KIEFEL CJ, GAGELER, EDELMAN, STEWARD AND GLEESON JJ
ALLIANZ AUSTRALIA INSURANCE LIMITED APPELLANT
AND
DELOR VUE APARTMENTS CTS 39788 RESPONDENT
Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788
[2022] HCA 38
Date of Hearing: 10 & 11 August 2022
Date of Judgment: 14 December 2022
S42/2022
ORDER
1. Appeal allowed with costs.
2. Set aside the orders of the Full Court of the Federal Court of Australia made on 9 July 2021 and, in their place, order that:
(a) the appeal be allowed with costs; and
(b)the declarations and orders of the Federal Court of Australia made on 24 July 2020 be set aside and, in their place, it be ordered that proceeding NSD 2094 of 2018 be dismissed with costs.
On appeal from the Federal Court of Australia
Representation
D A McLure SC and T O Prince for the appellant (instructed by Holman Webb Lawyers Brisbane)
I M Jackman SC with M R Elliott SC and P Mann for the respondent (instructed by LMI Legal)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788
Insurance – Contract of insurance – Where insured body corporate knew that apartment buildings had serious non-structural defects which it did not disclose to insurer – Where cyclone caused substantial damage to apartment buildings and exposed defects – Where insurer advised insured that it would provide indemnity despite non‑disclosure – Where extent of indemnity ambiguous – Where dispute arose as to sequence of repair works and distribution of costs – Where insurer proposed settlement on particular terms and advised that, if insured did not accept, it would rely on s 28(3) of Insurance Contracts Act 1984 (Cth) and reduce liability based on non‑disclosure – Whether insurer bound by representation of indemnity due to waiver, election or estoppel – Whether insurer failed to act with utmost good faith.
Words and phrases – "completed exercise of a legal power", "detriment", "duty of utmost good faith", "election", "election by affirmation", "estoppel", "extinguishment of rights", "full satisfaction of alternative rights", "inconsistent sets of rights", "indemnity", "irrevocable waiver", "non‑disclosure", "policy of insurance", "revocation", "waiver".
A body corporate brings a claim for indemnity under an insurance policy following damage to apartment buildings by a cyclone. The cyclone damage exposes the existence of pre‑existing defects in the apartment buildings which the body corporate had not disclosed to the insurer. Some of those defects need to be repaired concurrently with the cyclone damage. The insurer sends the body corporate an email containing a gratuitous representation that the insurer will grant indemnity despite its power to reduce its liability arising from the body corporate's non‑disclosure. But the email is ambiguous as to the extent of indemnity offered. In particular, the insurer denies liability for defective materials…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCA 38
Case
[2022] HCA 38
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal by Allianz Australia Insurance Ltd against Delor Vue Apartments CTS 39788, concerning a dispute over an insurance claim following damage from Tropical Cyclone Debbie. Delor Vue, the body corporate for an apartment complex, had failed to disclose serious non-structural defects in the buildings to Allianz prior to entering into the insurance policy. While Allianz initially indicated it would honour the claim despite the non-disclosure, a dispute arose regarding the extent of the indemnity and the allocation of repair costs. Allianz subsequently sought to rely on section 28(3) of the *Insurance Contracts Act 1984* (Cth) to reduce its liability based on Delor Vue's non-disclosure.
The central legal issues before the High Court were whether Allianz was bound by its earlier representation of indemnity, thereby precluding it from relying on section 28(3) of the *Insurance Contracts Act* to reduce its liability. This involved determining whether the doctrines of waiver, election, or estoppel applied, and whether Allianz had breached its duty of utmost good faith by seeking to rely on the non-disclosure defence after initially offering indemnity. The High Court also had to consider the circumstances under which a gratuitous waiver of rights becomes irrevocable.
The High Court allowed Allianz's appeal, setting aside the orders of the Full Court of the Federal Court. The Court reasoned that Delor Vue had not established that it suffered any detriment in reliance on Allianz's representation of indemnity. Consequently, the limited circumstances in which a gratuitous waiver of rights becomes irrevocable were not present. The Court found that Allianz did not breach its duty of utmost good faith; rather, it acted lawfully and honestly by clarifying the extent of its offer of indemnity and requiring acceptance of that offer to waive its defence based on non-disclosure. The Court concluded that Allianz was not precluded from relying on section 28(3) of the *Insurance Contracts Act*.
Orders
Orders of the court
1. Appeal allowed with costs.
2. Set aside the orders of the Full Court of the Federal Court of Australia made on 9 July 2021 and, in their place, order that:
(a) the appeal be allowed with costs; and
(b) the declarations and orders of the Federal Court of Australia made on 24 July 2020 be set aside and, in their place, it be ordered that proceeding NSD 2094 of 2018 be dismissed with costs.
Background
Background to the litigation
The appeal to this Court should be allowed. In the law of contract there are limited circumstances in which a gratuitous waiver of rights becomes irrevocable. In this case, where the body corporate did not establish that it had suffered any detriment in reliance upon the insurer's representation, none of those limited circumstances is present. And the insurer did not breach its duty of utmost good faith when, acting lawfully and honestly, it clarified the extent of its offer of indemnity, but required that offer to be accepted for it to waive the defence based on non-disclosure.Background The respondent, Delor Vue Apartments CTS 39788 ("Delor Vue"), is the body corporate for a complex of 11 apartment buildings, each containing approximately six residential lots. The apartment buildings are in Cannonvale in north Queensland. On 28 March 2017, Tropical Cyclone Debbie struck north Queensland. The cyclone caused substantial damage to the Cannonvale apartment buildings. Five days before the cyclone, Delor Vue had obtained a policy of insurance ("the Policy") for public liability and property damage with the appellant, Allianz Australia Insurance Ltd ("Allianz"). Allianz acted through its subsidiary underwriting agency, Strata Community Insurance ("SCI"). Other than where the communication referred to was specifically to or from SCI, these reasons generally refer to Allianz rather than its agent, SCI. Prior to its entry into the Policy, Delor Vue knew that the Cannonvale apartment buildings had serious non‑structural defects. The soffits and eaves were badly constructed and badly affixed. A number of them had dislodged. They were a danger to people and to property, although some steps had been taken to ameliorate the danger and to plan for repairs. These defects were not disclosed to Allianz by Delor Vue prior to its entry into the Policy. Almost immediately after the cyclone, Delor Vue notified a claim under the Policy. On 27 April 2017, following Delor Vue's provision of all relevant documents to SCI, an officer of SCI sent an email to Delor Vue's insurance broker referring to this non‑disclosure and advising that SCI would need to investigate it further before making a determination. On 9 May 2017, an officer of SCI sent a further email to Delor Vue's insurance broker referring to the non‑disclosure and to a building inspection report prepared for Delor Vue dated 1 April 2015 which had referred to the defects in the soffit panels. The email also referred to a "more precise synopsis" of the issue in an engineer inspection report dated 1 December 2016. SCI then said:"Despite the non‑disclosure issue which is present, [SCI] is pleased to confirm that we will honour the claim and provide indemnity to [Delor Vue], in line with all other relevant policy terms, conditions and exclusions."SCI described its decision as one to "grant indemnity" but said that there were two categories of damage: "1. Defective materials and construction of the roof, including but not limited to tie downs, rafters and timbers and soffit"; and "2. Resultant damage including but not limited to internal water damage, fascia, guttering and roof sheeting (for those buildings which lost roof sheeting only)". SCI advised that it would cover the repair costs associated with the second category, but not the first category. The language used by SCI was imprecise and the parties ultimately disagreed on the scope of application of the second category. In particular, there was a dispute about the meaning of the phrase "for those buildings which lost roof sheeting only".
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
KIEFEL CJ, EDELMAN, STEWARD AND GLEESON JJ
(dissent)
After requesting an extension of time for any acceptance of the offer, which Allianz granted to 31 August 2018, Delor Vue's solicitors later responded. Amongst other matters, Delor Vue denied that Allianz could reduce its liability by reference to s 28 of the Insurance Contracts Act 1984 (Cth) due to principles described as "election" or "waiver". The solicitors for Allianz replied, asserting that its liability had been reduced to nil. By this time, Allianz had paid to Delor Vue amounts totalling $192,471.74 for building repairs, compensation to unit holders for loss of rent, alternative accommodation expenses, and professional fees.The decisions of the primary judge and the Full Court In conclusions that were not challenged on appeal, the primary judge held that: (i) the failure by Delor Vue to disclose the known defects in the buildings to Allianz prior to entry into the Policy amounted to a breach of Delor Vue's duty of disclosure under s 21(1)(b) of the Insurance Contracts Act; (ii) Allianz (through its agent, SCI) would not have accepted the risk had the disclosure been made by Delor Vue; and (iii) subject to any waiver, estoppel, or failure to act with the utmost good faith, Allianz was entitled, under s 28(3) of the Insurance Contracts Act, to reduce its liability to nil for the claim made by Delor Vue for property damage consequent upon the cyclone. The primary judge rejected the submission by Delor Vue that Allianz was bound by an election not to rely upon the defence under s 28(3) of the Insurance Contracts Act, but found that Allianz was unable to rely upon s 28(3) for reasons of waiver, estoppel, and the duty of utmost good faith. The primary judge made declarations to that effect. An injunction to "hold the insurer to its stated position" arising from the breach of the duty of utmost good faith would have been ordered but for the making of the declarations[4].[4]Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd [No 2] (2020) 379 ALR 117 at 193 [349]. A majority of the Full Court dismissed an appeal by Allianz. Although their Honours refused to make an additional declaration, McKerracher and Colvin JJ accepted Delor Vue's submissions on its notice of contention to the effect that Allianz was bound by an election not to rely on the defence under s 28(3) of the Insurance Contracts Act. The appeal was otherwise dismissed. In dissent in the Full Court, Derrington J would have allowed the appeal. His Honour considered that Allianz was not precluded from revoking its promise by any doctrine of election, waiver, or estoppel and that Allianz had not failed to act with the utmost good faith in revoking the waiver of its right to rely on the defence under s 28(3) of the Insurance Contracts Act. For the reasons below, Derrington J was correct.The Insurance Contracts Act: ss 13, 14, 28 Sections 13, 14 and 28 of the Insurance Contracts Act relevantly provide as follows:"13 The duty of the utmost good faith(1)A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith.(2)A failure by a party to a contract of insurance to comply with the provision implied in the contract by subsection (1) is a breach of the requirements of this Act....14 Parties not to rely on provisions except in the utmost good faith(1)If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision.(2)Subsection (1) does not limit the operation of section 13....28 General insurance(1)This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:(a)failed to comply with the duty of disclosure; or(b)made a misrepresentation to the insurer before the contract was entered into;but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.(2)If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.(3)If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made."Allianz's waiver of the s 28(3) defenceThe nature of an irrevocable waiver