Anderson v QBE Insurance (Australia) Ltd
[2013] VCC 77
•22 February 2013
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Not Restricted Revised |
Case No. CI-12-05893
| CLINTON WAYNE ANDERSON | Firstnamed Plaintiff |
| and | |
| BRANDI LEE DOUGHTY | Secondnamed Plaintiff |
| v | |
| QBE INSURANCE (AUSTRALIA) LIMITED (ACN 003 191 035) | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 January 2013 | |
DATE OF JUDGMENT: | 22 February 2013 | |
CASE MAY BE CITED AS: | Anderson v QBE Insurance (Australia) Ltd | |
MEDIUM NEUTRAL CITATION: | [2013] VCC 77 | |
REASONS FOR JUDGMENT
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Catchwords: DOMESTIC BUILDING INSURANCE POLICY – Summary judgment – Effect of VCAT decision and Insurer’s determination – exclusions to policy – when defect known – whether cover under other insurance policy – consequential loss - Building Act 1993 ss 135, 137C
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Stuckey | Noble Lawyers |
| For the Defendant | Mr A Laird | Mills Oakley Lawyers |
HIS HONOUR:
1 The plaintiffs seek summary judgment against the defendant under a policy of insurance issued by it to meet the requirements of s137B of the Building Act 1993 (‘the Act”).
2 In 2009, the plaintiffs purchased land and a home in Wodonga from an owner-builder, who had obtained the insurance policy from the defendant. Under that policy the defendant undertook to indemnify the plaintiffs, as successors in title, for loss or damage arising from a breach of any warranty which is made part of the contract relating to the sale of a home by s137C of the Act.
3 Those warranties, in summary, include that the construction was carried out in a proper and workmanlike manner, that all materials used were good and suitable for the purpose for which they were used and that the work was carried out in accordance with all laws and legal requirements.
4 The policy contained Policy Schedule Details which stated in part:
“Certificate in Respect of Insurance
Owner- Builder Work
A contract of insurance complying with the Ministerial Order for Domestic Building Insurance issued under Section 135 of the Building Act 1993 (Builders Home Warranty) has been issued by QBE Insurance (Australia) Limited ABN 78 003 191 035, in respect of the Domestic Building Work as described in the Schedule herein.
…
Subject to the Building Act 1993, and the Ministerial Order and the conditions of the insurance contract, cover will be provided to the Building Owner named in the domestic building contract and to the successors in title to the Building Owner.”
5 The Domestic Building Insurance Ministerial Order 2003, which stipulates requirements of domestic building insurance, provides in relevant parts:
PART 2—DOMESTIC BUILDING CONTRACTS
6.To which contracts does this Part apply?
This Part applies to a domestic building contract in which the contract price for the carrying out of domestic building work is more than $12,000 (an ‘insurable domestic building contract’).
...
PART 3—OWNER BUILDERS
18.To which contracts does this Part apply?
This Part applies to a contract of sale of a building (an ‘insurable contract of sale’) if—
(a) section 137B of the Building Act 1993 applies to that contract; and
(b) domestic building work was carried out on that home before the sale; and
(c) the value of that domestic building work exceeded $12 000 at the time the work was carried out.
19.Required Insurance
Before entering into an insurable contract of sale of a building, the owner builder must ensure that-
(a) a policy is issued that complies with this Order (except Part 2); and
...
20.Indemnity for loss
(1) The policy must indemnify the purchaser under a contract of sale in respect of loss or damage arising from a breach of any warranty implied into the contract by section 137C of the Building Act 1993.
(2) The policy may provide that the indemnity referred to in sub-clause (1) only applies if the owner builder (the ‘vendor’) dies, becomes insolvent or disappears.
(3) Despite sub-clause (1), the policy is not required to indemnify the purchaser in respect of a warranty that all materials used in the building work were new to the extent that any materials used were not new if—
(a)the condition report required by section 137B(2)(a) of the Building Act 1993 states that the materials were not new; or
(b)it was apparent from the nature of the relevant building work that the materials were not new.
...
22.To whom does the cover extend?
The required insurance cover in the policy must extend—
(a) to each person who becomes entitled to the benefit of any of the warranties referred to in clause 20(1); and
(b) to any person who is the successor in title to the purchaser; and
(c) if the domestic building work is carried out on land in a plan of subdivision containing common property, the body corporate for that land or a building on that land.
...
26.Policy to comply with Order
The policy must contain a provision to the effect that the policy is issued in compliance with this Order and if any term of the policy conflicts or is inconsistent with this Order then the policy must be read and be enforceable as if it complies with this Order.
27.Insurer to accept findings of Tribunal
The policy must contain a provision to the effect that if the insurer has notice of the relevant proceedings before the Tribunal, the insurer will accept as determinative of the issues any finding made by the Tribunal—
(a) as to whether any of the following events has occurred—
(i)the non-completion of domestic building work;
(ii)an event referred to in clause 8(2)(a) to (d);
(iii)a breach of warranty referred to in clause 20;
(iv)an event referred to in clause 9 or 21; and
(b) if so, as to the amount of loss or damage suffered by the building owner or purchaser, as the case may be, as a result of the event or events.
6 The defendant issued a “Domestic Construction Insurance Policy Owner Builders Victoria” to the owner-builder. The terms and conditions included:
Our agreement with you
This Policy is a legal contract between you and us. You pay us the premium, and we provide you with the cover you have chosen as set out in the Policy, during the period of insurance shown on your Policy Schedule or any renewal period.
The excesses set out in the section headed ‘How much we will pay?’ ‘Excess’ apply to all claims except where otherwise stated. The amount of any excess that applies to your Policy will be shown on your Policy Schedule.
The exclusions in the section(s) headed ‘What we don’t pay’ and conditions in the section headed ‘General Conditions’ apply to all types of cover.
...
Word or Term Meaning
You/your(a) any person entitled to the benefit of the statutory warranties in the sale contract and any successor in title to that person.
(b)if the work is carried out on a plan or subdivision containing common property, the body corporate for the land or the building on that land.
...
Owner builders warranty insurance
Owner builders warranty insurance protects the person who purchaser [sic] a house built by an owner builder and the subsequent homeowners. The policy covers loss or damage resulting from a breach of statutory warranty because of:
· Death; or
· Disappearance; or
· Insolvency
of the owner builder.
An owner builder takes out this insurance policy, but the beneficiary is the homeowner or subsequent homeowner.
The owner builder must provide an Owner Builders Warranty Certificate to the beneficiary when they sell the home. In addition, a copy of the Owner Builders Warranty Certificate will be provided to the owner builder and the local authority/council.
A copy of this policy wording is held by the owner builder and a copy is also provided to each homeowner with the Certificate.
...
General Conditions
Our rights and obligations
...
If we have notice of proceedings before the tribunal about the work, we will accept as determinative of the issues any finding made by the tribunal:
(a) as to whether any of the following events has occurred:
(i)the non-completion of the work;
(ii)loss or damage for the purposes of Primary cover of this policy;
(iii)an event referred to in Supplementary cover of this policy; and
(b) if so, as to the amount of the loss or damage suffered by you as a result of the matters mentioned in paragraph (a).
...
Conflict with the Order
This policy is intended to comply with the requirements set out under the Order. However, if this policy conflicts with, or is inconsistent with the Order, the policy must be read and enforceable as if it complies with the Order.”
7 The Tribunal referred to in the General Conditions of the policy is the Victorian Civil and Administrative Tribunal.
8 The plaintiffs commenced proceedings in VCAT against the owner-builder for defective work in building the home in breach of the warranties contained in the contract pursuant to s 137C of the Act.
9 On 2 March 2011, the plaintiffs put the defendant on notice that they had commenced proceedings in VCAT against the owner builder with respect to defective work at their property: see clause 27 of the Ministerial Order.
10 On 11 April 2012, VCAT made findings that the home was defective, that the owner-builder had breached the warranties, and that the owners had suffered loss and damage in the sum of $185,928. The reasons dealt with each of the claims made by the plaintiffs.
11 On 4 May 2012, the matter was relisted before VCAT and a further order made:
“1. Pursuant to s119 of the Victorian Civil and Administrative Tribunal Act 1998 the Tribunal’s orders of 11 April 2002 is amended by substituting $198,540 for $185,928.
2. Order the Respondents to pay the Applicants’ costs of this proceeding, including reserved costs, such costs if not agreed to be assessed by the Costs Court in accordance with the County Court Scale.”
No reasons were given for the making of order 1. Section 119 of the VCAT Act deals with correcting mistakes in orders.
12 On 7 July 2012 the plaintiffs registered the original VCAT order of $185,928 in this Court.
13 On 26 July 2012, the plaintiffs claimed the sum of $198,450 from the defendant under the indemnity contained in the insurance policy.
14 On 16 October 2012, the Federal Magistrates’ Court made a sequestration order against the owner builder and as a result he became bankrupt.
15 On 25 October 2012, the defendant wrote to the plaintiffs’ solicitors:
“[T]o confirm our decision regarding liability for your clients’ claim.”
16 The defendant’s letter set out a determination in respect of the plaintiff’s claim in respect of a number of items, stating those which were accepted and those which were not.
17 The letter referred to various policy exclusions and limitations, to which I will refer. On page 4, under the heading ‘Determination’, the letter stated:
“As a result of our determination of your clients’ claim, the indemnifiable loss is assessed as follows.”
18 Each of the items in the plaintiffs’ claim, which had been the subject of VCAT’s order, was then assessed, either for a specific sum or, in the case of the items that were not admitted, the sum of zero. Those items for which a zero assessment was made were “reconstruct step into garage”, “replacement of tile floors”, “stormwater system”, ‘install of stainless steel roofs” and “rectification of problems with the main roof”. The total amount assessed was $85,325.43.
19 The letter then stated:
“Please write to us to confirm your client agrees to our assessment of its loss and we will make immediate arrangement to forward terms of settlement.
If you disagree with our decision, you have the right to make an application to the Victorian Civil and Administrative Tribunal.”
20 The reference in the last sentence may have been to VCAT’s jurisdiction conferred by ss 59A to 62 of the Domestic Building Contracts Act 1995 to hear disputes concerning an insurance claim concerning domestic building work or an insurer’s decision on such a claim,[1] but no submission was made about the significance of that jurisdiction for the present application.
[1]see Part 5 Division 2 of the Domestic Building Contracts Act 1995
21 The plaintiffs commenced proceedings against the defendant on 29 November 2012 seeking a declaration that it was in breach of the insurance policy and an order for payment of the sum of $200,000 which was the maximum amount payable under the policy.
22 In deciding an application for summary judgment, I am required to determine whether the plaintiffs have shown that the defendant’s defence has no real prospect of success.[2] The power to award summary judgment is to be exercised sparingly and not unless it is clear that there is no real question to be tried: Karam v Palmone Shoes Pty Ltd.[3]
[2]Civil Procedure Act 2010 s 61
[3][2012] VSCA 97 at [28]
23 The plaintiffs’ claim for summary judgment was directed, in the first instance, to the amount of $85,325.43 contained in the defendant’s determination of 25 October 2012. The plaintiffs submitted that this was a sum that the defendant had admitted to be payable under the policy.
24 The defendant’s counsel submitted that it would be unsafe for the court to rely on this assessment, because of the anomaly that the original amount awarded by VCAT on 11 April 2012 of $185,928 had been varied and increased under the slip rule on 4 May 2012 to $198,450, without the Tribunal giving reasons to indicate which of the damages awarded for particular items had been varied. It was put that some of the amounts assessed in VCAT’s reasons and order of 11 April 2012, which the defendant relied on in reaching its determination of $85,325.43 might have been reduced by the order of 4 May 2012, even though the total sum awarded had increased.
25 I consider that in respect of the amounts assessed by the defendant in the letter of 25 October 2012, being the amount of $85,325.43, the defendant’s defence has no real prospects of success. The defendant has made the determination of 25 October 2012 in respect of the plaintiffs’ claim on the basis of the VCAT decision. It chose to rely on the detailed figures contained in the VCAT decision of 11 April 2012, knowing as its letter of 25 October 2012 makes plain, that VCAT had made the award of $198,450.
26 At no point since its letter of 25 October 2012, has the defendant suggested that it might need to vary its determination. The issue of the effect of the amended VCAT order matter was only raised in the submissions of the defendant’s counsel. The affidavit filed on behalf of the defendant by its solicitor, Mr S Smith, contained no suggestion that the defendant wished to vary the assessment contained in its letter of 25 October 2012. That affidavit referred to a threshold question as to “whether the Plaintiffs have any current entitlement under the policy issued under the Policy at all.” The affidavit then stated:
“Further, even if the Plaintiffs are found to have a current entitlement to indemnity under the policy issued by the Defendant, the quantum of that entitlement is disputed by the Defendant for the reasons set out in the Defendant’s letter to the Plaintiff’s solicitor dated 25 October 2012…”
27 That passage reinforces that the defendant is still relying on the assessment reached in the letter of 25 October 2012.
28 In those circumstances, it is clear that there is no real question to be tried and I should grant summary judgment to the plaintiffs in respect the defendant’s determination of $85,325.43 contained in its letter of 25 October 2012.
29 To do so is consistent with the operation of the domestic building insurance scheme set up by the Act. By that I mean, that the plaintiffs have brought proceedings in VCAT and given the defendant notice of them. The defendant has assessed the decision in the VCAT proceeding and determined which parts of the VCAT award of damages are, in its opinion, covered by exclusions in the policy. Having done that, it assessed the plaintiffs’ entitlement under the policy at $85,325.43. It seeks to rely on its assessment and determination. There is no reason why the plaintiffs should not recover that sum of $85,325.43 by the granting of summary judgment.
30 The Ministerial Order in clause 27 provides that the policy must contain a provision that where if it has notice of the proceedings, the insurer will accept as determinative of the issues, any finding by the Tribunal of any breach of warranty and the amount of any loss or damage suffered by the building owner as a result. The General Conditions of the insurance policy in the provisions set out above under the heading “Our rights and obligations” seek to give effect to the provisions of the Ministerial Order. VCAT made findings determinative of breaches of warranty and the loss or damage suffered as a result. The argument before me proceeded on the basis, which I adopt, that the decision and order of VCAT did not prevent the insurer relying on exclusions from the cover provided by the policy, provided that they were not inconsistent with the requirements of the Ministerial Order. However, self- evidently, the defendant did not rely on any exclusions, or limitations, in respect of the items which made up its determination of $85,325.43.
31 I therefore propose to award summary judgment to the plaintiff for the sum of $85,325.43.
The disputed items
32 The next aspect of the application is whether I should award summary judgment in respect of any of the three categories of disputed items. These were items which the defendant in the determination of 25 October 2012 decided came within exclusions in the policy. They were not included in the assessment of $85,325.43. I will consider them in turn.
The step and the tiles
33 The step and the tiles at the house were identified as items (e) and (g) in the VCAT decision and the defendant’s letter of 25 October 2012. VCAT allowed the cost of rectifying those items and included that cost in its award of damages. VCAT found that the owners were entitled to $351 for reconstructing the step from the garage into the house, which was too high.
34 VCAT assessed the sum of $20,001.50 for the replacement of tiles floors. Some of the tiles had lifted, creating excessive lippage.
35 The defendant relied on the policy requirement that the plaintiffs show that these defects had occurred within two years of the completion of the work. The defendant’s letter of 25 October 2012 stated:
“(b) Limitation on claims for non-structural items
The policy and Clause 12 of the relevant Ministerial Order provides that a policy will only indemnify your client for loss in respect of non-structural defects occurring within 2 years from the completion date (which we calculate to be 3 July 2010 given that the Occupancy Permit was issued on 3 July 2008).
According to the documents provided to us by your clients, we note the dates on which the items were identified all appear to occur after the date of 2 March 2011 being the date of our earliest contact with you, and post-dating the expiry of the non-structural period of cover by some 8 months.
We have determined that item (g) above relating to the replacement of ‘tile floors’ and item (e) relating to the ‘reconstruction of a step into the garage’, are both non-structural items and are therefore denied on the basis that they occurred out of time.”
36 The provision of the policy relied on states:
How long are you covered for?
Non-structural defects
This policy covers loss or damage arising from a non-structural defect occurring during the period commencing on the date of the sale contract and ending 2 years after the completion of the work.
37 The term “non-structural defect” is defined to mean:
“ a defect in the building other than a structural defect”.
38 The term “structural defect” is defined to mean:
“any defect in a structural element of a building that is attributable to defective design, defective or faulty workmanship or defective materials (or a combination of these) and that:
(a) results in, or is likely to result in the building or any part of the building being required by or under any law to be closed or prohibited from being used;
(b) prevents, or is likely to prevent, the continued practical use of the building or any part of the building;
(c) results in, or is likely to result in:
(i) the destruction of the building or any part of the building, or
(ii) physical damage to the building or any part of the building; or
(d) results in, or is likely to result in a threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part of the building.”
39 The plaintiffs argued that this exclusion conflicted with the Ministerial Order, and that the policy must be read as if it complied with the Order. They also argued that it was unlikely that these defects occurred outside two years from the completion date.
40 The determination of when defects occurred, or were apparent, usually occurs after a trial. It may be that the position with the step is more clear cut, as its position or size are unlikely to have altered after the completion date. However, I do not consider that the Court can determine when these defects occurred without hearing oral evidence.
41 Nor do I consider that the Court should determine on this summary judgment application whether the policy exclusion relied on conflicts with the Ministerial Order.
42 In respect of both these issues the plaintiffs have not proved that the defendant’s defence has no real prospect of success.
The plumbing items
43 The next items were called the plumbing items, which were the stormwater system, the installation of stainless steel roofs, and the rectification of problems with the main roof. These were given the identifying letters (i) and (j)(both second occurring) and (k). VCAT found that:
“ there are numerous defects to the roofs and plumbing in the property, set out in great detail in the report of Mr Green from the Plumbing Commission.” [17]
44 VCAT assessed the plaintiffs’ damages claims in respect of these items in the following sums: $10,976 for the stormwater system, $10,739 for installation of stainless steel roofs and $46,587 for rectification of problems with the main roof [23]. These amounts total $68,302.
45 The defendant relied on the exclusion in subparagraph (t) of the policy which states:
“(t) For claims insured under another policy of insurance issued under the Act.”
46 The defendant relied on the requirement that plumbers have an insurance policy and that in certain circumstances a party dealing with a plumber has a right to claim under the plumbing insurance policy in respect of defective plumbing work if the plumber did not make a claim. This requirement for insurance is contained in the Licensed Plumber General Insurance Order 2002. It provides that:
“10. Liability that must be covered in all cases
A plumber must have insurance that indemnifies him or her for-
(a) any liability to pay for the cost of rectifying any plumbing work required because of defects in the plumbing work;
(b) any trade practices liability (as defined in clause 15);
(c) any public liability (as defined in clause 16);
(d) any completed work liability (as defined in clause 17).
…
SCHEDULE 2- MANDATORY PROVISIONS
1. Purpose of this Schedule
This Schedule sets out the provisions that the policy under which the insurance is provided must contain.
…
9. Claimant may enforce policy direction in certain cases
We and you both agree-
(a) that a person who is entitled to claim against you in respect of any liability for which you are indemnified under this policy may enforce this policy directly against us for the person’s own benefit if-
(i) any event under clause 11 of the Ministerial Order occurs; or
(ii) you refuse to make a claim against us; or
(iii) there is an irretrievable breakdown of communication between you and us; and
(b) that for the purpose of that enforcement the person has the same rights and entitlements as you would have had under any legislation applicable to you; and
(c) that we will pay to that person the full amount of any liability for which you are indemnified under this policy despite any failure by you to pay any excess that you are required to pay.”
47 The reference to clause 11 of the Ministerial Order appears to be to the clause that provides for certain additional liability that must be covered for domestic plumbing work, including liability arising from certain consequential financial loss, or liability arising from non-completion of the plumbing work due to the plumber’s legal incapacity, disappearance, insolvency, the cancellation or suspension of their plumbing licence, or the early termination of the contract by the building owner as a result of the plumber’s wrongful failure or refusal to complete the plumbing work.
48 The material before me provided no basis for an argument that the plaintiffs might have a claim under a plumbing policy. No material was filed by the defendant to provide any basis for such a contention. The plumbing policy was not put in evidence.
49 While the plaintiff must establish its entitlement to summary judgment, where an insurer relies on an exclusion from the cover provided by the policy in opposition to that application, the Court needs to be able to conclude that there is a real question to decide about the applicability of the exclusion. The defendant pointed to the involvement of the Plumbing Commission in the VCAT proceedings – but that provides no basis for the defence on which it wishes to rely.
50 In addition the plaintiffs argued that the Domestic Building Insurance Ministerial Order does not permit exclusion of plumbing work and that the defendant’s argument modifies or limits what is required by the Ministerial Order. If the plaintiffs’ entitlement to summary judgment for the plumbing items depended on this point being decided in their favour, I would leave the that question to the trial for determination. But the plaintiffs’ claim does not depend upon a favourable determination of this issue. Rather it depends on whether the plaintiffs have established, on the material before the Court, that there is no real question to be tried about the availability of the exclusion as a ground of defence. In my opinion, the plaintiffs have done that.
51 I repeat what I have stated in paragraph 30. In addition, No argument was put that the defendant was not obligated to apply VCAT’s determination in respect of the plumbing items, if exclusion (t) was not applicable.
52 The plaintiffs have proved that the defendant’s defence in respect of the claim for the plumbing items has no real prospects of success. I propose to grant summary judgment in respect of them.
The loss of amenity damages
53 The final matter was what was referred to as the loss of amenity, an amount of $5,000 awarded in the VCAT decision. VCAT stated:
“In the present case, the Owners claim damages for having lived in a wet house for 21/2 years. That is a loss of amenity which is compensable. They will also face the inconvenience of having to move out while repairs are effected.” [30]
54 The defendant described this as consequential loss which was excluded under the policy of insurance. Exclusion (r) is:
“for consequential loss of any kind, including loss of rent or other income, loss of value, loss of opportunity, inconvenience or distress, unless expressly insured under this policy.”
55 Under the Domestic Building Insurance Ministerial Order cl 50(3)(vii), the policy can exclude cover for consequential loss, not otherwise covered by the Order.
56 The question of whether the loss of amenity, which was the subject of the VCAT award of damages, was consequential loss, rather than direct loss is a real question to be tried.
57 An award of general damages for breach of a building contract may include damages for loss of amenity occurring while a building is being rebuilt.[4] However, the definition of consequential loss in the policy exclusion is wide and includes “inconvenience”. In those circumstances there is a real question to be tried about the applicability of the exclusion. The plaintiffs have not established that the defence to this claim has no real prospect of success.
[4]See eg Willshee v Westcourt Ltd [2009] WASCA 87 at [79]
Conclusion
58 I award the plaintiffs summary judgment against the defendant in the total sum of $153,627.43, being the sum of $85,325.43 assessed in the defendant’s letter of 25 October 2012 and the plumbing items of $68,302.
59 I have refused summary judgment in respect of some amounts claimed by the plaintiffs. There were also some items, which are part of the plaintiffs’ claim in the proceeding, which were not the subject of submission and which I have not determined. I will therefore give directions for the further conduct of the proceeding.
60 I will hear the parties as to the appropriate orders to be made, including as to costs.
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