. Also, as we have seen in relation to memorandum 9, they can provide for cover for consequential loss through business interruption as a result of events that do not involve any physical loss, destruction of or damage to property. Memorandum 19 is also of that character (see below). The Perils Exclusions to which we have referred do not engage with perils of that kind. The words in the Policy that introduce the Memoranda to Section 2 support an approach whereby the memoranda can alter the cover that would otherwise be provided by the principal indemnity described in Section 2 which is expressly made subject to the exclusions including the Perils Exclusions. Those introductory words state:
Except to the extent this Policy is hereby modified under the following Memoranda the terms, Conditions and limitations of this Policy shall apply.
91 Returning to the text of the indemnity clause, after defining the events covered (to be referred to as Damage) the indemnity clause then refers to 'the amount of loss' that is 'in consequence' of the Damage interrupting or interfering with the business of Star as the insured. This part of the clause is not describing the insured events. Rather, it is describing the extent of the indemnity for loss in consequence of the occurrence of an insured event (namely, Damage) occurring. The loss described at this point in the clause might be described as the consequential loss or the indemnified loss. It is the loss occasioned by interruption to the business of Star.
92 Finally, the clause states that the cover is for the amount of such loss 'in accordance with the applicable Basis of Settlement'. This might be described as the quantified loss.
93 It is within that immediate context that the terminology in the Memoranda to Section 2 must be considered. The terms 'Damage' and 'loss' are deployed throughout the Memoranda to Section 2.
94 The first way in which that occurs is in memorandum 2 which provides that if the business of the insured is conducted in departments then certain of the Basis of Settlement provisions are to be applied 'separately to each department affected by the Damage'. In each of memoranda 3, and 5 there are related provisions dealing with the Basis of Settlement. These three memoranda each refer to calculation of loss due to the Damage. In each case loss is used to refer to the consequential loss and Damage is used to refer to the event giving rise to a claim. In the case of memorandum 2, it has the effect that, despite there being a single peril, the quantified loss is to be calculated separately for different departments of the business.
95 Memorandum 4 deals with the case of a claim to recover The Star Casino Benefit Levy being a type of loss for which there is express provision. It refers to instances in which the levy 'would have been payable in accordance with the above contractual arrangements had the Damage not occurred'. Again Damage is being used in the sense defined in the principal indemnity for Section 2. It is the event giving rise to the loss to be claimed. The memoranda specifies how the Basis of Settlement is to apply in such a case. Then, memorandum 4 states:
The sub limits stated in Section 2(i), with the exception of Infectious Diseases, of this policy shall not apply to Casino Weekly Duty, Rebate Player Duty and Responsible Gambling Levy - Sub Limit Section 2(ii).
96 It can be seen that memorandum 4 lifts the Sub-limits in the case of a claim for loss that takes the form of loss of the levy. All limits are lifted except that for Infectious Diseases. As has been noted that limit is for $1 million in the aggregate for the term of the Policy. In our view, the retention of the limit in that case supports our conclusion that the terms of the Policy reflect a considered view that memorandum 9 expresses the full extent to which there would be cover for Infectious Diseases. As the Sub-limit applies only to memorandum 9, a construction which allowed memorandum 7 to apply to disease (and thereby without constraint by the Sub-limit) would mean that the qualification to memorandum 4 would not apply. However, the qualification appears in a context which manifests an intention that loss of the Levy would be subject to the Sub-limit for Infectious Diseases in all instances. That would only be the case if memorandum 9 expressed the full extent of cover for human infectious or contagious disease.
97 Memorandum 6 deals with the way in which information in the books of account of the insured may be treated in investigating or verifying any claim.
98 Then comes the key provision for Star's case, memorandum 7. It adopts the form of extending what is meant by Damage. It says: 'The word "Damage" under Section 2 is extended to include loss resulting from or caused by [the specified act of an authority]'. Therefore, its focus is upon extending the insured event covered by the principal indemnity for Section 2. Notably, it uses the expression 'loss', not the phrase 'loss, destruction or damage'. For the following reasons, the use of the term loss in that manner is ambiguous.
99 On one view, the focus of the opening words on extending the term Damage indicates that the memorandum is expanding the extent of cover by including something more within the defined term. In particular, it is including an instance where the action of an authority in connection with or for the purpose of retarding a conflagration or other catastrophe results in loss. On that approach, loss is not the indemnified loss that may be claimed and assessed according to the Basis of Settlement. Rather, loss is used as part of the terminology to define the kind of event for which indemnity is afforded. Therefore, 'loss' is not referring to loss which is a result of business interruption. Rather, it is referring to loss that causes business interruption (being loss that happens because of the action of an authority). On that approach loss is referring to the immediate consequence of the action of the authority in connection with or for the purpose of retarding any conflagration or other catastrophe. It is pointing to the effect of the action taken by the authority. It must have the effect of 'loss'. Accordingly, it is not referring to the financial or economic loss that flows from that action.
100 If such an approach is taken to the interpretation of the provision then it is difficult to see how the word loss could refer to an action by the authority that did not have some adverse physical consequence. As the primary judge concluded at [169] after considering the above aspects:
Thus, there is a clear textual and structural foundation of 'loss' in memorandum 7 to be physical loss, which would practically in any case include destruction. There is no textual reason, other than the similarity (though not identity) of introductory wording of memoranda 7 and 9, to consider that 'loss' means loss of use.
101 The reference at [169] to the possible significance of the similarity with the opening wording of memorandum 9 lies in the fact, already noted, that memorandum 9 by its subject matter expands the scope of Damage to include events that do not result in physical loss. Therefore, when it refers to extending Damage to include loss resulting from the matters there specified it is not confined to physical loss.
102 Despite this, the primary judge concluded at [179] that:
The word 'loss' in memorandum 7 means physical loss of (and so destruction of, but not damage to) property, not loss of use, or of custom or financial loss.
103 This further step seems inevitable if the opening words '"Damage" … is extended to include loss' are read as referring to loss as part of the insured event (in the same way that physical loss, destruction or damage are part of the insured event in the main indemnity provision).
104 However, as the extension is only for loss, such a construction produces the odd feature that the extension is only for action by the authority that causes loss, not for action that causes 'physical loss, destruction or damage'.
105 A different view of the references to loss in memoranda 7 and 9 arises if the use of that term is contrasted with the extensive use throughout the Policy of the phrase 'loss, destruction or damage' (or equivalent language) and the use of that terminology in the principal indemnity in Section 2 (which is then reduced to the term Damage). In that context, the use of the term 'loss' instead of the phrase 'physical loss, destruction or damage' presents as a deliberate one. It leads to an alternative view to that described above, which is to treat the reference to loss as a reference to the indemnified loss, namely the loss suffered by reason of interruption to or interference with the business being carried on by Star. This requires some small assault to the grammatical structure of each of memoranda 7 and 9 because they both use the form of extending Damage 'to include loss resulting from'. However, it is possible to read the opening words of each of the two memoranda as meaning the scope of the insured peril (Damage) is extended to include consequential loss that results from the event that is then specified in the memorandum (in the case of memorandum 9, each of the four numbered events). This would treat the opening words of each of memoranda 7 and 9 as providing, in effect, that Damage is extended so as to include loss resulting from specified events (which are insured perils). This approach is strongly supported by the fact that it is not the loss that is the object the extension. Rather, it is the events that are thereafter specified that are the object of the extension.
106 Put another way, in the case of memorandum 7, Damage (the insured event) is extended by the memorandum such that consequential loss resulting from or caused by the action of an authority in connection with or for the purpose of retarding any conflagration or other catastrophe is covered. It is the action of an authority of the kind described in the memorandum that becomes the insured peril. Damage is extended to include that peril with the result that loss resulting from or caused by that peril (that is, consequential loss) is the subject of the agreed indemnity. The same approach may be applied to memorandum 9.
107 This alternative construction sits with the overall structure of the Policy in four respects. First, for memorandum 7 to provide that Damage (being the term used to describe the extent of the insured events) is extended indicates that the provision is expanding the scope of the insured perils for which there will be indemnity for the consequential loss. It does not suggest that there will both be a new peril but also a narrowing of the physical effect that must be established (to exclude damage). Yet this is the consequence of the first construction (as was recognised by the primary judge). Second, as will emerge, most of the memoranda that follow have the effect of identifying an additional insured peril and they do so without consistency in the form of words used. Third, it is unlikely that the same form of words as used in memorandum 7 and memorandum 9 would have different meanings. Both are dealing with the same type of issue and they are proximate in the document. You would expect both to be using 'loss resulting from' in the same sense. Fourth, it would reflect the fact that the Policy uses the term physical loss in many of its provisions when it is referring to loss of that kind.
108 Therefore, the use of the term loss (being the term used for consequential loss that can be claimed) appears to indicate a reference to the indemnified loss not some aspect of the insured peril.
109 Next there is memorandum 8. It is in the following terms:
Loss as insured by Section 2 of the policy resulting from interruption or interference with the Business in consequence of Damage to property within a 10 kilometre radius of the Premises which results in cessation or diminution of Business due to temporary falling away of potential custom shall be deemed to be loss resulting from Damage to property used by the Insured at the premises. Property Exclusions 4, 9, 10, 14 shall not apply to the cover granted by this extension.
110 Expressed in those terms, it simply deems the indemnified loss to include loss resulting from Damage occurring within the extended radius of any of Star's Premises. However, it is to be observed that the term loss is used to refer to consequential loss in contradistinction to the term Damage.
111 Then memorandum 9 opens with the words 'Damage is extended to include loss resulting from …'. It goes on to specify certain events (such as occurrence of a Notifiable Disease at the premises). The events as specified are not concerned with property loss, destruction or damage. Therefore, as has been observed, it is clear from that context that memorandum 9 extends the insured events to include those described in memorandum 9 even though they may not involve physical loss, destruction or damage.
112 Then there are memoranda that refer expressly to the loss as insured being extended or deemed to include the loss described (in the same basic structure as memorandum 8). They are memoranda 10, 15, 16, 18 and 19. Memoranda 10, 15, 16 and 18 each refer to loss in consequence of Damage to property (in the case of memorandum 16, registered vehicles and/or trailers at the Premises). Memorandum 19 applies where there is an interruption to the business as a result of a threat of damage to the premises by order of competent Public Authority). It does not use the defined term Damage. No doubt this reflects the fact that the damage described includes damage to persons and is not confined to property. In each case, there is no change to the need for physical loss, destruction or damage (noting the incremental change for threat of such damage to property or persons). Therefore, it makes sense to frame the provisions by reference to the consequential loss that may be claimed.
113 In using the term loss, it is clear that these memoranda are referring to the consequential loss (to be determined in accordance with the Basis of Settlement provisions). However, they retain the focus on the physical nature of the peril. They each refer separately to Damage (or in the case of memorandum 19, damage to property or persons), being the operative event which forms part of the language used to described the insured peril.
114 Memorandum 9 is different to these memoranda. The four events listed in its numbered paragraphs make clear that it is changing the nature of the insured peril to include events that do not have physical consequences. It uses the form of extending what is meant by Damage. Plainly it does not do so by including in Damage only loss of the kind specified. Rather, it extends Damage in a manner that means the consequential loss resulting from any of the four specified events may be claimed under the Policy. Significantly, memorandum 7 adopts the same form. Therefore, the context suggests that they are both identifying events that may lead to consequential loss as a result of a peril that may not involve damage to property.