Cover not provided for steps taken to rectify property damage arising out of an occurrence

McMahons Lawyers

Epsilon Insurance Broking Services Pty Ltd v Liberty Managing Agency Limited (No 2) [2020] FCA 20

23 January 2020, Federal Court of Australia – Allsop J

Ditchfield Contracting Pty Ltd and Ditchfield Contractors Pty Ltd (Ditchfield) were engaged by the Newcastle City Council regarding the construction at a waste management facility of a landfill cell. After an accident that occurred in September 2016 at the worksite, diesel spread across the adjoining property and along the route of an electricity easement to a creek. Ditchfield was subsequently charged with a pollution offence by the Environmental Protection Agency (EPA), and incurred costs in cleaning up and remediating the spill path.

RELEVANT POLICIES

Ditchfield had been issued a Combined Business Liability Policy on behalf of Certain Underwriters at Lloyd’s and Berkley Insurance Company (collectively, the Epsilon insurers), by Epsilon Insurance Broking Services Pty Ltd (Epsilon), an underwriting agency Ditchfield had engaged.
Ditchfield had also been provided cover under a Management Liability Policy (the DUAL policy) by Liberty Managing Agency Ltd on behalf of Syndicate 4473, Arch Underwriting at Lloyds Ltd on behalf of Syndicate 2012, Asta Managing Agency Ltd on behalf of Everest Syndicate 2786 and Hardy (Underwriting Agencies) Ltd on behalf of Syndicate 382 (collectively, the DUAL insurers). This policy was issued by DUAL Australia Pty Ltd, the Australian underwriting agent, and the cover included additional benefits for official investigations and inquiries (cl 2.1), statutory liability (cl 2.3) and pollution cover (cl 2.4).

COSTS PAID

In April 2018, an amount of $262,666.95 was paid to Ditchfield resulting from confirmation from the Epsilon insurers that the Epsilon policy responded to Ditchfield’s claim in respect of “mitigation costs arising from the incident”. Additionally, indemnity to Ditchfield was granted by the DUAL insurers under the DUAL policy, for the costs in the defending the charge brought by the EPA and EPA’s costs incurred, and the order for payment that was imposed by the Land and Environment Court. Contribution from the DUAL insurers on behalf of Epsilon was then sought on the grounds that the two policies provided cover for the cost of the steps taken by Ditchfield, and as a result the DUAL insurers incurred liability to contribute for their equitable share of the amount paid (said to be 50%).

The questions to be decided, separate from any other questions, were:

Whether cover was provided for steps the insured took to prevent, mitigate or rectify property damage arising or continuing out of an occurrence, under the Combined Business Liability Insurance policy issued by the Epsilon insurers?
Court found – unnecessary to answer

Whether cover was provided for steps the insured took to prevent, mitigate or rectify property damage arising or continuing out of an occurrence, under the Management Liability insurance policy issued by the DUAL insurers?
Court found – negative

KEY POINTS OF THE JUDGMENT:

  1. The DUAL policy did not respond to indemnify Ditchfield for the costs and expenses of the action resulting from the diesel spill. [61]
  2. Even if the steps taken, and expense incurred by Ditchfield acted as to prevented further damage, they were properly characterised as the monetary equivalent of the damage itself already caused by the initial negligent act. [32]
  3. No cover was provided under the DUAL policy for the loss represented by the expenses of directly dealing with the property damage resulting from the negligent release of diesel fuel as a pollutant. [47]
  4. Under the Statutory Liability Additional Benefit, cover was limited to fines and penalties. [58]
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