Office Concepts Pty Ltd v Telford Building Systems Pty Ltd and the Chamber of Manufacturers Insurance Limited No. SCGRG 90/2826 Judgment No. 3977 Number of Pages 6 Insurance General

[1993] SASC 3977

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA COX J

CWDS
Insurance - general - Public liability policy - exclusion in the case of property damage extending to "damage to that Part of such property upon which the Policyholder is or has been working" - meaning and application of that expression.

HRNG ADELAIDE, 8-9 February 1993 #DATE 11:6:1993
Plaintiff:   No appearance
Counsel for defendant Telford:     Mr P J Riordan
Solicitors for defendant Telford: Piper Alderman
Counsel for third party:            Mr J Kaufman
Solicitors for third party:         Corsers

ORDER
Claim dismissed

JUDGE1 COX J. Third party proceedings about the interpretation of an insurance policy. 2. The plaintiff is a builder and in 1988 it was the owner of a large block of land at Golden Grove. The defendant's business includes the construction of prefabricated buildings to order. It agreed with the plaintiff to supply and erect a warehouse on its land. It duly delivered the warehouse components to the site and engaged a contractor to erect the building. Evidently the contractor (or his sub-contractor) used the wrong sort of equipment. This caused certain physical damage and rendered the site unusable for a considerable time. The delay in getting the warehouse up meant that the plaintiff could not meet its contractual obligations to a proposed lessee of the warehouse. The lessee thereupon withdrew. The plaintiff sued the defendant in this Court for damages arising from the physical damage to its property and the consequential loss. The defendant denied liability and counterclaimed damages from the plaintiff on the grounds that, in breach of their contract, the site was not in a suitable condition for the erection of the warehouse and the plaintiff had unjustifiably repudiated the agreement. The defendant held a public liability policy with the third party which, it said, entitled it to an indemnity against some, at least, of any liability it might have incurred for the plaintiff's losses. The third party admitted the policy but denied liability. The action between the plaintiff and the defendant was settled just before trial. What I heard were the third party proceedings which, by the time we got to the addresses, had resolved themselves into an issue as to the proper interpretation of an exclusion clause in the insurance policy and its application to such facts as were established by the evidence. 3. The part of the insurance policy that is headed "Section 1 - Public Liability" reads as follows -
    "1. Subject to the Limit of Indemnity expressed in the Certificate
    under Section 1 the Company will indemnify the persons insured in
    respect of all sums which they shall become legally liable to pay
    as compensation for
    (a) Personal Injury
    (b) Damage to Property sustained as a result of an Occurrence
    within the Territorial Limits during the Period of Indemnity.
    2. In addition the Company will pay
    (a) all costs and expenses incurred with the written consent of the
    Company
    (b) the solicitor's fees for representation of the Persons Insured
    at any coroner's inquest or in any court of summary jurisdiction
    (c) all charges expenses and law costs recoverable from Persons
    Insured by claimants in connection with claims for compensation
    which if sustained would be indemnifiable under Clause 1 of this
    Section." 4. According to a list of General Definitions set out at the beginning of the policy, "Damage to Property" means -
    (a) physical damage to or destruction of tangible property
    including loss of use thereof at any time resulting therefrom;
    (b) loss of use of tangible property which has not been physically
    damaged or destroyed
    (c) interference with any right of way light air or water neither
    expected nor intended by the Policyholder",
    and
    "Occurrence" means "an event and includes continuous or repeated
    exposure to the same general conditions and all occurences (sic)
    arising from the one source or original cause shall be deemed to be
    one occurrence." 5. The claims by the plaintiff and the defendant against one another were settled by the defendant paying the plaintiff $85,000 of which $20,000 was for costs. The defendant's claim against the third party was presented on the footing that the whole of the balance of $65,000 is to be attributed to the loss by the plaintiff of its lease. The third party conceded that the settlement between the plaintiff and the defendant was reasonable, and it did not deny that the loss of the lease was "Damage to Property sustained as a result of an Occurrence" within the meaning of Section 1 of the insurance policy. However, it denied any liability to the defendant. It relied upon the following exclusion clause -
    "The Company will not indemnify any Person insured in respect of
    ...
    (Q) liability in respect of Damage to Property owned by or in the
    care physical custody or legal control of the Policyholder or
    Person Insured; but this exception (Q) shall not apply to Damage to
    Property being
    (i) ...
    (ii) Premises (including contents thereof) not owned rented or
    leased by the Policyholder but temporarily occupied by him for the
    purpose of work therein or thereon but this exception (Q) shall
    continue to exclude damage to that part of such property upon which
    the Policyholder is or has been working; ..." 6. The third party's argument is that the damage that was suffered in this case was damage of the kind described in the concluding and excluding words of par.(ii). 7. Before grappling with the obfuscating language of this paragraph I should say more about such evidence as there is on the subject of damage. 8. The defendant called two witnesses. The evidence of its solicitor, Mr Crowe, was directed exclusively to the question whether the settlement between the plaintiff and the defendant was reasonable. A large bundle of documents (Exhibit D2), which included statements from possible witnesses, was tendered through Mr Crowe but only on the basis of their being the documents that he and his client had before them when they settled the plaintiff's claim. In so far as the documents include hearsay statements, they cannot be evidence of the facts asserted for the purpose of the third party proceedings. The objection taken by the third party at the time of their tender makes its stand clear in this respect. The other witness, Mr Tincknell, was a builder by occupation and a director of the plaintiff. He evidently had the carriage of the dealings with the defendant on the plaintiff's behalf. He gave evidence about the damage caused by a boring machine and a mobile crane. The witness's evidence really assumes a certain amount of background knowledge that might be gained from the pleadings or, more obviously, the opening of the defendant's counsel. In all the circumstances, including the concessions made by the third party's counsel progressively during the hearing, I conclude that there is no objection to my having regard to these background facts when interpreting Mr Tincknell's evidence. 9. I accept the defendant's witnesses. The third party did not call any evidence. 10. The plaintiff handed over the site to the defendant on 6 July 1989 so that the defendant's contractor could erect the warehouse on it. The site was then substantially level and of a hard compaction. When Mr Tincknell next inspected it, about a month later, he found within the warehouse area a complete quagmire. The boring machine that the contractor had used had broken some of the underground PVC drain pipes that had been laid 200mms. below the ground and about one metre from the concrete retaining wall that marked the boundaries of the proposed warehouse. The machine was fitted with outriggers, consisting of hydraulic legs, that were used to stabilize the machine while it was operating. The damage to the pipes meant that the rainwater did not get away, and the problem with surface water and soft ground that this caused was exacerbated by the chewing up of the ground by a mobile crane that the contractor brought onto the site, presumably for the erection of the concrete wall slabs and roof columns. He used an articulated tractor crane which required a lot of manoeuvring to get it into the right position each time it lifted anything. Had he used a slew crane instead, there would have been much less movement and with fewer wheels. The photographs (Exhibit D7) show the condition of the site between August and October 1989 and it is not difficult to believe that it brought the erection operations to a standstill. It would hardly have been possible for any work to be done inside the warehouse walls until the ground had dried out. As a result, a job that should have taken a few weeks was held up for months. The proposed lessee, who was to have entered into possession on October 1, went elsewhere. 11. There is no evidence of the dimensions of the plaintiff's land at Golden Grove or of the actual factory site that was marked out within it. The photographs show that the latter itself extended over quite a large area. Surrounding the low concrete walls of the warehouse was an open grassed area that appears from the photographs to have been free of damaging wheel marks and surface water. I have mentioned the drainpipes that were damaged by the boring machine. The position of the pipeline assumes some importance in the light of the exclusion clause. The only evidence on the subject comes from Mr Tincknell. He was asked to mark one of the photographs (No. 3 of Ex.D7) to show where the pipeline had been laid and he did so with a red line or score mark on the surface of the photograph that was consistent, it was said, with the pipeline being directly below the boundary wall. However, I prefer to rely upon the witness's descriptive words which place the pipeline a metre from the northern wall and, I conclude, from the other walls as well. It seems to me very unlikely that anyone would put a drain directly below a permanent concrete wall. In fact, Mr Tincknell said that the pipeline ran a metre "out from" the walls but, reading this passage on p 74 with his account on the preceding page of the geographical layout of the pipeline, it would appear that he was using the expression "out from" in the sense of "away from" and that the pipeline was a metre inside the walls, that is, within the warehouse boundary. The witness referred to the northern elevation, being the left-hand side of photograph, and said that the pipeline was "a metre out from the concrete retaining wall in a southerly direction" that is, to the inside, not the outside. That interpretation of the evidence was not accepted by the defendant, and certainly the position was not made as clear as it might have been, but I think it is the preferable view on the whole of the evidence. It is consistent with the markings on photograph No. 3 and also, I might observe, with the possibility of the pipe damage resulting from the kind of activity illustrated in photograph No. 2 if that, in fact, shows the boring machine or the kind of boring machine that was being used by the contractor in a typical position to cause pipe damage. There was no evidence about that. The post holes that were being dug by the boring machine were evidently inside the perimeter walls. The implication of Mr Tincknell's evidence is that the pipes were damaged, presumably by vibration or direct impact, at the time the holes were actually being bored. The whole of the ground disturbance appears to have been within the factory walls. There is no evidence of the dimensions of the two offending machines. 12. I return to the insurance policy. As I have indicated, all of the debate was about the meaning and application of par.(ii), especially the final words. The degree of obscurity in its terms is unusual even for an insurance policy. None of the cases cited in argument was directly in point. 13. It is common ground that the physical damage to the drain pipes and to the surface of the ground and the consequent loss of use of the land and improvements, resulting in the loss of the lease, are within the headwords of clause (Q) of the general Exclusions. I think this must be so, despite a certain unaptness in the language. Certainly the evidence shows that the care and physical custody of the whole of the plaintiff's land was committed to the defendant in July 1989 to enable it to erect the warehouse. However, from this point the difficulties multiply. Some of the textual problems are solved, I think, if one interprets the definition of "Damage to Property" earlier in the policy as really being a definition of "damage" when used in relation to property. I think the physical damage that was caused to the plaintiff's drains and ground surface was damage to premises not owned or rented or leased by the defendant policy-holder but temporarily occupied by him for the purpose of work in or on those premises. Consistently with the terms and evident purpose of the definition of "Damage to Property", the damage to such premises would include any loss of use resulting from the damage. What is reserved from the exceptive words, however, and therefore remains within the general exclusion, is "damage to that part of such property upon which the Policyholder is or has been working." The expression "such property" must refer to the premises including their contents, and the effect of using the words "such property" or "damage" or both will be, I think, to include consequential damage in the form of loss of use. So the resolution of the issue between the defendant and the third party requires a proper identification of the premises, or possibly contents, upon which the defendant was working at the time the damage occurred. 14. It is plain that the premises (including contents) upon which a policyholder is working may constitute only a part of the premises that he is occupying for the purpose of work. If this were not so, the final reservation would always nullify the exception that precedes it. There is no difficulty in giving the policy a practical application in that respect. A tradesman may have the temporary occupation of the whole of a building for the purpose of working in only one room of it. There is a question, however, of the narrowness or specificity with which one identifies in any particular case the "part of such property" upon which the policyholder is working. The third party submitted that in the present case the defendant was working on the whole of the plaintiff's land - certainly on the area within which the damage to the drains and ground surface occurred. The defendant, on the other hand, argued that the expression "part of such property" does not have a geographical signification but is to be applied strictly to the particular thing upon which the policyholder happened to be working at the time the damage occurred - here, the post holes and building components; a person is not working on "a part of such property" unless the place or thing constituting that part is in a practical sense the actual focus of the work the policyholder is doing. 15. The defendant was engaged to erect a building on a particular part of the plaintiff's land. If it had damaged something outside the actual warehouse site - say, by knocking down a gate post or, as counsel for the third party suggested, by mistakenly dumping a load of concrete in the surrounding grassed area - that would not have involved damage to that part of the plaintiff's property upon which the defendant was working. However, I think it would be too narrow an application of the exceptive words to hold that the defendant in the present case did not do any damage to the part of the property upon which he was working because he damaged only the drains and the land surface and he was not there to do anything to or (it is said) upon either of those things; in other words, that the damage was only incidental to his work on something else, namely, the boring of holes and the movement and erection of heavy components. If that is right, it means that an electrician, say, who is installing a power point will not be covered if he drills a hole for that purpose in a wall and thereby causes unexpected damage to the wall because the wall is too fragile to take that kind of treatment, but that he will still recover under the policy if, as an incident to installing the power point, he carelessly puts the drill down on a nearby table while he goes on with something else and the drill damages the fragile table top. I think that gives too little force to the notion of working "upon" premises, albeit including contents. In my opinion, the operation of par.(ii), including the final exception, is substantially if not wholly geographical or spatial. I think that interpretation accords best with the language of the paragraph as a whole and it produces a more realistic and workable result than the defendant's interpretation. 16. The work done by the boring machine on the warehouse site involved the positioning and operating of the machine on the ground under which the pipes had been laid. I find that the damage to the pipes was damage to the part of the plaintiff's premises upon which the defendant was at the time working. The heavy wheel marks that extended over the whole of the ground inside the warehouse walls were caused by the working, however ineptly or unnecessarily, of the articulated crane operator upon the part of the premises that suffered that damage. It follows that the loss of the lease that resulted from the combined operation of those two types of damage, though predominantly the former, was not covered by the insurance policy. The defendant's claim against the third party must be dismissed.