Hugo v Vero Insurance Limited

District Court of NSW|2009-06-30|Before: Ipp J, Mr P

CITATION: Hugo v Vero Insurance Limited [2009] NSWDC 231

HEARING DATE(S): 30 June 2009; 1, 2, 3, 7 and 9 July 2009 EX TEMPORE JUDGMENT DATE : 9 July 2009

(1) The parties have liberty to bring in Short Minutes of Order reflecting the agreed sum of damages under the heads of damage set out in paragraph 88 of my judgment. DECISION: (2) Defendant pay plaintiffs' costs. (3) Liberty to restore in relation to interest and costs. (4) Exhibits retained for 28 days.

CATCHWORDS: CONTRACT - plaintiffs claim on insurance policy for storm damage - interpretation and construction of insurance contracts - claim for loss of opportunity to rent, claims preparation costs and other disbursements - assessment of loss claimable under the policy

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Cachia v Hanes (1994) 179 CLR 403 Caine v Lumley General Insurance Limited [2008] NSWCA 4 Chandris v Union of India [1956] 1 All ER 358 CASES CITED: Codelfa Construction Pty Ltd v State Rail Authority (1982) 149 CLR 337 Council of the City of Wollongong v Vero Insurance Ltd [2009] NSWSC 475 Manufacturers' Mutual Insurance Limited v Withers (1988) 5 ANZ Insurance Cases 60-853 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 461 Reardon Smith Line v Yngvar Hansen-Tangen [1976] WLR 989

TEXTS CITED: N B Rao, "The Interpretation and Construction of Insurance Contracts" (2008) 19 ILJ 193 Ipp J, "Problems with Fact-finding" (2 September 2006) Lawlink, Supreme Court of New South Wales

First Plaintiff: Henry John Hugo PARTIES: Second Plaintiff: Wollongong Brokers Pty Ltd Defendant: Vero Insurance Limited

COUNSEL: Plaintiffs: Mr P T Newton Defendant: Mr T Mehigan

SOLICITORS: Plaintiffs: Rockliffs Solicitors Defendant: Wotton + Kearney Lawyers

[1] The plaintiffs by way of Statement of Claim filed on 15 September 2008 claimed an indemnity under an "Industrial Special Risks" insurance policy (policy number: WD200804LO6) ("the Policy") issued by the defendant for the period 30 May 2002 to 30 May 2003, or in the alternative, damages in the amount representing the sums the defendant had failed to pay under the terms of the Policy. These were set out in the Statement of Claim as follows:

(a) Building inspections and reports $8,083.25 (b) Repairs to the Premises $10,991.65 (c) Administration, typing and photocopying $1,167.00 (d) Legal and accounting fees (excluding these proceedings) $2,453.00 (e) Travel and accommodation expenses $63,906.54 (f) Cost of replacement of concrete slab $110,244.66 (g) Costs (approximately) $42,178.50 (h) Loss of rental income (20 September 2002 to 1 August 2005 at $500/week) $74,800.00 Total $313,824.60 (i) Future loss of rental income caused by repair to concrete slab $500 per week (j) Future relocation expenses to be incurred by RAES $1,800 per week

[2] The claim arises from the damage which occurred to one of six premises covered by the Policy, namely a two-storey brick building which was the principal residence of the first plaintiff and his wife, and the premises leased by the second plaintiff, in 2002. A storm which occurred on the evening of 18 and 19 September 2002, resulted in a section of the roof of the warehouse becoming detached from its support structures and landing across the rear section of the residential part of the premises.

[3] On or about 19 September 2002 the plaintiffs made a claim against the defendant under the Policy. The defendant paid the following sums: (a) On 11 December 2002 the defendant paid $11,010.00 to the first plaintiff to cover emergency repairs carried out by PJ & I Ackerman Pty Ltd ("Ackerman"), a firm of builders retained by the plaintiffs.

(b) A further series of payments of $44,090.20 to Ackerman was paid in July 2003, as well as $6,255.85 for replacement carpets due to leaks from the roof. The excess of $5,000 was paid by the plaintiffs.

(c) Accordingly, the total amount paid by the defendant for repairs for damage sustained during the storm is $61,356.05. [4] The plaintiffs also claim that, since approximately December 2002 and up until June 2005, when further repairs were carried out water had leaked through or penetrated a concrete slab between the ground floor and the residence on top of which there was a tiled patio. A claim was made in relation to this which took up most of the first four days of the trial. Complex questions concerning the cause of water penetration and the need to replace the concrete slab were deal with by concurrent expert evidence by the plaintiffs' expert witnesses (Mr Stephen Maber, a builder, and Mr Emil Toussis, an engineer) and the defendant's expert (Dr John Hutcheson). There had been no case management of these proceedings prior to the trial permitting arrangements to be made for concurrent expert evidence (sometimes referred to as "hot tubbing") and it was necessary for the parties to spend a day of the hearing time waiting for the experts to agree in conclave as to the issues which were agreed and the issues which were in dispute. The experts were subsequently cross-examined. The very high standards of professionalism, not only of the experts but also of the counsel and solicitors on both sides of this litigation, was such that on the fourth day of the trial, in light of the way of the technical evidence was emerging in the course of the concurrent expert evidence, the defendant conceded that the concrete slab had been damaged by the impact of the warehouse roof on the rear wall of the residential part of the premises by widening an existing crack in the slab. It was also conceded that the slab required replacement, the reasonable estimated costs of the replacement of this slab was agreed between the experts and the estimated time to effect the repairs is 8 weeks. In addition, a figure for this 8 week period in relation to the loss of rental income has been agreed. This sensible resolution of a very difficult issue is to the credit of everyone concerned.

[5] The practical effect of the concessions on these technical issues is that the defendant accepts that the plaintiffs are entitled to an indemnity under the terms of the Policy in respect of the following amounts: (a) $113,992.97 being the agreed figure for the estimated reinstatement costs plus CPI as calculated by Mr Maber in his affidavit sworn 2 February 2009 (paragraph 6);

(b) $3,787.65 for the repairs carried out in June 2005 to waterproof the concrete slab;

(c) $2,342.50 for building inspection reports of Gary Marsh, RTB Engineers and Stephen Maber incurred in connection with the June 2005 repairs (these costs falling under sub-paragraph (a) of the Indemnity Clause under Section 1 of the Policy);

(d) The defendant also accepts that the " Mr Hugo is also entitled to an indemnity in respect of "such reasonable professional fees as may be payable by the Insured, and such other reasonable expenses necessarily incurred by the Insured and not otherwise recoverable, for preparation of claims under the Insured's Material Damage and Consequential Loss insurance policies…" (Item No 2 of Section 2 of the Policy). The costs falling within Item No 2 of Section 2 of the Policy are claims preparation costs which are subject to a limit of indemnity of $10,000 under the Schedule to the Policy " (defendant's written submissions paragraph 11);

(e) The defendant concedes that " Mr Hugo is entitled to an indemnity of $10,000 under Item No 2 of Section 2 of the Policy because the following amounts for claims preparation costs (which the defendant accepts are reasonable claims preparation costs) exceed the limit of the indemnity:

(i) $6,700.75 for the professional fees of Stephen Maber, MKB South Coast (Mr Toussis) and ATB Engineers incurred after the repairs carried out in June 2005;

(ii) $1,977 in respect of administration, typing and photocopying expenses incurred in relation to the claim;

(iii) $1,683 for accounting fees " (defendant's written submissions paragraph 12);

(f) Loss of rent for the 8 week period during which the renovations will be carried out. The remaining issues

[6] The following issues remain to be considered: (a) Loss of opportunity to rent;

(b) "Claims Preparation Costs", including travel and accommodation expenses (totalling $68,677.04), time spent on claim (totalling $42,178.50) and other costs (totalling $4,430);

Claim Provision of Policy Limitation to provision - if any Amount of claim reduced by limitation a. Building inspections and reports Section 1 - The Indemnity (d) $5,000,000 $8,083.25 b. Repairs to Building Section 1 - The Indemnity (a) and (d) $5,000,000 $10,991.65 c Administration, typing and photocopying Section 2 item 2 - such other reasonable expenses necessarily incurred by the insured NIL $1,167.00 d Legal and accounting fees (excluding these proceedings) Section 2 item 2 $10,000 $2,453.00 (Professional fees) e Travel and accommodation expenses Section 2 item 2 or Section 2 item 4 $63,906.54 f Time spent by Mr Hugo in dealing with the claim Section 2 item 2 or Section 2 item 4 Section 2 item 4 ($50,000) $42,178.50 g Cost of replacement of concrete slab Section 1 - The Indemnity $5,000,000 $113,992.97 Section 2 h Loss of opportunity to rent $700,000 $73,500 Sep 02 to 1 Aug 05 - 1,034 days - 147 weeks x $500 - 1 Section 2 i Loss of rent - during period slab replacement works are being carried out $700,000 $4,000 8 weeks x $500 pw j Total $320,272.91

[8] I have dealt with these items, and also additional claims (for glass replacement and telephone repair as well as the $1,800 per week claimed by the tenant) as set out below, but under the three general headings proposed by the defendant relating to the items still in dispute.

[9] I shall first consider the issues in relation to loss of rent.

[10] The issues for determination relates to the construction of the Policy as to whether: (i) is any loss of rent claim confined to loss of rent sustained in the 12 month indemnity period specified in the Schedule to the Policy as being applicable to the claim under the Consequential Loss Section of the Policy (Section 2)?

(ii) is any loss of rent claim subject to a limit of $5,000 or a limit of $700,000 by reason of the reference " Loss of Rent (all situations): $700,000 " in the Schedule to the Policy?

(iii) Did the first plaintiff in fact suffered any loss of rent considering that the second plaintiff continued to trade from the premises and paid rent over this period, in circumstances where there was an approach from the company with offices next door seeking rental accommodation due to their expanding premises? Is the rent claim limited to 12 months and $5,000?

[11] The first issue is whether loss of rent claim is confined to loss of rent sustained in the 12 month indemnity period specified in the Schedule to the Policy as being applicable to the claim under the Consequential Loss Section of the Policy (Section 2) and, in the event, whether any such claim is subject to a limited $5,000 or the $700,000 set out in the Schedule to the Policy. I shall also consider whether on a factual basis the first plaintiff did in fact suffer any loss of rent during the 12 month indemnity period under Section 2 of the Policy or indeed at all as the ground floor space was not let to anyone other than his own company (for a modest rent of approximately $2,500 per year) and was not leased until August 2005 to the neighbouring business.

[12] The reference to the sum of $5,000 comes from a document provided by the plaintiff's broker to the insurance company which contains the following list under the heading "rental splits as requested": "SIT1 $5,000 - rental shops / dom [domestic] unit [this is the property which was damaged]

$156,000 bowling alley / motored spares [illegible]

Awaiting terms regards Bruce McCluskey" [13] This fax was dated 13 May 2002, and it is asserted by the plaintiff that it is not a contractual document and that in some far as these figures have not been incorporated into the schedule of insurance, they should not be accepted.

[14] However, the figure of $700,000 which is listed in the schedule of insurance in Section 2 clearly is this figure, and indeed I did not hear submissions to the contrary.

[15] What does this figure of $5,000 represent? According to Mr Hugo, the second plaintiff, Wollongong Brokers, was renting the showroom underneath his house for $190 per month and using the showroom to display the company's waterbed. This was a nominal rental value which added up to approximately half of the sum of $5,000 referred to. I have no information as to how the other figures in the schedule are computed. However, if the figure of $5,000 represents approximately two years of actual rental, it is asking a great deal for me to be interpreting this figure, which clearly has gone into the loss of rent item in the schedule of insurance as entitling the first plaintiff to claim up to $700,000 in relation to each of the properties.

[16] When considering questions of construction of an insurance contract, the plaintiffs submit that the court should ascertain the objective intention of the parties (plaintiff's written submissions paragraph 36) and that terms of a policy of insurance are to be given that meaning which a reasonable person with the background knowledge of the parties at the time the agreement was made would have understood from the language used by the parties: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 461. The Court should have regard to all of the terms of the contract.

[17] The defendant submits that the contractual documents consist of the Industrial Special Risks Policy wording, the pro forma schedule to the Policy, the schedule of insurance and the fax of 13 May providing the split up of rental values. The defendant submits that this fax is a contractual document for the following reasons: (a) The Limits of Liability and Sub-Limits of Liability provisions of the pro forma schedule to the Policy contemplated that there would be maximum limit of liability (or sub-limits) in relation to each " Situation " covered by the Policy;

(b) The Memoranda to Section 1 of the Policy contains a provision in relation to Declared Values which contemplates the provision of a " Schedule of Declared Values at each situation ";

(c) The Schedule of Insurance contained as Assets Schedule which identified six properties covered by the Policy (the property the subject of these proceedings is the first property identified in the Asset Schedule) with values ascribed to each property in relation to the building;

(d) The Assets Schedule in the Schedule of Insurance is the Schedule of Declared Values in relation to building values contemplated by the Declared Values provision in the Memoranda to Section 1. Each property is a " Situation ";

(e) However, the Assets Schedule was incomplete in that it did not specify rental values at each Situation. Royal and Sun asked for these values which were provided by the OAMPS Fax. A rental value was provided for each Situation. The figure provided for the Premises was $5,000;

(f) Mr McCluskey was the insurance broker who placed the insurance on behalf of Mr Hugo. Mr Hugo had no involvement in the placement of the insurance25. Mr McCluskey was Mr Hugo's agent in respect of the insurance and Mr Hugo is bound by any statements made by Mr McCluskey in relation the insurance, including as to the rental values in the OAMPS Fax (whether or not Mr Hugo agreed with the figures provided);

(g) Accordingly, the OAMPS fax contained a declaration of rental values forming part of the Assets Schedule provided in the Schedule of Insurance and forms part of the insurance contract;

(h) In an insurance context, there is nothing surprising or unusual in documents such as the OAMPS Fax forming part of the insurance contract. For instance, in Council of the City of Wollongong v Vero Insurance Ltd [2009] NSWSC 475 it was common ground that an Excel spreadsheet of values prepared by a valuer formed part of the insurance contract. [18] The defendant further submits that the declared rental values in this fax were sub-limits of liability in respect of the loss of rent cover for the following reasons: (a) The Schedule of Insurance states " Loss of Rent (all situations): $700,000 " under the Section 2 heading;

(b) There is no wording under Schedule 2 of the Policy which sets out the terms of the loss of rent cover. Nevertheless, it is not disputed that the Policy did cover loss of rent because of the reference to loss of rent cover in the Schedule of Insurance. The cover forms part of the Consequential Loss cover available under Section 2;

(c) The OAMPS fax provides a breakdown of rental values for all six Situations covered by the Policy. The aggregate figure of $700,000 is described as an " amended limit " in the OAMPS Fax which reveals that the rental values were being provided in the context of establishing limits of indemnity under the Policy;

(d) The reference to " all situations " in the context of the loss of rent claim is to be contrasted with the absence of the use of that phrase elsewhere in the Schedule of Insurance when describing the limits of indemnity. For instance, the limit of indemnity under Section 1 is $5 million. There is no reference to " all situations " when describing the limit of indemnity under Section 1 which plainly applies separately to each Situation;

(e) By contrast, the phrase " all situations " used in connection with the limit of liability for loss of rent cover indicates that limit of $700,000 is not a general limit applying separately to each situation. Rather, it indicates that the combined sub-limits for " all situations " aggregate to a figure of $700,000. The sub-limits are to be found in the OAMPS Fax. [19] The defendant drew my attention to Caine v Lumley General Insurance Limited [2008] NSWCA 4 and to Manufacturers' Mutual Insurance Limited v Withers (1988) 5 ANZ Insurance Cases 60-853 where the Court of Appeal held that extrinsic evidence was admissible to resolve an ambiguity in the description of the insured business. The defendant submits that the phrase "all situations" is an ambiguity which should be resolved by being seen as an aggregation of sub-limits in accordance with the principles explained in Codelfa Construction Pty Ltd v State Rail Authority (1982) 149 CLR 337 at 352 per Mason J.

[20] In N B Rao, "The Interpretation and Construction of Insurance Contracts" (2008) 19 ILJ 193, some guidance to the correct judicial approach is given. The relevant steps are to consider relevant facts, separately and in chronological order and then interpret those facts. What was the actual state of mind of the contracting parties as to the meaning and intention of the clause at the time of entering into the contract? Rao summarises the approach to be taken by a judge in interpreting a word, phrase or a clause of a contract as follows: "(i) the intention of the parties is to be gathered from the words used. The process is an objective one;

(ii) in order to do this, the judge considers the relevant, or operative factors as Corbin terms them, or the evidence of the factual matrix as suggested by Lord Wilberforce in Reardon Smith Line v Yngvar Hansen-Tangen [[1976] WLR 989 at 997]. Although the High Court of Australia adopted Lord Wilberforce's approach in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [(1982) 149 CLR 337], Mason J expressed the qualification that the word or expression at issue must be capable of having more than one meaning in order to justify the consideration of surrounding circumstances. Carter, Peden and Tolhurst argue that the narrow view expressed by Mason J may not be applicable in situations where the circumstances are known to both parties.

(iii) the aim, object or purpose of the contract is to be gathered from what a reasonable person would have had in mind, armed with the knowledge of the parties;

(iv) the intention of the parties would prevail over what an objective person would have understood it to mean. This is where meaning may be ascertained to be the same as between the speaker and the hearer." [21] It would be contrary to common sense for the parties to agree to prepare a schedule for six different premises and six very different amounts, while at the same time reserving the right to claim $700,000 worth of loss rental in relation to each of them, particularly in relation to properties which could simply never realise such large amounts of loss rental. The only sensible way to read the figure of $700,000 in the schedule is by a reference to the break down of figure which appears in the fax sent prior to the parties entering into the insurance contract. However, is this limited to a 12 month period? The answer must be no. The actual rental for these premises was quite modest; it was less than half the sum for which a value was put. Clearly it was the intention of the parties that in the event of there being a claim the plaintiff could claim up to the sum of $5,000, this being the agreed value in relation to this property. The reference to 12 months is not a limiting factor, particularly bearing in mind that insurance policy claims are renewed on a regular basis and that insurance will carry over in those circumstances. The reference to 12 months is not a limitation on this sum of $5,000 and cannot be used to read down this claim.

[22] However, independent of the question of the interpretation of this provision of the insurance contract is the question of whether the plaintiffs lost any rent at all. It is to this quite complex factual question that I now turn.

[23] As the second plaintiff remained in the premises and continued to pay rent at all times, the question is what I am to make of the evidence of Mr Piucco and Mr Hugo concerning an approach that was made by Mr Piucco to lease the premises, which were next door to Regional Appliance & Electrical Services ("RAES"), a company which Mr Piucco was a director.

[24] According to the plaintiff's affidavit, in or about 2002 he decided he wanted to lease the remaining available section of the ground floor of the building. He had new carpets laid and walls plastered to create an office. This work was completed in or about May 2002. According to his affidavit he then had discussions from "early to mid 2002" to "about mid 2005 with Mr Michael Piucco". Prior to this storm, he had a discussion in which Mr Piucco said "I am running out of space next door and want to expand my business", to which Mr Hugo replied "Sure, but I want $1,000 per week". After the storm Mr Piucco said at a time upon which Mr Hugo cannot put a date "I only want to pay $500 per week." Mr Hugo says he replied "In that case I will divide the area into part but I can't rent my building to you until the patio roof stops leaking."

[25] Mr Hugo recites that he received two letters from local real estate agents each advising that the premises could achieve an estimated rental capacity of between $900 and $950 minimum and $1,000 maximum per week inclusive of GST. However, as I have noted further below, he used those letters to send to the insurance company to show the value of the lost rental, but without telling the insurance company that he had actually lost the chance to rent to Mr Piucco's company (JH 76). In his letter of 31 March 2004 to the insurance brokers, Mr Hugo states: "I believe we have been very patient in having the building repaired that will enable me to continue my plans for the show room of refurbishing to enable me to lease the area to produce an income since the restructure of the S J Hugo and H J Hugo companies at the 30th June 2002 when I lost rental income from Carluke Enterprises Pty Ltd." (JH 95). He goes on to note that when the area is reburbished he can "lease the ares for the asset value the showroom will produce from the buildings show room that is insured for $8,000". Again, there is no mention of the interest from the company next door.

[26] On 12 October 2004 Mr Filippi wrote to Mr Hugo: "Further to our discussions, we wish to confirm that we agree to lease the abovementioned premises, next door to our current operation.

We confirm that we intend to use these premises as an extension to our current business to further our needs for more operational floor space.

We agree to a rent of $500 (including GST) per week.

We will be looking for a lease of period of three plus three years to give security in benefits to both parties.

The costs of securing your living area from the area to be leased, we should be at your expense as the property owner. Alterations within the leased areas will be met by ourselves.

We look forward to hearing from you within the near future." [27] Unfortunately, when both Mr Hugo and Mr Piucco were cross-examined, a letter sent by Mr Hugo to Mr Filippi clearly in response to this document, was not available. I will set out the text of this handwritten document in full: " WOLLONGONG BROKERS PTY LTD

Regional Appliance Electrical Services Attention Dennis Filippi

Dennis . I don't think your leasing will work. What you want to pay and what I expect to be paid [sic]. Over the years Michael was offering $200 per week. Michael came into the shop when I advertised the shop for lease. I said to Michael you don't want to pay enough, I want market value and said how much do you want to pay. Michael said $500 per week, I said it will cost me $10,000 to transfer power, separate the back, paint the area; if you want to do the work I will rent it to you for $500 per week. If Michael said no I didn't hear him or understand him and returned north believing you would begin to separate the private and showroom 26-07-04. My area for lease is about 250 sq meters to be confirmed plus GTS + 50% land tax + 50% council & water rates + electrician + plasterer + carpenter and timber + annual value CPI + lease costs + glass insurance public… [illegible]… fixtures and fittings." [28] In other words, even as at October 2004 these were parties who were too far apart on fundamental issues such as fit out costs. It is of some significance that the correspondence does not refer to the leak. However, I do note that a letter was provided to Mr Hugo dated 17 September 2004 by Mr Piucco which says: "We the tenants of 67 Princes Hwy Fairy Meadow confirm we have been in discussion for a lease of the abovementioned property for the last two years. We had been unable to secure any such lease from the premises because of building concerns the owner has with leaking water from the roof. If you require any further information please contact me." [29] On 10 June 2005 Mr Hugo sent a letter from Regional Appliance & Electrical Services (presumably the letter dated September 2004, although it may be a different letter, looking at the summary of its contents at JH 119) saying that they had "pursued me for years to lease the showroom area of my building to their company" (JH 119) and saying that rectification work necessary for a new tenant to use the showroom was interrupted by the storm. The loss of rental as a result is estimated to be $77,755.99. This is prior to the lease being entered into by the new tenants and Mr Hugo notes that real estate agents estimate rental returns "could be from $900 - $1,000 per week" (JH 120). This is inconsistent with there actually being a lease agreement for $500 per week. Somewhat confusingly, Mr Hugo goes on to say at JH 121 "My estimate of lost rental from June 30th 2003 up to 30th June 2005 at $550 per week including GST is $57,200".

[30] If Mr Hugo had agreed with Mr Piucco's company to lease the premises for $500 per week (and could not do so because of water leaks), he would not be referring to loss of rental figures of $550, $900 or $1,000.

[31] Even more confusingly, in a letter to the insurance company dated 14 December 2005 the plaintiff wrote: "The showroom and Sabrina Lesley business was closed and never reopened. Our company decided to repair the showroom for rental employing a builder R N Hughes Interiors on 2/5/02 for an estimated cost of over $20,000 to refurbish the showroom. This plan stopped on 19th September 2002 due to the storm and failure to have the building repaired to its pre-storm condition." (JH 151). [32] After rectification work was carried out, the retail lease with Mr Piucco's company was entered into on 1 August 2005. That lease was for a 12 month period with an option to renew for a further 12 months and contained no provisions for any repairs or alterations to be carried out; to the contrary clause 12 prohibited such activities.

[33] On the factual evidence before me, I am not satisfied that there was a in fact an intention or indeed a desire of both parties to enter into a lease of the premises prior to the date that it was in fact entered into. Fundamental issues such as the amount of rent payable, the obligation to carry out fit-out expenses, the length of the lease and what the outgoings would be were simply never agreed on. By the time that these matters had been agreed upon, rectification work had been carried out on the premises (although Mr Piucco complained that there were still leaks).

[34] The fact that the premises were able to be let to RAES in August 2005, which was after the repairs were effected is, in my view, a factual coincidence. There is no evidence of agreement on issues of rent, lease length, fit out costs or other essential elements, nor does the correspondence suggest that the only reason the lease was not in place was the leak; to the contrary, the parties were not able to agree. The letter which is exhibit 6 in my view is to be preferred over the recollections by Mr Hugo and Mr Piucco of their conversations, for the reasons explained by Ipp J in "Problems with Fact-finding" (2 September 2006) Lawlink, Supreme Court of New South Wales (http://www.lawlink.nsw.gov.au/lawlink/Supreme_Court/ll_sc.nsf/pages/SCO_ipp020906).

[35] The letter addressed to Mr Hugo by RAES dated 17 September 2004 is, however, also a contemporaneous document. It is not attached to Mr Piucco's affidavit and he was not cross-examined on it. Thus, I do not have the benefit of cross-examination on the two documents which are of the most probative assistance in relation to this claim.

[36] However, the differences between the lease ultimately entered into with the letters from Wollongong Brokers and reply of October 2004 seem to me to confirm that the parties had been unable to arrive at an agreement as to the terms of the lease and accordingly there was in fact no lease.

[37] Accordingly in the event that I have erred in holding that the first plaintiff has not established loss of rental, I would hold that there is a limit placed on the amount of rental rate can be claimed by reason of the fact that the $5,000 figure in the fax of 13 May 2002 is imported into the contract by reason of the fact that it formed part of the figure of $700,000 for "loss of rent (all situations)".

[38] The plaintiffs also claim loss of rent during the period that slab replacement works are carried out. This is estimated as 8 weeks at $500 per week, which will total $4,000. This figure is not in dispute as counsel for the defendant indicated in his closing submissions that payment of this sum was conceded by the defendant.

[39] Accordingly the figure for which the plaintiffs are entitled to the loss of rent is $4,000.

"Claims Preparation Costs", including travel and accommodation expenses (totalling $68,677.04), time spent on claim (totalling $42,178.50) and other costs (totalling $4,430)

[40] The questions for determination are whether, having regard to the terms of the Policy: (i) As a factual matter, whether Mr Hugo was in fact spending the hours he claimed working on the claim and whether the travel and accommodation claims are similarly related.

(ii) Whether administration, typing, photocopying, legal and accounting fees, travel and accommodation and time spent on the claim are "reasonable expenses necessarily incurred by the Insured and not otherwise recoverable, for preparation of claims under [the Policy]" (Item No 3 - Basis of Settlement, Section 2 of the Policy)?

(iii) Whether there is a limit of indemnity of $10,000 in relation to such claims?

(iv) Whether the first plaintiff's personal time spent on a claim is claimable at all in that it is not a disbursement? Personal time spent on the claim

[41] The plaintiffs claim $42,178.50 for time spent by Mr Hugo dealing with the insurance claim. The first plaintiff in the schedule (written submissions paragraph 51) claims this item pursuant to Section 2 Item No 2 or Section 2 Item No 4. Section 2 Item No 2 is gross profit and I suspect this is a typographical error. The only reference in Section 2 to $50,000, this being the sum referred to as the maximum available against which the claim could be brought, is "increased cost of working" which is not applicable here. The two items for which claims could be brought are professional fees ($10,000) and "Claims preparation costs - Section 2" also a figure of $10,000. I do note that there is a reference to breakdown of public utilities extension as being $50,000 and to prevention of access as being $50,000, but these are clearly also not applicable.

[42] The plaintiffs' argument as to how this entitlement may arise under Section 1 of the Policy is a convoluted one which I will set out in some detail.

[43] The plaintiff claims that Section 1 of the Policy contains a general indemnity for the cost of reinstating material loss or damage to the Property. It provides that the insurer will, subject to the provisions of the Policy, indemnity the Insured in accordance with the applicable Basis of Settlement.The Basis of Settlement provisions provides that the Insurer will indemnify the insured for the cost of reinstatement, replacement or repair in accordance with the provision of the Reinstatement and Replacement and Extra Cost of Reinstatement memoranda. The Basis of Settlement provisions also provide that where property is damaged the insured may "elect" of claim the "indemnity value" of any damages property.

[44] The plaintiff then asserts that the Reinstatement or Replacement provisions of Section 1 provide that the basis upon which the amount payable is to be calculated shall be the cost of reinstatement of the damaged property insured at the time of its reinstatement.

[45] 'Reinstatement" is defined to mean, so far as is relevant: "(b) Where property is damages: the repair of the damage and the restoration of the damaged portion of the property to a conditions substantially the same as, but not better or more extensive than, its condition when new." [46] The Reinstatement or Replacement provisions provide that the work of rebuilding, replacing, repairing or restoring damaged or destroyed property must be commenced and carried out with "reasonable despatch", failing which the Insurer shall not be liable to make any payment greater that the "indemnity value" of the damaged property at the time of the happening of the damage.It is submitted therefore that the "indemnity value" is the cost of reinstatement, replacement, or repair of the damaged or destroyed property to a condition substantially the same as, but not better or more extensive than, its condition when new. Under the Policy, the insured is entitled to the "indemnity value" if it elects to claim this amount or if it does not carry out repairs with "reasonable despatch".

[47] The plaintiff further submits that In addition to the general indemnity, the Indemnity provisions of Section 1 also provide that the defendant will indemnity the insured for: "(d) costs and expenses necessarily and reasonable incurred for the temporary protection and safety of property hereby insured pending repair or replacement consequent upon damage recoverable hereunder

(f) cost and expenses necessarily and reasonably incurred in respect of : (i) the removal, storage and/or disposal of debris or the demolition, dismantling, shoring up, propping, underpinning or other temporary repairs consequent upon damage to property insured by this Policy and occasioned by a peril insured against ;" [48] Section 2 of the Policy provides that in the event of any building at the premises being lost, destroyed or damaged and the Business carried on by the insured being interrupted or interfered with, the Insurer will, subject to the provisions of the Policy, indemnity the insured for the amount of loss resulting from interruption or interference with the Business carried on by the insured. The indemnity in Section 2 is limited by the amounts specified in the Schedule and further limited by items in the Basis of Settlement provisions. Items 2 and 4 of the Basis of Settlement provisions provide: "Item No. 2 The insurance under this item is to cover such reasonable professional fees (limited by the Schedule to $10,000) as may be payable by the Insured, and such other reasonable expenses necessarily incurred by the Insured and not otherwise recoverable, for preparation of claims under the insured's material Damage and Consequential Loss insurance policies and the Insurer (s) shall indemnify the Insured for such reasonable fees and expenses.

Item No. 4 The Insurance under this item is limited to increase in Cost of Working (limited by the Schedule to $50,000) (not otherwise recoverable hereunder) necessarily and reasonably incurred during the Indemnity Period (defined in the Schedule as being 12 months) in consequence of the Damage for the purpose of avoiding or diminishing reduction in Turnover and/or resuming and/or maintaining normal business operations and/or services." [49] It is by this reasoning that the plaintiff argues that the indemnity for the insured's reasonable fees include a wide range of claims including in particular the claim for Mr Hugo's personal time spent on the claim. In particular, it is argued that the reference to "reasonable expense necessarily incurred" in Item No 2 to Section 2 of the Policy is satisfied because the plaintiff was being paid a salary and that approximately $6,000 per annum of this pre-paid salary time was being wasted pursuing the insurance claim. I have dealt with the defendant's answer to this submission in more detail below. However, there is a more fundamental question: what evidence is there support this claim?

[50] It is helpful, when considering this claim, to look at the chronology of what Mr Hugo was actually doing, in terms of writing letters, finding tradesmen to carry out work and the like. The plaintiffs tendered a bundle of correspondence and travel claims and basically asked me to accept this claim. The defendant submitted that if analysed, the documents did not show any justification for the 54 trips or hundreds of hours claimed. I shall now set out a chronology of the amounts claimed.

[51] On 19 September the insurance company acknowledged receipt of the claim and told the plaintiffs to contact Ms Bosevska. On 19 September Freemans saw Mr Hugo and sent a report with an estimate of $85,000 which was revised on 11 November. A cheque for $11,010.00 was sent on 11 December 2002 for emergency repairs carried out by Ackerman's (JH 36). In December 2002 the plaintiff first noticed the slab leaking.

[52] Mr Hugo and his wife were still living in the premises, and in fact remained there until January 2004 (on his evidence) or May 2007 (according to correspondence from Mr Hugo to which the defendant referred during the trial). There is no evidence of traveling and no breakdown of the time involved in these matters. The claim was dealt with speedily.

[53] Schindler Building Consultants reported that the issues raised by Mr Hugo did not (with the exception of the carpet) relate to the storm damage. On 4 June 2003 Ms Bosevska noted that Mr Hugo was arranging for a quote on the carpet (JH 73). This quote for $6,255.85 (including costs for moving the water beds from the leased show room) was accepted on 2 September 2003 (JH 74).

[54] On 10 October 2003 the insurance company sent a progress claim referring to a "minor roof problem" and expressing the hope that after the new carpet was laid "Hopefully this will then conclude the claim."

[55] Mr Hugo wrote on the bottom of this letter: "The main aim of Vero is to close the claim, not repair the building to its pre-storm conditions as required by the policy. My time [illegible] 10 hour day to prepare my claim as required by our legal firm of solicitors [the rest is illegible]." This appears to have been sent to the insurers together with a handwritten letter complaining the roof still leaks and enclosing "statements from real estate agents that the shop area can be rented", which suggests that this is the real reason for obtaining these letters, rather than for the purpose of renting to Mr Piucco's company. Mr Hugo complains he was not able to finish the renovations to enable him to rent the shop because of the strom, and that the building is not rentable "because of the delay from the leaking roof". He concludes by saying "I will need to make a claim for lost rents".

[56] On 15 December 2003 Mr Hugo again wrote complaining about the leaking roof and saying that he was suffering "loss of rent in the shop area". On 29 December 2003 he wrote again to the insurer, referring to a long list of matters needing attention. On the same day he wrote to Mr Ackermann complaining the roof was still leaking.

[57] The first claim for accommodation is made, namely for an overnight stay in a motel at Taree on 8 January 2004. This appears to be the trip the plaintiff and his wife were making to Queensland as they moved to Queensland at this time (if I accept Mr Hugo's evidence as to when they moved). There is no evidence that the plaintiff was doing any work or making any inquiries at this time.

[58] The other accommodation claims are for 29 February and 1 March, 24 April, 29 July and 5 October. What work was done on the claim during 2004?

[59] Mr Hugo telephoned on 30 March (JH 96) and wrote a letter on 31 March (JH 95) and the insurance company agrees to pay a total of $6,255 on 21 April 2004. However, it is not clear if Mr Hugo is in Wollongong during this time. The claims for accommodation over this period have a gap between 1 March and 24 April. Mr Hugo's next letter is dated 10 May. He wrote two further letters on 13 October and 22 November, on Wollongong Brokers letterhead (for which the address is still at the premises the subject of this litigation, as the business continued to operate from there throughout).

[60] Was Mr Hugo in Wollongong writing these letters? Their dates do not reconcile with the accommodation details. I asked the plaintiff for a chronology so that I could work out when Mr Hugo was in Wollongong attending to his claim. I have received a list of correspondence in date order, but no chronology.

[61] In 2005 the plaintiffs appear to have availed themselves of the internal dispute resolution process with Vero, as Vero refers to this in its letter of 7 February 2005. The plaintiff appears to have travelled down and back to Wollongong on 11 and 13 February 2005. What did he do during this visit? He wrote letters dated 31 March (not tendered, but referred to in his letter of 12 April 2005) and referred (JH 110 - 111) to consulting a barrister and saying "writs will be issued when I have the facts".

[62] In April 2005 there were site inspections by Adams Thomas and Brown (15 April) and by Stephen Maber (20 April). I note Mr Hugo was at the Karinga Hotel Lismore on 22 April, but whether he was coming or going is unclear. There were site visits on 15 and 20 June and rectification work was performed on 20 June. Mr Hugo makes claims for 3 June and for 15 July but as I understand the plaintiff's submissions, these were for separate trips. Looking at his mastercard bill, Mr Hugo was back in Southport on 15 July.

[63] After the rectification work was done in June, there is a gap in correspondence until Mr Hugo's letters of 9 November and 5 and 14 December (JH 151 - 165). The only accommodation claim is for 29 November 2005, which is inconsistent with these dates, and suggests these letters were sent from Mr Hugo's Queensland address.

[64] Mr Hugo sent letters on 13 April (not produced but referred to at JH 162) and 10 May 2006 (JH 162). He made a claim for $100 per hour for "the many hours of administration costs for 42 months" which he said totaled "say $20,000". That would suggest a total of 200 hours. The insurance company replied offering to settle for $30,000. Mr Hugo replied on 14 June asking how that sum had been calculated and Vero replied on 21 June 2006. Mr Hugo wrote back on 28 June 2006. The insurance company wrote back on 11 July setting out the breakdown of the schedule of insurance and repeating that $30,000 was their final offer. Mr Hugo wrote again on 19 and 25 July. These somewhat rambling handwritten letters do not refer to any specific activity occurring in Wollongong and Mr Hugo has added his mobile phone number to the letterhead, presumably because, as the mastercard entries show, he was back in Queensland by early July. This tends to confirm that Mr Hugo's trips to and from Wollongong do not have very much to do with ongoing disputes about the insurance claim for damage to his premises.

[65] There are no accommodation claims for the period 20 August 2006 - 21 January 2007.

[66] What other reason could Mr Hugo have had for visiting Wollongong? He had, in addition to the retail shop at the damaged premises, a substantial retail shop at King Street Warrawong, a factory/workshop/office at Unanderra and three investments including a motor mechanic shop, bowling alley and tenanted dwelling at Bellambi. He also had family, including a daughter, in the area.

[67] In 2007 the insurance company sent Dr John Hutcheson to inspect the premises. Mr Hugo was certainly there for this inspection. He first notifies the insurance company that "my wife will not live here any more" and saying he will claim the costs of traveling to Woilongong in his letter of 21 May 2007. In addition, there were further inspections by Mr Maber in 2007.

Conclusions concerning whether Mr Hugo's claim for time spent, travel and accommodation relate to these events

[68] It has been a long and difficult task for me to sift through these invoices and compare them to the correspondence tendered to try to work out what really happened.

[69] The defendant submitted the plaintiff had the onus of proving that these expenses related to the claim and had failed to do so. Having done my best to reconcile the claims, I accept this submission. What Mr Hugo has done is to produce all his accommodation bills and other travelling expenses for every trip he made and claim them all, despite there being no temporal or causal connection between many if not most of these visits and the preparation and presentation of insurance claims.

[70] The principal reason for Mr Hugo's visits to and from the Wollongong area were his business interests in the area. The second plaintiff retained its place of business at the premises the subject of this litigation and in addition to coming to Wollongong to attend to its affairs, Mr Hugo had other business and family activities. His dealings with the insurance company after he moved to Queensland were by telephone and correspondence.

[71] Clearly some of the time that Mr Hugo spent in the Wollongong area would be time when he was attending to matters related to this claim, notably during the visits of the defendant's expert witness and Mr Maber. However, I do not intend to try to unscramble the omelette to try to work out what parts of the expenses do in fact relate to these proceedings. Consequently I reject, on a factual basis, that the travel and accommodation costs tendered do in fact relate to preparation of the claim and that the plaintiffs should be reimbursed for these sums in addition to the sums the insurer is prepared to pay pursuant to Section 2.

[72] This brings me to a consideration of the defendant's arguments that if the items for which reimbursement is sought are connected to the claim, the plaintiffs are still not entitled to claim them.

[73] The defendant submits (paragraph 38 and 44) that the only arguable basis for coverage for personal time spent by Mr Hugo on the claim and for traveling and accommodation expenses would be Item No 2 of Section 2 of the Policy, namely "claims preparation costs". The defendant's contention is that the limit of indemnity for "claims preparation costs" is $10,000, as the schedule of insurance states. This limit has been exhausted by claims for professional fees, administration, typing expenses, accountancy fees and the like. The defendant does not dispute these costs. As I have indicated elsewhere, I do not accept submissions put by the plaintiff that these costs can fall under schedule 1. They clearly fall within Section 2.

[74] The second basis upon which there is an objection in relation to the personal time spent on Mr Hugo's claim is that Mr Hugo's personal time is not a "reasonable expense necessarily incurred". In other words, a claim by a person putting in an insurance claim for costs incurred can include bona fide disbursements such as report fees and even accountancy fees and typing expenses, but not for the time, estimated on an hourly basis, of the person who is preparing the claim. Counsel for the defendant drew my attention to Chandris v Union of India [1956] 1 All ER 358 where Morris LJ held that the word "expense" in a charter party was a word which "conveys the idea of something spent or laid out or paid or disbursed or of some liability incurred" (at 365). Counsel for the defendant also drew my attention to the High Court decision of Cachia v Hanes (1994) 179 CLR 403 at 408, where the High Court held that costs for which the provisions of the Supreme Court Act and rules applied were confined to monies paid or liabilities incurred for professional legal services and did not include compensation for time spent by a litigant who was not a lawyer in preparing and conducting his case. The Court went on to note the exception allowing a solicitor acting for himself to claim his costs was doubtful.

[75] Counsel for the plaintiffs argued that because Mr Hugo was paid a salary by his company over this period of time, and his attention had been deflected from his duties because of the need to prepare for the insurance claim, there was in fact an expense or cost. I do not accept this submission. Mr Hugo was paid this salary regardless of what he did and with no adjustment to take into account the fact that he was unable to perform his work. There is in addition a degree of inconsistency in Mr Hugo asserting that the business which paid him (namely Wollongong Brokers) was able to run by itself without his needing to be in Wollongong and his claim that he was prevented from attending to the company's affairs in Wollongong because of his preparation of the claim.

[76] According to Cachia v Hanes the first plaintiff's fees cannot be regarded as being professional fees. In my view, they cannot be regarded as being disbursements either.

[77] Accordingly I reject the claims for time spent and for accommodation.

[78] There is considerable overlap between claims which are brought as set out in the schedule provided by the plaintiff and the costs which the first plaintiffs will be entitled to claim by reason of this litigation. As I understand the submissions for the defendant, items (a) to (d) of this list are not challenged, nor is item (g), as during submissions (contrary to the defendant's written submissions) the defendant agreed to pay future loss of rent during the period of time that the slab replacement works will be carried out which total $4,000 have also been agreed to, notwithstanding apparent views to the contrary by the High Court in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384. The matters the subject of challenge in the plaintiffs' schedule are the travel and accommodation expenses, the time spent by Mr Hugo in dealing with the claim and the lose of opportunity to rent, which I have rejected.

[79] However, there are, in addition, other matters which do not appear in this schedule but which I should deal with for the sake of completeness. The first of these is a claim for shop front repair for glass which came out of the frame in or about 25 October 2003. This is a substantial claim for three items totaling $872.30 (purchase order 21 October 2003) and $218.65 together with a further quotation for glass damage dated 15 September 2005 totaling $3,168. There is no expert evidence before me to explain how it is that these claims came about. Mr Hugo said in his evidence that the glass simply popped out of the frame. In the absence of some expert evidence to tie these to the events of September 2002, I am not prepared to order their payment.

[80] Exhibit 7 is an account from Illawarra Telephone. The reason for this work being carried out is a mystery to me. It is not referred to anywhere in the experts' reports and there is no suggestion in any of the experts' reports that any damage was done to the telephone system by leaks. The most likely explanation would appear to be that part of the process of dividing off the premises for rent included the installation of additional telephone lines. This is not an expense that relates to this claim and according it is disallowed.

[81] Although a letter to this effect was included in the bundle of documents appended to Mr Hugo's affidavits, Mr Piucco does not refer to it in his affidavit, nor was this amount sought by the plaintiffs in submissions.

[82] However, in the event that this was an omission by the plaintiff, I formally note that it is not a claim which I would accept. First of all, there is no evidence that the plaintiffs accept liability for these costs, nor is there any explanation as to why they are being incurred. Mr Piucco's company was using this space for storage only (T-77) and only part of the ground floor space is being leased to them in any event. There is no reason why this storage cannot be accommodated in space not currently leased to them. Since I have allowed for payment of rental over this period (by reason of the defendant's concession) there is no reason why these goods cannot be stored elsewhere on the premises and there would be no extra expense to the lessee (apart from any costs incurred by its employees shifting the stock, about which I have no information) for this short period.

[84] An alternative argument, which the plaintiffs now appear to abandon, was the issue of whether the claimed costs, namely the costs of the proceedings, fall for indemnity under the Policy, or whether they are in the discretion of the Court depending on the outcome of the proceedings.

Conclusions concerning additional claims by plaintiffs

[85] Apart from the additional $4,000 sought by the plaintiff, which was conceded by the defendant in the course of submissions, the plaintiffs have failed entirely in relation to all claims for additional payments under the provisions of the Policy and set out in the table appended to paragraph 51. This is relevant as to costs.

[86] I shall grant the parties liberty to apply in relation to costs. As the plaintiffs have been successful on the principal issue, namely the rectification of damage to the premises, and as the defendant has already indicated in submissions that the defendant will not resist an order for costs, I propose to make an order for the defendant to pay the plaintiffs' costs but with liberty to apply.

[87] I was not addressed on the subject of interest and I shall grant liberty to apply in relation to this issue as well.

[88] I assess the amounts to be paid to the plaintiffs as follows: (a) $113,992.97, this being the agreed figure for the estimated reinstatement costs plus CPI; (b) $3,787.65 for the June 2005 repairs; (c) $2,342.50 for the building inspection reports, and in addition the building and inspection reports referred to at item (a) of paragraph 51; I note the concession that the full amount of $10,000 under Item No 2 of Section 2 of the Policy can be claimed; (d) Claims preparation costs (as opposed to professional fees) in the further sum of $10,000 (see paragraphs 11 and 12 of the defendant's written submissions); (e) $4000, for the loss of rent for the 8 week period that the slab replacement work will be carried out;

Total: $144,123.12 [89] I will grant the parties leave to bring in Short Minutes of Order to reflect the correct sum, this will include any corrections under the slip rule in the event of any misunderstanding. The substantial readjustment of the claims of the parties resulting in part from the major change in procedure caused by the setting up for the system for concurrent expert evidence, together with the concessions made by the defendant on day four and also during the submissions, together with the frankly confusing and overlapping nature of some of the claims brought by the plaintiff may well have led me into some error requiring correction under the slip rule.

[90] According the orders that I make are as follows: (1) The parties have liberty to bring in Short Minutes of Order reflecting the agreed sum of damages under the heads of damage set out in paragraph 88 of my judgment. (2) Defendant pay plaintiffs' costs. (3) Liberty to restore in relation to interest and costs. (4) Exhibits retained for 28 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

At a glance

Court

Decision date

Before

Source

Judgment (133 paragraphs)

Parties

Cases Cited (6)