Excluding climate risks in insurance contracts

In Acciona Infrastructure Australia Pty Ltd v Zurich Australian Insurance Limited [2023] FCAFC 47, the Full Court determined the meaning of an indemnity clause in an insurance contract. This clause sought to exclude insurer liability to pay for damage on construction works on the Pacific Highway due to rain.

The clause said: “It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the Insurers will not indemnify the Insured for loss or damage due to rain on earthwork materials and or pavement materials, except where such loss or damage is due to an event with a minimum return period of 20 years for the location insured on the basis of the 24 hour statistics prepared by the Bureau of Meteorology for the nearest station to the location insured, or such other independently operated weather station situation near or adjacent to the location insured" (emphasis added).

The question for the Court to determine was where was the “location insured”? This was important because one weather station recorded a rainfall event that exceeded a minimum return period of 20 years, but two other weather stations did not, including the station closest to the location insured. The court held that the “location insured” referred to the "place within the Project Site where the loss or damage in respect of which the claim is made has occurred”. 

This is not a climate case. But the case potentially foreshadows issues that might raise in future climate disputes. For example, it is not possible to predict exactly where climate change impacts will materialise. Indeed, in this case, there was a once in 20 year rainfall event that caused damage but the contractor was unable to rely on their policy cover because this was not recorded close enough to the location insured. More generally, the case shows the difficulties that may arise in the future as individuals, companies and governments try to insure themselves against climate risks but are ultimately unable to claim under their policies. 

The decision is available here: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/full/2023/2023fcafc0047