“If your interpretation has the air of pulling a rabbit out of a hat, it is probably the wrong interpretation,” said Mark Sheller, partner at Tresscox.

Australian Courts have long been stressing that the interpretation of insurance policies is about identifying the policy’s underlying commercial purpose and interpreting its provisions in a way that respects that purpose, Sheller said. 

The recent New South Wales Court of Appeal decision in Thiess Pty Ltd & Anor v Zurich Specialities London Limited & Anor, from 3 March, represents further confirmation of that approach, he said. 

In the case, Thiess Pty Ltd and John Holland Pty Ltd, the insured, sought to overturn a finding that the terms of a Construction Risks Insurance Policy did not constitute a construction contract to which the Building and Construction Industry Security of Payment Act 1999 (NSW) responded. 

The policy noted the parties’ obligations when it came to any potential damage to the insured property, as well as an overriding obligation on the insured to safeguard the subject matter insured, said Sheller. But the insured party submitted that as taking such precautions would invariably involve a level of construction work, the policy constituted a construction contract to which the Act responded. The Court of Appeal unanimously rejected this submission, said Sheller. 

“Objectively, it would have surprised many if the outcome which the insured urged upon the Supreme Court and the Court of Appeal was upheld,” said Sheller. “It was imaginative but just that.”

See Mark Sheller's full assessment of the outcome HERE.