An insurer seeking to change its position on indemnity under section 28(3) of the Insurance Contracts Act regarding non-disclosure may be estopped and be found to be in breach of its duty to act with the utmost good faith
The Federal Court of Appeal decision of Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 (FCAFC 2021) involved CTS 39788 (CTS), which was a body corporate of an apartment building in North Queensland (apartment building). The apartment building was occupied in 2009 and in late 2014, a number of building defects were identified, which included the soffit sheeting and eaves becoming detached in moments of high winds. The engineers CTS appointed in 2016 said the issue was due to poor construction of the roof framing – The spacing of the soffit lining did not meet the manufacturer’s installation recommendations (engineering report).
In late March 2017, Cyclone Debbie hit and caused damage to the roofs and water ingress. Just prior to Cyclone Debbie, CTS took out an Allianz public liability and property damage policy of insurance. However, CTS did not disclose the engineering report in its possession.
CTS then lodged a claim for property damage claim on its Allianz policy. Allianz became aware of the non-disclosure after the claim was lodged, however, still agreed to accept the claim and pay for the property damage due to Cyclone Debbie (not due to the defective construction) (resulting damage).
Following this, Allianz wrote to CTS offering to conduct the repairs for the resulting damage, but only if CTS first undertook the repairs from the defective construction. It placed a condition on its offer that if CTS did not proceed on this basis, that is, have the defective construction repaired first, it would withdraw its indemnity grant based on its non-disclosure of the defective construction and reduce its liability to zero, in accordance with s.28(3) of the Insurance Contracts Act (the Act) (the proposal).
CTS refused the proposal and issued proceedings against Allianz, relying on estoppel, election, waiver and the duty of utmost good faith.
At first instance, the trial judge found that Allianz was estopped from asserting reliance on s28(3) (non-disclosure), despite being entitled to invoke it, on the basis that it made an election to not exercise any rights arising from the non-disclosure initially. Thus, it waived its rights in this regard. The trial judge also found that attempting to change its initial grant of indemnity was a breach of Allianz’s duty to act in the utmost good faith.
On Appeal, Allianz was again unsuccessful.
Allianz argued that CTS had not shown detriment or that it was worse off by the proposal and change of its indemnity decision. The Court rejected this and found that the reliance on the initial decision itself may manifest the detriment. The Court likened this to a loss of opportunity.
Further, Allianz argued that the common law doctrine of election did not apply on the basis that s.28(3) of the Act did not confer a choice. The Court rejected this also, stating that the doctrine does apply in circumstances where an insurer is required to make a decision between two inconsistent positions.
Finally, Allianz argued that its duty of utmost good faith was not breached by its reliance on s28(3) of the Act, as it could have initially sought to rely on this to deny indemnity. The Court again disagreed, finding that the later denial was a breach of its duty to act in the utmost good faith and it was incorrect to determine its conduct via hindsight.
The key take-aways from this decision is that an insurer seeking to change its initial decision on indemnity, must do so in a timely manner and/or when there is new information that it did not previously consider. It must clearly communicate any changes with the insured. Otherwise, an insurer may be estopped from doing so, be found to have elected against that course and/or waived its right to do so. An insurer can also be found to have breach its duty of utmost good faith, when altering its initial indemnity grant in certain circumstances. The duty of utmost good faith is a term implied into every insurance contract in Australia.
Elit Lawyers by McGirr & Snell has many years of experience in the insurance area, acting on behalf of individual plaintiffs, including companies and sole traders, against incorrect indemnity decision provided by their insurance providers regarding coverage under their policy and contract of insurance.
Do not hesitate to contact Danielle Snell or Robert McGirr in relation to your defamation concerns.