Victorian Civil and Administrative Tribunal|1999-01-08

Reid v FAI General Insurance Co Ltd [1999] VCAT 1 (8 January 1999)

Domestic Building - Insurance Policy - Ministerial Orders - Indemnity - Limit of Indemnity -

entitlement to legal costs and expenses - costs generally

2. I direct that this matter be listed for further mention (if need be) after 15 February 1999.

[1] On 27 October 1998 I referred this matter to hearing on preliminary issues of law as follows:

"the meaning in law of paragraphs (d) and (e) of the Limit of Indemnity of the indemnity provided by the Domestic Building Insurance Policy and in particular:

"reasonable legal costs and expenses associated with the successful enforcement of a claim";

"legal costs of the claimant" and "related to the enforcement of the policy."

[2] The hearing of such preliminary issues took place on 14 December 1998 at which both parties were represented by Counsel and made submissions.

[3] The policy taken out with the Respondent is in the form prescribed by the relevant Ministerial Order and notified in the Victorian Government Gazette for 1 October 1996.

[4] The policy in "The indemnity" section as far as material provides as follows:

(1) the Builder by a written proposal applying to the insurer in the name of the insured for insurance cover and

(2) the payment of the premium (and other charges) specified in the Schedule,

the Insurer will subject to all the terms, conditions, limitations and exceptions in this Policy (which so far as the nature of them respectively will permit are conditions precedent to the right of the insured to recover hereunder) indemnify the Insured against all losses and damage during the Period of Insurance which result from any Prescribed Cause."

[5] The policy in the "Limit of Indemnity" section as far as material provides as follows:

"(d) The aggregate liability of the Insurer pursuant to the terms of this Policy shall notwithstanding any other provision to the contrary not exceed One hundred thousand dollars (100,000) (or when this policy related to more than one Home, One hundred thousand dollars ($100,000) per home) plus reasonable legal costs and expenses associated with the successful enforcement of a claim against the Insurer.

(e) The Insurer shall bear no liability for the legal costs of the claimant which are not directly or indirectly related to the enforcement of the policy."

[6] The parties provided the Tribunal with copies of authorities and written Statements of Submissions or Statements of Facts and Contentions. A useful chronology also was provided. The authorities supplied included the following:

Guaranty Trust Company of New York v Hannay and Co. [1918] IKB 43;

Mercantile Credit Co. Ltd v Cross [1965] 2 QB 205;

Fraser v BN Furman (Productions) Ltd [1967] 3 ALL ER 57;

Albion Insurance Co. Ltd v Body Corporate Stata Plan No 4303 [1983] 2 VR 139;

McDonald v AMP General Insurance Co. Ltd (1995) 126 ACTR 1.;

Fraser v Deputy Commissioner of Taxation [1996] FCA 1701; (1996) 138 ALR 689;

Chartered Trust PLC v Pitcher (1988) RTR 72.

As well the Tribunal was supplied with an extract on "Remoteness of Damage" dealing with the so-called rule in Hadley v Baxendale [1854] EngR 296; (1854) 9 Ex 341.

[7] The precise issue before the Tribunal concerns a question of costs. For the purpose of determining that issue I am able I think to assume the following: The Applicant has incurred legal costs and expenses for which he claims indemnification under the policy in the circumstances set out in the Affidavit sworn on 26 October 1998. He deposes that, in the circumstances there set out, he is prepared to compromise a claim with the Respondent for an amount of $17,912.63 in respect of incomplete and defective work. He deposes, however, that at this point he has incurred legal costs and expenses. The exact amounts of those costs and expenses are not directly material but I was told that they are well in excess of $6,000.00.

[8] The issues before the Tribunal is the Applicant's entitlement to indemnification under the policy in respect of those costs and expenses. In turn, that involves a reading of not only "The Indemnity" section as such but also the provisions in the policy relating to "Limit of Indemnity".

[9] Considering the terms of Part A of "The Indemnity" set out above I am quite satisfied that the costs and expenses in question are within the expression "all losses and damage". Accordingly, if the other provisions of Part A are satisfied, it is my view that the Respondent is liable to provide indemnification in respect of them. I do not see how there can be any doubt about this if such costs and expenses are an item of loss and damage incurred during the period of the insurance resulting from a prescribed course. The word "all" means, I should think, "all" and thus excludes nothing. Costs and expenses resulting from the occurrence of a Prescribed Cause - such as legal costs and costs of building inspection are, without doubt in my mind, "losses and damage" of the relevant kind which attract the duty of indemnification.

[10] Any doubts that someone might have about this construction of "The Indemnity" are soon dispelled by reference to para (d) of the "Limit of Indemnity" also set out above. The effect of para (d) is to limit liability of the insurer to a particular sum ($100,000.00) "plus" such costs and expenses associated with the successful enforcement of a claim against the insurer as are reasonable. The word "plus" means "as well as" or "in addition to". In other words, para (d) of the "Limit of Indemnity" clearly, in my view, contemplates that in the operation of "The Indemnity", costs and expenses qualifying according to the terms of the paragraph are included as indemnifiable. That is, of course, if they do meet the other requirements of the paragraph.

[11] As regards those other requirements. I cannot think it can be maintained that a party in the position of the Applicant has not successfully enforced a claim against the insurer. The paragraph requires only that a claim against the insurer be enforced successfully, and nothing else. It is not confined, in my view, to claims embarked upon in court or in tribunal proceedings which are necessarily actually issued. It is the claim itself which is successfully enforced and (I think as Mr Oliver may have been inclined to concede) a claim can be enforced otherwise than by the actual issuance of proceedings. I should add that this would be my view even in the absence of any concession. The sorts of costs and expenses in this case in respect of which the Applicant seeks indemnification are, I think, very plainly, costs and expenses "associated with" the successful enforcement of a claim as I have mentioned. To be other than "associated with" it they would need to be, I think, entirely unrelated to it.

[12] The fact, as I think it is, that "The Indemnity" section does extend to costs and expenses of the kind in question here is made even clearer if one considers para (e) or the "Limit of Indemnity". That paragraph gives rise to the very plain inference that an insurer bears liability for legal costs if they are directly or indirectly related to the enforcement of the policy. It is not possible to read it in any other way. Nor do I think para (e) can be read as sustaining any proposition that, in order for a liability to arise, legal proceedings must actually have been commenced. Again I think it is quite possible to enforce a policy against an insurer otherwise than by the issuance of legal proceedings. I should not think, in any event, than an insurer would wish to contend that the issuance of proceedings should be encouraged so that it can meet its obligation to pay the legal costs of claimants. Moreover para (e) speaks only of enforcement of policies and does not mention at all enforcement of judgments or orders. If it was intended to relate only to a liability to pay costs after the issuance of legal proceedings then this would have been made clear by appropriate words. The position is, in any case, very similar to that obtaining with respect to para (d). Neither the enforcement of a claim (para (d)) nor the enforcement of the policy (para (e)) requires, in my view, the issuance of legal proceedings and, as I have indicated, I do not see it to be in an insurer's interests to maintain the contrary.

[13] I have considered carefully the submissions made by Mr Oliver but, for the reasons I have given, I am unable to accept them. Nor am I persuaded that the position is even one not free from doubt. The position I have set out is, I think, clear.

[15] I was asked specifically not to rule upon the question of costs of these proceedings. I accede to that request and accordingly reserve the question of such costs. I point out, however, that s109 of the Victorian Civil and Administrative Tribunal Act 1998 gives a party no guarantee whatever of the costs in a proceeding.

[16] In the event that the parties are unable to reach agreement on the question of costs I direct that this proceeding be re-listed before me, solely on that question, and on the question whether costs at all should be ordered on some convenient date after 15 February 1999.

Civil and Administrative Tribunal Act 1998

Reid v FAI General Insurance Co Ltd [1999] VCAT 1

At a glance

Court

Decision date

Source

Judgment (37 paragraphs)

Reid v FAI General Insurance Co Ltd [1999] VCAT 1 (8 January 1999)

Parties

Legislation Cited (1)

Cases Cited (1)