The NSW Supreme Court has ruled in favour of the Civic Hotel in a dispute over a public liability claim declined because the policyholder didn’t identify part of the Sydney venue as a nightclub.

Justice Julia Lonergan found the licensee “genuinely held” the belief that there was no nightclub, and the “bizarre” definition in the policy blurred the concept in a way that introduced confusion.

“What, for example, comprises ‘permanent dancing’?” Justice Lonergan said. “The potential questions arising from the vagaries of expression in the ‘nightclub’ definition are almost endless.”

Legal action began after a man who had been drinking at the Civic Hotel public bar fell down the stairs on the way to a basement bathroom on February 16, 2011. He sustained spinal injuries causing paraplegia and began proceedings in July 2014 against Universal 1919 and James Kospetas, the occupiers and licensees of the venue.

Universal’s public liability cover was refused on the grounds that had correct disclosures been made on the renewal form the underwriter wouldn’t have issued the insurance. Neon Underwriting, previously known as Marketform and acting for a Lloyd’s syndicate, provided the policy through coverholder ASR Underwriting Agencies.

The Pitt Street venue included a top floor restaurant and bar, ground floor public bar and gaming area, and a basement that had seating, a dance floor and a console for a disc jockey.

Mr Kospetas told the court he ticked “no” to the question “Do you have…Nightclub” because the Civic Hotel was not a nightclub.

“It was a licensed hotel,” he told the court. “It had a function room on the basement level which was sometimes hired by promotors to organise DJ nights at which music was played. I disclosed the fact that the hotel had DJs when describing the type of entertainment.”

Responses indicated there was a dancefloor, but a box asking its size was left empty, in an incomplete answer not subject to follow up inquiry before the policy was renewed.

The court was told the policy included a nightclub definition that applied when “the premises is not licensed as a nightclub but where dancing is regularly undertaken and the venue is arranged in such a manner as to offer permanent dancing and musical entertainment”.

The policy also said that “for the avoidance of doubt” any three of seven features listed - including special lighting, a permanent sound system and the employment of bouncers or security personnel to manage the entrance - would mean the exclusion applies.

Justice Lonergan said the basement was arranged in a manner to conduct various functions, and had seating booths so patrons could enjoy sit-down events such as a cabaret shows.

“Mr Kospetas was on occasion non-plussed in cross-examination by the focus on the nomenclature of the space,” she says in the judgment. “He presented as an honest businessman who did his best to describe the premises and activity at the Civic Hotel that occurred based on his understanding of the range and spread of functions in the three storey multi-use hotel.”

Justice Lonergan ruled Universal had not breached its duty of disclosure and had not made a misrepresentation. The decision also found against Neon on whether insurance would have been refused if the questionnaire had been answered differently.

During the hearing, the court heard evidence about documentation that said the underwriters may agree not to exclude certain activities “provided full details are submitted to them and an additional premium, if any, is paid to cover these activities”.

But an underwriter at ASR told the court that it was his understanding that “nightclubs were never an acceptable risk”.

Justice Lonergan said it was not clear what was expected to have occurred if the dance floor specifications had been given, or there had been a “yes” tick to the nightclub question.

“Neon has not persuaded me that it would have refused to insure the premises,” she said. “The evidence on that issue was contradictory and in respect of the evidence of the underwriters, incomplete and unsatisfactory.”

The decision is available here.