Additional Damage During the Course of Repairs

The recently reported case of Baralaba Coal Company Pty Ltd v AAI Ltd [2024] FCA 532, heard in the Federal Court of Australia, provides support for policyholders when faced with subject-matter insured sustaining additional damage during the course of repairs.

The policyholder operated a coal mine in Central Queensland and also owned supporting infrastructure, including a train loadout facility that received coal from the mine. The train loadout facility included a stacker which conveyed coal onto a product stockpile.

An Industrial Special Risks policy was in force for 12 months from 16.00 on the 1st May 2018. In the event of damage to the subject-matter insured the basis of settlement was “the repair of the damage and the restoration of the damaged portion of the property to a condition substantially the same as, but not better or more extensive than, its condition when new.”

On the 12th March 2019 the stacker sustained substantial structural damage in a storm. The underwriters agreed to indemnify the policyholder and on or about 6th September 2019 a contract was entered into for the repair and reinstatement of the stacker. On the 27th October 2019 the stacker collapsed during a test to determine whether the repair of the storm damage had been completed. 

Underwriters took the position that the stacker had been substantially reinstated to the point of testing and commissioning on the 27th October 2019 and that it had suffered different damage by reason of its collapse during the testing of the repairs. Such testing taking place after the expiry of the policy.

It was ruled that in order for the policy to respond to the additional damage such additional damage must be related to the original damage. It further being concluded that:

“(A)n insurer’s primary obligation to meet the costs of reinstatement 

necessarily extends to the cost of remediating any further damage

to the property which is relevantly connected to that primary 

obligation. This principle applies regardless of whether the insurer’s

obligation is to reinstate or pay the costs of reinstatement.”

It was held that, for a policyholder to succeed, it is not sufficient that the additional damage occurred from an unrelated cause during the course of effecting repairs that are covered under the policy. However, the policyholder’s position is different if further damage occurs from conduct involved in undertaking such repairs.

Therefore, it was held that the damage sustained due to the collapse of the stacker (during testing of the storm damage repairs) was directly related to and connected with underwriters obligation to remedy the original damage. Accordingly, underwriters were obliged to indemnify the policyholder for the additional damage even though it was sustained after the policy had expired.

However, with regards to such findings, it is important to note that the policyholder must have acted with reasonable despatch in arranging for the remedial action to be carried out in relation to the original damage.