Wiesac Pty Ltd & Anor v Insurance Australia Limited

In this case Davis J considered the application of a flood exclusion clause in relation to damage which had been caused to the plaintiffs’ basement by water from various sources, namely: (i) river water in the pipes; (ii) local runoff in the pipes; and (iii) groundwater in the subterranean soils between the pipes and the basement. The river water had entered the subterranean soils and the basement, and pushed ground water into the basement. The case considered the application of the “Wayne Tank principle”, which provides that the insurer may avoid liability where one or more causes of the loss fall within an exclusion clause.

Davis J

1 June 2018

The first plaintiff was the registered proprietor in fee simple of a commercial building situated in Brisbane. [1]. The second plaintiff was a firm of solicitors who occupied the premises. [2]. The plaintiffs held a policy of insurance with the defendant. [8].

In January 2011, due to significant flooding in Brisbane, water entered through the wall of the basement of the premises damaging the second plaintiff’s fitout and causing disruption to the second plaintiff’s legal practice. [9]. The plaintiffs claimed against the policy. [10]. The defendant ultimately rejected the claims, relying upon a flood exclusion. [11]–[12]. The relevant parts of the flood exclusion clause excluded liability for “physical loss, destruction or damages occasioned by or happening through:

“(a) flood, which shall mean the inundation of normally dry land by water escaping or released from the normal confines of any natural water course or lake whether or not altered or modified or of any reservoir, canal or dam”. [62].

The defendant argued that neither the basement of the premises nor the subterranean soils between the pipes and the basement was “normally dry land” and that at least some of the water which leaked from the pipes was river water escaping from the normal confines of the river. [69].

As Davis J explained, river water had entered both the subterranean soils and the basement. [71]. The entry of river water into the subterranean soils had caused river water, local runoff, and groundwater to enter the basement and cause damage. [71]. Therefore if “normally dry land” included the subterranean soils, then the damage to the basement was loss “occasioned by or happening through” the escape of river water into the subterranean soils. [71].

However, Davis J noted that local runoff had also entered the subterranean soils and contributed to the damage in the basement. [72]. Similarly, if the “normally dry land” was the basement, then the damage had been occasioned by both the escape of river water and also local runoff. [72]. The case was thus one where there were multiple causes of the damage but only one which was caught by the flood exclusion. [73]. This raised for consideration the “Wayne Tank principle” which provides that “where there are two proximate or substantial causes of the one loss and only one falls within an exclusion clause, the insurer may rely upon the exclusion and avoid liability”. [74].

Davis J doubted whether Wayne Tank [1974] 1 QB 57 established any general principle, rather than establishing that “the proper construction of most exclusion clauses will in fact lead to a result that an insurer will avoid liability under an exclusion clause where one or more proximate causes of the loss falls within the clause”. [74]. His Honour referred to McCarthy v St Paul International Insurance co Ltd (2007) 157 FCR 402, where Allsop J said the true principle underlying the case was “the ascertainment and application of the contractual intentions of the parties”. [77].

As noted above, Davis J considered that the loss, being the damage caused by the body of water which entered the basement, had two causes: “the damage caused by the river water, and that by other water”. [80]. On its proper construction, his Honour held that the exclusion clause, assuming it otherwise applied, was engaged and would defeat the plaintiffs’ claim. [80].

The remaining issue for consideration in determining whether the exclusion clause applied was whether, on the facts of this case, the inundated area was “normally dry land”. [81]. It was argued on behalf of the plaintiffs that, on a proper construction of the flood exclusion, the “normally dry land” could not be the one and the same as the Property Insured”. [81]. Justice Davis rejected this submission, noting that there may be situations where at least part of the property was not “normally dry land” (eg where land had features such as creeks, dams, or a swimming pool). [83]. His Honour concluded:

“What is intended is to exclude liability in circumstances of ‘flood’. The flood exclusion does this by excluding liability where the loss is occasioned by or happens through the inundation of normally dry land which may include the premises insured. … Therefore, the entry of river water into the basement was entry of water into ‘normally dry land’.” [84].

While this was sufficient to dispose of the issue, his Honour also rejected a submission that the subterranean soils were not “normally dry”. [86]. Likewise, his Honour rejected the submission that the leakage into the subterranean soils was not relevantly “inundation” within the meaning of the exclusion. [86], [92].

As for the requirement that inundation be caused “by water escaping or released from the normal confines of any natural water course”, his Honour noted that the “Brisbane River is obviously a natural water course”. [94]. His Honour then considered whether river water which was in the river but had moved up the pipes and into the subterranean soils and ultimately into the basement of the premises was water “escaping [the river]”. [95].

The plaintiffs had relied upon the decision in LMT Surgical Pty Ltd v Alliance Australia Insurance Ltd [2014] 2 Qd R 118, in which Jackson J had held that a similar flood exclusion clause applied only to damage done by water that had flowed over the banks. [104]. However, importantly, the flood exclusion in that case applied to water that was “overflowing from the confines of [the river]”. [105]. Here, the flood exclusion applied to “water escaping from the normal confines of [the river]”. [105]. The river water had entered the subterranean soils between the pipes and the basement wall and entered the basement. [106]. Accordingly, “the water was ‘escaping from the confines of [the river]’ and inundated ‘normally dry land’, namely the subterranean soils and the basement of the premises”. [106].

His Honour therefore held that the plaintiffs’ claims were excluded by the flood exclusion. [112].

J English