Meaning of 'debris' in an ISR policy
Insurance eBulletin - 14 October 2014
The owners of land contaminated by run-off water from efforts to extinguish a chemical fire have been unsuccessful in their claim against the Queensland Fire and Rescue Service and an insurance broker for the costs associated with complying with a remediation notice issued by the Environmental Protection Agency.
The Supreme Court of Queensland found that while the Fire Service had breached its duty of care, it had the benefit of statutory immunity. The insurance broker was found not to owe any duty to the plaintiffs. In the course of determining the claim against the broker, the Court considered whether an applicable policy would have been available anyway. In particular, whether coverage for removal of 'debris' in a standard ISR Mark IV policy, would have indemnified the plaintiffs for at least some of their loss.
In this eBulletin we look at the latest decision in this long-running piece of litigation and, in particular, its analysis of the application of an ISR policy in such circumstances, particularly the meaning of 'debris' in such policies.
- Claim against the Broker
- Application of an ISR Mark IV policy in this case
- Claim against QFRS
- Implications for the insurance industry
- Further information
Hamcor Pty Ltd and Terrence Armstrong (Plaintiffs) owned land and a factory in Narangba, Queensland. Binary Industries Pty Ltd, of which Mr Armstrong was managing director, leased the factory from the Plaintiffs and operated a chemical manufacturing business on the premises. An insurance broker and its authorised representative (collectively referred to as the Broker), arranged primary and excess public liability insurance policies (Liability Policies) for Binary.
On 25 August 2005 the factory and its contents were destroyed by fire. Water applied by the Queensland Fire and Rescue Service (QFRS) to help bring the fire under control, combined with chemicals from the factory, contaminated the Plaintiffs' land. This "fire-water" also ran into, and contaminated, surrounding land.
As a result, the land was classified as contaminated under Chapter 7 of the Environmental Protection Act 1994 (Qld) and the Plaintiffs, as the owners of the land, incurred a statutory obligation to remedy it (EPA Notice). The cost of remediation was more than $9M.
The Plaintiffs commenced a proceeding for damages against:
- The State of Queensland, as a proper defendant in respect of the negligence of QFRS in extinguishing a chemical fire with water, instead of letting it burn itself out and simply extinguishing any spread beyond the site.
- The Broker for negligence on the basis that they knew, or ought to have made sufficient inquiries to discover that the Plaintiffs owned the land and therefore named them as insureds, or interested parties in Binary's Liability Policies. Further, the Broker should have obtained an ISR Policy for the Plaintiffs on terms which would have provided cover against the disposal of debris and the cost of reinstatement of damaged property.
Trial of a separate insurance question
A separate question as to whether the EPA Notice would have been a 'claim' under the Liability Policies and, if so, whether the EPA Notice gave rise to a liability to pay compensation under those policies, was determined earlier against the Plaintiffs.1
Justice Boddice found that the costs of complying with the EPA Notice would not have been recoverable under an ISR policy either since they were not costs and expenses necessarily and reasonably incurred in 'the removal, storage and/or disposal of debris'. The Queensland Court of Appeal disagreed, at least to some extent, ruling that such costs and expenses were 'not inconsistent' with an indemnity for costs of remediating polluted property. It did not however finally determine the issue since it considered it too artificial an exercise to attempt to construe part only of a theoretical ISR policy.
The Plaintiffs then proceeded with their substantive claims against QFRS and the Broker for negligence.
There was no doubt that the Broker owed a duty to Binary to take reasonable care in providing brokering services to it. However, in these circumstances, the Broker was found not to have owed a duty in tort to the Plaintiffs to investigate their relationship with Binary and the insurances that all three had arranged in relation to the Narangba site. Nor should the Broker have realised that the insurances were inadequate, should the Plaintiffs become subject to an obligation to remediate the land.
The Plaintiffs contended that the Brokers ought to have recommended an Australian standard form ISR Mark IV policy with additional benefits and limits of cover for removal of debris and extra cost of reinstatement.
The Plaintiffs pleaded that clause (f)(i) of Section 1 (Material Loss or Damage) of such a policy would have responded to at least partly indemnify them in respect of the costs incurred in complying with the EPA Notice. Such a clause would have provided indemnity for 'costs and expenses necessarily and reasonably incurred in respect of the removal, storage and/or disposal of debris…consequent upon damage to property insured by this Policy…'
The Broker argued that chemical contamination as a result of the water and chemicals which had soaked into the land, paved areas and ground-water was not 'debris'.
'Debris' was not defined in the policy. Justice Dalton explored dictionary definitions which referred to 'the remains of anything broken down or destroyed'. She concluded that:
'In ordinary English usage…. the effect of contaminated fire-water having soaked into the soil and ground-water is that the soil and water are contaminated or polluted, not that the land and water have become debris, or that there is debris in the land and water which cannot be seen separately from them.'
Her Honour queried whether, in molecular terms, the chemical contamination of the soil and ground-water might be classified as the remains of something broken down, but did not consider the word 'debris' ought to be construed in a way which hinged on scientific or molecular analysis.
However, the pavement and concrete flooring which was soaked with fire-water and thus contaminated may be 'debris' within the meaning of this clause. It was physically separate from the land and water and, if it was structurally weakened, deformed or discoloured by fire such that it could no longer be used, it would probably be regarded as 'debris' within the ordinary meaning of the word. There was, however, insufficient evidence upon which to estimate what costs and expenses may have been incurred in removing this type of 'debris' after the fire.
Damage to Insured Property
The Brokers argued that the costs associated with the chemical contamination of the Plaintiffs' land would not in any event have been covered because such 'debris' would not have been consequent on damage to 'insured property'. This was defined as 'all real and personal property of every kind … belonging to the Insured or for which the Insured is responsible …'
Justice Dalton ruled that 'debris' in this policy could only mean the broken down or destroyed components of property which was itself insured. This flowed from the words 'consequent upon damage to property insured' in Section 1, Clause (f)(i).
In Her Honour's opinion, even if the chemical contamination of the land, pavement and groundwater were to be regarded as debris, it would not be debris consequent upon damage to property insured because:
- It would be consequent upon damage to stock which would not, on the evidence, have been insured.
- The chemicals which caused contamination were either owned by Binary or its customers. Either way, they were not insured.
- Land and dams and their contents were specifically excluded.
Proviso to clause (f)(ii)
The Broker contended that a proviso which appeared immediately following Clause (f)(ii) of Section 1,2 which excluded any liability that the insured may incur as a consequence of pollution of any kind, applied to Clause (f)(i) as well. Justice Dalton concluded, however, that read in the context of the policy as a whole, the proviso applied only to Clause (f)(ii) and did not limit cover under Clause (f)(i).
Extra costs of reinstatement
The Plaintiffs also claimed that the 'Reinstatement or Replacement' and 'Extra Costs of Reinstatement' sections of the proffered ISR policy would have provided the required cover. Both provisions applied to buildings, machinery and plant as well as 'all other property'. In Justice Dalton's view however, 'property' must mean insured property and land was excluded.
Further, reinstatement could not apply to remediation of land and groundwater, since it applied to buildings or property which can be repaired so that their condition is as they were "when new".
Again, contaminated concrete flooring and pavements may have come within this head of cover however there was insufficient evidence to assist in identifying any items of cost or expense associated with removal of this material.
While QFRS was found to have breached a duty to the Plaintiffs to take reasonable care not to damage their property when acting to combat a fire and hazardous materials emergency on their land, it had the benefit of an immunity conferred by s 129 of the Fire and Rescue Service Act 1990 (Qld). That section provided protection from liability in respect of something done 'pursuant to' the Act. Justice Dalton ruled that the actions of QFRS were a 'reasonable measure' taken by it to protect persons, property or the environment from fire or a hazardous materials emergency as authorised by s 53 of the Act.
In view of the history of this litigation and the substantial amount at stake, we could well see yet another appeal. In the meantime, this latest decision provides some further guidance on the interpretation of the standard ISR Mark IV policy, in particular, what constitutes 'debris'.
The Queensland Court of Appeal, in the separate insurance question appeal, considered that the term “debris” is not inconsistent with an indemnity for the costs of remediation of polluted property. It could be capable of describing various residues from a fire, such as ash from burnt plant and goods; charred, melted, or heat damaged materials; and water damaged materials.
Consistent with this, Justice Dalton's judgment indicates that 'debris' is the broken down elements of destroyed or damaged insured property, for example, water damaged concrete.
1 Hamcor Pty Ltd & Anor v The State of Queensland & Ors  QSC 9; Hamcor Pty Ltd & Anor v Marsh Pty Ltd & Anor  QCA 262; Hamcor Pty Ltd & Anor v Marsh Pty Ltd & Anor  HCA Trans 193 (Special Leave dismissed 4 September 2014).
2 Section 1 Clause (f)(ii) provided qualified indemnity for the Insured's "legal liability" in respect of removal, storage and/or disposal of debris.
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