Insights From a Sydney Court Case and What It Means for Your Insurance Coverage

A recent NSW court of appeal decision has reminded business owners that the fine print in insurance contracts can make all the difference regarding claims. In a dispute involving damaged underground pipes caused at a Sydney petrol station, the court overturned the insurer’s decision, ruling that the underground pipes were in fact part of the building and should be covered under the insurance policy. For brokers and their clients, this case highlights why it is important to understand policy wording and definitions and exclusions when it comes to avoiding costly disputes.

What Happened in the Case?

The dispute began when a Sydney petrol station owner completed upgrades to the petrol station’s vapour recovery system. After the works were finished, it was evident that the underground fuel pipes had been punctured and showed signs of damage. When the owner submitted a claim with his insurance, they rejected his claim, leading to a long-running legal battle.

The insurer argued that the underground pipes were not covered as they did not meet the policy definition of a “building” since the pipe work was underground. It also relied on construction exclusion, claiming that the repair costs exceeded the $100,000 contract value threshold

When appealing the matter to court, the court disagreed with the insurer, stating that the underground pipes were in fact part of the “building” based on the policy wording. The court also ruled that the construction exclusion did not apply because there was no contractual payment amount, meaning the insurer could not rely on hypothetical valuations.

Key Legal Findings That Matter to Policyholders

Underground Structures Can Be Treated as “Buildings”

The court found that the insurer’s interpretation of “buildings” was too narrow. The policy itself listed foundations, swimming pools and storage tanks as part of the definition, structures that are commonly placed underground. Because the underground fuel pipes were connected to the building itself and served as part of the storage tank, the court stated that they were structural improvements and therefore part of the building.

“Contract Value” Means What You Actually Agreed to Pay

Court’s interpretation

In simple terms, the judges made it clear: estimates, assumptions, or theoretical quotes do not count. Only a signed agreement with a defined payment creates a contract value. Without such proof, an insurer cannot apply a value-based exclusion.

How insurers must prove an exclusion applies

This decision highlights an important principle: insurers cannot deny claims based on general assumptions about the project value. They must prove with documentation that a contract existed and that its value exceeds the policy threshold.

Why owner-builder or self-managed renovations need careful insurance notification

Owner/builders might complete work themselves without formal contracts or clear cost structures. While this can save money, it introduces insurance complexities. If the insurer is not notified about the work, disputes may arise over whether exclusions apply, who performed the work, and whether the upgrades were done safely.

How an Insurance Broker Helps Prevent These Issues

Interpreting Definitions That Can Make or Break a Claim

Insurance policies often contain technical definitions that can significantly affect whether a claim is paid. As a broker our role is to interpret these terms for clients, making sure they understand what is and what isn’t covered. Brokers protect clients from unexpected coverage gaps by insurances by helping them understand these terms.

Ensuring the Policy Matches the Real-World Risk

Every business site has unique risks and a broker’s role is to ensure the insurance policy reflects the actual infrastructure on the property. For example for a business that has underground tanks, buried pipes, in-floor electrical systems, or specialised machinery, these assets need to be captured accurately within the policy, so when it comes to lodging claims business owners may unknowingly face coverage gaps during a claim.

Some commercial insurance policies include exclusions for construction works above a certain value or for sites undergoing major modifications. A broker makes sure that any upgrades or renovations are properly disclosed so that the insurer is aware of the true exposure. This helps prevent situations where a claim is denied because the insurer was unaware.

How brokers challenge insurer decisions

When a claim is questioned or declined, brokers step in to defend their clients by reviewing the policy, analysing the insurer’s reasoning and making sure the claim is dealt with fairly. This includes challenging interpretations that do not align with the plain meaning of policy. Brokers act as intermediary, gathering evidence, presenting arguments and escalating matters when required.

Practical Tips for Business Owners in NSW

Review policy definitions annually

Insurance policies tend to change over time and so does your business operation. Reviewing the policy each year ensures that your cover reflects your day to day business operations especially if your infrastructure or equipment has changed.

Notify your broker before any upgrades or construction

Even small upgrades, repairs or self-managed renovations can trigger construction exclusions. Speaking to your broker beforehand ensures any changes are properly declared and covered.

Keep records of subcontractor agreements, even informal ones

Whether you use licensed trades or informal subcontractors, always keep documentation, quotes, invoices, emails or even text messages. These records can help prove the value of the work and that it has been done if a dispute arises or is needed for insurance policy renewal.

Ask your broker to confirm what underground assets are covered

Pipes, drainage systems, tanks, cables, and in-floor systems can be easy to overlook. Ask your broker to check how these assets are classified under your policy so you know exactly what is covered.

Conclusion

This case shows that many insurance disputes can be avoided with the right guidance and a clear understanding of how policy definitions apply to real-world risks. With adequate advice, businesses can have peace of mind that their business is covered properly, exclusions are understood, and any changes to the business are disclosed with the broker or the insurance.

If your business has specialised infrastructure or is planning upgrades, now is the time to review your insurance. Contact Barrack Broking here for a policy review.