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Wiesac Pty Ltd v Insurance Australia Group Ltd (2018) 34(2) ILB 32

COMMENT

This decision is an illustration of the way the court will construe a common ‘flood exclusion’ and its elements and, specifically, how using words capable of wider interpretation can help insurers avoid the liability.  The principle where one of several proximate causes is excluded from policy cover may be applied to any insurance claim, flood or otherwise.

FACTS

The plaintiffs had insurance over the property in Brisbane, which was affected by 2011 Brisbane flood.  The water entered through the wall of the basement, which caused significant disruption to the premises. Both plaintiffs claimed against the insurance policy for the loss caused to the basement and other associated financial expenses.

FLOODING OF THE BASEMENT

The water from the land (run off) enters the drainage system through two water storm drains running along the plaintiff’s premises and travels to the Brisbane River. If the water in the river is high enough, it can leave the river and, mixing up with the local run off, escape though the drainage pipes. That is what happened in the present case. As the drainage system was in a very poor condition, the water in the pipes was forced through the cracks in the pipes into the soil between the pipes and the basement. It pushed the river water, run off and the ground water into the basement and caused damage to the premises.

THE EXCLUSION CLAUSE

Under the insurance contract, the insurer was not liable for the damage occasioned by or happened though a flood. Flood was defined as ‘the inundation of normally dry land by water escaping or released from the normal confines of any natural water course…’.

ISSUE

The major issue in this case was whether on its proper construction, the ‘flood exclusion’ tendered the insurer not liable for the damage caused in the present matrix of circumstances.

JUDGMENT

Justice Davis, construing the flood exclusion, broke it into the parts and considered them separately:

Occasioned or happened though: In the present case there were multiple causes of damage (river water, run off, ground water) and only river water cause was caught by the ‘flood exclusion’. In these circumstances, the judge applied the so called  ‘Wayne Tank Principle’ [1], which establishes the general rule that the insurer will avoid liability under an exclusion clause ‘where one or more causes of the loss falls within the clause’.

Normally dry land: His Honour found that the damaged basement is a fixture on land, therefore it is ‘land’, and obviously, the basement is ‘normally dry’.

Escaping or released from the normal confines of any natural watercourse: Brisbane River was clearly a ‘natural watercourse’, however, there was some debate around whether in the present circumstances the river water in the pipis was ‘escaping [the river]’. Significantly, Davis J distinguished the present case from LMT, where the exclusionary clause on its construction only applied to water escaping the normal confines of the river in a particular way, ie by ‘overflowing from the normal confines of [the river]’. As the present ‘flood exclusion’ uses less restrictive language, the Judge held that the water was in fact escaping the normal confines of the river through the pipes, which satisfies the exclusionary clause.

CONCLUSION

His Honour held that the damage, caused to the premises, was caused by water from various sources. Even though the damage caused by local runoff  is not caught by the exclusionary clause [except the runoff pushed into the basement by the escaped river water], the ‘flood exclusion’ was available to the defendant.

[1] Wayne Tank and Pump Co Ltd v Employers Liability Insurance Co Ltd [1974] 1 QB 57.