ALLSOP CJ:
1 This matter concerns a claim by an insured for property damage caused to the insured property by Tropical Cyclone Debbie in March 2017. The applicant seeks indemnity against the respondent, the property insurer. These are supplementary reasons for judgment explaining the orders made on 24 July 2020. Those orders were initially made on the basis of the orders made on 6 May 2020 and the reasons published in Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588.
2 On 10 May 2019, in an interlocutory judgment, Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd [2019] FCA 639, the Court made orders for the hearing of the first stage of the proceeding to deal with two issues in respect of the claim by the applicant.
3 The two issues the subject of the orders of 10 May 2019 were as follows:
(a) The rights, if any, of the respondent to reduce its liability to nil under s 28 of the Insurance Contracts Act 1984 (Cth) (the Act); and
(b) Whether by some operative rule or principle the respondent is now unable to rely upon s 28.
4 The separate issues were heard on 16-18 October 2019 and the Court published its reasons for judgment on 6 May 2020 in Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588.
5 In its amended concise statement and submissions, the applicant claimed that the respondent was prevented from relying on s 28(3) of the Act by way of election, waiver, estoppel and a lack of good faith. The applicant's claims centered around representations made by the respondent in an email sent on 9 May 2017, in which the respondent confirmed cover under the policy notwithstanding what it referred to as "non-disclosure issues". The email stated in part:
As you are aware, the policy was first bound with Strata Community Insurance on the 23rd of March 2017. The loss occurred on the 29th of March 2017.
Prior to the policy being effected, we were not advised of any defects with the property, despite these clearly being known to the Body Corporate.
In the Building Inspection Report from Paul Ingledew dated the 1st of April 2015, the Body Corporate first became aware of the defects in relation to the roof, specifically the soffit panels. A more precise synopsis of the issue being covered in the Engineer Inspection Report from G.W. Goddard & Associates dated the 1st of December 2016.
The report carried out in December 2016, also concluded that "There appears other issue onsite which we were not engaged to inspect and report on, but would need attending too." It appears that the Body Corporate did not investigate the engineers closing statement and that it is reasonable to believe that the Body Corporate should have been aware of all defects associated with the roof.
Despite the non-disclosure issue which is present, Strata Community Insurance (SCI) is pleased to confirm that we will honour the claim and provide indemnity to the Body Corporate, in line with all other relevant policy terms, conditions and exclusions.
Summary of Damages
The damages known to our office at present, are broken down into two categories:
1. Defective materials and construction of the roof, including but not limited to tie downs, rafters and timbers and soffit
2. Resultant damage including but not limited to internal water damage, fascia, guttering and roof sheeting (for those buildings which lost roof sheeting only)
Relevant Policy Exclusions
SCI will cover the costs associated with the resultant damage (point 2. above), despite the policy exclusion outlined below.
In respect to the repairs to the defective materials and construction of the roof (point 1. above), unfortunately the policy does not provide cover for this portion of the claim.
We refer you to the "Exclusions" outlined on pages 28 & 29 of our Residential Strata Policy Wording, which states the following:
"… 1. We will not pay for loss or Damage: …
(c)…
(i) caused by moths, termites or other insects, vermin, mice, rats, rust or oxidisation, mildew, mould, contamination or pollution, wet or dry rot, corrosion, gradual corrosion or deterioration, change in colour, dampness of atmosphere or other variations in temperature, evaporation, disease, inherent vice or latent defect, loss of weight, change in texture or finish or pecking, biting, chewing or scratching by birds or animals; …
(d) caused by non-rectification of an Insured Property defect, error or omission that You were aware of, or should reasonably have been aware of. …"
"… 2. We will not pay for: …
(b) the cost of rectifying faulty or defective materials or faulty or defective workmanship;…"
The Body Corporate will be responsible for the costs associated with this portion of the claim.
(Original emphasis.)
6 The applicant took a number of steps in reliance on the representations made in that email and the claim continued to be adjusted in accordance with it. In late May 2018, the respondent resiled from the position taken as to coverage under the policy and instead gave the applicant a choice between acceptance of an offer of settlement and receiving nothing under the policy by the claimed operation of the remedies under the Act for non-disclosure and misrepresentation.
7 The Court held that Allianz was entitled to reduce its liability to nil under s 28(3) of the Act. Notwithstanding this, the Court held that Allianz was bound to deal with the claim by reference to the terms of the policy, and not by reference to s 28(3) of the Act, because its course of conduct in 2017 and 2018 invoked the doctrines of waiver and estoppel. The Court also found that Allianz acted towards Delor Vue in 2018 exhibiting less than the utmost good faith.
8 The applicant had asserted in its amended concise statement that policy exclusions 1(c)(i) and 1(d), which would otherwise exclude damage caused by defects, had also been waived by the respondent in the May 2017 email: at [2], [7] and [8(a)] of the applicant's amended concise statement.
9 During the course of oral argument at the hearing, I understood the applicant to have abandoned its arguments so far as they related to policy exclusions 1(c)(i) and 1(d). The following paragraphs of the judgment published on 6 May 2020 reflected this understanding:
7 The essence of the case made by the applicant was the holding of Allianz to the email of 9 May 2017. In the amended concise statement it was asserted that various policy exclusions had also been waived. This second aspect of the case was never pressed.
…
16 The amended originating application, amended concise statement and the applicant's concise statement in reply asserted a waiver of some of the policy exclusions (exclusions 1(c)(i) and 1(d)). The separate questions posed and all submissions in the case were limited to the inability of Allianz to rely upon the asserted non-disclosure and misrepresentation. The case as presented was an effective abandonment of the case that the applicant had an entitlement to be paid under the policy by varied terms without reliance on the above exclusions. The recognition of this position will be included in the orders that I make.
…
322 Contrary to the submissions of the respondent, this was a clear representation that the claim would be honoured and indemnity would be provided, in accordance with the policy terms and conditions. There is some ambiguity about the operation of the exclusion clauses. Until the hearing and submissions, the applicant asserted that part of the letter as a further waiver. That assertion was abandoned by the time of the hearing, and correctly so. The applicant's solicitors' position by May 2018 that Allianz was not stating its "position on indemnity" either at all or clearly (see [182] above) can be seen as a product of the evident frustration to this point in obtaining the translation of the clear statement of acceptance of cover into the practical division of responsibility and what could be seen as some temporising in the correspondence by this time.
…
330 Within the exchange there was an assertion by the applicant of an entitlement to be free of some of the exclusions. I have found that the 9 May 2017 email was not a clear statement to that effect. That case has been abandoned. That position of asserted right did not entitle the insurer to resile from the fundamental clarity of the position it had taken: cover was granted according to the terms of the policy.
10 At the end of the judgment, at [352], I proposed a number of declarations that reflected the preceding reasons:
1 In the circumstances that have happened the Court declares that:
(a) In failing before the entry into the contract of insurance with the respondent to disclose to SCI or the respondent the known defects concerning soffits and eaves, the applicant breached its duty of disclosure under s 21(1)(b) of the Insurance Contracts Act 1984 (Cth) (the Act).
(b) Subject to the declarations in 1(c), 1(d) and 1(e) below, as at 8 May 2017, the respondent was entitled to a remedy under s 28(3) of the Act, in particular the remedy of reducing its liability to nil for the claim made consequent on damage caused to the applicant's property by Tropical Cyclone Debbie in March 2017.
(c) The respondent is estopped from resiling from the representation made by email on 9 May 2017 that the claim would be honoured and indemnity provided, such that the mutual rights of the parties and the claim made by the applicant referred to in declaration (1)(b) were to be assessed and resolved by application of the terms of the policy of insurance, and not by reference to an assertion of right under s 28(3) of the Act.
(d) By 28 May 2018, the respondent waived any entitlement to adopt a position based on an assertion of right under s 28(3) of the Act contrary to the position taken by the respondent that the claim would be honoured and indemnity provided in accordance with the terms of the policy.
(e) In seeking to resile from the representation made by email on 9 May 2017 and in seeking to rely upon the non-disclosure of the applicant, the respondent, contrary to s 13 of the Act, failed to act towards Delor Vue in relation to the resolution of the claim with the utmost good faith.
(f) The mutual rights and obligations of the applicant and respondent in connection with the claim under the policy made by the applicant concerning the damage to the applicant's property caused by Cyclone Debbie in March 2017 fall to be adjusted and determined by reference to the terms of the said policy, and not by reference to any asserted non-disclosure or misrepresentation.
11 Following these proposed declarations, at [353], I stated:
Given the way the case was run by the applicant, it is to be taken to have abandoned any case as to waiver or estoppel concerning reliance on policy exclusions. The declarations set out above should be understood to incorporate that abandonment.
12 The parties were ordered to file orders to reflect the reasons in the judgment, or if there was no agreement, the parties were to file and serve draft orders and submissions reflecting their respective positions.
13 The applicant filed written submissions on 18 June 2020. In those submissions, the applicant agreed to the declarations proposed within the judgment, including the declaration in 1(f). However, it made the following submissions in respect of the policy exclusions:
3 Secondly, and as considered at [11] - [17] of Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd [2019] FCA 639 (earlier judgment), there are interstitial matters of policy construction, in particular whether the terms of the 9 May 2017 letter affect the operation of the policy and whether because of the letter the Respondent is prevented from relying upon exclusions 1 (c) (i) and 1 (d), which were to be dealt with only in the event the Applicant was successful in respect of the "first stage" of the hearing as described within the Orders.
4 At paragraph [353] of the judgment, it was found that the declarations at [352] should be taken as incorporating an abandonment by the Applicant of any case as to waiver or estoppel concerning reliance on policy exclusions given the way the case was run by the Applicant. The Applicant submits that this finding does not preclude a determination of the matters which were referred to at [15] of the earlier judgment.
5 The questions of policy construction which arise from the 9 May 2017 letter which the applicant submits should be determined if the proceedings are not resolved by way of mediation and prior to any reference out, include:
a. Whether, on a proper construction of the 9 May 2017 letter, the Respondent agreed to indemnify the Applicant in respect of all resultant damage (or as contended for by the Respondent, only in respect of resultant damage to those buildings which lost their roofs) notwithstanding exclusions 1 (c) (i) or 1 (d) of the policy;
b. Whether those parts of the 9 May 2017 letter that concern resultant damage are provisions that affect the operation of the policy pursuant to s. 10 (3) of the Insurance Contracts Act 1984 (Cth) (ICA) and are therefore to be regarded as provisions of the policy; and
c. Whether because of the 9 May 2017 letter, s. 14 of the Insurance Contracts Act 1984 (Cth) operates to prevent the Respondent from relying on exclusions 1 (c) (i) and 1 (d) in relation to the claim.
14 The applicant also filed draft orders that reflected these submissions and ordered that the matter be stood over for the making of orders concerning the determination of the proper construction of the policy and the letter of 9 May 2017 and in particular the three issues set out above.
15 In the light of these submissions, I asked the parties to appear before me at a case management hearing. I specifically asked that both senior counsel who argued the matter be present at the case management hearing. In response to my request, the solicitors for the applicant stated that they had not yet briefed senior counsel in respect of this stage of the proceeding and that junior counsel would appear on the applicant's behalf. The next day, the solicitors for the applicant informed my chambers that they had been instructed to brief senior counsel who had argued the matter and that he would be appearing at the case management hearing.
16 On 23 July 2020, the day before the case management hearing, my chambers received the following email correspondence from senior counsel for the applicant:
I have recently received instructions to appear at tomorrow's directions hearing in this matter, and to that end, have been briefed with materials provided to the court setting out competing positions with respect to the future progress of the matter.
I have read those materials and liaised with my instructors in relation to them.
Having done so, I have obtained instructions to confirm that the applicant's position tomorrow as to the matters which remain to be determined will not be as foreshadowed in the document previously provided to the Court by the applicant. Instead, and I anticipate consistently with the respondent's position, the remaining issue to be determined is whether, and if so to what extent, the applicant's claim is reduced by reason of the operation of the exclusions relied upon by the respondent.
I thought it appropriate to signal this development to the court in advance of tomorrow.
17 On 24 July 2020, the morning of the case management hearing, the parties provided agreed draft orders which set out the declarations I had proposed at [352] of the judgment and also provided that, if the matter did not settle at mediation, it be referred to a referee to be adjusted in accordance with the terms of the policy of insurance. The parties asked if, in the light of the agreed draft orders, it was still necessary for the case management hearing to proceed.
18 I told the parties that I was content to make the orders in chambers, but that I would like to have a brief conversation with senior counsel for both parties over the telephone or Microsoft Teams. It was intended that this conversation be akin to an appearance in chambers (albeit virtually, due to the movement restrictions brought about by the current Covid-19 pandemic).
19 On 24 July 2020, I met with senior counsel for both parties over Microsoft Teams. During that meeting I asked senior counsel for the applicant whether he had intended to abandon the argument concerning policy exclusions 1(c) and 1(d). I indicated that the declarations I had proposed at [352] of the judgment (which were repeated in the draft orders provided by the parties) had been drafted on the basis that the argument had been abandoned. I also indicated that if I had been mistaken and the argument had not been abandoned, I was willing to write a supplementary judgment correcting my error and hear further argument on the outstanding construction issues. Senior counsel for the applicant confirmed that he had intended to abandon the argument concerning the policy exclusions and that the outstanding issues had fallen away. On that basis, I made the declarations and orders as proposed by the parties.
20 On 10 August 2020, the respondent filed a notice of appeal in respect of the orders made on 24 July 2020 and the reasons for judgment published on 6 May 2020.
21 On 13 August 2020, I asked the parties to attend a case management hearing in the original proceeding. The purpose of the case management hearing was to determine whether the timetabling orders made on 24 July 2020 would be affected by the notice of appeal.
22 During the case management hearing, junior counsel for the applicant stated that the solicitors for the applicant had given my offer to write another judgment some further consideration and they would prefer if I published a short clarifying judgment, if I was still prepared to do so.
23 In response, I explained that I thought the need for a clarifying judgment had fallen away because senior counsel had confirmed that he intended to abandon the argument concerning the policy exclusions. I reiterated that I had made the orders on 24 July 2020 on the basis of what senior counsel had said to me in our meeting on that day.
24 As I explained to junior counsel for the applicant on 13 August 2020, I took it that what was said to me on the last occasion by senior counsel meant that there was no complaint about the scope of the asserted abandonment that I wrote of in the judgment published on 6 May 2020. I stated that junior counsel for the applicant needed to tell me if that was not the case. I asked junior counsel if he was going to make some complaint about my failure to appreciate that something was not before me when I said it had been abandoned, to which junior counsel replied "No". He also stated that his instructions were that "there will be no cross-appeal on this".
25 Despite his clarification, junior counsel for the applicant requested that I publish a judgment for the purposes of "clarification from the point of view of the record". Thus, this judgment is intended to constitute the clarification sought by the applicant.
26 Based on the correspondence I have received from the applicant, in particular the representations made by senior counsel for the applicant, my understanding is that the content of the paragraphs of the judgment reproduced above, as published on 6 May 2020, remain accurate. I therefore do not see a need to amend the orders and declarations made on 24 July 2020, which were intended to reflect that judgment.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.