Royal & Sun Alliance Insurance Australia Ltd v Lifestyle Vermont Pty Ltd [2002] VSC 185

5. By a decision dated 24 September 2001, the Tribunal found the appellant insurers liable to indemnify the respondent insured for the loss of deposit money paid under a building contract relating to a proposed home unit development at Moore Road Vermont.

8. The background to the matter is set out in the Tribunal's decision. On 2 February 1998 the insured entered into a contract with a builder to construct twenty five home units for the price of $2,281,875.00. Under the terms of the contract a deposit of $114,093.75 was payable, being 5% of the contract price. The work was to be carried out within 365 days. The deposit was paid, but the work did not proceed beyond the most preliminary of site works (which the Tribunal found as a fact to be of unproven value). As a result the insured lost the value of the deposit.

11. The building contract provided that domestic building insurance was to be provided by "Home Owners Warranty". That is a business name used by HIA Insurance Services Pty Ltd, which acts as agent for two companies which in turn are agents for the appellant insurers.

14. On 16 February 1998, the respondent developer applied for insurance for the project. The form of application was headed "Multi Unit Development". It described the building contract, stated the contract price to be $2,281,875.00 and attached a page from the building contract. It was common ground between the parties before me that the application related to the whole of the building contract and the whole of the units proposed to be constructed.

17. In response to this application however, the respondents issued five insurance certificates, one for each of units six to ten of the overall development. Each certificate states that it is issued in respect of the particular unit and makes no mention of the rest of the development. The operative part of the certificate states:

"Subject to the Act, the Ministerial Order and the conditions of the insurance contract, cover will be provided to the building owner named in the major domestic building contract and to the successors entitled to such building owner".

21. The "insurance contract" referred to is a standard form document and the operative part is as follows:

"... we, the insurers, will at our option make good or pay you all your loss or damage resulting from - 4. loss of any deposit or progress payment you pay under the contract".

25. The following relevant definitions are provided in the policy:

"the building contract (if any) to carry out the home building work and between your builder and you (or a previous owner of the home)".

b) "home building work" is defined as: "domestic building work (as defined in the Act) carried out, or to be carried out on, or in respect of, the home by your builder". c) "the home" is defined as:

"the home at the address given in your application form".

32. The definitions are sequential in effect. "The home" as defined by reference to the application was on the face of it the whole of the development site. The "home building work" was in turn defined as the work to be carried out on or in respect of the home by the builder. In turn "the contract", which was the subject of insurance was defined by reference to the home building work. The effect of this scheme of definition is that the identification of the insured property is the basis of the definition of the relevant home building work and the relevant building contract.

35. The difficulty that arises in the present case is that despite the terms of the application and despite the reference to that application in the policy, the five insurance certificates are on their face quite clearly limited to part of the development only. Not only do the certificates relate specifically to individual villa units, but the cover they provide is in each case limited to $80,000. The five certificates thus provided cover with respect to only $400,000 of a $2,281,875 contract.

38. In these circumstances the general provisions of the policy must be read together with the specific provisions of the certificates and their combined effect resolved. The view taken by the Tribunal was as follows:

"25. Having carefully studied the certificates of insurance and the policy it seems to me that each policy is, as Mr Thompson submitted, constituted by the certificate of insurance and the common form of policy that it incorporates. The indemnity provided pursuant to each contract of insurance is to be found in the terms of the policy. In the event of ambiguity in the wording of a policy, it is generally construed against the insurer (See Halsbury Laws of England 4th Ed. Vol 25 para 414). Where however the wording permits only one meaning, there is no room for the application of the rule (ibid). Words are generally given their ordinary meanings (Halsbury 4th Ed. Vol 25 para 412). 26. Save for the identification of the unit concerned, the policy is identical in each case. I do not think the wording admits of the construction urged by Mr Thompson. To construe the phrase "all your loss and damage... resulting from loss of any deposit..." as meaning "all your loss and damage referable to the insured residence... resulting from loss of any deposit..." would require the implication of a term in the policy. As discussed in the authorities cited by Mr Bigmore, in determining whether to imply such a term I must place myself in the same factual matrix the parties were in when the contract of insurance was made. I am not persuaded that, if an officious bystander had said to the Applicant at the time these certificates were issued: "Each of these certificates only covers 1/25th of the deposit" the Applicant would have said "Of course. That's right". Having paid over its deposit, the Applicant must have expected that it would receive insurance that would give it the protection required by the Building Act 1993 and the Ministerial Order and it would probably have been surprised to think that, because there was a separate certificate for each unit and because it had not received certificates for all of the units in the development, its deposit was not wholly covered. At the very least, it would have expected cover in accordance with the wording of the policies it had received. 27. For these reasons, I do not think that a term can be implied to the effect urged by Mr Thompson and on my reading of the policies, the whole of the deposit is covered. 28. I therefore find that the whole of the deposit is covered by each policy. This does not mean of course that the Applicant could claim five times for the amount of the loss deposit. A policy of insurance is a contract of indemnity and there would be no loss to indemnify once the first claim has been paid".

42. I have reached a different view as to the reading of the general provisions of the policy with the specific provisions of the certificates and the resolution of their joint effect. Mr Bigmore QC, who appeared as senior counsel for the insured, expressly conceded in argument before me that the "home" covered by the policy was limited to the individual home units identified in each certificate. In making this concession he was in my view correct. The policy documents are to be read as a whole and the general terms of the policy and the application referred to under the policy are subject to the specific provisions of the certificates.

45. As I have observed in [9] above the policy defines the insured property in the first instance by reference to the application. Insofar as there is a conflict between the terms of the application and the certificates, that conflict is to be resolved in favour of the certificates. The relevant principle was stated by Lord Wright in Izzard v Universal Insurance Company LimitedI:[1]

"... though the warranties and conditions expressed in the proposal are declared to be the basic conditions of the policy, that must be subject to their being overwritten by any express terms to the contrary effect in the actual policy. No doubt the proposal conditions and the express conditions of the policy must be read together and, as far as may be, reconciled, so that every part of the contract may receive effect. But if there is a final and direct inconsistency, the positive and express terms of the policy must prevail".

49. Accepting that the term "home" in the policy is correctly understood to mean each of the home units identified in the certificates, the operation of the sequential definitions to which I have already referred does not lead to the conclusion that the insurer is obliged to indemnify the insured with respect to loss of the deposit paid in relation to the development as a whole.

52. If the "home" covered by the policy is an individual unit only, then the home building work covered by the policy is the work to be carried out on or in respect of that home only. In turn "the contract" which is the subject of insurance is defined as the building contract to carry out this home building work. It is not the development contract as a whole as submitted on behalf of the insured.

55. It follows that I do not accept the finding of the Tribunal that "... the whole of the deposit is covered by each policy" (paragraph 28).

58. I am fortified in this conclusion by two further matters. Firstly, the amount of the deposit as a whole in fact substantially exceeds the amount of cover under each individual certificate. Secondly, the same clause in the policy which provides cover with respect to the deposit also provides cover with respect to progress payments. As Mr Thompson submitted for the insurers, it is difficult to see how the individual certificates could extend to progress payments which might potentially relate to works wholly connected with other units.

61. Although the fundamental issue between the parties might have been articulated differently, I am satisfied that the question of law, which was the subject of leave to appeal granted by Master Wheeler on 21 October 2001, does go to a critical aspect of the Tribunal's reasons. The question of law for determination is:

"whether a clause providing indemnity for "loss of any deposit ... under the contract" in respect of one unit of a twenty five unit development entitled the insured to a refund of the whole of the deposit monies paid in respect of the whole development".

65. I find that the clause providing indemnity for "loss of any deposit...under the contract" in respect of one unit of a twenty five unit development did not entitle the insured to a refund of the whole of the deposit monies paid in respect of the whole development.

68. It follows that the order of the Tribunal will be set aside. I have considered whether a further order should be made substituting a figure directly proportional to the deposit paid with respect to the development as a whole, but reflecting five units only ie. one fifth of the sum paid (as Mr Thompson submitted).

71. I have reached the view however that the quantum of the deposit which relates to building work to be carried out "on or in respect of" the individual home units is a matter of fact which should be determined by the Tribunal. The building contract documentation was not satisfactorily exhibited in evidence before me and I will not speculate further in this regard. I do observe however that the Tribunal has the power pursuant to s. 59A of the Domestic Building Contracts Act 1995 to make "any order it considers fair" to resolve this issue.

74. In the circumstances I propose to order pursuant to s. 148 (7) (c) of the Victorian Civil and Administrative Tribunal Act 1998 that the decision of the tribunal be set aside and the proceeding be remitted for hearing in accordance with law with respect to the ascertainment of loss pursuant to each of the five certificates of insurance under which the insured claims, and with the hearing of further evidence as the Tribunal deems appropriate. I direct that the Tribunal is not to be constituted for the re-hearing by the same member who made the original order.

[1] [1937] AC 773 at 779