17 March 2021
When a hailstorm descended upon the North West of Sydney, the furthest thing from the builder's mind was how many deductibles it needed to pay under its policy to repair the homes it was building. However, as can be common with construction disputes, that is what happened here. 3 years later, the Court determined the matter in favour of the builder, ordering 1 deductible was payable, rather than 122 as suggested by its insurer.
Background
On 18 February 2017, a severe hailstorm caused damage to the roofs of 122 residential houses being constructed by the plaintiff builder (Rawson Homes).
On 20 February 2017, Rawson Homes submitted a claim under a Construction Annual Policy (the Policy) issued by the Defendant (Allianz).
Allianz accepted the claim, but there was a dispute about the scope of cover and the deductibles payable.
Issue
Rawson Homes sought orders for Allianz toindemnify it for the losses sustained from the hailstorm. Allianz's position was that all roofs inspected were deemed repairable and did not require replacement. On the second day of the hearing, Allianz accepted it was liable to Rawson Homes for the cost of replacing the 122 roofs.
The Deductible
Rawson Homes contended one $10,000 deductible was payable as the claim arose from one hailstorm event. However, Allianz argued that a $10,000 deductible applied to each of the 122 damaged houses ($1.22 million in total).
Section 1 of the Policy defined Indemnifiable Event as:
"… any sudden and unforeseen physical damage to, physical destruction of or physical loss of, the relevant insured property specified in the relevant Insuring clause, resulting from any cause not otherwise excluded, that occurs during the Period of Insurance."
The General Definitions section of the Policy defined Deductible as meaning:
"…either the amount of money specified in the Schedule or stated in the Policy for each applicable Section or type of loss as specified, that the Insured must contribute as the first payment for all claims arising out of one event or occurrence."
Decision
The Court determined that only one deductible of $10,000 applied to the claim for all 122 houses because, on a proper construction of the Policy, one deductible is payable for all claims arising from the one event which, in this case, was the hailstorm.
In the Court’s view, the Policy reflected an intention for the Deductible to be payable “per event”.
The words “event”, “one event” and “claim” were not defined in the Policy. Therefore they were construed by the Court according to their ordinary and natural meaning in the context of the Policy providing for annual construction insurance that insures works which are the subject of multiple building contracts.
The ordinary meaning of the word “event” is something that happens at a particular time, at a particular place and in a particular way. In the Court’s view, the characterisation of the hailstorm as the one event that gave rise to Rawson Homes’ claim (or claims) conforms to common sense and the ordinary and natural meaning of the word “event”.
Further, the Court stated that a reasonable businessperson [77] would understand the definition to mean that the amount of $10,000 identified in the Policy schedule is to be contributed by Rawson Homes as the first payment for all claims arising out of the one hailstorm event, and not the first payment for all claims arising out of that one event per building contract.
The Interest
The case also involved a question about the date from which interest was to be paid by Allianz. Under section 57 of the Insurance Contracts Act 1984 (Cth), interest starts to run from the date that is unreasonable for the insurer to withhold payment of a claim.
The Court found that 13 months after the claim was made (29 March 2018) was an objectively reasonable time for Allianz to have investigated the issues and determined its position. Further, based on the evidence, by 28 March 2018, Allianz had formed the view that the Policy responded to the claim. As such, it was unreasonable for Allianz to have withheld payment on and from 29 March 2018, and interest was payable from that date.
Implications
Construction claims can be rife with aggregation issues, and contests over deductibles payable. This case involved competing interpretations of Policy provisions. Even though the Court considered that each interpretation had merit to some degree [79], the Court preferred the interpretation advanced by Rawson Homes. This case is a timely reminder that if insurance contracts are ambiguous, a Court will apply the ordinary and natural meaning of words, which can result in favourable outcomes for consumers, and negative outcomes for insurers.
Insurers must also consider the risks of costly interest payments to insureds if reasonable progress to determine a claim has not been made.
For further information, please contact
Matthew Smith, Partner, Clyde & Co
matthew.smith@clydeco.com
