Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788

introduction 261 Tropical North Queensland is a place known for the not infrequent occurrence of cyclones. Its local inhabitants are acutely aware of that as, undoubtedly, are insurers who accept risks relating to property damage in that location. In that context, any insurer proposing to provide such cover in that region can expect that a prospective insured will inform it of any significant defects, of which they know, in any building intended to be the subject of cover. In this case, the body corporate responsible for the unit development known as "Delor Vue", located at Cannonvale, near Airlie Beach in the Whitsundays area of Queensland, knew of the defective condition of the roofs of the 11 multi-story apartment buildings constituting the development. That was a matter that a reasonable person would have known was relevant to an insurer's determination whether to provide insurance in relation to the buildings. Despite that, it did not inform Allianz Australia Insurance Ltd (through its underwriting agent, Strata Community Insurance Agencies Pty Ltd (SCI)) (referred to herein simply as "Allianz") of that fact when negotiating for a policy of insurance which was issued on around 22 March 2017. 262 On 28 March 2017, tropical cyclone Debbie crossed the Queensland coast around Airlie Beach and caused substantial damage to the buildings in the Delor Vue complex. Allianz responded to the body corporate's claim on the policy by engaging adjusters to assess the claim and, within a relatively short time, became aware that the body corporate may have breached its disclosure obligations under s 21 of the Insurance Contracts Act 1984 (Cth) (the ICA) by omitting to mention defects in the roofs. It also concluded that much of the damage sustained to the buildings was consequent upon their defective construction and that any such damage was excluded from the property damage cover in the policy. 263 Nevertheless, on 9 May 2017, Allianz advised the body corporate (which hereinafter is also referred to as "Delor Vue") that, despite the apparent non-disclosure, it intended to honour the policy according to its terms. It did, however, emphasise that it would not provide indemnity in relation to the defective construction of the buildings, and that Delor Vue would be required to meet the cost of any remediation work in that respect. For the following year, Allianz set about attempting to adjust Delor Vue's claim. This was no simple task given the relative remoteness of the location, the difficulties of undertaking inspections, and the challenge of dissecting the damage contributed to by the structural defects in the buildings from damage caused solely by the cyclone. Allianz engaged and paid for engineers who provided reports on the damage and obtained building quotes and scopes of work for the repairs. It also made payments under the policy for loss of rent and the accommodation of persons displaced by the damage caused to their units. In total, it expended nearly $200,000 in payments under the policy and on the costs associated with preparing for the remediation of the buildings. 264 By about May 2018, it had become apparent that the total cost of effecting repairs to the buildings was substantially greater than originally appreciated. The then estimated cost was between around $4 million to $6 million and, according to Allianz's assessment, the cost of rectifying the defective construction, which was the subject of the policy exclusion, was between $2 million to $3 million. Also at about that time, Delor Vue's solicitors commenced accusing Allianz of, amongst other things, failing to make its position on policy coverage clear, failing to honour its obligations of utmost good faith, and failing to comply with industry codes of practice. 265 On 28 May 2018, Allianz offered to pay Delor Vue the sum of approximately $918,000 under the policy in settlement of the claim. That offer was subject to certain conditions and expressed to be open for a period of 21 days. Allianz indicated that if the offer were not accepted it would rely upon Delor Vue's pre-contractual non-disclosure to reduce its liability under the policy to "nil" consequent upon the operation of s 28(3) of the ICA. Delor Vue rejected that offer and commenced these proceedings. 266 The learned primary judge accepted that Delor Vue had breached its disclosure obligations under s 21 of the ICA such that the amount of Allianz's liability under the policy was nil. However, he also concluded that Allianz was now unable to rely upon Delor Vue's non-disclosure because it was estopped from doing so, had waived its right to do so, or would be a breach of its duty of utmost good faith if it did so. His Honour rejected Delor Vue's claim that Allianz was now unable to rely upon s 28(3) because it had made an election between that right and a mutually inconsistent right. 267 On this appeal, Allianz submitted that it was not estopped from relying upon the operation of s 28(3). It submitted that no proper case of estoppel was pleaded against it because, although reliance was alleged, there was no allegation that Delor Vue suffered detriment as that concept is properly understood. In the alternative, it submitted that, on the evidence, Delor Vue had not, in fact, suffered detriment consequent upon Allianz's initial intimation that it would not rely upon the non-disclosure. Indeed, it submitted that the evidence actually establishes that Delor Vue obtained substantial advantages flowing from the adjustment of the claim, including the obtaining and paying for multiple engineering reports, building quotes and scopes of work. In relation to waiver, it submitted that no separate doctrine of that nature exists in Australian law in relation to the contractual rights of parties inter se in circumstances such as the present. As to the duty of good faith, it submitted that there was nothing in the circumstances of the case which had the consequence that commercial decency and fairness obliged it to pay a substantial claim for which it had no liability merely on the basis that, when the claim was substantially more modest, it had said that it would. It also sought to maintain the primary judge's determination that no election between inconsistent rights occurred in the present case. 268 For the reasons which follow the appeal should be allowed. In reaching that conclusion, I acknowledge that I am in disagreement with the customarily careful and erudite reasons of the learned primary judge and that, necessarily, gives me great cause for pause and reflection. I also acknowledge that the resolution of the issues in this most difficult matter was rendered considerably less burdensome by the primary judge's meticulous analysis of the intricate factual context in which the issues arose. Similarly, that I am unable to agree with the reasons of McKerracher and Colvin JJ, for whom I also have the greatest respect, gives me reason for additional contemplation as to the correct outcome of this matter. 269 Ultimately, however, the essentiality of reliance and detriment to the doctrine of estoppel ought not to be diminished in favour of general notions of keeping parties to unilaterally made promises. The economic norms inherent in common law and equity respect a value-based approach to the alteration of rights and, consequentially, provide security to contractual bargains. Mere promises, in the absence a quid pro quo or detrimental reliance, generally do not alter the rights and obligations of contractual parties inter se. Were it otherwise, the security of bargained for rights would be loosened considerably. Similarly, the right to make an election is dependent upon the existence of antecedent agreed rights and obligations and the operation of circumstances upon them which then accord one party the power to create new sets of rights and obligations between the parties. I agree with the observations of the learned primary judge and the extra-curial writings of the Hon. KR Handley AO QC to the effect that election does not follow upon a unilateral promise, not derivative upon the operation of contractual terms, to provide a benefit which the promisor was not otherwise obliged to give. If election is not properly confined by the principles so carefully articulated by the Hon. KR Handley AO QC, it will acquire the potential to undermine the foundations of all contractual bargains and become a ubiquitous defence to contract claims. The importance of the economic underpinnings of estoppel and election also tends to preclude the possibility of the existence of a separate doctrine of waiver in the context of the contractual performance. Further, to recognise the possibility of the loss of rights by waiver, so called, other than by the operation of the principles of estoppel and election, would necessarily undermine the utility and the existence of the latter two concepts. It must necessarily also undermine the strength and value of contractual rights. The matter of the obligation of utmost good faith in insurance stands aside from those issues. Nevertheless, adherence to that obligation in the performance of a contract of insurance could very rarely, if ever, require the unilateral sacrifice of a party's rights for the benefit of another in the absence of some recognised benefit moving from that other party.