Sparking a divide in defining 'damage' in business interruption claims?

The concept of 'damage' is fundamental to business interruption insurance because without it there is often no cover. A broad approach to what constitutes 'damage' can therefore have a significant impact on the scope of such policies.

The Victorian Supreme Court has generally adopted a wide interpretation of the term 'damage'. In a recent decision 'damage' was held to include a tripped fuse located on the site of another business that stopped electricity from being supplied to the plaintiff's business, causing loss.

Interestingly, a design feature of the fuse was to 'trip' (i.e. cause damage to itself) to prevent damage from being done to the electric circuit it was attached to. It seems that, in Victoria at least, property may be considered 'damaged' if the object's use has been altered by an incident that has made that object less useful or valuable, regardless if damage was a function of its use.

Is this an ordinary result of a common sense approach to business interruption claims, or has the case sparked a divide between how these claims are addressed in Victoria and New South Wales?

The day the fish went 'belly-up'

The plaintiff, Mainstream Aquaculture Pty Ltd, ran a commercial fish breeding business. On 26 October 2008, the property that the business operated in experienced a loss of electrical power because an unusual surge of electricity at a power station of an electricity provider, Powercor, caused a fuse to be blown. This was a design feature of the fuse to protect the electric circuit. The plaintiff's back-up electricity generator failed and as a result all the fish on the breeding site died.

The plaintiff held two insurance policies: property damage insurance with CGU Insurance Ltd and business interruption insurance with Calliden Insurance Ltd (the Policy). The plaintiff lodged a claim under the second policy which was rejected.

To determine whether the event – the blown fuse – triggered the business interruption cover, the presiding judge, Justice Croft, considered whether the fuse was 'property' within the Policy terms, whether the fuse was 'damaged' within the Policy terms and whether the damage to the fuse was a proximate cause of the interruption to the business. Aside from an expert evidence issue (as the relevant fuse had been discarded), the key question to be determined was the meaning of the term 'damage' (undefined in the Policy).

A short-circuited policy?

Justice Croft prefaced his finding with the general...