This case is about seeds, grass, and the proper construction of an “exclusion clause” in an insurance policy. In essence, the appellant, Selected Seeds Pty Ltd, is a grain and seed merchant who had purchased grass seed from a third party. This seed was contaminated by an inferior seed and largely not the type it was represented to be. Eventually, this seed reached R and J Shrimp, who instituted proceedings in the Federal Court in 2006 claiming damages. Although these proceedings were ultimately settled in 2008, the appellants insurers, the respondents in this case, refused to indemnify the appellant for that loss. The respondents, in proceedings in the Supreme Court of Queensland, argued that the appellants supply of the seed was too remote from the damage suffered by the Shrimps and so did not come within the insuring clause. Of especial importance in the insurance policy was an “Efficacy Cause”, which excluded liability from particular defined events, and this was the focus of the Courts decision.
The Efficacy Clause operated to exclude liability when a product fails to achieve its intended purpose. The respondents contended that this clause was engaged because the appellants liability arose from the failure of the seed planted by the Shrimps to “fulfil its intended use or function”. The Court held that this proposition implied that a purpose of the seeds was that they would not injure.
In deciding whether the liability of the appellant for the damage caused to the Shrimps land arose out of the failure of the seeds to fulfil their function, and thus be excluded under the second limb of the Policys Efficacy Clause, the Court answered in the negative. Liability, the Court held, arose by reason of the direct effect of the seeds upon the land. That is, the liability to the Shrimps was for what the seed did; not what it failed to achieve. Therefore, the Court held that the Efficacy Clause did not apply and allowed the appeal.
