The 276 paragraphs of the appeal judgment in Insurance Australia Limited t/as CGU Insurance V Capral Limited contains a very detailed and useful review of multiple jurisdictions approach to the meaning of property damage within property, general products and liability policies including Australia, Canada, the United States, and the United Kingdom.
The insured claimed under its general products and liability policy in circumstances where it had supplied defective aluminium plate to customers who incorporated that plate into marine vessels, and a water tank, by welding. The customers claimed the cost of rectification work incurred as a result of incorporating defective plate.
The primary question was whether the claims by the customers were claimed “for property damage”.
The policy defined “property damage” to mean:
“4.21.1 physical injury or damage to or physical loss of or destruction of tangible property including loss of use at any time resulting therefrom;
4.21.2 loss of use of tangible property which has not been physically injured, damaged or destroyed provided such loss of use is caused by or arises out of physical damage of other tangible property.”
The appeal court held on a review of the facts and extensive review of the relevant cases in Australia, Canada, the United States and the United Kingdom, that the lower court correctly concluded that property damage involves “a physical alteration or change” that “impairs the value or usefulness of the thing said to have been damaged”.
Once there is Property Damage the question is whether the relevant claim is “for” property damage.
On appeal the court said that the claim was for compensation for damage to the relevant vessels:
“49 The word “for” requires an association or relationship between two things, here the compensation and the “Property Damage”. The word “for” in a clause which provides cover to the insured for its liability for “Compensation for … Property Damage” focusses attention on what the compensation is “for” and, specifically, whether it is for “Property Damage”. This is not necessarily answered by an examination of the competing or most proximate causes of the “Property Damage” or how one should formulate the insured’s liability to pay compensation for that damage.
50 The customers claimed for the damage to their property. That damage may be said to have been caused by the customers’ use of defective product; but that does not have the necessary consequence that the claim is one for defective product or which has defective product as its basis or only basis. The question is whether the claim fits within the relevant insuring clause (here liability for property damage) and not whether it might also have fitted into a different one (for example, liability for defective product).”
The appeal court was satisfied that the claims made by the customers had physical damage to tangible assets as their basis.
“Physical damage to tangible property” is similarly viewed by South African court decisions.