Mercantile Mutual Insurance (Aust) Ltd v Moulding (No 3)

Mercantile Mutual Insurance (Aust) Ltd (the appellant) appealed to the New South Wales Court of Appeal against a decision of the Supreme Court of New South Wales concerning a claim made by Mr. Moulding and his wife (the respondents) under a home building insurance policy. The dispute centred on whether the policy covered damage to the respondents' home caused by the settlement of the land on which it was built.

The primary legal issue before the Court of Appeal was whether the insurance policy, specifically its wording regarding "accidental damage" and exclusions for "gradual deterioration" or "faulty workmanship," encompassed the damage arising from land settlement. The court was required to interpret the terms of the policy in light of the factual circumstances of the damage.

The Court of Appeal, in its reasoning, focused on the nature of the damage and the policy's coverage. It held that the damage caused by land settlement was not excluded by the policy's provisions relating to gradual deterioration or faulty workmanship. The court found that the settlement constituted an "accident" within the meaning of the policy, as it was an unforeseen and unintended event that directly caused damage to the building. The principles applied involved the construction of insurance contracts, with a focus on the ordinary meaning of the words used and the intention of the parties as expressed in the policy. The court affirmed that if damage is caused by an insured peril, subsequent damage flowing from that peril is also covered, even if the subsequent damage might otherwise fall within an exclusion.

The Court of Appeal dismissed the appeal, upholding the Supreme Court's finding that the damage was covered by the insurance policy.