When Policy Definitions Decide the Outcome: Lessons From a Sydney Court Decision

A recent decision out of the NSW court of appeal decision has quietly reinforced something many business owners don’t think about until it’s too late — insurance claims often turn on definitions.

The case involved a Sydney petrol station that had completed upgrades to its vapour recovery system. Not long after the works were finished, damage was discovered to underground fuel pipes. A claim was lodged. It was declined.

From there, it escalated.

The insurer took the position that the damaged pipes weren’t part of the “building” under the policy because they were underground. It also relied on a construction exclusion, arguing the works exceeded a $100,000 contract value threshold.

On appeal, the court disagreed on both points.

And that’s where the real lessons sit.

The dispute wasn’t about damage — it was about definitions

No one seriously questioned that the pipes were damaged. The disagreement centred on whether those pipes fell within the policy’s definition of a building.

The insurer argued they didn’t. Underground infrastructure, in its view, sat outside the intended scope of cover.

But the policy wording told a broader story. It listed items such as foundations, swimming pools and storage tanks as forming part of a building — all structures commonly located below ground.

The court ultimately accepted that the underground fuel pipes, connected to and servicing the storage tanks, formed part of the insured structure. In practical terms, they were structural improvements.

The decision highlights a simple but often overlooked reality: when a claim arises, the outcome depends on how the policy defines the asset — not how the owner views it.

The “contract value” argument also fell short

The insurer’s second argument focused on a construction exclusion. It relied on a threshold that applied where works exceeded a specified contract value.

The issue? There wasn’t a formal contract with an agreed payment amount.

The court made it clear that assumptions or hypothetical valuations aren’t enough. If an exclusion depends on contract value, there must be an actual contract.

That clarification matters, particularly for businesses that undertake upgrades without formal written agreements or where works are managed internally.

Why this matters beyond petrol stations

This wasn’t just a case about fuel pipes.

It was a reminder that underground assets, embedded infrastructure and site-specific improvements don’t always sit neatly within policy wording. Many commercial properties include buried tanks, drainage systems, electrical conduits or in-floor cabling.

If those items aren’t clearly contemplated in the policy schedule or definition section, disputes can follow.

It also reinforces the risk of relying on assumptions during renovations. Owner-managed projects, informal agreements or staged works can unintentionally trigger exclusions if insurers aren’t notified.

Where brokers step in

One of the consistent themes in disputes like this is interpretation.

Insurance policies are dense. Definitions cross-reference other definitions. Exclusions contain sub-limits and conditions. It isn’t always obvious what sits inside or outside the boundary of cover.

A broker’s role isn’t simply to place the policy. It’s to look at the physical risk — the actual property — and compare it to the wording.

For example, if a business operates from a site with underground storage tanks, that fact needs to be clearly reflected in the policy. If upgrades are planned, insurers need to be informed early so construction exclusions can be managed appropriately.

When a claim is challenged, brokers also act as advocates. That can involve reviewing the insurer’s reasoning, checking the wording carefully and escalating matters if an interpretation doesn’t align with the plain language of the policy.

Practical steps business owners can take

Cases like this are rarely about dramatic negligence. More often, they arise from technical interpretation.

There are a few straightforward habits that can reduce the risk of a similar dispute:

Review policy definitions annually, particularly if the business has changed or expanded its infrastructure.

Speak to your broker before commencing upgrades or renovations — even minor works.

Keep documentation relating to works, agreements and payments, even if arrangements feel informal.

Ask specifically how underground assets and fixed infrastructure are treated under your policy wording.

These conversations are far easier before a claim than after one.

A broader takeaway

Insurance disputes often hinge on details most business owners never expect to become important.

This Sydney decision doesn’t change the fundamentals of property insurance, but it does reinforce how critical definitions and exclusions can be. It also underlines the importance of ensuring your policy reflects the physical reality of your site — not just a generic description.

For businesses with specialised infrastructure or planned works, reviewing cover before changes are made can prevent drawn-out disputes later.

If you’re unsure how your policy treats underground assets or construction activities, it’s worth having that discussion now rather than during a claim.

Barrack Broking works with commercial clients to review policy wording, assess exposure and ensure insurance arrangements reflect real-world risk. Speak with the team today.