Max Hams & 1 Ors v CGU Insurance Limited

[2002] NSWSC 273

Reported Decision: (2002) 12 ANZ Insurance Cases 61-525

New South Wales

Supreme Court

CITATION:	Max Hams & 1 Ors v CGU Insurance Limited [2002] NSWSC 273
FILE NUMBER(S):	SC 50022/01
HEARING DATE(S):	18/03/02, 19/03/02, 20/03/02, 21/02/03, 22/03/02, 25/03/02, 26/03/02, 27/03/02,
JUDGMENT DATE:	12 April 2002
PARTIES :	Max Hams (Plaintiff) Judith Hams (Plaintiff) CGU Insurance Limited (Defendant)
JUDGMENT OF:	Einstein J

COUNSEL :	Mr M Cashion SC, Mr RG Forster SC, Mr J Lawrence (Plaintiffs) Mr PW Taylor SC, Mr RA Cavanagh (Defendant) Mr SD Rares SC, Mr J Stoljar, Ms T Catanzariti (Australian Security and Investments Commission as amicus curiae)
SOLICITORS:	Maurice Blackburn Cashman (Plaintiffs) Deacons (Defendant) Australian Security and Investments Commission (as amicus curiae)
CATCHWORDS:	Insurance - Policies - Contract of Insurance - Indemnity under insurance policy - Damage caused by inundation of water - Whether inundation constituted a 'flood' within the terms of the policy - Policy excluded cover for 'flood' where: "Flood means inundation following the escape of water from the normal confines of any lake, reservoir, dam, river, creek or navigable canal, as the result of a natural phenomenon which has some element of violence, suddenness or largeness about it but does not mean inundation by water from fixed apparatus, fixed tanks, fixed pipes or run-off of surface water from surrounding areas" - Expert hydrological evidence - Meaning of the word 'lake' - Proximate cause - Wayne Tank principle: If a loss has two or more proximate or effective causes and at least one cause is excluded from cover, the insurer is not liable - Insurance Contracts Act 1984 (Cth) [ICA] - Proper construction of the words "clearly informed the insured in writing (whether by providing the insured with a document containing the provisions, or the relevant provisions, of the proposed contract or otherwise)" - What must an insurer do to clearly inform the insured in writing of the provisions of the insurance contract within the meaning of s 35(2) of the ICA - Whether the test is whether in all the circumstances the insurer has clearly informed the insured of the relevant provision, such that the mere provision of a document containing the relevant provisions is insufficient to discharge the insurer's obligation if the supply of that document did not of itself clearly inform the insured of his or her obligations - Whether the requirement on the insurer under s35(2) is satisfied in every case by the supply to the insured of a document containing the relevant provisions, as may be suggested by the words in parentheses immediately following the words "clearly informed the insured in writing" in s35(2) - What is the operation and effect of s 35 of the ICA in circumstances in which the damage was caused by a number of proximate causes, one of which was excluded from cover - Holding that: (1) The words in parentheses in section 35 (2) "whether by providing the insured with a document containing the provisions, or the relevant provisions, of the proposed contract or otherwise" are likely in most circumstances to result in the provision of such a document in and of itself satisfying the requirement to clearly inform - (2) There may however be special circumstances in which the complexity of or confusions within the document containing the relevant provisions (which one would expect would usually be the Insurance Policy itself) could be such that the mere provision of the Policy did not establish that the insurer had effectively informed the insured of relevant limitations
LEGISLATION CITED:	Crown Lands Act 1989 (NSW) Insurance Contracts Act 1984 Insurance Contracts Regulations 1985 Native Vegetation Conservation Act 1997 (NSW) Soil Conservation Act 1938 (NSW) South Eastern Water Conservation and Drainage Act 1992 (SA) Statute Law (Miscellaneous Provisions) Act (No.1) 1985 No.65 (Cth) Statute Law (Miscellaneous Provisions) Act (No. 2) 1985 No. 193 (Cth) Water Conservation Act 1936 (SA) Water Resources Act 1989 (Qld)
CASES CITED:	City Centre Cold Store Pty Limited & Anor v Preservatrice Scandia Insurance Limited (1985) 3 NSWLR 739 Dodson v Grew (1767) Wilm 272 Re Bolton; ex parte Beane (1987) 162 CLR 514 Fell v Fell (1922) 31 CLR 268 GIO General Limited v Wallace [2001] NSWCA 299 Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307 HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601 House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498 Jordan v De George 341 US 223 (1951) Keener v Sharp 95 S.W. (2d) 648 K Sika Plastics Limited v Cornhill Insurance Co Limited [1982] 2 NZLR 50 Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60 Lumley General Insurance Limited v Delphin (1990) 6 ANZ Ins Cases 60-986 National & General Insurance Co Limited v Chick [1984] 2 NSWLR 86 Oakleaf v Home Insurance Ltd (1958) 14 DLR (2d) 535 Petersen v Union des Assurances de Paris IARD (1995) 8 ANZ Ins Cases 61-244, Petersen v Union des Assurances de Paris IARD (1997) 9 ANZ Ins Cases 61-366 Provincial Assurance Australia Pty Limited v Consolidated Wood Products Pty Limited (1991) 25 NSWLR 541 State Chamber of Commerce and Industry v Commonwealth (1987) 163 CLR 329 Suncorp General Insurance Limited v Cheihk [1999] NSWCA 238 Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] QB 57
DECISION:	The claim to indemnity with respect to the Homestead is made out. The claim to indemnity with respect to the hangar is not made out. The proper construction of section 35 of the Insurance Contracts Act 1984 (Cth) is dealt with. The parties are granted leave to address further submissions on any claim or matter arising from the above findings which may not have been dealt with. Subject to that, short minutes are to be brought in by the plaintiffs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

12 April 2002

50022/01 Max Hams & 1 Ors v CGU Insurance Limited

JUDGMENT

The Proceedings

1 The plaintiffs hold the perpetual lease on a property known as Koralta Station which covers 24,676 hectares and lies approximately 100 kilometres northeast of Broken Hill. The homestead, shearers’ quarters and other buildings are located within a geographical feature known as the Koralta depression.

2 The following description given by Mr Hams serves as a convenient overview outline:

"The Koralta homestead and other buildings are located at the side of the Koralta depression which is best described as valley approximately 4 kilometres long, 700 metres wide, on average, with an uneven floor which creates 3 sumps where water collects after a heavy thunderstorm or a lot of rain has fallen. The northern end of the depression is open and joins land which rises about 1 metre per kilometre. This slightly sloping land extends for 20 kilometres or so away from the homestead. Trees grow over much of the floor of the depression as well as native grass vegetation.

Approximately 3 kilometres north east of the Koralta homestead is a large depression with the local name of Scour Lake. The sump in the bottom of Scour Lake is oval shaped and flat bottomed…

To the north west of Koralta homestead is another depression. The centre of the depression is located approximately 8 kilometres from the homestead. The depression is approximately 2 kilometres wide and 3 kilometres long. On the southeastern corner of this depression is a small choke formed by 2 small ridges almost joining together but leaving an opening with a width of approximately 11 metres wide...

Situated further to the northwest, approximately 10 kilometres from the homestead, is a depression known as Canegrass Swamp. This depression is situated in the corner where Coogee Lake Station, Waterbag Station and Koralta Station join. It is approximately 1.5 kilometres in diameter and has a depth of approximately 2-2.5 metres of water…

Approximately 20 kilometres to the west of the Koralta homestead is Treloar Creek which drains into Coogee Lakes located to the north west of Koralta Station. The final section of the creek runs through Langidoon Station to the west of Koralta Station.

Approximately 16 kilometres to the north west of Koralta Station [are] Coogee Lakes which consist of one large lake and a series of small lakes.”
[Affidavit 1 June 2001 - paragraphs 5, 7 - 11]

3 On 20 and 21 February 2000, exceptionally heavy rain fell in the area in and around and surrounding the Koralta depression. Evidence was given that the probability of the occurrence was approximately 1 in 2000. The buildings and equipment located on Koralta Station were progressively inundated as the water level within the depression rose.

4 The plaintiffs held and made a claim pursuant to a "RuralPak Gold" policy of insurance No. 351 766886304 issued by the defendant [“the policy”]. The property insured under the policy included farm dwellings, buildings and machinery. Considerable destruction, loss and damage was occasioned to the property so described. These proceedings are brought by the plaintiffs pursuant to the policy claiming to recover an indemnity in respect of the damage and loss so occasioned.

The booklets containing detail of the policy wording

5 The policy was taken out in 1995 and renewed annually. Relevantly a renewal covered the period 28 April 1999 to 28 April 2000. Two booklets ["the policy booklets"] containing detail of the policy wording had been sent to Mr and Mrs Hams, the first booklet being received apparently in 1995 [transcript page 62] and the second booklet being received prior to the inundation the subject of these proceedings. The booklets appear to be identical and were marked as exhibits P 7 (i) and (ii) respectively. They were kept with the business records at Koralta.

The terms of the Policy

6 The policy contained the following provisions:

"The Buildings and Contents as shown in the Schedule are insured against destruction, loss or damage caused by an Accident or Misfortune except:
…
2. destruction, loss or damage caused by:
(a) Flood, storm surge, the action of the sea, tidal wave, high water or tsunami"

7 The term "Flood" was defined in the policy as follows:

"Flood means inundation following the escape of water from the normal confines of any lake, reservoir, dam, river, creek or navigable canal, as the result of a natural phenomenon which has some element of violence, suddenness or largeness about it but does not mean inundation by water from fixed apparatus, fixed tanks, fixed pipes or run-off of surface water from surrounding areas."

8 The defendant has denied liability on the basis that:-

· the policy excludes destruction, loss or damage caused by flood;

· the damage was caused wholly, or in the alternative partly, by flood.

The doctrine of proximate cause

9 The parties are agreed that this Court is bound as a matter of stare decisis to accept the following as the relevant principles which are to be applied:

· If a loss has two or more proximate or effective causes and at least one cause is excluded from cover the insurer is not liable: Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] QB 57; Petersen v Union des Assurances de Paris IARD (1997) 9 ANZ Ins Cases ¶61-366 (“the Wayne Tank principle”).

· If a loss has two or more causes, and loss from one is insured against and none of the others is expressly excluded, the insured is entitled to recover: HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601 at 612B.

10 As outlined in the defendant’s overviews submissions two bases are put forward for the refusal of indemnity as follows:

" Flooding from External Source

Rain commenced on the morning of Sunday, 20 February. By 0230 on Monday, 21 February 230mm had fallen. The rain stopped later that morning at about 0800. A total of about 230mm of rain had fallen. That amount of rain was the equivalent to the annual rainfall for the area.

Before the last rain fell the water level in the Koralta depression had already risen to flood the Hams’ aircraft hangar.

After the rain stopped, and between about 8.30 and 9.00 a.m. the Plaintiffs heard water roaring from the northwest (Robert Hams, 1 June 2001, paragraph 21). They observed an approaching body of water over 300 metres wide. This water entered the Koralta depression.

Water continued to flow into the Koralta depression throughout the rest of the day. By about 1000 the shearers’ quarters were flooded. By about 1800 water first entered the homestead.

The defendant maintains that water that flowed into the Koralta depression during the Monday included water that had escaped from external creeks, in particular, Treloar Creek. The defendant contends that satellite images demonstrate the flow of water from Treloar Creek into the Koralta depression by no later than 1100 on Tuesday 22, February 2000. The defendant also contends that the best estimates of the water that was likely to have entered the Koralta depression before the entry of the water from Treloar Creek, could not have flooded the homestead.

Accordingly, the water that entered the plaintiff's buildings and specifically the plaintiffs’ homestead was either (i) a mixture of water from Treloar Creek (and other creeks) and run off from the local catchment district or (ii) water from the local catchment that entered the homestead only as a result of the presence of Treloar Creek water within the Koralta depression.

In accordance with Peterson v. Union des Assurances de Paris IARD (1995) 8 ANZIC 61-244 liability is excluded under the Policy because, even if any of the water that actually entered the buildings originated as “run off, it only inundated the plaintiffs’ buildings because of the water that escaped from Treloar (and other) Creeks.”

Escape of Water from Lakes within the Koralta Depression

There were three “dry” lakes within the Koralta Depression. Topographical maps consistently record them. Satellite images, and photographs show them containing water periodically. In the ordinary course of events water entering the Koralta Depression would preferentially fill these lakes. In the case of a massive inflow, the lakes would overflow and tend to flood the rest of the depression.

This is what occurred with the massive rainfall on 20/21 February. The plaintiffs’ buildings were inundated after the three lakes filled and after the water level rose elsewhere in the depression because water continued to enter it.

This dictates conclusion that inundation of the plaintiffs’ property was caused by flood within the meaning of the Policy. The inundation of the buildings followed the escape of water from the three lakes within the Koralta Depression. That causal relationship is satisfied irrespective of whether the water which actually inundated the plaintiffs’ property had ever been within the natural confines of any of the three lakes. Once water escaped from the confines of those lakes, any water entering the Koralta Depression could not flow, as it normally would, into them. Any inundation the additional water caused itself “followed” the escape of water from the lakes and therefore falls within the policy exclusion: Provincial Assurance Australia Pty Limited v Consolidated Wood Products Pty Limited (1991) 25 NSWLR 541 at 564; K Sika Plastics Limited v Cornhill Insurance Co Limited [1982] 2 NZLR 50.”
[emphasis added]

The plaintiffs’ case in overview submissions

11 The plaintiffs’ case was that the evidence would establish that by the time the water within the depression peaked at about 10.00am on Wednesday 23 February 2000, the sources of the water were:

· Rain and run-off from within the Koralta depression;

· Water which had travelled over land from the Treloar Creek which was located to the west and possibly also;

· Water from Lake Scour to the Northeast.

12 On the plaintiffs’ case the real issue is as to the timing of the arrival of the water from those respective sources.

13 The plaintiffs’ primary case is that as at that time, the highest flooded building (the Homestead) was inundated by water, namely by 6.00pm on Monday 21 February, the only source of the water within the depression was rainfall and run-off within the Koralta depression. On the plaintiffs’ case the consequence is that the "Flood" exclusion does not entitle the defendant to deny liability under the policy.

Section 35 of the Insurance Contracts Act 1984

14 The plaintiffs have an alternative case which is put insofar as the holding may be that the defendant was entitled to refuse indemnity under the policy by reason that the destruction, damage or loss to the plaintiffs’ property fell within the exclusion of cover where such damage was caused by "Flood" as defined. This alternative case is that by operation of section 35 of the Insurance Contracts Act (“ICA”) and the Insurance Contracts Regulations 1985, the defendant is precluded from relying on the flood exclusion insofar as the policy provides cover for destruction, loss or damage to the plaintiffs’ "Home Building" (as defined in sub regulation 2 of the Regulations) and "Contents" (as defined by sub regulation 2 of the Regulations).

15 Put shortly, the plaintiffs’ alternative case is:

· the policy was a prescribed contract for the purposes of s35 of the Insurance Contracts Act, [cf regulations 9, 13, Insurance Contracts Regulations 1985];

· “flood” is a prescribed event within the meaning of s35(1) of the ICA [cf regulations 10, 14, Insurance Contracts Regulations 1985];

· prior to entry of the policy the defendant did not clearly inform the plaintiffs in writing that the policy excluded destruction, loss or damage caused by flood;

· consequently, the defendant cannot by reason of s35 refuse to indemnify the plaintiffs in respect of the damage.

16 A pleading issue was reserved and is dealt with below

17 The defendant's response is that even assuming that section 35(1) ICA applies, the Defendant has satisfied section 35(2) ICA. The defendant claims to have provided the Insured with (i) a notice that “flood” was not covered, (ii) a copy of the policy wording. The provision of such documents are said to satisfy the requirements of Section 35(2): GIO General Limited v Wallace [2001] NSWCA 299; Section 11(10) ICA.

18 The defendant's also assert that:

· Mr & Mrs Hams knew that flood was excluded from the insurance;

· Mr & Mrs Hams knew that flood was excluded from the insurance.

19 The parties have now agreed quantum pursuant to the policy.

The Evidence

Description of site and locality

20 Both parties put forward a large volume of evidence in relation to the topographic layout of the district in which Koralta is located and many maps, charts, diagrams, photographs, satellite images and analyses were tendered. These went to the central factual issue which was litigated in terms of the identification of the proper source of the water which had inundated the Homestead by 6.00pm on 21 February 2000.

21 Albeit that the evidence put forward by both parties was not identical in relation to the general description of site and locality, it seems to me that a sufficiently clear general overview picture may be taken from the following sections of the reports of Mr McConnell, an expert called by the plaintiffs and Dr Porter, an expert called by the defendant:

"(a) …. The landscape is ancient and has experienced millions of years of geomorphic or landform development to the extent that there are no longer any regularly defined watercourses leading from high land to major river systems. Rather, there are a number of short watercourses that drain to ephemeral lake systems, eg. Treloar Creek draining to Coogee Lake, Scopes Range Creek draining to Blue Lake, etc. Other creeks of note are Acacia Creek, Big Bilpa Creek and Little Bilpa Creek.

(b) There is a generalised overland flow pathway tending southwards in parallel with the Darling River which lies about 100km to the east. The defined watercourses within the region surrounding Koralta drain into the overland flow pathway south or downstream of Koralta except for Treloar Creek and Coogee Lake. Thus only the defined watercourses of Treloar Creek and Coogee Lake have the potential to affect Koralta…
(c) Treloar Creek is the closest identified watercourse feeding into the overland flow pathway north of Koralta. Its own overflow pathway is 23 km long and feeds through Canegrass Swamp and an adjacent unnamed swamp before passing overland to the Koralta buildings. There are no defined watercourses shown on currently available mapping within 20 km to the north or northeast of the Koralta homestead towards ‘Waterbag’ and ‘Boorungie’. Two small unnamed intermittent lakes lie to the north and east of the homestead. One acts as a sink for runoff from ‘Waterbag’ and the other as a sink for runoff from ‘Glenora’. Another depression, Canegrass Swamp lies halfway between Koralta homestead and Coogee Lake. There are also a number of other shallow depressions surrounding Canegrass Swamp. These swamps will delay the progress of overland runoff whilst they fill prior to any chance of overflowing…
(d) The 1:250,000 Broken Hill Land Systems Series shows Koralta Homestead in a land unit described as
“Small lakes in red country with local catchments. Beds of cracking or non-cracking clays and solonised brown soils, with sandy surface deposits around shorelines… lunettes of sandy solonised brown soils, often shallow overlying calcrete.”
This small landscape unit encompasses the depression in which Koralta Homestead is located and Scour Lake to the north. All of the other land units surrounding Koralta are classified as “Sandplains” or “Dunefields” with very low topographic relief.
(e) On a regional scale, Koralta is located in the Bancannia Trough, a broad landscape depression aligned NNW – SSE. Within the trough there is little landscape relief, and the flat plain features many depressions. At Koralta, the width of the Trough below elevation 150 m AHD is approximately 25 km. Higher ground, often hilly, is found to the west and east of the Bancannia Trough. During episodic runoff events, runoff is channelled towards the Bancannia Trough in creeks from both sides. When flowing, these generally terminate in lakes and claypans. A map of the district is shown in Figure 2.1.
(f) There is a very gentle slope to the south along the Bancannia Trough, and further south Acacia Creek can flow through to the Darling River. Treloar Creek enters the plain west of Koralta station, and normally terminates in Coogee Lake. Treloar Creek has a large catchment of almost 400 km ² , and conveys runoff from as far as 55 km west of Koralta. Ramparts Creek enters the plain NNE of Koralta near Waterbag homestead. It has a medium-sized catchment of approximately 140 km² upstream of Waterbag homestead, which drains from the Ramparts Hills. These are an area of rock outcrops and shallow, stony soils. Ramparts Creek often terminates in claypans south of Waterbag homestead.
(g) Like many arid zone creek and river systems, the termination of flow after a storm episode depends on the volume of runoff produced. When larger volumes of runoff are produced, lakes and claypans overflow. The geomorphology of the landscape then often features a series of lakes or pans which fill progressively as the flow continues and the volume of contributing runoff increases. This behaviour is exhibited by both Treloar Creek and Ramparts Creek. In the case of Treloar Creek, with sufficient creek inflow Coogee Lake overflows and can spill to the north and south-east, where other lakes are located which then fill in turn. In the case of Ramparts Creek, a long series of claypans exist south of Waterbag homestead, and these will fill sequentially as creek inflow continues. These lead to Scour Lake, and if there is sufficient volume of runoff this would fill Scour Lake. If Scour Lake spills, runoff will continue into the depression surrounding Koralta homestead and fill the lakes there.”

The Evidence as to the water inundation

22 The close evidence as to the water inundation generally focused across the period from Sunday 20 February 2000 at about 10:30am when light rain was first experienced travelling through the following days up to about 23 February 2000 when Mr and Mrs Hams were evacuated from the property. The convenient course is to treat with this evidence on a day-to-day basis:

Sunday 20 February 2000

23 Mr Hams gave the following evidence:

"On Sunday, 20 February 2000 at approximately 10.30am, it began raining lightly. By approximately 6.00pm, I measured 37 millimetres of rain in the rain gauge. The rain continued and grew heavier. At approximately 9.00pm, 75 millimetres of rain was recorded. The rain continued all night and when it stopped at approximately 8.00am on Monday, 21 February 2000, a total of 226 millimetres had fallen. [I interpolate to note that Mrs hams generally gave evidence to like effect]

During the night, surface water from surrounding areas began running towards the homestead and buildings. The water ran from surrounding paddocks towards the lowest point in the area, the Koralta Depression. By 6.00am, I measured the water depth in the hangar was 10-20 centimetres deep. The water was relatively clear in colour and running into the area around the Koralta buildings at a rapid rate."
[Affidavit 1 June 2001]

Monday 21 February 2000

24 Mrs Hams gave evidence that at about 8.00am the rain stopped and that there was water lying around some of the buildings from the rain and the run off from the surrounding paddocks. Her evidence was that about 100 metres North of the wool shed the water was knee deep.

25 Mr Hams gave the following evidence:

"Between approximately 8.30am and 9.00am on Monday, 21 February 2000, Judith and I could hear water roaring from the north west. We walked towards the noise and saw a body of water over 300 metres wide approaching the buildings, approximately 100 metres north of the wool shed. Judith and I walked through the water which was almost knee deep and appeared to be increasing in depth.

During the morning Judith and I frantically worked to prevent the water entering the homestead. I sandbagged the fence while Judith put possessions on the table tops and ferried electrical goods and photographs up the hill to the woolshed which is approximately 2 metres above the ground. We also tried to save the contents of the shearer’s quarters. We lifted up the carpets which we placed on tables along with other items.

At approximately 10.00am, water started entering the shearer’s quarters. At approximately 12.30pm, water had entered the house yard. At about 6.00pm, the water entered the house. Throughout the day Judith and I tried to save as many possessions as we could. We evacuated the house and spent the evening in the wool shed."
[Affidavit 1 June 2001 paragraph 21]

26 In his later affidavit he gave the following evidence:

"When I described a “body of water over 300 metres wide approaching the building, approximately 100 metres north of the woolshed”, I was describing what I saw when Judith and I were returning from our walk to Scour Lake . Initially Judith and I walked from the Koralta buildings until we could see down into Scour Lake. We were approximately 10 metres above the water level at that time. While walking back from Scour Lake, we walked through the woolshed paddock. About 100 metres north of the woolshed I was surprised by the amount of water we had to walk through. It was over 300 metres wide and almost knee-deep. The water was quite clear. As I walked through this water I looked towards the northwest, and saw sheet water flowing from the higher ground into the lower level of the Koralta Depression where we were. The sheet water flowing from the higher ground into Koralta Depression was similar to a wide, but low, waterfall. The colour of the water was relatively clear and the flow steady. The image I saw created an impression of a “wall of water”. There was no wave action. It was not an advancing “flood front”, as stated at paragraph 5.11 and page 21 of the Porter Affidavit. There was a roaring noise coming from the inflow of the surface water run-off into the Koralta Depression.
[Affidavit 9 September 2001 paragraph 5]

27 Mr Hams had completed a Property Claim Report which included a statement dated 21 March 2000 in relation to which his evidence concerning the events of the Monday had included that at 8:30am:

"We could hear water roaring so we walked up to have a look about 2 km away. Could[sic] see a huge body of water coming towards us".

28 Under cross-examination Mr Hams gave evidence to the following effect:

“Q. But about 8.30 you did hear roaring water?
A. That's correct
Q. And where were you when you heard it?
A. We are on the-on our walked up towards Scour Lake and my recollection, we were just north of the house tank. We passed the house tank and heading up towards, on the high ground, up towards Scour Lake and I could hear the noise"
[transcript page 38]

29 During his cross-examination Mr Hams departed from the version of events to which he had deposed in his affidavits, now giving evidence that he and his wife were already on the walk when he heard the water roaring. The approximate detail of the loop, which he and his wife had walked, had been sketched by him on Exhibit P3. His evidence now [transcript page 42] was that he and wife had left home at about 8.00am and they walked south and went around the house dam and had been on the walk for about half an hour when they could hear the water roaring. He could not explain how his 21 March 2000 statement was incorrect but suggested that the typing had all been changed from time. He accepted that the matter was quite important and that he had never attempted to correct the 21 March 2000 statement.

30 Under cross-examination his evidence was that he had been able to hear the roaring sound once he and his wife had walked approximately 400 or 500 metres past the house dam towards Scour Lake. They were still approximately 1 kilometre from Scour Lake and walking on the high-end ridge to the lake. When they first heard the roaring sound they were not able to see Scour Lake and the water which was already behind them had not been roaring. Generally the land in front of where they were standing obscured them from any view of the water. [transcript page 40]

31 Mr Hams gave evidence to the following effect in relation to what he saw when he reached Scour Lake:

“Q. And how far above its [Scour Lake's] normal confines were you standing when you and your wife were looking.
A. Approximately 8 to 10 m… on the high ground.
Q. And how far was the water in Scour Lake, below the normal confines?
A. At that stage it would have had one to one and a half metres of water above the floor level of the Lake."
[transcript page 41]

32 Mr Hams evidence was that he was standing approximately 8 to 10 metres away from the water and was able to give an accurate measure that the water was one and a half metres deep "because the fence line runs - that is outside the normal confines, it was well outside Scour Lake at the fence. It comes in the fence at about 2 metres deep and it was still well away from the fence at that time" [transcript page 41]. The water in Scour Lake was making considerable noise but this was not the noise of roaring which he had heard. Water was clearly running into Scour Lake.

33 Mr Hams also gave evidence that he and his wife headed back to the north of the wool shed and coming back they could hear more noise coming from the wool shed. They had come back quite a way. And the other noise had finished. From memory Mr Hams and his wife were 400 to 500 metres east from the wool shed, the Scour Lake noise had stopped and he could then hear the noise from another lot of water coming from the wool shed. At the time he first heard this noise he was already walking in water in low areas but the water was not flowing but standing still in the low depression for example. There was also water in the gutters, service water run off.

34 Mr Hams gave evidence to the following effect:

“ Q. And as you walked from Scour Lake to the point where you were when you first heard the new-what I will call 'the new roar'?
A. Yes.
Q. You walked through water behind you?
A. In the depression,
A. yes.
Q. And it was flowing?
A. No. A lot of that was stopped, it was water which couldn't go anywhere, it was laying in low, in low areas.
Q. The first part of that answer you said a 'lot of it had stopped', didn't you?
A. I'm not sure what I said now, but you asked me had the water stopped flowing and I said, no, it stopped down off the depression and where we walked, it was just off the high depression. Where we walked, once you come down off the ridge, it was on low flat type country, and it is small undulations like that, and there's lot of water lying in the depression…
Q. And is there any water at all in the distance, that you walked from Scour Lake to where you first heard the noise, where any of the water that you are walking through is flowing towards the depression any, at all?
A. There is some gutters until we hit the main body of water.
Q. Now, so you hit the main body of water. What I want to know is in the depression that you walked through up until you heard the noise, were any of them knee deep?
A. Not at that time, no…
The roaring wasn't coming from near the wool shed, it was coming from where it was dropping in the depression, about a km or south (sic) out from the north west…
Q. And was this noise sort of a relatively sudden thing that occurred?
A. No.
Q. What was it?
A. No it gradually changed, the noise from Scour Lake water almost ceased and it was a lower rumbling noise for a start, and when it got closer, it was distinct that it was water roaring…
… we were heading to the wool shed and it was to the side [about a km]…
Q. And it was obscured from trees?
A. As we heard it, yes, but as we got closer we could see it.
Q. As you got closer to what?
A. The body of water.
Q. Between you and the shed, the water wasn't roaring ?
A. It wasn't roaring, it was moving and making a more too tight (sic) noise, it wasn't roaring, that's not where the roaring was coming from.
Q. . The roaring was coming from the water a km away
A. Approximately, may be 800 metres"
[transcript page 49]

35 Mr Hams gave evidence to the following effect:

“ Q. I want to ask you about the roaring water to the north of where you were standing. That's 800 meters to a kilometre away?
A. That's to the edge of the depression. Its total slopes tend to drop almost like a little waterfall down into the depression…

Q. The water that you can hear roaring, the source of the noise?… that was 800 meters to a kilometre away?
A. Where the roaring was coming from,
A. Yes
Q. You’re still…. 800 metres from the wool shed when you first hear the noise?
A. When we hear it, yes.
Q. That's 800 metres, is that 800 metres north? How far north of the wool shed were you?
A. We were actually … at the north east from the wool shed when we first heard the noise and it would have been 800 metres or a km in the north-easterly direction from the wool shed when we first heard the second roaring noise…
Q. So you’re 800 metres north east?
A. Yes.
Q. The roaring noise is 800 metres north west of you?
A. No, north west of the wool shed
Q. What I want to know is how far from you?
A. About 800 meters to a km from us..
Q. And it is away from you in which direction, northerly direction?
A. No, north of west.
Q. So it is north west of you 800 meters to a km from you?
A. Approximately, yes"
[transcript page 53 - 54]

Tuesday 22 February 2000

36 An important satellite image [Exhibit P3] was captured at approximately 11:13am on 22 February 2000. It became the subject of the closest attention during the hearing. In order not to interfere with the image, a number of transparencies were overlaid upon the image and the various witnesses who were taken to the image marked the transparencies. The interpretation of the image was also the subject of expert evidence particularly that given by Professor Forster. Some assistance is gained by comparing a satellite image captured on 27 January 1994.

37 Mr Hams gave the following evidence:

"At approximately 7.00am on Tuesday, 22 February 2000, the water depth in the house was knee deep. At about 8.00am I was present when Judith took a photograph of the water level near the homestead. Exhibited to me at the time of swearing this Affidavit and marked “RMHEX7” is a copy of the photograph. I have marked on the photograph steel bands on the tank in the background which is located next to the wool shed. Three metal bands are visible on this tank and the water level was approximately 10 centimetres below the top of the third band from the top of the tank.

The colour of the water was relatively clear, however at about 9.00 - 9.30am, I noticed that reddish coloured water began to appear from the north west.

At approximately 9.30-10.00am, an aircraft circled the buildings and I had a conversation by UHF radio to the occupants of the plane, my sister, Ruth Sandow, and her husband Jonathan Sandow.

At about midday on Tuesday another aircraft circled the Koralta buildings and I had a conversation by UHF radio with William Bryan Clarke of Kayrunnera Station. Mr Clarke gave a description of water which he expected to arrive at Koralta.

At approximately 11.00pm on Tuesday night, dirty water arrived at Koralta."

38 Mrs Hams evidence was that the water level continued to rise slowly throughout the evening and that at 11.00 pm:

"the water, which we could see by torchlight, appeared to be dirtier".

39 Mr Sandow, who is Mr Hams brother-in-law and lives at Pimpara Lake Station, piloted an aircraft on the Tuesday in an endeavour to make contact with Mr and Mrs Hams to render assistance. He deposed in his affidavit of 12 June 2001 inter alia as follows:

"On Tuesday, 22 February 2000 I was a pilot in command of an aircraft that departed Koonawarra Station to fly in a south westerly direction to Koralta Station… the rear of the aircraft.

I intended to fly the aircraft directly over the Koralta homestead. Due to the immense amount of water in the region I actually flew past the homestead without recognising it. The first recognisable feature of the landscape was the road which ran east of Little Topar Station to Koralta homestead. I circled the aircraft to fly in a northerly direction using the partially visible road as a guide.

At about 10.00am I saw the red roof of the shearer’s quarters and the rooves of the other buildings including the homestead at Koralta. I flew the aircraft over the buildings, completing several circuits of the area, flying between 500 to 1,000 feet.

Visibility on the day was very clear. The water level on the shearers’ quarters was approximately 18 inches below the guttering. The water level on the grader parked alongside the hangar was approximately 6-10 inches below the top of the bonnet of the grader. I estimated that the water surrounding the grader to be six feet in depth.

I recall the colour of the water around the homestead was very clear, however, there appeared to be brown water streaming in under the gate on the road from Cane Grass Tank, about a kilometre and a half north west of the house.

Whilst circling over the homestead I made radio contact on the UHF radio and spoke to Max Hams. I turned the intercom on in the plane so that David and Ruth could hear Max speaking.

During the course of the conversation, Max also said that he was concerned about his sheep. I flew the aircraft in a westerly direction and located the sheep to the west of the house. Many of the sheep were on small islands between mulga flats. The colour of the water on the flats was clear.

I flew the aircraft back to the vicinity of the homestead area and circled the buildings several times. Ruth took photographs of the homestead and the surrounding buildings. I contacted Max Hams again on the UHF radio to advise him that the stock appeared to be okay.

As it was not possible to land the aircraft because of the substantial amount of water, I proceeded to fly back to Pimpara Lake Station at approximately 330 ° north. As we flew from the immediate vicinity of the Koralta Station, I recall seeing a body of water flowing from the north east of Koralta Station. There were large bodies of water to the north of Koralta, some of the water was red and some of it was clearer.”

40 Mrs Sandow who was also in the plane gave evidence inter alia as follows:

"The visibility on the day was clear and I took two cameras with me to take photographs.

There was an immense amount of water in the region. So much so that we originally flew over Koralta Station without realising it. It wasn’t until Jonathan noticed the road running to the east of Little Topar Hotel that we realised that we had flown past Koralta homestead. Jonathan turned the aircraft around and then used the road from Little Topar as a guide to Koralta homestead.

At about 10.00am I saw the red roof of the shearer’s quarters and the roof of the homestead. Jonathan flew the aircraft over the homestead and completed several circles of the area. The homestead, shearer’s quarters, hangar and workshop were completely surrounded by deep water. The shearer’s quarters was immersed up to the approximately one foot below the guttering. The tank located beside the hangar was immersed up to approximately one foot from the top of the tank. The water level was approximately one foot from the top of the fence at the homestead. The tailpipe on the house dam was floating and only the wheel and a short length of the tower of the windmill was visible. There was no sign of the banks of the Koralta house dam.

From the air it was possible to see different colours of water. Around the house and the sheds and in front of the shearing shed was a long narrow body of light coloured water. The toilet out from the shearing shed was roughly central in this stretch of clear water. Red water was moving around the shearers quarters towards the house. There were bands of red water on top of the clear water to the east, moving in from the north west. It appeared to be passing the eastern side of the house and entering a narrower area to the south.

Jonathan made radio contact with Judith first and had a brief conversation. When Jonathan spoke to Max he turned the intercom on in the plane so David and I could hear Max speak. During the course of this conversation, Max said, words to the effect,

“The water is about a foot below the engine room at the shearing shed. The red water arrived about half and hour before”…

We then flew towards Pimpara Lake Station, in a north westerly direction. I recall seeing a large body of water, red in colour, approaching at about 45° north east to our flight path not far from the homestead area. It was an unusual body of water and I am aware that there are no creeks in that direction."

Wednesday 23 February 2000

41 Mr Hams gave the following evidence:

"At approximately 10.00am on Wednesday, 23 February 2000 when Judith and I were evacuated the water level was virtually static, that is, I was measuring the water depth and observed that the water level had almost stopped rising. Exhibited to me at the time of swearing this Affidavit and marked “RMHEX8” is a photograph taken recently of the wool shed tank. The high water mark is clearly visible and is approximately 30 centimetres above the top of the third metal band which I have indicated on Exhibit RMHEX7. In my estimation, the difference between the high water mark shown on Exhibit RMHEX7 (taken at 8.00am on 22 February 2000) and the water level in Exhibit RMHEX8 is 40 centimetres. At its peak the water was approximately 2.3 metres at the shearer’s quarters and approximately 1 metre in the house.”

42 Mrs Hams gave evidence that throughout the morning the water level continued to rise but at a very gradual rate and that by the time she and her husband were evacuated at 10.00am the water level had almost stopped rising.

Friday 25 February 2000

43 Mr Hams evidence was that throughout the period he did not observe the Koralta depression to overflow but its boundaries did spread to the north as it filled with water run off from surrounding areas. He did not observe the Scour Lake depression to overflow. On 28 February 2001 he observed that the depressions had joined.

Additional evidence from Mr Hams

44 Mr Hams further evidence was that:

"On or about 13 April 2001 I measured the depth of Scour Lake depression to be 3.4 metres. The high water mark is 2.9 metres above this, making it a total depth of 6.3 metres at its peak in February 2000.

During April 2000 I observed the depression referred to in paragraph 8 above extended to about three kilometres long and two kilometres wide with an average of two to three metres in depth. There were still dry sticks laying on the floor of the choke.

On 10 March 2000, I observed that Canegrass Swamp (see paragraph 9) was filled with water to about 1.5 kilometres in diameter and one metre below its overflow level of between 2-25 metres. I did not observe the depression to fill or overflow."
[Affidavit 1 June 2001 paragraph is 31-33]

45 In his subsequent affidavit of 9 September 2001 Mr Hams gave evidence that:

“Canegrass Swam did not fill to its capacity and did not overflow during the inundation of water in February 2000. On 10 March 2000, I observed that the water depth in Canegrass Swamp was about 1 metre below its overflow level of approximately 3 to 3.5 metres. At that time, the water level had receded approximately 15 centimetres from the peak water level."

Origin of the water which inundated the property

The experts’ evidence

46 Evidence was given by a number of experts called by both parties.

Mr McConnell

47 Mr McConnell, who gave evidence for the plaintiffs, is a consulting civil engineer with very extensive qualifications and some 30 years experience in river, coastal and hydraulic engineering. His curriculum vitae includes:

“His technical expertise lies in analytical and field investigations of physical processes, conceptual and detail design and physical and computer modelling. Project experience has included shoreline stabilisation and development, environmental impact and protection studies, fisheries habitat mitigation, coastal and river sediment studies, marine structures, and river training and crossings.”

Dr Porter

48 Dr Porter who gave evidence for the defendant has a PhD from Monash University and has had some 33 years of professional experience in water engineering and flood hydrology. His curriculum vitae establishes that he has managed numerous projects on flood plain management and undertaken numerous flood studies and investigations of flood related matters. His curriculum vitae includes:

“He was a Principal Hydrologist with the Victorian Rural Water Corporation from 1993 to 1995 until the Corporation was privatised, and he subsequently led groups on Surface Water Investigations and then in Floodplain and River Management with Sinclair Knight Merz. He has managed projects on floodplain management in NSW, Victoria and WA, and has undertaken numerous flood studies and investigations of flood-related matters. In 1999 he advised the Ministry of Water Resources in China on national policy on flood control and management on behalf of the World Bank and AusAid, and he is about to contribute to the formulation of a new State floodplain management strategy fro Western Australia.”

Dr Markar

49 Dr Markar who gave evidence for the defendant obtained a Bachelor of Science (Engineering) degree with first-class honours in Sri Lanka, has a PhD from Monash University and has had very extensive experience in relation to hydrologic and hydraulic systems and assessments of flooding behaviour. He has had extensive computer modelling experience.

Professor Forster

50 Professor Forster who gave evidence for the plaintiffs is the Visiting Professor in the School of Surveying and Spatial Information Systems at the University of New South Wales having previously been the Director of the Centre for Remote Sensing and GIS. He has been involved in consulting teaching and research in satellite remote sensing for 25 years and has a PhD in this field from the University of New South Wales. He has a very impressive curriculum vitae having published over 100 research papers and consultancy reports, on many occasions dealing with complex projects generally concerning or involving interpretation of satellite imagery.

Purpose of the inquiry

51 Both parties engaged in a series of complex analyses generally putting a number of alternatives in support of the respective cases broadly outlined in the early overview set out in this judgment. In final address these cases moved slightly.

52 It is necessary to approach the factual inquiry bearing in mind the context in which the inquiry arises.

53 The examination of the totality of the evidence naturally requires a careful assessment of the evidence given by the experts. This is a case in which that assessment is particularly difficult primarily because of the underlying complexity of the sundry formulae used by the experts and their often radically differing interpretation:

· of the nature and extent to which a modelling analysis may be seen as reliable

· of the validity of alternative input into the modelling analysis

· of the satellite images and of the contemporary photographs

54 Likewise the experts disagreed either entirely or in part as to many of the following matters:

· the extent of the relevant catchment contribution areas of significance.

· when Treloar Creek overtopped,

· the height of over topping ,

· the precise flow route from Treloar Creek following overtopping,

· the capacity of Treloar Creek

· when Treloar Creek arrived at the Koralta depression,

· assumed flow heights following the breaching of the banks of Treloar Creek.

55 Each party claimed a lack of objectivity in the expert evidence adduced from the other.

Limitations as to scientific analysis

56 It is absolutely plain from the progression of the evidence generally to be found in their several reports that each of Mr McConnell, Dr Porter and Dr Markar varied their opinions in material respects as the case progressed. While several explanations were given for the adjustment and shifting of positions taken in these reports I was left with the clear impression that for all the analyses, figures, graphs, statistics, modelling results and attempts to interpret water coloration, the matter is simply very far from being certain in terms of a scientific analysis. Time and time again the point which seemed to be made by the expert witnesses was to the effect that there were severe limitations in terms of the resources made available to them for the study and some significant problems in terms of aspects of their evidence where they had either not visited the site at all or had only been in a position to view certain parts of the local topography.

57 Hence Dr Porter had not been on Koralta Station at all as he never went over the fence line. He was able to say that he had been on the country adjacent to it "which has a similar appearance in satellite imagery" although he accepted that the local catchment was located almost entirely in Koralta Station. [transcript 25 March 2002 page 62]

58 Dr Markar accepted that it would have been preferable to undertake a different type of modelling in terms of a hydraulic model "with proper survey data of the entire area.. [which] would explain different directions the water would flow…" [transcript 287]. His evidence was that the analysis had not made any attempt to predict exactly where the overflows would have occurred or how much would have occurred as part of the study. There was very little data to calibrate the model: "Without calibration, you are guessing to an extent. You are making a judgment to an extent.." [transcript 287]

The defendant’s written submissions

59 The defendant’s written submissions in final address moved from an outline of the analysis into submissions going to the probabilities and referring to factual considerations in relation to the evidence adduced from the experts. Mr Taylor SC supplemented these submissions in oral address to an extensive degree.

Factual findings sought by the Defendants

60 The defendant which has accepted that it bears the onus of establishing that the subject loss or damage was caused by "inundation following the escape of water from the normal confines of any lake, reservoir, dam, river, creek or navigable canal, as the result of a natural phenomena on which has some element of violence, suddenness or largeness about it." [see the first section of the Policy definition of "Flood"] [transcript 20 March page 126, 26 March pages 33, 34], contended for the following factual findings:

"- Essential factual findings

1. The water level in the depression when the first building (the hangar) was inundated was caused by water that had escaped from the lakes within the Koralta depression itself.

2. The water level in the depression when the shearers’ quarters were inundated was caused by water that had escaped from

· the lakes within the Koralta depression itself

· Treloar Creek.

3. The water level in the depression when the homestead was inundated was caused by water that had escaped from

· the lakes within the Koralta depression itself

· Treloar Creek

· Scour Lake.

- Supplementary factual findings

4. Any water that entered the Koralta depression following rainfall would preferentially fill the “lakes” within the Depression. None of the buildings could have been inundated until the volume of water exceeded, and thus “escaped” from, the “normal confines” of those “lakes”.

5. The Treloar Creek overflow started well before midnight on the evening of Sunday 20 February 2000.

6. The Treloar Creek overflow is likely to have first arrived at Koralta between 12 and 14 hours after the overflow started. That arrival, fits appropriately with the Ham’s observation of a “roaring” wall of water seen by them entering the depression at about 0930 on 21 February 2000.

7. Scour Lake overflowed during the course of Monday 21 February 2000 sometime after Mr & Mrs Hams observed water “roaring” into it, when it already contained 1.5 metres of water, at about 0900 that morning.

8. The water that actually entered the house, whatever its ultimate precise origin, did so because of the causal presence of water that had escaped in the manner contended for in paragraphs 1 to 3 above.

9. Water from both Treloar Creek and Scour Lake entered the depression during Monday 21 February 2000."

61 Notwithstanding that it is necessary to return to these matters in the courts findings below it is convenient even at this stage to set out the defendants written submissions:

" Policy interpretation - see Exhibit P1 tab 9 Policy interpretation - see Exhibit P1 tab 9

1. Interpretation of the policy exclusion is assisted by adopting a shorthand description of its relevant parts. We will set out the exclusion wording and explain the “shorthand” descriptors.

2. The exclusion is for destruction, loss or damage caused by “flood”, where “flood” is defined to mean

Description	Exclusion Wording
the “escape requirement”	“... inundation following the escape of water from the normal confines of any lake, reservoir, dam, river, creek or navigable canal,
the “cause requirement”	as the result of a natural phenomenon which has some element of violence, suddenness or largeness about it,
the “declaration”	but does not mean
the “equipment qualification”	inundation by water from fixed apparatus, fixed tanks, fixed pipes
the “run off qualification”	or “run off of surface water from surrounding areas"

3. The “escape requirement” and the “equipment qualification” are mutually exclusive:-

3.1 “apparatus” and “tanks” are the only words in the “equipment qualification” whose ordinary meaning could conceivably bring them within the class of “reservoir” or “dam” referred to in the “escape requirement”
3.2 but since the “escape requirement” refers to “normal confines” it is highly unlikely to include “apparatus” and “tanks” that have real and fixed, as distinct from “normal”, confines,
3.3 the apparent intention to confine the “escape requirement” to escape from natural water storage is confirmed by the fact that the definition of “apparatus” and “tanks” specifically excludes “lakes, reservoirs or dams”: see Exhibit P1 tab 9 clause 2(a) .

4. Water that escaped from apparatus might also find its way into, and thereafter escape from, the normal confines of a watercourse of the kind referred to in the “escape requirement”. But it could not sensibly be contended that the “equipment qualification” was intended to address, and to provide indemnity in, such a situation. If such an apparatus leakage occurred, a natural phenomenon which caused a subsequent escape of water from a natural watercourse, and its resultant damage, would not give rise to an indemnity. It could not sensibly be contended that the original “tank” source of (part of) the water would prevent the exclusion from applying. The triggering of the “cause requirement” necessarily implies that the “tank” water had become mixed with other water, and could not thereafter be described as water “from fixed apparatus”.

5. It follows that the “equipment qualification” is wholly explanatory of the “escape requirement” and does not limit its operation.

6. The “run off qualification” is also exclusive of the “escape requirement”. “Escape” means both “leaving” and also “avoiding” in the sense of “failing to enter” [Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 at 564; K Sika Plastics Ltd v Cornhill Insurance Co Ltd [1982] 2 NZLR 50]. Accordingly, “flood” waters present at any particular place may have 3 relevant origins. These are:
6.1 water that has come from a specific creek or lake overflow location and source (either remote or local)

6.2 water, running off from surrounding areas, that cannot enter its intended lake, reservoir, dam, river, creek or navigable canal destination

6.3 water, running off from surrounding areas, that has no lake, reservoir, dam, river, creek or navigable canal destination.

7. The first alternative can readily be seen as falling within the “escape requirement” and unaffected by the “run off qualification”. The third alternative cannot fall within the “escape requirement”. The second alternative requires more careful consideration.

8. The second alternative assumes run off water has an intended watercourse destination but cannot enter it. Water of that characterisation satisfies the “escape requirement”. The “run off qualification” does not suggest this impeded water should be treated, for policy purposes, as retaining its “run off” character and thus outside the exclusion.

9. The “run off” qualification is concerned with the causal reason why the water was present on the property and the reason why it caused the inundation from which damage resulted. If the reason the run off caused inundation was the fact that it could not continue flowing to, or had been forced out of, or away from, the normal confines of its intended destination, then the resulting inundation has been caused by “flood”. It has been caused by water that cannot properly be characterised as “run off”. Accordingly, the “escape requirement” and the “run off qualification” are simply mutually exclusive concepts.

Failure of the insurer to inform the insured of the Wayne Tank principle

251 Further submissions advanced by ASIC dealt with the relation between section 35 and the doctrine of proximate cause and were to the following effect:

"ASIC is of the view, and formally submits, that the Wayne Tank principle is not, or should not be, law in Australia. However ASIC also respectfully draws the Court’s attention to the decisions of the Court of Appeal in Petersen v Union des Assurances de Paris IARD (1997) 9 ANZ Ins Cases paragraphs 61-366 and HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601 at 612B, and does not seek to develop this submission at present.

The question arises however whether s35 places any obligation on the insurer to inform the insured of the operation of the Wayne Tank principle.

ASIC submits that in a circumstance in which:

· the contract of insurance is a prescribed contract within the meaning of s35(1)(a) of the ICA;

· the event the happening of which gave rise to the claim is a prescribed event within the meaning of s35(1)(b);

· the said event has competing proximate causes, one of which is excluded from cover under the contract, with the consequence that pursuant to the Wayne Tank principle the insurer would, in the absence of s35(1), not be liable;

· s35(1) will operate to prohibit an insurer from refusing to pay an amount equal to the minimum amount unless pursuant to s35(2):

· the insurer has clearly informed the insured in writing; or

· the insured knew or a reasonable person in the circumstances could be expected to have known,

· of the operation and effect of the Wayne Tank principle.

In reality there will be few occasions on which the insured knew, or in all the circumstances a reasonable person could be expected to have known, of the operation and effect of the Wayne Tank principle: see, for example, Consumer Understanding of Flood Insurance: A report by ASIC, June 2000, a copy of which report is annexed to the affidavit of Conrad Gray affirmed 5 March 2002 and marked “CNG1”

As noted above, one of the basic policies of s35 and the ICA generally to ensure that consumers of insurance services make an informed choice in respect of their contracts of insurance and are fully aware of the terms and limitations of the policy.

It is entirely consistent with that policy, and the language of s35, that an insured should not rely on the Wayne Tank principle to refuse a claim unless it has taken proper steps clearly to inform the insured before the contract was entered into of the operation and effect of the Wayne Tank principle.

It might be argued, against this submission, that s35(1) does not apply because in the circumstance described the right to refuse to indemnify arises by reason of the common law, namely the Wayne Tank principle, and is not “the effect of the contract” contemplated in s35(1).

However such an argument is too restrictive an interpretation of the words “the effect of the contract” in s35(1). First, reference to “the effect” of the contract suggests that regard should be had to the operation and effect of the contract in all the circumstances, not just to the letter of the terms and conditions of the contract. Secondly, and in any event, in the circumstance contemplated the operation of the Wayne Tank principle is enlivened only by reason of an exclusion in the contract. It follows that the refusal to indemnify is by reason of the “effect of the contract” within the meaning of s35(1).

To the extent that there is any doubt, the words “effect of the contract” in s35(1) should be construed beneficially, and consistently with the purpose of the ICA described above.”

252 I accept that the Wayne Tank principle is binding upon this Court.

253 I reject however, as incorrect, the submission that section 35 of the ICA places an obligation upon the insurer to inform the insured of the operation of the Wayne Tank principle.

254 Standing back from the detail the plaintiffs and ASIC are effectively submitting as follows:

· The policy excludes destruction, loss or damage caused by flood;

· "Flood" was defined in terms of:

· what it meant ("inundation following the escape of water from the normal confines of any lake, reservoir, dam, river, creek or navigable canal as the result of a natural phenomenon which has some element of violence, suddenness or largeness about it") ["the inclusionary section of the definition"] ;

· and what it did not mean ("inundation by water from fixed apparatus, fixed tanks, fixed pipes or run- off of surface water from surrounding areas") ["the exclusionary section of the definition"].

· The policy did not spell out what would be the position if relevant destruction, loss or damage was caused both by an event falling within the inclusionary section of the definition and by an event falling within the exclusionary section of the definition;

· In such a circumstance if the effect of the principles of law laid down by courts is that if a loss has two or more proximate or effective causes and at least one cause is excluded from cover, the insurer is not liable ["the relevant principle"], section 35 (1) will operate to prohibit an insurer from refusing to pay an amount equal to the minimum amount unless pursuant to section 35 (2):

· The insurer had clearly informed the insurer in writing of the relevant principle; or

· The insurer knew or a reasonable person in the circumstances could be expected to have known of the relevant principle.

255 It seems to me that considerable significance requires to be paid to the meaning to be attributed to the use within section 35 (2) of the words "the provisions, or the relevant provisions, of the proposed contract", and of the words "effect of the contract".

256 The ALRC specifically addressed the question of possible prejudice to both insurer and insured where a particular approach "may lead to the abandonment of technical wordings which have been subject to a history of judicial interpretation" [at page 26]. The Act is concerned with the obligation of an insurer to clearly inform the insured in writing of the relevant provisions in the proposed contract. An insurer complies with such an obligation by doing precisely that. Ultimately whether a particular event is one which falls within the cover provided in the policy is a matter which requires to be determined upon a number of parameters generally including:

· An ascertainment of what were the terms of the contract of insurance-usually determined by production of the policy document. (A wide variety of expressions may be found in different policies. Of relevance here are the sundry different approaches taken in the wording of policies insofar as the "causation" element is concerned ["the pivotal term"]. To name some (but a few) of the alternatives it is sufficient to mention policies which provide that cover will be furnished if the loss or damage was "occasioned by" or "flowed from" or "happened through" or was "directly due" to the event which occurred);

· The factual question of what was the event in respect of which the claim for cover is made;

· The legal question of the proper construction of the terms of the contract of insurance insofar as relevant to the claim for cover ["construction issues"];

· The question as to what loss or damage was occasioned by or flowed from or happened through or was directly due to the event which occurred – the outcome depending upon both a question of law (the proper construction of the pivotal term), and a question of fact (the application of that construction to the facts);

· A variety of matters of principle which obtain in relation to insurance issues concerning disparate subjects including onus of proof, approaches to causation, matters concerning insurance intermediaries and their obligations either as agents of the insured or of the insurer and any number of other issues generally treated with by texts on insurance law ["matters of principle"].

257 Clearly a crucial step concerns the application of the relevant principles to the special facts matters and circumstances concerning the event in respect of which the insured has made the subject claim for cover. Common experience is that the application of the relevant principles constitutes a matter of particular complexity. An example concerns the application of the principle that the proximate cause of a loss is the cause which is proximate in efficiency; the "real", “effective" or "dominant" cause. It is possible for there to be two or more "dominant", " effective" and thus proximate causes: City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739. Where two or more independent factors combine to cause a loss, the court must determine, as a question of fact, which of the causes is dominant, if it is able to do so. However, the court should not "strain to find a dominant cause if there are two causes both of which are properly described as effective causes of the loss”: Wayne Tank at 72.

258 The Act uses the words "the effect of the contract" in section 35 (2) in the sense of the requirement that the provisions of the insurance contract have been clearly spelled out:

· in a document containing the provisions of the proposed contract; or

· in a document containing the relevant provisions of the proposed contract; or

· otherwise in writing.

259 That is all that is required. The words "the provisions or the relevant provisions of the proposed contract" are not concerned with the interstices of the fine and complex approaches taken by courts to questions of law or of mixed fact and law related to insurance law.

260 Insofar as the submission advanced by the plaintiffs and by ASIC extends to suggest that section 35(2) requires the insurer to do more than to clearly inform the insured in writing of the relevant provisions of the insurance contract, as for example by entering into the field of annotating the policy by explanations of construction issues and/or of matters of principle, or of the application of principle, the submission is rejected.

Ultimate s.35 (2) findings

261 The material finding is that upon the proper construction of section 35 (2) of the ICA the mere provision by the defendant to the insured of the policy in this case succeeded as a mechanism by which the defendant “clearly informed the insured in writing” of the relevant “effect of the contract” in terms of the nature and extent of the “Flood” exclusion.

262 In the result the plaintiffs have not succeeded in establishing an entitlement to an indemnity under the policy in respect of the damage and loss occasioned to the hangar. The loss to the hangar had two proximate or effective causes, one of which was excluded from cover in which circumstance the insurer is not liable by operation of the Wayne Tank principle.

Relevant knowledge by the insured/whether a reasonable person in the circumstances could be expected to have had the relevant knowledge

263 It is appropriate to add that on my findings on the evidence and notwithstanding their reading of the whole of the policy, neither Mr nor Mrs Hams knew of the nature and effect of the Wayne Tank principle.

264 The bald proposition that on the evidence they are shown to have known that flood was not covered and/or not automatically included in the policy [transcript 19 March page 72.37/transcript 20 March page 124.33] by no means establishes that Mr or Mrs Hams knew of the nature and effect of the Wayne Tank principle. To the contrary Mr Hams understood that if the water came over the surrounding areas they would be covered but if they came out of Scour Lake or Treloar Creek they would not be covered. On my findings he did not know that damage occasioned both by reason of surface water run-off from surrounding areas as well as by inundation following the escape of water from the normal confines of a lake or creek, would not be covered. On my findings Mrs Hams likewise did not know that damage so occasioned would not be covered.

265 Further on my findings a reasonable person in the circumstances could not have been expected to have known:

· of the nature and effect of the Wayne Tank principle;

· in particular that damage occasioned both by reason of surface water run-off from surrounding areas as well as by inundation following the escape of water from the normal confines of a lake or creek , would not be covered.

Short minutes of order

266 The parties are granted leave to address further submissions on any claim or matter arising from the above findings which may not have been dealt with. Subject to that, short minutes are to be brought in by the plaintiffs.

I certify that paragraphs 1 – 266
are a true copy of the reasons
for judgment herein of the
Hon. Justice Einstein
given on 12 April 2002

___________________
Susan Piggott
Associate

12 April 2002

Last Modified: 04/18/2002