T&T Investments Australia Pty Limited v CGU Insurance Limited

The Crop Insurance Policy

1. The lentil crop was one of 10 crops insured under the policy. The insured yield from that crop was 3 tonnes per hectare and that yield was insured at $800 per tonne. The insured's excess was 10%, so that the insurer was not liable for any loss of potential seed yield up to that percentage.
2. The insuring clause in relation to each insured crop provided: We will pay you for the loss of potential yield of seed or hay, during the period of insurance shown on your schedule, due to any of the listed events shown, for: * dicotyledons and monocotyledons (other than rice), after they have reached first emergence, or * rice, after it has reached panicle initiation. There must be damage or loss to the insured crop, during the period of insurance, and from one of these listed events, for you to make a claim. … Cover - Listed Events * Impact of hailstones upon plant parts. * Fire, lightning or spontaneous combustion of the insured crop. * Physical damage or destruction of the insured crop caused by explosion.
3. The potential yield of a crop is "the harvestable yield which the insured crop has the potential to produce by normal growth process if the insured event had not occurred". Here the insured harvestable yield was 323 hectares multiplied by 3 or 969 tonnes.
4. In the event of a loss, the insured was entitled to receive the percentage loss of yield less the excess percentage, or net loss percentage, of the value of the harvestable yield. On the basis of the primary judge's assessment of the percentage loss of yield (20%), after deducting the excess percentage T&T received $77,520, being 10% of 969 tonnes multiplied by $800 per tonne.

The crop

1. The primary judge made the following findings as to the characteristics of the lentil crop and the practice of "desiccation" (Judgment p 4): Lentils, as a plant, have a relatively high biomass, that is green leafy material, and slender, even weak stems, relative, for example, to wheat. The seed pods contain not multiple seeds as in peas or beans, but one or two seeds. The seed dries out ahead of the biomass and for that reason it is difficult to harvest because the harvester has to get through the heavy plant growth. The seed pods are heavier than the plant, and that causes the plant to lean over in a process known as 'lodging'. Typically, indeed intentionally, the plant is allowed to lodge because in doing so it forms a loop, referred to in the agricultural business as a lentil loop, and makes it easier to harvest. One method of rendering the harvesting of lentils an even easier process than it might otherwise be is the practice of 'desiccation'. In essence, desiccating a crop means spraying it with a herbicide which kills the plant and any weeds, thus getting rid of the green biomass and enabling the harvester to get in and lift up the lentil loops. It is not without its risks, however. As it kills the plant, so the plant becomes brittle and more susceptible to damage, for example by wind, rain, hail or even beetles. …
2. The lentil variety grown by T&T was known as Aldinga. The evidence was that this variety does not tolerate water logging and should be harvested as soon as mature because delayed harvest increases the risk of shattering of plant parts, and rain damage. The optimum time for harvesting lentils, where they have been desiccated, is within 10 days after desiccation (Judgment p 5-6).
3. The experts did not uniformly use "lodging" to describe only the process whereby the lentil plant leans over to form a loop which makes it easier to harvest. Mr Ward, an expert called in CGU's case, described lodging as including when a crop "lays down" in a relatively uniform manner, although there is no shattering or breaking of plant parts. Mr Freebairn, an assessor retained by CGU whose report was tendered in T&T's case, described what he saw in late January 2011 as the "total lodging of the crop". Mr McInerney, T&T's expert described the same crop as "flattened". In its second letter denying liability for T&T's claim, CGU said that the "unanimous opinion" of its assessors was that the crop was unable to be harvested due to "severe lodging … as a result of the very heavy rains that occurred post desiccation".

The progress of the crop

1. The crop was sown in May 2010. In mid-November 2010 an experienced agronomist and lentil grower, Mr Davies, saw the crop and assessed its likely yield to be in the order of 3.2 to 3.5 tonnes per hectare, and as high as 4 tonnes per hectare (Judgment p 7). The crop was desiccated on 26 November 2010. There was then heavy rainfall in the vicinity of the crop between 28 November and 1 December and on 26 and 27 December 2010 (Judgment p 18).
2. Harvesting did not occur in the first week of December because the rainfall in late November meant that the ground was too wet to get a harvester in and around the crop. On 27 December an attempt was made to harvest the crop. The contract harvester who made that attempt was Mr Hughes. It was unsuccessful. On about 3 January 2011 another harvester, Mr Swansbra, inspected the crop to see if it could be harvested. He concluded that it was not viable to do so because "there was not enough crop there to bother running the harvester over it".

The evidence of Mr Hughes and Mr Swansbra

1. The primary judge accepted the evidence of each of these witnesses (Judgment pp 13, 24) and is to be understood as having made findings of primary fact in accordance with that evidence.
2. Mr Hughes, an experienced contract harvester, visited the lentil crop on a number of occasions in 2010 to observe its progress. He inspected the crop on 1 December, on or about 17 December, on or about 20 December and on 27 December 2010 (Judgment p 10). On 1 December, he considered the ground beneath the crop was too wet to allow it to be harvested. He inspected the crop for about half an hour on about 17 December and described it as being in "good condition". He next visited paddock 8 on about 20 December, after the storm and so as to check its condition. He saw the crop had been damaged. He described that damage. The crops were "lying flat on the ground and had been stripped of the majority of their pods which were lying shattered on the ground". He also described it as having been "flattened". On 27 December he attempted to harvest. His evidence was that "after getting through about 9 hectares it seemed apparent that the crop could not be properly harvested with my equipment. The belt was not picking up the lentils as so many had been smashed into the ground".
3. Mr Swansbra was also an experienced harvester. In early January he was asked by Mr Peasley, the owner of the land on which the crop was grown, to inspect the crop to see if it could be salvaged. He recalled saying to Mr Peasley that "this crop has been totally smashed by hail". In an earlier statement he described what he saw on 3 January: … it was easy to see lentil seeds on the ground, which I strongly suspect hail damage [sic], heavy rain had leaned the crop in all directions, and very close to the ground. Shane [Peasley] and I inspected all the paddock. There was no difference anywhere …
4. In cross-examination he proffered that hail damage was the main contributor to what had happened because heavy rain did not knock seeds out of pods.

The evidence as to a hailstorm event on 19 December 2010

1. Mr Fuge and Mr Keat gave evidence concerning the hailstorm (Judgment pp 14-16). The primary judge also accepted their evidence (Judgment p 16)
2. Mr Fuge owned two properties in the vicinity of paddock 8 - Greenfields and Lenborough. Greenfields was to the north-east of paddock 8 and Lenborough was to the east north-east, and further to the east than Greenfields. On the afternoon of 19 December, Mr Fuge was driving his utility vehicle along Lowes Road in a north-westerly direction and to the east of paddock 8. At that time he observed dark storm clouds to the west which were travelling in a north easterly direction. He described paddock 8 as being "in the path of the storm". He continued driving along Lowes Road, turned right into Websters Road and proceeded until he reached the paddock on Greenfields where he had three workers harvesting a wheat crop.
3. It started hailing just before he arrived at that paddock. He described the hail as about "marble size" and "quite hard". He had not seen any hail falling on paddock 8 as he drove past. The hailstorm lasted about two to three minutes and was followed by some heavy rain. He could not remember what rainfall "we measured".
4. Mr Fuge subsequently made insurance claims for hail damage caused to wheat crops on Greenfields and Lenborough. The loss at Greenfields was subsequently assessed at 36.36%, and that at Lenborough was assessed at 36.9% (Judgment pp 14-15).
5. There was a rain gauge on Lenborough where Mr and Mrs Fuge lived. The chart which Mrs Fuge kept recorded rainfall of 4 mm on 20 December 2010. There was no recorded rainfall for 19 December.
6. Mr Keat was one of the three farmhands working at Greenfields. He recalled the storm approaching from a westerly direction. He also recalled there being "heavy hail" because he was concerned that his ute might be damaged. There was some rain. A day or two later he inspected the wheat crop they had been harvesting at that time and noticed that it had been "damaged quite badly as a result of the hailstorm" (Judgment pp 15-16).

Rainfall records

1. Rainfall records were tendered showing rainfall at different locations around the Forbes and West Wyalong areas. None of those recording sites was closer than 28 km to paddock 8, and the furthest site was 47 km to the north east of the site. As the primary judge observed "those weather stations gave a fair range of the weather within a 50 km radius of paddock 8" (Judgment p 8).
2. The primary judge did not treat the records kept by Mrs Fuge as of assistance because her Honour considered that the property on which the gauge was kept was not known. That conclusion does not take account of the evidence of Mr Fuge referred to above which indicated that the gauge was on Lenborough where they lived. That property was in the path of the hailstorm.
3. The primary judge concluded, having noted that there were no "exact and precise measurements because recordings and even radar are made only in particular locations", that so far as paddock 8 was concerned there was very heavy rain between 28 November and 1 December and on 26 and 27 December 2010, but not a great deal of rain in between and certainly not rain which could be described as excessive (Judgment pp 17-18).

The expert evidence

1. There were five witnesses called to give expert evidence directed to the question whether and to what extent the lentil crop was damaged by the hailstorm. Mr McInerney and Mr Davies gave evidence in T&T's case and Mr Cossar, Mr Lamb and Mr Ward in CGU's case. That evidence was given in accordance with the process sometimes described as "hot tubbing": see Uniform Civil Procedure Rules 2005 (NSW) r 31.35. The expert evidence also included the short written reports of two other crop assessors appointed by CGU, Mr Freebairn, an agricultural consultant, and Mr Falconer, an agronomist. Neither gave oral evidence. As will be seen, the primary judge's conclusion that 20% of the harvestable yield was lost by the hail strike was expressed to be based on the reasoning of Mr Freebairn and Mr Falconer (Judgment p 24).
2. Mr Lamb and Mr Cossar were the assessors on whose advice CGU first relied to reject T&T's claim. They jointly inspected paddock 8 on 6 January and again on 14 January 2011. The evidence of each was that there was no sign of any hail damage to the lentil plants or to other in-crop weed. Nor was there any sign of pod or seed damage to the remnants of the canola crop in a neighbouring paddock which had not been harvested.
3. Mr Ward did not at any time inspect paddock 8. Instead he relied on photographs, including those taken by Mr McInerney on 9 January 2011. He considered that there was no evidence in those photographs "of the type of damage caused by hail". He concluded that the yield loss sustained was due to the "inherent lodging characteristics of Aldinga lentils, induced by harvest delays, wind and wet weather during the optimum harvest window". Mr Ward prepared two reports, one in March 2014 and the other in September 2014.
4. Mr Freebairn and Mr Falconer first inspected the crop on 28 January 2011. They undertook that inspection at the request of MYI Freeman's Agriculture, a loss adjuster retained by CGU. Each prepared a separate report. Mr Freebairn's conclusion was that hail did contribute to some yield loss and he assessed the crop seed loss due to hail damage to be about 20%. [Blue 141D] Mr Falconer was not persuaded that a major hailstorm had occurred over the lentil crop, but considered "a 20% claim would be appropriate", allowing for the fact that some hail damage may have occurred. [Blue 149N]
5. Mr Davies' report dated 16 September 2014 was directed to the yield potential of the lentil crop. He did not express an opinion as to whether the damage to the crop was caused by a hailstorm. He did however say that he had been involved in two lentil crop hail claims that had been assessed as a 100% loss.
6. Mr McInerney inspected the crop on 5 January and again on 9 January 2011. He was also present at some stage during the inspections by others that occurred on 14 and 28 January 2011. On 9 January he took photographs of the crop and of adjacent areas, including the neighbouring canola paddock. He also inspected two wheat crops that had been the subject of claims. One was on a property of Mr Fuge. The other was owned by a Mr Scott and was to the north east of paddock 8.
7. Mr McInerney's opinion was that the crop was "effectively destroyed" by a hailstorm on 19 December which rendered it unharvestable. He described the damage to the crop as "flattening and shattering of stems and pods". He compared its condition to a crop that he had inspected in Victoria, which had experienced heavy rainfall after desiccation but retained its "lentil loop". He also referred to the hail damage to the neighbouring canola crop and to the two wheat crops. He considered a desiccated lentil crop to be "more susceptible to hail damage" than a wheat or canola crop.

The primary judge's findings and reasoning

1. The event against which the policy insured was "impact of hailstones upon plant parts". On the happening of that event CGU agreed to pay T&T for the loss of the "harvestable yield which the insured crop has the potential to produce by normal growth process if the insured event had not occurred".
2. T&T's case was that the harvestable yield which the crop had the potential to produce if it had not been damaged was at least equal to the insured yield of 3 tonnes per hectare, and that the whole of that potential yield was lost by the hail event.
3. It was not contested that by 27 December 2010 the crop was not harvestable and had suffered a 100% loss of yield because it was lying flat on the ground (Judgment pp 3-4).
4. The primary judge found that there was hailstone impact on the lentil crop on 19 December 2010 and that a loss of potential yield was caused by that impact (Judgment p 23).
5. Her Honour considered that as at 19 December 2010 (and necessarily before the storm) the potential harvestable yield of the crop was 3 tonnes per hectare (Judgment p 24). That assessment was made by accepting Mr Davies' evidence as to the original potential yield being up to 4 tonnes per hectare, and reducing that yield to take account of the time that had passed (and any rain that had fallen) since the crop was desiccated on 26 November 2010 (Judgment p 24).
6. The primary judge then addressed the degree to which the hail damage caused a loss of seed yield and "accepted the reasoning of Mr Freebairn and Mr Falconer that [that loss of yield] was about 20%". That is not a finding that only 20% of the crop was damaged. It is a finding as to the degree to which the impact of hailstones reduced the existing potential yield (as assessed by her Honour) over the whole of the crop (Judgment p 24).
7. The primary judge considered that what was left of that potential yield was "finished off by the resulting rain" (Judgment p 23). There is an issue as to whether that reference to "resulting rain" is to rain which fell on 19 December, or to rain which fell in the period after the hailstorm and up to and including 27 December 2010, by which time it is agreed the crop was unharvestable.
8. T&T's principal submission is that the primary judge's adoption of the reasoning of Mr Freebairn and Mr Falconer involved error because that reasoning was based on factual assumptions inconsistent with her Honour's findings, and evidence which she accepted.
9. Its alternative submission is that her Honour failed to give sufficient reasons for her conclusion as to the percentage loss of yield. This argument may be dealt with shortly. Having described the reasoning of Mr Freebairn and Mr Falconer given for their assessments, the primary judge accepted that reasoning for making her finding which adopted that 20% assessment. Their reasons explain how that assessment was arrived at, sufficiently to enable the challenge to it to be addressed on appeal. For better or for worse those reasons became her Honour's reasons. Ground 2 should be rejected.

The reasoning of Mr Freebairn

1. It was accepted that the damage to the crop was uniform across the 323 hectares. Mr Freebairn referred to "more or less uniform loss (shelling and lodging) across the crop". The nature of that damage was seed shattering, stem breaking and flattening or severe lodging of the crop. Mr Freebairn identified factors supporting and opposing "hail damage as the major contributor to inability to harvest the lentil crop".
2. The "opposing" factors provide the reasons for his conclusion that hail "did contribute to some yield loss but not to the complete destruction of the crop and its inability to be harvested". Those factors include the susceptibility of lentils, and particularly the Aldinga variety, to lodging; the "likely large amount of rain falling post desiccation" which "would contribute largely to likely severe lodging"; and the absence of lodging in the remnant of the nearby canola crop which exhibited some possible hail damage (missing pods and light to moderate shelling) indicating around 25% yield loss in that crop. Mr Freebairn also noted that although it was difficult to find evidence of hail bruising on lentil and other in-crop plants following their desiccation in late November 2010, there was some evidence of bruising, leaf holes and other damage to those plants that could have been caused by hail (Judgment p 22).
3. Mr Freebairn and Mr Falconer made an assessment of the extent of the seed shattering across the crop. That assessment indicated that about 30% of the seed had "shelled from the crop and was on the ground". Allowing for "natural shelling" Mr Freebairn considered that 20% of the crop seed loss could be attributed to hail damage (Judgment p 21).
4. From his perspective there remained to be considered the loss of yield due to the severe lodging or flattening of the crop which was apparent by 27 December 2010. Mr Freebairn extracted in his report Bureau of Meteorology rainfall figures for two weather stations at Forbes and West Wyalong airports for the period from 28 November 2010 to 15 January 2011. These figures recorded wide variations in the rainfall (if any) recorded at those stations on days during this period (Judgment p 22).
5. In relation to whether hail impact was the likely cause of the flattening or severe lodging, Mr Freebairn concluded: I largely disassociate the total lodging of the crop being caused by hail damage. This view is supported by the lack of nearby canola being much lodged as a consequence of hail, and the well known reputation lentils, especially a variety like Aldinga, has for lodging. Lodging is almost certainly exacerbated by the high amount of rain falling on a desiccated lentil crop.
6. Proceeding on the basis, it would seem, that only damage due to seed loss (as distinct from flattening or severe lodging) could be attributed to hail damage, he assessed the loss of yield at 20%.

The reasoning of Mr Falconer

1. Mr Falconer stressed the susceptibility of lentils, especially the Aldinga variety, to lodging. He referred to heavy rain which occurred "between desiccation and the attempted harvest" (on 27 December 2010) by reference to the rainfall records kept by Mrs Fuge. He also made reference to the assessment he made with Mr Freebairn that indicated a 30% yield loss from shattering across the crop (Judgment pp 20-21).
2. He expressed the following conclusions. A major hailstorm did not occur over the lentils as the residue from weeds did not show significant damage. It was possible that light or sago type hail may have contributed to the loss of some of the lentils. The amount of lodging which occurred could have been a result of heavy rain and light hail. It was difficult to say whether hail contributed to the lodging and shattering, although a "considerable amount" would have been the result of the heavy rain which occurred between 26 November and 27 December 2010. A loss of 30% from shattering would be the maximum that could be attributed to small or sago type hail; and if that hail occurred it may have caused some additional lodging. Having regard to the crop's susceptibility to lodge and the "considerable rain prior to the storm" Mr Falconer "suggested" that a "20% claim would be appropriate" (Judgment p 21).

Inconsistencies with other conclusions and findings of the primary judge

1. There are, as is submitted by T&T, several respects in which the factual assumptions and reasoning of these witnesses are inconsistent with other conclusions and findings of the primary judge. There are also inconsistencies and differences between the reasoning and conclusions of Mr Freebairn and Mr Falconer.
2. As to the opinion and reasoning of Mr Freebairn: Most significantly, Mr Freebairn's rejection of the suggestion that the severe lodging or flattening was caused by the hailstorm does not consider at all the evidence of Mr Hughes that on 17 December the crop was in "good condition" and that on about 20 December it was "lying flat on the ground" with the majority of the pods lying shattered. That evidence, which her Honour accepted, was inconsistent with Mr Freebairn's conclusion that the flattening of the crop was not caused, or at least substantially caused, by the hailstorm event.
3. Her Honour's finding that immediately before the hailstorm the potential yield of the crop was 3 tonnes per hectare is also consistent with acceptance of Mr Hughes' evidence and inconsistent with Mr Freebairn's hypothesis that it was likely that the quantity of rain falling post desiccation largely contributed to the severe lodging which was apparent by 27 December 2010. The rainfall figures to which Mr Freebairn refers, and particularly those taken at Forbes airport are also inconsistent with her Honour's finding that the only heavy rain that fell in the vicinity of paddock 8 post desiccation was between 28 November and 1 December and 26 and 27 December 2010.
4. Mr Freebairn's consideration also does not have regard to Mr Swansbra's evidence that when he inspected the crop on about 3 January 2011 its appearance was such that he considered that it had been "totally smashed by hail", rather than by rain.
5. In summary, Mr Freebairn's assessment of the loss of yield at 20% makes no allowance for the hailstorm having substantially caused the flattening of the crop. Her Honour's acceptance of Mr Hughes' evidence is only consistent with a finding to that effect.
6. As to the opinion and reasoning of Mr Falconer: Mr Falconer proceeded on the basis that the hail was possibly "light or sago type hail". That assumption does not take account of the observations of Mr Fuge and Mr Keat, accepted by her Honour, that there was "heavy hail of a larger size". He also assumed an absence of signs of damage on the residue of weeds in paddock 8, a matter as to which Mr Freebairn formed a different view. Mr Falconer accepted that hail might contribute to lodging but considered that a "considerable amount" of the lodging (presumably that apparent by 27 December 2010) would have been the result of heavy rain occurring between desiccation and that date. That hypothesis is inconsistent with her Honour's finding as to the condition of the crop (and its potential yield) immediately before the hailstorm and Mr Hughes' evidence as to its condition before and after the hailstorm, and particularly on about 20 December 2010.
7. Unlike Mr Freebairn, Mr Falconer was prepared to attribute a loss of yield of 30% from shattering due to small or sago type hail. He also accepted that if hail had occurred it may have caused additional lodging. Properly understood his figure of 20% represents a discount to a likely yield loss percentage in excess of 30%, after accounting for the possibility that no "hail occurred" on 19 December.
8. Accordingly Mr Falconer's conclusion that a "20% claim would be appropriate" was not an agreement with Mr Freebairn's assessment that there had been a likely yield loss of 20% due to the hailstorm. Furthermore, Mr Falconer's analysis does not take account of Mr Hughes' evidence and is inconsistent with her Honour's finding that there was a hailstorm and that it did cause a loss of potential yield.
9. In [42] above reference is made to her Honour's finding that the potential yield which was not lost as a result of the hailstorm "was finished off by the resulting rain". Having regard to the finding that there was no heavy rain at the time of the hailstorm or before 26 and 27 December 2010 (Judgment p 18), the reference to "the resulting rain" is to be understood as being to the rainfall on those two days. So understood, it is inconsistent with Mr Falconer's evidence, and perhaps that of Mr Freebairn, which attributes much of the lodging of the crop as due to rainfall after desiccation and before any hailstorm.

Conclusion

1. The primary judge erred in adopting the opinions and reasoning of Mr Freebairn and Mr Falconer as to the percentage loss of yield. Each made assumptions and expressed views about the likely causes of the severe lodging which existed by 27 December 2010 which did not take account of, and were inconsistent with, Mr Hughes' evidence which her Honour accepted.
2. There is no challenge to her Honour's findings in relation to the evidence of Mr Hughes, or to her findings that there was a hailstorm, that it caused a loss of yield across the whole of the crop, and that immediately before the hailstorm the potential yield across the whole crop was 3 tonnes per hectare.
3. The finding, on the basis of Mr Hughes' evidence, that following the hailstorm the crop was "flattened" is only consistent with the condition of the crop as described on 27 December 2010 being substantially due to that hailstorm. The evidence of Mr Freebairn and Mr Falconer accepts that flattening or severe lodging could have been caused by the impact of hail. Each rejected that possibility on the basis that it was likely due to heavy rain since desiccation. That likelihood is excluded by the findings (based on Mr Hughes' evidence) as to the crop's condition immediately before and after the hailstorm.
4. There remains the further possibility that notwithstanding the flattening observed by Mr Hughes on about 20 December 2010, the crop was not totally unharvestable before the heavy rains on 26 and 27 December 2010. Mr Hughes' evidence acknowledged the possibility of a small but commercially viable harvest (Judgment p 13).
5. To allow for that possibility which is not excluded by the acceptance of Mr Hughes' evidence, I assess the percentage of the potential yield lost by reason of the hailstorm on 19 December 2010 at 90%.
6. That conclusion is not assisted by reference to the evidence of Mr McInerney. Like the opinions of Mr Freebairn and Mr Falconer, his opinion did not take account of the evidence of Mr Hughes. Based as it was on an inspection of the crop in early January 2011, it could not assist as to the condition of the crop immediately after the hailstorm. It is otherwise unnecessary to consider ground 3.
7. It follows that after allowing for the excess, T&T is entitled to judgment in an amount being 80% of the value of the potential yield of the crop. I calculate the value of that lost yield as 80% of 323 hectares multiplied by $2400 (being 3 tonnes per hectare at $800 per tonne) or $620,160.
8. For these reasons I consider that the following orders should be made:
9. Appeal allowed.
10. Set aside the judgment and orders of the District Court entered on 10 October 2014.
11. Judgment for the appellant in the sum of $620,160, that judgment to take effect on 10 October 2014, plus interest to that date.
12. Direct that before 5pm on 31 August 2016 the parties prepare and file in the Registry short minutes of order which: (a) award interest to the appellant on that sum for the same period to 10 October 2014, and at the same rate, as did order 2 made on 10 October 2014; (b) provide for the respondent to pay the appellant's costs of the proceedings at first instance and on appeal on the ordinary basis.

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