Ambiguous communications spark disputes

By Resolve Editor Kate Tilley

AILA’s 2023 Insurance Law Prize winner Robin Bowley explored Australia’s High Court decision in Delor Vue and potential implications for New Zealand in a presentation to the NZILA conference.

He said a key takeout was the scope for dispute when communications were ambiguous.

Dr Bowley, a Senior Lecturer in the Law Faculty at the University of Technology Sydney, said the case turned on the issues of election, waiver, estoppel and utmost good faith, rather than an interpretation of Australia’s Insurance Contracts Act. Allianz Australia Insurance v Delor Vue Apartments CTS 39788 [2022] HCA 38 was the lead article in the March 2023 issue of Resolve.

The case eventually reached the High Court (Australia’s highest) where there was a 4:1 decision for the insurer, ruling it was entitled to deny indemnity, despite initially telling the insured client it would indemnify them.

In March 2017, the Delor Vue apartment block in north Queensland entered into a policy with Allianz, through its underwriting agency Strata Community Insurance (SCI), but the building’s known structural defects were not disclosed.

Cyclone Debbie hit on 28 March 2017, causing significant damage, and a claim was lodged.

Honour the claim

On 9 May 2017, an SCI email said: “Despite the non-disclosure issue … [SCI] is pleased to confirm we will honour the claim and provide indemnity to [Delor Vue], in line with all other relevant policy terms, conditions and exclusions.”

The email identified two categories of damage:

1. Defective materials and construction of the roof, including but not limited to tie downs, rafters and timbers and soffits.

2. Resultant damage including but not limited to internal water damage, fascia, guttering and roof sheeting (for those buildings which lost roof sheeting only).

The email said repair costs for the second category would be covered, but the first was excluded.

The case dragged on with SCI maintaining that roof repairs needed to be conducted before internal repairs for buildings with roof damage or water entering through the roof. Both parties retained engineers and builders to advise on the repairs and Allianz discovered additional defects with roof trusses and their attachment to the buildings.

Dr Bowley said the dispute “started to unpack” and there were many differences of opinion between the parties and their experts.

In January 2018, Delor Vue borrowed $750,000 to finance repairs and in March 2018 SCI renewed the policy with a 50% premium increase.

Delayed progression

On 3 May 2018, Delor Vue told Allianz its failure to state its position on indemnity “with any clarity” had caused delayed progression of the claim and repairs and was a breach of the duty of utmost good faith.

1. 1. On 28 May 2018, Allianz offered to settle, which Delor Vue did not accept within the 21-day time frame. Allianz said non-acceptance entitled the insurer to withdraw its offer of indemnity and reduced its liability to nil.
2. The Federal Court’s then Chief Justice James Allsop found that, while Allianz was entitled to reduce its liability to nil under s28(3) of the Insurance Contracts Act, it could not rely on that section for reasons of waiver, estoppel and the duty of utmost good faith, because of its 9 May 2017 email. However, he rejected Delor Vue’s submission that Allianz was bound by an election not to rely upon s28(3).

In the Full Court of the Federal Court there was a 2:1 decision in Delor Vue’s favour that supported CJ Allsop on waiver, estoppel and utmost good faith and accepted Delor Vue’s submission that Allianz was bound by an election.

Allianz’s High Court appeal was successful in a 4:1 majority decision.

Dr Bowley said the majority found “there are limited circumstances in which a gratuitous waiver of rights becomes irrevocable” and the 9 May email was “very conditional wording”.

Soured relationship

On the doctrine of election, the majority warned against expanding it, saying, without the 9 May waiver, none of the insurer’s actions was necessarily inconsistent with Allianz maintaining a defence under s28(3).

They dismissed Delor Vue’s claims of detriment, saying the insured could not argue it was deprived of the prospect of a more favourable outcome because of the soured relationship between the parties when that argument was not advanced at trial. Nor was there a lost opportunity for Delor Vue to take steps to conduct repair works itself.

On utmost good faith, the majority found “an insurer and an insured do not owe a duty never to depart from representations made to each other”.

Dr Bowley said the dissenting judgement by Justice Stephen Gageler, who will become Chief Justice in November, had parallels to the dissenting opinion of former High Court Justice Michael Kirby in CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36.

Justice Gageler discussed what fairness and reasonableness meant and “how that informs the overall approach” an insurer takes to a claim. He said: “The statutorily implied contractual requirement that Allianz act towards Delor Vue with the utmost good faith entailed that Allianz was [after the 9 May email] bound to adhere to the position it had announced. Allianz was not entitled to go back on its word. It was not entitled to blow hot and cold.”

Dr Bowley said an important takeaway from Delor Vue was that it illustrated “the scope for disputes in situations where there’s been letters, emails or anything exchanged that might be potentially regarded as ambiguous”.