Abstract

'Not otherwise insured'

Liability for Compensation for Property Loss

Cost of Temporary Protective Repairs

Time of Cause of Action for Indemnity

Limit of Indemnity for Legal Costs

Evidence - Business Records

Indemnity from other Insurance

Assignability of Policy and Accrued Rights

Damage to 'Projects' - Limits

Settlement of Claims

Article

Extension of Cover to 'Principals and Subcontractors Who are nont Otherwise Insured'

If in addition to a named insured the policy’s cover is extended to “principals and subcontractors who are not otherwise insured”, the reference to principal may include a party up or down the contractual hierarchy relative to the named insured, such as a subcontractor with whom the named insured has directly sub-subcontracted. The qualification, ‘who are not otherwise insured’, applies to both principals and subcontractors, and a party who claims cover must prove that it was an insured under the policy, and thus that it had no other insurance. It could not succeed if it had anotherinsurance which covered the same subject matter as that of the contested claim: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115. A question of construction may arise^[ as to whether or not the phrase describes a party who simply does not have insurance, a party who has relevant insurance but which does not respond to the particular loss for which indemnity is sought, or a party who has responsive insurance but for some reason is excluded from relying upon it: see, e.g., Strahinja Pandurevic v Southern Cross Constructions (NSW) Pty Ltd & Ors [2012] NSWSC 623.

Section 45(1) of the Insurance Contracts Act 1984 does not render the qualification void: Lambert Leasing Inc v QBE Insurance (Australia) Ltd ; Delta (supra).

If the cover is exended to ‘any principal but only for the principal’s liability that arises out of the work performed by the insured for that principal provided that the work was carried out by the insured in an attempt to comply with a contract to perform work that was made between the insured and that principal, the cover extends to  a principal without the qualification referred to above, but poor performance of the work does not necessarily predicate that there was no attempt to comply with the contract. Further, the extension applies only if the principal is liable in some way: Delta Pty Ltd (supra).

Liability for Compensation for Property Loss

If a Liability policy promises indemnity for all amounts which the insued becomes legally liable to pay in compensation for Property Loss as a result of an Occurrence which arises in connection with the insured Business, and property loss is defined to  mean physical loss, damage or destruction of tangible property including resultant loss of use of such property, the insured must show that it became liable to pay a sum as compensation and for Property Loss. A claim for rectification costs of the insured’s work required for performance of a contractual obligation in connecction with the property is not a claim for Property Loss: it is economic loss flowing from the insured’s business risk for poor performance of the contract. 

Further, harm to the property of others caused by defective workmanship for which the insured is responsible is ‘property damage’ within the meaning of that expression in a Liability insurance policy, but if the insured is not called upon to pay its owners as distinct from liability to reimburse another who has compensated them, it is not liability for compensation for the property damage.  It is not a direct liability to the party whose property is harmed: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115. ‘For’ is not so broad that it does not require such a direct nexus: Tesco Stores Ltd v Constable [2018] EWCA 362 (Civ).

In respect of an issue whether movement of a retaining wall for which the insured was responsible and which was defective work under its contract, if the insured pleads that wall movement is Property Loss as described in the limits of the policy’s cover, and wall movement is defined in the pleading to mean the “significant lateral movement” of the retaining walls caused by the insured’s breaches of the contract, it is not loss or damage to tangible property. A wall might move so much that it is itself damaged, or movement of a retaining wall might cause damage to property it fails to support. In both cases the damage is to tangible property, but it is not damage independently of those things. The conceptual difficulty of the contraty would be reflected in other pleadings that it is the Occurrence which triggers the cover, for the resulting damage cannot be the occurrence which caused it.  (Comment: the wall movement may be part of the chain of causal occurrence, but any damage to the wall would lie in physical harm to it by the displacement or to its loss of value through any impairment of itss function.)

 The correct approach is also demonstrated if the  claimant against the insured is not the owner of the wall, but rather, say, a contractor to whom the insured was a subcontractor. The contractor’s loss from wall movement would consist of economic loss arising from its contractual obligations to its principal rather than fom any loss by way of damage to the wall.

 Further, if the wall was not lost, destroyed or impaired, but  buttressed and supported, and then went on to fulfil its function, that is, it may have been imperilled or stressed, but it was saved, not lost or damaged,it does not meet the description in the insuring promise. Through its impairment in its function of limiting deflections of adjoining land, it would be failing to fulfil its complete purpose, but this failure could not itself amount to damage of tangible property, separate from and independent of any loss of property which the deflection caused to surrounding owners, or damage to the wall itself. (Comment: If the insured was not called upon to pay another for any loss of value to the wall through impairment in its function because the impairment did no more than cause the insured itself loss through enlarging its cost of performance of its obligation to the principal, that is not a matter of liability to which a Liability Policy applies, but part of its business risk in performing the contract. The loss through the impairment is suffered by the insured and not by a Third Party.  The principal’s only claim is for the insured’s due performance of the contract and not for impairment to the wall.)

Costs of Temporary Protective Repairs

A policy may contain a promise of indemnity for costs incurred by the insured, with the insurer’s prior written permission, for temporary protective repairs undertaken to prevent any immediate threat of Property Loss or Personal Injury. This clause relates only to costs incurred to prevent or minimise Property Loss for which the insured could have become legally liable. Simply because the insured never became legally liable to pay any compensation for Property Loss is not the point. Such costs are incurred in situations of immediate threat, and the provision is intended to prevent the occurrence of Property Loss for which indemnity would be granted under the cover, if it were to have occurred. Further, in order to trigger this cover, the danger must be imminent, and further still, the remedial work must be required for mre than merely the correction of  defective workmanship in a contract or the performance of work requied by the contract: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

When Does  Cause of Action Arise on Insurer’s Refusal to Indemnify?

There are diverging views in the authorities as to whether or not a cause of action against an insurer arises when loss within the policy is suffered^: Callaghan v Dominion Insurance Co Ltd [1997] 2 Ll Rep 541 and the cases cited; Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159; Commonwealth v Vero Insurance Ltd [2012] FCA 826; (2012) 291 ALR 563, (obiter). or whether refusal to indemnify by the insurer is a prerequisite to the cause of action’s arising: Hunter v Stronghold Insurance (Australia) Ltd [1995] VicSC 5; Penrith City Council v Government Insurance Office of NSW (1991) 24 NSWLR 564; CGU Insurance Ltd v Watson [2007] NSWCA 301, [59]; Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

Limit of Indemnity for Legal Costs

Usually, the only legal costs which are covered are those incurred in relation to a legal liability for which the insurer is obliged to provide indemnity under the insuring promise: AstraZeneca Insurance Co v XL Insurance [2013] 1 Ll Rep IR 290.

Evidence: Business Records

One of the reasons for allowing business records to be admitted as truth of their contents is that any significant organisation in society must depend for its efficient carrying on upon proper records made by persons who have no interest other than to record as accurately as possible matters relating to the business with which they are concerned: Albrighton v Royal Prince Alfred Hospital[1980] 2 NSWLR 542; Timms v Commonwealth Bank [2003] NSWSC 576, [14(8)].

Loss of right to Indemnity by Other Indemnity

If an insured has been indemnified against its loss, it no longer has the loss which is necessary to support further indemnity. So if it has recovered its loss from one insurer, it cannot recover indemnity for the same loss from another: Lambert Leasing Inc v QBE Insurance (Australia) Ltd [2016] NSWCA 254; Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

Assignability of Policy and Rights under It

A contract of indemnity insurance is a contract of a personal indemnity and cannot, therefore, be assigned. An assignment cannot deprive the insurer of the choice of the party whom it is prepared to insure. In any case, the insurer’s promise under the contract is limited to providing indemnity for the liability of the party named, and an asssignment cannot have the effect of varying that promise. But a right to receive money under the contract, such as a right to be indemnified by an insurer, may, as a chose in action, be assigned: Peters v General Accident Fire & Life Assurance Corp Ltd [1937] 4 All ER 628 affd [1938] 2 All ER 267. Tthe primary obligations under a policy cannot be assigned, bt secondary rights can: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115. If an assignment purports to assign an unrenewed policy which had expired after a loss had occurred, it will be construed as an assignment of the secondary rights against the insurer under the contract, that is, the assigmor’s right to indemnity for the loss and the insured’s defence costs covered by the policy and prior to the assignment: Schneideman v Barnett [1951] NZLR 301; Stewart v McKenna & Ors [2016] NSWCA 254; Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

Limit of Cover for Damage to ‘Projects’

If the cover provides Indemnity for Damage to Projects and Projects is defined in the policy as comprising work which the insured is to perform pursuant to subcontracts., the identification of the  project relevant to a claim and its parameters may be critical. The works which are the subject of the relevant subcontract will meet this description, but damage to other property caused by the project work will not meet this description: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

Requirements for Indemnity following Settlement by the Insured

If the insured relies on a settlement made with the claimant to prove liability for the purpose of cover, it can recover the amount of a reasonable bona fide settlement but it bears the onus of proving its reasonableness. If that is not proved, liability and quantum must be proved in the ordinary way. The reasonable and bona fide nature of the settlement sum are what makes settlement a source of liability within the meaning of the policy, rather than just a sum the insured sees fit to bind itself to pay: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; ; BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72. Reasonableness has two facets: whether the insured is or may be under an obligation to pay, and the reasonableness of the sum which the insured became liable to pay under the settlement. These involve two factors: the full amount which the insured might be ordered to pay on trial of the claim, and the degree of risk of that result to show that it was reasonable as a reasonable evaluation of the prospects. This is best served by evidence as to the legal advice, process of reasoning, or process of negotiation which led to the settlement. The absence of evidence of the thinking which led the claimant to settle is in itself not fatal: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd, (supra); BNP Paribas (supra). If the insured relies upon proof of factual material to show that the claimant had sufficiently good prospects of success, the evidence must be sufficient to sustain the issues of the degree of risk of liability and the quantum of damages likely. In a complex transaction, the latter in particular must be reasonably fully shown to demonstrate the point, and the absenc of sufficient proof of detail, including set-off features, may lead to failure to justify the compromise and, without proof of the actual liability and or itsextent, failure of the claim for indemnity.

If a lump sum settlement encompasses distinct components, one within a policy’s cover and the other not, the insured must show the distinct amount of the former within the total settlement: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

As for liability, if the settlement provides for an assignment of the insured’s right to indemnity under the policy and provides that the insured would become liable to pay only on demand, and no demand is proved  because there never would be a demand for what is defined as the “Settlement Amount” under the deed since, by its terms the  insured’s only liability is for any amount “actually recovered by the assignee under the policy as assignee of the insured”. If the assignee recovers any amount under the policy as assignee of the insured, it will be payable to the assignee and not to the insured; there will never be any funds in the hands of the insured, and it will never become liable to pay them to the assignee. In fact no liability will ever arise. A fortiori, if the settlement deed does not by its terms establish any liability, and the assignee does not otherwise proved that the insured has “become legally liable” in terms of the policy: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.

Further, it might be observed, it is arguable that if the settlement were to provide that the insured were to remain liable to the assignee only for the amount recovered under the assignment, the assignee’s claim might bemet with the difficulty that if it were to receive the insurance moneys it would be compensated pro tanto for its remaining rights under the compromise, which would be extinguished since that is limited by the compromise to the sum recovered. It would then have no right to make a demand for an extinguished claim, and the insured would have no liability under that formula. Indemnity predicates existing liability. This is circular,but in order to succeed, the assignee must prove that in the end the insured is under a liability.

Even if such a compromise is a source of liability, it may not be a source of liability to pay compensation for Property Loss as defined in the policy if the claimant did not lose any property and none of its property was damaged or destroyed by reason of the insured’s activity, its only loss being economic.

In this examination, it is necessary to beware of extraneous reasons which may have influenced the settlement, and inclined the insured to agree to a higher settlement amount than the merits of the litigation alone warranted, for example, its lack of financial capacity to meet the claim, especially because of its insurer’s refusal to indemnify it and it could not provide security for costs of proceedings against the insurer and could not afford to keep paying legal fees. Personal considerations of the insured or those in a significant relationship may also influence he settlement in a way which does not conform to the required standards.

There is judicial disagreement as to whether in the absence of sufficient evidence supporting the settlement, the court should do its best to find liability and its extent on the evidence available to it: BNP Paribas (supra). It has been said that it is not for the Court to determine what might have been a reasonable settlement and impose a liability where none existed before: Delta Pty Ltd v Team Rock Anchors Pty Ltd [2017] QSC 115.