Globe Church Incorporated v Allianz Australia Insurance Ltd

[2019] NSWCA 27

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Globe Church Incorporated v Allianz Australia Insurance Ltd [2019] NSWCA 27
Hearing dates:	26 November 2018
Date of orders:	26 February 2019
Decision date:	26 February 2019
Before:	Bathurst CJ, Beazley P and Ward JA at [1]; Meagher JA at [216]; Leeming JA at [285]
Decision:	1.   The questions posed for separate determination should be answered as follows: (a)   The claim for damages in relation to the 2008 Policy for Property Damages accrued at the time of the property damage no later than 31 March 2008 and the claim for damages in relation to Additional Costs, business interruption and professional fees accrued no later than the end of September 2009. (b)   None. 2.   Proceedings as against the first defendant be dismissed with costs (save as to the costs of the applications for separate determination and the hearing in this Court). 3.   The plaintiff pay 50% of the aggregated costs of the defendants in respect of their applications for separate determination of the questions determined above and the hearing thereof in this Court, such costs to be calculated on the ordinary basis and apportioned as between the defendants in the proportion that each defendant’s own costs of the said applications and hearing bears to the total of the defendants’ aggregated costs thereof. 4.   Remit the matter to Davies J in the Common Law Division for directions as to the further conduct of the proceedings in that Division.
Catchwords:	INSURANCE — Claims — Property Damage – Limitation period – whether claim statute barred – interpretation of insurance policy – time at which insured’s cause of action for damages for breach of contract under an indemnity policy of property insurance arose – whether cause of action for damages arose at the time of the property damage – existence of an implied term requiring performance within a reasonable time
Legislation Cited:	Associations Incorporation Act 2009 (NSW) Corporations Act 2001 (Cth) Enterprise Act 2016 (UK), Part 5, ss 28-30 Evidence Act 1995 (NSW), s 191 Insurance Act 2015 (UK) Insurance Contracts Act 1984 (Cth)), ss 13, 54, 58 Limitation Act 1935 (WA), s 38(1)(v) Limitation Act 1969 (NSW), s 14(1) Marine Insurance Act 1906 (UK) The Saskatchewan Insurance Act, R SS 1978, C S-26 Uniform Civil Procedure Rules 2005 (NSW), rr 12.4, 28.2, 28.4
Cases Cited:	Alexander v Ajax Insurance Co Ltd [1956] VLR 436 Allianz Australia Insurance Ltd v Bluescope Steel Ltd (2014) 87 NSWLR 332; [2014] NSWCA 276 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Apostolos Konstantine Ventouris v Trevor Rex Mountain (The Italia Express (No 2)) [1992] 2 Lloyds Rep 281 Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6 Australian Casualty Co Ltd v Federico (1986) 160 CLR 513; [1986] HCA 32 Bankstown Football Club v CIC Insurance Ltd (Supreme Court (NSW), Cole J, 16 December 1993, unrep) Brescia Furniture Pty Ltd v QBE Insurance (Australia) Ltd [2007] NSWSC 598 British American Tobacco Australia Ltd v Eagle Star Reinsurance Co Ltd [2006] NSWCA 156 British Traders’ Insurance Co Ltd v Monson (1964) 111 CLR 86; [1964] HCA 24 Caledonia North Sea Limited v British Telecommunications Plc (The Piper Alpha) [2002] 1 Lloyd’s Rep 553 Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd’s Rep 541 Canning v Temby (1905) 3 CLR 419; [1905] HCA 45 Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 Carillion Construction Ltd v AIG Australia Ltd [2016] NSWSC 495; (2016) 19 ANZ Ins Cases 62-115 Carrick Furniture House Ltd v General Accident Fire and Life Assurance Corp Ltd (1978) SLT 65 Castellain v Preston (1883) 11 QBD 380 Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1984] 1 AC 226 CGU Insurance Ltd v Watson [2007] NSWCA 301 Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65 Charter Reinsurance Co Ltd v Fagan [1997] AC 313 CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 Anz Ins Cas 61-232 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2 CIC Insurance Ltd v Bankstown Football Club Ltd [No 2] [1995] NSWCA 76 Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159; [2000] WASCA 415 Cole’s Case (1588) Cro Eliz 97; 78 ER 356 Collinge v Heywood (1839) 9 Ad & E 634; 112 ER 1352 Collins v Wallis (1826) 11 Moore CP 248 Commonwealth v Vero Insurance Ltd (2013) 306 ALR 182; [2013] FCAFC 152 Cutler v Southern (1667) 1 Wms Saund 113; 85 ER 123 Dawson v Wrench (1849) 3 Ex 359; 154 ER 883 Do Carmo v Ford Excavations Pty Ltd 154 CLR 234; [1984] HCA 17 Dueck Chevrolet Cadillac Hummer Ltd v Insurance Corp of British Columbia [2012] BCCA 493 Duffield v Scott (1789) 3 TR 374; 100 ER 628 Edwards v Kumarasamy [2016] AC 1334 F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 Fraunce’s Case (1609) 8 Co Rep 89b; 77 ER 609 Gable v Moss (1792) 1 Bulst 44; 80 ER 747 Gaelic Assignments Limited v Sharp (2001) SLT 914 Globe Church Incorporated v Allianz Australia Insurance Ltd [2018] NSWSC 1367 Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206; [1981] HCA 9 Harrison v Shepherd Homes [2010] EWHC 1398 Howell v Young (1826) 5 B & C 259 Hunter v Stronghold Insurance (Aust) Ltd (Supreme Court of Victoria, 18 January 1991, unreported) Hyde v United States 225 US 347 (1912) Irving v Manning (1847) 1 HLC 287 Jervis v Harris [1996] Ch 195 Johnson v The Salvage Association (1887) 29 QBD 458 King v Atkins (1714) 1 Sid 442; 82 ER 1206 Kone Elevators Pty Ltd v Popa [2006] VSCA 26 Larking v Great Western (Nepean) Gravel Ltd (in liq) (1940) 64 CLR 221; [1940] HCA 37 Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW) 215 Law v London Indisputable Life Policy Co (1855) 1 K&J 223; 69 ER 439 Lazarus v ICAC (2017) 94 NSWLR 36; [2017] NSWCA 37 Letang v Cooper [1965] 1 QB 232 Luckie v Bushby (1853) 13 CB Rep 864; 138 ER 1443 MacIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332 MacIntosh v Dalwood (No 4) (1930) 30 SR (NSW) 415 Marcus Arnold Lehmann v Insurance Company of North America [2000] HKCFI 348 Mandrake Holdings Ltd v Countrywide Assured Group Ltd [2005] EWCA Civ 638 Maxwell v Highway Hauliers Pty Ltd (2013) 45 WAR 297; [2013] WASCA 115 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 Medical Defence Union Ltd v Department of Trade [1979] 2 WLR 686 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Newen v McNichol (1938) 38 SR (NSW) 609 Packer v Cigna Insurance Asia Pacific Ltd (2000) 23 SR (WA) 191; [2000] WADC 3 Parkin v Thorold (1851) 2 Sim NS 1; 61 ER 239 Paterson v Pongrass Group Operations Pty Ltd [2011] NSWSC 1588 Pellas v Neptune Marine Insurance Co (1879) 5 CPD 34 Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 President of India v Lips Maritime Corp [1988] AC 395 Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 Read v Brown (1888) 22 QBD 128 Scott Lithgow Ltd v Secretary of State for Defence (1989) SC (HL) 9 Seele Australia GmbH & Co KG v Tokio Marine Europe Ins Ltd (No 3) [2010] Lloyd’s Rep IR 490 Sheldon v Beath [1993] Aust Torts Reports 81-209 Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618; [1935] HCA 56 Sprung v Royal Ins Co (UK) Ltd [1999] Lloyd’s Rep IR 111 Stomp Pork Farm Ltd v Lombard General Insurance Company of Canada [2008] SKQB 405 The Commonwealth v Vero Insurance Ltd (2012) 291 ALR 563; [2012] FCA 826 The Sadlers Company v Badcock (1743) 2 Atk 554; 26 ER 733 Tillotson v ANZ Life Assurance Co Ltd (1997) 9 ANZ Ins Cas 61,378 Total Oil Products (Australia) Pty Ltd v Robinson [1970] 1 NSWR 701 Towry Law plc v Chubb Insurance Co of Europe SA [2008] NSWSC 1352 Transthene Packaging Co Ltd v Royal Insurance (UK) Ltd [1996] LRLR 32 Tucker v Unknown Person [2015] NLCA 212 Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merewestone) [2017] AC 1 Victorian WorkCover v Esso Australia Ltd (2001) 207 CLR 520; [2001] HCA 53 Virk v Gan Life Holdings Plc [2000] Lloyd’s Rep IR 159 Vyse v Wakefield (1840) 6 M & W 442; 151 ER 485 Waters v Earl of Thanet (1842) 2 QB 757 Wilkie v Gordian Runoff Limited (2005) 221 CLR 522; [2005] HCA 17 Williams Pickersgill & Sons Ltd v London and Provincial Marine and General Insurance Co Ltd [1912] 3 KB 614 Yeoman Credit Ltd v Latter [1961] 1 WLR 828 York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11; [1949] HCA 23 Zaccardi v Caunt [2008] NSWCA 202
Texts Cited:	ALRC Report No. 20 on Insurance Contracts J Birds et al, MacGillivray on Insurance Law (13th edn, 2015; 14th edn, 2018, Sweet & Maxwell) Brown, Menzies, Cassels, Brock and Blackwell, Insurance Law in Canada (3rd edn) Bullen and Leake, Precedents of Pleadings in Personal Actions in the Superior Courts of Common Law (3rd ed, 1868, Stevens and Sons) N Campbell, “Monetary remedies for wrongful declinatures of insurance claims” (2004) 15 Insurance Law Journal 185 Chitty on Contracts (33rd ed, 2018, Thomson Reuters) M Clarke, “Nature of Insurer’s Liability” [1992] LMCLQ 287 M Clarke, The Law of Insurance Contracts (2nd, 4th and 6th edns, Informa) Couch on Insurance (2d) (1983, Vol 15) Courtney, Contractual Indemnities (2014, Hart Publishing) Edelman, McGregor on Damages (20th ed, 2018 Thomson Reuters) Enright and Jess, Professional Indemnity Insurance Law (2nd edn, 2007) Levine and Haar, Construction Insurance and UK Construction Contracts (2nd edn, 2013) H McGregor, McGregor on Damages (Third Supplement to Eighteenth Edition, 2012, Sweet & Maxwell) R Merkin, Colinvaux’s Law of Insurance (11th edn, 2016, Sweet & Maxwell) Park, A System of the Law of Marine Insurances (1842, Saunders and Bennings) Law Commission and Scottish Law Commission, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (Law Com No 353/Scot Law Com No 238, July 2014) Reed, Construction All Risks Insurance (2014) F D Rose, Marine Insurance Law and Practice (2004, Informa) Tidd, The Practice of the Courts of King’s Bench and Common Pleas (9th ed, 1828, Butterworth & Son) Welford and Otter-Barry, The Law Relating to Fire Insurance (3rd ed, 1932, Butterworths) William R Vance and Buist M Anderson, Handbook on the Law of Insurance (3rd ed, 1951, West Publishing Co)
Category:	Principal judgment
Parties:	Globe Church Incorporated (Plaintiff) Allianz Australia Insurance Ltd (First Defendant) Ansvar Insurance Ltd (Second Defendant)
Representation:	Counsel: S Docker with A Gandar (Plaintiff) P Herzfeld (First Defendant) GA Sirtes SC with JL Clark (Second Defendant)   Solicitors: Conditsis Lawyers (Plaintiff) Wotton & Kearney (First Defendant) Curwoods Lawyers (Second Defendant)
File Number(s):	2018/00273702
Publication restriction:	Nil

HEADNOTE

[This Headnote is not to be read as part of the judgment]

This matter was removed to the Court of Appeal by order of Davies J in the Common Law Division (Globe Church Incorporated v Allianz Australia Insurance Ltd [2018] NSWSC 1367) pursuant to rr 1.21 and 28.2 of the Uniform Civil Procedure Rules 2005 (NSW), for the determination of certain questions (as outlined below) prior to any other questions in the proceedings.

The underlying dispute relates to a claim by the plaintiff (Globe Church Incorporated) against its insurers (the first defendant, Allianz Australia Insurance Ltd, and the second defendant, Ansvar Insurance Ltd) under an Industrial Special Risks Insurance Policy (the 2008 Policy) arising out of alleged property damage occurring to a church building and its contents, in Gateshead, New South Wales. Under the 2008 Policy, the first defendant insured the plaintiff as to 60% of the risk and the second defendant as to 40% of the risk. The relevant property damage (the undermining of pier footings to the church hall and the church car park from rainwater and flooding) was alleged to have occurred between 8 June 2007 and 31 March 2008.

The plaintiff first made a claim under the 2008 Policy in respect of the alleged damage in 2009. Liability was denied by both defendants in 2011 and the plaintiff commenced proceedings in late 2016. The plaintiff alleged that the defendants’ denials of indemnity (or failure to indemnify) were in breach of the 2008 Policy and that it had suffered loss and damage by reason of those breaches.

The Court of Appeal was asked to determine the following separate questions:

1. In respect of any of the alleged property damage that occurred between 8 June 2007 and 31 March 2008, which (if any) of the plaintiff’s claims in these proceedings in respect of the 2008 Policy accrued at the time of alleged damage, for the purposes of s 14(1) of the Limitation Act 1969 (NSW)?

2. In light of the answer to (a), which (if any) of the plaintiff’s claims in these proceedings in respect of the 2008 Policy for that damage are maintainable?

The plaintiff argued that a distinction should be made between the promise of an insurer to indemnify and the breach of that promise; and that only when the insurer failed to do what was required of it could a cause of action for damages for breach of contract accrue. As a result, the plaintiff argued that its claims were not statute barred because the time in which to bring the claims did not begin to run until the insurer breached its promise to indemnify by denying the claims (in 2011).

The defendants accepted that whether there was a breach of contract on the happening of the alleged damage depended on whether their promise to “indemnify” under the 2008 Policy was to do so the instant that damage occurred. The defendants argued that, absent any contrary terms in the 2008 Policy, a cause of action for breach of contract accrued immediately upon the happening of that property damage, at which time the insurer’s obligation to indemnify arose and was breached, and hence the claims made under the 2008 Policy were statute-barred.

Held: Bathurst CJ, Beazley P and Ward JA (Meagher JA and Leeming JA dissenting) that the 2008 Policy claims were statute-barred and the questions for separate determination should be answered accordingly.

1. Bathurst CJ, Beazley P and Ward JA at [122], [127] and [210]: the cause of action for damages for failure to hold the plaintiff harmless against loss accrued on the happening of the insured event. The fact that the amount payable could not be calculated at the time the obligation to indemnify arose did not mean that the cause of action had not accrued.

2. Bathurst CJ, Beazley P and Ward JA at [134] and [209]: the Court of Appeal in CGU v Watson did not endorse the relevant dicta of Giles J in Penrith City Council as to the timing of the accrual of the cause of action for breach of a contract of indemnity insurance. Intermediate appellate authority (Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159; [2000] WASCA 415; Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6) is not plainly wrong and should be followed. It is important that there be consistency in the construction of indemnity policies of insurance in Australia.

3. Bathurst CJ, Beazley P and Ward JA (obiter) at [203]: the position as to contracts of indemnity insurance in Australia is consistent with the approach adopted in the United Kingdom.

4. Meagher JA (dissenting) (Leeming JA agreeing, with further remarks): on the happening of any insured damage the insurers were not in breach of their obligation to indemnify:

1. The insurers’ promise was to indemnify the insured by paying an amount of money ascertained in accordance with the Basis of Settlement provisions in the policy; in other words to make good the insured’s loss after it had occurred and by payment. In the absence of express provision, that obligation was to be discharged within a reasonable time. The construction contended for by the insurers is not supported by the language of the policy considered in light of its commercial context and purpose: at [236]-[258].

2. The construction contended for by the insurers is contrary to the meaning given to substantially the same language of the insuring clause in CICInsurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2, the content and time for performance of the insurer’s indemnity obligation being directly in issue in that case: at [236], [266]-[272].

3. Neither of the intermediate appellate court decisions relied on by the insurers addresses the construction of a promise to indemnify in a policy of property insurance, or an insuring clause in the same or similar language to that in the 2008 policy. Cigna v Packer concerned a personal accident policy and accordingly not one providing for an indemnity. Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd concerned the meaning of the insuring clause in a policy of excess of loss reinsurance: at [236], [273]-[275].

Judgment

1. BATHURST CJ, BEAZLEY P and WARD JA: For the reasons published on 6 September 2018 in proceedings in the Common Law Division (Globe Church Incorporated v Allianz Australia Insurance Ltd [2018] NSWSC 1367), Davies J ordered, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), that the questions set out at [5] below be determined separately from and prior to any other questions in the proceedings and, pursuant to r 1.21 of the UCPR, removed the proceedings into this Court for determination of the separate questions.

2. The underlying dispute relates to claims by the plaintiff (Globe Church Incorporated) against two separate insurers (the first defendant, Allianz Australia Insurance Ltd, and the second defendant, Ansvar Insurance Ltd) under an Industrial Special Risks Insurance Policy (the 2008 Policy) arising out of alleged property damage occurring to a church building in Gateshead, NSW and its contents. The alleged damage (undermining of the pier footings to the church hall and the car park said to have resulted from rainwater and flooding) is alleged first to have occurred between 8 June 2007 and 31 March 2008, with further damage of a similar type alleged to have occurred in the periods from 31 March 2008 to 31 March 2009, 31 March 2009 to 31 March 2010, and 31 March 2010 to 31 March 2013, respectively.

3. The insurers under the 2008 Policy were the first defendant (Allianz) as to 60% of the risk and the second defendant (Ansvar) as to 40% of the risk. For subsequent renewals, however, Ansvar was the sole insurer. Thus no claim is made against Allianz for damage occurring after 31 March 2008 and, if the separate questions are determined in the manner for which it contends, the proceedings against it should be dismissed.

4. Globe Church first made a claim under the 2008 Policy in respect of the alleged damage on 29 September 2009. Liability was denied by Ansvar on 5 April 2011 and by Allianz on 30 September 2011. Globe Church did not, however, commence proceedings until November 2016. Its statement of claim was filed on 4 November 2016. Hence it is accepted that the relevant date for limitations purposes is November 2010. In these proceedings, Globe Church alleges that the respective defendants’ denials of indemnity (or failure to indemnify) were in breach of the 2008 Policy and that it has suffered loss and damage by reason of those breaches.

5. The questions posed for separate determination are as follows:

(a) In respect of any of the alleged damage to the Properties that occurred between 8 June 2007 and 31 March 2008, which (if any) of the plaintiff’s claims in these proceedings in respect of the 2008 Policy accrued at the time of alleged damage, for the purposes of s 14(1) of the Limitation Act 1969 (NSW)?

(b)   In light of the answer to (a), which (if any) of the plaintiff’s claims in these proceedings in respect of the 2008 Policy for that damage are maintainable?

6. The questions are to be answered on the basis of agreed facts (see s 191 of the Evidence Act 1995 (NSW)). In the course of exchange of written submissions on the separate questions an amended set of facts was agreed between the parties. Exhibit A in these proceedings contains the Amended Agreed Facts. It consists of a statement of the Amended Agreed Facts together with the annexures thereto (being the 2008 Policy and the parties’ pleadings in the Common Law Division proceedings).

7. Self-evidently, the issue to which the separate questions are directed is as to which, if any, of Globe Church’s claims on the 2008 Policy is or are statute barred. Though Ansvar accepts that the separate questions are confined to the 2008 Policy and to damage allegedly incurred between 8 June 2007 and 31 March 2008, it nevertheless contends that the determination of those questions will substantively determine whether Globe Church’s causes of action against it in respect of the 2009 Policy and 2010 Policy are maintainable, referring to what was said by Davies J at [20(a)]. However, it does not suggest that, if the answers to the separate questions are those for which it contends, the whole of the proceedings against it should be dismissed (and it is not appropriate in those circumstances here to go beyond the determination of the separate questions as confined to the 2008 Policy).

8. Allianz and Ansvar contend that all of the claims under the 2008 Policy are statute-barred. Globe Church, not surprisingly, contends for the opposite conclusion.

9. On the defendants’ construction of the 2008 Policy, the separate questions raise for consideration the correctness of authority both in England and at intermediate appellate level in a number of Australian jurisdictions (other than New South Wales) as to the time at which an insured’s cause of action for damages for breach of contract under an indemnity policy of property insurance accrues and a seeming conflict between that line of authority and first instance decisions of the Supreme Court of New South Wales (Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 (Penrith City Council), Giles J, as his Honour then was, and CarillionConstruction Ltd v AIG Australia LtdConstruction Ltd [2016] NSWSC 495; (2016) 19 ANZ Ins Cases 62-115 (Carillion), Stevenson J), including the extent to which observations made by Giles J in Penrith City Council were endorsed by this Court in CGU Insurance Ltd v Watson [2007] NSWCA 301 (CGU v Watson).

10. The defendants maintain that, both as a matter of principle and by reference to authority which should be followed by this Court (being, they say, intermediate appellate authority that is not plainly wrong), the time at which Globe Church’s causes of action for damages under the indemnity policy of insurance in this case arose was the time of the property damage (and, in the case of the claim for business interruption and professional fees, the time at which that first occurred). Hence, the defendants say that the present claims against them under the 2008 Policy are not maintainable since the property damage occurred more than six years before the commencement of the proceedings and it is an agreed fact that the business interruption loss and professional fees began to be incurred by the end of September 2009, also more than six years before the commencement of the proceedings.

11. Globe Church submits that it is not necessary to determine the correctness of the propositions advanced by Giles J in CGU v Watson; rather, that, as a matter of construction of the 2008 Policy, its causes for action for damages for breach of contract arose when the respective insurers denied indemnity (or, as put later in Globe Church’s submissions, on the lapse of a reasonable time to perform the contractual promise of indemnity) – not when the obligation to indemnify arose on the happening of the property damage itself; nor, so far as the additional loss/business interruption claims are concerned, when such loss was first incurred.

12. The matter was referred to this Court by Davies J not by reason of the conflicting intermediate appellate authorities in this country on the issues in dispute, but because the focus of submissions before his Honour by Allianz was the extent to which this Court in CGU v Watson endorsed what was said by Giles J in Penrith City Council (at 571F-G) to the effect that there will be no breach of contract until the insurer has been required to pay, or do some other act in performance of its promise, and has failed or refused to do so. Davies J considered that clarification was needed at an appellate level of the principle or principles referred to by Giles J in Penrith City Council, noting that if Allianz were to argue that CGU v Watson was wrongly decided, such an argument could only be put to this Court (see at [49]). As it transpired, the argument put for the defendants in this Court was that Giles J’s observations in Penrith City Council were obiter and were not endorsed in CGU v Watson; but that if that were not to be accepted, then CGU v Watson was wrongly decided and should not be followed on this issue.

13. It is relevant to note at the outset that Davies J ordered that costs of the respective notices of motion filed by the defendants (seeking separate determination) be costs in the determination of the separate questions provided that Globe Church is not to be liable for more than one set of the defendants’ costs (order 3).

Background

14. The background to the present dispute (briefly adverted to in the above introduction) may be summarised as follows, largely by reference to the Amended Agreed Facts.

Parties and Properties

15. Globe Church is an association incorporated under the Associations Incorporation Act 2009 (NSW). Allianz and Ansvar are both corporations registered under the Corporations Act 2001 (Cth) (see [2] of the Amended Agreed Facts).

16. Since at least 1 January 2007, Globe Church has operated as the Eastlakes Christian Life Centre from a location in Gateshead, New South Wales (two parcels of land referred to as the Properties). The registered proprietor of the Properties is the Assemblies of God New South Wales Ltd (AOG). AOG is the trustee of a trust established by deed dated 28 April 2004, under which Globe Church is the beneficiary. Globe Church uses a church, church hall and car park constructed on the Properties (see [3] of the Amended Agreed Facts).

17. Pursuant to the terms of the trust, Globe Church has an equitable interest in the Properties; is legally responsible for the Properties; and has agreed to keep the Properties insured (see [4](a)-(c) of the Amended Agreed Facts).

The 2008 Policy

18. Globe Church is the insured under the 2008 Policy, the relevant terms of which are set out in more detail in due course (see at [35]-[51] below).

19. Allianz (as to 60% of the risk) and Ansvar (as to 40% of the risk) is each an insurer on the 2008 Policy (see [5] of the Amended Agreed Facts). The period of cover specified on the 2008 Policy was from 31 March 2007 to 31 March 2008 at 4pm (cl 1.6).

20. Pursuant to cl 2 of the Policy Wording, the Insurers agreed to “indemnify the Insured against Damage occurring to Property Insured during the Period of Insurance” and to provide the additional cover referred to in cl 3 up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule, but subject to cll 2.1-2.7 (see [6] of the Amended Agreed Facts). The Properties form part of the “Property Insured” as defined in cl 1.3 of the Policy Wording (see [7] of the Amended Agreed Facts).

21. The “Period of Insurance” is defined in cl 1.6 of the Policy Wording to mean the period referred to in the Schedule (which, as already noted, was to expire on 31 March 2008 at 4pm) “or any further period for which renewal has been agreed”. For the five years following 31 March 2008, Globe Church was insured pursuant to policies on which Ansvar was the sole insurer (and hence Allianz was not on risk for any further period after 31 March 2008). There was no period for which renewal was agreed by Allianz for the purposes of cl 1.6 (see [9] of the Amended Agreed Facts).

22. The 2008 Policy does not contain a choice of law clause. The governing law of the 2008 Policy is that of New South Wales, as the law with the closest and most real connection to the 2008 Policy (see [10] of the Amended Agreed Facts).

Alleged Damage

23. Globe Church has alleged (at [10] of the further amended statement of claim) that between 8 June 2007 and 31 March 2008 certain damage occurred to the Properties. The defendants deny or do not admit that the damage occurred as alleged. However, the defendants accept that, to the extent that any such damage occurred during the “Period of Insurance” as defined in the 2008 Policy, it constituted “Damage to the Property Insured” within the meaning of the 2008 Policy (see [11]-[13] of the Amended Agreed Facts).

24. At [13] of the further amended statement of claim, Globe Church alleges that, as a result of the Damage to the Property Insured, it: incurred additional costs; suffered loss of income resulting from the interruption of or interference with the Business; and incurred professional fees for the preparation of its claim. At [18]-[19] of the further amended statement of claim, Globe Church alleges that it suffered loss and damage from the defendants’ alleged breaches of the 2008 Policy, being their refusal or failure to indemnify for such costs, loss and fees. Globe Church further alleges that additional costs, loss resulting from the interruption of or interference with the Business, and professional fees for the preparation of its claim each began to be incurred by the end of September 2009 and that they continued, after 4 November 2010 (the relevant date for limitation purposes) (see [13A] and [13B] of the Amended Agreed Facts).

Proceedings

25. As noted earlier, Globe Church first made claims on the defendants in respect of the alleged damage on 29 September 2009 and indemnity was denied by each of the defendants (on 5 April 2011 and 30 September 2011, respectively). Globe Church alleges, and the defendants respectively deny, that the said denials of indemnity constituted a breach of the 2008 Policy (see [14]-[18] of the Amended Agreed Facts).

26. Proceedings were commenced in the Common Law Division on 4 November 2016. In those proceedings, Globe Church claims, inter alia, a declaration of breach of contract for the denials of the 2008 Policy, specific performance of the 2008 Policy and, further or in the alternative, damages for breach of the 2008 Policy. The defendants allege, and Globe Church denies, that Globe Church’s causes of action against them in respect of the 2008 Policy are barred by s 14(1) of the Limitation Act 1969 (NSW) (see [19]-[21] of the Amended Agreed Facts). Globe Church accepts that Allianz cannot be liable for damage occurring after 31 March 2008.

27. Pausing here, it may be noted that the alleged breaches of the 2008 Policy are limited in the pleading to the defendants’ separate denials of indemnity (see [15], [17] of the further amended statement of claim) occurring on 5 April and 30 September 2011, respectively (referred to at [18]-[19] as being the defendants’ refusal “or failure” to indemnify for the additional costs, loss and fees there claimed to have been suffered). What is not alleged is that the defendants committed separate or ongoing breaches of the 2008 Policy by failing to comply with continuing obligations to indemnify, for which separate causes of action for damages for breach had arisen. Nor is there any allegation that it was an implied term of the 2008 Policy that performance of the indemnity obligations (payment of the amount of the indemnity calculated in accordance with the basis of settlement clauses) be made within a reasonable time of the occurrence of the indemnified event (or the making of a claim under the policy).

28. The loss and damage suffered because of the refusal or failure to indemnify are pleaded as being the amounts for which the defendants should have indemnified Globe Church under the 2008 Policy “plus loss and damages suffered because of [the defendants’] refusal or failure to indemnify” (see [18] and [19], respectively, of the further amended statement of claim); and, as particularised, they include loss of income from hiring out the church hall and reduced offertory contributions as well as professional fees for the preparation of Globe Church’s claim.

Summary of the parties’ positions as to the appropriate answers to the separate questions

29. Allianz submits (see T 33.22-29) that the questions for determination should be answered as follows:

(a)   The claim for damages in relation to the 2008 Policy for Property Damages and Additional Costs accrued at the time of the property damage no later than 31 March 2008 and the claim for damages in relation to business interruption and professional fees accrued no later than the end of September 2009.

(b)   None.

30. Ansvar similarly (though not expressed by reference to the particular questions) contends that the answers to the separate questions are:

(a)   the plaintiff’s damages claims for breach and specific performance of the policies accrued at the time of the alleged damage;

(b)   the claims for damages and specific performance are not maintainable pursuant to the Limitation Act;

(c)   further, as a consequence of the claims for damages not being maintainable, the claims for specific performance are not available and the declaratory relief sought is futile.

31. Globe Church contends that the answers to the separate questions are:

(a)   None.

(b)   None have [sic] been shown to be time barred by statute or otherwise.

32. As to the claims for specific performance and declaratory relief, in its written submissions, Globe Church acknowledges that if there has been a breach of the 2008 Policy and damage has been suffered, then specific performance would not be available because damages will be an adequate remedy and it makes clear that its claims for declaratory relief are “surplus” to the claims for damages for breach (because, if there were breaches and damage suffered as a result, it will not be necessary for declarations to be made). Hence, there is no need for the purpose of answering the questions posed for separate determination to consider the separate arguments raised by the defendants as to why the claims for specific performance and declaratory relief are not maintainable.

33. For completeness, however, Globe Church says that, to the extent that the defendants have not yet failed to fulfil their obligations under the 2008 Policy (giving by way of example the situation where a reasonable time has not yet elapsed for payment of additional costs and ongoing business losses), then a claims for declaratory relief and/or for specific performance would not yet be time barred (because there would not yet be a breach). It is not necessary to deal with this proposition (with which the defendants do not cavil) as it ultimately does not here arise.

Relevant Policy Terms

34. At this point it is convenient to set out the relevant policy terms, noting that the 2008 Policy evidences two contracts: one between Globe Church and Allianz for 60% of the risk; and one between Globe Church and Ansvar for 40% of the risk (see Towry Law plc v Chubb Insurance Co of Europe SA [2008] NSWSC 1352 at [235]-[236] per McDougall J), but that the terms of the two contracts are relevantly identical.

35. Section 1 of the 2008 Policy, appearing after the general definitions section (cl 1), is headed “Property Damage”. Section 2 of the 2008 Policy (which nevertheless contains some clauses applying also to section 1) is headed “Consequential Loss of Profits Insurance”.

36. The extent of cover for Property Damage is set out in cl 2, which, relevantly, provides that:

Provided the Insured has paid or agreed to pay the premium, the Insurer will indemnify the Insured against Damage occurring to Property Insured during the Period of Insurance and shall provide the additional cover referred to in Clause 3 up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule, but subject to:

…

2.2   the Limit(s) and Sub-Limit(s) referred to in the Schedule;

2.3   the amount of the indemnity being calculated in accordance with the Basis of Settlement Clause 4;

…

2.6   the application of any Deductible referred to in the Policy Wording and the Schedule; and

2.7   the Conditions set out in Clauses 7 and 14.

37. Capitalised terms are as defined in cl 1. Relevantly, cl 1 includes the following definitions:

1.8   THE LIMIT OF LIABILITY is the maximum amount payable by the Insurer for any one loss or series of losses suffered by the Insured arising out of any one original source or cause at any one Situation, subject to any Sub-Limits of Liability and the application of any Deductible. …

…

1.10   DEDUCTIBLE is the first amount of each claim which is payable by the Insured as stated in the Schedule. Should more than one Deductible apply under this Policy for any claim or series of claims arising from the one original source or cause, such Deductibles shall not be aggregated and the highest single level of Deductible only shall apply.

38. Clause 3, headed “Additional Cover”, to which reference was made in cl 2 as set out at [36] above, relevantly provides that:

3.1   If Damage to Property Insured occurs in circumstances giving rise to Indemnity under Section 1 of this Policy, the Insurer will also pay the following additional costs where they are necessarily and reasonably incurred in respect of:

3.1.1   architects’, surveyors’, consulting engineers’, legal and other fees and clerks of works salaries for estimates, plans, specifications, quantities, tenders and supervision necessarily incurred as a result of any such Damage, but not costs, fees or other expenses for preparing any claim made under Section 1 of this Policy;

3.1.2   any fee, contribution or other impost payable to any government, local government or other statutory authority necessarily incurred by the Insured because payment of such fee, contribution or impost is a condition precedent to the obtaining of consent to repair or replace any buildings insured under this Section 1, provided that the Insurer shall not be liable for payment of any fine or penalty imposed by any such authorities;

3.1.3   the temporary protection and safety of Property Insured pending repair or replacement as a result of Damage;

…

3.2   The Insurer will also pay the following additional costs which are necessarily and reasonably incurred:

…

39. Clause 4, headed “Basis of Settlement”, contains the following definitions of “Reinstatement Value” and “Indemnity Value”:

4.1   REINSTATEMENT VALUE is the cost necessary to replace, repair or rebuild the Property Insured to a condition substantially the same as but not better or more extensive than its condition when new.

4.2   INDEMNITY VALUE is the cost necessary to replace, repair or rebuild the Property Insured to a condition substantially the same as but not better or more extensive than its condition at the time that the Damage occurred taking into consideration age, condition and remaining useful life.

40. Pursuant to cl 4.3, the Basis of Settlement on buildings, machinery, plant and all other property and contents other than those specified in cll 4.14-4.24 was specified as the Reinstatement Value. For the specific items of property referred to in cll 4.14-4.24, the Basis of Settlement was to be as there set out.

41. Clauses 4.4.1-4.4.7 contain reinstatement provisions applying to buildings, machinery and all other property other than the property referred to in cll 4.14-4.24. They provide as follows:

4.4.1   The replacement, repair or rebuilding may be carried out upon any other site(s) and in any manner suitable to the requirements of the Insured, but subject to the liability of the Insurer not being thereby increased.

4.4.2   Such work must be commenced and carried out with reasonable despatch, failing which the Insurer shall not be liable to make any payment greater than the INDEMNITY VALUE.

4.4.3   Where any Property Insured is damaged in part only, the liability of the Insurer shall not exceed the sum representing the cost which the Insurer could have been called upon to pay by way of REINSTATEMENT VALUE if such property had been totally destroyed.

4.4.4   The Insurer shall not be liable to make any payment beyond the INDEMNITY VALUE of the Property Insured until a sum equal to the REINSTATEMENT VALUE has actually been incurred by the Insured in the replacement, repair or rebuilding of the property, provided that where the Insured repairs or rebuilds any Damaged Property Insured at a cost which is less than the cost of reinstatement but greater than the value of such property at the time of the Damage, then the cost so incurred shall be deemed to be the cost of reinstatement.

4.4.5   Notwithstanding anything contained in clauses 4.1 to 4.3 and provisions 4.4.1 to 4.4.4 to the contrary, the Insured may elect to reinstate destroyed property with dissimilar property whether or not to be used for a similar purpose as the destroyed property, in which case the Insurer shall pay the lesser of:

1.   the cost of the dissimilar property, or

2.   an amount equal to the replacement cost which would have been payable if the destroyed property had been reinstated by similar property in a condition equal to but not better or more extensive than its condition when new.

4.4.6   Notwithstanding anything contained in clauses 4.1 to 4.3 and provisions 4.4.1 to 4.4.4 to the contrary the Insured may elect to purchase an existing building or buildings instead of replacing a building or buildings destroyed, in which case such replacements) [sic] shall be deemed to constitute “Reinstatement Value” subject to the Liability of the Insurer not being increased. If both the total replacement value and the total volume (measured over the roof and external walls) of the buildings) purchased are less than both the total replacement value and the total volume (measured over the roof and external walls) of the buildings) destroyed, then the total amount recoverable shall include, in respect of that proportion of the total building volume which is not replaced, an additional amount equal to but not exceeding the equivalent proportion of the Indemnity Value.

4.4.7   If the Insured shall, after obtaining the consent of the Insurer, reinstate Damaged Property Insured, the Insurer shall pay the cost of such reinstatement including the value of labour and other overhead charges expended thereon together with a reasonable margin for profit. The liability of the Insurer shall not exceed the amount which would otherwise have been payable hereunder had such reinstatement been carried out by outside contractors.

42. Clauses 4.5 and 4.6 deal, respectively, with the “extra cost of reinstatement (including demolition or dismantling)” necessarily incurred by the Insured to comply with the requirements or any statute or regulation of any municipal or statutory authority, on the one hand (cl 4.5), or necessarily incurred by the Insured to comply with the requirements or any statute or regulation of any municipal or statutory authority and not otherwise recoverable under cl 4.3, on the other hand (cl 4.6), subject in each case to certain provisos.

43. Clause 4.26, which applies to all property, provides that the Insurer may, at its option, reimburse the Insured for the cost of carrying out work or obtaining any item or items in accordance with the Basis of Settlement Clause, or may arrange for that work to be carried out or for the purchase of the item or items. Clause 4.27, which again applies to all property, provides that the Insurer shall not be bound to replace, repair or rebuild exactly or completely, but only as circumstances permit and in reasonably sufficient manner “and shall not in any case be bound to expend more than the applicable Limit or Sub-Limit of Liability”.

44. Clause 4.28, appearing under the heading “Provisions Applying to All Property”, but with its own further heading “Election to Claim Indemnity Value”, provides that:

The Insured may elect to claim the INDEMNITY VALUE of any property and, if so, the Insurer will pay that value or may, at its option, replace, repair or rebuild the property or any part in accordance with the INDEMNITY VALUE but including the extra cost of reinstatement as set out in Clauses 4.5 and 4.6.

45. As extracted above (at [36]), pursuant to cl 2.7 the cover and additional cover under cll 2 and 3 is subject to conditions 7 and 14. Clause 7 sets out conditions applying only to section 1; clause 14 sets out conditions applying to both sections 1 and 2.

46. It is not necessary here to set out the terms of cl 7 (which sets out conditions relating to: the situation where third parties have interests in the Property Insured; as to the moneys otherwise payable being the proportion that the Insured’s declaration at the time of commencement of the Period of Insurance of the value of all Property bears to 85% of all such property at that time “calculated in accordance with the Basis of Settlement Clause”; the position of property in which automatic sprinkler system is installed; and damage occurring over a period of time caused by particular named events (such as earthquake), since those issues do not arise on the agreed facts in the present case.

47. Clause 14 (applicable to both sections of the policy), among other things, sets out the claims procedures. Relevantly, cl 14.2.1 provides that:

On the discovery of any Damage giving rise to a claim under this Policy, the Insured shall forthwith give notice thereof in writing to the Insurer and shall as soon as reasonably practicable deliver to the Insurer a statement of claim in writing containing as particular an account as may be reasonably practicable of the items of property Damaged, and of the amount of Damage having regard to their value at the time this occurred and of the amount of any claim made under Section 2 of this Policy, together with details of any other insurances which may apply to the claim.

48. Clause 14.2.6 provides that:

Provided that liability has been admitted, the insurer shall make reasonable progress payments on account of any claim to the Insured at such intervals and for such amounts as may be agreed upon production of a report by any loss adjuster appointed by the Insurer. Any such amount shall be deducted from the amount finally determined upon adjustment of the claim.

49. For consequential loss (Section 3 of the policy), the extent of cover is specified in cl 9, which provides, relevantly:

9.1   Provided that the Insured has paid or agreed to pay the premium stated in the Schedule, the Insurer will indemnify the Insured in accordance with the provisions of Clause 10 (Basis of Settlement) against loss resulting from the interruption of or interference with the Business, provided the interruption or interference:

9.1.1   is caused by Damage occurring during the Period of Insurance to:

9.1.1.1   any building or other property or any part thereof used by the Insured at the Premises for the purposes of the Business;

…

9.4   Indemnity under Clause 9 is also subject to:

9.4.1   the Limits and Sub-Limits referred to in the Schedule;

9.4.2   the loss being calculated in accordance with the Basis of Settlement Clause 10;

9.4.3   the Conditions set out in Clauses 11 and 14;

9.4.4   the loss not being caused as a result of Damage to certain property as referred to in Clause 12;

9.4.5   the loss not being caused as a result of Damage to property occurring in circumstances set out in Clause 13.

50. Pursuant to cl 8.16, the term “the Business” is defined to mean “the Business as specified in the Schedule carried on by the Insured at the Premises at the commencement of the Period of Insurance or such other business or businesses as may be declared by the Insured during the Period of Insurance and insurance for which has been accepted by the Insurer under Section 2 of the policy.” (The Schedule does not in fact specify the Business, but nothing turns on this for present purposes.)

51. The Basis of Settlement clause applicable to claims for consequential loss under section 3 of the Policy (cl 10) specifies various items of loss, including relevantly:

10.9   ITEM NO 9 (CLAIMS PREPARATION COSTS)

The Insured is indemnified with respect to such reasonable professional fees payable by the Insured to their financial advisers (including fees of accountants, loss adjusters and/or valuers appointed by the Insured) and such other reasonable expenses as are necessarily incurred by the Insured and not otherwise recoverable, for preparation of claims under Sections 1 and 2 of this Policy.

Defendants’ submissions

52. Each of Allianz and Ansvar filed written submissions, but their position is broadly the same and each adopted the oral submissions of the other. Therefore, it is convenient when summarising their submissions to do so in an amalgamated fashion.

53. In essence, the defendants’ position is that, as a matter of principle, a cause of action for breach of contract on an indemnity insurance policy against damage to property accrues upon the happening of that property damage, at which time they say the insurer’s obligation to indemnify (i.e., to hold the insured harmless against loss) arises (citing Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 (Canty v PaperlinX) at [39] per Gleeson JA, Barrett and Emmett JJA agreeing) and all the facts necessary for the insured to maintain its action against the insurer have occurred (citing Do Carmo v Ford Excavations Pty Ltd 154 CLR 234; [1984] HCA 17 (Do Carmo) at 245 per Wilson J).

54. The defendants maintain that, absent contrary terms in the indemnity insurance policy in question, upon the suffering of property damage there is a complete cause of action against the insurer upon which the insured can sue without the need to allege the making of demand for payment on the insurer (citing Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65 (Chandris v Argo) at 74 per Megaw J). In this regard, reference is made to the recent decision of the Supreme Court of the United Kingdom in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merewestone) [2017] AC 1 (Versloot Dredging) at [24] per Lord Sumption JSC (with whom Lords Clarke, Hughes and Toulson JJSC agreed) and to the earlier decision Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1 (The Fanti) at 35-36 per Lord Goff (with whom Lord Ackner agreed).

55. The defendants argue that the insured has a cause of action for damages to be put in the position in which it would have been had the contract been performed (i.e., had it been held harmless from the loss) and that the nature of the action is for unliquidated damages (not an action in debt for a liquidated sum).

56. It is submitted that the obligation of the insurer is not an obligation to pay a specified or calculable sum following notification; nor is it a promise to pay an amount due under the contract within a reasonable time. In oral submissions, the proposition that the defendants’ construction of the contract turned it into a contract to pay damages (which could not be performed in its terms if there were an obligation to reinstate or replace the damaged property) (see T 9.19-38) was not accepted by the defendants. Rather, the defendants argue that the contract is “a promise to indemnify which may lead to a remedy of damages [but is] no more a contract to pay damages than any other promise which, when breached, sounds in a claim for damages” (see at T 9.34-38).

57. The defendants submit that it was not a condition precedent of the 2008 Policy that the insured make a claim on the policy or otherwise notify the insurers of the occurrence of the damage alleged (and hence they say that the obligation to indemnify the insured for property damage did not depend on such a claim or notification); and that Globe Church’s right to sue under the contract of insurance did not depend upon the defendants either declining indemnity or failing to indemnify within a reasonable time.

58. The defendants point to long-standing English authority and intermediate appellate authority in this country as establishing the principle that, under an indemnity policy, the cause of action first accrues upon the happening of the insured event.

59. As to the former, reliance is placed on The Fanti; Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd’s Rep 541 (Callaghan); Harrison v Shepherd Homes [2010] EWHC 1398 at [30]-[31] per Ramsey J; Seele Australia GmbH & Co KG v Tokio Marine Europe Ins Ltd (No 3) [2010] Lloyd’s Rep IR 490 at [50]-[52] per Clarke J; Virk v Gan Life Holdings Plc [2000] Lloyd’s Rep IR 159 at [10] per Potter LJ (with whom Henry LJ agreed) (see Allianz’ written submissions at fn 12; Ansvar’s written submissions at fnn 11-12); and the commentary in the various texts referred to in fn 8 to Ansvar’s submissions).

60. As to the latter, reliance is placed on Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159; [2000] WASCA 415 (Cigna) at [79]-[94] per Pidgeon J ( with whom Malcolm CJ and Kennedy J agreed) and Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6 (Gordian) at [94]-[97] per Blow CJ (with whom Porter and Wood JJ agreed), followed at first instance by Yates J in the Federal Court in The Commonwealth v Vero Insurance Ltd (2012) 291 ALR 563; [2012] FCA 826 (Vero) at [81]-[90] (though there the particular wording of the policy led to a different conclusion). Reference is also made to academic commentary (see Merkin, Colinvaux’s Law of Insurance (11th edn, 2016), [10-076]-[10-078]; Birds, Lynch, Milnes, MacGilivray on Insurance Law (13th edn, 2015), [21-055]; Levine and Haar, Construction Insurance and UK Construction Contracts (2nd edn, 2013), [2.110]-[2.111]; Reed, Construction All Risks Insurance (2014), [21-005]; Enright and Jess, Professional Indemnity Insurance Law (2nd edn, 2007), [14-078]) (see Allianz’ written submissions at fn 13; Ansvar’s written submissions at fn 8).

61. It is submitted that the Australian intermediate appellate authority in this regard is not “plainly wrong” and should be followed by this Court; that there is no authority, either binding on this Court or of any persuasive value, to the contrary; and that Stevenson J’s conclusion in Carillion that this Court (in CGU v Watson) has endorsed the contrary view to that accepted in Cigna is in error.

62. The defendants (though accepting that the policy in the present case is not a liability policy) argue that the same principle explains the position for liability insurance; namely that it is not until establishment of an insured’s liability to pay damages to a third party (the occurrence of the indemnified event) that the insurer has an obligation to indemnify and the insured has a complete cause of action (citing in this context Penrith City Council at 568-569 per Giles J; CGU v Watson at [59], [61], per Giles JA (with whom Spigelman CJ and Basten JA agreed); and Allianz Australia Insurance Ltd v Bluescope Steel Ltd (2014) 87 NSWLR 332; [2014] NSWCA 276 (Allianz v Bluescope) at [78] per Meagher JA and [267] per Ward JA).

63. The defendants accept that if the insured’s cause of action accrues at the time of property damage then the limitation period may begin to run before the insured is aware of the damage (a matter to which Stevenson J had regard in Carillion at [140]) but they say that there is no general principle that knowledge is essential for the accrual of a cause of action (and point to Australian commentaries to the effect that the limitation period is not postponed by the insured being unaware of the occurrence of the insured peril – see fn 48 to Ansvar’s submissions).

64. The defendants identify various difficulties with a construction of the promise to indemnify as if it were a promise to pay within a reasonable time of notification. First, that the commencement of the limitation period would be entirely within the control of the insured, who could delay making a claim on the insurer and, by so doing, could prejudice the insurer in the defence of the claim (in circumstances where an insurer would not be able to resist the claim on the basis of delay unless it could demonstrate that the resulting prejudice was equal to or greater than the claim – see s 54 of the Insurance Contracts Act 1984 (Cth)). Second, that if the cause of action does not accrue until a denial by the insurer or until the date upon which it has become unreasonable for the insurer to deny the claim there may be uncertainty as to whether time has begun to run for limitation purposes (Allianz noting in this context that, absent policy terms to the contrary, any denial need not be in writing).

65. It is thus submitted that the principle that the cause of action accrues at the time of the insured event (here, relevantly, the damage to property) is to the benefit of both insurer and insured; and permits the insured to claim damages immediately from the insurer, so as to be held harmless as soon as possible.

66. As to cases where an insured may recover damages for delayed payment of valid claims, the defendants’ argument is that these cases do not support the proposition that the insured’s cause of action for damages for breach of the promise to indemnify is deferred until after an insured has made a claim on the insurer: first, because they do not concern the running of time in relation to the insurer’s promise to indemnify; second, because the outcome in these cases is consistent with the obligation to indemnify arising at the time of the insured event; and, third, that such cases are concerned only with losses consequential on the delayed payment of a claim by an insurer in addition to the loss for which the insurer has promised to indemnify the insured.

67. In that regard, Allianz argues that the analysis in some of those cases (that the insurer has made a promise to pay and that, no time being specified, it is implied that it is to be complied with in a reasonable time) is incorrect. It contends that the insurer’s promise is not to pay a specified sum but to indemnify; and that the obligation to do so arises immediately upon the indemnified event. However, it says that the outcome in these cases is supportable on three other bases, which are consistent with its analysis. First, that while the obligation to indemnify arises at the time of the insured event, consequential loss occurring prior to the insurer having had a reasonable time to consider a claim by the insured is too remote to be recoverable. Second, that the failure to meet the obligation to indemnify within a reasonable time of notification may, depending on the circumstances, be a breach of the implied obligation of utmost good faith implied by s 13 of the Insurance Contracts Act 1984 (Cth). Third, that, depending on the other terms of the policy, there may be an implied promise to indemnify the insured for loss in addition to that covered by the express indemnity which is caused by the insurer’s unreasonable failure to honour that express indemnity within a reasonable time. Further, it maintains that the status of these authorities is uncertain (see [42] of Allianz’ written submissions). It is said that no claim is made in the present case for losses consequential upon the delayed payment of the insured’s claim in addition to the loss for which the insurer has promised to indemnify the insured.

68. Thus the defendants submit that, this being an indemnity policy (with the relevant promises being to indemnify), in the absence of anything in the wording of the 2008 Policy to the contrary Globe Church’s cause of action for damages accrued at the time of property damage (or additional or consequential loss when first occurring, as the case may be). They say that there is nothing in the Policy Wording of the 2008 Policy that is to the contrary of the position for which they contend.

52. The defendants argue that the provisions of the 2008 Policy concerning the making of claims (see cl 14.2) do not expressly or implicitly provide that the making of a claim is a condition precedent to the insurer’s obligation to indemnify (a conclusion that is said to be consistent with the analysis in each of Callaghan, Cigna and Gordian, where similar conclusions were reached about clauses requiring notification of claims). Insofar as cl 14.2.6 contemplates the making of “progress payments” by the insurer “[p]rovided that liability has been admitted”, it is submitted that this does not (either expressly or implicitly) make an admission of liability a condition precedent to the insurer’s obligation to indemnify; rather, that it assumes the existence of a liability to be admitted.

53. It is submitted that nothing in the “basis of settlement” provisions (in cl 4 and cl 10, respectively) alters the position. The defendants argue that the basis of settlement clauses provide the agreed basis upon which the insurer’s liability to the insured pursuant to the indemnity is to be “settled”; arguing that absent such a clause there might be debate as to the appropriate measure of the insurer’s promise to indemnify. It is submitted that the function of the basis of settlement clauses is only to quell that debate by agreement. In the words of Sir Peter Webster (referring to a similar clause in Callaghan), it is said that those clauses do not “have the effect of postponing the insurer’s primary liability; they merely indicate the alternative ways in which that liability may be satisfied”; and that, as Barwick CJ described in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206; [1981] HCA 9 at 216, such a clause “effects an extrapolation of the promise to indemnify”.

54. The defendants argue that this conclusion is not denied by the fact that, depending on the circumstances, the measure of the indemnity produced by the basis of settlement clause may take some time to quantify. It is noted that, pursuant to cl 4.4.2, if the insured does not carry out rectification work “with reasonable despatch”, the insured is limited to the “indemnity value” as defined; and, similarly, that pursuant to cl 4.4.4, until a sum equal to the “reinstatement value”, as defined, has been incurred by the insured, the measure of indemnity shall not exceed the indemnity value. The defendants argue: that these matters go to the quantification of the insurer’s liability, not to its existence; that there is nothing unusual about the quantum of the damages for which a defendant is liable for breach of contract being affected by events that occur after breach; and that this does not delay the accrual of the cause of action against the defendant.

55. As to the consequential loss provisions, while it is accepted that there may be distinct claims under the indemnity provisions (accruing at different times), it is submitted that there is not a free-standing cause of action accruing each time such a loss is incurred.

56. Thus, the defendants maintain that Globe Church’s causes of action for damages for breach of the 2008 Policy for property damage and additional cover accrued at the time of the alleged property damage (no later than 31 March 2008), and that the claim for damages for breach of the 2008 Policy in respect of business interruption and professional fees accrued no later than the end of September 2009 (see T 33). On that basis, by force of s 14(1) of the Limitation Act, they contend that none of Globe Church’s claims for damages for breach of the 2008 Policy is maintainable and that the separate questions should be answered accordingly.

Globe Church’s submissions

74. In essence, Globe Church’s argument on this hearing follows (and is predicated largely on the correctness of) the dicta or “approach” of Giles J in Penrith City Council (which Stevenson J in Carillion accepted had been endorsed by this Court in CGU v Watson and preferred over the conflicting line of authority): namely, that there is a distinction between the promise of an insurer to indemnify and the breach of that promise; and that only when the insurer failed to do what was required of it could a cause of action for damages for breach of contract accrue to the insured.

75. Globe Church argues that the promises of indemnity in the 2008 Policy require the defendants to pay money, subject to the terms of the 2008 Policy, for the damage or reinstatement of the Property Insured and for additional costs and loss of income, which were incurred or suffered at different times – subject to a claim being made and the amount being calculated in accordance with the 2008 Policy. It is submitted that, as there was no time stipulated in the 2008 Policy for the defendants to perform those promises, the law implies a term that the defendants had a reasonable time to do so (citing Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 (Foran v Wight) and the authorities at fnn 62 and 63 to its submissions; and invoking what was said in CICInsurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2 (CIC) at 401-402 – see below at [183]. Its position is thus dependent on the proposition that there is to be implied into the contract of insurance a term requiring performance of the promise(s) to indemnify within a reasonable time.

76. Globe Church says that, on the proper construction of the 2008 Policy, the defendants did not promise to prevent property damage occurring (a proposition with which the defendants do not cavil) and nor did they promise immediately to put the insured in the same position as if the property damage had not occurred (a proposition with which the defendants do cavil, insofar as they maintain that a contract to indemnify amounts to a promise immediately to make good or hold the insured harmless against loss).

77. In its written submissions, Globe Church identifies the claimed breaches by the defendants as “omissions … to perform their obligations under the 2008 Policy within a reasonable time”. (In its pleading, as noted earlier, the alleged breaches are pleaded, somewhat inconsistently with this submission, as the wrongful denial or refusal of liability; and also referred to as a failure to indemnify, though nothing ultimately turns on this.)

78. Globe Church argues that what is a reasonable time is a question of fact, to be determined at the time it is said to have elapsed, having regard to all the relevant circumstances including the content of the obligations; and that the defendants cannot establish that a reasonable time for them to perform their obligations under cll 2 and 9 of the 2008 Policy had elapsed before 4 November 2010, such that their limitation defences must fail (at least at this stage of the proceedings). It is submitted that what is a reasonable time is likely to be longer on an indemnity policy.

79. It is submitted that the proposition that the defendants were in breach as soon as the property damage occurred is inconsistent with the correct approach to a claim for damages for breach of contract (as it ignores the distinction between when an obligation arises and when a breach occurs for failure to fulfil that obligation, and in effect conflates the two). Globe Church argues that to the extent there are cases where this has been found (as adverted to above), those cases are either distinguishable (because the obligation was to pay a sum certain), or are plainly wrong.

80. As noted, Globe Church maintains that the correct approach to a claim for damages for breach of an insurance policy is that which was applied by Giles J in Penrith City Council and submits that this approach was followed by, and formed part of the ratio of, this Court in CGU v Watson, because it was there necessary for the Court to identify with precision the content of the promises by the insurer by a process of construing the policy and the alleged failures to fulfil them, including the times at which the alleged failures occurred. It is submitted that this Court applied the same approach in British American Tobacco Australia Ltd v Eagle Star Reinsurance Co Ltd [2006] NSWCA 156 (Eagle Star) at [33], [61] and [64] per Giles JA (Tobias JA agreeing).

81. Globe Church submits that this is an orthodox approach with respect to the law of contract, under which a promise in a contract has both a substantive and temporal obligation (citing Foran v Wight at 420 per Brennan J) and notes that failure to perform a contractual obligation on time is a breach (citing Kone ElevatorsPty Ltd v Popa [2006] VSCA 26 (Kone Elevators) at [21] per Eames JA (with whom Callaway and Ashley JJA agreed)). It is submitted that this applies to claims for damages for breach of insurance contracts, including indemnity policies (citing various authorities, see fn 19 of Globe Church’s submissions, including Brescia Furniture Pty Ltd v QBE Insurance (Australia) Ltd [2007] NSWSC 598 at [84]-[88] per Hammerschlag J).

82. Globe Church also refers to the decision of the High Court in CIC, which concerned a claim under an indemnity policy for property damage, as recognising the distinction between when an obligation is imposed and when it must be performed; and the decision of the Court of Appeal in Western Australia in Maxwell v Highway Hauliers Pty Ltd (2013) 45 WAR 297; [2013] WASCA 115 (Maxwell v Highway Hauliers) at [95] per McLure P (with whom Pullin JA agreed on this ground at [123])) as drawing a distinction between a claim to enforce the indemnity provisions of a policy and a claim for damages for refusal to indemnify; see also Murphy JA at [153]-[155] in that case).

83. Globe Church argues that Cigna was decided on the basis that the claim was for a certain sum under an accident policy, without reference to when a breach of contract occurred, on the basis that both Malcolm CJ and Pidgeon J state that the policy in question was an accident policy for a fixed amount on the happening of an event. It says that this case was followed in Gordian, also without reference to when a breach of contract occurred, on the basis of the passage at [88] in Cigna in which it is noted that under the policy the money is payable “on the happening of the event”.

84. As to the proper construction of the 2008 Policy, Globe Church invokes the principles of construction of commercial contracts as re-stated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[51] and criticises the defendants’ submissions as not commencing with the text or context of the 2008 Policy (a criticism the defendants maintain is unfounded since they commence with the text of the policy – namely, the promise to indemnify), but instead focussing on authorities which consider when an insured’s cause of action begins to run by reference to the type of policy concerned. It is said that this involves the use of legal fictions to justify the result that the cause of action against the insurer accrues on a property or fire indemnity policy when the damage occurs “even though the insurer has no way of knowing what amount it has to pay at that point, and some of what it will have to pay is costs and losses yet to be incurred or suffered (including that an insurer on a property insurance policy promises the insured event will not occur and the competing fiction that the insurer takes on a primary liability to indemnify and a secondary liability to perform its obligations under the contract)”. Globe Church further argues that the defendants have subverted the process of contractual construction by arguing that the rule as to the time the cause of action accrues on an indemnity policy applies unless there are “clear words in the policy which have a contrary effect”.

85. It is submitted that, to the extent that in Cigna, Gordian, and Carillion each court attempted to determine when the insurer had failed to fulfil its obligations under the relevant policy by construing the policy, that approach was consistent with principle; and that the question as to whether or not the conclusions reached in those cases on construction are correct need not here be decided, because the policies had different text, context and purposes to the 2008 Policy.

86. Turning then to the provisions of the 2008 Policy, Globe Church submits that there are three promises in the 2008 Policy, each of which deals with a different kind of loss that will necessarily be suffered at different times: the promise in cl 2 to indemnify against property damage (subject to cll 2.1-2.7); the promise in cl 2 to provide the additional cover referred to in cl 3 (up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule but again subject to cll 2.1-2.7), noting that cl 3 itself contains additional costs that “the Insurer will also pay”, those additional costs being costs incurred by the insured after the property damage; and the promise in cl 9.1 to indemnify against loss resulting from interruption of or interference with the Business, being consequential losses incurred after the property damage occurs (provided the loss falls within one of the sub-clauses to cl 9.1 and subject to cl 9.4). It is submitted that the subject matter of the promises is inconsistent with the proposition that the defendants’ obligations arose on the occurrence of the property damage; and, citing CGU v Watson, Gordian and Penrith City Council, that the obligation to pay different amounts at different times can arise on the same policy.

87. As to the meaning of the terms “indemnify” and “provide the additional cover”, which Globe Church points out are not defined in the 2008 Policy, Globe Church submits that their content is to be taken from their ordinary meaning in context (and that assistance is not here to be gained from Canty v PaperlinX or Allianz v Bluescope, which concerned an indemnity given to a creditor for a third party debtor and a liability policy, respectively).

88. Globe Church places reliance on the fact that each promise is expressed to be “subject to” identified matters and argues that this means that the promises are conditional upon those matters (some of which will necessarily occur after the property damage). In this regard, it is noted that the matters referred to in cll 2.1-2.7 (to which the promises to “indemnify” and “provide the additional cover” in cl 2 are subject) and in cl 9.4 (to which the promise to “indemnify” in cl 9.1 is subject) include: the amount of the indemnity or loss “being calculated in accordance with” the relevant Basis of Settlement Clause (cl 4 or cl 10, respectively); the conditions set out in cl 14, which include the claims procedures in cl 14.2; in relation to the cl 2 promises, the application of any Deductible referred to in the Policy Wording and in the Schedule (that being defined as “the first amount of each claim which is payable by the Insured as stated in the Schedule”, which Globe Church argues means that the obligation to indemnify is subject to a claim being made); and, in relation to the promise in cl 9.1, the conditions set out in cl 11, which include reference to events which may occur after property damage has occurred.

89. Globe Church also points to the use of the future tense in which each of the promises is expressed, arguing that the defendants promised that they “will indemnify” and “shall provide the additional cover”, when the conditions of the promises are satisfied.

90. Globe Church argues that Allianz’ submissions (at [43]-[47]) – to the effect that the claims and quantification provisions do not affect the time at which the insurer is in breach (because they are only concerned with the quantification, not the existence, of the insurer’s liability) – incorrectly assume acceptance of the need to find contrary wording to the insurer being immediately liable to indemnify on the damage occurring; but nevertheless it says that, in any event, the wording of the clauses referred to above is contrary to those submissions.

91. In that regard, it is said that a submission to the effect that quantification of the indemnity should not postpone accrual of the cause of action was rejected on appeal in Commonwealth v Vero Insurance Ltd (2013) 306 ALR 182; [2013] FCAFC 152 at [115]-[116] per Jagot J (with whom Dowsett and Logan JJ agreed); and it is further submitted that the High Court in CIC determined the insurer’s “fundamental obligations” by reference to the effect of the basis of settlement and reinstatement and replacement clauses of the policy (referring to the judgment at 404).

92. Globe Church submits that the cases relied upon by the defendants (Cigna, Gordian, Callaghan) do not discuss the issue as to the implication of a term requiring performance; nor are they authority for the proposition that in an insurance policy the time that the obligation to indemnify arises is the same as when it is breached, noting Giles J’s observation in Penrith City Council at 571, that with a liability policy (that being the kind of policy considered in Gordian) there will not often be a material difference between the obligation to pay arising and the insurer failing to perform it. Globe Church submits that this is the same for a policy where a fixed sum is payable on the occurrence of an event where the occurrence of the event is known to the insurer (as in Cigna). It argues that these authorities should not be followed to the extent that they failed to consider whether a reasonable time had elapsed for performance but says that that does not mean they were wrongly decided (and that it is not necessary here to determine this).

93. As to the defendants’ argument that, if time does not begin to run until the insurer denies the claim, the insured can indefinitely postpone the time bar by not making a claim, Globe Church argues that a breach may not only occur on denial of liability, but may also occur by lapse of a reasonable time for performance. It argues that an insurer can protect itself, subject to s 54 of the Insurance Contracts Act 1984 (Cth), by including appropriate terms in the policy and says that the alternative (that time may begin to run without the insured, or the insurer, knowing about it) “effectively truncates” the time during which the insured may claim on the policy and hence can also give rise to an unreasonable result (giving by way of example as to when this might occur, a situation such as the present, where the damage occurs to the foundations of a building). It argues that only the insurer is in a position to protect itself.

94. As to the defendants’ argument that there may be problems determining when there has been a denial or whether a reasonable time has elapsed, Globe Church says that these are questions of fact upon which parties agree or courts regularly determine.

95. For its part, Globe Church points to unreasonable results that may flow from time beginning to run on the occurrence of the property damage, which it says will tend to encourage litigation. First, that costs and losses incurred and suffered more than six years after the property damage would be time barred because it will not be possible to sue for damages for a failure to pay them before they are incurred or suffered (and that the insured will have to sue for a declaration of indemnity and consequential orders or specific performance to protect itself). Second, that on the defendants’ construction the insurer will immediately be, and remain, in breach until it pays, even if it admits liability, because its obligation is to hold harmless and this does not occur until it pays (which it is said will encourage litigation in the form of claims for damages for loss of use of the amount of the indemnity, even when the contract has not been terminated, such as in Maxwell v Highway Hauliers). Third, that an outcome where the claim becomes time barred if the insurer has not decided whether to indemnify when the six years elapses from the occurrence of damage “would come as a shock to many insureds who would naturally wait for the insurer to determine its position” and, again, that this will encourage the commencement of actions.

The English Authorities

276. In Penrith City Council Giles J (at 570) correctly in my view records what was held by Megaw J in Chandris v Argo Insurance, and the limited respect in which that decision was later approved by the Privy Council in Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd:

… Megaw J held that a cause of action under a marine hull policy against liability to contribute in general average arose at the time of the general average loss rather than when the amount of the contribution had been ascertained by adjustment. The decision was approved so far as his Lordship had held that the liability to pay general average contribution arose at the time of the general average loss in Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd … but so far as it dealt with the insurer’s liability it is explained by s 66 of the Marine Insurance Act 1906 (UK) whereby the insured liable to pay a general average contribution could “recover therefor from the insurer”.

277. In particular Megaw J’s conclusion was that the action for an indemnity in respect of the liability to pay general average contribution arose, by the application s 66 (5) of the Marine Insurance Act, and in the absence of express provision in the policy, when the insured “has paid, or is liable to pay, a general average contribution”.

278. In The Italia Express (No 2) the shipowner’s claim was for damages for late payment under a marine hull insurance where the agreed value of the vessel was $4 million. The insurer’s response was that the contract was breached on the occurrence of the loss, that the measure of damages was $4 million, and that there was no further cause of action for damages for late payment of those damages. Hirst J held that it was sufficient to defeat the owner’s argument, the insurance being marine insurance, that ss 67 and 68 of the Marine Insurance Act fixed the “extent of the liability of the insurer for loss of the vessel” under the valued policy (at 291, col 2). Although not necessary for his decision, Hirst J treated the statement of Lord Goff as equally applicable to marine hull insurance with the consequence that the insured’s claim above $4 million was for damages for the late payment of damages (at 292, col 2), contrary to the principle stated in President of India v Lips Maritime Corp at 414.

279. The Italia Express (No 2) was applied by the Court of Appeal (Beldam, Evans and Pill LJJ) in Sprung v Royal Insurance (UK). The insured, who appeared in person, claimed damages for late payment of claims following deliberate damage to plant and equipment caused during a burglary. The policy provided that the insurer would “indemnify the Insured against the cost of making good insured damage” to plant, defined to include sudden and unforeseen damage (at 113, col 1). The appeal was dismissed on the basis that the trial judge had correctly rejected the claim for consequential loss, the insurance claim being for unliquidated damages for a breach which happened upon the occurrence of the insured loss. That being the position was accepted without any consideration of the language of the policy, which did not indemnify the insured against the damage but against the “cost of making [it] good”.

280. In Callaghan v Dominion Insurance, the issue was whether under a fire policy the insured’s cause of action for breach of contract arose at the time of the fire damage. Sir Peter Webster (sitting as a Judge of the High Court) upheld the insurer’s argument that the action was statute barred. In so holding, he reasoned as follows: Lord Goff’s statement of the law was of general application and extended to property insurance (at 544, col 1); accordingly “immediately loss [was] suffered by the occurrence of the contingent event the insurer came under a liability to indemnify the insured against that loss” (at 544, col 2); that is so unless “there are clear words in the policy which have a contrary effect”; thus, the insurer’s “primary liability” was to indemnify and to do so immediately, and its “secondary liability” was to put the insured in his pre-loss position, either by paying him a specific amount or electing to re-instate or replace the property (at 544, col 2); that although these were alternative ways in which the insurer’s “primary liability” might be satisfied, that did not mean the insurer was not liable to indemnify, in one way or another, immediately the loss occurred (at 544-545); and that the provision making compliance with the insured’s obligation to give immediate notice of the fire a condition precedent to the insured’s right to “recover”, was not to be construed as a condition precedent to the insurer’s “primary” liability, but as a condition precedent to the enforcement of the insurer’s “secondary” obligation (at 545, col 2 – 546). By this reasoning the primary obligation was breached immediately, and the non-satisfaction of the condition precedent did not prevent the limitation period from running.

281. This distinction between the insured’s primary and secondary obligations does not treat the secondary obligation as one to pay damages for breach of the primary obligation, as to which see Lord Diplock’s analysis in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849. In that respect, this decision departs from the reasoning in The Italia Express (No 2) and Sprung v Royal Insurance (UK), which treat the “secondary liability” as being for damages, and the relevant provisions in the policy as equivalent to an agreed damages clause. More fundamentally, this analysis appears to accept that the “secondary” obligation describes the content of the undertaking to indemnify, and how it is to be satisfied. However, it does not then consider by reference to the language of the policy what is provided as to the time for performance of that “secondary” obligation. For it is only when that obligation has been breached that the cause of action for damages for breach of the undertaking to indemnify could arise.

282. Although Lord Goff’s statement in The Fanti is directed to the position under a “contract of indemnity”, in its application the distinction between “indemnity insurance” and “contingency insurance” has not always been recognised. Virk v Gan Life Holdings PLC [2000] Lloyd’s Reports IR 159 is such a case. The insurer opposed the insured’s application to substitute a different party as insurer on the basis that the existing claim, albeit brought against the wrong insurer, was in any event statute barred. That claim was brought under a policy conferring death and sickness benefits in the event the insured suffered a stroke. Ultimately the limitation issue turned on whether the benefit was payable at the time of the stroke, or 30 days after a confirmed diagnosis of that stroke. The County Court judge followed the decision in Callaghan v Dominion Insurance, concluding that the claim was statute barred. Henry and Potter LJJ allowed the appeal on the basis that properly construed the insured’s right to payment arose upon the “survival of the insured for at least 30 days after the stroke (or rather its confirmed diagnosis)” (at [22]). In so concluding, Potter LJ rightly emphasised that ultimately the question depended on the “construction of the individual policy”, the circumstances being “very different” from those of Callaghan v Dominion Insurance (at [21], [22]).

Conclusion

283. In the result, question (a) of the separate questions must be answered “None”. As I understand question (b), if question (a) is answered as I consider it should, none of Globe Church’s claims is not maintainable for reason that any cause of action for breach of contract on which those claims are based accrued at the time of the alleged damage and before the expiry of the 2008 policy. However, that is not to say that all of those claims are maintainable, which depends on a consideration of the content of the insurers’ payment obligations in the relevant circumstances. For that reason, question (b) should be answered, “To the extent this question arises, the answer cannot be determined in the absence of further facts.”

284. Accordingly, the orders I propose are:

1. The questions posed for determination should be answered as follows:

1. None.

2. To the extent this question arises, the answer cannot be determined in the absence of further facts.

2. The defendants pay the plaintiff’s costs of the hearing of these separate questions, such costs to be calculated on the ordinary basis.

3. Remit the proceeding to Davies J in the Common Law Division.

285. LEEMING JA: I agree with Meagher JA. In light of the other judgments which I have had the advantage of reading in draft, my judgment is neither exhaustive of the issues which arise, nor comprehensive in its analysis.

286. The insurers candidly accepted that if the cause of action for breach of contract did not accrue until the insured had made a claim on its insurers and a reasonable time had elapsed, then the Court would not be persuaded that the claim was statute-barred. Accordingly, the starting point is the particular contract of insurance. The relevant provisions are reproduced in the other judgments.

287. It was accepted that the contract of insurance was to be given a business-like interpretation, attending to the language used by the parties, the commercial circumstances which the document addressed, and the objects it was intended to secure. That accords with the settled principles of construction stated in Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15]. It is with respect difficult to see how the application of those principles of construction leads to a result whereby the insurers were obliged to prevent any Damage or pay their insured immediately upon the happening of Damage. As Meagher JA has explained, decisively pointing in the opposite direction is the contractual language, notably the Basis of Settlement clause, to which the indemnity granted by the insurer is expressly subject. Commercial context and object reinforce the position. With respect, it may fairly be said to flout business commonsense to conclude that an insurer breaches a promise which it cannot perform, to the certain knowledge of both insurer and insured. How could the law impute such an improbable common intention? Lord Diplock’s rhetoric in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 is often invoked in circumstances which are inapt, but it is appropriate to describe the position here. I see no reason to displace ordinary principles of construction of contracts with some “fundamental” principle about the nature of indemnity insurance, especially one which I (no differently from Professor Clarke) would regard as absurd.

288. I turn to authority. The foregoing is consistent with what was said by Giles J in Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 at 568-569, reproduced and applied in this Court in CGU Insurance Ltd v Watson [2007] NSWCA 301 at [58]-[62]. Stevenson J was of the same view in Carillion Construction Ltd v AIG Australia Ltd [2016] NSWSC 495; 19 ANZ Ins Cas 62-115 at [119]-[156]. The position is so much the stronger in light of Meagher JA’s analysis of what was determined in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2.

289. There is a deal of authority to the contrary, although none binding this Court. Not all is fully reasoned, a point to which I shall return. Notwithstanding that the point was “fundamental” (as it was repeatedly put in submissions), Professor Clarke has observed that it is “surprising that, in the case of indemnity insurance, the nature and thus the extent of [the insured’s right to recover from the insurer] are not clear”: M Clarke, The Law of Insurance Contracts (6th ed, 2009, Informa), p 1000.

290. Fundamental as the point was said to be, Colinvaux’s Law of Insurance states, correctly, that “the notion that the insurers’ duty is to hold the assured harmless … has been widely criticised”: 11th ed, 2016 at pp 662-663. Professor Clarke has long been one of the critics, as Meagher JA has noted. So too was Professor Harvey McGregor, who referred to “all the unfortunate results” to which the notion led: McGregor on Damages (Third Supplement to Eighteenth Edition 2012), p 3; see now Twentieth Edition 2018, [1-005]. Professor Rose states that:

“It is a generally accepted but bizarre fiction – indeed, so firmly accepted that it is rarely recognised as a fiction – that the insurer’s undertaking in a contract of marine insurance is to hold the assured unharmed by insured perils.” (F D Rose, Marine Insurance Law and Practice (Informa, 2004), p 487)

291. The current edition of McGillivray on Insurance Law (14th ed, 2018, Sweet & Maxwell at p 667) refers to “the illogicality of the present law of deeming the insurer to be in breach of an obligation to indemnify before he had an opportunity to perform it”. Mance LJ (as he then was) referred to the “artificial and peculiarly domestic flavour” of the proposition that a claim against indemnity insurers sounds in damages for failure to hold the insured harmless: Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 at [42]. Four years later his Lordship referred to the “somewhat technical rule of insurance law, that payments under indemnity contracts sound in damages” and recognised that the point could well be regarded as fit for the consideration of the House of Lords: Mandrake Holdings Ltd v Countrywide Assured Group Ltd [2005] EWCA Civ 638 at [8].

292. One commentator has said:

“It has to be said that the English position is surprising. Indeed, the only people who seem unsurprised by it are English insurance lawyers. Although the legal position in so important an insurance law jurisdiction as England deserves consideration, in my view there is little likelihood that the English position would be followed in New Zealand or Australia ...”: N Campbell, “Monetary remedies for wrongful declinatures of insurance claims” (2004) 15 Insurance Law Journal 185 at 189.

293. Most colourfully, Professor Clarke, in criticising the reasoning in The Italia Express [1992] 2 Lloyd’s Rep 281, has said:

“The role of the insurance industry in preventing loss by advice is of undoubted value, but the picture of P & I Club managers patrolling Piraeus or Lloyd’s names snooping around Surbiton as some kind of neighbourhood watch bears thinking about, though only just. The construction of a contract which finds a promise which both parties know the promisor cannot possibly keep, was described by counsel for the plaintiff as ‘absurd’ and, certainly, should give some pause for thought”: M Clarke, “Nature of Insurer’s Liability” [1992] LMCLQ 287 at 288.

294. Nevertheless, the insurers emphasised that their qualified promise to indemnify was to be understood as one to hold the insured harmless, which was breached the moment Damage was suffered. They submitted that it was “fundamental” that an insurer’s obligation to hold harmless was breached upon the suffering of harm, and that an insured could sue without first making a demand. They relied upon those last two propositions having been stated as the uncontroversial starting point of analysis in Versloot Dredging BV v HDI Gerling Industrie AG [2017] AC 1 at [24].

295. There is always danger when resort is had to the seeming simplicity of a label. Holmes J noted “one of the misfortunes of the law that ideas become encysted in phrases and thereafter for a long time cease to provoke further analysis”: Hyde v United States 225 US 347 at 391 (1912). The same may fairly be said of an obligation to “hold harmless”. That formulation reflects the result achieved by a combination of remedies at common law, in equity and pursuant to statute.

296. At common law, a contract of indemnity was understood to involve a promise which was broken only when the beneficiary had been damnified by actually paying: Collinge v Heywood (1839) 9 A & E 633; 112 ER 1352; Zaccardi v Caunt [2008] NSWCA 202 at [34]. Only at that point did an entitlement to sue at law arise. Equity intervened. Equity recognised the inadequacy of the position at law and would compel the indemnifier to pay the third party directly, or pay the beneficiary so as to enable the third party to be paid. Such an order was in the nature of specific performance. Lindley LJ said in Johnston v The Salvage Association (1887) 19 QBD 458 at 460-461 that:

“In equity a contract to indemnify can be specifically enforced before there has been any such breach of the contract as would sustain an action at law. In equity the plaintiff need not pay and perhaps ruin himself before seeking relief. He is entitled to be relieved from liability.”

Following the enactment of Lord Cairns’ Act, chancery could order statutory damages in lieu of specific performance.

297. The foregoing is contained in the submissions advanced by Sumption QC in Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 at 16G – 17G. Mr Sumption was at pains to point out that equity’s intervention turned on, and could be excluded by, the terms of the contract: at 18A-B.

298. The Judicature legislation authorised the High Court of Justice to administer all the remedies formerly available at common law and in equity. But nothing in that legislation of itself altered (a) the construction to be given to the contractual language, (b) the fact that equitable intervention was subject to the terms of the contract, or (c) the distinction between the equitable and statutory remedies given prior to the beneficiary actually making payment, and the common law damages which were available after the beneficiary had been damnified by making payment.

299. The result achieved was that, through the intervention of equity, and with the supplementation of statute, the defect of the common law was ameliorated, so that the beneficiary did not first have to pay. One way of describing the net effect was that the beneficiary was “held harmless”. But it did not follow that the contract was breached immediately upon the occurrence which caused damage to the insured. Nor did it follow that a court was ordering contractual damages (as opposed to an equitable or statutory remedy) prior to any actual payment by the indemnified party. This may be one reason why Brennan CJ, Dawson, Toohey and Gummow JJ referred to the term “damages” being used “loosely” to describe the moneys payable to an insured. It was suggested in argument, of the fact that “damages” was sometimes said to be used in a particular sense, that it was “not always immediately apparent” why there was any difficulty with the term. It seems to me that part of the awkwardness in describing the remedy as one of damages simpliciter is an appreciation of the different responses of common law, equity and statute.

300. On the view that I take, it is wrong to proceed from the premise that an insurer is liable in “damages” for breach of its obligation to hold its insured harmless, to the conclusion that the insurer is in breach of its promise before it has even been notified of a claim. That is the opposite of the historical position. It seems to me that many of the authorities on which the insurers relied disclose a failure to appreciate the true nature and complexity of what was achieved in the nineteenth century. I say that mostly because of the striking praise given by Lord Goff in The Fanti to the “formidable” and “most impressive” argument made by Mr Sumption, who had not previously appeared but who “refurbished and really transformed” the argument (see at 31C, 33H and 34H). That praise suggests that the basic distinctions between the relief at common law, in equity and pursuant to statute had not been made so clearly or at all in earlier cases.

301. But no such broader review of the position is needed to resolve the questions referred to this Court. The answers turn on the particular contract. All members of the House of Lords in The Fanti recognised that the starting point was contract, and that equitable intervention could not disregard the express provisions of the contract: at 28D (“difficult to see how equity could disregard or override those express provisions” per Lord Brandon of Oakbrook), 36B-C (“Equity does not mend men’s bargains; but it may grant specific performance of a contract, consistently with its terms, where the remedies at law are inadequate” per Lord Goff of Chieveley) and 41G (“When the indemnity arises ex contractu the measure of the indemnity must be determined by reference to the terms of the contract. There is no suggestion in any of the above mentioned cases that the equitable rule must prevail regardless of those terms. Indeed Courts of Equity have recognised that the rule could be displaced” per Lord Jauncey of Tullichettle).

297. The defendant insurers invoke a limitation defence. That defence recognises that the plaintiff's claim is for breach of contract. The insurers accepted that their defence would fail if the cause of action of their insured did not accrue until a claim was made and a reasonable time had elapsed. The insurers submitted that it was a term of their contract that they indemnify their insured immediately upon the happening of Damage, before any claim was made and indeed before either the insured or insurer was aware of the Damage. On settled principles of construction, and with all respect to those taking a different view, I do not see how that can be so. The questions should be answered as Meagher JA proposes.

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Amendments

04 March 2019 - Typographical errors to [54], [55], [60], [139], [154], [159], [165]-[169], [177], [195], [199], [200]

19 March 2019 - Minor typographical amendments to [234], [261], [272], [273]

26 March 2019 - Typographical amendment to [260] (insertion of "and")

20 December 2019 - [292] – in quote, replaced “insurance jurisdiction” with “insurance law jurisdiction”

[296] – replaced “Johnson v The Salvage Association (1887) 29 QBD 458” with “Johnston v The Salvage Association (1887) 19 QBD 458”; in quote, before the word “perhaps”, replaced “or” with “and”

Decision last updated: 20 December 2019