Reasonable time for election
51In aid of this argument, Mr Grieves advanced the well accepted proposition that where an insurer has, by the terms of its policy, a right to reinstate, rather than to pay the sum insured, it must elect between those alternatives within the period stipulated in the policy or, if no such period is stipulated, within a reasonable time.
52It was accepted by both parties that the present insurance policy did not specify a time for election; therefore the plaintiff argued that it was incumbent on the Court to determine if an election made on 20 April 2011 was made within a reasonable time, considering the claim was lodged on 25 May 2009.
53The plaintiff relied on the following list of authorities to support its proposition: Sutherland v Society of the Sun Fire Office ( 1852) SC 775; Anderson v Commercial Union Assurance Co (1885) 55 LJQB 146; Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161; Argy Trading Development Co Ltd v Lapid Developments Ltd [1977] 1 Ll Rep 67; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Cape York Airlines Pty Ltd v QBE Insurance (Aust) Ltd [2010] QSC 313.
54The principle appears to originate from the 1859 case of v Royal Insurance Co [1859] 120 ER 1131.
55With respect to counsel for the plaintiff, on a proper construction of the wording of the policy, this question is misstated.
56In dealing with insurance clauses, that give the insurer a right to elect, there are two distinct categories of clauses. The first is the type of clause discussed in Brown v Royal Insurance Co [1859] 120 ER 1131 on which this rule was founded. In that case, the defendants executed a policy insuring plaintiff's premises against fire, "reserving to themselves the right of reinstatement in preference to the payment of claims."
57Properly read, a clause of this nature, gives the insured a prima facie right to the payment of its claim. This right may only be displaced by the insurer electing otherwise. In other words, the default option under this policy is the payment of the insured's claim.
58In such cases, the logic of requiring an insurer to elect within a reasonable time is clear. If an insurer fails to elect within a reasonable time, they are taken to have failed to elect at all and therefore the default option follows.
59The election clause with which this case is concerned falls into a different category. Under the present policy the insurer retains the right, at their option, to elect between any of the three possible alternatives. None of the alternatives is specified as the default. Therefore if an insurer fails to make an election within a reasonable amount of time, there is no obvious result. The wording of the clause makes no indication whatsoever as to which of the three options is the default one.
60In cases of absence of a default option, failing to elect within a reasonable amount of time will not, as the plaintiff pleads, lead to the requirement for the defendant to pay out the insurance claim. Rather, failure to elect within a reasonable time can only be viewed as a breach of good faith under section 13, Insurance Contracts Act 1984 (Cth) or possibly a breach of other relevant contractual and statutory obligations. In such a case, it is for the Court to determine what the appropriate measure of damages is.
61The correctness of this proposition is evident from the authorities relied on by the plaintiff. The first authority is Sutherland v Society of the Sun Fire Office ( 1852) SC 775, which contained a similar clause to Brown , reading "...in every case of loss...[the insurer] reserves the right of reinstatement in preference to the payment of claims, if it should judge the former course to be more expedient..." In these circumstances, Lord Probationer Anderson's ascension to the proposition that where an election was to be made it must be made within a reasonable time and if not, the insurer should be seen as failing to elect and the default position should follow, a clear example of a category of clause in which such a requirement is appropriate.
62Next, the plaintiff relied on Anderson v Commercial Union Assurance Co (1885) 55 LJ QB (NS) 146 which deals with a different situation in which an insurer attempted to claim that because of the impossibility of electing one of its options, it is altogether free from liability. There Lordships decision in this regard does not have a bearing on this case.
63Thirdly, the plaintiff referred to Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161, which is a well-known Australian authority that restates the proposition on which the defendant sought to rely. However Jackson J's restatement of the principle is obiter and does not in any way form part of the reasons for judgment. As indicated by Jackson J at 164, the main grounds of appeal were:
(1)Whether the defendant could resile from an election; and
(2)Whether the defendant was estopped from denying the vehicle was a total loss.
64Despite the similarities in wording of the policy in these two cases, whether or not an election was made within a reasonable time was not an issue, the principle was merely stated in a fuller summary of the principles of election and does not in anyway support the plaintiff's case.
65Argy Trading v Lapid [1977] 1 Ll Rep 67 related to a question of whether there was an implied term that a lessor would continue insurance. It bears no direct relevance to the principle under discussion, despite the policy under consideration having a similarly worded clause to the present and the case making reference to the case of Brown v Royal Insurance Co [1859] 120 ER 1131 at 74. Brown was referred to for the proposition that once an election has been made, one is bound by it. This is a different proposition to which the defendant seeks to advance.
66CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 also stands for a different proposition to that which the defendant seeks to advance. As the head note indicates this case concerns an industrial special risks insurance policy, whereby the insurer agreed to indemnify the insured in the event of the physical loss or destruction of, or damage to, the insured property. The amount of the indemnity was calculated upon the cost of reinstatement of the property at the time of reinstatement. The insured had the option of claiming the indemnity value of the property instead. The policy provided that the work of restoration and repair was to be commenced and carried out with reasonable dispatch, failing which the insurer was not liable to make any payment greater than the indemnity value of the damaged property at the time of the damage. If, in the events that happened, that provision did not apply, a further term entitled the insurer to recover only the indemnity value.
67A number of things can be said about the differences between CIC and the instant case that make drawing an analogy between the two wholly inappropriate. Most obviously are the differences in the wording of the election clauses. In CIC , the Replacement and Extra Cost of Reinstatement Memoranda states:
"the work of rebuilding, replacing, repairing or restoring ... ,
must be commenced and carried out with reasonable despatch, failing which [the insurer] shall not be liable to make any payment greater than the indemnity value of the damaged property at the time of the happening of the damage".
68As the memoranda makes clear, the default option is the payment of no more than the indemnity value, with the option to rebuild needing to be carried out within a reasonable amount of time in order to exercise this alternative. The wording of this policy places it in the category of cases of Brown v Royal Insurance Co [1859] 120 ER 1131 rather than the present case.
69Finally, the defendant relied on Cape York Airlines Pty Ltd v QBE Insurance (Aust) Ltd [2010] QSC 313. This case contained a nearly identically worded policy to the present case:
The Company will at its option pay for, repair, or pay for the repair of, accidental loss of or damage to the Aircraft described in the Schedule ("the Aircraft") arising from the risks covered, including disappearance if the Aircraft is unreported for thirty days after the commencement of Flight, but not exceeding the Amount Insured as specified in the Schedule and subject to the amounts to be deducted as specified in the Schedule.
70At [118]-[119] Daubney J discusses the relevant principles relating to a timely election in Lake v Hartford Fire Insurance Co Ltd [1966] WAR 161 and considers whether an election was made within a reasonable time [121]:
In the present case, it is thus necessary to look carefully at the letters which were expressly, and solely, relied on by the defendant to ascertain whether, as the defendant asserts, these letters constituted a clear and unequivocal communication of the election of a choice which was available to the defendant under the policy or whether, as the plaintiff contends, there was, in truth, no election made by the defendant.
71Concluding there was no such election, Daubney J stated at [138]:
For the reasons I have given above, I am quite satisfied that none of the three letters on which the defendant relied constitute evidence of the defendant having made the election to repair which was available to it under the terms of the Policy. It follows, therefore, that no election was made by the defendant, and certainly none was made within a reasonable time after the claim was made. The consequence is that the defendant is liable to indemnify the plaintiff for the Agreed Value of the Aircraft under the Policy.
72With respect to His Honour, this conclusion without further explanation cannot logically follow. Absence of an election to repair the wording of the policy does not indicate that the default position should be an indemnification for the agreed value. In other words, if failing to elect within a reasonable time constitutes a complete failure to elect, it is not clear which of the options available to the insurer should receive preferential or default treatment. On the wording on the policy it would be equally reasonable to conclude that if the company failed to elect to pay for repairs, then it must otherwise repair the aircraft.
73Perhaps His Honour's conclusion was founded on the basis that in the absence of any election what so ever, the insurer has breached its statutory or contractual obligations and therefore the plaintiff is entitled to damages for its loss.
74In written submissions the plaintiff sought to cavil with this proposition arguing:
( although not of any present relevance) if an insurer elects to reinstate (or repair), its liability is not limited by the sum insured, the amount of the damage or the insured's insurable interest; the election, once made, binds the insurer to complete the reinstatement (or repair) regardless of whether the cost of doing so is less, or greater, then the sum insured: Brown v Royal Insurance Co [1859] 120 ER 1131; Bank of New South Wales v Royal Insurance Co 2 NZLR SC 337; Robson v New Zealand Insurance Co Ltd [1931] NZLR 35;
The third principle (the above principle) is stated simply to reinforce the proposition that an insurer's "right" to elect to reinstate is in the nature of a limited qualification to its obligation, fundamentally assumed under the contract, to pay the loss incurred by the insured to it
75With respect to the plaintiff, the principle stated in Brown v Royal Insurance Co [1859] 120 ER 1131 and subsequent cases in no way supports their submission that an insurer's "right" to elect to reinstate is in the nature of a limited qualification to its obligation, fundamentally assumed under the contract, to pay the loss incurred by the insured to it. Brown simply states that once an election has been made; the elector cannot resile from it. Prior to an election being made, which right is the primary one is always a matter of construction.