Victorian Civil and Administrative Tribunal|2004-09-07

Brown v Allianz Australia Insurance Limited [2004] VCAT 1748 (7 September 2004)

Successful enforcement of insurance claim - negotiated settlement in substantially the same terms as original decision - entitlement to costs

1. On 29 August 2002 the Applicants ('the owners) lodged a claim form with the First Respondent ('the insurer'). On 5 December 2002 the owners' former solicitors indicated to the insurer that as a decision on the claim had not been made within the prescribed 90 day period, it was deemed to have been accepted. On 13 December 2002 the insurer made a decision accepting the majority of the owners' claim, and issued a schedule of works to the builder. The schedule of works required the builder to rectify the defects to the carport but was subject to the following:

"[t]he above works are subject to the pending Resicode/Building Disputes Department appeal outcome. If the appeal is rejected the builder is to demolish the carport and make good the building"

2. By application dated 23 April the owners sought the following substantive orders:

1. The decision of the Respondent dated 13 December 2002 is confirmed and ancillary orders are made to

A. compel the First Respondent to require the Second Respondent to demolish the works

B. require the First Respondent to indemnify the Applicant for the loss caused to them by the Second Respondent

3. Thereafter, there were apparently some discussions between the parties and a negotiated resolution was achieved, whereby the parties agreed to allow the builder to return to site to carry out the necessary rectification works in accordance with the requirements of Bayside City Council dated 10 October 2003, which did not require the demolition of the carport. A further period elapsed before the works were carried out to enable the registration of the Second Respondent as a builder, the obtaining of a building permit and insurance for the works. The works were completed on 12 May 2004.

4. The owners now seek an order that the insurer pay their costs of what they say has been the successful enforcement of their claim. This is opposed by the insurer who submits that the works ultimately carried out were in accordance with the initial schedule of works issued by it on 13 December 2003 and seeks an order that the owners pay its costs of what it submits was an unnecessary application.

5. Although I was not provided with a copy of the policy I accept that Clause 1 of the policy under the heading "Indemnity Limitations" provides:

The aggregate liability of the Insurer shall not exceed one hundred thousand dollars ($100,000) for all claims in respect of a home plus reasonable legal costs and expenses incurred by the Building Owner associated with the successful enforcement of a claim against the Insurer. The Insurer will not be liable for any other legal costs or expenses, which are not related to the successful enforcement of a claim against the Insurer.

Has there been a successful enforcement of the claim against the insurer?

6. I was referred by Mr McPhee on behalf of the owners to the decision of Senior Member Walker in Caimakamis and Pagonis v Royal and Sun Alliance Insurance Australia Limited [2002] VCAT 895 and in particular to:

21 The Respondent's difficulty here is that, even accepting it had the right to make good the loss, it has not done so. There has been plenty of time for the Insurer to take reasonable steps to have the work carried out, yet all that it appears to have done is send a written direction to the Builder that has not been complied with. It never followed the matter up. Although it is clear that the Applicants did not want to have the Builder return to carry out the work there is no evidence that they prevented him from doing so. The scintilla of evidence that there is would suggest that he was not willing to do so.

22 If an insurer proposes to provide indemnity by making good the loss, it must do so. If the insured objects to this course and does not cooperate the insurer should at least clearly show that it is ready and willing to do so. If the insured then refuses to permit the insured to do the necessary work then it will not be the fault of the insurer that indemnity has not been provided.

23 The lack of action on the part of the Respondent in this case indicates to my mind that it was prepared to have the Builder carry out the necessary work at no cost to itself but not take any steps to ensure that the work was done. This does not amount to making good the loss, nor does it show that the insurer is ready and willing to do so.

24 That being so, I am satisfied that the Respondent has failed to provide indemnity for the loss as required by the policy and is therefore in breach of the contract of insurance.

7. However, the facts in that case were quite different to those before me. In Caimakamis it is clear that the insurer did not take the necessary steps to ensure the works were carried out by the builder or otherwise make good the owners' loss. In this matter, it is conceded on behalf of the owners that the parties co-operated towards achieving a negotiated resolution and that the insurer provided positive assistance to enable this to occur. Further, there is no suggestion that the insurer did not provide indemnity to the owners under the policy - the insurer took all reasonable and necessary steps to ensure the works were rectified.

8. I reject Mr McPhee's submission that it was necessary for the owners to lodge the application to enforce their claim - there is simply no evidence before me to suggest that the outcome that was finally achieved would not have been achieved in the absence of these proceedings. The proceeding insofar as it relates to an appeal of the insurer's decision was resolved without any assistance from the Tribunal - it was initially set down for mediation which was adjourned on three occasions, and then for a Compulsory Conference which was adjourned on four occasions before the parties achieved a resolution of the insurance appeal.

9. Mr McPhee also submits in paragraph 6 of the Applicants' Submission that the 'fact that the loss suffered by the Applicants has been made good is in itself a successful enforcement of the claim against the insurer'. However, once again there is no evidence before me that there was any suggestion that the works would not be carried out in the absence of these proceedings. The insurer has been co-operative and pro-active in taking all necessary steps to ensure that the works were carried out and the owners' loss made good.

10. Further, in my view a party cannot be said to have successfully enforced their rights under a policy of insurance by entering into a negotiated settlement in substantially the same terms as the original decision, and without the assistance of the Tribunal. This is a quite distinct situation from where the Tribunal makes a determination upholding an appeal or where a negotiated settlement is achieved at a late stage in the proceeding, perhaps during or after the hearing, but before a decision is made. Each case must be considered on its merits and in accordance with its particular circumstances.

11. It was submitted by Mr McPhee that the owners should be entitled to an order for costs at the very least for the period up to and including 5 December 2002, the date on which the owners' former solicitors advised the insurer that as a decision had not been made within the prescribed 90 day period it was deemed to have been accepted. I am not persuaded that any costs incurred by the owners in lodging their claim are costs which are associated with a successful enforcement of their claim. This is not a situation where the insurer has ever resiled from its acceptance of the owners claim - deemed or otherwise. The subject of the appeal was the scope of works. There is no reference in the application indicating an appeal in respect of the one rejected item.

12. Having regard to the provisions of s109 of the Victorian Civil and Administrative Tribunal Act 1998 I am not satisfied this is a proceeding where it would be fair to exercise my discretion under s109(3). I accept Mr Moshidis' submission that it would set an unfortunate precedent if costs were to be awarded to a party that appeals a decision of the insurer, but ultimately agreed to a resolution which was substantially the same as the insurer's original decision, and actively participated in enabling the works as originally directed by the insurer to be carried out by the builder. However, I am also of the view it would set an unfortunate precedent if a party who appealed a decision of an insurer and then entered into a negotiated settlement in substantially the same terms as the original direction, without the assistance of the Tribunal, were ordered to pay the insurer's costs of the proceeding. I will therefore order that the Applicants and the First Respondent each bear their own costs of this proceeding insofar as it relates to an appeal by the Applicants of a decision of the First Respondent.

Brown v Allianz Australia Insurance Limited [2004] VCAT 1748

At a glance

Court

Decision date

Source

Judgment (27 paragraphs)

Brown v Allianz Australia Insurance Limited [2004] VCAT 1748 (7 September 2004)

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