LMT Surgical P/L v Allianz Australia Insurance Ltd

In this matter, involving the construction of a policy of property damage insurance, the backflow from flooding not only prevented rain and surface water from draining through a drain but also caused the drain to overflow from the pipe causing inundation to a nearby building. The question before Jackson J was whether or not the damage to the building was occasioned or happened through flood? The insurer claimed that liability was excluded because the damage was “occasioned by or happened through flood”. In turn that involved an inquiry of whether or not the inundation occurred by reason of the “water overflowing from the natural confines” of the river. In construing the policy of insurance his Honour noted that the surest approach to the construction of the policy was a close consideration of the contractual text in its context. His Honour held that the flood exclusion did not apply. In doing so his Honour correctly observed that it was not appropriate or necessary to consider the interpretation of the meaning of the word “flood” in other policies. His Honour said:

“I accept, as stated above, that a commercial contract should be construed in a businesslike way. But I do not consider that one view or the other in this case is more businesslike. In the end, it is a matter of construction of the text in context applied to the facts. The task is also not assisted by referring to cases decided upon other clauses in materially different language in similar policies, except to the extent that such cases show the approach that should be taken to the precise constructional question. For that reason, I have not essayed the application of the cases on other clauses or facts to which I was helpfully referred in argument.”