Reid v Tgio

[1990] TASSC 26

Serial No 20/1990
List "A"

COURT:  SUPREME COURT OF TASMANIA

CITATION:              Reid v TGIO [1990] TASSC 26; A20/1990

PARTIES:  REID
  v
  TASMANIAN GOVERNMENT INSURANCE OFFICE

FILE NO/S:  745/1988
DELIVERED ON:  28 June 1990
JUDGMENT OF:  Neasey J

Judgment Number:  A20/1990
Number of paragraphs:  16

Serial No 20/1990
List "A"
File No 745/1988

REID v TASMANIAN GOVERNMENT INSURANCE BOARD

REASONS FOR JUDGMENT  NEASEY J

28 June 1990

1. The plaintiff's weatherboard dwelling house at Mangalore was substantially destroyed by fire on 22 October 1987. The plaintiff was, at the time, insured with the defendant as owner, together with Tasmanian Development Authority and Australia and New Zealand Banking Group Ltd. as mortgagees, under a "Combined Home Insurance Policy". The principal clause of the policy now in issue reads as follows:

"BUILDINGS – ADDITIONAL COVER

Where a claim has been accepted by us for damage caused by an insured event we will pay for –

a)        REINSTATEMENT AND REPLACEMENT

Where the building is your principal residence and is not in excess of 60 years of age, is not a weekend dwelling or a shack or on–site van, we will pay the cost of replacing, rebuilding or repairing the damaged property (including the additional cost necessary to comply with Statutory requirements) or at our option make a cash payment equivalent to the cost of replacing, rebuilding or repairing the damaged property to a condition as if it were new at the time of the loss or damage provided –

(i)the replacing, rebuilding or repair is commenced within four months of the loss;

(ii)spare parts or materials to rebuild or repair the damaged property are readily obtainable;

(iii)our total liability does not exceed the sum insured shown on the Certificate of Insurance other than where specifically extended by this policy;

(iv)the building is rebuilt or repaired unless otherwise agreed to by us.

In the event of non–compliance with (i), (ii) or (iv) of this section, we will indemnify you by payment subject always to due allowance for wear, tear or depreciation where applicable.

PROVISO

where the building is not your principal residence or where it is a weekend dwelling, shack or on–site van or where it is over 60 years old, we will provide cover for indemnity only unless the Certificate indicates that your policy has been endorsed to provide reinstatement and replacement cover."

1. After the fire, negotiations were carried on regarding the plaintiff's claim under the policy between himself and a Mr Sluice, an insurance assessor employed by the defendant. At the time of the fire, the plaintiff had liabilities secured over the property as follows:

Owed to Australia & New Zealand Banking Group Ltd.
           – By way of overdraft  $38,125.00
           – By way of FD Account   12,000.00

Owed to Tasmanian Development Authority   12,000.00

1. The plaintiff was ignorant of the specific terms of the policy. Mr Sluice, the assessor, had a conversation with the plaintiff in which he pointed out that the plaintiff had the right under the policy of having the house rebuilt, with the cost thereof being payable under the policy up to the limit of the sum insured, which was $54,000.00. The plaintiff indicated he was unsure whether he would rebuild or not, and would discuss the matter with his solicitor and the bank manager and the other mortgagee. Two or three possible building contractors were discussed between the plaintiff and Mr Sluice, if the rebuilding option was to be exercised. The plaintiff saw his solicitor and the bank manager, and was advised by them to take a cash settlement in order to clear the mortgages. The bank manager advised him that if the mortgages were able to be cleared by use of a cash settlement, the bank would help him rebuild the house to whatever standard he could afford. He agreed with the bank that he would proceed on that basis. He so informed Mr Sluice. He told him that he and the bank manager had decided that he would take a cash settlement "to square the mortgage and at that time the interests weren't so very much and it just went on from there". When he, the plaintiff, used the term "cash settlement" with Mr Sluice, he understood that he was talking about a cash settlement of the full amount insured on the property, namely $54,000.00; but it is not claimed, and I find, that the plaintiff and Mr Sluice did not discuss what exactly was meant by the expression "cash settlement". Mr Sluice's memory of what was discussed was not very clear, and I accept the plaintiff's account of the substance of the discussions. After their initial discussion, Mr Sluice told the plaintiff that he would take the matter back to the defendant Board and discuss with them the matter of the settlement of the claim.

1. In December, a valuer appointed by the defendant came to value the property. Later on, in January, Mr Sluice made an offer on behalf of the defendant of $32,000.00, which was the amount assessed by the defendant's valuer. The plaintiff refused. After further discussion, the defendant, through Mr Sluice, offered $42,000.00. The plaintiff again refused. Mr Sluice asked what amount was the lowest the plaintiff would accept. The plaintiff replied the full amount insured, but if the defendant would come up to $48,000.00, he would settle for that. The defendant declined.

1. Thereupon, the plaintiff's solicitor suggested that he obtain his own valuation of the damaged property. The plaintiff did so. A valuation was made by a Mr Cripps, a valuer employed by Roberts Ltd. This valuation was for $43,000.00. When this fact was conveyed to the defendant through Mr Sluice, the defendant increased its offer to $43,000.00 to match the plaintiff's valuation. The plaintiff declined this offer. He thought it was not enough, because the full amount for which he was insured was $54,000.00.

1. That is where the matter has remained. The plaintiff took this action, for specific performance of the policy, and damages and interest for breach of contract in lieu. The principal issue is the meaning of the above clause in the policy, which has been set out in full. Counsel for the plaintiff contends that under that clause, and in the events which have happened, the plaintiff is entitled to be paid a cash payment equivalent to the cost of rebuilding the premises, which it is common ground or at least not contested, would have been $53,000.00. The defendant, on the other hand, contends that the applicable proposition is that the defendant is obliged to indemnify the plaintiff for the value of the buildings lost, which in accordance with their valuer's evidence, was and is $32,000.00.

1. The proper construction of the contested clause is, in my opinion, as follows. Clearly, there is in the first place a right in the insured to have the buildings rebuilt, the cost of such rebuilding being recoverable under the policy, subject to certain conditions; but the defendant insurer has the option, instead of paying the actual cost of rebuilding, to make a cash payment to the insured which is equivalent to the cost of rebuilding. Settlement of the claim by that method, however, is subject to four conditions. The substance of the four conditions is –

1the rebuilding of the premises is to be commenced within four months from the date of the loss;

2spare parts or materials to rebuild are to be readily available;

3the total liability of the defendant insurer is not to exceed the sum insured as shown on the Certificate of Insurance, namely $54,000.00; and

4the damaged or destroyed building is actually to be rebuilt unless the defendant insurer agrees otherwise.

1. In the event of conditions 1, 2 or 4 not being complied with, the obligation of the insurer reverts to an obligation to "indemnify you by payment subject always to due allowance for wear, tear or depreciation where applicable". It is agreed that the provisos relating to the building not being the principal residence, or a weekend dwelling, and the like, do not apply, and that condition 1 above has not been complied with. The principal question therefore is as to the meaning of the words, "we will indemnify you by payment subject always to due allowance for wear, tear or depreciation where applicable".

1. In my opinion, these words within the context of this clause are intended to advert to the earlier option of making a cash payment which is to be equivalent to the cost of rebuilding. However, in the event of the obligation to indemnify indicated by these words becoming applicable, such cash payment is to be adjusted by a due allowance for wear, tear or depreciation if those factors are applicable in the circumstances of the case. Due allowance for wear, tear and depreciation is clearly applicable in the circumstances of this case, for reasons which I shall explain. This expression, "we will indemnify you by payment subject always to due allowance for wear, tear or depreciation where applicable", is in my opinion a clear reference to a particular method of assessment of insurable value of destructible property such as buildings. It is a method referred to in Land Valuation and Compensation in Australia, by R O Rost and H G Collins (published by the Commonwealth Institute of Valuers (Incorporated), Alexandria, NSW 1971). It is therein described in the following terms:

"Insurable Value, although not so described in the policy, may be regarded here as the amount of insurance based on value which it is proper to carry on destructible property to indemnify the Insured in the event of loss.

Valuation of Destructible Property: Indemnity insurance of buildings or other structures indemnifies the Insured for damage to or loss of things which physically exist at the relevant time. A valuation for insurance purposes does not therefore take into account obsolescence, suitability of building to site or various other factors which have to be given weight in determining market value. Consequently, the 'insurable value' of a structure and its value in the market might differ greatly. In many cases the market value would probably be measureably lower. Stated briefly, a valuation for insurance purposes involves:–

(a)      An estimate of the current cost of reproducing the property as new.

(b)      Deductions from the estimated reproduction cost of the costs of any components included in (a) but which are not to be included in the insurance contract.

(c)      The deduction from the estimated cost of reproducing the insured property of an amount which, in the opinion of the valuer, fairly represents the extent of accrued physical depreciation."

1. This is a method of valuation of insurable value of such destructible property which, I infer, is often regarded by insurer and insured alike as being fairer than, say, a valuation based on the market value of the property as a whole before and after the loss of or damage to destructible improvements. The latter was the basis used by the defendant's valuer, Mr Vincent, when he valued at $32,000.00. I find that the method of valuation adopted by the plaintiff's valuer, Mr Cripps, was the method to which the relevant part of the insurance clause refers.

1. It is clear, in my opinion, in the circumstances of the case that no question of the defendant making a cash payment equivalent to the cost of rebuilding, without deductions, ever became material. The plaintiff declined to exercise his right to rebuild at the cost of the insurer very soon after the fire. Upon that action being taken by the plaintiff, the only cash payment which was relevant thereafter was a cash payment by way of indemnity, after making due allowance for wear, tear and depreciation. Having regard to the method of assessment of the value of the destroyed building referred to in the policy, those factors clearly were applicable because they were an essential part of this method of arriving at a valuation of a building which had been in existence for some 35 years, and therefore had been, of course, subject to wear, tear and depreciation.

1. Therefore, the plaintiff is entitled to recover the indemnity value of the building assessed according to the method adopted by Mr Cripps. The only question is whether Mr Cripps' valuation is acceptable on a balance of probabilities. Not without some doubts, I find that it is. Mr Cripps, with respect, is a young valuer who has been in practice for some five years only, and who did not support his assessment, based upon a reduction of 20% for wear, tear and depreciation, by any objective material other than his own appreciation of an appropriate figure; though he did provide a detailed breakdown of the various parts of the building, with percentage rates and the like applied to each. For reference to applicable principles, Mr Cripps made use of his lecture notes from Royal Melbourne Institute of Technology, where he completed his valuer's course, rather than by reference to published works. However, subject to those comments, I was favourably impressed by his evidence, and his figure of 20% appears to be reasonable. It was, in any event, not attacked on any detailed basis in the course of cross–examination. Nor was his adopted figure of $53,500.00 for cost of rebuilding attacked. I accept his indemnity valuation of the destroyed property at $43,000.00 as having been established on the balance of probabilities.

1. The plaintiff makes some further minor claims. One is for interest which he lost by reason of the fact that he had to pay it to his mortgagees instead of being able to repay an equivalent part of it, by reason of the withholding from him of the amount properly due under the policy. In the first place, I find that such interest is properly payable, within the principle adumbrated by Hungerfords & Ors v Walker & Ors. (1988) 84 ALR 119, because it was money properly due to him, which if he had been paid he would on the evidence have used to relieve himself of part of the interest burden which he was carrying towards his mortgagees. The difficulty is to assign a relevant period to such liability to pay interest; though, making the best of the evidence before me, I think it can be done on a balance of probabilities. The relevant period is from the date when the offer of $32,000.00 was made by the defendant to the plaintiff, and the date when the plaintiff refused the increased offer of $43,000.00 later made. No relevant precise dates can be given, but Mr Vincent's valuation is dated 25 November 1987, and Mr Cripps' valuation is dated 15 March 1988. I can infer that offers based on these valuations were made within a reasonable time after receipt of the valuation in each case, and that it is likely that the elapsed times were more or less equal. Therefore, I think it is right to calculate interest from the respective dates of the valuations. Such period is 111 days. During this period, the plaintiff was paying a daily amount for interest of $37.28 on a total of $68,125.00. This is equivalent to a daily payment of $25.53 on $43,000.00. Such rate for 111 days comes to $2,612.00 to the nearest dollar. That will be the amount awarded for interest.

1. There is also a claim for loss of rent, and a further claim for temporary accommodation at $1,000.00. That sum is the upper limit of an amount payable under one clause of the policy, and it is not contested by the defendant. However, it cannot be payable at the same time as a claim for loss of rent. Such loss is provided for under the policy up to a total of $3,000.00 for up to twelve months' loss where the building is unfit to be lived in as a result of the damage. I find that clause to be applicable in the circumstances of the case, and therefore the plaintiff is entitled to either loss of rent or temporary accommodation cost, whichever is the greater. Mr Vincent gave evidence that a period of about twenty–six weeks for rebuilding time would have been reasonable, and that the rental value of the premises was some $65.00 to $70.00. I accept the period of twenty–six weeks, and a rental value of $70.00 per week, which comes to a total of $1,820.00, which I find payable.

1. There is a further claim for demolition costs and costs of removal of the debris from the site. The plaintiff did this himself, under compulsion from the Brighton Council. A figure which was discussed between himself and the defendant for the cost of doing such work himself was $1,000.00, whereas $4,000.00 was discussed in the event it was done by a contractor. I think that a sum of $1,000.00 is reasonable, and this will be allowed.

1. The amount payable to the plaintiff is therefore $48,432.00, made up as follows:

Fire loss  $43,000.00
Interest  2,612.00
Rent  1,820.00
Cost of demolition and removal of debris  1,000.00

TOTAL  $48,432.00