Federal Court ‘intolerably clear’ it will not entertain tears over spilt diesel

20 February 2020

An unsuccessful claim for contribution under a management liability policy, following an insured’s conviction for a pollution offence relating to a diesel spill at a waste management facility.

In Issue

  • Whether the Combined Business Liability Insurance policy (Epsilon policy) provided cover for steps Ditchfield took to prevent, mitigate or rectify 'Property Damage' arising or continuing out of an 'Occurrence'.
  • Whether the Management Liability insurance policy (DUAL policy) provided cover for the steps taken by Ditchfield.

The background

Ditchfield Contracting Pty Ltd and Ditchfield Contractors Pty Ltd (Ditchfield), a civil and mining contractor, was engaged by Newcastle City Council to construct a landfill cell at a Council waste management facility at Wallsend. Ditchfield had 2 policies of insurance in relation to those works – the Epsilon policy and the DUAL policy. The claim before the court was for DUAL insurers to contribute to the mitigation costs associated with the clean up following a diesel spill which had occurred on 3 September 2016. Ditchfield incurred costs of taking actions after discovery of the spill (mitigation costs) and was subsequently charged by the Environmental Protection Agency (EPA) with a pollution offence under s120 of the Protection of the Environment Operations Act 1997 (NSW).

In April 2018, Epsilon confirmed that its policy responded to Ditchfield’s claim for ‘mitigation costs arising from the incident on 3 September 2016’. Epsilon paid $262,666.95 to Ditchfield on the basis that the Epsilon policy covered the mitigation costs. Epsilon claimed Ditchfield had double insurance and that DUAL was liable to contribute for its equitable share (said to be 50%). DUAL granted indemnity to Ditchfield under the DUAL policy for:

  1. the costs of defending the charge brought by the EPA;
  2. the EPA’s costs of the action; and
  3. the order for payment imposed by the Land and Environment Court.

In order to determine whether Epsilon could claim contribution, the court was required to determine the issues stated above.

The decision at trial

The court found that the DUAL policy did not respond to indemnify Ditchfield for the mitigation costs. After considering the DUAL policy, the court held that there could be no doubt that, subject to any extension of cover by the Additional Benefits there was no cover under the DUAL policy for the loss represented by the expenses of dealing directly with the property damage caused by the negligent release of diesel fuel as a pollutant. A ‘straightforward reading’ of the ‘Additional Benefits’ under the DUAL policy found there was no cover for liability for property damage. The court accepted that the DUAL policy did respond to cover Statutory Liability, which was limited to fines and penalties – but not steps to remediate property damage that may go towards minimisation of any fine, penalty or defence costs.

The court held that it was ‘unnecessary to answer’ the first question because the answer to the second question was ‘no’.

Implications for you

The decision is a useful reminder of the benefit in having a well-structured insurance policy written in plain English and of the high threshold for undermining Underwriters’ clear intentions

Epsilon Insurance Broking Services Pty Ltd v Liberty Managing Agency Limited (No 2) [2020] FCA 20

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