Allianz Australia Insurance Limited v Rawson Homes Pty Ltd

1. [1]

   MEAGHER JA: I agree with the reasons of White JA and additional observations of Leeming JA which require that this appeal be allowed, and that the orders proposed by White JA be made.

2. [2]

   As the schedule to the policy records, the business of the insured, Rawson Homes, includes as a residential builder undertaking construction work at different sites in New South Wales and the Australian Capital Territory. The schedule refers to “Material Damage” (Section 1) and “Third Party Liability” (Section 2). That cover is geographically limited to the insured’s construction activities at “Contract sites” in Australia “below Carnarvon WA, below Rockhampton QLD & excluding NT”.

3. [3]

   The standard form policy wording describes itself as “Allianz Construction Insurance – Annual”. The schedule identifies the policy as insuring “Contract Works commencing during the Period of insurance, and continuing until completion, subject to the maximum construction period and maintenance period provided”. The schedule fixes that maximum period as three years. Accordingly, whilst the policy was current for the period of 12 months expiring at 4pm on 30 June 2017, it provides insurance cover for periods up to three years from the commencement of Contract Works and does so by reference to the contract or agreement under which those works are commenced, itself defined in the standard form as an Insured Contract.

4. [4]

   The matter in contest is whether in circumstances where more than 100 residences under construction (each the subject of a separate building contract which commenced during the period of insurance) suffered damage in a single hailstorm, the applicable deductible of $10,000 “Any One Event” applies separately to damage to each residential site, or to the aggregate of the damage to all of them.

5. [5]

   The resolution of that question turns on an understanding of the way in which Rawson Homes’ residential construction activities are insured by the policy. The policy is in some respects like an “open cover” in that it insures on the terms of the standard policy wording, and subject to the limits and sub-limits in the schedule, each Insured Contract which Rawson Homes commences during the 12 month policy period.

6. [6]

   The benefit of that insurance is extended to contractors and sub-contractors who are engaged in the Contract Works undertaken under the Insured Contract, and the period of that insurance is fixed by reference to the construction and maintenance periods for that contract. Thus, whilst no separate policy is issued in relation to each commenced contract, the position of Rawson Homes is essentially the same as it would have been had a separate policy been issued for each construction contract, the Schedule not providing for the application of any aggregate deductible or limit beyond that applicable to each Insured Contract. As to what is understood in this context by the term “open cover”, see FD Rose, Marine Insurance: Law and Practice (LLP, 2004) at [6.70]; and WIB Enright and RM Merkin, Sutton on Insurance Law (Lawbook Co, 4th ed, 2015) at [420].

7. [7]

   Turning briefly to the provisions of the standard wording, the insuring clauses provide cover with respect to each Insured Contract commenced in the policy period. That contract in turn identifies the Contract Works, Contract site, Construction Plant and Machinery and temporary buildings which are insured against material damage under Section 1. The definition of The Insured extends the benefit of that insurance to the contractors and sub-contractors undertaking work under that Contract.

8. [8]

   The activities covered under Section 2 are also described by reference to an Insured Contract which is also insured under Section 1, confirming that the whole of the cover under Sections 1 and 2 applies separately to each Insured Contract. Section 2 indemnifies against legal liability to pay compensation for Personal Injury and/or Property Damage as a result of an event occurring in the Period of Insurance. As already noted, that period is defined by reference to the Construction Period and Maintenance Period under the Insured Contract, and limited to a maximum period of three years. Property Damage as defined excludes physical damage to, or loss of use of, the Contract Works or other “property covered under Section 1”. Finally, the persons entitled to the indemnity under Section 2 include the Insured, and accordingly contractors and sub-contractors under the relevant Contract.

9. [9]

   LEEMING JA: I agree with White JA, for the reasons his Honour gives, that the appeal must be allowed, the orders made on 20 November 2020 set aside, and judgment in the agreed amount of $266,671 plus interest be entered for the respondent. Without qualifying that agreement, I would add the following out of deference to my having differed from the primary judge in this well argued appeal.

10. [10]

    The starting point is the insuring clause. Accepting as I do that the contract is to be read as a whole, that does not entail that each provision is equal. Rather, there is an inherent hierarchy between the insuring clause and other clauses which qualify that clause. That is because until and unless the insuring clause is engaged, the other clauses which qualify the indemnity granted in the insuring clause are inapplicable. Another way of making this point is that a premise of such other clauses applying is that the insuring clause is engaged. The need to read other clauses by reference to the insurance clause may be seen in FAI Insurance Ltd v Aust Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at [5] and [10]; in Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [19] and [32] and in Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336; [2010] HCA 37 at [28]-[30]. This Court proceeded on the same basis in Malamit Pty Ltd v WFI Insurance Ltd [2017] NSWCA 162 at [21]-[22], applying Viscount Sumner’s observation in Lake v Simmons [1927] AC 487 at 507 that exclusions are to be construed on the basis that they “cut out something already included by the general recitals and provisions”. The same is true of the clauses involved in the present appeal.

11. [11]

    In a variety of ways as explained by White JA, the wording of the insuring clause makes it clear that it turns upon each Insured Contract. The latter term determines the “Contract Works” and therefore the “Contract Site” and the “Contract Construction Period”. It follows from the definition of “Sum Insured” and “Total Sum Insured”, as well as the Schedule, that the Total Sum Insured (of $2,732,000) was an amount per Insured Contract.

12. [12]

    Once it is seen that the Insuring Clause operates with respect to each Insured Contract, then the other provisions of the policy, including the “Application of Deductible” which was central to Rawlinson’s construction, are to be understood as being applicable per Insured Contract and read accordingly. I respectfully disagree with the primary judge at [75] that it would have been necessary for the words “Insured Contract” to appear in the definition of Deductible or in the Application of Deductible clause.

13. [13]

    It is possible in principle for there to be a single (aggregated) deductible applicable to the distinct indemnities arising out of the same peril. But for the reasons given above and more fully by White JA, that is not the proper construction of this contract. I would also add that the Schedule identifies a series of limits for “Any One Event”. It was common ground that “Any One Event” for the purposes of the indemnities and additional benefits applied for each Indemnifiable Event (were this not so, then Allianz’s total liability for the more than one hundred homes damaged by the single hailstorm would have been limited to little more than $2m). The same words on the same page under the heading “Deductible” (“$10,000 Any One Event”) should be given the same meaning.

14. [14]

    I agree with the orders proposed by White JA.

15. [15]

    WHITE JA: This appeal is about the construction of an insurance policy. The appellant (Allianz) is the insurer. The respondent (Rawson Homes) is the insured. Rawson Homes carries on business as a residential builder on a substantial scale. It entered into a construction insurance policy with Allianz called an “Annual (Contracts Commenced Basis)” policy. The policy commenced on 30 January 2016 and was current for one year. It insured Rawson Homes’ construction projects against material damage and for third party liability.

16. [16]

    On 18 February 2017 there was a hailstorm that caused damage to over 100 residential houses that were in the course of construction by Rawson Homes in Rouse Hill and Kellyville.

17. [17]

    As explained below, the policy provided cover of up to $2,732,000 for damage to Contract Works (a defined expression) in respect of an Insured Contract (also a defined expression).

18. [18]

    Rawson Homes entered into a separate building contract for each house. It was common ground that each such building contract was an “Insured Contract” within the terms of the policy.

19. [19]

    A schedule, which formed part of the policy, provided there should be a Deductible of $10,000 “Any One Event” applicable to Material Damage claims for Major Perils and Minor Perils. Major Perils included storm.

20. [20]

    The principal issue before the primary judge, and the only issue on appeal, is whether only one deductible of $10,000 was applicable in respect of the damage to all the houses that were damaged, or whether that deductible was applicable to the claim arising from the damage to each house that was the subject of an individual Insured Contract. Rawson Homes contended for the former construction. Allianz contended for the latter. The primary judge decided that issue in favour of Rawson Homes and entered judgment against Allianz for $1,400,678 plus interest. (Rawson Homes Pty Ltd v Allianz Australia Insurance Limited [2020] NSWSC 1654 at [112]). The parties agree that if Allianz’s construction of the policy is correct, judgment should instead be given for Rawson Homes in the sum of $266,671 plus interest.

21. [21]

    In order to explain the parties’ contentions and address the reasons of the primary judge it is necessary to set out the terms of the policy in detail.

22. [22]

    The policy is in four parts. The policy terms include a general section that includes general definitions applicable to all sections of the policy: Section 1 headed “Material Damage”; and Section 2 headed “Third Party Liability”. In addition there is a bespoke schedule in which individual items are specified, particular to the individual insured.

23. [23]

    The insuring clause in Section 1 provides:

24. [24]

    Following clauses provide cover during a maintenance period or after partial handover, and for damage to or loss of plant and equipment, temporary buildings, materials in transit or in storage. Another clause provides additional benefits if these are included in the Schedule, such as costs of removal of debris, or professional fees incurred for restoration or repair of destroyed or damaged property.

25. [25]

    The cover was given “in respect of an Insured Contract only”.

26. [26]

    The definition of “Insured Contract” was included in the general definitions. It was relevantly defined as follows:

27. [27]

    The definition of “Contract Works” was included in the general definitions. It was relevantly defined as follows:

28. [28]

    “Indemnifiable Event” was defined in Section 1. It was defined as follows:

29. [29]

    “Contract Site” was defined in the general definitions as follows:

30. [30]

    “Insured Construction Period” was defined in the general definitions. It was defined as meaning “… for each Insured Contract, the period starting on the date of possession of each Contract Site by the contractor or the commencement date of the Contract Works at the Contract Site …” and ending at times variously specified.

31. [31]

    As can be seen from the insuring clause quoted at [23] the indemnity was provided “…in accordance with the Basis of Settlement”.

32. [32]

    Section 1 of the policy included a provision entitled “Basis of Settlement applicable to this Section”. It provided for the basis of any settlement under the section (being insurance against Material Damage) either on the basis of cost of repairs or on the value of items the subject of a total loss “…only to the extent to which the costs claimed had to be borne by the Insured and to the extent to which they are included in the Sum(s) Insured”.

33. [33]

    “Sum Insured” was defined as follows:

34. [34]

    Under the heading “Sum(s) Insured and Total Sum Insured” the policy provided:

35. [35]

    “Deductible” was included in the general definitions (and hence was applicable to both sections) and was defined as follows:

36. [36]

    Under the heading “Basis of Settlement applicable to this Section” (viz Section 1) the policy provides:

37. [37]

    The Schedule is referred to in the policy in the definitions of Sum Insured, Contract Site, Period of Insurance and the clause headed “Sum(s) Insured and Total Sum Insured”.

38. [38]

    The Schedule included the following:

39. [39]

    The respondent submitted and the primary judge held that although the Sum Insured was to be calculated by reference to each Insured Contract, it did not follow that there was a separate Deductible for each Insured Contract. The policy wording under “Sum(s) Insured and Total Sum Insured” referred to the deduction of “any applicable Deductible” or “the highest applicable Deductible”. The definition of “Sum Insured” referred to the “deduction of the relevant Deductible”. The respondent submitted that this left open the question whether, for any particular Insured Contract, there was any relevant or applicable Deductible. The respondent submitted that that question was answered by the clause “Application of Deductible” quoted at [36] above. It submitted that one Deductible was to be subtracted from the amount payable by the insurer for “each event giving rise to a claim”. The “event” was to be distinguished from an “Indemnified Event”. The latter refers to the damage, destruction or loss of insured property that does not result from an excluded case (such as war, nuclear radiation, dishonest conduct, computer viruses or terrorism). The respondent submitted that the relevant “event” (uncapitalized) in the clause headed “Application of Deductible” was the hailstorm and that under the definition of “Deductible”, one Deductible was payable for all claims arising out of that one event.

40. [40]

    To meet Rawson Homes’ reliance on the “Applicability of Deduction” clause Allianz submitted that the “event” giving rise to a claim was not the occurrence of a storm or other peril but the loss, destruction or damage to the Contract Works that was the “Indemnifiable Event”.

41. [41]

    In support of that construction Allianz relied on the syntax of the second paragraph of that clause (quoted at [36]) that for the purpose of the application of any Deductible it was the loss, destruction or damage to the Contract Works (caused by water, flood, cyclone, storm etc) that was deemed to be a single event.

42. [42]

    The primary judge rejected this submission. Her Honour held:

43. [43]

    I agree with that reasoning.

44. [44]

    The primary judge’s dispositive reasoning for upholding Rawson Homes’ construction was as follows:

Consideration

1. [45]

   In the clause headed “Application of Deductible” a “claim” refers to a claim for an amount payable for each event which gives rise to a claim. (“Claim” is not defined.) Unless Rawson Homes can obtain cover under more than one benefit in the Section, that is, can also claim one or more “Additional Benefits” consequent upon the admission of a claim (such as the cost of removing debris, professional fees, expediting expenses, employees’ effects, mitigation costs, temporary protection or government fees) the Deductible applies to each and every claim. In the absence of a definition of “claim” it must refer to a claim under the “Basis of Settlement” for the cost of repairs or the value of items damaged to the extent they are included in the Sum Insured. Such amounts are only included in the Sum Insured to the extent that the loss arises out of one event covered by the policy for any one Insured Contract after deduction of the relevant Deductible.

2. [46]

   The primary judge held that Rawson Homes had made one claim and not multiple claims under the policy in respect of each insured contract. ([69] and [70]). Her Honour said that “a claim” described what springs from the “event” and was a demand for cover for damages for losses caused by the hail storm. ([71]).

3. [47]

   But as the cover was provided for each Insured Contract there was one claim for each damaged house, not one claim for all damaged houses.

4. [48]

   The primary judge held that the meaning of the second sub-paragraph of the clause headed “Application of Deductible” was that losses to Contract Works or other insured property over a 72 hour period caused by a storm or other natural peril were to be a single event for the purposes of the Deductible (at [57]). This is true. But what is of more significance is the acceptance in this sub-paragraph that a Deductible is applicable to any loss, destruction or damage to the Contract Works. Contract Works are the works described in each Insured Contract, to each of which a deductible is applicable.

5. [49]

   As Allianz submits, the starting point for the construction of the policy should not be the clause headed “Application of Deductible”, but the insuring clause. The insuring clause provided for cover for “Contract Works against an Indemnifiable Event”. That cover was provided in respect of works described in an Insured Contract and the indemnity was provided in accordance with the Basis of Settlement which in turn provided cover to the extent that losses were included in the Sum Insured. The Sum Insured was the amount specified in the Schedule for any one loss or series of losses arising out of one event covered by the policy for any one Insured Contract after deduction of the relevant Deductible.

6. [50]

   The scheme of the policy was that there was a relevant Deductible for the cover provided against losses arising from an Indemnifiable Event for each Insured Contract.

7. [51]

   This was made clear by the Schedule. The Sums Insured were specified for “Any One Event” and the Deductible was applicable to Material Damages claims for “Any One Event”.

8. [52]

   The primary judge considered (at [75]) that for Allianz’s construction to be maintained the definition of Deductible would have to incorporate a reference to all claims under each Insured Contract arising out of one event.

9. [53]

   There are two answers to that. First, the definition of “Deductible” is contained in the general definitions and is applicable to the cover provided by both Sections 1 and 2. Section 2 provides cover against Third Party Liability as follows:

10. [54]

    “Occurrence” is defined in Section 2 as follows:

11. [55]

    Section 2 provides that:

12. [56]

    The suggested necessary inclusion in the definition of Deductible of a reference to an Insured Contract would be inappropriate given that the definition applies to both Sections.

13. [57]

    The second answer is that the definition of Deductible (as meaning either the amount specified in the Schedule, or stated in the Policy, as the amount the Insured must contribute for all claims arising out of one event) when applied to a claim for Material Damage refers to a claim in respect of an Insured Contract, because the insurance is provided in respect of an Insured Contract.

14. [58]

    Rawson Homes submitted, without elaboration, that a lack of clarity and any ambiguity should be resolved against Allianz or a contra proferentem basis.

15. [59]

    In stating the legal principles applicable to the construction of the policy, which were not in dispute, the primary judge said:

16. [60]

    The natural and ordinary meaning of the words of the policy are that Allianz insured Rawson Homes against loss or damage in respect of each Individual Contract up to the limit of the Sum Insured subject to a relevant or applicable Deductible. The Schedule to the policy shows that each event that would give rise to a claim would also trigger the relevant Deductible.

17. [61]

    There is no ambiguity to be resolved in favour of the insured.

Orders

1. [62]

   For these reasons I propose the following orders:

   1. (1)

      Appeal allowed.

   2. (2)

      Set aside the orders of the primary judge of 20 November 2020.

   3. (3)

      In lieu thereof order that judgment entered for the respondent for $266,671 plus interest.

   4. (4)

      Order that the respondent pay the appellant’s costs of the appeal.

2. [63]

   Prima facie, the respondent should also pay the appellant’s costs (or a substantial part of those costs) of the proceedings below.

3. [64]

   But there was at least one substantial issue at trial on which Rawson Homes was successful (namely the date from which interest should run) which was not an issue on appeal. Allianz may have raised other issues that were eventually abandoned. For example, Allianz admitted that it had asserted that the Sum Insured of $2,732,000 was to be applied as a Total Sum Insured to all homes, although it did not maintain that position at trial.

4. [65]

   I would direct the parties to provide written submissions as to the orders to be made for the costs below.

5. [66]

   For these reasons I propose the following orders:

   1. (1)

      Appeal allowed.

   2. (2)

      Set aside the orders of the primary judge of 20 November 2020.

   3. (3)

      In lieu thereof order that there be judgment for the respondent in the sum of $266,671, together with interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) from 29 March 2018.

   4. (4)

      The respondent pay the appellant’s costs of the appeal.

   5. (5)

      Within 14 days the respondent file and serve written submissions (of no more than 7 pages) as to the orders that should be made as to the costs of the proceedings below in accordance with these reasons.

   6. (6)

      Within 7 days thereafter, the appellant file and serve written submissions (of no more than 7 pages) as to the orders that should be made as to the costs of the proceedings below.

   7. (7)

      Any submissions in reply (of no more than 5 pages) be filed and served within 7 days thereafter.

   8. (8)

      Reserve the question of costs of the proceedings below.