In proceedings in the Supreme Court of NSW a family company, Amashaw, successfully challenged the refusal of its insurer, Marketform, to provide indemnity.
The losses for which Marketform had to reimburse Amashaw included the cost of making good the damage caused by the significant leak of petrol from an underground tank and line, and the associated explosion of a Sydney Water sewer main.
This case is a timely reminder, especially for owners and operators of all forms of industrial properties, of the importance of understanding the difference between "pollution" and "contamination" and the type of loss covered when purchasing, and claiming under, an insurance policy.
A petrol leak from the BP Loftus service station caused significant damage, including the explosion of a Sydney Water sewer main. The repairs totalled $265,700. In addition, Amashaw incurred costs of $930,000 in the course of undertaking preventative works, which were required by the EPA.
Marketform denied cover, on the basis that:
- The loss arose from slow contamination over a number of years from the BP Loftus Service Station rather than a "sudden and accidental escape", and related to contamination of which Marketform was never informed, even though Amashaw had multiple reports detailing the nature and extent of that contamination.
- In any case, the repairs and preventative works were undertaken because of a legislative obligation to do so, rather than a claim for compensation.
These arguments were rejected by the Supreme Court of NSW, on the basis that:
- The source of the damage, including that caused by the explosion of Sydney Water's sewer main, was not contamination gradually emanating from the service station. Rather, it was the additional failure of a valve, which led to the "…sudden and accidental escape of contaminating petroleum products…." over a couple of months.
- Insurers cannot refuse indemnity under pollution liability policies on the basis that they have not been provided with information regarding a contamination risk which is known. The insurer issued specialised policies in relation to service stations, and must have known that service stations are well known to cause contamination. If specific information about contamination was important, the insurer should have asked for it in the proposal form.
- The cost associated with repairs to Sydney Water's sewer main was characterised as compensatory. Even though the repairs were undertaken as a result of a statutory obligation, Sydney Water could have made a claim for the cost of those same repairs.
What does this mean for owners and operators of industrial properties?
- If your operations are gradually causing contamination, a standard pollution liability policy is unlikely to cover the damage caused by that contamination, nor any clean-up costs.
- However, if there is "…a sudden specific and identifiable event…”, then this can be characterised as a pollution incident, in which case cover under a pollution liability policy is likely to be available, as was the case for Amashaw.
- Even if your policy responds, it does not follow that all of your costs and expenses will be recoverable. If there is a pollution incident, it is likely that the EPA or Council will not only require you to take clean-up action, but also preventative works. The latter is not covered by all pollution liability policies.
- If you need insurance which provides cover in relation to contamination, then a standard pollution liability policy will not be adequate. Contamination policies are becoming increasingly available (and affordable), particularly in relation to residual contamination which is to remain in-situ following the completion of remediation works.