Rawson Homes Pty Ltd v Allianz Australia Insurance Limited

Solicitors: LMI Legal (Plaintiff) Carter Newell Lawyers (Defendant) File Number(s): 2018/343087 Publication restriction: Nil

Judgment

1. On 18 February 2017, a severe hailstorm passed through Sydney causing damage to parts of a residential development that was being constructed by the plaintiff building company, Rawson Homes, in Kellyville and Rouse Hill.
2. In these proceedings, Rawson Homes seeks orders for the defendant insurer, Allianz, to fully indemnify it for the losses sustained from the hailstorm under an Allianz Construction Annual Policy issued to Rawson Homes on or about 30 June 2016 (Policy).
3. The main issues raised by the proceedings were whether the indemnity under the Policy covered the cost of replacing the tiled roofs to 122 partially constructed houses or was limited to the cost of repairing parts of the roofs (repair vs replace issue); whether the indemnity extended to Rawson Homes' claim for certain staff related costs and associated profit margin; and how the deductible is to be applied.
4. The hearing was set down for five days. It finished on the second day as the parties resolved some of the issues between them, including the repair vs replace issue. There are two issues that remain in dispute and require determination.
5. The first issue relates to the application of the deductible and raises a question of construction of the terms of the Policy. Rawson Homes contends that one $10,000 deductible is payable as its claim under the Policy arose from the one hailstorm event. Allianz says that a $10,000 deductible applies to the sum insured for each of the 122 damaged houses.
6. The second issue relates to Rawson Homes' claim for interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) and the date from which interest should be paid by Allianz in respect of the amount payable for the repair vs replace issue.

The Policy

1. The Policy is an annual construction insurance policy. It is described as an "Annual (Contracts Commenced Basis)" Contract, insuring works that are the subject of building contracts entered into by Rawson Homes and commenced during the period of insurance, which is 30 June 2016 to 4pm on 30 June 2017.
2. The Policy is made up of two documents; the Allianz Construction Insurance - Annual Policy (Policy document) and the Annual Construction Insurance Renewal Schedule (Schedule).
3. The Policy document includes two sections that provide cover. Section 1 provides cover for Material Damage and is the section relevant to the claim made by Rawson Homes. Section 2 provides cover for Third Party Liability.
4. The Insuring clauses for Material Damage in Section 1 provide that Allianz will indemnify Rawson Homes in respect of an "Insured Contract" for seven identified matters. The first of those matters, relating to "Construction", is the cover relevant to Rawson Homes' claim and these proceedings.
5. The Insuring clause for Construction provides: The Cover Insuring clauses In respect of an Insured Contract only, We will indemnify the Insured in accordance with the Basis of Settlement and subject to the other Policy terms, for the following: 1. Construction for Contract Works against an Indemnifiable Event that occurs and is discovered both at the Contract Site and during the Insured Construction Period…
6. Section 1 of the Policy defines Indemnifiable Event as: 'Indemnifiable Event' means any sudden and unforeseen physical damage to, physical destruction of or physical loss of, the relevant insured property specified in the relevant Insuring clause, resulting from any cause not otherwise excluded, that occurs during the Period of Insurance.
7. The General Definitions section of the Policy document defines "Insured Contract", "Contract Works", "Contract Site" and "Construction Period" in the following terms: 'Contract Site' means the contract site anywhere within the area stated in the Schedule (but always within the Commonwealth of Australia), where the Contracts Works are carried out, and in respect of materials, whilst stored on adjacent property. 'Contract Works' means the whole of the works described in the Insured Contract as required for the performance of the Insured Contract… 'Insured Construction Period' means, for each Insured Contract, the period starting on the date of possession of each Contract Site by the contractor, or the commencement date of the Contract Works at the Contract Site, whichever is the later and end at the earlier of… 'Insured Contract' means the contract or agreement entered into by the Named Insured which gives rise to the Contract Works…
8. Section 1 also provides cover for Additional benefits consequent upon a claim being admitted under any of the seven Insuring clauses for an Indemnifiable Event.
9. The limits of Allianz's liability under Section 1 are dealt with in the Sums(s) Insured and Total Sum Insured clause which provides: Sum(s) Insured and Total Sum Insured Our liability under this Section 1 of the Policy will not exceed the Sum(s) Insured stated in the Schedule for the respective cover, benefit(s) or item(s) of the property insured (subject to the escalation allowance specified above for Contract Works only) and less any applicable Deductible. Our maximum liability for any one loss or series of losses arising out of the one event covered by this Section 1 for any one Insured Contract, will never exceed in all, the Total Sum Insured specified in the Schedule, less the highest applicable Deductible.
10. Section 1 of the Policy defines Sum(s) Insured as: 'Sum Insured' means the amount(s) specified in the Schedule as the Sum Insured which will be the maximum amount that We will pay for any one loss or series of losses arising out of the one event covered by this Policy for any one Insured Contract, which may be determined after consideration of any special condition or sub-limit contained either in this Section or as shown as an item in the Schedule and after deduction of the relevant Deductible.
11. The General Definitions section of the Policy document defines "Deductible" as: 'Deductible' means either the amount of money specified in the Schedule or stated in the Policy for each applicable Section or type of loss as specified, that the Insured must contribute as the first payment for all claims arising out of one event or occurrence.
12. The basis of settlement applicable to Section 1 is dealt with in the section headed "Basis of Settlement applicable to this Section". It relevantly provides that the Basis of Settlement will be, in the case of covered damage which can be repaired, the cost of repairs necessary to restore the items to their condition immediately before the occurrence of the damage less any salvage.
13. In the "Basis of Settlement" section there is a clause which sets out the way in which the Deductible is to be applied. It provides: Application of Deductible The amount of the Deductible will be subtracted from the amount payable by Us for each event giving rise to a claim under this Section. If a claim arises from a single event and the Insured can obtain cover under more than one benefit in this Section, the Insured will only be required to pay the highest single Deductible applicable regardless of the number of Deductibles applying to this Section. Only for the purpose of the application of any Deductible, any loss, destruction or damage to the Contract Works or other insured property arising during any one period of seventy two consecutive hours caused by water, flood, cyclone, storms, tempest, earthquake or bush fire shall be deemed to be a single event and therefore to constitute one occurrence. The Insured may select the time from which any such period shall commence but no two such selected periods shall overlap.
14. The Schedule sets out the amounts of the Sum Insured and the amounts of the Deductible for Material Damage claims. It provides: Section 1 - Material Damage Item Sum Material Damage Insured Contract Works (C.W.) $2,000,000 Any One Event Principal Supplied Materials $20,000 Any One Event Escalation Allowance (10%) $202,000 Any One Event Total Contract Works value $2,222,000 Any One Event Removal of Debris $200,000 Any One Event * Professional fees $200,000 Any One Event * Expediting expenses $20,000 Any One Event * Pre-existing property Not insured Construction Plant & Machinery $30,000 Any One Event * Temporary buildings and Tools of Trade $60,000 Any One Event * Employees' effects Not insured Materials in transit $100,000 Any One Event ** Materials in Storage Off-Site $100,000 Any One Event ** Migration expenses $200,000 Any One Event ** Total Sum Insured $2,732,000

• Additional to Contract Works value ** Included within Contract works value Deductibles The following Deductibles are applicable to Material Damages claims: Major Perils $10,000 Any One Event Minor Perils $10,000 Any One Event Theft and/or Malicious Damage $10,000 Site Preparation Excesses Major perils $10,000 Site Preparation Minor perils $10,000

Major perils are water, subsidence, collapse, flood, landslip, cyclone, storm, tempest, earthquake. Minor perils covers all other risks.

1. Pausing here, I note that "event", "one event" and "claim", as used in the Application of Deductible clause, the definition of Deductible and the Schedule, are not defined terms. This is of some significance, for reasons which I will come to.
2. The Policy document includes a Claims Procedure section. The section details what Rawson Homes must do in the event of a claim being made under the Policy and what happens after it makes a claim.

The claim and events leading to the hearing

1. On 20 February 2017, Rawson Homes' insurance broker submitted a claim under the Policy in respect of the damaged houses. Later that day, Allianz sent an email to Rawson Homes' insurance broker noting that the claim had been allocated a number, the date of loss as 18 February 2017 and that Allianz had appointed a loss assessor who would be in contact with Rawson Homes.
2. On 14 March 2017, Allianz notified Rawson Homes' broker that it accepted that the Policy responded to the claim and that a deductible of $10,000 applied to each of the Insured Contracts.
3. Around this time, Allianz' loss assessor retained Silver Wolf Projects Pty Ltd (Silver Wolf), a firm of engineering and building consultants, to inspect, assess and report on the hail damage to the partially constructed houses the subject of Rawson Homes' claim. Silver Wolf's report to Allianz on those matters is dated 8 April 2017 and described as "Hail Damage Evaluation Report" (First Report).
4. The First Report indicates that Silver Wolf assessed, amongst other matters, the hail impact damage to the tiled roofs of 100 houses based on inspections undertaken between 20 and 29 March 2017. It also indicates that: 1. the inspections of the tiled roofs were undertaken primarily by the deployment of aerial drone imagery, with some visual surveying by means of personnel accessing the roof line; 2. in assessing the damage to the tiled roofs, the determination of the total damaged tiled roof area was based on the area of damaged tiles identified from the drone imagery, a "hairline crack" factor and an allowance for additional damage to tiles during the repair process; 3. at the time of the inspection, the tiled roofs to 31 of 100 houses had already been fully replaced but, based on the observed damage to the other houses, the tiled roofs to the 31 houses would also have suffered similar damage; and 4. the results of the roof inspection and assessment undertaken on the 69 houses was adopted for the 31 houses.
5. The outcome of Silver Wolf's assessment was that the maximum percentage of damaged roof tiles for any one house was 31%, with an average of 22%, and, as the damaged roof tiles were below 50% of the roof surface, all inspected roofs were deemed repairable and did not require replacement.
6. On 21 September 2017, Rawson Homes provided a spreadsheet to Allianz detailing the reinstatement costs for five of the damaged houses with supporting invoices and a letter from the tile supplier, Monier. The Monier letter states that original visual inspections from the ground suggested the roofs were repairable but that physical roof inspections revealed considerable damage to tile under-locks and cover-locks which suggested the roofs were impacted by the hail storm and that Monier was unable to provide the usual 50 year warranty on the tiled roofs due to the extensive damage.
7. On 31 October 2017, Rawson Homes sent to Allianz' loss assessor a link to the invoices and calculations which supported its claim in relation to 66 damaged houses.
8. On 27 November 2017, Allianz agreed to pay, and Rawson Homes accepted, a part payment of $1.8 million.
9. According to the evidence of Matthew Knight, Rawson Homes' Chief Financial Officer, in February 2018, Rawson Homes provided Allianz with details of the costs incurred in relation to 54 damaged houses and, in January 2019, costing details in relation to two damaged houses.
10. On 29 March 2018, Rawson Homes received a second payment from Allianz of $600,000. This payment and the payment made on 27 November 2017 were accepted on the basis that they did not constitute Rawson Homes' full and final claim under the Policy.
11. On 1 June 2018, Silver Wolf produced a report titled "Final Cost Validation Overarching Report". This report validates the costs and invoices submitted by Rawson Homes for the replacement of the tiled roofs to 113 of the 134 hail damaged properties. The validation was done in accordance with Silver Wolf's inspection and assessment methodology, as set out on the First Report.
12. On 22 June 2018, Rawson Homes' solicitors wrote to Allianz and requested it reconsider its position and indemnify Rawson Homes for the cost of retiling all roofs to the houses that suffered hail damage. In support of that request, Rawson Homes attached a number of witness statements, a video and other documents; referred to statements from tiling contractors to the effect that repairs to the roofs would have taken longer and would have been inadequate to make good the damage; and made submissions about the methodology adopted by Silver Wolf.
13. On 9 August 2018, Allianz's solicitors responded and rejected Rawson Homes' request. The letter states that Allianz did not accept that the number of damaged tiles exceeded the amounts assessed and allowed for by Silver Wolf, rejects the various unverified statements from tiling contractors as evidence of physical damage and indicates that it would consider any objective evidence that Rawson Homes had in support of the damage claimed.
14. On 8 November 2018, Rawson Homes commenced these proceedings.
15. On 17 April 2019, Silver Wolf produced its third report titled "Final Cost Validation Overarching Report #4". In the report, Silver Wolf validates the submitted claim for the hail storm damaged houses. The total validated costs are based on Silver Wolf's inspection and assessment of the roofs and review of the submitted invoices, adopting the methodology from the First Report.
16. On 27 September 2019, Rawson Homes served its evidence which included affidavits from four tiling sub-contractors, a Rawson Homes' site supervisor, a construction supervisor and a technical construction manager from CSR Monier and two expert reports.
17. On the first day of the hearing, evidence was given by the tiling sub-contractors, the site supervisor and both of the Monier employees.
18. On the morning of the second day of the hearing, Allianz conceded the repair vs replace issue and accepted that it was liable to indemnify Rawson Homes for the costs of replacing the tiled roofs.
19. It is common ground that each of the 122 partially constructed houses damaged by the hailstorm was the subject of a residential building contract entered into between Rawson Homes and the individual house owner, and that each building contract is an Insured Contract within the meaning of the Policy.

The deductible issue

1. As noted above, the dispute between the parties is whether one deductible of $10,000 is payable or whether a $10,000 deductible is payable in respect of each of the 122 damaged houses. That dispute is to be resolved by a proper construction of the terms of the Policy.

Legal principles

1. As a commercial contract, a policy of insurance is to be given a business like interpretation. The task of interpretation is an objective one that requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure. A preference is to be given to the construction supplying a congruent operation to the various components of the whole: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 (McCann) at 589; Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37 at 116; MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56 at [100]-[101]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at 529.
2. The meaning of words used in an insurance policy are to be construed in favour of an insured as far as the ordinary and natural meaning of the words used by the insurer allows: Australian Casualty Co Limited v Federico (1986) 160 CLR 513; [1986] HCA 32 at 520.
3. This does not mean that a court can attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties. Where words are unambiguous they cannot be ignored: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 at 109.
4. In McCann, Kirby J discussed (at 602) the principles applying to the construction of insurance policies and observed that the contra proferentem rule is one of last resort, but that: "... it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering." (quoting Johnson v American Home Assurance Co (1998) 192 CLR 266; [1998] HCA 14 at 275 [19].)
5. An insuring clause and any exclusion clause, such as a deductible clause, must be read together in a harmonious way so that due effect is given to both and the right conferred by the former is not negated or rendered nugatory by the construction adopted in relation to the latter: Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28 at [133].

Consideration and decision

1. Rawson Homes submits that only one deductible of $10,000 applies to its claim for indemnity for losses to all 122 houses because, on a proper construction of the Policy, one deductible is payable for all claims arising from the one event which, in this case, was the hailstorm.
2. Rawson Homes relies on the Application of Deductible clause, which refers to the Deductible being subtracted from the amount payable by Allianz for each event giving rise to a claim, and the definition of Deductible, which refers to the Deductible being the first payment for all claims arising out of one event or occurrence.
3. Allianz submits that, properly construed, the Policy provides for a deductible to be applied to the Sum Insured in respect of each of the 122 houses as the Deductible is payable for each claim made in relation to each Insured Contract. It submits that Rawson Homes has made 122 claims for indemnity as there are as many claims as there are Insured Contracts.
4. Allianz submits that its interpretation is supported by reading the Policy as a coherent and harmonious whole, starting with the Insuring clause which provides indemnity in respect of an individual and identifiable Insured Contract against an Indemnifiable Event. It relies on the Sum(s) Insured and Total Sum Insured clause which refers to Allianz's liability as not simply the Sum Insured but the Sum Insured "less any applicable Deductible" and to its "maximum liability" as being the Total Sum Insured "less the highest applicable Deductible". It also submits that the format and wording of the Schedule is consistent with a separate Deductible applying to each claim under an Insured Contract as it provides a dollar figure for "Any One Event", such that for each individual Insured Contract in respect of which a claim is made for cover for Material Damage to Contract Works the Sum Insured is $2,000,000 after the deduction of a Deductible of $10,000.
5. I am not persuaded by Allianz's submission and consider Rawson Homes' interpretation of the Policy to be correct in this case.
6. A deductible is a qualification to the cover granted under a policy of insurance. It may apply to each claim or to an event or occurrence so that there is only one deductible irrespective of the number of claims: Ian Enright and Robert Merkin, Sutton on Insurance Law (4th ed, 2015, Lawbook Co) (Sutton on Insurance Law) at [16.860]. Whether a deductible applies to a claim or an event will depend on the terms of the policy.
7. Rawson Homes submits, and I accept, that the starting point in determining if more than one deductible is to be paid are the parts of the Policy that deal with that subject matter.
8. By its definition, Deductible means an amount of money that is specified in the Schedule that Rawson Homes has to contribute as the first payment for all claims arising out of the one event or occurrence. In my view, that wording reflects an intention that one Deductible is to be payable irrespective of the number of claims made under the Policy if all of the claims arise out of the one event or occurrence.
9. The Application of Deductible clause identifies the trigger under the Policy for the payment of the Deductible. The clause also puts focus on an "event" and a "claim". It provides that the amount of the Deductible is to be subtracted from the amount payable by Allianz for "each event giving rise to a claim" under Section 1 and for the highest single Deductible to be payable if a claim arises from a "single event".
10. The second paragraph of the Application of Deductible clause deals with the meaning of a "single event". While the drafting is somewhat unclear, its intended meaning seems clear, namely to aggregate losses to Contract Works and other insured property over a 72 hour period caused by storm (or other natural peril) activity into a single event for the purposes of the Deductible. This has the consequence that a claim in respect of the aggregate losses will be treated as arising from a single event, with the highest single Deductible to be applied notwithstanding the insured may be able to obtain cover for more than one benefit under Section 1 for which multiple Deductibles may apply.
11. The Schedule sets out the amount of the Deductibles that are payable in respect of Material Damage claims. For Major Perils, such as the hailstorm, the amount is $10,000 "Any One Event".
12. In my view, these parts of the Policy reflect an intention for the Deductible to be payable "per event" and that the Deductible attaches to and is to be paid by way of a contribution to all Material Damage claims arising from the "one event".
13. The words "event", "one event" and "claim" are not defined in the General Definitions or in Section 1 of the Policy. Thus, as they appear in the Deductible definition, the Application of Deductible clause and the Schedule, they are to be construed according to their ordinary and natural meaning in the context of the Policy providing for annual construction insurance that insures works the subject of multiple building contracts: Darlington Futures Ltd v Delco Australia (1986) 161 CLR 500; [1986] HCA 82 at 510-511; McCann at [22].
14. Event and occurrence usually have the same meaning. They are directed to the cause of loss, rather than the loss itself: David Kelly and Michael Ball, Kelly and Ball Principles of Insurance Law (2001, Butterworths Australia, looseleaf) at [8.0130.10].
15. The ordinary meaning of the word "event" is something that happens at a particular time, at a particular place and in a particular way: Axa Reinsurance (UK) Plc v Field [1996] 1 WLR 1026 at 1035. Once loss or damage to property is observed, one may search for an event or state of affairs from which it results. Thus, the use of the word "event" invites focus on the proximate or immediate incident or underlying cause leading to the damage to the houses: Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100 at [88]; Windsurf Pty Limited v HIH Casualty & General Insurance Limited [1999] QCA 360 at [9].
16. Rawson Homes contends that the hailstorm was the "one event" in this case because it would not be sensible or correct to proceed as if there were a series of different hailstorms starting and finishing at each house. It also submits that the words "giving rise to" are apt to describe a relationship under which one thing (the claim for indemnity) originates or springs from the other (namely the hailstorm event), relying on Quintano v B W Rose Pty Ltd [2008] NSWSC 793 (Quintano) and Walton v National Employers' Mutual General Insurance Association Ltd [1973] 2 NSWLR 73. I agree, and note that Allianz advanced no submission to the contrary.
17. In my view, the characterisation of the hailstorm as the one event that gave rise to Rawson Homes' claim (or claims) conforms to common sense and the ordinary and natural meaning of the word "event". The hailstorm cannot be broken up into different storms. There is also no doubt that there was a causal connection between the hailstorm and Rawson Homes' claim (or claims) for indemnity under the Policy as the hailstorm was the incident that led to the damage to the tiled roofs of the partially constructed houses. In other words, the hailstorm event was the underlying fact and the foundation from which Rawson Homes' claim(s) arose: Quintano at [8].
18. The interpretation of the hailstorm as the "one event" is at odds with the meaning of "Indemnifiable Event", which is the trigger for indemnity under the Insuring clause in relation to an Insured Contract. An Indemnifiable Event is any sudden and unforeseen physical damage to the relevant insured property resulting from any non-excluded cause during the Period of Insurance. Thus, an Indemnifiable Event is the damage to specific Contract Works caused by the hailstorm, rather than the hailstorm event itself.
19. That said, in my view, the deliberate use of the defined term in the Insuring clause and the use of the word "event" in other parts of the Policy signifies an intention they are to have different meanings, with the undefined word "event" to be given its ordinary and natural meaning in the context of a policy of insurance and not read as limited or displaced by the defined term: Tempe Recreation (D.500215 and D.1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449; [2014] NSWCA 437 at 462; Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541 at 554, 560.
20. For these reasons, I consider the hailstorm to be the "event" and "one event" giving rise to Rawson Homes' claim(s) under the Policy.
21. For the purposes of a deductible, "claim" is the occurrence of a state of affairs which justifies a claim, rather than the assertion of a claim itself. It has also been described as a demand for payment, benefit or indemnity under a policy: Desmond Derrington and Ronald Ashton, The Law of Liability Insurance (3rd ed, 2013, LexisNexis Butterworths) at 8-537; Sutton on Insurance Law at [15.570].
22. As noted above, Allianz contends that Rawson Homes has made 122 claims, one for each Insured Contract, and that a deductible is payable in respect of each claim. Rawson Homes' primary submission is that it has made one claim under the Policy in respect of the damage caused by the hailstorm to the partially constructed houses.
23. In my view, Rawson Homes' submission is to be preferred. The circumstance that gave rise to its entitlement to seek indemnity under the Policy was the one hailstorm event that caused loss by way of damage to the partially constructed houses. Upon that happening, Rawson Homes had an entitlement to make a claim on Allianz under the Policy for indemnity in respect of its losses for multiple Insured Contracts within the limits of the Policy. While the Insuring clauses identify the cover provided on an Insured Contract basis, there is one Policy that insures against Material Damage to multiple works and contracts in respect of which a claim for cover for multiple losses may be made. Thus, I do not consider that the language of the Insuring clauses and structure of Section 1 mandates that "a claim under the Section" is limited to a claim in respect of an Insured Contract.
24. As noted above, the Application of Deductible clause provides for the Deductible to be payable for "each event giving rise to a claim under this Section" and, in respect of "a claim arising from a single event", only the highest single applicable Deductible is to be paid. To my mind, the words "a claim" describe what springs from the "event", namely a demand for cover for damage for losses caused by the hailstorm. The words "under this Section" identifies that a claim must relate to cover for "Material Damage" but does not, in my view, mean that a claim is limited to an Insured Contract. In any case, as Rawson Homes submits, even if it has made multiple claims rather than a claim, they all arise out of the same hailstorm event and the Deductible definition refers to it being the first payment for "all claims".
25. I am not persuaded by Allianz's submission that the format and wording of the Schedule are inconsistent with one Deductible applying. The tables in the Schedule that relate to Section 1 identify a dollar figure per "Any One Event". Just as there is a maximum Sum Insured of $2,000,000 for Contract Works for each Insured Contract per Any One Event, there is a Deductible payable for Material Damage claims per Any One Event. Despite the use of capitals, "Any One Event" is not defined and, in my view, also means the hailstorm event for the purposes of the Deductible.
26. At the hearing, Allianz's Senior Counsel maintained that Rawson Homes has made separate claims in respect of the Insured Contract for each damaged house and that a separate Deductible was payable for each claim despite Deductible being defined as "the first payment for all claims arising out of one event". He submitted that the definition had to be drafted in flexible language as it applied to both Section 1 and Section 2, noting that it might be expected that one occurrence could give rise to multiple Third Party Liability claims under Section 2. He also submitted that, for Material Damage, an event in relation to an Insured Contract may give rise to multiple claims in respect of different benefits (as provided for in Section 1), with the consequence that the highest applicable Deductible would be payable for all of those claims.
27. I accept that the definition of Deductible is applicable to both Sections of the Policy and thus might be drafted in more general terms that the Section specific parts of the Policy. I also accept that a claim for different types of cover and different benefits in respect of one Insured Contract arising out of one event or a single event would lead to the highest applicable Deductible being payable, and that multiple claims might be said to have been made. But the character of the definition as a "General Definition" and the possibility that multiple benefits may give rise to multiple claims under Section 1 does not answer how, in the light of the plain wording in the definition, more than one Deductible is to be payable if more than one claim arising from the one hailstorm event has been made in this case.
28. It seems to me that for Allianz's submission to be sustained the words "an Insured Contract" need to be read into the definition of Deductible, so as to confine the meaning of the expression "all claims arising out of one event" to each such contract for the purposes of Material Damage claims under Section 1 of the Policy. The difficulty I have is that the words "Insured Contract" do not appear in the definition. Nor do they appear in the Application of Deductible clause.
29. In construing the Policy, the Court is to ask what a reasonable businessperson would have understood [the relevant] terms to mean: Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640; [2014] HCA 7 at [35].
30. In my view, a reasonable businessperson would understand the definition to mean that the amount of the Deductible identified in the Schedule for Major Perils for Material Damage claims, namely $10,000, is to be contributed by Rawson Homes as the first payment for all claims [made by Rawson Homes for cover under Section 1 of the Policy] arising out of the one hailstorm event, and not the first payment for all claims arising out of that one event per Insured Contract. Similarly, the Application of Deductible clause would be understood to mean that $10,000 will be subtracted from the payment to be made by Allianz in respect of the hailstorm event that has given rise to Rawson Homes' claim (or claims) for cover under Section 1 of the Policy, again not limited to a claim per Insured Contract.
31. The relevant Insuring clause provides that indemnification for the Contract Works against an Indemnifiable Event will be in accordance with the Basis of Settlement and is subject to the other terms of the Policy, which means that any indemnification will be subject to the operation and meaning of the Application of Deductible clause, the Deductible definition and the Schedule.
32. I accept that the Insuring clause and other terms of Section 1 could be read as reflecting an intention that the Deductible is payable per event per Insured Contract. In addition to the Insuring clause providing for cover for an Insured Contract and the meaning of Indemnifiable Event, the limit of Allianz's liability is expressed as applying to any one Insured Contract and it is contemplated as being the difference between the Sum Insured and the relevant Deductible. The Sum Insured definition and Sum Insured clause refer to the "Sum Insured" and "Total Sum Insured" as the maximum amount that Allianz will pay for any one loss or series of losses arising out of the one event for any one Insured Contract after deduction of or less the relevant/highest applicable Deductible. The expressions "less the relevant Deductible" and "less the highest applicable Deductible" suggest an intention that Allianz would be liable for part, and not the whole, of the Sum Insured and Total Sum Insured specified in the Schedule for each Insured Contract and that a Deductible may be payable for each Insured Contract. That said, the words "relevant" and "applicable" leave open the possibility that the Deductible will be nil, as Rawson Homes submits.
33. Regardless, an interpretation of the Sum Insured clause and definition as providing for a Deductible to be paid in respect of each of the 122 Insured Contracts is, in my view, at odds with the plain meaning of the Deductible definition, the Application of Deductible clause and the Schedule. The limits of Allianz's liability may be fixed by reference to one Insured Contract and cover may be provided against an Indemnifiable Event but the $10,000 Deductible applicable to Material Damage claims under Section 1 is fixed and payable by reference to the one event which give rises to one or more claims under one or more Insured Contracts.
34. The Court is to give force to the words used by Allianz as the author of what appears to be a standard form insurance contract. If Allianz intended for the Deductible to be subtracted from the amount payable for each Indemnifiable Event or for each Insured Contract, it could have included references to those defined terms in the definition of Deductible, the Application of Deductible clause and/or the Schedule. Allianz has chosen to use words that, in my view, work to provide for the Deductible to be payable per event which, in this case, is the hailstorm. I do not consider that words of limitation should be read into the parts of the Policy that deal with the meaning and application of the Deductible to support the interpretation of the Policy adopted by Allianz, even if Allianz intended for a Deductible to apply for each Indemnifiable Event in respect of each Insured Contract. To the extent this means there may be some ambiguity between the drafting of the terms dealing with the Deductible and the other terms in Section 1, the ambiguity is to be resolved in favour of Rawson Homes: McCann at 602.
35. It follows, in my opinion, that only one Deductible is payable under the Policy. The amount of the Deductible specified in the Schedule for Material Damage claims, namely $10,000 for Major Perils, is to be deducted from the amount payable by Allianz in response to Rawson Homes' claim for indemnity under the Policy for all losses arising out of the hailstorm event.
36. The position remains the same if Allianz is correct and Rawson Homes has made multiple claims under Section 1 in respect of each Insured Contract. As Rawson Homes submits, the definition of Deductible makes clear that the amount of the Deductible is the first payment for all claims arising out of the one hailstorm event.
37. For completeness, I note that I do not consider that my construction means that the Insuring clause is negated or rendered nugatory by the interpretation of the Deductible clause. As Rawson Homes submits, the Policy provides cover in respect of a range of building works undertaken over the year, rather than cover for a specific project. It might, therefore, be expected that one event may give rise to damage to multiple works and losses which may not be significant on their own. In that context, the payment of one Deductible on an event basis for multiple Insured Contracts does not seem to me to be commercially absurd. No submission was made by Allianz to suggest otherwise.

The interest issue

1. Under s 57 of the Insurance Contracts Act 1984 (Cth) (Act), Allianz is liable to pay interest on the amount payable under the Policy from the date on which it was unreasonable for Allianz to have withheld payment of the amount and ending on the day on which payment is made or sent.
2. The operation of s 57 of the Act was summarised in Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited (No 2) [2018] FCA 1450 at [291]: Under s 57(2), the period in respect of which the insurer is required to pay interest commences on the day on which it became unreasonable for the insurer to refuse to pay the claim. An objectively determined reasonable period is to be given to the insurer to investigate the claim and determine its position. But where that position constitutes a refusal to pay the claim, in circumstances where a court has held that a liability to pay the claim does exist, such refusal cannot relevantly extend this period to the point of adjudication, regardless of whether that position was formed and held bona fide (see Fitzgerald & Anor v CBL Insurance Ltd [2014] VSC 493 at [415] and [416] per Sloss J). In short, the award of interest is to be calculated taking into account a reasonable time for completion of the insurer's investigation of the claim.
3. The section is, therefore, directed to determining the point in time which, empirically, it was unreasonable for an insurer to decline payment on the presumption that it was deemed to know of its obligation as ultimately determined or, as in this case, it ultimately accepted. Once an insurer's liability has been admitted or its defence abandoned, the basis on which the insurer did, up to that time, defend the claim is to be ignored and the question of reasonableness is to be assessed by reference to the particular facts of the case, with allowance made for the reasonable time required by the insurer to investigate the case in question: Bankstown Football Club Limited v CIC Insurance Limited (Supreme Court (NSW), Cole J, 17 December 1993, unrep) (Bankstown Football Club); Ransley v Chubb Insurance Company of Australia Ltd [2015] NSWSC 1350 at [9]; See also O'Neill v FSS Trustee Corporation as trustee of the First State Superannuation Scheme [2015] NSWSC 1248 (O'Neill v FSS) at [27]-[35].
4. It is common ground that Rawson Homes is entitled to judgment for $1,400,678 if the Court finds that one deductible applies.
5. Rawson Homes contends that interest should run on that amount from 28 March 2018, being the date on which Allianz determined to pay the second sum of $600,000 in answer to the claim. It submits that, by then, Allianz had investigated and assessed the claim and had rejected part for the reasons which gave rise to this proceeding, having had a reasonable period to investigate the claim.
6. Allianz accepts that interest is payable but submits that Rawson Homes is entitled to interest on: 1. the repair vs replace amount of $266,671 from 18 August 2020, being the day after the tiling witnesses gave evidence in the proceedings; and 2. the outstanding deductible deficit amount of $1,134,008 from 29 March 2018, being the day on which the second payment of $600,000 was made to Rawson Homes.
7. Thus, other than whether it should run from 28 or 29 March 2018, there is no dispute that interest should run on the deductible deficit amount from March 2018. In my view, interest should run from the later date, on the basis that 29 March 2018 was the date on which the second payment was made.
8. The main dispute relates to the date from when interest should run on the amount of $266,671 that is attributable to the repair vs replace issue.
9. Allianz submits that it was not unreasonable to have withheld payment of that amount until 18 August 2020 as it was only then, after the tiling witnesses gave evidence, that Allianz was able to make the concession to the Court that it accepted liability to pay the cost of replacing the roofs having regard to the witnesses observed uniformity in the breakage of tiles such that there was no reasonable option to repair.
10. In the alternative, Allianz contends for the following dates from when interest should run on the amount of $266,671: 1. from 27 October 2019, being one month after the service of Rawson Homes' affidavits. Allianz submits that it was not until then that it had any objective evidence of what had been observed on site and upon which it could base a decision to indemnify on a replacement basis; 2. alternatively from 18 February 2019, being the date on which Silver Wolf prepared its final costs validation report. Allianz submits that this was the earliest date that a proper analysis of the documentary material could be undertaken because, prior to this point, the repair vs replace issue was completely abstract, there being no source material from Rawson Homes to support the claim; or 3. alternatively from 9 August 2018, being the date on which the claim for the cost to replace the damaged roofs, instead of repair, was rejected by Allianz in writing.
11. Allianz's primary submission seems to be that the materials provided by Rawson Homes in support of its claim for indemnity was insufficient and that, as a consequence, it was not unreasonable for Allianz to have withheld payment and resisted the claim until it had an opportunity to consider the evidence served in the proceedings and test it at the hearing. I am not persuaded by that submission as I do not consider it to be reasonable for Allianz to wait for evidence in the form of affidavits and the opportunity to test it by cross-examination at hearing before deciding whether to indemnify for the cost of replacing the roofs.
12. The question of when it became objectively unreasonable for Allianz to withhold payment is not, in my view, to be assessed by reference to the date on which Rawson Homes' proved the extent of damage to the tiled roofs to Allianz's satisfaction. Rather, the question of reasonableness is to be judged by reference to the true position in respect of the claim, allowing for a reasonable period of time for Allianz to investigate the claim and consider its position having regard to the probable issues raised by the claim: Bankstown Football Club; Sayseng v Kellogg Superannuation Pty Ltd (2007) 213 FLR 174; [2007] NSWSC 857 at [7]. As a determination of reasonableness is required, the Court is to assess the matter objectively, having regard to the facts of the claim that Allianz had to consider: O'Neill v FSS at [30].
13. In this case, Rawson Homes' claim was for cover for the losses caused by the hailstorm, which included the cost of replacing the hail damaged tiled roofs. Allianz did not dispute that the tiled roofs to the houses were damaged by hail or that the Policy responded to Rawson Homes' claim. The issue that required investigation and assessment was the extent of the damage to the tiled roofs to determine whether Rawson Homes should be indemnified under the Policy for the cost to replace the tiled roofs, or only to the cost of repair.
14. The true position is that the damage to the tiled roofs was extensive enough to warrant indemnity to extend to the cost of replacing them. The extent of that damage was able to be assessed and investigated in the period immediately after Rawson Homes made its claim.
15. By 29 March 2018, Allianz had obtained Silver Wolf's First Report which assessed the extent of the damage and opined that the tiled roofs were repairable and did not need replacement. Allianz had received invoice and other costing information from Rawson Homes in relation to 125 houses in support of its claim and a letter from the tile supplier that stated that it was unable to provide the usual warranty for the tiled roofs because of the extent of the damage sustained. It also had an opportunity to seek further information from Rawson Homes in support of its claim, if that information was needed.
16. The evidence indicates that by 29 March 2018, Allianz had formed the view that the Policy responded to the claim, there was damage sustained to the tiled roofs of the houses the subject of the claim and more than one deductible was payable. It had also determined that a sum of $2.4 million in response to the claim should be paid.
17. What Allianz did internally to investigate and assess the claim and its internal subjective decision making as to why it resisted payment are matters that are not strictly relevant to the Court's objective assessment: Fitzgerald v CBL Insurance Ltd [2014] VSC 493 at [415]. However, the steps and time taken to instruct a loss assessor, have a third party inspect and report on the damage, consider the First Report and the costing information received from Rawson Homes, seek further information if needed and then come to a decision, is relevant to assessing what was an objectively reasonable time for Allianz to investigate the issues and the date beyond which it was unreasonable for Allianz to continue to resist withholding payment.
18. Although there are objective circumstances that justified the investigation of the extent of the damage and the assessment of Rawson Homes' costing information in support of the claim, in my view, the period of 13 months between the date the claim was made and 29 March 2018 (when the second and final payment on the claim was made) is an objectively reasonable time for Allianz to have investigated those issues and determine its position. Accordingly, interest should run from 29 March 2018, the date on which Allianz made a second and what became the final payment in response to Rawson Homes' claim.
19. While this conclusion determines the interest issue, I make the following additional observations regarding the submissions in support of the alternative dates.
20. First, I am not persuaded that Allianz did not have evidence available to it on what had been observed on site on which it could base its decision as at 27 October 2019. Allianz received Silver Wolf's First Report in 2017. The First Report provided information to Allianz as to the extent of the damaged tiled roofs based on what had been observed on site, albeit, primarily from drone imagery. Whether the First Report provided a bona fide basis for Allianz to come to the view not to cover the cost of replacing the tiled roofs is not relevant. As Bongiorno J (as his Honour then was) said in HIH Casualty & General Insurance v Insurance Australia Ltd (No 2) [2006] VSC 128 at [9]: To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder's claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.
21. Second, in my view, the material before the court does not support the submission that Allianz could not undertake a proper analysis of the documentary material or that the repair vs replace issue was completely abstract prior to receipt of the third Silver Wolf report. Silver Wolf's third report applied the methodology to the validation of the costs claimed based on the inspection and assessment of the damage set out in the First Report. The evidence also indicates that, by early 2018, Rawson Homes had supplied invoices and other costing data in relation to its claim to replace the tiled roofs and that Silver Wolf assessed and validated those invoices by June 2018.
22. Third, it seems to me that the evidence raises some doubt about Allianz's submission that 9 August 2018 was the date on which it rejected Rawson Homes' ambit claim for the cost to replace the damaged roofs. According to the correspondence, on 9 August 2018, Allianz refused Rawson Homes' request to reconsider the decision to limit indemnification to a portion of the roofing claim proportionate to the number of damaged tiles on each roof, based on the Silver Wolf recommendation.
23. Allianz's 9 August 2018 letter indicates that Allianz rejected that request and declined to indemnify because it considered that the further information provided by Rawson Homes was not objective evidence that supported the amount of the damage claimed. It also indicates that Allianz determined that it could continue to rely on its own "objective information" based on the physical damage observed by Allianz's assessors on site in 2017. That Allianz considered that it had objective information available to it from those investigations seems to me to support, rather than detract from, the conclusion that a 13 month period is an objectively reasonable time for Allianz to have investigated the issues and determined its position.
24. Accordingly, I find that it was unreasonable for Allianz to have withheld payment of the amount of $226,671 on and from 29 March 2018 and that interest pursuant to s 57 should run from that date on both the repair vs replace amount and the outstanding deductible deficit amount, totalling $1,400,678.
25. As to the amount of interest, the parties' provided interest calculations based on the dates referred to in their submissions. Rawson Homes calculates interest on the amount of $1,400,678 to be $158,401.38 until 18 August 2020, with a daily rate after that of $112.28. I propose to make an order reflecting that calculation but will defer entry of it for seven days in the event either party contends that a different interest calculation applies from 29 March 2018.

Costs and orders

1. The usual order as to costs is that they follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1. Given Rawson Homes' success, I see no reason not to make an order for Allianz to pay Rawson Homes' costs of the proceedings.
2. As the parties did not address the issue of costs, I have also deferred making that order for seven days to enable the parties to consider these reasons and whether they wish to seek a different costs order. If either party wishes to do so, they are to confer with the other party and, if no agreement is reached on costs, make an application for some other costs order by notification to my Associate by 4.00pm on 27 November 2020.
3. For the reasons, I make the following orders: 1. Judgment for the plaintiff in the sum of $1,400,678 (judgment amount). 2. Unless a party makes an application in relation to the interest calculation within seven days, the defendant to pay the plaintiff interest pursuant to section 57 of the Insurance Contracts Act 1984 (Cth) on the judgment amount: 1. in the sum of $158,401.38 for the period from 29 March 2018 to 18 August 2020; and 2. at a daily rate of $182.28 from 19 August 2020 to the date of payment of the judgment amount. 1. Unless a party makes an application for a different costs order within seven days, the defendant to pay the plaintiff's costs of the proceedings.

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. Decision last updated: 20 November 2020