Judge: exclusion can’t be after event

A Sydney car parts supplier accepting a $14.4 million part payment for a $62 million claim was not a settlement or a promise not to sue for the rest, NSW Supreme Court Justice James Stevenson has ruled.

He said XL Insurance Co SE also could not impose a hail limit clause into Mobis Parts Australia Pty Ltd's policy just because XL argued its absence was a "mistake". Justice Stevenson said it was not enough for XL to "assume or intend" a clause to be included to enable it to rely on the missing clause to limit liability.

The court heard Mobis, owned by Mobis Korea, operated a car parts storage warehouse at Eastern Creek "the size of several city blocks". On 25 April 2015, the warehouse collapsed during a severe hailstorm and Mobis sought $62 million for building replacement, stock loss and business interruption.

Just under three months later, on 30 July 2015, the warehouse (and virtually all of its then contents, including a large amount of stock) was destroyed in a fire that broke out during the demolition recovery process.

Mobis sought indemnity for the loss it suffered through the collapse (but not the fire) from XL under a property damage and business interruption policy issued by XL for the period 23 June 2014 to 23 June 2015. The parties referred to that as the "local policy".

It was issued by XL as part of an international program, known as the master policy, on which XL was lead insurer (with a 50% share of risk). AIG Europe Ltd had 30% and Lichtenstein-based Uniqa Versicherungs AG 20%. The insured was another wholly owned subsidiary of Mobis Korea, Mobis Slovakia.

Mobis's primary claim was against XL under the local policy. It only sought indemnity under the 2014 master policy if, contrary to its case, the local policy did not respond to its claim.

Mobis sought indemnity for the cost of rebuilding the warehouse ($17.25 million); the replacement value of the lost or damaged contents ($8.5 million) and stock (the full amount of the policy sub limit of $27.5 million); and business  interruption of $9.1 million.

On 5 June 2015, XL paid $14.4 million (the equivalent of the master policy's EUR10 million limit), saying that was all it was liable for under the hail limit. It argued the clause was in the master policy and should have been included in the Australian policy.

Mobis sued XL for the outstanding $48 million. In court, XL denied further liability, arguing Mobis had effectively reached final settlement when it accepted $14.4 million; the absence of the hail limit clause in the local policy was a genuine oversight; and the court should incorporate it into the policy. If that failed, it argued the building collapsed because of a design fault, triggering a faulty design exclusion.

Structural engineer David Carolan, who gave evidence on Mobis's behalf, said a combination of hail and rain on the roof had contributed to an imposed load on the roof structure. The weight caused beams supporting the roof to deflect, creating reservoirs in which falling rain could pond, and the combined weight of the ponded rain and hail led to the collapse.

Timothy Jones, XL's underwriting manager, gave evidence that: "As a result of a breakdown in the system at XL none of the local policies which had been prepared and reviewed prior to being provided to me for signing (or the authorisation for someone else to sign) contained the hail, weight of snow and ice limit.

"As it is my responsibility before authorising the issue of a local policy it is ultimately my mistake that the local policies in Australia prior to the loss were issued without the hail, weight of snow and ice limit. I was not the person at XL to do the actual writing up of the local policy. The people who do that are junior to me. I rely upon others to prepare the documents for submission to me but it is still my ultimate responsibility."

On 29 September 2017, Justice Stevenson rejected XL's arguments and found Mobis was entitled to full indemnity. He agreed accepting a part payment could be considered a legally binding contract but it was clear from letters and emails that XL understood Mobis could and would exercise its right to pursue the additional payment.

"[That is] hardly surprising, bearing in mind the policy did not contain any limit of liability [as] asserted by XL," Justice Stevenson said. XL could not rely on claims the exclusion omission was "a mistake". If so, it was a mistake in the first policy from 1 January 2011, and repeated annually up to the storm. To have the court "rectify" the policy by including the exclusion, XL had to prove the mistake was common to both parties.

Justice Stevenson said correspondence between XL and Mobis made no mention of a mistake and he did not believe Mobis intended a hail limitation clause to be included in the policy.

Justice Stevenson also rejected XL's argument the building was faulty or defective. After hearing "extensive technical evidence" over 21days, he was satisfied the warehouse was robust and met Australian building and design standards.

"Mobis is entitled to indemnity under the local policy. Accordingly, the question of whether Mobis would be entitled to indemnity under the master policy does not arise and [several] issues, which occupied time during the hearing, are now moot," he said.

Mobis Parts Australia Pty Ltd v XL Insurance Co SE (No 7) [2017], NSWSC 1321, 29/09/2017