A Sydney appeals court has handed insurers a sharp reminder that policy definitions matter, ruling that underground fuel pipes qualify as buildings and awarding a petrol station owner $149,021 after years of dispute.
The Court of Appeal delivered its decision on November 17, overturning a lower court ruling that had sided with Gordian Runoff Ltd, the insurer handling claims from the former Great Lakes Insurance business.
At the heart of the case was a petrol station in Lewisham owned by Tanwar Institute of Professional Studies. In July 2015, environmental authorities ordered upgrades to the station's vapour recovery system to meet clean air regulations. The owner, a licensed builder, decided to tackle the work himself with help from subcontractors.
That decision would prove fateful. After completing the upgrades in April 2016, testing revealed the underground pipes connecting fuel storage tanks to the pumps were riddled with at least 24 small holes. Investigators found part of a drill bit lodged in one pipe, pointing to malicious damage.
When Tanwar filed a claim under its business insurance policy, the insurer balked. Gordian argued the pipes did not meet the policy definition of buildings because they sat underground. A District Court judge agreed, reasoning that buildings exist above ground.
The appeals court saw things differently. Justice Ball, writing for the three-judge panel, noted the policy explicitly included foundations, swimming pools, and storage tanks in its definition of buildings. All of those commonly sit underground.
More importantly, the policy covered "structural improvements pertaining to the Buildings." The fuel pipes, connecting storage tanks to bowsers, clearly fit that description, the court found.
The insurer had a second line of defence: a policy exclusion for construction work valued above $100,000. A quantity surveyor estimated the upgrade work at $312,402.
But the court rejected this argument too, homing in on the phrase "contract value." That term means what someone actually agreed to pay under a contract, not what work might theoretically cost in the market, the judges ruled.
Since Gordian never proved any contract existed for the work, much less what it required paying, the exclusion did not apply. The owner had done most of the work himself, engaging only some subcontractors along the way.
The court did throw Gordian one bone. It rejected Tanwar's claim for lost rent during repairs, finding insufficient proof the tenant had stopped paying or was entitled to withhold rent under the lease.
The case offers a reminder for insurers relying on policy exclusions. Courts will hold them to the plain meaning of terms like "contract value" rather than accepting broader market-based interpretations. And when standard policies list underground structures like foundations and pools as covered buildings, arguing that other underground infrastructure falls outside that definition becomes difficult terrain.
