Vitale v Allianz Australia Insurance Ltd

Background 7In August 2002, the Insurer was one of three insurers authorised to provide home building warranty insurance in New South Wales. Prior to 2001, Avcon had undertaken only a very modest amount of residential building work. 8In 2001, Avcon wished to undertake further residential building work. In order to do so, it had to comply with s 92(1)(a) of the Home Building Act 1989 (NSW) (HB Act). Section 92(1) prohibited a person from doing residential building work under a contract unless a contract of insurance complying with the HB Act was in force in relation to that work. The contract of insurance was required to be in the name of the person who contracted to do the work and a certificate of insurance had to be provided to the other party to the contract. 9Section 99 of the HB Act set out the requirements for insurance for residential building work. Section 99(1) provided as follows: "A contract of insurance in relation to residential building work required by section 92 must insure: (a) a person on whose behalf the work is being done against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor, and (b) a person on whose behalf the work is being done and the person's successors in title against the risk of being unable, because of the insolvency, death or disappearance of the contractor: (i) to recover compensation from the contractor for a breach of a statutory warranty in respect of the work, or (ii) to have the contractor rectify any such breach." The statutory warranties as to residential work were specified in s 18B of the HB Act, but is unnecessary to reproduce them. 10In October 2001, the Insurer's agent, Dexta, notified Avcon that it was eligible to apply for "Job Specific" home building warranty insurance for one job, with a financial limit of $130,000. Prior to receiving that notification, the appellants, presumably at Dexta's request, had executed a Deed of Indemnity in favour of Dexta (First Deed of Indemnity). 11On or about 6 August 2002, Avcon sought to increase its eligibility with Dexta for "Job Specific" home building warranty insurance from $130,000 to $1,400,000. The requested increase was to enable Avcon to undertake the development of seven town houses to be located on a property in Sylvania (Property). 12On 30 August 2002, Dexta provisionally accepted Avcon's application, subject to compliance with certain conditions. 13On 3 December 2002, each of the appellants executed the Deed of Indemnity in favour of Dexta. The Deed of Indemnity was in the same terms as the First Deed of Indemnity. 14The Deed of Indemnity relevantly provided as follows: "2. The Indemnifier unconditionally and absolutely agrees to indemnify and keep indemnified the Insurer for all loss, damage, costs, charges or other liabilities incurred or paid as a result of any claim arising under the Policy and all amounts which the Insurer must pay and is liable to or may become liable to pay under the said policy (whether or not the Insurer has paid any amount) in all cases, whether or not the claim arises or is made before or after the date of this deed PROVIDED ALWAYS that the amount of such indemnity shall be no greater than $200,000 per claim. 3. ... (c) On receiving a demand from Dexta or the Insurer, the Indemnifier will pay to Dexta all of the monies so demanded forthwith, together with interest at the rate of Ten per cent (10%) per annum from the date of such demand, all losses, damages, costs, charges, fees expenses or other liabilities borne by the Insurer, whatsoever incurred by the Insurer, which shall become due and payable on receipt of such demand". 15The expression "Indemnifier" was defined to mean each of the appellants. The term "Policy" was defined to mean "any policy or certificate of insurance from time to time issued by Dexta at the request of the Contractor [Avcon]". 16It appears that Avcon subsequently requested insurance coverage for work to a total value of $2,400,000. On 11 December 2002, Dexta quoted Avcon a premium of $20,839 for insurance policies covering work of that value. Avcon duly paid the premium, subject to a minor adjustment resulting from the estimated cost of the project being revised down. 17On 12 December 2002, Dexta issued seven separate certificates of insurance under the HB Act. Each certificate related to one of the seven separate individual lots in the strata scheme for the Property. Each certificate stated that a contract of insurance complying with s 92 of the HB Act had been issued by the Insurer. 18The terms of each of the Policies (that is, the contracts of insurance) were identical and included the following provisions: "1 The Insurer will indemnify the Building Owner for loss or damage in respect of residential building work: 1.1 which results from non-completion of the work because of the insolvency, death or disappearance of the Contractor; 1.2 arising from breach of a statutory warranty and which either the Contractor is unable to rectify, or the Building Owner is unable to recover compensation from the Contractor, because of the insolvency, death or disappearance of, the Contractor. ... 6.1 The aggregate liability of the Insurer shall not exceed Two Hundred Thousand Dollars ($200,000.00) for all claims in respect of a dwelling, or such other amount as may be prescribed from time to time by the Act and the Regulation. ... 6.4 The aggregate liability of the Insurer in respect of a dwelling in a building or complex containing more than one dwelling shall be reduced by an amount calculated by dividing the amount of any claim paid by the Insurer in relation to the common property of the building or complex by the number of dwellings contained in the building or complex." 19The Policy defined "Building Owner" to mean: "the person for whom residential building work is being or is about to be carried out under a contract ... and any person who is a successor in title for the time being of the land or building in respect of which the work was carried out under the contract..." A "claim" was defined to mean "a claim by the Building Owner under this policy", while the term "dwelling" was defined to include common property. 20Avcon proceeded to build seven residential dwellings on the Property. The building of course incorporated common property. Certifiers issued a final occupation certificate on 10 March 2004. 21Avcon sold Lots 1 to 7 of the Property to individual purchasers who became registered as proprietors of their respective lots. Lot 7 was apparently transferred to a subsequent purchaser. 22In August 2007, Avcon was placed in voluntary administration. It subsequently executed a deed of company arrangement. The external administration of Avcon came to an end in September 2008. 23In the meantime, on about 19 November 2007, the Insurer received a claim form from Owners Corporation SP 72145 (Owners Corporation), which had come into existence by reason of the registration of the strata scheme in respect of the Property. The claim form attached a report from a building consultant which detailed defects in the construction of the common property. 24On 15 January 2008, the Insurer received a claim form from each of the proprietors of the seven lots in the strata scheme. Each claim specified defects in the construction of the relevant lot, but included defects in the common property which directly affected the proprietor's enjoyment of the particular lot. 25The Insurer accepted some claims but rejected others. The Owners Corporation commenced proceedings against the Insurer in April 2008 in the Home Building Division of the Consumer, Credit and Tenancy Tribunal. The individual lot proprietors subsequently commenced their own proceedings against the Insurer in the Tribunal. The Tribunal proceedings were subsequently transferred to the Supreme Court Technology and Construction List. 26The Owners Corporation and the lot proprietors pleaded their case in an Amended List Statement, to which the Insurer responded. The parties filed expert reports prepared by building consultants. Ultimately the experts reached a consensus on the defects which had been detailed in the Amended List Statement. 27On 23 December 2009, the Insurer entered into terms of settlement with the Owners Corporation and all lot proprietors in respect of urgent works required to rectify defects in Lot 1 (First Terms of Settlement). In compliance with the First Terms of Settlement, the Insurer paid approximately $102,000 to a builder for repairs to Lot 1. 28On or about 14 January 2010, the parties to the Supreme Court proceedings attended a mediation. This resulted in terms of settlement (Second Terms of Settlement), by which the Insurer agreed to pay the "Owners" $1.1 million in full settlement of their remaining claims. The Second Terms of Settlement defined "Owners" to mean the Owners Corporation and the proprietors of all seven lots. The Insurer duly paid the settlement sum. 29On 4 February 2010, the Insurer issued letters of demand to Mr and Mrs Vitale seeking to recover $1,352,251.82 pursuant to the Deed of Indemnity. The sum claimed included legal costs incurred by the Insurer in defending the legal proceedings instituted by the Owners Corporation and the lot proprietors.

The primary judgment 30The principal ground relied upon by the appellants to defend the Insurer's claim was that the Insurer had engaged in unconscionable conduct within the meaning of ss 51AA and 51AC of the Trade Practices Act 1974 (Cth) or, alternatively, s 12CC of the Australian Securities and Investments Commission Act 2001 (Cth). The primary Judge rejected this defence. 31His Honour quantified the Insurer's claim, including the costs incurred by it in the earlier proceedings and interest, at $1,870,036.85. Accordingly, his Honour entered judgment for the Insurer in that amount and made consequential costs orders.

The appellants' notice of appeal 32The appellants' amended notice of appeal identified five grounds. The first three grounds (Grounds 1, 1A and 1B) challenged the primary Judge's finding that the Insurer had not engaged in any unconscionable conduct. 33The appellants' written submissions briefly referred to these grounds. At the outset of the hearing, however, Mr Allen, who appeared for the appellants, stated that he did not intend to pursue the challenge to the primary Judge's finding that the Insurer had not engaged in unconscionable conduct. Nothing more need be said about it. 34The remaining grounds in the amended notice of appeal were as follows (using the numbering in that document): "(3) The respondent did not discharge the onus of proving the quantum of each claim indemnified under the Deeds of Indemnity, so that it failed to prove its entitlement to an indemnity or an indemnity greater than $200,000. (4) As a matter of construction and law, if there were claims by both an owner of a lot in the strata scheme and the Owners Corporation for the same damage there is one claim and therefore the indemnity provided in the Deeds of Indemnity is limited to $200,000 in respect of damage the subject to a claim by both the Owners Corporation and the lot owners." 35Mr Allen advanced oral argument in support of each of Grounds 3 and 4. In support of Ground 4, Mr Allen contended that an individual proprietor of a lot could not have a claim in respect of rectification work required to the common property because a lot proprietor does not have an insurable interest in the common property, and that therefore any such claim could only be made by the Owners Corporation. But Mr Allen later acknowledged that, having regard to the terms of the Policies, it was open to each of the lot proprietors to make a claim in respect of rectification work required to the common property, as well as a claim in relation to their own lot. Mr Allen subsequently indicated that he did not wish to press Ground 4 in the amended notice of appeal. 36Thus the only remaining ground relied upon by the appellants is Ground 3. Mr Allen accepted that the appellants had not put this argument to the primary Judge, but sought leave to rely on it in this Court.

The Appellants' Submissions 37Mr Allen submitted that the proviso to cl 2 of the Deed of Indemnity ("PROVIDED ALWAYS that the amount of such indemnity shall be no greater than $200,000 per claim") required the Insurer to prove the amount paid in respect of each individual claim. Mr Allen accepted that eight individual claims had been made under the Policies (one by the Owners Corporation and seven by the individual lot owners). But, so he argued, it was incumbent on the Insurer to connect each claim to an amount paid in respect of that claim. This was necessary because the Insurer had to show that it had not paid out any more than $200,000 in respect of any single claim. However, the Insurer had not attempted to do so. 38Mr Allen characterised the Insurer's failure to address this issue at trial as a "forensic decision". However, he also submitted that it may have been an impossible task for the Insurer to segregate the amounts by reference to each of the claims, since the Second Deed of Settlement provided for the payment of a single undifferentiated sum to the Owners Corporation and the proprietors of each of the seven lots. 39Mr Allen did not identify precisely the consequences that would follow if his argument was accepted. The amended notice of appeal seeks orders dismissing the Insurer's claim, but it is difficult to see how the Insurer would not be entitled to a judgment for at least $200,000 even if Mr Allen's argument were to be accepted.

The Insurer's Submissions 40Mr Ashhurst SC, who appeared with Mr Smith for the Insurer, submitted that the appellants should not be permitted to rely on Ground 3 in the amended notice of appeal since the argument had not been put at trial. He contended that the appellants, if they wished to rely on the ground at trial, should have specifically pleaded it in their defence: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 14.14(2)(a) (requiring a defendant to plead specifically any matter which, if not so pleaded, may take the opposite party by surprise). 41Independently of the need to plead the defence, Mr Ashhurst submitted that if the issue had been squarely raised during the course of the trial, the Insurer may have wished to tender evidence to meet the point. The evidence might have addressed the make up of the settlement sums paid by the Insurer pursuant to each of the Deeds of Settlement, and explained how those sums were or could properly have been apportioned or allocated to the eight separate claims made by the Owners Corporation and the lot proprietors. Mr Ashhurst pointed out that the parties to the earlier proceedings had largely reached a consensus as to the nature and extent of the remedial work required to the common property and to the individual lots in consequence of Avcon's breach of the statutory warranties. It was therefore likely - at least possible - that the Insurer could have adduced evidence to meet the argument now advanced by the appellants. 42Mr Ashhurst contended that, in any event, the appellants' argument was misconceived because the onus lay on them to demonstrate that the proviso to cl 2 of the Deed of Indemnity applied to the Insurer's claim. The effect of the first part of cl 2, so Mr Ashhurst argued, was to require the appellants to indemnify the Insurer against its liability under the Policies. The proviso constituted a limitation on the appellants' otherwise unlimited liability. Accordingly, the appellants bore the onus of proving that the Insurer's claim, or portions of it, fell within the limitation: Wallaby Grip Limited v QBE Insurance (Australia) Limited [2010] HCA 9; 240 CLR 444 at [35]-[36] per curiam; Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107 at [251]-[252] (Campbell JA, Barrett JA and Sackville AJA agreeing). Thus, it was for the appellants both to plead and prove that the proviso to cl 2 limited their liability under the Deed of Indemnity. They had done neither. 43Mr Ashhurst submitted in the further alternative that the proviso to cl 2, properly construed, did not apply unless and until the amount paid by the Insurer exceeded a sum equivalent to $200,000 multiplied by the number of valid claims under the Policies. On this construction, the settlement sums paid by the Insurer could not have attracted the proviso since the total was less than $1.6 million (that is, $200,000 multiplied by eight).

Reasoning 44There is considerable force in Mr Ashhurst's contention that the proviso to cl 2 of the Deed of Indemnity imposed a limitation on the indemnity granted by the appellants and that therefore they were obliged to plead and prove that the proviso to cl 2 applied to the Insurer's claim to an indemnity. There is also force in his submission that in any event UCPR r 14.14(2)(a) required the appellants to plead the point specifically. It is, however, not necessary to resolve these questions. 45I accept Mr Ashhurst's submission that if the appellants had raised at the trial the contention embodied in Ground 3 of the amended notice of appeal, the Insurer may well have been able to adduce evidence to meet the point. The total amount paid by the Insurer by way of the settlement sums was just over $1.2 million. There were eight separate claims under the Policies. As I have indicated, it was therefore possible that the Insurer did not pay more than $200,000 in respect of any one claim. Indeed under each of the Policies (cl 6.1), the Insurer's aggregate liability for all claims in respect of a dwelling was not to exceed $200,000 yet it did not seek to limit its liability pursuant to that provision. 46If the appellants had put the argument at trial, the Insurer may have been able to adduce evidence showing that the amount paid in respect of any one claim did not in fact exceed $200,000. For example, there may have been evidence that the defects accepted by the experts were apportioned to each claim and given a value (being less than $200,000) that took into account the respective interest of each of the lot proprietors in the common property (as to that interest see Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 at [10] (French CJ), [152]-[153] (Crennan, Bell and Keane JJ). Alternatively, the Insurer may have wished to adduce evidence quantifying the cost of the rectification work required on each lot and allocating to each claimant an appropriate proportion of the cost of rectification work to the common property. 47It is true that each Deed of Settlement provided for the payment of an undifferentiated sum to the claimants. But that would not necessarily have prevented the Insurer from adducing evidence showing that the cost of the rectification work had been or can be apportioned to each claim and that in no case the amount so apportioned exceeded $200,000. 48For these reasons, the appellants should be refused leave to rely on Ground 3 of the amended notice of appeal. It follows that the appeal must be dismissed. The appellants must pay the Insurer's costs of the appeal.

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: 23 October 2014