Written by Sindri Bergsson
The Full Federal Court’s decision in Insurance Australia Limited t/as CGU Insurance v Capral Limited [2025] FCAFC 46 provides guidance on interpreting “property damage” within general liability policies and the application of product recall exclusions.
Background
Capral Ltd supplied aluminium plates, imported from China, to 10 customers for use in constructing marine vessels and a water tank. The plates were later found to be substandard and were the subject of a product recall. Customers had already incorporated these plates into their constructions, necessitating removal and replacement.
Capral settled claims totalling approximately $2.2 million with its customers and sought indemnity from CGU under its general products and liability policy. CGU denied the claim, arguing that the damages did not constitute “property damage” and were excluded under the policy’s product recall clause.
At first instance, the Federal Court held in favour of Capral. CGU then appealed that decision.
Full Federal Court’s Decision
On appeal, the Full Federal Court had two main issues to determine:
- Firstly, to consider whether the incorporation (by welding) of aluminium plates into customer’s vessels constituted “Property Damage” within the meaning of the CGU policy, in circumstances where the aluminium plates themselves were defective; and
- Secondly, to interpret an exclusion clause in the policy which excluded claims for damages in relation to the withdrawal, recall…repair of the Product…if such Products are withdrawn from the market or from use because of any known or suspected defect or deficiency.
Capral’s arguments, which were accepted by the Full Federal Court, were that the aluminium plate was defective at the time it was welded to the vessels; and upon welding the defective plate(s) to the vessel(s) those vessels sustained property damage.
As to the exclusion clause, the Full Federal Court held that the exclusion would not apply – the primary reason being that the product recall occurred after the property damage had occurred.
Implications
This decision highlights the complexity of policy wordings and the difficulties insurers face in interpreting and applying definitions and exclusion clauses.
It is important to carefully consider policy wordings, including the practical and commercial effect of interpreting a policy in a particular way – as this is a relevant factor for a Court to consider when undertaking the task of policy interpretation.
Should you wish to discuss any of the above, please contact Sindri Bergsson on 02 9044 3263 or any member of the Ligeti Partners team on 03 9947 4500.
