Caimakamis and Pagonis v Royal and Sun Alliance Insurance Australia Limited [2002] VCAT 895

2. The Applicants were dissatisfied with the work and on 13 February 2001 they made a claim on the Policy of insurance seeking indemnity from the Respondent with respect to the alleged defects. By a letter dated 20 February 2001 the Respondent's agent, Home Owners Warranty, acknowledged that it had received the Claim on 19 February 2001.

3. The details of the claim are said in the form to be as set out in an attached report from a building expert, Mr O'Meara. The author of the report states in the conclusion, in effect, that in order to rectify the defects the following work needs to be done:

* demolish and replace the front paving and replace to match the acceptable areas;

* demolish the south veranda and rebuild it to its correct location with the proper length timbers spanning from post to post where metal connectors may rightfully be used.

"If (and only if) you, the Insured, have complied strictly with all your obligations in this policy then, subject to the limits, exceptions, conditions and terms below, we will at our option make good or pay you your loss or damage (`loss') resulting from:"

"If a written claim is not determined as to liability by us within 90 days of receipt then, unless you or the Tribunal agree to an extension, we are deemed to have accepted it."

6. By a further letter dated 27 June 2001 the Respondent rejected the claim. Quite obviously, this letter was outside the 90 day period.

7. On 18 October 2001 the Applicants lodged application D 739 / 2001 with this Tribunal, seeking an order that, pursuant to Clause 35 of the policy, the Respondent was deemed to have accepted liability for the Applicants' claim. That Application came before the Tribunal on 29 November 2001 and an order was made that:

"The Respondent, pursuant to the policy of insurance issued by the Respondent (No. 124339) in respect to the premises situated at 4 Albany Street Clayton is deemed to have accepted liability for the Applicants' claim made to the Respondent on 19 February 2001."

An application by the Respondent for an extension of time was rejected by the Tribunal. Costs were also ordered in the Applicants' favour which were assessed by the Tribunal on 5 March 2002 and have since been paid.

8. On 19 December 2001 the Respondent sent a letter to the Builder directing him to carry out rectification works in accordance with an attached schedule. The schedule lists the work recommended by Mr O'Meara, except that it goes further in directing the replacement of all the concrete, including those areas that Mr O'Meara apparently regarded as acceptable.

9. Correspondence then ensued between the solicitors for the parties. It does not appear that all of this is exhibited to the affidavits filed by both sides although I assume the relevant letters are before me.

10. In a letter dated 8 January, the Applicants' solicitors contended that, if the insurer had wished to direct the Builder to return to the site it ought to have done so at the time of its original decision. Presumably, although this is not stated, they mean the direction should have been given at the time the decision was made on the claim, although in this case, the Tribunal has found that no decision was made on the claim within the required period and so there was a deemed acceptance. He also contends that sending the Builder back to the site would be inconsistent with the Respondent's position that the items were not covered. To my mind, it would be consistent with the acceptance of the claim, which is deemed to have occurred. He queries whether the Builder would be responsible for the deemed liability of the Respondent but I think that is a matter between the Respondent and the Builder.

11. On 23 January 2002, the Respondent's solicitors responded, insisting upon its right under Clause 1 of the policy to make good the loss. This letter indicates that it is unaware whether the Builder has complied with the Respondent's direction to do the work. Indeed, the wording of this letter suggests the Respondent did not know whether the Builder had even contacted the Applicants in this regard. This seems to be a very casual approach on the part of the Respondent. An obligation to make good a loss by performing work is not fulfilled by merely directing someone to perform it. To provide indemnity in this way, the insurer must make sure that the necessary work is done.

12. On 24 January 2002, the Applicants' solicitors repeated their contention that it was not open to the Respondent to make good the loss by the performance of work.

13. On 8 March 2002 the Applicants' solicitors sent to the Respondent's solicitors a quote dated 2 December 2001 from another contactor, Master Menders, to carry out the necessary work for a price of $28,598.77 and demanded payment of this sum together with certain costs within seven days.

14. On 8 March 2002, the Respondent's solicitors wrote to the Applicants' solicitors asking for written confirmation as to the contact that had occurred between the Applicants and the Builder. It would seem from this letter that they had previously been told by the Applicants' solicitors that the Builder had simply asked the Applicants to provide a letter confirming that they were satisfied with the work. Again, I cannot see why the Respondent's solicitors should be seeking to obtain this information from the Applicants' solicitors when they could just as easily have contacted the Builder. It does not seem that there has been any contact in this regard.

15. Further letters were exchanged but the matter was not advanced.

16. This Application is now brought seeking orders in the following terms:

a) "An order that the Respondent is liable to the Applicants for compensation, alternatively damages, pursuant to the policy of insurance......;

b) An assessment of compensation payable to the Applicants by the Respondent, alternatively an assessment of damages payable to the Applicants by the Respondent;

c) An order that the Respondent pay the Applicants the assessed compensation damages forthwith;

d) An order that the Respondent pay the Applicants' reasonable legal costs and expenses incurred in the successful enforcement of their claim pursuant to the policy of insurance the principles stated by the Tribunal in Reid v FAI General Insurance Company Ltd 19991 VCAT DB;

e) Costs of this Application on an indemnity basis, alternatively on a party party basis;

g) Such further and other orders as the Tribunal deems appropriate." (sic.)

17. The matter came before me for a one day hearing on 3 July 2002. Mr Andrew of counsel argued on behalf of the Applicants that it would not be possible for the Respondent to rectify the work. He pointed out that the original building permit has expired, that there would be no domestic building insurance and no relevant building surveyor. He said that an order would be required that the Applicants make the house available to the rectifying builder which would, he said, require supervision by the Tribunal. He submitted that the only practical course was for the payment by the Respondent of the cost of rectification as established by the "Master Menders" quotation.

18. Mr Saw for the Respondent submitted that Mr Andrew's submission missed the point and that one should look at the insurance policy which clearly confers a right to make good the loss. He said that the Ministerial Order does not say that this right will be taken away if the acceptance of the claim is deemed under the policy. He said that it would be for the insurer to obtain the necessary permits and satisfy the legal requirements for the carrying out of the work. Mr Andrew responded, saying that only the owners or the owners' agent can apply for a permit.

19. I have some difficulty with Mr Andrew's submission that the practical difficulties he listed can take away what seems to be a clear entitlement of the insurer under the policy to make good the defective work as an alternative to paying a cash settlement to the insured. Further, I am not persuaded that, simply because there is a deemed acceptance, thereafter there can be only a cash settlement of the claim. All that the deemed acceptance provision of the policy means is that the claim is then accepted. Having accepted the claim, the insurer is then required to satisfy it in accordance with the terms of the policy.

20. There is no immediate right to damages from the insurer as there would be if the insurer had wrongfully rejected the claim. A wrongful rejection of a claim would be an immediate breach of a contract to provide indemnity, giving rise to a cause of action in damages. But where there is a deemed acceptance there is no breach of contract because the claim has been accepted. Of course, a breach might occur later if the insurer does not then provide indemnity in accordance with the terms of the policy.

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. The measure of damages is the value of the loss, which is the reasonable cost of having the work done by someone else.

25. The only evidence I have of this is the affidavit of Robert Charles Simpson, a registered builder and a director of a company carrying on business under the name "Master Menders". Two quotations are exhibited to Mr Simpson's affidavit, the first dated 2 December 2001 for $23,980 and the second dated 6 March 2002 for $26,367, which is almost exactly 10 percent more. He says in his affidavit that both quotations represent a fair and reasonable price to carry out the work. His explanation for the increase in the second quote is:

"The reason for the increased price as set out in the revised quote is that Master Menders increased its pricing generally after Christmas 2001. Also, I realised that as the works are the subject of an insurance claim it may be some months before Master Menders is actually retained to carry out the works".

26. I am not happy with this evidence. The words quoted suggest that Mr Simpson is not really assessing a fair and reasonable sum to carry out the work but rather, is saying what his company would require to be paid if it were engaged to do it. Further, apart from experience in quoting and pricing work for his own company, the affidavit does not to my mind establish that he is qualified to assess the reasonable cost in the market place of carrying out work of this nature. In the absence of better evidence, I am not therefore able to finally determine this aspect of the matter.

27. There will be an order on the claim in favour of the Applicants for damages to be assessed. The matter will be listed for directions in regard to the assessment of damages. Following assessment of damages, the question of costs will then be determined.