Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd

The High Court of Australia heard an appeal by Unity Insurance Brokers Pty Ltd ("the broker") against a decision of the Full Court of the Supreme Court of Western Australia. The dispute arose from the broker's failure to disclose the respondent, Rocco Pezzano Pty Ltd's ("the insured"), full claims history to the insurer, NZI Insurance Australia Limited ("the insurer"). This non-disclosure led the insurer to refuse indemnity for extensive fire damage to the insured's premises. The insured subsequently settled its claim against the insurer for $900,000, a sum significantly less than the full indemnity sought, and then pursued the broker for the shortfall, alleging breach of contract and duty.

The central legal issues before the High Court were whether the insured had adequately proven its loss resulting from the broker's breach, and if so, how that loss should be calculated. Specifically, the court had to determine if the insured could rely on the settlement sum with the insurer to quantify its damages, or if it was required to prove what it would have received had the claim against the insurer been litigated to judgment. The broker argued that the insured's loss should be measured by the difference between a hypothetical judgment against the insurer and the settlement amount, rather than the difference between the full indemnity and the settlement amount.

The High Court reasoned that the broker's breach of contract, by failing to exercise reasonable care and skill in obtaining the insurance policy, directly caused the insured's loss. This loss was not a mere loss of a chance, but the difference between the value of the secure insurance cover that should have been provided and the cover that was ultimately limited due to the insurer's defence of non-disclosure under section 28 of the Insurance Contracts Act 1984 (Cth). The court held that the focus should be on assessing the measure of the insured's loss consequent upon the fire and the insurer's denial of liability, rather than on valuing a hypothetical chance of a better outcome. The question was whether the insured acted reasonably in compromising its claim, given the insurer's defence, and the extent to which the broker's actions diminished the value of the insurance policy.

The appeal was dismissed with costs.