Globe Church Incorporated v Allianz Australia Insurance Ltd

1. [1]

   BATHURST CJ, BEAZLEY P and WARD JA: For the reasons published on 6 September 2018 in proceedings in the Common Law Division (Globe Church Incorporated v Allianz Australia Insurance Ltd [2018] NSWSC 1367), Davies J ordered, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), that the questions set out at [5] below be determined separately from and prior to any other questions in the proceedings and, pursuant to r 1.21 of the UCPR, removed the proceedings into this Court for determination of the separate questions.

2. [2]

   The underlying dispute relates to claims by the plaintiff (Globe Church Incorporated) against two separate insurers (the first defendant, Allianz Australia Insurance Ltd, and the second defendant, Ansvar Insurance Ltd) under an Industrial Special Risks Insurance Policy (the 2008 Policy) arising out of alleged property damage occurring to a church building in Gateshead, NSW and its contents. The alleged damage (undermining of the pier footings to the church hall and the car park said to have resulted from rainwater and flooding) is alleged first to have occurred between 8 June 2007 and 31 March 2008, with further damage of a similar type alleged to have occurred in the periods from 31 March 2008 to 31 March 2009, 31 March 2009 to 31 March 2010, and 31 March 2010 to 31 March 2013, respectively.

3. [3]

   The insurers under the 2008 Policy were the first defendant (Allianz) as to 60% of the risk and the second defendant (Ansvar) as to 40% of the risk. For subsequent renewals, however, Ansvar was the sole insurer. Thus no claim is made against Allianz for damage occurring after 31 March 2008 and, if the separate questions are determined in the manner for which it contends, the proceedings against it should be dismissed.

4. [4]

   Globe Church first made a claim under the 2008 Policy in respect of the alleged damage on 29 September 2009. Liability was denied by Ansvar on 5 April 2011 and by Allianz on 30 September 2011. Globe Church did not, however, commence proceedings until November 2016. Its statement of claim was filed on 4 November 2016. Hence it is accepted that the relevant date for limitations purposes is November 2010. In these proceedings, Globe Church alleges that the respective defendants’ denials of indemnity (or failure to indemnify) were in breach of the 2008 Policy and that it has suffered loss and damage by reason of those breaches.

5. [5]

   The questions posed for separate determination are as follows:

6. [6]

   The questions are to be answered on the basis of agreed facts (see s 191 of the Evidence Act 1995 (NSW)). In the course of exchange of written submissions on the separate questions an amended set of facts was agreed between the parties. Exhibit A in these proceedings contains the Amended Agreed Facts. It consists of a statement of the Amended Agreed Facts together with the annexures thereto (being the 2008 Policy and the parties’ pleadings in the Common Law Division proceedings).

7. [7]

   Self-evidently, the issue to which the separate questions are directed is as to which, if any, of Globe Church’s claims on the 2008 Policy is or are statute barred. Though Ansvar accepts that the separate questions are confined to the 2008 Policy and to damage allegedly incurred between 8 June 2007 and 31 March 2008, it nevertheless contends that the determination of those questions will substantively determine whether Globe Church’s causes of action against it in respect of the 2009 Policy and 2010 Policy are maintainable, referring to what was said by Davies J at [20(a)]. However, it does not suggest that, if the answers to the separate questions are those for which it contends, the whole of the proceedings against it should be dismissed (and it is not appropriate in those circumstances here to go beyond the determination of the separate questions as confined to the 2008 Policy).

8. [8]

   Allianz and Ansvar contend that all of the claims under the 2008 Policy are statute-barred. Globe Church, not surprisingly, contends for the opposite conclusion.

9. [9]

   On the defendants’ construction of the 2008 Policy, the separate questions raise for consideration the correctness of authority both in England and at intermediate appellate level in a number of Australian jurisdictions (other than New South Wales) as to the time at which an insured’s cause of action for damages for breach of contract under an indemnity policy of property insurance accrues and a seeming conflict between that line of authority and first instance decisions of the Supreme Court of New South Wales (Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 (Penrith City Council), Giles J, as his Honour then was, and Carillion Construction Ltd v AIG Australia Ltd Construction Ltd [2016] NSWSC 495; (2016) 19 ANZ Ins Cases 62-115 (Carillion), Stevenson J), including the extent to which observations made by Giles J in Penrith City Council were endorsed by this Court in CGU Insurance Ltd v Watson [2007] NSWCA 301 (CGU v Watson).

10. [10]

    The defendants maintain that, both as a matter of principle and by reference to authority which should be followed by this Court (being, they say, intermediate appellate authority that is not plainly wrong), the time at which Globe Church’s causes of action for damages under the indemnity policy of insurance in this case arose was the time of the property damage (and, in the case of the claim for business interruption and professional fees, the time at which that first occurred). Hence, the defendants say that the present claims against them under the 2008 Policy are not maintainable since the property damage occurred more than six years before the commencement of the proceedings and it is an agreed fact that the business interruption loss and professional fees began to be incurred by the end of September 2009, also more than six years before the commencement of the proceedings.

11. [11]

    Globe Church submits that it is not necessary to determine the correctness of the propositions advanced by Giles J in CGU v Watson; rather, that, as a matter of construction of the 2008 Policy, its causes for action for damages for breach of contract arose when the respective insurers denied indemnity (or, as put later in Globe Church’s submissions, on the lapse of a reasonable time to perform the contractual promise of indemnity) – not when the obligation to indemnify arose on the happening of the property damage itself; nor, so far as the additional loss/business interruption claims are concerned, when such loss was first incurred.

12. [12]

    The matter was referred to this Court by Davies J not by reason of the conflicting intermediate appellate authorities in this country on the issues in dispute, but because the focus of submissions before his Honour by Allianz was the extent to which this Court in CGU v Watson endorsed what was said by Giles J in Penrith City Council (at 571F-G) to the effect that there will be no breach of contract until the insurer has been required to pay, or do some other act in performance of its promise, and has failed or refused to do so. Davies J considered that clarification was needed at an appellate level of the principle or principles referred to by Giles J in Penrith City Council, noting that if Allianz were to argue that CGU v Watson was wrongly decided, such an argument could only be put to this Court (see at [49]). As it transpired, the argument put for the defendants in this Court was that Giles J’s observations in Penrith City Council were obiter and were not endorsed in CGU v Watson; but that if that were not to be accepted, then CGU v Watson was wrongly decided and should not be followed on this issue.

13. [13]

    It is relevant to note at the outset that Davies J ordered that costs of the respective notices of motion filed by the defendants (seeking separate determination) be costs in the determination of the separate questions provided that Globe Church is not to be liable for more than one set of the defendants’ costs (order 3).

Background

1. [14]

   The background to the present dispute (briefly adverted to in the above introduction) may be summarised as follows, largely by reference to the Amended Agreed Facts.

2. [15]

   Globe Church is an association incorporated under the Associations Incorporation Act 2009 (NSW). Allianz and Ansvar are both corporations registered under the Corporations Act 2001 (Cth) (see [2] of the Amended Agreed Facts).

3. [16]

   Since at least 1 January 2007, Globe Church has operated as the Eastlakes Christian Life Centre from a location in Gateshead, New South Wales (two parcels of land referred to as the Properties). The registered proprietor of the Properties is the Assemblies of God New South Wales Ltd (AOG). AOG is the trustee of a trust established by deed dated 28 April 2004, under which Globe Church is the beneficiary. Globe Church uses a church, church hall and car park constructed on the Properties (see [3] of the Amended Agreed Facts).

4. [17]

   Pursuant to the terms of the trust, Globe Church has an equitable interest in the Properties; is legally responsible for the Properties; and has agreed to keep the Properties insured (see [4](a)-(c) of the Amended Agreed Facts).

5. [18]

   Globe Church is the insured under the 2008 Policy, the relevant terms of which are set out in more detail in due course (see at [35]-[51] below).

6. [19]

   Allianz (as to 60% of the risk) and Ansvar (as to 40% of the risk) is each an insurer on the 2008 Policy (see [5] of the Amended Agreed Facts). The period of cover specified on the 2008 Policy was from 31 March 2007 to 31 March 2008 at 4pm (cl 1.6).

7. [20]

   Pursuant to cl 2 of the Policy Wording, the Insurers agreed to “indemnify the Insured against Damage occurring to Property Insured during the Period of Insurance” and to provide the additional cover referred to in cl 3 up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule, but subject to cll 2.1-2.7 (see [6] of the Amended Agreed Facts). The Properties form part of the “Property Insured” as defined in cl 1.3 of the Policy Wording (see [7] of the Amended Agreed Facts).

8. [21]

   The “Period of Insurance” is defined in cl 1.6 of the Policy Wording to mean the period referred to in the Schedule (which, as already noted, was to expire on 31 March 2008 at 4pm) “or any further period for which renewal has been agreed”. For the five years following 31 March 2008, Globe Church was insured pursuant to policies on which Ansvar was the sole insurer (and hence Allianz was not on risk for any further period after 31 March 2008). There was no period for which renewal was agreed by Allianz for the purposes of cl 1.6 (see [9] of the Amended Agreed Facts).

9. [22]

   The 2008 Policy does not contain a choice of law clause. The governing law of the 2008 Policy is that of New South Wales, as the law with the closest and most real connection to the 2008 Policy (see [10] of the Amended Agreed Facts).

10. [23]

    Globe Church has alleged (at [10] of the further amended statement of claim) that between 8 June 2007 and 31 March 2008 certain damage occurred to the Properties. The defendants deny or do not admit that the damage occurred as alleged. However, the defendants accept that, to the extent that any such damage occurred during the “Period of Insurance” as defined in the 2008 Policy, it constituted “Damage to the Property Insured” within the meaning of the 2008 Policy (see [11]-[13] of the Amended Agreed Facts).

11. [24]

    At [13] of the further amended statement of claim, Globe Church alleges that, as a result of the Damage to the Property Insured, it: incurred additional costs; suffered loss of income resulting from the interruption of or interference with the Business; and incurred professional fees for the preparation of its claim. At [18]-[19] of the further amended statement of claim, Globe Church alleges that it suffered loss and damage from the defendants’ alleged breaches of the 2008 Policy, being their refusal or failure to indemnify for such costs, loss and fees. Globe Church further alleges that additional costs, loss resulting from the interruption of or interference with the Business, and professional fees for the preparation of its claim each began to be incurred by the end of September 2009 and that they continued, after 4 November 2010 (the relevant date for limitation purposes) (see [13A] and [13B] of the Amended Agreed Facts).

12. [25]

    As noted earlier, Globe Church first made claims on the defendants in respect of the alleged damage on 29 September 2009 and indemnity was denied by each of the defendants (on 5 April 2011 and 30 September 2011, respectively). Globe Church alleges, and the defendants respectively deny, that the said denials of indemnity constituted a breach of the 2008 Policy (see [14]-[18] of the Amended Agreed Facts).

13. [26]

    Proceedings were commenced in the Common Law Division on 4 November 2016. In those proceedings, Globe Church claims, inter alia, a declaration of breach of contract for the denials of the 2008 Policy, specific performance of the 2008 Policy and, further or in the alternative, damages for breach of the 2008 Policy. The defendants allege, and Globe Church denies, that Globe Church’s causes of action against them in respect of the 2008 Policy are barred by s 14(1) of the Limitation Act 1969 (NSW) (see [19]-[21] of the Amended Agreed Facts). Globe Church accepts that Allianz cannot be liable for damage occurring after 31 March 2008.

14. [27]

    Pausing here, it may be noted that the alleged breaches of the 2008 Policy are limited in the pleading to the defendants’ separate denials of indemnity (see [15], [17] of the further amended statement of claim) occurring on 5 April and 30 September 2011, respectively (referred to at [18]-[19] as being the defendants’ refusal “or failure” to indemnify for the additional costs, loss and fees there claimed to have been suffered). What is not alleged is that the defendants committed separate or ongoing breaches of the 2008 Policy by failing to comply with continuing obligations to indemnify, for which separate causes of action for damages for breach had arisen. Nor is there any allegation that it was an implied term of the 2008 Policy that performance of the indemnity obligations (payment of the amount of the indemnity calculated in accordance with the basis of settlement clauses) be made within a reasonable time of the occurrence of the indemnified event (or the making of a claim under the policy).

15. [28]

    The loss and damage suffered because of the refusal or failure to indemnify are pleaded as being the amounts for which the defendants should have indemnified Globe Church under the 2008 Policy “plus loss and damages suffered because of [the defendants’] refusal or failure to indemnify” (see [18] and [19], respectively, of the further amended statement of claim); and, as particularised, they include loss of income from hiring out the church hall and reduced offertory contributions as well as professional fees for the preparation of Globe Church’s claim.

Summary of the parties’ positions as to the appropriate answers to the separate questions

1. [29]

   Allianz submits (see T 33.22-29) that the questions for determination should be answered as follows:

2. [30]

   Ansvar similarly (though not expressed by reference to the particular questions) contends that the answers to the separate questions are:

3. [31]

   Globe Church contends that the answers to the separate questions are:

4. [32]

   As to the claims for specific performance and declaratory relief, in its written submissions, Globe Church acknowledges that if there has been a breach of the 2008 Policy and damage has been suffered, then specific performance would not be available because damages will be an adequate remedy and it makes clear that its claims for declaratory relief are “surplus” to the claims for damages for breach (because, if there were breaches and damage suffered as a result, it will not be necessary for declarations to be made). Hence, there is no need for the purpose of answering the questions posed for separate determination to consider the separate arguments raised by the defendants as to why the claims for specific performance and declaratory relief are not maintainable.

5. [33]

   For completeness, however, Globe Church says that, to the extent that the defendants have not yet failed to fulfil their obligations under the 2008 Policy (giving by way of example the situation where a reasonable time has not yet elapsed for payment of additional costs and ongoing business losses), then a claims for declaratory relief and/or for specific performance would not yet be time barred (because there would not yet be a breach). It is not necessary to deal with this proposition (with which the defendants do not cavil) as it ultimately does not here arise.

Relevant Policy Terms

1. [34]

   At this point it is convenient to set out the relevant policy terms, noting that the 2008 Policy evidences two contracts: one between Globe Church and Allianz for 60% of the risk; and one between Globe Church and Ansvar for 40% of the risk (see Towry Law plc v Chubb Insurance Co of Europe SA [2008] NSWSC 1352 at [235]-[236] per McDougall J), but that the terms of the two contracts are relevantly identical.

2. [35]

   Section 1 of the 2008 Policy, appearing after the general definitions section (cl 1), is headed “Property Damage”. Section 2 of the 2008 Policy (which nevertheless contains some clauses applying also to section 1) is headed “Consequential Loss of Profits Insurance”.

3. [36]

   The extent of cover for Property Damage is set out in cl 2, which, relevantly, provides that:

4. [37]

   Capitalised terms are as defined in cl 1. Relevantly, cl 1 includes the following definitions:

5. [38]

   Clause 3, headed “Additional Cover”, to which reference was made in cl 2 as set out at [36] above, relevantly provides that:

6. [39]

   Clause 4, headed “Basis of Settlement”, contains the following definitions of “Reinstatement Value” and “Indemnity Value”:

7. [40]

   Pursuant to cl 4.3, the Basis of Settlement on buildings, machinery, plant and all other property and contents other than those specified in cll 4.14-4.24 was specified as the Reinstatement Value. For the specific items of property referred to in cll 4.14-4.24, the Basis of Settlement was to be as there set out.

8. [41]

   Clauses 4.4.1-4.4.7 contain reinstatement provisions applying to buildings, machinery and all other property other than the property referred to in cll 4.14-4.24. They provide as follows:

9. [42]

   Clauses 4.5 and 4.6 deal, respectively, with the “extra cost of reinstatement (including demolition or dismantling)” necessarily incurred by the Insured to comply with the requirements or any statute or regulation of any municipal or statutory authority, on the one hand (cl 4.5), or necessarily incurred by the Insured to comply with the requirements or any statute or regulation of any municipal or statutory authority and not otherwise recoverable under cl 4.3, on the other hand (cl 4.6), subject in each case to certain provisos.

10. [43]

    Clause 4.26, which applies to all property, provides that the Insurer may, at its option, reimburse the Insured for the cost of carrying out work or obtaining any item or items in accordance with the Basis of Settlement Clause, or may arrange for that work to be carried out or for the purchase of the item or items. Clause 4.27, which again applies to all property, provides that the Insurer shall not be bound to replace, repair or rebuild exactly or completely, but only as circumstances permit and in reasonably sufficient manner “and shall not in any case be bound to expend more than the applicable Limit or Sub-Limit of Liability”.

11. [44]

    Clause 4.28, appearing under the heading “Provisions Applying to All Property”, but with its own further heading “Election to Claim Indemnity Value”, provides that:

12. [45]

    As extracted above (at [36]), pursuant to cl 2.7 the cover and additional cover under cll 2 and 3 is subject to conditions 7 and 14. Clause 7 sets out conditions applying only to section 1; clause 14 sets out conditions applying to both sections 1 and 2.

13. [46]

    It is not necessary here to set out the terms of cl 7 (which sets out conditions relating to: the situation where third parties have interests in the Property Insured; as to the moneys otherwise payable being the proportion that the Insured’s declaration at the time of commencement of the Period of Insurance of the value of all Property bears to 85% of all such property at that time “calculated in accordance with the Basis of Settlement Clause”; the position of property in which automatic sprinkler system is installed; and damage occurring over a period of time caused by particular named events (such as earthquake), since those issues do not arise on the agreed facts in the present case.

14. [47]

    Clause 14 (applicable to both sections of the policy), among other things, sets out the claims procedures. Relevantly, cl 14.2.1 provides that:

15. [48]

    Clause 14.2.6 provides that:

16. [49]

    For consequential loss (Section 3 of the policy), the extent of cover is specified in cl 9, which provides, relevantly:

17. [50]

    Pursuant to cl 8.16, the term “the Business” is defined to mean “the Business as specified in the Schedule carried on by the Insured at the Premises at the commencement of the Period of Insurance or such other business or businesses as may be declared by the Insured during the Period of Insurance and insurance for which has been accepted by the Insurer under Section 2 of the policy.” (The Schedule does not in fact specify the Business, but nothing turns on this for present purposes.)

18. [51]

    The Basis of Settlement clause applicable to claims for consequential loss under section 3 of the Policy (cl 10) specifies various items of loss, including relevantly:

Defendants’ submissions

1. [52]

   Each of Allianz and Ansvar filed written submissions, but their position is broadly the same and each adopted the oral submissions of the other. Therefore, it is convenient when summarising their submissions to do so in an amalgamated fashion.

2. [53]

   In essence, the defendants’ position is that, as a matter of principle, a cause of action for breach of contract on an indemnity insurance policy against damage to property accrues upon the happening of that property damage, at which time they say the insurer’s obligation to indemnify (i.e., to hold the insured harmless against loss) arises (citing Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 (Canty v PaperlinX) at [39] per Gleeson JA, Barrett and Emmett JJA agreeing) and all the facts necessary for the insured to maintain its action against the insurer have occurred (citing Do Carmo v Ford Excavations Pty Ltd 154 CLR 234; [1984] HCA 17 (Do Carmo) at 245 per Wilson J).

3. [54]

   The defendants maintain that, absent contrary terms in the indemnity insurance policy in question, upon the suffering of property damage there is a complete cause of action against the insurer upon which the insured can sue without the need to allege the making of demand for payment on the insurer (citing Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65 (Chandris v Argo) at 74 per Megaw J). In this regard, reference is made to the recent decision of the Supreme Court of the United Kingdom in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (The DC Merewestone) [2017] AC 1 (Versloot Dredging) at [24] per Lord Sumption JSC (with whom Lords Clarke, Hughes and Toulson JJSC agreed) and to the earlier decision Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1 (The Fanti) at 35-36 per Lord Goff (with whom Lord Ackner agreed).

4. [55]

   The defendants argue that the insured has a cause of action for damages to be put in the position in which it would have been had the contract been performed (i.e., had it been held harmless from the loss) and that the nature of the action is for unliquidated damages (not an action in debt for a liquidated sum).

5. [56]

   It is submitted that the obligation of the insurer is not an obligation to pay a specified or calculable sum following notification; nor is it a promise to pay an amount due under the contract within a reasonable time. In oral submissions, the proposition that the defendants’ construction of the contract turned it into a contract to pay damages (which could not be performed in its terms if there were an obligation to reinstate or replace the damaged property) (see T 9.19-38) was not accepted by the defendants. Rather, the defendants argue that the contract is “a promise to indemnify which may lead to a remedy of damages [but is] no more a contract to pay damages than any other promise which, when breached, sounds in a claim for damages” (see at T 9.34-38).

6. [57]

   The defendants submit that it was not a condition precedent of the 2008 Policy that the insured make a claim on the policy or otherwise notify the insurers of the occurrence of the damage alleged (and hence they say that the obligation to indemnify the insured for property damage did not depend on such a claim or notification); and that Globe Church’s right to sue under the contract of insurance did not depend upon the defendants either declining indemnity or failing to indemnify within a reasonable time.

7. [58]

   The defendants point to long-standing English authority and intermediate appellate authority in this country as establishing the principle that, under an indemnity policy, the cause of action first accrues upon the happening of the insured event.

8. [59]

   As to the former, reliance is placed on The Fanti; Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd’s Rep 541 (Callaghan); Harrison v Shepherd Homes [2010] EWHC 1398 at [30]-[31] per Ramsey J; Seele Australia GmbH & Co KG v Tokio Marine Europe Ins Ltd (No 3) [2010] Lloyd’s Rep IR 490 at [50]-[52] per Clarke J; Virk v Gan Life Holdings Plc [2000] Lloyd’s Rep IR 159 at [10] per Potter LJ (with whom Henry LJ agreed) (see Allianz’ written submissions at fn 12; Ansvar’s written submissions at fnn 11-12); and the commentary in the various texts referred to in fn 8 to Ansvar’s submissions).

9. [60]

   As to the latter, reliance is placed on Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159; [2000] WASCA 415 (Cigna) at [79]-[94] per Pidgeon J ( with whom Malcolm CJ and Kennedy J agreed) and Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6 (Gordian) at [94]-[97] per Blow CJ (with whom Porter and Wood JJ agreed), followed at first instance by Yates J in the Federal Court in The Commonwealth v Vero Insurance Ltd (2012) 291 ALR 563; [2012] FCA 826 (Vero) at [81]-[90] (though there the particular wording of the policy led to a different conclusion). Reference is also made to academic commentary (see Merkin, Colinvaux’s Law of Insurance (11th edn, 2016), [10-076]-[10-078]; Birds, Lynch, Milnes, MacGilivray on Insurance Law (13th edn, 2015), [21-055]; Levine and Haar, Construction Insurance and UK Construction Contracts (2nd edn, 2013), [2.110]-[2.111]; Reed, Construction All Risks Insurance (2014), [21-005]; Enright and Jess, Professional Indemnity Insurance Law (2nd edn, 2007), [14-078]) (see Allianz’ written submissions at fn 13; Ansvar’s written submissions at fn 8).

10. [61]

    It is submitted that the Australian intermediate appellate authority in this regard is not “plainly wrong” and should be followed by this Court; that there is no authority, either binding on this Court or of any persuasive value, to the contrary; and that Stevenson J’s conclusion in Carillion that this Court (in CGU v Watson) has endorsed the contrary view to that accepted in Cigna is in error.

11. [62]

    The defendants (though accepting that the policy in the present case is not a liability policy) argue that the same principle explains the position for liability insurance; namely that it is not until establishment of an insured’s liability to pay damages to a third party (the occurrence of the indemnified event) that the insurer has an obligation to indemnify and the insured has a complete cause of action (citing in this context Penrith City Council at 568-569 per Giles J; CGU v Watson at [59], [61], per Giles JA (with whom Spigelman CJ and Basten JA agreed); and Allianz Australia Insurance Ltd v Bluescope Steel Ltd (2014) 87 NSWLR 332; [2014] NSWCA 276 (Allianz v Bluescope) at [78] per Meagher JA and [267] per Ward JA).

12. [63]

    The defendants accept that if the insured’s cause of action accrues at the time of property damage then the limitation period may begin to run before the insured is aware of the damage (a matter to which Stevenson J had regard in Carillion at [140]) but they say that there is no general principle that knowledge is essential for the accrual of a cause of action (and point to Australian commentaries to the effect that the limitation period is not postponed by the insured being unaware of the occurrence of the insured peril – see fn 48 to Ansvar’s submissions).

13. [64]

    The defendants identify various difficulties with a construction of the promise to indemnify as if it were a promise to pay within a reasonable time of notification. First, that the commencement of the limitation period would be entirely within the control of the insured, who could delay making a claim on the insurer and, by so doing, could prejudice the insurer in the defence of the claim (in circumstances where an insurer would not be able to resist the claim on the basis of delay unless it could demonstrate that the resulting prejudice was equal to or greater than the claim – see s 54 of the Insurance Contracts Act 1984 (Cth)). Second, that if the cause of action does not accrue until a denial by the insurer or until the date upon which it has become unreasonable for the insurer to deny the claim there may be uncertainty as to whether time has begun to run for limitation purposes (Allianz noting in this context that, absent policy terms to the contrary, any denial need not be in writing).

14. [65]

    It is thus submitted that the principle that the cause of action accrues at the time of the insured event (here, relevantly, the damage to property) is to the benefit of both insurer and insured; and permits the insured to claim damages immediately from the insurer, so as to be held harmless as soon as possible.

15. [66]

    As to cases where an insured may recover damages for delayed payment of valid claims, the defendants’ argument is that these cases do not support the proposition that the insured’s cause of action for damages for breach of the promise to indemnify is deferred until after an insured has made a claim on the insurer: first, because they do not concern the running of time in relation to the insurer’s promise to indemnify; second, because the outcome in these cases is consistent with the obligation to indemnify arising at the time of the insured event; and, third, that such cases are concerned only with losses consequential on the delayed payment of a claim by an insurer in addition to the loss for which the insurer has promised to indemnify the insured.

16. [67]

    In that regard, Allianz argues that the analysis in some of those cases (that the insurer has made a promise to pay and that, no time being specified, it is implied that it is to be complied with in a reasonable time) is incorrect. It contends that the insurer’s promise is not to pay a specified sum but to indemnify; and that the obligation to do so arises immediately upon the indemnified event. However, it says that the outcome in these cases is supportable on three other bases, which are consistent with its analysis. First, that while the obligation to indemnify arises at the time of the insured event, consequential loss occurring prior to the insurer having had a reasonable time to consider a claim by the insured is too remote to be recoverable. Second, that the failure to meet the obligation to indemnify within a reasonable time of notification may, depending on the circumstances, be a breach of the implied obligation of utmost good faith implied by s 13 of the Insurance Contracts Act 1984 (Cth). Third, that, depending on the other terms of the policy, there may be an implied promise to indemnify the insured for loss in addition to that covered by the express indemnity which is caused by the insurer’s unreasonable failure to honour that express indemnity within a reasonable time. Further, it maintains that the status of these authorities is uncertain (see [42] of Allianz’ written submissions). It is said that no claim is made in the present case for losses consequential upon the delayed payment of the insured’s claim in addition to the loss for which the insurer has promised to indemnify the insured.

17. [68]

    Thus the defendants submit that, this being an indemnity policy (with the relevant promises being to indemnify), in the absence of anything in the wording of the 2008 Policy to the contrary Globe Church’s cause of action for damages accrued at the time of property damage (or additional or consequential loss when first occurring, as the case may be). They say that there is nothing in the Policy Wording of the 2008 Policy that is to the contrary of the position for which they contend.

18. [69]

    The defendants argue that the provisions of the 2008 Policy concerning the making of claims (see cl 14.2) do not expressly or implicitly provide that the making of a claim is a condition precedent to the insurer’s obligation to indemnify (a conclusion that is said to be consistent with the analysis in each of Callaghan, Cigna and Gordian, where similar conclusions were reached about clauses requiring notification of claims). Insofar as cl 14.2.6 contemplates the making of “progress payments” by the insurer “[p]rovided that liability has been admitted”, it is submitted that this does not (either expressly or implicitly) make an admission of liability a condition precedent to the insurer’s obligation to indemnify; rather, that it assumes the existence of a liability to be admitted.

19. [70]

    It is submitted that nothing in the “basis of settlement” provisions (in cl 4 and cl 10, respectively) alters the position. The defendants argue that the basis of settlement clauses provide the agreed basis upon which the insurer’s liability to the insured pursuant to the indemnity is to be “settled”; arguing that absent such a clause there might be debate as to the appropriate measure of the insurer’s promise to indemnify. It is submitted that the function of the basis of settlement clauses is only to quell that debate by agreement. In the words of Sir Peter Webster (referring to a similar clause in Callaghan), it is said that those clauses do not “have the effect of postponing the insurer’s primary liability; they merely indicate the alternative ways in which that liability may be satisfied”; and that, as Barwick CJ described in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206; [1981] HCA 9 at 216, such a clause “effects an extrapolation of the promise to indemnify”.

20. [71]

    The defendants argue that this conclusion is not denied by the fact that, depending on the circumstances, the measure of the indemnity produced by the basis of settlement clause may take some time to quantify. It is noted that, pursuant to cl 4.4.2, if the insured does not carry out rectification work “with reasonable despatch”, the insured is limited to the “indemnity value” as defined; and, similarly, that pursuant to cl 4.4.4, until a sum equal to the “reinstatement value”, as defined, has been incurred by the insured, the measure of indemnity shall not exceed the indemnity value. The defendants argue: that these matters go to the quantification of the insurer’s liability, not to its existence; that there is nothing unusual about the quantum of the damages for which a defendant is liable for breach of contract being affected by events that occur after breach; and that this does not delay the accrual of the cause of action against the defendant.

21. [72]

    As to the consequential loss provisions, while it is accepted that there may be distinct claims under the indemnity provisions (accruing at different times), it is submitted that there is not a free-standing cause of action accruing each time such a loss is incurred.

22. [73]

    Thus, the defendants maintain that Globe Church’s causes of action for damages for breach of the 2008 Policy for property damage and additional cover accrued at the time of the alleged property damage (no later than 31 March 2008), and that the claim for damages for breach of the 2008 Policy in respect of business interruption and professional fees accrued no later than the end of September 2009 (see T 33). On that basis, by force of s 14(1) of the Limitation Act, they contend that none of Globe Church’s claims for damages for breach of the 2008 Policy is maintainable and that the separate questions should be answered accordingly.

Globe Church’s submissions

1. [74]

   In essence, Globe Church’s argument on this hearing follows (and is predicated largely on the correctness of) the dicta or “approach” of Giles J in Penrith City Council (which Stevenson J in Carillion accepted had been endorsed by this Court in CGU v Watson and preferred over the conflicting line of authority): namely, that there is a distinction between the promise of an insurer to indemnify and the breach of that promise; and that only when the insurer failed to do what was required of it could a cause of action for damages for breach of contract accrue to the insured.

2. [75]

   Globe Church argues that the promises of indemnity in the 2008 Policy require the defendants to pay money, subject to the terms of the 2008 Policy, for the damage or reinstatement of the Property Insured and for additional costs and loss of income, which were incurred or suffered at different times – subject to a claim being made and the amount being calculated in accordance with the 2008 Policy. It is submitted that, as there was no time stipulated in the 2008 Policy for the defendants to perform those promises, the law implies a term that the defendants had a reasonable time to do so (citing Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 (Foran v Wight) and the authorities at fnn 62 and 63 to its submissions; and invoking what was said in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2 (CIC) at 401-402 – see below at [183]. Its position is thus dependent on the proposition that there is to be implied into the contract of insurance a term requiring performance of the promise(s) to indemnify within a reasonable time.

3. [76]

   Globe Church says that, on the proper construction of the 2008 Policy, the defendants did not promise to prevent property damage occurring (a proposition with which the defendants do not cavil) and nor did they promise immediately to put the insured in the same position as if the property damage had not occurred (a proposition with which the defendants do cavil, insofar as they maintain that a contract to indemnify amounts to a promise immediately to make good or hold the insured harmless against loss).

4. [77]

   In its written submissions, Globe Church identifies the claimed breaches by the defendants as “omissions … to perform their obligations under the 2008 Policy within a reasonable time”. (In its pleading, as noted earlier, the alleged breaches are pleaded, somewhat inconsistently with this submission, as the wrongful denial or refusal of liability; and also referred to as a failure to indemnify, though nothing ultimately turns on this.)

5. [78]

   Globe Church argues that what is a reasonable time is a question of fact, to be determined at the time it is said to have elapsed, having regard to all the relevant circumstances including the content of the obligations; and that the defendants cannot establish that a reasonable time for them to perform their obligations under cll 2 and 9 of the 2008 Policy had elapsed before 4 November 2010, such that their limitation defences must fail (at least at this stage of the proceedings). It is submitted that what is a reasonable time is likely to be longer on an indemnity policy.

6. [79]

   It is submitted that the proposition that the defendants were in breach as soon as the property damage occurred is inconsistent with the correct approach to a claim for damages for breach of contract (as it ignores the distinction between when an obligation arises and when a breach occurs for failure to fulfil that obligation, and in effect conflates the two). Globe Church argues that to the extent there are cases where this has been found (as adverted to above), those cases are either distinguishable (because the obligation was to pay a sum certain), or are plainly wrong.

7. [80]

   As noted, Globe Church maintains that the correct approach to a claim for damages for breach of an insurance policy is that which was applied by Giles J in Penrith City Council and submits that this approach was followed by, and formed part of the ratio of, this Court in CGU v Watson, because it was there necessary for the Court to identify with precision the content of the promises by the insurer by a process of construing the policy and the alleged failures to fulfil them, including the times at which the alleged failures occurred. It is submitted that this Court applied the same approach in British American Tobacco Australia Ltd v Eagle Star Reinsurance Co Ltd [2006] NSWCA 156 (Eagle Star) at [33], [61] and [64] per Giles JA (Tobias JA agreeing).

8. [81]

   Globe Church submits that this is an orthodox approach with respect to the law of contract, under which a promise in a contract has both a substantive and temporal obligation (citing Foran v Wight at 420 per Brennan J) and notes that failure to perform a contractual obligation on time is a breach (citing Kone Elevators Pty Ltd v Popa [2006] VSCA 26 (Kone Elevators) at [21] per Eames JA (with whom Callaway and Ashley JJA agreed)). It is submitted that this applies to claims for damages for breach of insurance contracts, including indemnity policies (citing various authorities, see fn 19 of Globe Church’s submissions, including Brescia Furniture Pty Ltd v QBE Insurance (Australia) Ltd [2007] NSWSC 598 at [84]-[88] per Hammerschlag J).

9. [82]

   Globe Church also refers to the decision of the High Court in CIC, which concerned a claim under an indemnity policy for property damage, as recognising the distinction between when an obligation is imposed and when it must be performed; and the decision of the Court of Appeal in Western Australia in Maxwell v Highway Hauliers Pty Ltd (2013) 45 WAR 297; [2013] WASCA 115 (Maxwell v Highway Hauliers) at [95] per McLure P (with whom Pullin JA agreed on this ground at [123])) as drawing a distinction between a claim to enforce the indemnity provisions of a policy and a claim for damages for refusal to indemnify; see also Murphy JA at [153]-[155] in that case).

10. [83]

    Globe Church argues that Cigna was decided on the basis that the claim was for a certain sum under an accident policy, without reference to when a breach of contract occurred, on the basis that both Malcolm CJ and Pidgeon J state that the policy in question was an accident policy for a fixed amount on the happening of an event. It says that this case was followed in Gordian, also without reference to when a breach of contract occurred, on the basis of the passage at [88] in Cigna in which it is noted that under the policy the money is payable “on the happening of the event”.

11. [84]

    As to the proper construction of the 2008 Policy, Globe Church invokes the principles of construction of commercial contracts as re-stated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[51] and criticises the defendants’ submissions as not commencing with the text or context of the 2008 Policy (a criticism the defendants maintain is unfounded since they commence with the text of the policy – namely, the promise to indemnify), but instead focussing on authorities which consider when an insured’s cause of action begins to run by reference to the type of policy concerned. It is said that this involves the use of legal fictions to justify the result that the cause of action against the insurer accrues on a property or fire indemnity policy when the damage occurs “even though the insurer has no way of knowing what amount it has to pay at that point, and some of what it will have to pay is costs and losses yet to be incurred or suffered (including that an insurer on a property insurance policy promises the insured event will not occur and the competing fiction that the insurer takes on a primary liability to indemnify and a secondary liability to perform its obligations under the contract)”. Globe Church further argues that the defendants have subverted the process of contractual construction by arguing that the rule as to the time the cause of action accrues on an indemnity policy applies unless there are “clear words in the policy which have a contrary effect”.

12. [85]

    It is submitted that, to the extent that in Cigna, Gordian, and Carillion each court attempted to determine when the insurer had failed to fulfil its obligations under the relevant policy by construing the policy, that approach was consistent with principle; and that the question as to whether or not the conclusions reached in those cases on construction are correct need not here be decided, because the policies had different text, context and purposes to the 2008 Policy.

13. [86]

    Turning then to the provisions of the 2008 Policy, Globe Church submits that there are three promises in the 2008 Policy, each of which deals with a different kind of loss that will necessarily be suffered at different times: the promise in cl 2 to indemnify against property damage (subject to cll 2.1-2.7); the promise in cl 2 to provide the additional cover referred to in cl 3 (up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule but again subject to cll 2.1-2.7), noting that cl 3 itself contains additional costs that “the Insurer will also pay”, those additional costs being costs incurred by the insured after the property damage; and the promise in cl 9.1 to indemnify against loss resulting from interruption of or interference with the Business, being consequential losses incurred after the property damage occurs (provided the loss falls within one of the sub-clauses to cl 9.1 and subject to cl 9.4). It is submitted that the subject matter of the promises is inconsistent with the proposition that the defendants’ obligations arose on the occurrence of the property damage; and, citing CGU v Watson, Gordian and Penrith City Council, that the obligation to pay different amounts at different times can arise on the same policy.

14. [87]

    As to the meaning of the terms “indemnify” and “provide the additional cover”, which Globe Church points out are not defined in the 2008 Policy, Globe Church submits that their content is to be taken from their ordinary meaning in context (and that assistance is not here to be gained from Canty v PaperlinX or Allianz v Bluescope, which concerned an indemnity given to a creditor for a third party debtor and a liability policy, respectively).

15. [88]

    Globe Church places reliance on the fact that each promise is expressed to be “subject to” identified matters and argues that this means that the promises are conditional upon those matters (some of which will necessarily occur after the property damage). In this regard, it is noted that the matters referred to in cll 2.1-2.7 (to which the promises to “indemnify” and “provide the additional cover” in cl 2 are subject) and in cl 9.4 (to which the promise to “indemnify” in cl 9.1 is subject) include: the amount of the indemnity or loss “being calculated in accordance with” the relevant Basis of Settlement Clause (cl 4 or cl 10, respectively); the conditions set out in cl 14, which include the claims procedures in cl 14.2; in relation to the cl 2 promises, the application of any Deductible referred to in the Policy Wording and in the Schedule (that being defined as “the first amount of each claim which is payable by the Insured as stated in the Schedule”, which Globe Church argues means that the obligation to indemnify is subject to a claim being made); and, in relation to the promise in cl 9.1, the conditions set out in cl 11, which include reference to events which may occur after property damage has occurred.

16. [89]

    Globe Church also points to the use of the future tense in which each of the promises is expressed, arguing that the defendants promised that they “will indemnify” and “shall provide the additional cover”, when the conditions of the promises are satisfied.

17. [90]

    Globe Church argues that Allianz’ submissions (at [43]-[47]) – to the effect that the claims and quantification provisions do not affect the time at which the insurer is in breach (because they are only concerned with the quantification, not the existence, of the insurer’s liability) – incorrectly assume acceptance of the need to find contrary wording to the insurer being immediately liable to indemnify on the damage occurring; but nevertheless it says that, in any event, the wording of the clauses referred to above is contrary to those submissions.

18. [91]

    In that regard, it is said that a submission to the effect that quantification of the indemnity should not postpone accrual of the cause of action was rejected on appeal in Commonwealth v Vero Insurance Ltd (2013) 306 ALR 182; [2013] FCAFC 152 at [115]-[116] per Jagot J (with whom Dowsett and Logan JJ agreed); and it is further submitted that the High Court in CIC determined the insurer’s “fundamental obligations” by reference to the effect of the basis of settlement and reinstatement and replacement clauses of the policy (referring to the judgment at 404).

19. [92]

    Globe Church submits that the cases relied upon by the defendants (Cigna, Gordian, Callaghan) do not discuss the issue as to the implication of a term requiring performance; nor are they authority for the proposition that in an insurance policy the time that the obligation to indemnify arises is the same as when it is breached, noting Giles J’s observation in Penrith City Council at 571, that with a liability policy (that being the kind of policy considered in Gordian) there will not often be a material difference between the obligation to pay arising and the insurer failing to perform it. Globe Church submits that this is the same for a policy where a fixed sum is payable on the occurrence of an event where the occurrence of the event is known to the insurer (as in Cigna). It argues that these authorities should not be followed to the extent that they failed to consider whether a reasonable time had elapsed for performance but says that that does not mean they were wrongly decided (and that it is not necessary here to determine this).

20. [93]

    As to the defendants’ argument that, if time does not begin to run until the insurer denies the claim, the insured can indefinitely postpone the time bar by not making a claim, Globe Church argues that a breach may not only occur on denial of liability, but may also occur by lapse of a reasonable time for performance. It argues that an insurer can protect itself, subject to s 54 of the Insurance Contracts Act 1984 (Cth), by including appropriate terms in the policy and says that the alternative (that time may begin to run without the insured, or the insurer, knowing about it) “effectively truncates” the time during which the insured may claim on the policy and hence can also give rise to an unreasonable result (giving by way of example as to when this might occur, a situation such as the present, where the damage occurs to the foundations of a building). It argues that only the insurer is in a position to protect itself.

21. [94]

    As to the defendants’ argument that there may be problems determining when there has been a denial or whether a reasonable time has elapsed, Globe Church says that these are questions of fact upon which parties agree or courts regularly determine.

22. [95]

    For its part, Globe Church points to unreasonable results that may flow from time beginning to run on the occurrence of the property damage, which it says will tend to encourage litigation. First, that costs and losses incurred and suffered more than six years after the property damage would be time barred because it will not be possible to sue for damages for a failure to pay them before they are incurred or suffered (and that the insured will have to sue for a declaration of indemnity and consequential orders or specific performance to protect itself). Second, that on the defendants’ construction the insurer will immediately be, and remain, in breach until it pays, even if it admits liability, because its obligation is to hold harmless and this does not occur until it pays (which it is said will encourage litigation in the form of claims for damages for loss of use of the amount of the indemnity, even when the contract has not been terminated, such as in Maxwell v Highway Hauliers). Third, that an outcome where the claim becomes time barred if the insurer has not decided whether to indemnify when the six years elapses from the occurrence of damage “would come as a shock to many insureds who would naturally wait for the insurer to determine its position” and, again, that this will encourage the commencement of actions.

23. [96]

    Globe Church submits that in the circumstances of the present case, a reasonable time for each defendant to fulfil its promises under the 2008 Policy elapsed no earlier than the date each defendant denied liability. It is submitted that the time the defendants took to deny liability is the best evidence of a reasonable time elapsing “because that is the time they in fact took to assess and determine whether to pay” (Globe Church notes that the defendants have not suggested it was earlier).

24. [97]

    Pausing here, it is a somewhat surprising proposition that one can here determine the reasonableness of the time for performance of the promises to indemnify by reference to the time that elapsed before a denial of the claims – particularly where, as here, there was nearly six months between the denial of liability by Ansvar and that by Allianz. The fact that neither defendant has suggested that the reasonable time for performance of its indemnity obligations was earlier than the time of its denial does not assist Globe Church, since it is consistent with the defendants’ position that performance was due immediately on the occurrence of the property damage (and, if so, a reasonable time for performance does not arise nor is it necessary for the contract to specify the time of performance).

25. [98]

    Globe Church submits, in the alternative, that the defendants waived their right to take a reasonable time to pay when they denied liability, so that the time for them to pay expired on their denial.

26. [99]

    Globe Church thus argues that the defendants have not established that any of their obligations in the 2008 Policy was breached before 4 November 2010. It is submitted that, given the subject matter and terms of the three promises in the 2008 Policy, the times at which the defendants’ obligations arose, and when they were not fulfilled, were likely to have been different times but Globe Church says that the exact times need not here be determined.

Defendants’ submissions in reply

1. [100]

   In reply submissions, each of the defendants cavils with the suggestion that its submissions do not begin with the text of the 2008 Policy, emphasising that the defendants’ submissions start from the meaning of the promise to “indemnify” as explained in the authorities (i.e., as a promise to hold harmless against loss). The defendants argue that the fact that the promises are expressed in the future tense does not assist Globe Church, that being explicable by the fact that at the time of contract any obligation to indemnify is necessarily in the future. It is noted that nowhere in the Policy is the indemnity expressed as a promise to pay a claim made by the insured within a reasonable time; and the defendants submit that there is no basis for implication of a term to that effect.

2. [101]

   It is submitted that it is because of the text of cl 2 (i.e., the promise to indemnify) that Globe Church is wrong in saying that no time is specified in the 2008 Policy for the insurer to perform its obligation – it being of the nature of a promise to indemnify to hold harmless immediately. Hence it is submitted that there is no need to imply a promise requiring performance within a reasonable time; that to do so would be inconsistent with the express terms of the policy and with settled authority (and would amount to an impermissible re-writing of a fundamental aspect of the policy); and that business efficacy would not be served by such an implication. It is submitted that there is only a failure to specify a time for performance if (which it does not accept) the insurer’s promise is recast as a promise to pay claims made by the insured.

3. [102]

   As to the complaint by Globe Church that attempts to determine when the cause of action commences to run by reference the type of policy involved have led to the emergence of different “rules” and resulted in inconsistencies, it is submitted that it is the ordinary meaning of the promise to indemnify that explains the different “rules” for different kinds of policies and that this involves no legal fiction nor does it conflate the insurer’s obligation to indemnify with breach of that obligation.

4. [103]

   Further, it is argued that it is because the text of cl 2 of the 2008 Policy leads to the conclusion that the cause of action accrues at the time of property damage that it becomes necessary to consider whether some contrary language elsewhere in the policy defers the accrual of the cause of action (not because of any a priori principle).

5. [104]

   Both defendants reiterate their submissions as to the well-established line of authority in England and in this country; argue that nothing in the ratio of Penrith City Council or the reasons in CGU v Watson supports Globe Church’s position or gives rise to a persuasive “approach”; and that the “tentative dicta” in Penrith City Council that may suggest otherwise should not be followed. They argue that the passage from Penrith City Council that was approved in Eagle Star was directed to the proposition that the insured’s claim is one for unliquidated damages; that (contrary to Globe Church’s submissions) Cigna was not decided on the basis that it was a claim for a sum certain as opposed to a claim for damages (referring to Malcolm CJ at [2], [5], Pidgeon J at [59], [74]-[75], [86]-[87]), nor was it decided without reference to when a breach of contract occurred (rather, that the breach was identified as occurring upon the immediate failure to indemnify upon the happening of the insured event – hence the reason the claim was statute barred – and that this was the central issue also in Gordian); that both Cigna and Gordian were determined following a consideration of the terms of the respective policies but against the background of the well-established understanding of the nature of a promise to indemnify; and that nothing in CIC or Vero is contrary to the defendants’ position or supports that of Globe Church. (It is noted that in Vero the wording was in substance that of a reinsurance policy – there being no equivalent wording in the 2008 Policy – and that the reinsurer’s liability does not arise until the insurer’s liability is established.)

6. [105]

   As to the passage from CIC relied upon by Globe Church to support its submission (at [34]), it is submitted that this is neither binding ratio nor otherwise persuasive on this point.

7. [106]

   As to the submissions made by Globe Church in relation to construction of the 2008 Policy, it is submitted that neither the basis of settlement clause (cl 4) nor cl 14 (which sets out the claims procedures) provides any reason to construe cl 2 of the 2008 Policy other than in its ordinary way. The defendants reiterate their submission that cl 4 is expressly concerned with quantification, noting that cl 2.3 provides that the indemnity in cl 2 is subject to the “amount” of the indemnity being “calculated” in accordance with the Basis of Settlement in cl 4 (as also is the Deductible). As to the fact that cl 2 is expressed to be subject to “the application of any Deductible”, it is said that this simply reduces the quantum of the insurer’s obligation to indemnify; it does not provide that any amount must first have been paid by the insured before an obligation to indemnify arises (reference being made to Charter Reinsurance Co Ltd v Fagan [1997] AC 313, where a clause providing that the reinsurers “shall only be liable if and when” a certain was exceeded was held to be concerned not with questions of timing but only with quantum).

8. [107]

   As to the claim concerning additional costs, the defendants submit that the promise in cll 2 and 3 to pay “additional costs” is simply an aspect of the quantification of the indemnity for which cl 2 provides. It is submitted that this is made clear in cl 2 by the words “and shall provide the additional cover referred to in Clause 3”. It is further submitted that each of the additional costs referred to in cl 3 is a cost which, even absent cl 3, would likely fall within the promise to indemnify in cl 2 and that, read in this way, both cl 3 and cl 4 provide an “extrapolation” of the promise to indemnify for property damage (cl 3 avoiding argument and doubt as to whether the costs to which it refers would fall within the indemnity in cl 2).

9. [108]

   Emphasis is placed on the fact that cll 3.1 and 3.2 limit the insurer’s obligation, respectively, to “additional costs where they are necessarily and reasonably incurred” and “additional costs which are necessarily and reasonable incurred”; and do not say that the obligation is to pay those costs when or as they are incurred; nor is the indemnity limited to particular costs that have actually been incurred. Thus, it is said that there is no basis to submit that the obligation to indemnify for additional costs arises only when such costs are incurred by the insured. It is submitted that these clauses are directed to the question whether the costs are necessary to incur in the circumstances and, if so, the quantum of those costs.

10. [109]

    It is argued that if the policy were to be construed so that the insurer’s promise to pay the additional costs needed to be performed only when any of such costs were incurred, the insured would not be able to sue for such costs until it had paid for the particular items in cl 3. The defendants submit that this is contrary to the wording of the cl 2 indemnity and would result in the insured accruing separate causes of action in respect of each and every item cl 3 expenditure at the time of such expenditure; and that this construction should be rejected.

11. [110]

    Thus the defendants argue that, on the happening of property damage, the insured can immediately sue for damages and can include in its claim damages on account of the additional costs specified in cl 3 (and that, while the insurer can contest whether each of those costs is necessary and reasonable, the insurer cannot defend the claim on the basis that the costs have not yet been incurred).

12. [111]

    Accordingly, they submit that the references by Globe Church to its claim for additional costs do not assist Globe Church and that the claim for damages on account of those costs accrued at the time of the property damage and is similarly now statute barred.

13. [112]

    As to the business interference claim (cl 9), the defendants argue that, by parity of reasoning with that applicable to cl 2, the cause of action for damages for breach of the promise in cl 9.1 accrues when the insured suffers loss resulting from interruption of or interference with the Business caused by damage occurring during the period of insurance. It is noted by reference to the amended agreed facts ([13B]) that this was no later than September 2009 and hence they say that any claim for damages for breach of that promise is also statute barred.

14. [113]

    It is submitted that nothing in cl 4 or cl 10 postpones the accrual of the cause of action for breach of that promise and that, in both cases, the matters only go to quantification (reference being made to cl 9.4 which expressly provides that the indemnity in cl 9 is subject to “the loss being calculated in accordance with the Basis of Settlement in Clause 10”).

15. [114]

    The defendants submit that the claim for breach of cl 9.1 is now statute barred notwithstanding that (see amended agreed facts at [13B]) the business interruption loss has continued beyond 4 November 2010. They say that the promise is breached upon the happening of loss for the first time and that it is not a continuing obligation to maintain a state of affairs, with a continuing day by day breach, giving rise each day to a new cause of action for damages for that day’s business interruption loss (citing Larking v Great Western (Nepean) Gravel Ltd (in liq) (1940) 64 CLR 221; [1940] HCA 37 (Larking) at 236-238 per Dixon J; Sheldon v Beath [1993] Aust Torts Reports 81-209). Rather, it is said, the continuation of loss is relevant only to the quantification of loss as determined under the basis of settlement clause (cl 10) and that nothing in cl 10 postpones the accrual of the insured cause of action for breach of the cl 9 indemnity. It is argued that, similarly, there is not a fresh cause of action on the indemnity against property damages accruing day by day as the damage assists or the insured remains unindemnified; nor is there a fresh cause of action simply because property damage may worsen over time.

16. [115]

    It is submitted that, contrary to the submission made by Globe Church, the fact that the cl 9 indemnity deals with a different type of loss and that the obligation to perform might arise at a later point in time is not inconsistent with the defendants having breached the cl 2 indemnity on the occurrence of damage to the property insured; rather it simply means that under the 2008 Policy there are distinct causes of action in respect of each indemnity that might first accrue at different times.

17. [116]

    As to Globe Church’s submissions as to the consequences of the construction advanced by the defendants, it is submitted that these are unpersuasive, noting that the prospect that time may begin to run before an insured is aware that damage has been suffered is an unexceptionable consequence of limitation statutes (and one for which legislative provision has been made in certain contexts). It is submitted that a further problem is revealed by Globe Church’s submissions at [43]-[44]: namely, that if an insurer’s obligation is to pay a claim within a reasonable time then a denial before that time will not be a breach because the time for performance by the insurer would not yet have arrived (and it would at most be an anticipatory breach); and that if the insured then affirms the contract the date of denial does not mark the date of breach by the insurer. It is noted that this was the argument advanced by the insured in Carillion (see at [175]). The defendants say that this argument is not answered by the “waiver” argument because a party is entitled to waive a condition only if it is for that party’s sole benefit (which it is said would not be the case with a requirement that the insurer pay within a reasonable time – which would at the least be for the benefit of the insured and hence a condition which the insurer could not unilaterally waive). The defendants argue that the approach of Globe Church, even in the case of a denial of a claim, leads to the potential for real uncertainty as to whether a cause of action has accrued and whether time has begun to run for limitations purposes.

18. [117]

    Finally, Allianz argues that, while it is legitimate to take into consideration the consequences of competing constructions on the parties, no principle of construction supports a consideration of broader “policy” matters, such as whether the commencement of litigation or the bringing of particular types of claims will be encouraged by one or other of the competing constructions (and it says that it cannot be a criticism of the defendants’ approach that it may encourage litigation of coverage disputes sooner rather than later, as this is the policy behind the existence of limitation statutes).

Determination

1. [118]

   Turning, first, to the construction of the 2008 Policy, it is plainly in its terms a policy of indemnity insurance. As such, as recognised by Gleeson JA in Canty v PaperlinX (at [39]), the defendants’ respective obligations under the 2008 Policy were to “keep the [insured] harmless against loss” or to “make good a loss” (his Honour there citing Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 830-831; Total Oil Products (Australia) Pty Ltd v Robinson [1970] 1 NSWR 701 at 703; Sutton v Grey [1894] 1 QB 285 at 288-289).

2. [119]

   As Globe Church submits, on the express terms of the 2008 Policy, three separate obligations to indemnify can be identified: the first two (to indemnify against property damage and to “provide” additional cover) under cl 2 and a combination of cll 2 and 3, respectively; the third (against consequential loss) under cl 9.

3. [120]

   It was argued for the defendants (as outlined earlier) that although cl 3 could conceptually be construed as imposing a standalone obligation to indemnify, it was better construed as an explication or extrapolation of the indemnity in cl 2 (see T 30.42-50). Clauses 3.1 and 3.2 relate to particular identified costs. The costs referred to in cl 3.1 are the particular costs in cll 3.1.1 to 3.1.9 “where they are necessarily and reasonably incurred”. That tends to suggest that the particular costs need to be incurred before liability to pay arises (cf ‘the pay to be paid’ provision of the policy considered in The Fanti). That is perhaps even clearer in cl 3.2 which relates to costs which are in fact incurred. On the other hand the words “where necessarily and reasonably incurred” in cl 3 do not expressly introduce a temporal element but, rather, identify the subject matter of the indemnity (i.e., the occurrence of additional costs with the qualification that those additional costs be “necessarily and reasonably incurred”). The wording of cl 2 (“and shall provide”) makes tolerably clear in our opinion that there is a separate obligation to provide additional cover (against additional costs as identified in cl 3) from the primary obligation in cl 2 (to indemnify against property damage). That there may be some overlap in the losses or costs covered between the two (as the defendants contend) does not necessarily tell against such a construction. However, it is unnecessary here to determine when the cause of action for recovery of such additional costs arose, as it is accepted by Globe Church that, if its primary argument fails, those costs fall outside the limitation period.

4. [121]

   Clauses 3.1 and 3.2 can be contrasted with cl 2. That clause provides for an Indemnity against Damage (physical loss, damage or destruction) occurring to Property Insured (as defined). Whilst cl 2.3 provides for the amount of such indemnity to be calculated in accordance with the Basis of Settlement cl 4, which (as we point out at [127] below) provides for an agreed basis for discharging the liability to indemnify – by reinstatement in accordance with cll 4.4.1 to 4.4.7 or by payment of the indemnity value pursuant to cl 4.28. In respect of the former means of discharge of liability, cl 14.2.6 provides an obligation on the insured to make reasonable progress payments in respect of any claim to the insurer. Thus, whilst cll 4.4.1 to 4.4.7, and for that matter cll 4.5 and 4.6, essentially envisage that the insured carry out the remedial work, the insured is protected by the obligation on the insurer to make progress payments to the insured.

5. [122]

   What we do not accept is the characterisation by Globe Church of the 2008 Policy in effect as giving rise to an obligation to pay money within a reasonable time of demand. There is certainly no express provision to that effect (we consider below whether such an implication arises from the provisions of the policy). Business efficacy does not require the imposition of such a term – the relevant promise is a promise to indemnify (not, in terms, to pay a fixed sum of money; though the means of indemnification is by payment of money either by reinstatement or payment of the indemnity value). The principal loss against which the insured is to be held harmless arises on the occurrence of the property damage in question.

6. [123]

   One only needs to imply a term requiring a reasonable time for performance of the promise to indemnify if the promise to indemnify is assumed to be a promise to pay money (with no time stipulated therefor), since otherwise as soon as the damage arises there is something against which the insured is to be held harmless.

7. [124]

   The question then is as to whether the policy provisions warrant a different conclusion. Globe Church essentially relies on two aspects of the provisions in this regard: the claims provisions and the basis of settlement of settlement clauses.

8. [125]

   The notification provisions in cl 14 are not expressed as conditions precedent or as having effect as a condition precedent to liability (by contrast, elsewhere in the policy there is clear reference to a condition precedent – see cl 3.1.2; hence it might be expected that if the making of a claim were to be a condition precedent to liability arising this would have been clearly expressed). There is nothing expressly to require the making of a demand or claim before the liability to indemnify arises.

9. [126]

   Although the respective indemnities are expressed to be “subject to” the conditions in cl 14, the more natural reading of cl 14 is that this sets out the mechanism for the making of a claim (breach of which might enable the insurer a basis on which to defend the claim but which does not mean that liability has not arisen). Certainly, cl 14.2.1 proceeds on the assumption that the insurer will be given notice of a claim and (as a practical matter) it is logical to assume that until the insurer is on notice of the occurrence of the insured event (which is what the notification provisions contemplate) the insured’s loss will probably not be made good. However, that does not mean that the making of a claim is required before there is a breach of the promise to make good the loss. What it does mean (as recognised in Callaghan) is that if the insured does not comply with the requisite claims procedure then this may have an impact on its ultimate recovery under the indemnity provisions.

10. [127]

    In the course of oral submissions, there was debate as to the operation of the basis of settlement clauses contained in the 2008 Policy (cl 4 and cl 10, respectively) in this regard. In our opinion, they set out an agreed basis for calculation of the way in which the promise to indemnify is to be discharged. In other words, the obligation to indemnify is not at large, it is to be effected in the way contemplated by the basis of settlement clause (and the fact that there is an agreed basis of settlement serves to quell any controversy that might otherwise have arisen in that regard). The fact that the amount payable cannot be calculated at the time the obligation to indemnify arises does not mean that the cause of action for failure to hold harmless against loss has not accrued.

11. [128]

    As the defendants submitted, a claim for unliquidated damages for breach of contract may accrue before the final quantum of damages has been determined or can be determined. That the insured may take steps (after the property damage has occurred), such as electing to reinstate the property, that may affect the damages recoverable in the end is not decisive. It is certainly not uncommon for damages for breach of contract to be affected by events post the breach of contract (and post the accrual of the cause of action). As the defendants note, quantification of the insurers’ liability, depending on the insured’s election (to reinstate or to purchase an existing building rather than reinstating the property in certain circumstances), is to pay the indemnity value. However, that goes to quantum not liability.

12. [129]

    As to the operation of the provision for the Deductible and the contemplation that there may be more than one claim for loss arising out of the same event, this does not take the matter any further. It may be accepted that the one event could give rise to a series of claims (under the respective promises).

13. [130]

    As to the claims for additional costs and consequential loss (under cll 3 and 9 of the 2008 Policy), we have concluded that there is not a free standing cause of action each time a loss of that kind is incurred (see T 33). In Larking, to which the defendants referred, Dixon J, as his Honour then was, addressed the question whether certain covenants in a lease operated to impose a continuing duty upon the respondent company so that the failure (to erect a fence) involved new breaches for every day of default. His Honour said (at 236):

14. [131]

    His Honour went on to say that the distinction may be difficult in its application in a given case, but must be regarded as depending upon the meaning of the covenant.

15. [132]

    In the present case, the covenants to indemnify against additional costs and for loss occasioned by interruption to business and for professional fees are covenants to do a definite act – to make good the loss or to hold the insured harmless against the loss. Once the losses or fees are incurred, and there is a failure to make good those losses, there is a breach; and the fact that it persists does not give rise to a further breach even though the losses may be continuing. Thus, once there is loss caused by interruption to the Business (covered by the indemnity in cl 9) and the insured has not been made good for that loss there is a cause of action available to the insured – the quantum of the amount finally payable need not then be determined or able to be determined. Similarly, there is not a fresh cause of action for each invoice in respect of professional fees incurred in preparation of the claim. Rather, once property damage has resulted and professional services are retained, and fees incurred in the preparation of a claim, the cause of action under the indemnity in cl 9 accrues (even though the amount of those fees might not be finally determined at that time). That does not mean that there may not be distinct breaches of the promises to indemnify accruing at different times, but in the present case, those additional and consequential losses all commenced outside the limitations period and the continuing failure to make good those losses does not, in our opinion, give rise to fresh causes of action after the expiry of the limitation period (nor is the claim pleaded as such in the further amended statement of claim – as noted earlier).

16. [133]

    Thus, finely balanced as the argument was, on the proper construction of the 2008 Policy, we have concluded that it does not require the performance of the indemnity within a reasonable time of demand; it requires the insured to be held harmless against loss as soon as the property damage arises (and to provide the additional cover and indemnify against consequential loss once such loss arises).

17. [134]

    Turning then to the issue that caused the proceedings to be removed to this Court for the determination of the separate questions: namely, whether this Court in CGU v Watson endorsed the relevant dicta of Giles J in Penrith City Council as to the timing of accrual of the cause of action for breach of a contract of indemnity insurance (and, if so, whether CGU v Watson was correctly decided), we have concluded that there was no such endorsement and that the intermediate appellate authority in support of the defendants’ position is not plainly wrong and should be followed. In this regard, we consider it important that there be consistency in the construction of indemnity policies of insurance throughout this country (that position being consistent with the position in the United Kingdom). If there is to be a departure from that settled position, that is for this country’s ultimate appellate court to determine.

18. [135]

    We do not consider that the decision of the High Court in CIC Insurance Ltd v Bankstown Football Club Ltd (1996) 187 CLR 384, compels a different result.

19. [136]

    The High Court held CIC was not liable for the damage caused by the fire because the policy, whilst entitling the insured to undertake reinstatement work, provided it had to be carried out with reasonable despatch. As it was not, the provision in the policy that the insurer was not liable to make any payment greater than the indemnity value at the time of the happening of the damage applied and the insurer was thus not liable for loss occasioned by the third fire but only the indemnity value at the time of the initial fire (see 403-404).

20. [137]

    It is apparent from that analysis that the Court was not considering the question of when liability under the policy arose. It was in that context the Court made the following remarks which are relied upon by Globe Church:

21. [138]

    Although it is true the plurality described the fundamental obligations of the insurer were within a reasonable time after receipt of the claim to acknowledge liability and then pay the liquidated sum for the computation for which the Policy provided, it does not seem to us that this statement, which related to how the insurer’s obligations were to be met, meant that liability only arose when notice was given. Rather, the plurality was stating how in the context of that particular policy, the obligations of the insurer were to be worked out.

22. [139]

    We accept that insurance contracts should be given a businesslike interpretation (McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22]). However, we do not think the fact that liability might arise without the insurer becoming aware of it compels a contrary conclusion. There remains the obligation in cl 14 of the policy for the insured forthwith to provide notice of the claim and a failure to conduct reinstatement work with reasonable despatch limits the insurer’s liability to indemnity value.

23. [140]

    It must also be remembered that the alternative times on which it has been suggested that the cause of action may arise present their own difficulties. Globe Church suggested, relying particularly on CIC, that the cause of action arose at the time of notification of the damage. However, that means that the limitation period commenced to run effectively at a date determined by the timing of any notification whenever given. That difficulty could be overcome by implying that it is a condition precedent to liability that notification be given within a reasonable time, but such an implied term is not so obvious that it goes without saying, nor is it necessary to give business efficacy to the contract. Further, although the cover is expressed to be subject to cll 7 and 14, as we have pointed out neither cl 7 nor cl 14 are expressed as preconditions to liability arising; rather, they contain the terms on which the indemnity is to be granted and impose certain obligations on the insured designed to protect the insurer in the provision of the indemnity.

24. [141]

    The alternative, which was faintly suggested, was that the cause of action first arises when the insured first incurs expense in reinstating the property or alternatively, when it elects to receive the indemnity value. Once again there is nothing in the contract which suggests that this is the case. Further, it is difficult to accommodate the proposition that a cause of action only arises at those particular times with cl 4.4.2, which provides that if work is not carried out with reasonable dispatch, the insurer shall not be liable to make any payment other than the indemnity value.

25. [142]

    We are comforted by the fact that as we point out below, the conclusion we have reached is consistent with conclusions reached by the Full Court of the Supreme Court of Western Australia and the Full Court of the Supreme Court of Tasmania. We do not consider these conclusions to be plainly wrong. Indeed, the reasoning which led us to the conclusion which we have reached is consistent with the reasoning in those cases.

26. [143]

    What was endorsed by this Court in CGU v Watson must be considered in light of what was, in fact, determined in Penrith City Council.

27. [144]

    In Penrith City Council, the issue in question related to a liability insurance policy which required the insurer to indemnify the insured Council against a claim for breach of professional duty. In September 1983, a third party made such a claim against the Council. The Council notified the insurer in October 1983 and in December 1983 the insurer declined indemnity (a position it confirmed in September 1984). In April 1990, the Council settled the claim by the third party. The insurer again declined indemnity and the Council then commenced proceedings against the insurer, filing its statement of claim on 21 December 1990.

28. [145]

    What was in issue was when any obligation to indemnify arose; the critical date for limitations purposes being 21 December 1984. Six potential dates were considered in this regard: the date of the third party claim; the date of notification to the insurer; the date of denial by the insurer; the date of settlement between Council and the third party; the subsequent date of refusal to indemnify; and some later date after payment by the insured of the sum. If the cause of action had accrued on any of the first three dates, then it would have been statute-barred.

29. [146]

    The defendant insurer submitted that any obligation to indemnify arose when either a claim was made against the Council or when the claim was first notified, such that the Council’s cause of action would have accrued in 1983.

30. [147]

    Giles J rejected the insurer’s submission (at 568B-E) and held that the obligation to indemnify did not arise until the plaintiff’s liability to the third party was established. His Honour said that the cause of action was for unliquidated damages for breach and, at 568G-569C, said that:

31. [148]

    As the defendants submit (though noting that this is a liability insurance policy not an indemnity insurance policy), this is consistent with their contention that liability to indemnify occurs on the happening of the insured event (and consistent with what was said in Allianz v Bluescope Steel). In Penrith City Council, no liability to indemnify arose before the third party liability was established – that third party liability being the indemnified event. His Honour said that the defendant insurer’s submissions confused being the beneficiary of a contractual promise with a cause of action for failing to perform that promise.

32. [149]

    The conclusion his Honour reached (at 570G-571A) was that the Council’s cause of action did not accrue on either of the dates in 1983 for which the insurer had contended (the date that the third party first claimed against the insured and the date that the insured notified the claim to the insurer.) His Honour noted (at 571A) that the defendant insurer did not contend for the date in 1983 on which it first said it would not indemnify. That was sufficient to dispose of the case since (as his Honour noted at 571B-D) if the cause of action had accrued on any of the three remaining dates meant that the claim was not statute barred.

33. [150]

    His Honour then went on to consider potential arguments in favour of each of those three remaining dates being the date on which the cause of action had accrued (see at 571B-D) but expressly declined (see at 571D) to express (and did not need for the determination of the issue then before him to express) a concluded view as to the correct one out of those three dates; concluding that the cause of action had accrued, and time began to run, either when the Council’s liability to the third party was established by the settlement, or by reason of there being a continuing refusal to provide indemnity so that the insurer was in breach when liability was established or alternatively when the insurer confirmed its refusal of indemnity after the settlement. Hence the defendants correctly submit that the observations by Giles J on which Globe Church here relies were no more than obiter.

34. [151]

    Giles J went on from 571E-G to refer to the decision of Nathan J in Hunter v Stronghold Insurance (Aust) Ltd (Supreme Court of Victoria, 18 January 1991, unreported). Allianz accepts that this is contrary to the proposition the defendants put in the present case, but points out that there is no explanation in Nathan J’s judgment as to whether there was something particular about the terms of the policy in that case to explain the decision. Giles J also referred to Chandris v Argo, on which (as noted above) the defendants here rely and which was relied on in Callaghan.

35. [152]

    Ansvar submits that the critical point in Penrith City Council is that the insurer cannot be said to have failed to indemnify prior to the obligation to indemnify arising and that this point underlies the true import of the particular conclusion in Penrith City Council to which Stevenson J referred at [146] in Carillion (namely, that “[o]nly when the defendant failed to do what was required of it could a cause of action for damages for breach of contract accrue to the plaintiff” – see the passage extracted above at [147]) and says that this is in line with established authority concerning liability insurance and consistent with the proposition that once the obligation to indemnify has arisen the insurer is immediately in breach for failing to indemnify. It is submitted that this provided no basis for Stevenson J to hold otherwise.

36. [153]

    To the extent that Giles J’s observation that “the defendant could have thereafter fully performed its promise” might be said to convey that there is no breach until the insurer communicates a refusal to indemnify, Ansvar submits (and we agree) that the criticisms of such a proposition by Pidgeon J in Cigna (at [80]-[90] – see below) are persuasive.

37. [154]

    Thus the ratio of Penrith City Council was that, under a liability insurance policy, the cause of action does not accrue until the insured’s liability to the third party is established (whether by judgment, settlement or adjudication) (see at 568-569 in a passage approved by this Court in CGU Insurance Ltd v Watson at [59], [61]; and also Kone Elevators at [21]). Any suggestion that before liability accrues under such a policy there must be notification to the insurer and failure by the insurer to indemnify is obiter.

38. [155]

    At the outset, it is relevant to note that Giles J’s dictum in Penrith City Council at 571 leaving open, without deciding, the possibility that the cause of action did not accrue until the insurer had been required to pay and had refused to do so was not cited in CGU v Watson.

39. [156]

    In that case, the issue was as to the operation of r 12.4 of the Uniform Civil Procedure Rules (see at [3]) and, in particular, as to whether two insurance claims were the same or substantially the same. The issue arose because there was a question about whether an earlier claim for defence costs by the insured (which had been discontinued with an order that the insured pay costs) was the same or substantially the same claim as a later claim made by the insured’s trustee in bankruptcy against the insurer for an amount that the insured had been ordered to pay to a company of which he had been a former director.

40. [157]

    The conclusion reached in CGU v Watson was that the two insurance claims were not the same or substantially the same. Giles JA (with whom Spigelman CJ and Basten JA agreed) considered (from [58]) the nature of the claims which had been made and explained why they were claims for damages, his Honour there quoting what he had earlier said at first instance (at 568) in Penrith City Council and (at [60]) citing authority for the proposition that the claim of the insured against the insurer is a claim for unliquidated damages.

41. [158]

    At [61], his Honour quoted what he had earlier said at 568-569 in Penrith City Council, this being the ratio of that decision:

42. [159]

    As the defendants point out, the passages Giles JA quoted in CGU v Watson from his earlier judgment in Penrith City Council are not inconsistent with the proposition the defendants advance in the present case. There was no holding in Penrith City Council that there must first be a notification to the insurer and then a denial of indemnity or failure to indemnify by the insurer. Indeed, in CGU v Watson Giles JA cited (see at [65]), without comment, a passage from Lord Goff in The Fanti (at 36) on which the defendants rely in support of their contention in the present case. As was here submitted, it would be expected that if this Court in CGU v Watson were to have been endorsing a proposition opposed to the ratio in a court of coordinate appellate authority (namely, the ratio in Cigna) there would have been express consideration of that decision in this Court’s reasons.

43. [160]

    Accordingly, we do not accept that CGU v Watson gives rise to a conflict with the intermediate appellate authority on which the defendants rely (and which is addressed below).

44. [161]

    The intermediate appellate authority to which the defendants point, consists of the decision of the Full Court of the Supreme Court of Western Australia in Cigna and the decision of the Full Court of the Supreme Court of Tasmania in Gordian.

45. [162]

    In Cigna, the respondent (an insured person as defined under a policy of personal accident insurance held by the parent company of his employer with the appellant insurer) was injured in March 1986 during the course of his employment. The policy required the insurer to pay a fixed amount of compensation upon the happening of one or other of defined events (relevantly, in that case the event was bodily injury resulting in permanent total disablement). The insured contended (which was denied by the insurer) that he had made a claim under the policy in August 1988. Following enquiries by the insured some years later, the insurer rejected his claim in April 1993. The insured commenced proceedings claiming damages for breach of contract in August 1998. Relevantly, therefore, the proceedings were commenced within six years of the rejection of the insured’s claim but some 12 years after the injury had been sustained.

46. [163]

    The insurer contended that the proceedings were statute-barred by s 38(1)(v) of the Limitation Act 1935 (WA). At first instance, the primary judge (see Packer v Cigna Insurance Asia Pacific Ltd (2000) 23 SR (WA) 191; [2000] WADC 3) held that the insurer did not come under a liability to make a payment (for the non-performance of which the insurer was thenceforth in breach of contract) until the insured first made a claim and the claim was refused (or possibly not dealt with in a reasonable time), considering it improbable that the intention of the parties was that the insurer would immediately be in breach upon the occurrence of the relevant event.

47. [164]

    The insurer sought leave to appeal and the relevant issue before the Full Court of the Supreme Court of Western Australia (Malcolm CJ, Kennedy and Pidgeon JJ) was as to when the insured’s cause of action first accrued.

48. [165]

    The Full Court held (at [32] per Malcolm CJ, with whom Kennedy J agreed; at [94] per Pidgeon J) that the insured’s cause of action accrued upon the happening of the insured event, namely when he suffered permanent total disablement.

49. [166]

    Malcolm CJ noted at [31] that a cause of action accrues when all the facts have occurred which the plaintiff must prove in order to succeed, citing Do Carmo, among other authorities (see to similar effect Pidgeon J at [69]-[71]). The Chief Justice found that the relevant defined event must have happened by the date of the claim as it was the insured’s case that he had suffered permanent total disablement by this time (see at [35]; [53]-[54]). Pidgeon J found that this event happened 12 months after the injury (see at [96]).

50. [167]

    The Full Court rejected a submission that the cause of action accrued upon the insurer’s rejection of the insured’s claim. Malcolm CJ agreed with Pidgeon J that liability was not dependent on the insured making a claim (see Malcolm J at [32]; Pidgeon J at [85]ff). Pidgeon J referred to the refusal of the Court in Tillotson v ANZ Life Assurance Co Ltd (1997) 9 ANZ Ins Cas 61,378 (Tillotson) to imply a term in a similar policy to the effect that the making of a claim was a condition precedent to liability.

51. [168]

    At [80], Pidgeon J referred to the decision in Penrith City Council and proceeded to consider that decision, discussing it in the context, among others, of the decisions in Chandris v Argo and Tillotson. At [83], having posed the question as to whether the principle referred to by Giles J (of it being required to be shown that the defendant insurer was not going to perform its promise after it had an opportunity to do so) was of general application, and having noted (at [80]) that in Penrith City Council Giles J was dealing with a contract of indemnity insurance, Pidgeon J expressed the view that, insofar as the passages referred to in Penrith City Council were applicable to personal accident policies, this would be contrary to Tillotson and the other authorities to which reference had been made and that this aspect of Penrith City Council should not be followed.

52. [169]

    At [91] Pidgeon J distinguished between contracts of indemnity and personal accident policies providing for fixed sums payable on the happening of an event; and at [92] said that the authorities followed both by Giles J (in Penrith City Council) and Megaw J (in Chandris v Argo) showed that an action on a policy of insurance is an action for unliquidated damages. At [93]-[94] his Honour went on to say:

53. [170]

    It can be seen from the above extract that his Honour considered that it was immaterial whether the claim was one for unliquidated damages (as under an indemnity policy) or for recovery of a fixed sum payable on the happening of a specified event – in either case, his Honour concluded that the cause of action accrued before the making of a demand and whether or not the insurer was aware of the event or the amount of the claim. Hence the distinction sought to be drawn by Globe Church was not there drawn.

54. [171]

    In Gordian, the appeal concerned the scope of the cover provided by an insurer to an employer pursuant to a policy of insurance against losses sustained as a result of workplace accidents. There, the relevant accident occurred in May 1987. The employer and other companies had entered into an agreement (described, inaccurately, as a reinsurance agreement) with the Government Insurance Office of NSW which provided cover for losses in excess of an indexed threshold of $1 million per accident. The respondent had assumed responsibility for the liabilities of GIO under the agreement.

55. [172]

    The respondent denied liability in March 2005. In August 2010, the appellants brought an action against the respondent for damages for breach of contract, contending that the threshold had been exceeded due to the substantial carer expenses incurred. The respondent contended that, even if the carer expenses were included in the loss for which indemnity was available, the action brought by the appellants was not commenced until after the expiry of the limitation period. Actuarial evidence established that if carer expenses were included, the indexed threshold figure was exceeded in or about May 2000. The respondent submitted that the action was statute-barred in May 2006; the appellants contended that his cause of action did not accrue until the respondent denied liability (March 2005) and that until that time any causes of action were merely contingent (and hence that the proceedings were still maintainable).

56. [173]

    At [94], Blow CJ (with whom Porter and Wood JJ agreed) identified the fundamental question raised by the appellants’ contentions as being whether a demand for payment or a refusal to pay was a prerequisite to the accrual of a cause of action based on the particular insurance contract in question. His Honour referred to both Penrith City Council (which he distinguished on the basis that in Penrith City Council Giles J had held that the insurer was not required to do anything prior to the settlement of the claim against the Council, whereas in the case before him if there was an enforceable obligation to pay money by way of indemnity as alleged, any such obligation arose more than six years before the issue of the first writ – see [94]) and to Cigna (see [95]). Blow CJ extracted (at [95]) part of [94] of Pidgeon J’s reasons in Cigna (commencing from “The words of the policy state that the money is payable on the happening of the event…” – see in the extract at [169] above), with which conclusion on that point his Honour noted that the other members of the Court had agreed, and said that there was no reason to doubt the correctness of Pidgeon J’s conclusion.

57. [174]

    Blow CJ thus held that the appellant’s cause of action in contract accrued as soon as the payments made in respect of the accident passed the indexed threshold figure in or about May 2000 ([96]).

58. [175]

    Globe Church’s submission that this authority (and Cigna) should not be followed to the extent that there was no consideration as to whether a reasonable time for performance had elapsed rather begs the question as to whether in the present case the promise to indemnify should be construed as a promise to indemnify within a reasonable time.

59. [176]

    The defendants also refer (as instructive on this point) to the decision of Yates J in Vero. The relevant issue for present purposes that was there being considered was when the applicant’s cause of action accrued.

60. [177]

    The case involved a policy of insurance under which the defendant Vero had agreed to indemnify Comcover, a self-managed insurance fund, against its liability or responsibility to reimburse fund members for claims including loss or damage to property. In July 1999, there was an oil spill at a base station in the Australian Antarctic Territory operated by the Australian Antarctic Division (one of Comcover’s fund members). The Commonwealth incurred remediation and other related costs in respect of damage caused to the base station by that spill.

61. [178]

    Comcover was not notified of the oil spill until August 2004 (see [37]). On 23 December 2004, Comcover declined indemnity (having earlier that month informed Vero that it was in the process of denying indemnity (see [38]). However, it appears that Comcover reconsidered its position in early 2005 and in June 2005 advised that it accepted the oil spill as an insured event, subject to policy terms and conditions. Meanwhile, Vero had apparently declined Comcover’s claim on it (see the communication extracted at [38]). In June 2011 (less than six years after the agreement to indemnify), the Commonwealth commenced proceedings against Vero seeking a declaration that it was entitled to an indemnity. Vero defended the action, inter alia, on the basis that any cause of action under the policy accrued by the date of the oil spill and hence was statute-barred.

62. [179]

    Yates J considered (from [76]) the limitation defence. At [80], his Honour noted that Vero’s submissions “proceeded from a characterisation of its contract of insurance with the Commonwealth as, relevantly, a contract of indemnity for property damage”, a characterisation which his Honour rejected at [94], in effect, treated Vero’s contractual obligation as an obligation to indemnify Comcover for its notional liability and its stated responsibility to indemnify its fund members on the assumption that Comcover was itself to be treated as the insurer of each of its fund members (see [96]).

63. [180]

    Having regard to the insuring clause in the relevant agreement which made clear that Vero’s liability (relevantly) was to indemnify for the ultimate net loss (defined as the sum actually paid or payable in cash in the settlement or satisfaction of claims for which Comcover is liable “by agreement, adjudication or compromise” (see [97])) and having posed the question as to what fact or combination of facts gave rise to the Commonwealth’s right to sue Vero under the policy (see [98]), his Honour ultimately concluded that, as a minimum, the Commonwealth would need to establish that there was a claim for which Comcover was liable “by agreement, adjudication or compromise” and that the earliest point in time at which it could be argued that there was an agreement or compromise in relation to the claim was in June 2005 when the fuel oil spill was accepted as an insured event (at [98]), his Honour concluded that the proceeding was not statute-barred.

64. [181]

    In the course of his Honour’s analysis, his Honour considered Vero’s submissions (in effect the same as the defendants’ submissions in the present case) as to the time at which the cause of action for breach of a promise of indemnity accrues in a property damage context (see [81]) and the Commonwealth’s submission (relying in particular on the decision of Giles J in Penrith City Council) that there had been no breach of the insurance contract until Vero had been required to pay and had failed or refused to do so (see [85]-[91]).

65. [182]

    Yates J regarded (as do we) Giles J’s observations at 571F-G as “made purely by way of obiter dicta in the context of his Honour discussing other possible accrual dates in respect of which it was not necessary for his Honour to choose because none resulted in any violation of the limitation period” (see [88]) and referred (at [90]) to the limited extent of the endorsement of that decision in CGU v Watson. His Honour considered that Pidgeon J’s analysis of the relevant principles in Cigna was persuasive and capable of being applied in the case there before him (see [90]). Ultimately, however, it was not necessary for Yates J to form a concluded view on the correctness of Penrith City Council insofar as it was sought to be relied upon to sustain the Commonwealth’s submission for the reasons set out at [91], nor was it necessary for his Honour to consider the Commonwealth’s alternative and preferred position (that the cause of action first accrued at a time when the payments made exceeded the total of the excess under the schedule of cover and the in-house retention under the policy itself) (see [100]).

66. [183]

    On appeal, Yates J’s conclusion was upheld, but without specific reference to the issue of relevance for present purposes (and it is thus not relied upon by the defendants as intermediate appellate authority which should be followed unless plainly wrong).

67. [184]

    As noted earlier, Globe Church places reliance on Carillion, where Stevenson J considered that the approach gleaned from Penrith City Council had been endorsed in CGU v Watson and was the preferable approach to be followed.

68. [185]

    The policy there in issue was (as here) a contract of indemnity for property damage and the question was whether the insured’s cause of action was statute-barred. Stevenson J acknowledged that English authority supported the proposition that the insured’s cause of action first accrues “on the occurrence of the peril the subject of the indemnity” (see the discussion at [127]-[133]) and the existence of Australian authority that was consistent with that proposition (referring to Cigna, Gordian, and Vero) ([134]-[137]).

69. [186]

    His Honour (relying on the observations of Giles J in Penrith City Council) drew a distinction between the time when an insured’s entitlement to indemnity arises and the time when its entitlement to sue for damages for breach of contract arises ([141]-[148], [156]) and considered that the insured’s entitlement to sue only arose (and hence its cause of action first accrued) when the insurer declined indemnity or failed to indemnify within a reasonable time ([170]-[177]). As noted earlier, his Honour considered that Giles J’s observations in Penrith City Council had been endorsed by this Court in CGU v Watson such that there was conflicting intermediate appellate authority on the question ([143]; [153]; [155]) leaving it open for him to choose to follow Giles J’s dicta in Penrith.

70. [187]

    For the reasons already set out, we have concluded that the observations of Giles J in Penrith City Council on which Stevenson J relied were obiter dicta and were not endorsed by this Court in CGU v Watson. Insofar as Globe Church also relies on the decision of the Victorian Court of Appeal in Kone Elevators as endorsing the decision in Penrith City Council, that endorsement appears to have been limited to the judgment’s ratio; there is nothing expressly endorsing the obiter dicta in Penrith City Council on which Globe Church here relies.

71. [188]

    The defendants’ submissions as to why, in effect, Stevenson J’s reasons for preferring to follow Penrith were unsound or unpersuasive (in considering the unreasonableness of the consequences that may follow therefrom) have been noted above. We do not consider it necessary to express any view in relation thereto; suffice to note that the criticisms based on unreasonableness of outcome go both ways and depend to a large extent on the perspective from which one approaches the question. We also note, but do not need here to address, the criticism by Ansvar as to the distinction drawn in Carillion between the time an entitlement to indemnity arises and the time an entitlement to sue for damages for breach of a contract of indemnity arises. (It was submitted that the prospect that an insured could have an entitlement to be indemnified and yet not have the right to sue an insurer for failure to indemnify discloses an irreconcilable conflict with the reasoning in Carillion.)

72. [189]

    For present purposes, it is sufficient to say that the conclusion that there was endorsement by this Court in CGU v Watson of the obiter observations in Penrith City Council is not supported by a reading of the former and this poses a difficulty for Globe Church in seeking to rely thereon.

73. [190]

    As noted, Globe Church places weight on the decision of the High Court in CIC and, in particular, the observations in the judgment of the plurality (Brennan CJ, Dawson, Toohey and Gummow JJ) at 401-402, which we have considered above.

74. [191]

    In Callaghan, Sir Peter Webster, sitting as a judge of the High Court, considered the question whether the insured’s cause of action under a fire insurance indemnity policy was statute barred and held that it was; time running from the date of the loss not from the date on which the policy was avoided (see 546).

75. [192]

    In that case, a fire had occurred damaging discotheque premises in Kent on 20 September 1989. On 18 April 1990 (in a separate action to the proceedings the subject of the decision here under consideration) proceedings were commenced against Lloyd’s underwriters and on 16 May 1990 the policy was avoided on the grounds of non-disclosure. On 16 May 1996, more than six years after the fire, the insured commenced separate proceedings against the defendants in the subject proceedings, who together comprised a company market of insurers and Lloyd’s underwriters (see 542 of the reasons). The insured contended that the cause of action arose on the avoidance of the policy and hence the claim was not statute-barred. The defendants successfully contended that the cause of action arose at the date of the loss and hence the claim was statute-barred.

76. [193]

    Sir Peter Webster (at 542-543) referred to various authorities which in his view clearly supported the defendants’ submission that “a contract of indemnity gives rise to an action for unliquidated damages arising from the failure of the indemnifier to prevent the indemnified person from suffering a loss, and that once the loss is suffered the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense”, such that in the case of property insurance the cause of action arises at the date of the loss “and not at some later date when the policy is avoided, or when insurers fail to pay a claim” (Luckie v Bushby (1853) 13 CB Rep 864; 138 ER 1443; Williams Pickersgill v London and Provincial Marine and General Insurance Ltd [1912] 3 KB 614;Chandris v Argo; Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1984] 1 AC 226; The Fanti; and Apostolos Konstantine Ventouris v Trevor Rex Mountain (The Italia Express) (No 2) [1992] 2 Lloyd’s Rep 281 (The Italia Express)).

77. [194]

    At 544, Sir Peter Webster noted that the only (obiter) dictum which went the other way was that of Kershaw J in Transthene Packaging Co Ltd v Royal Insurance (UK) Ltd [1996] LRLR 32 and concluded that his Honour had misunderstood or misread the dictum of Lord Goff in The Fanti and the judgment of Hirst J in The Italia Express, saying in that regard that:

78. [195]

    Sir Peter Webster proceeded to define the nature of indemnity insurance as follows:

79. [196]

    Referring to the passage in the decision of Megaw J in Chandris v Argo, to the effect that quantification of the amount of the claim is not a pre-requisite to a cause of action, Sir Peter Webster (at 545) stated that “[t]he fact that the insurer has an option as to the way in which he will put the insured into his pre-loss position, does not mean that he is not liable to indemnify him, in one way or another, immediately the loss occurs”. The notice provision contained in the general conditions of the policy there in question was held not to constitute a condition precedent to the insurers’ primary liability to indemnify the insured and simply imposed a condition on the insurers’ right to make a claim under the policy such as to provide a defence to such a claim if the condition were not fulfilled (see at 546).

80. [197]

    It is only necessary to refer to two of the cases cited by Sir Peter Webster in any detail. In The Fanti, a case involving liability insurance not property insurance, Lord Goff of Chieveley made the following comments:

81. [198]

    In The Italia Express, Hirst J, after citing the passage from The Fanti to which we have referred to above and the decision in Chandris v Argo (which he noted had been approved by the Privy Council in Castle Insurance Co Ltd v Hong Kong Island Shipping Co Ltd (1984) AC 226), made the following comments:

82. [199]

    In Sprung v Real Insurance (UK) Ltd [1999] 1 Lloyd’s IR 111, the reasoning of Hirst J in the Italia Express was accepted by the Court of Appeal. In doing so Evans LJ at 116 rejected the criticism of the decision in the 2nd edition of Clarke Law of Insurance Contracts, a criticism which was repeated in the 6th edition.

83. [200]

    There may be incongruity in the proposition that the cause of action arises on the damage occurring on the basis that the obligation of the insurer is to hold the insured harmless of liability rather than indemnifying the insured in meeting that liability. Professor Clarke in the 6th Edition of his work described the premise of the view accepted in Sprung that the insurer is obliged to indemnify the insured as soon as the loss occurred as shaky (Law of Insurance Contracts 6th ed at 30-7A). He referred to the description of the approach by Professor Rose in Marine Insurance Law & Practice as a bizarre fiction. In the 2nd Edition of Professor Rose’s work, he described the approach as a genuinely accepted but bizarre fiction, indeed so firmly accepted that it is rarely recognised as a fiction (Marine Insurance Law & Practice 2nd ed 25.1). Consistent with its general acceptance in Versloot Dredging Lord Sumption JSC, with whom Lord Clarke, Lord Hughes and Lord Toulson JJSC agreed, stated (at [24]) that as a starting point that in law it is not a precondition of the insurer’s liability that a claim should have been made on it and that the insured’s rights to indemnity arise as soon as the loss is suffered, citing in support of that proposition the decision in Chandris v Argo and the passage from The Fanti, to which we have referred above.

84. [201]

    As Meagher JA has noted (see [226]), the principle applied in Callaghan (to the effect that, absent clear words to the contrary, promises to indemnify require performance before the giving of any notice of loss) derives from early English authority (see the cases cited by Meagher JA).

85. [202]

    In England, the Law Commission’s Report on Interest in June 1978, noted at [68] that the legal meaning of an obligation to indemnify is an obligation to make good loss suffered by another (citing Halsbury’s Law of England 4th edn 1978 vol 20 at [305]), but went on to suggest that the indemnifier’s position was comparable to that of a person liable in damages for tort or for breach of contract: “he is liable to pay something but until the claim has been presented, and he has investigated it, it is not fair to regard him as withholding payment” (the Commission’s recommendation being that an award of interest on moneys payable under an indemnity obligation, insurance or otherwise, should be left to the discretion of the court, at least where the loss is in the form of damages) (see at [72]; (cited in the ALRC Report No. 20 on Insurance Contracts at [321])).

86. [203]

    Nevertheless, on the current state of authority in the United Kingdom (see, for example, Versloot Dredging at [24]), the position as to contracts of indemnity insurance is as the defendants here contend: namely, that the cause of action for breach of the obligation to indemnify (absent clear words to the contrary in the policy) accrues when the insured event or loss occurs (without the need for the making of a claim on the policy) and not at some later time when the insurer either denies liability or a reasonable time has elapsed without the insurer making good the loss.

87. [204]

    It was not suggested that any real assistance could be drawn from the position in other jurisdictions – the position in Hong Kong and the United States being described as equivocal, the position in Canada (though there are authorities consistent with the approach taken by Stevenson J in Carillion – see below) being influenced by the statutory context in which the relevant cases were determined. In that regard, the Court was taken in the course of oral submissions to the following authorities and academic commentary in those jurisdictions.

88. [205]

    As to Hong Kong, reference was made to the decision of Marcus Arnold Lehmann v Insurance Company of North America [2000] HKCFI 348 at [17], where reference was made to English academic commentary (The Law of Insurance Contracts 4th edn, Clarke) for the proposition that there is support for the view that the right of recovery against the insurer accrues on the happening of the loss rather than at any later stage.

89. [206]

    As to the position in the United States, reference was made to the text William R Vance and Buist M Anderson, Handbook on the Law of Insurance (3rd ed, 1951, West Publishing Co) at 906.

90. [207]

    As to the position in Canada, Senior Counsel for Ansvar referred the Court to Dueck Chevrolet Cadillac Hummer Ltd v Insurance Corp of British Columbia [2012] BCCA 493 at [42], where the British Columbia Court of Appeal stated that the cause of action did not arise until the insured either, clearly and unequivocally denies coverage or when the insurer fails to pay within the prescribed time after the filing of the proof of loss; Stomp Pork Farm Ltd v Lombard General Insurance Company of Canada [2008] SKQB 405 at [46]-[47], where the Court held that the cause of action accrued when the insurer failed or refused to pay out the claim and the insurer’s argument that this would enable an insured to extend the limitation period by postponing the filing of their proof of loss was addressed by the relevant provision of The Saskatchewan Insurance Act, R SS 1978, C S-26; and Tucker v Unknown Person [2015] NLCA 212 at [22]. Reference was also made by Ansvar in this context to academic commentary in Canada (Insurance Law in Canada, 3rd edn, Brown, Menzies, Cassels, Brock and Blackwell at [10.3(f)]).

91. [208]

    We have concluded that there was no endorsement by this Court in CGU v Watson of the obiter observations of Giles J in Penrith City Council on which Globe Church here relies. It follows (see Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [135]) that the intermediate appellate authority on this issue (Cigna; Gordian) should be followed unless plainly wrong. We have concluded that it cannot be said that such authority is plainly wrong and hence that the intermediate appellate authority in this country should be followed. In our respectful opinion, Stevenson J erred in Carillion in preferring the approach of Giles J in Penrith City Council (that error flowing from the misapprehension that this “approach” had been endorsed by this Court in CGU v Watson).

92. [209]

    Absent a provision in an indemnity insurance policy that makes lodgement of a claim a condition precedent to liability, the concept of a promise to indemnify (to make good the loss or to hold harmless against loss) in the context of a property damage insurance policy is such that the promise is enlivened when the property damage is suffered. Unless it be necessary for there to be a claim made on the insurer to give rise to the liability, it is at the point of property damage that the insured has not been held harmless against the loss and (leaving aside any defences that might be raised on such a claim) would be entitled to sue to enforce the promise to indemnify. Such a claim is recognised as being a claim for unliquidated damages (albeit that the amount necessary to make good the loss is to be calculated in accordance with the basis of settlement clause in the policy).

93. [210]

    Thus, unless the making of a demand is a condition precedent to liability, all the essential facts required to be established by the insured to enforce the indemnity will by then have occurred and accordingly the cause of action for unliquidated damages will be complete. It follows that the cause of action accrues on the happening of the property damage (the insured event).

94. [211]

    That it might seem “unfair” for the insurer to be in breach of contract at a time when it may have no notice of the occurrence of the insured event (as was considered to be the position by the Law Commission in England); or that this might seem a “surprising” result or commercially inconceivable, as Professor Clarke suggests; or even that it might stand on “shaky” reasoning, as Professor Clarke also suggests, does not seem to be the point.

95. [212]

    As to the submissions made as to the unreasonableness to one or other of the insured/insurer of the application of the position recognised in Cigna and Gordian, it should be remembered that it is open to the parties to a contract of insurance to negotiate for clauses to protect against concerns of that kind (from the insurer’s perspective, say, to make clear that the making of a claim is a condition precedent to liability; from the insured’s perspective, say, to make clear that the obligation to indemnify arises on the occurrence of property damage that is reasonably ascertainable by the insured). As a matter of principle, however, the state of the authorities in this country (and in England) supports the contention for which the defendants here advocate and in our opinion it is important to have consistency of interpretation of such policies (subject, of course, to the particular wording of the policy in question).

Conclusion

1. [213]

   Construing the 2008 Policy having regard to its terms, the making of a claim is not a pre-condition to liability arising on the happening of the insured event; and there is no implied term requiring the performance of the obligation within a reasonable time. As noted, it is important that there be consistency in the interpretation across the country of indemnity insurance policies (for insureds and insurers alike). We are not persuaded that the intermediate appellate authority in this country on the present issue is plainly wrong. It should be followed. Applying the established principles relating to indemnity insurance policies of the present kind, we have concluded that the causes of actions sought to be maintained by Globe Church against each of the defendants under the 2008 Policy are statute barred and the separate questions should be answered broadly as the defendants contend. That has the effect, so far as Allianz is concerned, that the proceedings against it should be dismissed pursuant to r 28.4 of the Uniform Civil Procedure Rules.

2. [214]

   Having regard to the dismissal of the whole of the proceedings against Allianz, Globe Church should bear those of Allianz’ costs of the proceedings that do not relate to the making of the separate determination application. As to the costs of the motions for separate determination and the hearing in this Court, while Globe Church should not be required to pay two sets of costs of the separate determination applications (in accordance with Davies J’s orders), in circumstances where the questions have been answered in the defendants’ favour we would propose that the defendants’ costs be aggregated and that Globe Church be required to pay half of those aggregated costs on the ordinary basis (that amount to be apportioned as between the defendants in the proportion that each defendant’s own costs bears to the total of the defendants’ aggregated costs).

3. [215]

   For the above reasons we propose the following orders:

   1. (1)

      The questions posed for separate determination should be answered as follows:

   2. (2)

      Proceedings as against the first defendant be dismissed with costs (save as to the costs of the applications for separate determination and the hearing in this Court).

   3. (3)

      The plaintiff pay 50% of the aggregated costs of the defendants in respect of their applications for separate determination of the questions determined above and the hearing thereof in this Court, such costs to be calculated on the ordinary basis and apportioned as between the defendants in the proportion that each defendant’s own costs of the said applications and hearing bears to the total of the defendants’ aggregated costs thereof.

   4. (4)

      Remit the matter to Davies J in the Common Law Division for directions as to the further conduct of the proceedings in that Division.

4. [216]

   MEAGHER JA:

Introduction

1. [217]

   On 29 September 2009 Globe Church made a claim in respect of that damage and in response indemnity was denied, by Ansvar on 5 April 2011 and by Allianz on 30 September 2011. The current proceedings against the insurers claiming damages for the alleged breach of contract constituted by those denials were commenced on 4 November 2016. The insurers maintain that claim is statute barred, the cause of action for damages having accrued before 31 March 2008, for otherwise any Damage that occurred was not insured under the 2008 policy.

2. [218]

   An explanation for the lengthy period between the rainwater and flooding incident and claim made in September 2009 emerges somewhat obliquely from Allianz’s defence, which pleads that following a severe thunderstorm on 8 June 2007 Globe Church made a relatively modest claim for property damage (for the repair and/or the replacement of carpet and underlay inside the church buildings) and for related business interruption loss, which claim was subsequently settled on 17 November 2009 for $55,876. The second claim, only made two months before that settlement, was for the undermining of the pier footings to the church hall, and the sinking and settling of its strip footings, in each case as a result of the much earlier flooding.

3. [219]

   Globe Church’s proceedings have been removed into this Court for the determination of the following separate questions:

4. [220]

   Those questions address the insurers’ limitation defence to the second claim notified under the 2008 policy, not only in relation to the claim to an indemnity under cl 2, but also to the claims for payment of “additional costs” under cll 3.1 and 3.2, and to an indemnity against business interruption loss under cl 9.1. The relevant terms of that policy are extracted or otherwise summarised in the joint judgment at [35]-[51], and the separate questions are to be answered by reference to the Amended Agreed Facts.

5. [221]

   A cause of action first accrues within Limitation Act 1969 (NSW), s 14(1) when the aggregate of facts required to be proven for the plaintiff to obtain a remedy, comes into existence: Read v Brown (1888) 22 QBD 128 at 131 (Lord Esher MR); Letang v Cooper [1965] 1 QB 232 at 242-243 (Diplock LJ); Do Camo v Ford Excavations Pty Ltd (1984) 154 CLR 234 at 245 (Wilson J); [1984] HCA 17. In an action seeking damages for breach of contract, those facts are the formation of a valid contract; the fulfilment (or an excuse for the non-fulfilment) of each condition precedent to the obligation said to have been breached; the non-performance of that obligation; and the competence of the promisee to sue and the promisor to be sued: Howell v Young (1826) 5 B & C 259 at 265-266; 108 ER 97 at 99 (Bayley J); Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 at 246-247 (Dixon CJ); [1954] HCA 25. Thus, an obligation conditioned only on the happening of an event may be breached without the promisor’s knowledge that the event has occurred, unless the giving of notice is itself a condition precedent: Waters v Earl of Thanet (1842) 2 QB 757 at 769-770; 114 ER 295 at 299 (Lord Denman CJ).

6. [222]

   The fundamental issue raised by the separate questions is whether, as the insurers contend, any cause of action for breach of their contractual obligation to indemnify arose on the happening of the claimed Damage. The insurers submit that their contractual obligation to “indemnify” required them to hold the insured “harmless” against physical loss, damage or destruction, with the necessary consequence that they were in breach of that obligation immediately upon the happening of any property Damage. In support of that meaning of their promise to indemnify, the insurers rely on the statement of Lord Goff in Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 at 35-36 that “once the loss is suffered or the expense incurred, the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense”; and the dictum of Lord Sumption JSC in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2017] AC 1 at 18 that an “insured’s right to indemnity arises as soon as the loss is suffered”.

The apparent position under English law

1. [223]

   It is convenient at this point to describe the position under English law, noting at the outset Professor Clarke’s long-held view that the premise “that the insurer is obliged to indemnify the insured as soon as the loss occurs … is shaky. It is out of line not only with the reasonable expectations of commerce but also with other rules of insurance law”: Clarke, The Law of Insurance Contracts (6th ed, 2009, Informa) at 30-7A1.

2. [224]

   In Collinge v Heywood (1839) 9 Ad & E 633 at 639-641; 112 ER 1352 at 1354 (Lord Denman CJ, Littledale J, Williams J, Coleridge J, separately), the only case cited by Lord Goff, the indemnity was “to save, defend, and keep harmless and indemnified” Collinge against costs, damages and expenses incurred in commencing and prosecuting proceedings for the wrongful distraint of goods. The cause of action on that indemnity was held not to arise until the “party to be indemnified [was] called upon to pay” (Lord Denman CJ). The issue between Collinge and his indemnifier, Heywood, was whether the indemnity obligation was breached upon the incurring of costs or only when Collinge was “damnified by paying” (Littledale J). In the reported language of Lord Denman, “until the plaintiff was the sufferer, he had no right of action”. Most significantly for present purposes, Lord Goff acknowledged that was the position “unless the contract provides otherwise”.

3. [225]

   The early English common law also presumed that such contractual obligations to indemnify against liabilities to third parties were not subject to any condition for notice of loss: Cole’s Case (1587) Cro Eliz 97; 78 ER 356 (Anderson CJ); Fraunce’s Case (1609) 3 Coke Rep 89 b at 92 b/93 a; 77 ER 609 (Coke CJ); Cutler v Southern (1667) 1 Wms Saund 116 at 117, 119; 85 ER 125 at 126; Duffield v Scott (1789) 3 TR 374 at 376-377; 100 ER 628 at 629-630 (Lord Kenyon CJ). That presumption rested on the principle that a party should expressly stipulate for notice of facts unless they lie peculiarly within the knowledge of the other party, which the acts of a stranger do not: see also Gable v Moss (1610) 1 Bulst 44; 80 ER 747 at 748; Vyse v Wakefield (1840) 6 M & W 442 at 452-453; 151 ER 485 at 489 (Lord Abinger CB), 490 (Parke B); Canning v Temby (1905) 3 CLR 419 at 427-428 (Griffith CJ); [1905] HCA 45; Edwards v Kumarasamy [2016] AC 1334 at [29], [42] (Lord Neuberger PSC, Lords Wilson, Sumption, Reed and Carnwath JJSC agreeing).

4. [226]

   Separately, under the old forms of action, claims at law to enforce promises to indemnify, including under contracts of marine and general insurance, were enforced by the action of special assumpsit, which was characterised as one for the recovery of “unliquidated damages”. The difference between such a claim and a claim of debt or indebitatus assumpsit was that in the case of the latter the action was founded on a pre-existing debt, whereas in the former the payment obligation was to be quantified, and usually by a jury. See generally Tidd, The Practice of the Courts of King’s Bench and Common Pleas (9th ed, 1828, Butterworth & Son), Vol 1 at pp. 2-3; and Park, A System of the Law of Marine Insurances (1842, Saunders and Benning), Vol 2, chapter 21 at pp. 837-839. The declarations pleaded the relevant insurance and insured subject matter, whether a ship under a policy of marine insurance or property insured against fire damage (see Bullen and Leake, Precedents of Pleadings in Personal Actions in the Superior Courts of Common Law (3rd ed, 1868, Stevens and Sons) at pp. 181-183 and 191-192). However, each such form of action concluded, having alleged non-payment, that “all conditions were fulfilled, and all things happened, and all times elapsed, necessary to entitle the plaintiff” to be paid the amount of the damage or loss which was the subject of the insurance (at 191).

5. [227]

   As Pearson J much later observed in F & K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139 at 144, although the claim under the insurance was described as being for “unliquidated damages”, “damages” was used in a somewhat unusual sense, because “as the only wrong admitted by the insurer is his failure to pay a sum due under a contract, the amount of which has to be ascertained, he seems to be in much the same position as the person who owes and has failed to pay a reasonable price for goods sold and delivered, or a reasonable remuneration for work done or services rendered”. The same observation is made by the plurality in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 402; [1997] HCA 2 (“The term “damages” in a case such as the present of a claim under the Policy, thus is used loosely to identify the moneys payable to the insured upon a proper construction of the Policy”).

6. [228]

   One consequence of the characterisation of such a claim as being for unliquidated damages was that it could not be the subject of any set-off: Luckie v Bushby (1853) 13 CB Rep 864 at 878; 138 ER 1443 at 1448 (Jervis CJ); Pellas v Neptune Marine Insurance Co (1879) 5 CPD 34; Williams Pickersgill & Sons Ltd v London and Provincial Marine and General Insurance Co Ltd [1912] 3 KB 614 at 622. Another was that the insured could not recover damages for the late payment of moneys sought to be recovered under the policy because such a claim was in fact for damages for the late payment of damages: President of India v Lips Maritime Corp [1988] AC 395 at 414 (Lord Brandon); applied in Apostolos Konstantine Ventouris v Trevor Rex Mountain (The Italia Express (No 2)) [1992] 2 Lloyds Rep 281; Sprung v Royal Insurance (UK) Ltd [1999] Lloyd’s Rep IR 111. To avoid this outcome, with effect from 4 May 2017, the Insurance Act 2015 (UK) was amended to provide a remedy, in addition to the payment of the claim and statutory interest, in the event the insurer does not pay the insured’s claim within a reasonable time: Enterprise Act 2016 (UK), Part 5, ss 28-30.

7. [229]

   Thus the construction of an indemnity as including a promise to hold harmless and the characterisation of the action to enforce an indemnity as being for unliquidated damages for breach of contract have been taken under English law to support a general conception of promises to indemnify in contracts of insurance as undertakings to prevent the insured from suffering loss or damage, the happening of which constitutes a breach of that undertaking giving rise to an immediate action for unliquidated damages against the insurer: Chandris v Argo Insurance Co Ltd [1963] 2 Lloyds Rep 65 at 74 (Megaw J); Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1984] 1 AC 226 at 237 (Lord Diplock for the Board); The Fanti at 202 (Lord Goff, Lord Ackner agreeing). This conception has been applied to property insurance, notwithstanding the almost certain expectation of the parties to such insurance that the insurer will not pay without first being given notice of any damage to enable the adjustment of the insured’s claim and computation of the amount payable: The Italia Express (No 2) (Hirst J); Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd’s Rep 541 at 544-545 (Webster J); Virk v Gan Life Holdings plc [2000] Lloyd’s Reports IR 159 at [10] (Potter LJ, Henry LJ agreeing).

8. [230]

   The construction of an insurer’s indemnity obligation as being to “hold harmless” has been described by various academics and commentators as involving or based on a “legal fiction”; although that description is sometimes directed to the construction of the insurer’s fundamental obligation, sometimes to the characterisation of the action to enforce any payment obligation as one for unliquidated damages, and sometimes to a combination of these matters. See the joint report of the Law Commission and Scottish Law Commission, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (Law Com No 353/Scot Law Com No 238, July 2014) esp at [25.8]-[25.10], [25.30]. (The rule that “policyholders are not entitled to damages for an insurer’s failure to pay an insurance claim within a reasonable time (or at all) … is out of line with ordinary contract principles: it is the result of a technical legal fiction that an insurer undertakes to prevent a loss from occurring. In reality, insurers do not undertake to prevent losses, but to pay defined sums of money if particular losses occur”); Clarke, The Law of Insurance Contracts at 30-7A (“So, according to the current English view, ‘as soon as the loss has occurred … the primary obligation is broken, giving rise to the secondary obligation to pay damages’; and the insured has an immediate right of action the moment the loss occurs, no prior demand being necessary, and no separate subsequent breach being constituted by the underwriters’ failure to respond immediately to the demand for payment. This analysis of the law has been described as ‘a generally accepted but bizarre fiction’”), that reference being to the commentary in Rose, Marine Insurance Law and Practice (2004, LLP) at [25.1]; Edelman, McGregor on Damages (20th ed, 2018, Thomson Reuters) at [1-005] fn 5 (“… by resort to a fiction, English law does see an action claiming money under a contract of indemnity insurance as an action for damages”); and Chitty on Contracts (33rd ed, 2018, Thomson Reuters), chapter 42 (PJS MacDonald Eggers) at [42-112] (“At common law, if the insurer unreasonably failed to pay an insurance claim within a reasonable period of time, the insured had no remedy over and above the entitlement to an insurance indemnity and statutory interest. This was the result of a peculiarity of insurance law in that the claim for an indemnity is, as a legal fiction, a claim for unliquidated damages for breach of contract by the insurer, the breach being constituted by the assured’s suffering an insured loss”).

9. [231]

   Two further matters should be noted concerning the position under English law. First, it is not the position under Scots law, as the Law Commission and Scottish Law Commission observe (at [25.25]): “The hold harmless principle does not apply. The starting point for the Scots law analysis is that the insurer’s obligation is characterised as a contractual duty to pay a sum of money equivalent to the insured’s loss. An insurance payment is not therefore characterised as damages, but as a debt due under the contract”. The cases which support that position include: Carrick Furniture House Ltd v General Accident Fire and Life Assurance Corp Ltd (1978) SLT 65 at 71-72 (Lord Grieve); Scott Lithgow Ltd v Secretary of State for Defence (1989) SC (HL) 9 at 20 (Lord Keith); Gaelic Assignments Limited v Sharp (2001) SLT 914 at [45] (Lord Hamilton).

10. [232]

    Secondly, there is no reason in principle why a claim to payment of an amount by way of indemnity under an insurance policy cannot be brought as a claim for payment of a debt. The following statement, repeated in the current edition of Chitty on Contracts (33rd ed), Vol 1 at [21-041], was approved by Millett LJ in Jervis v Harris [1996] Ch 195 at 202-203:

11. [233]

    If such a claim is brought under a policy, damages may still be claimed from the party which has broken its contractual obligation in some way other than merely by failure to pay. This leaves open the possibility that in addition to the claim for payment of a liquidated or unliquidated sum, there may also be a claim for damages in respect of consequential loss caused by the failure to pay that sum by the due date: see Chitty on Contracts (33rd ed) at [26-009]. See also the commentary in Edelman, McGregor on Damages (20th ed) at [1-005] fn 5 which characterises an action to recover monies payable under a policy of insurance as for money which the insurer has promised to pay, and accordingly in the nature of an action for debt. Furthermore in Caledonia North Sea Limited v British Telecommunications Plc (The Piper Alpha) [2002] 1 Lloyd’s Rep 553 at [100] Lord Hoffman considered the claims made in that case to be to enforce indemnities in the service providers’ contracts by payment, as distinct from as claims for damages for breach of contract.

12. [234]

    In Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW) 215 at 223, Jordan CJ described the action available to an insured who has not accepted the insurer’s “invalid repudiation” as being to “sue to recover a liquidated sum under the policy”. The plaintiff insured’s claim in Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 was for unliquidated damages for breach of contract (at 568). Whilst emphasising that for the plaintiff to succeed, it must establish that the insurer had failed or refused to pay or do some other act required of it in performance of its promise, Giles J (as his Honour then was) recognised that there would be “different considerations” if the insured sought relief by way of declaration (568, 571), as did the insured in Bankstown Football Club Ltd v CIC Insurance Ltd (Supreme Court (NSW), Cole J, 16 December 1993, unrep). The Club sought a declaration that the insurer was obliged to pay the cost of reinstatement and judgment for the money sum representing that cost (at 36). That remained the position before the High Court (187 CLR at 398, 402). The Club made a separate damages claim for consequential trading losses due to the failure to pay those monies within a reasonable time (Cole J, 16 December 1993, unrep), pp. 44, 48, 50.

Determination of the separate questions

1. [235]

   Returning to the separate questions, the insurers accept, as they must, that whether there was a breach of contract on the happening of the alleged damage depends on whether their promise to “indemnify” in cl 2 of the 2008 policy was to do so the instant that damage occurred. That is said to be the effect of reading that promise as one to “hold harmless”; although unlike the position of an indemnifier against claims made by or liabilities to third parties, an insurer against property damage cannot take steps to “prevent” the insured loss. It is also said necessarily to follow that the promise was not “on its face a promise to pay an amount due under the contract without specifying a time for performance”. That the issue for this Court is one of construction of an undertaking to “indemnify” in a particular policy of property insurance makes Lord Goff’s general statement with its express qualification (“unless the contract provides otherwise”) of limited value at best. Further, in circumstances where Globe Church’s claim under the policy is formulated as one for breach of contract, it is unnecessary, as was also the position in Penrith City Council, to determine whether an action by an insured to recover under such a policy must be brought as one for breach of contract.

2. [236]

   For the reasons which follow, the insurers’ argument should be rejected. First, it does not give effect to the language of the insuring clause, or take account of the nature of the policy as one insuring against property damage and the sensible commercial expectations of the parties to such a contract. As Hirst J accepted in The Italia Express (No 2) (at 291, col 2) in relation to a marine hull insurance, it is “commercially inconceivable that in a large total loss case like the present, or in a complex claim for partial loss or damage, the underwriter would pay up in full by return post without any investigation”. Secondly, the insurers’ construction of their fundamental obligation is contrary to the meaning given to substantially the same language in CIC Insurance v Bankstown Football Club Ltd, the High Court holding that the insurer’s promise was to pay a sum of money computed in accordance with the provisions of the policy, and to do so within a reasonable time of receipt of the insured’s claim (187 CLR at 397, 401-402). A detailed analysis of the issues and holdings in that appeal follows at [259]-[272]. Thirdly, neither of the intermediate appellate court decisions relied on by the insurers addresses the construction of an indemnity in a policy of property insurance like that in issue here. Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159; [2000] WASCA 415 was a personal accident policy and the insurer’s promise was not in fact or in terms to indemnify. Rather it was a promise to pay an agreed amount upon the happening of a specified event. The policy wording construed in Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6 was in the form of an excess of loss reinsurance, the relevant clause providing that the “reinsurer hereby agrees to indemnify the reinsured for that part of its ultimate net loss which exceeds” $1 million. Finally, the English authorities relied on by the insurers, and in particular the decision in Callaghan v Dominion Insurance, do not support the conclusion contended for, taking account of the relevant principles discussed below.

Construction of the insuring clause

1. [237]

   The approach to the construction of the policy of insurance as a commercial contract is not in doubt. It must be given a business-like interpretation and, as the plurality in Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 at [15]; [2005] HCA 17 recorded, citing Gleeson CJ in McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at [22]; [2000] HCA 65:

2. [238]

   That exercise is to be undertaken objectively and accordingly by reference to what a reasonable person in the position of the parties would understand the language to mean, in the light of its context and purpose: Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [46]-[47]; [2015] HCA 37. It is accepted that such a person would expect that language in a commercial policy of insurance with a settled meaning across different jurisdictions is meant to have that meaning: McCann at [74] (3) (Kirby J). That is not the position here. The meaning of the language in question has been settled by the High Court, but not as contended for by the insurers here: cf Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 518 (Gibbs CJ); [1986] HCA 32.

3. [239]

   In equity, if the obligation to indemnify is construed as one to prevent the plaintiff from being called upon to pay in the first instance, the indemnifying party may be ordered to pay the money direct to the creditor so as to relieve the plaintiff from sustaining the outgoing: Victorian WorkCover v Esso Australia Ltd (2001) 207 CLR 520 at [17] (Gleeson CJ, Gummow, Hayne and Callinan JJ); [2001] HCA 53. Whether equitable relief is available depends on whether the contract of indemnity imposes “an obligation [merely] to indemnify the plaintiff in the sense of repaying to her a sum of money after she has paid it” or “an obligation to relieve the plaintiff from having to pay” the relevant charge or cost: per Long Innes CJ in Eq in Newen v McNichol (1938) 38 SR (NSW) 609 at 626. Or as Harvey CJ in Eq put it in MacIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332 at 334, the question is whether the right of indemnity “does not merely mean that you will indemnify a man after he has suffered a loss, but that you will interfere beforehand to prevent the loss”.

4. [240]

   In the appeal from that decision (MacIntosh v Dalwood (No 4) (1930) 30 SR (NSW) 415), Street CJ (Owen and Long Innes JJ agreeing) described the relevant question as being (at 418):

5. [241]

   Similarly, White J (as his Honour then was) observed in Paterson v Pongrass Group Operations Pty Ltd [2011] NSWSC 1588 at [57] (after citing with approval the analysis of Street CJ immediately above) that the “proper construction” of an indemnity is to be identified from its terms and context, and there “can be no rule of law that a particular form of words is necessary in order to conclude that the indemnity is to prevent the indemnified party from suffering loss rather than to compensate the indemnified party for loss he or she has suffered”. To the same effect is Wayne Courtney’s early observation in his work Contractual Indemnities (2014, Hart Publishing) at [2-3] that there is no uniform rule applicable to determining the scope of an indemnity or what it requires by way of performance. In each case, “the answer depends upon the construction of the contract” and the contract can have only one legal meaning, whether the relief sought is at common law or equitable: see Parkin v Thorold (1851) 2 Sim NS 1 at 6; 61 ER 239 at 241; and the speeches in The Fanti at 28B-D (Lord Brandon), 35G, 36B-C (Lord Goff), 42D (Lord Jauncey).

6. [242]

   The policy describes itself as an Industrial Special Risks Policy and provides insurance against loss or damage to buildings or property by Section 1 and business interruption cover (or consequential loss of profits insurance) by Section 2. The property is insured against a wide range of risks or perils, including fire, and on a reinstatement basis. Provisions giving the insurer an option to reinstate property destroyed have been common in policies of fire insurance, since at least the 18th century: see The Sadlers Company v Badcock (1743) 2 Atk 554 at 556-557; 26 ER 733 at 734.

7. [243]

   The fire policy in Castellain v Preston (1883) 11 QBD 380 was in the usual form “giving the insurers the option of reinstating the property” (argument at 381). Cotton LJ describes “what a policy of insurance against fire is” (at 393) in the passage cited with approval by the plurality in British Traders’ Insurance Co Ltd v Monson (1964) 111 CLR 86 at 94-95 (Kitto, Taylor and Owen JJ); [1964] HCA 24:

8. [244]

   That formulation of the insurer’s obligation as being one to pay the insured’s loss could not have been controversial. In Irving v Manning (1847) 1 HLC 287 the exercise of determining the sum to be paid by way of indemnity under a marine hull insurance, where the policy was an “open” as distinct from valued policy, was described as “ascertaining the amount of compensation to be paid to the assured when the loss has happened” (at 307). After referring to this passage, the plurality in British Traders’ Insurance Company Ltd v Monson continued: “The agreement in the case of a valued policy is as to the value of the subject-matter, not the amount of the loss; and its effect upon the assessment of the amount payable to the insured is not that the process is to be directed to anything other than the indemnification of the insured, but only that the assessment of his loss must proceed on the agreed valuation of the property” (at 93).

9. [245]

   There is a distinction between indemnity insurance and contingency insurance. As to that, Sir Robert Megarry V-C noted in Medical Defence Union Ltd v Department of Trade [1979] 2 WLR 686 at 690:

10. [246]

    Earlier, in Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618 at 634; [1935] HCA 56, the plurality (Rich, Dixon, Evatt and McTiernan JJ) cited with approval the following statement of Sir W Page Wood in Law v London Indisputable Life Policy Co (1855) 1 K&J 223 at 228-229; 69 ER 439 at 441:

11. [247]

    Clause 2 of the 2008 policy contains a promise to “indemnify the Insured against Damage occurring to Property Insured during the Period of Insurance” and to “provide the additional cover referred to in Clause 3”. Each of those promises is expressed to be “subject to” cll 2.1 to 2.7. Accordingly, “the amount of the indemnity [is to be] calculated in accordance with the Basis of Settlement Clause 4” (cl 2.3) and that amount is subject to the limits referred to in the Schedule, which state maximum amounts “payable by the Insurer” for any loss or series of losses suffered by the Insured (cll 2.2 and 1.8).

12. [248]

    The language of the insuring clause and the Basis of Settlement clause is not materially different from the provisions considered in CIC Insurance v Bankstown Football Club. See especially [259], [269] and [270] below. As with the policy in that case, the insurers were required to pay an amount calculated as the cost of reinstatement (cll 4.1, 4.3). And Globe Church, like the Bankstown Football Club, could elect to claim the “indemnity value” in which case the insurers could pay that value or at their option replace, repair or rebuild the relevant property (cl 4.28).

13. [249]

    Accordingly under the express terms of the policy, the insurer’s obligation is to indemnify by paying a sum of money ascertained in accordance with the Basis of Settlement provisions. There is no obligation to in some unstated way “hold the insured harmless”. The undertaking is to make good the insured loss after it has occurred and by payment, that being a well accepted sense in which “indemnify” is used, and the only sense in which such a promise to indemnify could be performed by the insurer.

14. [250]

    The question then arises as to when that obligation is to be performed. The “ordinary prima-facie rule is that when the contract provides for the doing of an act and there is no express provision as to time the law implies that it must be done within a reasonable time”: York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 62 (Dixon J); [1949] HCA 23. What is a reasonable time is a question of fact to be determined in the light of all of the circumstances, whereas the existence of the term is to be determined at the time of formation of the contract.

15. [251]

    Neither the reasonable commercial expectations of the parties nor the language of the policy suggest that the payment obligation is to be performed immediately upon the happening of the relevant damage. In 1932, Welford and Otter-Barry wrote in The Law Relating to Fire Insurance (3rd ed, Butterworths) (at 301):

16. [252]

    That the parties contracted on the basis that the event of loss will be followed by a period of adjustment to enable the assessment of the insurer’s payment obligation(s) is plain from the terms of the policy. First, cl 14.2.1, to which the obligation to indemnify in cl 2 is made subject by cl 2.7, expressly acknowledges that upon the “discovery” of any insured damage, the insured:

17. [253]

    It is not necessary at this point to determine whether this clause operates as a condition precedent to the insurer’s obligation to indemnify by payment, as to which see Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 at 234-235 (Jordan CJ for the Court) and more generally Professor Clarke’s commentary at 26-2G1. Nevertheless, as that author also observes at 30-7A1, if “as is commonly provided, the insured is required to give notice and particulars of loss, it is scarcely surprising that performance of these duties has been held to be a condition precedent to the insurer’s obligation to pay”. For present purposes, it is sufficient that the obligation imposed on the insured by cl 14.2.1 is inconsistent with the insurer’s undertaking being to make payment immediately upon the happening of loss.

18. [254]

    Secondly, the insurer’s payment obligation is to be performed in accordance with the Basis of Settlement, the provisions of which require a series of steps be taken towards the final determination of the amount payable by the insurer. The insurer’s obligation to pay the reinstatement cost is subject to the insured’s right to elect under cl 4.28 to claim the indemnity value, in which event the insurer’s right to elect to reinstate is enlivened. If the insured determines to reinstate it must decide whether to do so on the existing site or on any other site (cl 4.4.1) or to reinstate with “dissimilar property” (cl 4.4.5) or to purchase an existing building instead of reinstating the building destroyed (cl 4.4.6) or, with the insurer’s consent, to undertake reinstatement work itself (cl 4.4.7). Having determined the manner of reinstatement, the insured must commence and carry out that work with “reasonable despatch”, failing which the insurer is not liable to make any payment greater than the indemnity value (cl 4.4.2), and the insurer is not liable to make any payment beyond that value until a sum equal to the relevant reinstatement cost has “actually been incurred” (cl 4.4.4). In the absence of the policy making any express provision for the times in which these steps are to be taken, a reasonable period for each must be allowed.

19. [255]

    Thirdly, cl 14.2.6 anticipates that the “adjustment” of the claim may take place over the period in which reinstatement works are being undertaken, and provides for the making by the insurer of “reasonable progress payments on account of any claim”. On the insurers’ case those payments are made on account of its liability for damages for breach of this policy.

20. [256]

    In CIC Insurance v Bankstown Football Club (187 CLR at 401, 402), the plurality described the insurer’s obligation, within a reasonable time of the receipt of the insured’s claim, as being to acknowledge liability and then pay the “liquidated sum for the computation of which the Policy provided”. The “liquidated sum” refers to the amount calculated in accordance with the Basis of Settlement provisions. Whilst an equivalent term is to be implied into the 2008 policy, it is not necessary to formulate that term in order to answer the separate questions. The conclusion that the insurers’ indemnity obligation was not breached on the happening of Damage means that question (a) must be answered in the negative in relation to the claims under cl 2. It also follows that there could not have been breaches of the payment obligations in cll 3.1 and 3.2 merely on the happening of such damage. The payment obligations under those clauses do not arise before “additional costs”, answering one or more of the specified descriptions, have been “necessarily and reasonably incurred”.

21. [257]

    Finally, the obligation under cl 9.1 is to indemnify against business interruption loss which is to be calculated in accordance with the Basis of Settlement in cl 10. There is a dispute between the parties as to the period of business interruption covered by that indemnity. That period begins with the occurrence of the Damage and continues for the number of months specified in the schedule to the policy (cl 8.6). Unfortunately, that schedule does not specify any period of months, and in the absence of its doing so Globe Church maintains that the period is the whole of the time during which the results of its business were affected. In this state of uncertainty, it is sufficient, to answer the separate questions, that any obligation under cl 9.1 could not have arisen before the end of that indemnity period which commenced and continued for some time after the expiry of the policy and any occurrence of Damage.

22. [258]

    It follows that separate question (a) must be answered “None”, treating the answer in respect of the claims for specific performance and declaratory relief as turning on the answers in respect of the claims for damages.

CIC Insurance v Bankstown Football Club

1. [259]

   An understanding of the judgment of the High Court is assisted by a summary of the judgments in the courts below. As will become apparent, the appeal to the High Court raised two issues of construction, each a matter of “general importance”. As the plurality then observed: “The first concerns the construction of the terms of the Policy, it being in a standard form in widespread use” (187 CLR at 389). The policy issued by CIC Insurance described itself as an “Industrial Special Risks Insurance Policy”. Section 1 insured against material loss or damage, and Section 2 against consequential loss. The insuring clause in Section 1 was not materially different from that in the present case. The promise was to indemnify the Club against physical loss, destruction or damage to the property insured “in accordance with the applicable Basis of Settlement” (187 CLR at 390, 400-401), which provided that CIC would pay as “the amount payable”, the “cost of reinstatement” of the damaged property, subject to four provisos. The Club had an option to elect to claim the indemnity value of any damaged property in which event CIC was required to pay the value of the property at the time of damage, or to reinstate, replace or repair it (187 CLR at 400, 402).

2. [260]

   The relevant sequence of events was important. The first fire occurred in January 1992, CIC refused the Club’s claim in June 1992, the Club commenced proceedings for a declaration that the insurer was liable in September 1992, and the policy expired on 30 October 1992. There then occurred two further fires, the second of no relevance, and the third in March 1993 causing further and significant damage to the premises (187 CLR at 391-392). In early December 1993, the Club obtained leave to file an amended summons by which it sought a declaration that it was entitled to an indemnity in respect of damage suffered in the third fire under a statutory renewal of the policy, deemed by Insurance Contracts Act 1984 (Cth), s 58(3). Accordingly the Club sought a declaration that it was entitled to an indemnity under the policy for the cost of reinstatement of damage caused by the first and third fires; and alternatively argued that it was entitled to that indemnity under the policy in respect of the first fire and under the statutory policy in respect of damage caused by the third. In response, CIC contended that there was no statutory policy, that the policy did not cover any increased costs of reinstatement caused by the third fire and, relying on proviso (iv), that it was not required to pay the cost of reinstatement until the building was in fact reinstated.

3. [261]

   As Cole J observed, it was “necessary to determine the obligations of CIC as insurer under the policy, and to determine whether it has a liability under that policy to indemnify in respect of damage suffered in the third fire which occurred after the purported termination of the policy by CIC in July 1992 …” (Cole J, 16 December 1993, unrep), p. 14. The Club also made a separate claim for damages arising from CIC’s failure to pay the “reinstatement costs and business interruption costs … within a reasonable time”. The amount claimed was for the loss of trading profits between January and November 1993, on the basis that the Club would otherwise have resumed trading for that period (Cole J, 16 December 1993, unrep), pp. 44, 48, 50.

4. [262]

   Cole J held that the Club was entitled to recover the cost of reinstatement of damage caused by the first fire, but not the third (Cole J, 16 December 1993), p. 32; that the Club was entitled to recover the consequences of the third fire under a statutory policy (pp. 23, 32); that CIC was not entitled to rely upon proviso (i) because it had breached its obligation to “give indemnity”, entitling the Club to a declaration and money judgment notwithstanding that there had been no actual reinstatement (pp. 36, 37); and that the Club was entitled to general damages in excess of $332,000 for CIC’s failure to pay the moneys due “with reasonable promptness” (pp. 48, 51). Subsequently judgment was entered in favour of the Club for a money sum representing the cost of reinstatement of the damage sustained from the first and third fires, and general damages in respect of the trading losses.

5. [263]

   In the Court of Appeal (Kirby P, Priestley and Powell JJA), CIC contended that the Club did not have the benefit of any statutory policy; that the Club was not entitled to judgment for the cost of reinstatement before it had actually incurred a sum equal to that cost; and that the Club was not entitled to the general damages awarded, its only entitlement being to interest on the money that should have been paid. By a notice of contention, the Club contended that it was entitled under the policy to the cost of reinstatement, including as a result of damage occasioned by the third fire, and notwithstanding that it occurred outside the policy period: CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 Anz Ins Cas 61-232 at 75,551.

6. [264]

   In their judgments delivered on 14 December 1994, Kirby P and Powell JA held that a statutory policy had not come into force, and Priestley JA held that it had. Kirby P held that the Club was entitled under the policy to an indemnity, including with respect to the third fire, Powell JA held that it was not, and Priestley JA expressed no view. All members of the Court held that the Club was not entitled to judgment for the cost of reinstatement before it had actually incurred the costs of doing so, that being the effect of proviso (iv). Kirby P and Priestley JA held that the Club was entitled to general damages, whereby it could recover the continuing trading loss, and Powell JA held that it was not. His Honour did so, accepting that the Club’s claim to the moneys due under the policy could be brought either as a claim to recover moneys due or for damages for breach of the contract (8 Anz Ins Cas at 75,597–75,598). Those damages were held to be recoverable for breach of the policy (Kirby P) or for breach of the statutory policy (Priestley JA). Finally, there was a difference between the Court as to whether interest awarded under Insurance Contracts Act, s 57 should run from 22 July 1992 (Kirby P), April 1992 (Priestley JA, agreeing with the date taken by Cole J) (Cole J, 17 December 1993, unrep), p. 4, with Powell JA expressing no view. Subsequently, so that the orders and declarations made by the Court on 14 December 1994 were supported by the reasons of the members of the Court, Priestley JA withdrew such of his reasons as conflicted with those of Kirby P so as to support the declarations and orders proposed by Kirby P (CIC Insurance Ltd v Bankstown Football Club Ltd [No 2] [1995] NSWCA 76 (Kirby P, Priestley JA, Powell JA).

7. [265]

   The declarations made by the Court of Appeal (8 Anz Ins Cas at 75,567; 187 CLR at 394) included that on the proper construction of the policy CIC was liable to indemnify the club in respect of damage and consequential loss occasioned by the first fire and “to the extent of the costs of reinstatement once actually incurred in respect of property damage and consequential loss occasioned” by the third fire. By its appeal to the High Court, CIC challenged these declarations on the basis that it was not bound to pay the cost of reinstatement of the damage which occurred in the first fire, even if that cost had been increased by damage which occurred in the third fire. Depending upon the outcome of this issue as to the Club’s entitlement, the claim for damages for breach, and the quantum of any such damages, might have to be reconsidered. And by its cross-appeal, the Club sought to reinstate the finding of its favour on the s 58 question (187 CLR at 394-395). That cross-appeal was rejected for reasons which are not presently relevant (187 CLR at 404-410).

8. [266]

   Accordingly there was in issue in the High Court what CIC was required to do in performance of its undertaking to indemnify, and when. That question arose taking account of events that occurred following the first fire, including the happening of the third fire after the expiry of the policy. As the plurality noted (187 CLR at 395), the Club’s contention was that “the promise of indemnity was one to pay the full cost of reinstating the damaged property at the time of its reinstatement, even if by that stage the period of cover had expired”. In addressing that question of construction, the plurality referred to some “general principles that are involved with reinstatement policies”, and then addressed the issues of construction.

9. [267]

   Referring to contracts of fire and other insurance of property, the plurality observed (187 CLR at 396):

10. [268]

    It is then observed that where the contract confers on the insurer an election to discharge the insurance liability by reinstatement, such an election must be made within a reasonable time, as must the obligation to repair or reinstate: 187 CLR at 384 fn 29). See also Couch on Insurance (2d) (1983, Vol 15), [54:42] which supports the latter proposition, the former being supported by the commentary and cases at [54:21].

11. [269]

    Having referred to the Reinstatement and Replacement Memorandum, and provisos (i), (ii) and (iv) – which are in not materially different terms to cll 4.4.2, 4.4.3 and 4.4.4 of the 2008 policy – the plurality continued (187 CLR at 401, 402):

12. [270]

    The Court then considered the application of provisos (i) and (iv), the Club not having elected to claim the indemnity value of the property. In the absence of such an election, proviso (i) required that the repair and restoration work be carried out “with reasonable despatch”. That had not occurred, and the time for doing so had passed, certainly by the time of expiry of the policy (187 CLR at 403, 411). It followed that proviso (iv) had “no work to do”, and that CIC was liable to pay only the indemnity value of the damaged property at the time of the damage sustained in the first fire (187 CLR at 403, 404). It also followed, recognising that the Club’s claim was to recover the moneys payable under the policy (see 187 CLR at 398, 402):

13. [271]

    As to CIC’s obligation under cl 2, the Court also observed (at 404), “The obligation to pay the cost of reinstatement had accrued or, to use the expression in some of the authorities, “attached” to CIC, in the manner and with the particular consequences we have indicated, before the expiry of the Policy. That being so, subsequent events, in particular the third fire, did not change the nature or increase the quantum of that obligation.”

14. [272]

    Finally, in addressing the question arising under Insurance Contracts Act, s 57(2) as to when it became “unreasonable” for the insurer to have withheld payment of the amount due, the plurality considered that time not to have been before the policy expired in October 1992 (187 CLR at 410-411). In doing so, it was acknowledged that CIC’s obligation “to honour the claim by paying the monies for the assessment of which the policy provided” first involved the making of an election by the Club, or the passage of a period within which such an election might be made, and otherwise a period for the commencement and performance of work by the Club “with reasonable despatch”. It was only when that time had passed, that CIC’s obligation to pay a sum no greater than the indemnity value arose (187 CLR at 411).

Cigna v Packer and Associated Forest Holdings v Gordian

1. [273]

   Neither of these intermediate appellate court decisions determines that in a policy of insurance indemnifying against property damage of the kind in issue here, the insurer’s promise is to hold the insured “harmless” from loss rather than to make good any loss by payment of money; or that any obligation to indemnify by payment of money required payment immediately upon the happening of loss. No doubt for that reason there is no consideration of the High Court’s judgment in CIC Insurance Ltd v Bankstown Football Club in either decision.

2. [274]

   In Cigna v Packer, involving a personal accident policy and accordingly not one of indemnity, the insurer’s promise was that upon the happening of “permanent total disablement” it would pay to the insured an agreed amount of “accident compensation”. On the trial of a preliminary issue as to whether the insured’s claim was statute barred, the question arose as to when the insurer’s obligation to make that payment first arose. That question is dealt with by Pidgeon J at [79]–[94], Malcolm CJ at [32] and Kennedy J at [56] agreeing. In the course of his judgment, and responding to the trial judge’s reliance upon an argument based on reasoning in Penrith City Council, Pidgeon J expressed disagreement with part of that reasoning (esp at [82]-[83]). In doing so, his Honour incorrectly attributes to Giles J propositions of general application that those reasons do not formulate or endorse. That misunderstanding appears to proceed from an incomplete appreciation of the issue to which Giles J’s comments were directed. That issue was whether in the context of a “claims made” policy indemnifying against third party liability (and in the absence of any anticipatory breach), the insured’s cause of action for breach of the obligation to indemnify could arise, as the insurer contended, before the insured’s liability to the third party had been established by settlement, arbitration or judgment. Giles J’s comments in Penrith City Council of relevance in the present context, are limited to those (at 569 and 571) which emphasise that where the action is for breach of contract, the plaintiff’s cause of action accruing upon breach, it must be asked “what the defendant was required to do in performance of its promise, and when it failed to do what was required of it”. That somewhat uncontroversial proposition was cited with approval by this Court (Giles JA, Spigelman CJ and Basten JA agreeing) in CGU Insurance Ltd v Watson [2007] NSWCA 301 at [59] and [61]. What Giles J did not decide in Penrith City Council, because it was not necessary to do so, was whether that breach occurred under that policy upon the insured’s liability being established, or at some later time.

3. [275]

   Although the policy in issue in Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd insured the North Broken Hill Holdings Ltd group as a “self-insured” in respect of workers compensation and related common law liabilities for personal injuries, the wording used was in the form of excess of loss reinsurance which treated that group as a primary insurer and the reinsured. Accordingly, the insuring clause provided by Art. V that the “reinsurer hereby agrees to indemnify the reinsured for that part of its ultimate net loss which exceeds” $1 million “any one claim or series of claims arising out of any one accident/event”: at [38], [45]. An issue between the parties was whether in circumstances where the $1 million threshold had been exceeded in about May 2000, the “reinsured’s” action commenced against Gordian in August 2010 was statute barred. The “reinsured” contended that no cause of action arose until Gordian had “denied liability”. Blow CJ treated the limitation issue as depending on the construction of “this particular insurance contract” and distinguished Penrith City Council as concerning “a different factual situation” (at [94]). In doing so, his Honour correctly acknowledged that the relevant question turned on the language of the insuring clause with which he was concerned. Addressing that question, his Honour accepted that the insurer’s “enforceable obligation” was one to pay money, the critical issue being whether there had to be some notice or demand before that obligation arose.

The English Authorities

1. [276]

   In Penrith City Council Giles J (at 570) correctly in my view records what was held by Megaw J in Chandris v Argo Insurance, and the limited respect in which that decision was later approved by the Privy Council in Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd:

2. [277]

   In particular Megaw J’s conclusion was that the action for an indemnity in respect of the liability to pay general average contribution arose, by the application s 66 (5) of the Marine Insurance Act, and in the absence of express provision in the policy, when the insured “has paid, or is liable to pay, a general average contribution”.

3. [278]

   In The Italia Express (No 2) the shipowner’s claim was for damages for late payment under a marine hull insurance where the agreed value of the vessel was $4 million. The insurer’s response was that the contract was breached on the occurrence of the loss, that the measure of damages was $4 million, and that there was no further cause of action for damages for late payment of those damages. Hirst J held that it was sufficient to defeat the owner’s argument, the insurance being marine insurance, that ss 67 and 68 of the Marine Insurance Act fixed the “extent of the liability of the insurer for loss of the vessel” under the valued policy (at 291, col 2). Although not necessary for his decision, Hirst J treated the statement of Lord Goff as equally applicable to marine hull insurance with the consequence that the insured’s claim above $4 million was for damages for the late payment of damages (at 292, col 2), contrary to the principle stated in President of India v Lips Maritime Corp at 414.

4. [279]

   The Italia Express (No 2) was applied by the Court of Appeal (Beldam, Evans and Pill LJJ) in Sprung v Royal Insurance (UK). The insured, who appeared in person, claimed damages for late payment of claims following deliberate damage to plant and equipment caused during a burglary. The policy provided that the insurer would “indemnify the Insured against the cost of making good insured damage” to plant, defined to include sudden and unforeseen damage (at 113, col 1). The appeal was dismissed on the basis that the trial judge had correctly rejected the claim for consequential loss, the insurance claim being for unliquidated damages for a breach which happened upon the occurrence of the insured loss. That being the position was accepted without any consideration of the language of the policy, which did not indemnify the insured against the damage but against the “cost of making [it] good”.

5. [280]

   In Callaghan v Dominion Insurance, the issue was whether under a fire policy the insured’s cause of action for breach of contract arose at the time of the fire damage. Sir Peter Webster (sitting as a Judge of the High Court) upheld the insurer’s argument that the action was statute barred. In so holding, he reasoned as follows: Lord Goff’s statement of the law was of general application and extended to property insurance (at 544, col 1); accordingly “immediately loss [was] suffered by the occurrence of the contingent event the insurer came under a liability to indemnify the insured against that loss” (at 544, col 2); that is so unless “there are clear words in the policy which have a contrary effect”; thus, the insurer’s “primary liability” was to indemnify and to do so immediately, and its “secondary liability” was to put the insured in his pre-loss position, either by paying him a specific amount or electing to re-instate or replace the property (at 544, col 2); that although these were alternative ways in which the insurer’s “primary liability” might be satisfied, that did not mean the insurer was not liable to indemnify, in one way or another, immediately the loss occurred (at 544-545); and that the provision making compliance with the insured’s obligation to give immediate notice of the fire a condition precedent to the insured’s right to “recover”, was not to be construed as a condition precedent to the insurer’s “primary” liability, but as a condition precedent to the enforcement of the insurer’s “secondary” obligation (at 545, col 2 – 546). By this reasoning the primary obligation was breached immediately, and the non-satisfaction of the condition precedent did not prevent the limitation period from running.

6. [281]

   This distinction between the insured’s primary and secondary obligations does not treat the secondary obligation as one to pay damages for breach of the primary obligation, as to which see Lord Diplock’s analysis in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849. In that respect, this decision departs from the reasoning in The Italia Express (No 2) and Sprung v Royal Insurance (UK), which treat the “secondary liability” as being for damages, and the relevant provisions in the policy as equivalent to an agreed damages clause. More fundamentally, this analysis appears to accept that the “secondary” obligation describes the content of the undertaking to indemnify, and how it is to be satisfied. However, it does not then consider by reference to the language of the policy what is provided as to the time for performance of that “secondary” obligation. For it is only when that obligation has been breached that the cause of action for damages for breach of the undertaking to indemnify could arise.

7. [282]

   Although Lord Goff’s statement in The Fanti is directed to the position under a “contract of indemnity”, in its application the distinction between “indemnity insurance” and “contingency insurance” has not always been recognised. Virk v Gan Life Holdings PLC [2000] Lloyd’s Reports IR 159 is such a case. The insurer opposed the insured’s application to substitute a different party as insurer on the basis that the existing claim, albeit brought against the wrong insurer, was in any event statute barred. That claim was brought under a policy conferring death and sickness benefits in the event the insured suffered a stroke. Ultimately the limitation issue turned on whether the benefit was payable at the time of the stroke, or 30 days after a confirmed diagnosis of that stroke. The County Court judge followed the decision in Callaghan v Dominion Insurance, concluding that the claim was statute barred. Henry and Potter LJJ allowed the appeal on the basis that properly construed the insured’s right to payment arose upon the “survival of the insured for at least 30 days after the stroke (or rather its confirmed diagnosis)” (at [22]). In so concluding, Potter LJ rightly emphasised that ultimately the question depended on the “construction of the individual policy”, the circumstances being “very different” from those of Callaghan v Dominion Insurance (at [21], [22]).

Conclusion

1. [283]

   In the result, question (a) of the separate questions must be answered “None”. As I understand question (b), if question (a) is answered as I consider it should, none of Globe Church’s claims is not maintainable for reason that any cause of action for breach of contract on which those claims are based accrued at the time of the alleged damage and before the expiry of the 2008 policy. However, that is not to say that all of those claims are maintainable, which depends on a consideration of the content of the insurers’ payment obligations in the relevant circumstances. For that reason, question (b) should be answered, “To the extent this question arises, the answer cannot be determined in the absence of further facts.”

2. [284]

   Accordingly, the orders I propose are:

   1. (1)

      The questions posed for determination should be answered as follows:

   2. (2)

      The defendants pay the plaintiff’s costs of the hearing of these separate questions, such costs to be calculated on the ordinary basis.

   3. (3)

      Remit the proceeding to Davies J in the Common Law Division.

3. [285]

   LEEMING JA: I agree with Meagher JA. In light of the other judgments which I have had the advantage of reading in draft, my judgment is neither exhaustive of the issues which arise, nor comprehensive in its analysis.

4. [286]

   The insurers candidly accepted that if the cause of action for breach of contract did not accrue until the insured had made a claim on its insurers and a reasonable time had elapsed, then the Court would not be persuaded that the claim was statute-barred. Accordingly, the starting point is the particular contract of insurance. The relevant provisions are reproduced in the other judgments.

5. [287]

   It was accepted that the contract of insurance was to be given a business-like interpretation, attending to the language used by the parties, the commercial circumstances which the document addressed, and the objects it was intended to secure. That accords with the settled principles of construction stated in Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15]. It is with respect difficult to see how the application of those principles of construction leads to a result whereby the insurers were obliged to prevent any Damage or pay their insured immediately upon the happening of Damage. As Meagher JA has explained, decisively pointing in the opposite direction is the contractual language, notably the Basis of Settlement clause, to which the indemnity granted by the insurer is expressly subject. Commercial context and object reinforce the position. With respect, it may fairly be said to flout business commonsense to conclude that an insurer breaches a promise which it cannot perform, to the certain knowledge of both insurer and insured. How could the law impute such an improbable common intention? Lord Diplock’s rhetoric in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 is often invoked in circumstances which are inapt, but it is appropriate to describe the position here. I see no reason to displace ordinary principles of construction of contracts with some “fundamental” principle about the nature of indemnity insurance, especially one which I (no differently from Professor Clarke) would regard as absurd.

6. [288]

   I turn to authority. The foregoing is consistent with what was said by Giles J in Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564 at 568-569, reproduced and applied in this Court in CGU Insurance Ltd v Watson [2007] NSWCA 301 at [58]-[62]. Stevenson J was of the same view in Carillion Construction Ltd v AIG Australia Ltd [2016] NSWSC 495; 19 ANZ Ins Cas 62-115 at [119]-[156]. The position is so much the stronger in light of Meagher JA’s analysis of what was determined in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2.

7. [289]

   There is a deal of authority to the contrary, although none binding this Court. Not all is fully reasoned, a point to which I shall return. Notwithstanding that the point was “fundamental” (as it was repeatedly put in submissions), Professor Clarke has observed that it is “surprising that, in the case of indemnity insurance, the nature and thus the extent of [the insured’s right to recover from the insurer] are not clear”: M Clarke, The Law of Insurance Contracts (6th ed, 2009, Informa), p 1000.

8. [290]

   Fundamental as the point was said to be, Colinvaux’s Law of Insurance states, correctly, that “the notion that the insurers’ duty is to hold the assured harmless … has been widely criticised”: 11th ed, 2016 at pp 662-663. Professor Clarke has long been one of the critics, as Meagher JA has noted. So too was Professor Harvey McGregor, who referred to “all the unfortunate results” to which the notion led: McGregor on Damages (Third Supplement to Eighteenth Edition 2012), p 3; see now Twentieth Edition 2018, [1-005]. Professor Rose states that:

9. [291]

   The current edition of McGillivray on Insurance Law (14th ed, 2018, Sweet & Maxwell at p 667) refers to “the illogicality of the present law of deeming the insurer to be in breach of an obligation to indemnify before he had an opportunity to perform it”. Mance LJ (as he then was) referred to the “artificial and peculiarly domestic flavour” of the proposition that a claim against indemnity insurers sounds in damages for failure to hold the insured harmless: Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 at [42]. Four years later his Lordship referred to the “somewhat technical rule of insurance law, that payments under indemnity contracts sound in damages” and recognised that the point could well be regarded as fit for the consideration of the House of Lords: Mandrake Holdings Ltd v Countrywide Assured Group Ltd [2005] EWCA Civ 638 at [8].

10. [292]

    One commentator has said:

11. [293]

    Most colourfully, Professor Clarke, in criticising the reasoning in The Italia Express [1992] 2 Lloyd’s Rep 281, has said:

12. [294]

    Nevertheless, the insurers emphasised that their qualified promise to indemnify was to be understood as one to hold the insured harmless, which was breached the moment Damage was suffered. They submitted that it was “fundamental” that an insurer’s obligation to hold harmless was breached upon the suffering of harm, and that an insured could sue without first making a demand. They relied upon those last two propositions having been stated as the uncontroversial starting point of analysis in Versloot Dredging BV v HDI Gerling Industrie AG [2017] AC 1 at [24].

13. [295]

    There is always danger when resort is had to the seeming simplicity of a label. Holmes J noted “one of the misfortunes of the law that ideas become encysted in phrases and thereafter for a long time cease to provoke further analysis”: Hyde v United States 225 US 347 at 391 (1912). The same may fairly be said of an obligation to “hold harmless”. That formulation reflects the result achieved by a combination of remedies at common law, in equity and pursuant to statute.

14. [296]

    At common law, a contract of indemnity was understood to involve a promise which was broken only when the beneficiary had been damnified by actually paying: Collinge v Heywood (1839) 9 A & E 633; 112 ER 1352; Zaccardi v Caunt [2008] NSWCA 202 at [34]. Only at that point did an entitlement to sue at law arise. Equity intervened. Equity recognised the inadequacy of the position at law and would compel the indemnifier to pay the third party directly, or pay the beneficiary so as to enable the third party to be paid. Such an order was in the nature of specific performance. Lindley LJ said in Johnston v The Salvage Association (1887) 19 QBD 458 at 460-461 that:

15. [297]

    The foregoing is contained in the submissions advanced by Sumption QC in Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 at 16G – 17G. Mr Sumption was at pains to point out that equity’s intervention turned on, and could be excluded by, the terms of the contract: at 18A-B.

16. [298]

    The Judicature legislation authorised the High Court of Justice to administer all the remedies formerly available at common law and in equity. But nothing in that legislation of itself altered (a) the construction to be given to the contractual language, (b) the fact that equitable intervention was subject to the terms of the contract, or (c) the distinction between the equitable and statutory remedies given prior to the beneficiary actually making payment, and the common law damages which were available after the beneficiary had been damnified by making payment.

17. [299]

    The result achieved was that, through the intervention of equity, and with the supplementation of statute, the defect of the common law was ameliorated, so that the beneficiary did not first have to pay. One way of describing the net effect was that the beneficiary was “held harmless”. But it did not follow that the contract was breached immediately upon the occurrence which caused damage to the insured. Nor did it follow that a court was ordering contractual damages (as opposed to an equitable or statutory remedy) prior to any actual payment by the indemnified party. This may be one reason why Brennan CJ, Dawson, Toohey and Gummow JJ referred to the term “damages” being used “loosely” to describe the moneys payable to an insured. It was suggested in argument, of the fact that “damages” was sometimes said to be used in a particular sense, that it was “not always immediately apparent” why there was any difficulty with the term. It seems to me that part of the awkwardness in describing the remedy as one of damages simpliciter is an appreciation of the different responses of common law, equity and statute.

18. [300]

    On the view that I take, it is wrong to proceed from the premise that an insurer is liable in “damages” for breach of its obligation to hold its insured harmless, to the conclusion that the insurer is in breach of its promise before it has even been notified of a claim. That is the opposite of the historical position. It seems to me that many of the authorities on which the insurers relied disclose a failure to appreciate the true nature and complexity of what was achieved in the nineteenth century. I say that mostly because of the striking praise given by Lord Goff in The Fanti to the “formidable” and “most impressive” argument made by Mr Sumption, who had not previously appeared but who “refurbished and really transformed” the argument (see at 31C, 33H and 34H). That praise suggests that the basic distinctions between the relief at common law, in equity and pursuant to statute had not been made so clearly or at all in earlier cases.

19. [301]

    But no such broader review of the position is needed to resolve the questions referred to this Court. The answers turn on the particular contract. All members of the House of Lords in The Fanti recognised that the starting point was contract, and that equitable intervention could not disregard the express provisions of the contract: at 28D (“difficult to see how equity could disregard or override those express provisions” per Lord Brandon of Oakbrook), 36B-C (“Equity does not mend men’s bargains; but it may grant specific performance of a contract, consistently with its terms, where the remedies at law are inadequate” per Lord Goff of Chieveley) and 41G (“When the indemnity arises ex contractu the measure of the indemnity must be determined by reference to the terms of the contract. There is no suggestion in any of the above mentioned cases that the equitable rule must prevail regardless of those terms. Indeed Courts of Equity have recognised that the rule could be displaced” per Lord Jauncey of Tullichettle).

20. [302]

    The defendant insurers invoke a limitation defence. That defence recognises that the plaintiff's claim is for breach of contract. The insurers accepted that their defence would fail if the cause of action of their insured did not accrue until a claim was made and a reasonable time had elapsed. The insurers submitted that it was a term of their contract that they indemnify their insured immediately upon the happening of Damage, before any claim was made and indeed before either the insured or insurer was aware of the Damage. On settled principles of construction, and with all respect to those taking a different view, I do not see how that can be so. The questions should be answered as Meagher JA proposes.