McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2)
[2009] VSC 49
•20 February 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5641 of 2003
| McCONNELL DOWELL MIDDLE EAST LLC | Plaintiff |
| v | |
| ROYAL & SUN ALLIANCE INSURANCE PLC | Defendant |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 December 2008 | |
DATE OF JUDGMENT: | 20 February 2009 | |
CASE MAY BE CITED AS: | McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2) | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 49 | 1st Revision 6 March 2009 |
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INSURANCE – Interest under statute – When it was unreasonable for insurer to withhold payment from insured – Insurance Contracts Act 1984 (Cth), s 57.
COSTS – Offer of compromise – Whether offer made in respect of same claim on which plaintiff ultimately recovered judgment – Effect of plaintiff’s numerous pleading amendments after date of offer – Supreme Court (General Civil Procedure) Rules 2005, r 26.08.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J J Gleeson SC and Mr J J Whelen | Deacons |
| For the Defendant | Mr C M Caleo SC and Mr A P Young | DLA Phillips Fox |
HIS HONOUR:
Introduction
On 25 November 2008 I gave judgment in the proceeding[1]. Then, on 28 November, after hearing counsel, I declared and ordered as follows:
[1][2008] VSC 501.
(a) that the defendant is liable to indemnify the plaintiff in respect of the physical loss of the plaintiff’s plant and equipment;
(b) the defendant pay to the plaintiff within 21 days the amount of US$3,319,145.50 on the claim in respect of the plant and equipment; and
(c) the defendant pay to the plaintiff within 21 days the amount of A$27,296.03 on the claim in respect of professional fees.
Interest and costs remained in dispute and I adjourned the hearing for submissions thereon. I also made directions pursuant to which, on 5 December, the plaintiff filed a statement of its claim for interest and costs, which contained detailed tables stating relevant amounts and the calculations thereof, and on 10 December both parties filed short written outlines of submissions. At the hearing on 11 December, counsel addressed oral submissions which helpfully explained (and also had the effect of narrowing) the issues raised in the written outlines. The remaining issues in dispute can be stated in short compass.
Interest
Counsel agreed that the defendant is liable to pay interest (and there was no dispute as to the applicable rate of interest) to the plaintiff on the judgment amount, pursuant to s 57 of the Insurance Contracts Act 1984 (Cth), which relevantly provides that:
“(1)Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2)The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount …”. (emphasis added)
The only difference between counsel was as to the day from which it was unreasonable for the defendant to have withheld payment from the plaintiff. I will refer to this day as “the start date”.
Costs
The parties agreed that the defendant should pay the plaintiff’s costs of the proceeding but differed as to the basis on which costs should be paid. The plaintiff sought its costs after 16 January 2004 on an indemnity basis, having served on the defendant on that date an offer of compromise which the defendant refused. The defendant submitted, for various reasons to which I refer below, that notwithstanding its refusal of the offer of compromise, it should only pay the plaintiff’s costs of the proceeding on a party and party basis.
Background facts
Before referring in detail to counsel’s submissions, it is necessary to set out some background as to the evolution of the plaintiff’s claim against the defendant, both in terms of what occurred before the proceeding was commenced, and then what occurred in the five year period between commencement of the proceeding in 2003 and judgment in 2008. There is some overlap between the matters referred to below, and my judgment on liability. These reasons should be read in conjunction with the earlier judgment.
Events before commencement of proceeding
On 5 March 2001 an internal memorandum was sent from Jeff Mills (the plaintiff’s Commercial Director) to Andrew Nicholl (the employee of the plaintiff responsible for insurance matters) providing an update on the missing equipment in the Central African Republic (“CAR”). Mills averted to the difficulties of pursuing legal proceedings against SMAP but noted that the plaintiff was currently seeking advice on that matter. Mills requested that Nicholl advise “both our Plant and Political Risks Insurers of events since it is more than likely that we shall be looking to one or both policies to react to this matter”. He attached a list of plant and equipment[2], the value of which was estimated at the time to be A$2,209,086. He stated that “no doubt our Insurer’s [sic] will wish to appoint an ‘expert’ to consider these costs”. He asked Nicholl to keep him advised of his discussions with the insurers and whether they (the insurers) wished to take an active role in any potential legal proceedings against SMAP. Mills concluded by stating that “at this point in time, I have advised against forcefully trying to take back [the plaintiff’s] Plant and would request you take this issue up with our insurers who no doubt will be better able to advise on issues of this nature”.
[2]There were 77 items on the list. Counsel for the plaintiff said that the amount of the judgment attributable to these 77 items was US$3,038,376.00, which was about 92% of the judgment amount.
On 15 March 2001, Nicholl sent a memorandum to Andrew Thornton of Aon Risk Services (the plaintiff’s insurance broker), attaching what he called Mills’ “status report”. He noted that since terminating the contract with SMAP on 8 January 2001, “little to no co-operation” had been offered by SMAP in terms of recovering the plant and equipment. He believed it was prudent to make both insurers aware of the matter, as “unless a breakthrough can be achieved shortly with SMAP, it is doubtful that we will be able to recover our plant through simple negotiation”. He said that while the plaintiff remained committed to continuing its efforts in that regard, “there will come a point where legal or other style intervention may be the only means open to us”. He said that he welcomed any ideas from the insurers, believing their active involvement to be imperative at this stage “given the potential for an insurance liability if the plant cannot be recovered i.e. $A2,209,086.” He recommended they jointly appoint a loss adjuster to oversee negotiations, and expressed his willingness to cooperate with the insurers.
Following the appointment by the defendant of Steve Hodge of Crawford International Loss Adjusters, in early April 2001 Nicholl told Hodge that the plaintiff’s priority was to retrieve the plant and equipment, however it did not wish to jeopardise future insurance claims. Nicholl told Hodge that he would provide additional information including the relevant insurance policy, written agreements between the plaintiff and SMAP, and legal advice the plaintiff had received.
On 9 April 2001 Mills wrote to Hodge, enclosing numerous such documents and seeking confirmation of what (if any) legal position the insurers wished the plaintiff to take with SMAP, and what action (if any) the insurers required the plaintiff to take to establish the exact location of the equipment and how they might recover it.
On 9 May 2001 Hodge sent to the defendant his “First Report on Construction (Theft) Loss”. The report attached the list of 77 items, the estimated market value of which was A$2,209,086, referred to the loss adjuster’s representative having completed meetings with Mills and Nicholl, and stated preliminary findings, relevantly as follows:
“it would appear that the present situation represents a case of theft, that is, a third party deliberately and illegally depriving your Insured of the use of their property. From a study of the policy, it occurs to us that there is an admissible claim in respect of the plant and equipment; no exclusions appear to apply”.
Hodge stated that “in order to demonstrate that the apparent theft is permanent, Underwriters may wish to compel [the plaintiff] to commence arbitration or litigation against SMAP”, as to which he referred to and enclosed legal advice received by the plaintiff as to its options as against SMAP. He stated that the plaintiff sought input and guidance from the insurers, and concluded by seeking “comments and instructions on policy response and, in turn, recovery”.
There was further correspondence and exchange of documentation between the plaintiff, the loss adjuster and the defendant, and meetings between the various interested parties between May 2001 and January 2003. It is not necessary to refer to all the correspondence, but I note the following.
As I stated in my judgment, in a letter dated 31 August 2001, Nicholl requested that the insurer comment on legal advice the plaintiff had received from Clayton Utz as to the prospect of recovering the equipment, and if the insurer had any knowledge as to the prospects of recovery and the different options available. Nicholl invited the insurer to comment and/or provide direction to the plaintiff as to what it should do. There was no response from the insurer, however Hodge provided three reports in total (including the first report referred to above) to Nicholl, the final report dated 30 October 2001 stating that “we await input from insurers concerning the preferred course of action which, from the foregoing, we anticipate will be legal in nature”.
On 23 November 2001 Nicholl attended a meeting in London with representatives of the plaintiff’s insurance broker. At the meeting Nicholl discussed whether the missing equipment came within the terms of the plaintiff’s political risks insurance cover, and whether it was covered by the plaintiff’s insurance policy with the defendant.
On 27 November 2001, Nicholl attended a meeting in Manchester with the insurer’s UK lawyers, Berrymans Lace Mawer. Nicholl told those present at the meeting that the plaintiff had provided all information requested by the insurer but had received no substantive feedback from the insurer.
On 4 December 2001 the defendant’s UK lawyers wrote to the plaintiff’s insurance broker, seeking further information from the plaintiff, including information relating to the plaintiff’s relationship with SMAP and Reid, and what steps the plaintiff had taken. There was no mention of whether the loss of the plaintiff’s equipment was covered by the policy.
On 10 January 2002 Nicholl wrote to the loss adjuster, providing information and enclosing documentation, and concluded by stating that “it is high time that [the defendant] provide a definitive response on policy liability”. He requested a response by 31 January 2002.
The defendant’s UK lawyers wrote to the plaintiff’s insurance broker on 6 February 2002 (the letter was also passed on to Nicholl) stating, among other things, that “this is a significant claim yet the circumstances are, to say the least, unusual and remain to a large degree, unclear”. The letter requested further information from the plaintiff as to the history of the relationship between the plaintiff and SMAP, the plaintiff’s decision to withdraw from the CAR, how the plaintiff had intended to recover the equipment upon leaving the CAR, and the plaintiff’s instructions to the Couper Group. Further, the writer stated his understanding that the plaintiff was putting forward its claim on the basis of a theft by SMAP, yet there was, in his opinion, uncertainty as to what had happened to the equipment and, in effect, SMAP’s intention to steal the equipment had been inferred from Pacco’s failure to reply to correspondence, yet at the same time the other partner of SMAP, Reid, had expressed a commitment to resolve the situation.
On 15 November 2002 there was a meeting in London attended by Nicholl, two representatives of Aon, and the defendant’s UK lawyer. The minutes of the meeting record that Nicholl stated reasons for delay in responding to the correspondence, confirmed the action taken by the plaintiff over the previous six to eight months, and there was discussion of various issues arising from the letter of 6 February. Nicholl was taken to the minutes in cross-examination and agreed that he had not responded to the 6 February 2002 request for information. Nevertheless, it became clear in re-examination, and indeed it is apparent on the face of the minutes, that at least some of the information requested on 6 February had already been provided by Nicholl on 10 January 2002. The minutes state, however, that Nicholl’s response on “various issues” would be forwarded following his return to Melbourne. On 13 January 2003 Nicholl sent a letter to the insurance broker attaching the plaintiff’s response (of nearly 300 pages, prepared by Geoff Mills rather than Nicholl) to the defendant’s UK lawyer’s queries.
Events after commencement of proceeding
On 2 May 2003 the plaintiff commenced the proceeding. Relevantly, the statement of claim pleaded the insurance policy, and alleged that the plaintiff was “the owner of certain construction plant and equipment”[3] as to which it had suffered “total loss of the plant and equipment”, the equipment being in the CAR where a breakdown of law and order had made it impossible or impracticable to retrieve it. No particulars were provided as to the value of the plant and equipment. And the basis of recovery was not stated; that is, there was no mention of either “reinstatement value” or “indemnity value”.
[3]The Schedule listed 64 entries, however some of these entries covered multiple items. The total number of items was 104.
On about 12 January 2004 the plaintiff filed an amended statement of claim, which alleged “total loss or damage to the Plant and Equipment[4] in respect of an Occurrence”, particulars of which included a long list of matters relating to the difficulties and dangers associated with recovering the items from the CAR and, in the alternative, that between January 2001 and April 2001 the equipment “was appropriated by a person or persons unknown”. No specific allegation of theft was made. I note also that the plaintiff pleaded the “preservation of life extension”, to which I referred in my reasons for judgement. As to the basis of recovery, in pleading the terms of the policy there was a reference to “reinstatement value” and “indemnity value”, as defined by the policy, however the pleading did not allege entitlement to “reinstatement value” but rather sought “replacement value”, as to which no monetary figure was provided, and it was stated that further particulars would be provided prior to trial. Alternatively, the plaintiff sought “indemnity value”, as to which the estimated value was $2,209,086 in respect of the 77 items.
[4]Defined as the 77 items listed in the Schedule, with an estimated value of $2,209,086.24.
Following requests for particulars and some interlocutory skirmishes, on 20 June 2005 the plaintiff filed a further amended statement of claim, in respect of 75 items of plant and equipment. The plaintiff pleaded “the loss” of the plant and equipment in circumstances where between January and April 2001 “all of the plant and equipment was removed from a diamond mine in the CAR by a person or persons unknown”. The plaintiff claimed the “reinstatement value” ($7,436,500), alternatively the “indemnity value” ($2,209,086.23), of the plant and equipment. The “preservation of life extension” was not pleaded.
The proceeding was fixed for trial on 6 June 2006 however the plaintiff sought and was granted leave to amend its pleadings, and the trial date was vacated. On 29 May 2006 the plaintiff filed a second further amended statement of claim. The pleading now covered the 132 items which were ultimately in dispute at trial, divided into the first loss (items 1 to 20) and the second loss (items 21 to 134). The first loss was pleaded as the removal of the equipment from the diamond mine by persons unknown between 1 January and 30 November 2000, while the second loss was pleaded as the removal of the equipment from the diamond mine by persons unknown between 1 January and 30 April 2001. As to the first loss, the plaintiff claimed the “reinstatement value” ($2,395,599.68), alternatively the “indemnity value” ($570,964.96), of the plant and equipment. As to the second loss, the plaintiff claimed the “reinstatement value” ($5,905,941.42), alternatively the “indemnity value” ($2,209,965.75), of the plant and equipment.
The proceeding was fixed for trial on 6 August 2007 however the plaintiff again sought and was granted leave to amend its pleadings, and the trial date was again vacated. In July 2007 the plaintiff filed a third further amended statement of claim, which was the pleading before me at trial. For the first time, the plaintiff pleaded that the plant and equipment had been “stolen”.
Submissions
Interest
Plaintiff
The plaintiff submitted that, for the purpose of ascertaining the start date, the judgment amount should be divided into two claims[5].
[5]It is important to note that these two “claims” are different from the “first loss” and “second loss” categories referred to in the judgment. The first loss (referring to items 1 to 20 in the schedule to the amended pleading, also defined as “the Plaintiff’s Part 1 Plant and Equipment”) and the second loss (referring to items 21 to 134 in the schedule to the amended pleading, also defined as “the Plaintiff’s Part 2 Plant and Equipment”) were categories defined by the date of the loss. That is, the first loss was constituted by events occurring in 2000, while the second loss was constituted by events occurring in 2001 and later. In contrast, the two “claims” referred to by counsel for the plaintiff were referable not to the date of the loss, but rather by the time at which the plaintiff notified the defendant that those items were part of the claim. Incidentally, both “claims” include items which were part of both the first loss and the second loss.
The first claim comprised the 77 items[6] which were the subject of the report by the loss adjuster dated 9 May 2001. The amount of the judgment attributable to these 77 items was US$3,038,376.00, which is some 92% of the judgment. Counsel referred to the loss adjuster’s report of 9 May 2001 by which, he submitted, the loss adjuster “acknowledged that the claim appeared to be valid”. Further, the proper basis of the claim (namely, loss attributable to theft, as ultimately found in the judgment) was sufficiently articulated by the loss adjuster at that time. Counsel submitted that in circumstances where the loss adjuster had “recommended payment of the claim”, from 9 May 2001 it was unreasonable for the defendant not to pay the amount of the first claim.
[6]Of these 77 items, 10 were part of the first loss, and 67 were part of the second loss.
The second claim comprised the remaining 55 items[7], which were notified to the defendant at various times after 9 May 2001. The amount of the judgment attributable to these items is US$280,769.50[8]. Although some of these items were added to the plaintiff’s claim well before 2006, other items making up the total of 132 items which went to trial first appeared in the claim by way of the pleading filed on 11 May 2006. In these circumstances, rather than pursue interest on particular items from a series of start dates between 2001 and 2006, counsel for the plaintiff relied on 11 May 2006 as the earliest date at which all the items in dispute at trial had been added to the plaintiff’s claim. He submitted that from 11 May 2006 it was unreasonable for the defendant not to pay the amount of the second claim.
[7]One of these items was part of the first loss, while the remaining 54 items were part of the second loss.
[8]As counsel pointed out, this represented about 8% of the total judgment amount.
As to the judgment for A$27,296.03 on the claim in respect of professional fees, the plaintiff submitted that the start date for interest was 9 January 2004, that being the date when the claim for professional fees first appeared in the pleadings. There being no submission to the contrary, I accept the plaintiff’s submission as to the start date for interest on the professional fees.
Defendant
Counsel submitted that the start date for interest should be 1 August 2007. That was so because the claim on which the plaintiff ultimately succeeded at trial (namely, loss attributable to theft) was not made until the final version of the pleading dated 5 July 2007. And following the making of that claim, the defendant was entitled to a further reasonable period of time (which counsel submitted was 4 weeks) in which to investigate and determine its position on that claim, which gave a start date of 1 August 2007.
In support of his submission that the claim on which the plaintiff obtained judgment was materially different from the claim it had earlier pursued, counsel referred to the factual background set out above, and emphasised five matters.
First, the plaintiff succeeded on the basis of theft (which it was necessary to establish in order to avoid the operation of the exclusion clause) yet a positive allegation of theft (as opposed to merely pleading “an Occurrence”, or pleading the removal of items from the mine by persons unknown) was not made until July 2007. Counsel conceded that the loss adjuster had referred to theft in his report as early as 2001, but noted that this was a preliminary finding (based on the loss adjuster’s conversations with two people in the plaintiff’s Melbourne office who did not have first-hand knowledge of what had occurred in the CAR), and that the insurer requested further information from the insured in 2002 in order to decide whether the loss was covered by the policy. Further, the defendant did not deny liability, but rather simply refused to accept liability pending the making of further enquiries.
Secondly, the “preservation of life” clause (which was the alternative basis for the plaintiff’s recovery in respect of the second loss) was first pleaded on 12 January 2004, but then disappeared from all subsequent pleadings, until it was reinstated in the reply which was filed pursuant to leave as late as October 2007, when the proceeding had been set down for trial. Nor was that clause ever part of the pre-litigation correspondence with the insurer.
Thirdly, as to the first loss, the plaintiff succeeded at trial on the basis of the theft of the items in 2000 (prior to the plaintiff departing the CAR), yet the events in 2000 constituting the theft were not pleaded until 29 May 2006. Before that, the first loss had been pleaded solely in terms of events occurring in 2001, which was the year after the plaintiff left the CAR. Counsel submitted that the plaintiff succeeded on a claim “wholly different” from that initially pleaded. As to the second loss, counsel submitted that given the finding in the judgment that the second loss did not occur until November 2001, it could not be said that the defendant was unreasonable in refusing to pay the claim in respect of the second loss before November 2001.
Fourthly, the plaintiff added numerous items to its claim as the pleading was continually amended.
Fifthly, it was only in June 2005 that the plaintiff pleaded (and sought to quantify) its claim on the more generous “reinstatement value” basis upon which it ultimately succeeded. Before that, and at the time of the loss adjuster’s reports relied on by counsel for the plaintiff, there was no suggestion of the higher basis of recovery. Indeed, the loss adjuster referred to market value. Thus, it could not be said that it was unreasonable for the defendant to withhold paying the plaintiff “reinstatement value” at times when that basis of recovery was not sought.
Finally, counsel submitted that the Court should in its discretion not award the plaintiff interest for the two year period during which the trial was delayed by reason of the plaintiff’s numerous pleading amendments.
Costs
Plaintiff
The plaintiff sought indemnity costs on the basis of an offer of compromise - served on the defendant’s solicitors on 16 January 2004 - to settle the proceeding for $1,250,000, which offer was not accepted by the defendant. Counsel submitted that as the plaintiff obtained judgment on the claim no less favourable than the terms of the offer, it followed from r 26.08(2)(b) that, unless the Court otherwise ordered, the plaintiff was entitled to its costs on an indemnity basis from the day following the offer.
Defendant
Counsel submitted that r 26.08(2)(b) was not applicable because the “claim” in respect of which the offer was made was not the same claim on which the plaintiff ultimately obtained judgment. As to this counsel referred to three main differences between the claim in respect of which the offer was made, and the claim on which the plaintiff ultimately succeeded: (a) the number of items the subject of the offer was less than the 132 items in dispute at trial; (b) there was no mention of reinstatement value as the basis of recovery at the time of the offer; (c) there was no mention of theft at the time of the offer. Counsel developed these matters at some length in his oral submission, along similar lines to the points he made in relation to the start date for interest.
Conclusion on interest
Counsel agreed on the relevant principles concerning the application of s 57. In short, the day as from which it was unreasonable for the insurer to have withheld payment from the insured was a question of fact to be determined having regard to all the circumstances of the case. Counsel for the plaintiff submitted further, relying on Hams v CGU Insurance Limited[9] and HIH Casualty & General Insurance v Insurance Australia (No 2)[10], that “questions of the bona fides or reasonableness of the insurer’s position are not relevant”. As to that matter, in Hams, Einstein J referred to Bankstown Football Club Limited v CIC Insurance Limited[11] where Cole J rejected the insurer’s submission that it was not acting unreasonably by declining to make payment until a bona fide dispute was resolved by the Court. Cole J said that:
“In my view s 57 is directed to a determination of the point of time at which empirically it can be stated that it was unreasonable to decline to make a payment. The decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.
If there was liability found and the insurer to pay, then the presumption must be that the insurer ought be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.
A reasonable period is to be given to the insurer to investigate and determine its position. But if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to be the correct interpretation of s 57(2), particularly in circumstances of s 57(1) of the Act, where an insurer is liable to pay an amount under a contract of insurance.” (emphasis added)
[9](2002) 12 ANZ Insurance Cases ¶61-542.
[10](2006) 14 ANZ Insurance Cases ¶61-685; [2006] VSC 128.
[11](unreported, NSWSC, Cole J, 17 December 1993).
As Einstein J noted in Hams[12], on appeal[13] the High Court noted without comment[14] the observations of Cole J as to the operation of s 57.
[12]At [6].
[13]CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384.
[14](1997) 187 CLR 384 at 393 and 410.
In HIH Casualty & General Insurance, in agreeing with the statement by Cole J, Bongiorno J observed that[15]:
“Once the court has rejected the insurer’s defence to a policyholder’s claim, that defence becomes irrelevant as does the fact that the insurer had a bona fide belief in its efficacy. To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder’s claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.”
[15][2006] VSC 128 at [9].
As against these observations, counsel for the defendant submitted that on a close reading of the passage quoted from Cole J, and noting the use of the word “simply” in that passage as emphasised above, his Honour was saying no more than that the existence of a bona fide dispute as to liability does not, of itself, mean that an insurer has acted reasonably in refusing to pay the insured. As a matter of logic, counsel submitted, it did not follow that the converse was true. That is to say, it could not be said that the existence of a bona fide dispute as to liability, as occurred in the present case, was irrelevant to the question of whether the insurer acted unreasonably.
In my view, the defendant’s submission does not assist it in this case. I respectfully agree with the observations of both Cole J and Bongiorno J. In my view, the existence of a bona fide dispute as to liability is not relevant to s 57. As counsel agreed, however, in ascertaining the start date, an insurer is entitled to a reasonable time to conclude its examination of the issues relating to the claim and of the amount which it should pay on the claim. For example, in V L Credits v Switzerland General Insurance Co Ltd (No 2)[16], where the insurance claim involved suspected arson, Ormiston J held[17] that the insurer was entitled to a period of three months to examine the issues relating to the arson alleged in that case and the amount which it should pay on the policy. His Honour also observed that once liability has been denied, the “subsequent course of events in the litigation” does not necessarily set the test as to the day upon which it was unreasonable for the insurer to have withheld payment.
[16][1991] 2 VR 299.
[17]At 320.
Turning to the present case, I accept that there was uncertainty surrounding the plaintiff’s claim, first, in terms of the facts underlying the defendant’s liability on the policies, and, secondly, in the way the claim was pleaded, and re-pleaded on numerous occasions.
As to the first aspect, my decision on liability ultimately rested on inferences drawn from SMAP’s responses (or lack thereof) to the plaintiff’s requests for return of the equipment. The defendant took the view, assumedly bona fide, that notwithstanding the disappearance of the plant and equipment, the plaintiff could not establish that the policies responded to the loss. For the reasons I have stated above, however, the defendant’s bona fide defence of the claim is not relevant to s 57. The defendant was, however, entitled to a reasonable period in which to investigate the circumstances surrounding the claim in order to decide how it was to respond.
As to the second aspect, counsel for the plaintiff accepted that there were numerous iterations of the pleadings between 2003 and 2007. I agree with his submission, however, that from 2001 right up to judgment, the essential nature of the plaintiff’s claim did not change. In so concluding, I do not overlook each of the factors relied on by counsel for the defendant which established differences between the case as it was originally put, and the case on which the plaintiff ultimately succeeded. In substance, however, the plaintiff’s claim invoked the terms of the policies to cover the loss of the equipment from the CAR, in circumstances where the items had disappeared from the mine, and notwithstanding the addition of some items to the initial claim, the nature of the items the subject of the claim remained fairly constant. In fact, it is not surprising that in the several years over which the plaintiff’s claim evolved and documentation was exchanged, read, re-read, reviewed and so on, further items were added to the plaintiff’s claim. Further, as counsel for the plaintiff pointed out, in monetary terms the list of 77 items put to the insurer as early as 2001 ultimately accounted for 92% of the judgment sum.
Regarding the substance of the claim overall, rather than viewing it through the narrower lens of the pleadings, I consider that notwithstanding the rough road between 2001 and 2008, the plaintiff has, in essence, succeeded on the claim it made of the defendant in 2001. The question remains then, from which day was it unreasonable for the defendant to withhold payment from the plaintiff?
In my view, the timeframe proposed by the plaintiff is too short. The report in May 2001 which referred to “theft” was preliminary only, further investigations were contemplated, and in light of the fact that at that time the plaintiff was still hopeful of recovering the items (or at least payment) from Reid, there was no certainty that the plaintiff would call on the policies to respond. Rather, the exchange of documentation around March to May 2001 was the act of a prudent insured keeping its insurer informed of a potential claim. Nevertheless, and notwithstanding the plaintiff’s ongoing hope that it might recover items from SMAP, on 31 August 2001 Nicholl invited the insurer to comment and/or provide direction to the plaintiff as to what it should do to recover the equipment. In effect, he was seeking a response as to liability. The insurer did not ignore the plaintiff’s request for direction as to what it should do, however the insurer’s response over the following months was to seek further documentation. Although the plaintiff provided documentation in January 2002, there were further requests from the insurer in February 2002 and it was not until January 2003 that the plaintiff responded to the February 2002 request. It might be said, and counsel for the defendant seemed to suggest it, that interest should not run throughout this period because the defendant was entitled to investigate what was a complex claim, and the plaintiff did not provide all documentation sought immediately. But ultimately none of the documentation sought by the defendant established its defence to the claim. And more importantly, the fact that the exact circumstances surrounding the loss of the equipment remained unclear, even after the trial, does not mean that an insurer who chooses to request further information and defer a decision on policy liability until such time as the picture is clear (when the practical reality is that the picture may never become as clear as the insurer might wish) can avoid the running of interest on a payment which the Court has ultimately held should have been made by the insurer at an earlier time.
Proceeding on this basis, I consider that the insurer was entitled to a period of four months from 31 August 2001 which was the date when Nicholl requested direction as to what the plaintiff should do about the loss. The start date for interest under s 57 is therefore 1 January 2002 in respect of US$3,038,376.00, being the amount of the judgment referable to the first claim. As to the second claim, the plaintiff is entitled to interest under s 57 in respect of US$280,769.50 referable to that claim from 11 May 2006.
Conclusion on costs
There is no dispute that the plaintiff obtained judgment no less favourable than the terms of the offer of compromise. The only question is whether the claim in respect of which the offer was made was the same as the claim on which the plaintiff ultimately obtained judgment. Of course, as counsel for the plaintiff conceded, the claims were not identical. The claim in respect of which the offer was made did not include all of the items on which the plaintiff ultimately obtained judgment, nor did it specifically plead theft, nor did it plead “reinstatement value”. Nevertheless, for the reasons already stated, and notwithstanding the differences identified by counsel between the claim the subject of the offer and the claim in respect of which the plaintiff ultimately succeeded, the substance of the claims was the same. Further, the amount of the judgment referable only to those items that were in dispute at the date of the offer comfortably exceeded the amount of the rejected offer[18]. It follows from r 26.08(2)(b) that unless I otherwise order, the plaintiff is entitled to indemnity costs from 16 January 2004.
[18]See Schedule D to the plaintiff’s claim on interest and costs.
In deciding whether I should otherwise order, I have regard to all that counsel for the defendant said as to the prolonged history of the proceeding, particularly the plaintiff’s pleading amendments and the vacation of two trial dates. Nevertheless, the order of the Listing Master on 6 June 2006 vacating the first trial date provided that the plaintiff pay the defendant’s costs thrown away by reason of the vacation of the trial date on a solicitor/client basis, and the plaintiff pay the defendant’s costs of the application to vacate on a party/party basis. Similarly, the order of the Listing Master on 5 July 2007 vacating the second trial date provided that the plaintiff pay the defendant’s costs thrown away by reason of the amendment to the pleadings. In effect the defendant has already been compensated for the vacation of the trial dates, to the extent the Court considered appropriate in the circumstances. Moreover, the effect of the prolongation of the proceeding is that the defendant retained money which it should have paid to the plaintiff many years ago. In having had the use of this money (and it cannot be assumed that the defendant’s return on this money was less than the amount of interest it will now have to pay), it cannot be said that the defendant has been disadvantaged by the prolongation of the proceeding. Regarding the matter overall, I am of the view that it is not appropriate to “otherwise order”. Accordingly, the defendant should pay the plaintiff’s costs of the proceeding, including reserved costs, on a party and party basis up to and including 16 January 2004 and thereafter on an indemnity basis.
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