Tropical Reef Shipyard Pty Ltd v QBE Insurance

Introduction 1 This case involves several claims by the insured, Tropical Reef Shipyard Pty Ltd (TRS), under two policies of insurance issued by QBE Insurance (Australia) Ltd (QBE). The policies, entitled "Instant Profits Insurance - Cash Flow Insurance - Simplified Business Interruption Insurance", are intended to protect the assured against "weekly loss of Turnover suffered … if the Business is interrupted or interfered with due to … property … having sustained … loss or damage". QBE seeks to bring the claims to an end through a summary judgment application under s 31A of the Federal Court of Australia Act 1976 (Cth). The application is brought on the basis that "TRS have not pleaded, and it should be inferred that it cannot advance, an arguable claim of a loss of Turnover established consistently with the operation of the Policies".

Background 2 The summary judgment application relies for its success on the proper construction of the policies. That is a task that has already been undertaken. On 16 June 2009 I directed under O 29 of the Federal Court Rules that four questions relating to the construction of the policies be determined before trial. The policies are relevantly in identical terms, apart from the period of cover and the sum insured. Each question required an aspect of the meaning of the policies to be ascertained. 3 The principal issue in dispute concerned the meaning of the insuring clause. That clause provides that "for each week we [QBE] will pay an amount based upon Weekly Calculations not exceeding the Weekly Sum Insured each week in respect of loss of Turnover suffered by you [TRS] during the Indemnity Period", such payment to "be made every seven days whenever practicable". "Weekly Sum Insured" is defined to mean "the sum insured for each week which you have selected and which appears in the Schedule. All calculations shall be on a weekly basis". The sum insured in the Schedule for the first policy is $201,000 and for the second it is $183,900. "Turnover" is defined to mean "money paid or payable to you for goods sold and for services rendered". It is agreed on both sides that loss of Turnover is calculated by subtracting actual weekly Turnover from Actual Average Weekly Turnover for each week. Actual Average Weekly Turnover is defined as "the Actual Average of the Turnover for the twelve (12) months preceding the commencement date of the interruption". 4 Three incidents are alleged to have caused damage to a slipway used by TRS to slip vessels to enable it to provide repair and maintenance services. The damage to the slipway is said to have interrupted the business operations of TRS resulting in it suffering a loss of weekly Turnover for which it makes claim under the policies. 5 As it turns out, there was not a loss of Turnover in each week during the indemnity period covered by each policy. In some weeks TRS's actual Turnover exceeded its Actual Average Weekly Turnover. In that circumstance, according to QBE, the appropriate method for determining the amount of cover is: (1) calculate the weekly loss of Turnover for each week by subtracting the applicant's actual weekly Turnover from Actual Average Weekly Turnover; (2) place that amount in a nominal running account; (3) if the balance in the nominal running account is positive at the end of the year of indemnity, that amount (up to the Weekly Sum Insured) is the loss which is covered and when the amount is paid, it must be deducted from the nominal running account. 6 The fourth question which was reserved for determination was asked in order to test QBE's approach to the calculation of loss. That question, and its answer, was as follows: Question 4: Upon the assumption that: (a) the Actual Weekly Turnover and Average Weekly Turnover figures pleaded in Annexures D, G and H to the Applicant's Claim are correct (as corrected by paragraphs 21-23 of the Supplementary Report of Stephen Munro Gibson dated 10 June 2009); (b) the allegations pleaded in paragraphs 1, 2, 4 to 15, 22 to 26, and 32 to 36 of the Applicant's Claim are established; (c) the Respondent has paid a total sum of $2,000,000 to the Applicant in respect to the claims made in the proceedings; and (d) the Applicant's claims pursuant to the 2005 renewal (as defined in paragraph 5 of the Applicant's Claim) and the 2006 renewal (as defined in paragraph 8 of the Applicant's Claim) are as pleaded in Annexures D, G, H and I to the Applicant's Claim (as corrected by paragraphs 21-23 of the Supplementary Munro dated 10 June 2009); upon the proper construction of the 2005 renewal and the 2006 renewal, is the Applicant entitled to any and if so what amount under the 2005 renewal and/or the 2006 Renewal in respect to loss of Turnover under the said policies? Answer: The Applicant is entitled to loss of Turnover under: (a) the 2005 Renewal for the weeks ending 12 April 2007 to 25 October 2007 in respect to the September 2006 Incident; (b) the 2006 Renewal for the weeks ending 22 February 2007 to 5 April 2007 and 1 November 2007 to 14 February 2008 in respect to the November 2006 Incident; calculated in accordance with the methodology identified in the reasons for judgment, subject to proof of the loss of Turnover and the causal connection required by the terms of each of the policies. 7 The effect of this answer was to reject QBE's approach to the calculation of loss of Turnover. The reasons which were delivered explain why: Tropical Reef Shipyard Pty Ltd v QBE Insurance (Australia) Ltd [2009] FCA 1088. In those reasons I said (at [14]): The cover provided by the policy makes clear that "for each week [the respondent] will pay [the applicant] … in respect of loss of Turnover" (emphasis added). This means the calculations are to be made on a weekly basis. This position is reinforced by the introduction to the policy, which speaks of indemnity "in respect of weekly loss of Turnover". In addition where a loss arises, it must be paid within "seven days whenever practicable". In other words the policy terms provide for indemnity for losses incurred on a week by week basis. Those losses must be calculated by reference to weekly figures not on an annual, or some other, basis. In the calculation of weekly loss of Turnover, there is nothing to support the introduction of a "running account". It is true that the result may be seen as a windfall gain. But it is only a windfall if the applicant's position is considered on an annual basis. It is not when analysed with the words of the policy in mind, which, as I have said, looks at the applicant's position on a weekly basis. 8 I went on to say (at [15]) that, having regard to that construction, the issues that remained to be resolved at trial were "(a) whether there is a causal connection between the incidents and the loss claimed and (b) whether Turnover, and therefore Actual Average Weekly Turnover, ought be calculated by reference to total invoiced sales or cash receipts, or a combination of both, plus work in progress".