In this October 2023 appeal the Australia supreme court dealt with complex facts and interpretation regarding the application of a contracts work exclusion in the insurer’s home insurance policy.
The insured’s substantial residential home was destroyed by a fire while undergoing renovation works and had to be demolished. The fire started in a green rubbish bin put in the dining room by the painters.
The insurer was one of multiple defendants.
One of the appeal grounds concerned the proper construction of the contract works exclusion clause which read:
“Contract Works Exclusion
Notwithstanding any terms or conditions to the contrary no cover shall be provided under the
Your Policy for:
– in connection with the Contract Work, Temporary Work, Free Issue Materials or Works;
– in connection with any Maintenance or Defects Liability Period; or
– which manifests, incurs or arises after any Maintenance or Defects Liability Period as a result of any activities or works undertaken during such Maintenance or Defects Liability Period:
2. Property Damage to the Contract Work, Temporary Work or Free Issue Materials
In the event of the operation of this exclusion no coverage shall be provided under Your Policy for Construction Materials, Rebuilding for Compliance, Precautionary Repairs, Rebuilding or Reconstruction Costs as more fully specified and defined in Your Policy.
For the purposes of this exclusion the following definitions apply:
Damage means any loss, fine, penalty, cost, charge, liability, physical loss or Property Damage including any Earth Movement
Contract Work means any and all structures constructed or in the course of construction wheresoever located or whilst in transit and which are incorporated or are to be incorporated into a permanent structure at the Location
Free Issue Materials means any and all building and construction materials (including debris) wheresoever located, or in transit and which are supplied or are to be supplied in connection with the Contract Work, Temporary Work or Works and shall include but not be limited to:
– any and all plant, tools and equipment; or
– temporary buildings and structures and their contents
Location means 179 Wellington Street, Mosman Park WA 6012
Maintenance or Defects Liability Period means a set period of time as agreed to in writing by You which commences after completion of the Contract Work and attendant Works and during which any defects in the Contract Works is remedied by any third party or any maintenance obligations in respect of the Contract Work are undertaken by any third party.
Temporary Work means any and all structures constructed or in the course of construction wheresoever located or whilst in transit that are necessary for access or support to the Contract Work and which will be dismantled and removed at the date of completion of the Contract Works or Works.
Works means any and all operations or activities undertaken in connection with the Contract Work and/or Temporary Work
All other terms utilised in this exclusion shall be defined in accordance with the applicable definition of such terms as found in Your Policy.” (emphasis added)
What was meant by the term “structure” and whether in fact the renovations or aspect of the renovations constituted a “structure” or “structures” for the purpose of definition of “Contract Work” was a critical issue. The insurer contended that the painting work was an excluded activity undertaken in connection with the contract works.
The insurer submitted that the word “structure” meant a physical item of some significance being any element that can be constructed and included in a permanent structure and included “building materials” because building materials create structures.
The word “structure” was itself found in the defined term “Contract Work”. The appeal court said that the definitions did not have substantive effect and a definition is not to be construed in isolation from the operative provisions in which the defined term is used.
The insurer had to establish that there was a “structure” and that the other elements of “Contract Work” were satisfied for the purpose and within the meaning of the “Contract Work” exclusion clause.
The court said that the effect of the relevant portion of the exclusion clause was that no cover was provided for loss or physical damage to tangible property in connection with any and all structures constructed or in the course of construction which are incorporated or are to be incorporated into a permanent structure at the property.
Based on the text of the Contract Work exclusion, a “structure” that is “Contract Work” must be something constructed or in the course of construction and the clause had to be understood and construed in the context of the home insurance policy as a whole.
The meaning of the word “structure” in the Contract Work exclusion clause had to be derived from the text, context and purpose of the home insurance policy rather than the adoption of a meaning found for the same word when used in another, somewhat different, context.
The trial judge’s finding that a “structure” is a building, or a substantial built form was consistent with the ordinary and natural meaning of the word.
The insurer’s construction posited that the term requires only an item of some significance which is an element that can be constructed and included in a permanent structure. That extends beyond the ordinary and natural meaning of the word. The insurer suggested that a single element, if a physical item of some significance, may be a structure. Ordinarily however a structure is comprised of an arrangement of parts, elements or constituents. It is a built form of assembled materials rather than an individual component part.
The court held that the concept of “structure” is not satisfied by a physical item of some significance in the form of any elements that can be constructed or included in a permanent structure and nor do mere building materials suffice. The word means building of a substantial built form. It is more than some item installed or constructed in the course of alteration, renovation or refurbishment work to the house.
The court said that on arriving at that conclusion they did not apply the contra proferentem principle (see here) or the principle whereby an exclusion clause should not be construed so as to circumscribe inappropriately an insuring clause.
In the circumstances the insurer was not entitled to rely on the Contract Works exclusion and the appeal in that regard failed.