Globe Church Incorporated v Allianz Australia Insurance Ltd [2019] NSWCA 27 – the date of accrual of a cause of action under an insurance policy

In Globe Church Incorporated v Allianz Australia Insurance Ltd [2019] NSWCA 27, the New South Wales Court of Appeal construed an Industrial Special Risks Insurance Policy to determine when the cause of action for breach of contract had accrued.  Globe Church, the insured, had suffered property damage due to rainwater and flooding from 8 June 2007. The damage continued over successive policy periods. 
 
The Facts
 
Under the Insuring Clause, the Insurers had agreed to ‘indemnify the Insured against Damage occurring to Property Insured during the Period of Insurance.’
 
The Insurers said that the cause of action for breach of contract for failure to indemnify the Insured for the property damage was complete on the occurrence of the insured event, being the property damage.  
 
The Insured argued that the cause of action for breach of contract was only complete after a reasonable period had elapsed from the insured event. The reasonable period was the period that it would take the Insurers to investigate and assess the putative claim lodged on the occurrence of the insured event. The Insured said that there is a distinction between the promise of an insurer to indemnify and the breach of that promise. It is only when the insurer fails to do what is required of it that a cause of action for damages for breach of contract accrues. The insured argued that the law implies a term into the Policy that the Insurer has a reasonable time to perform its promises. 
 
The Court of Appeal by majority found for the Insurers. The fundamental basis of the finding was old English authority that a cause of action under indemnity insurance accrues upon the happening of the insured event. 
 
The majority said that ‘[a]bsent a provision in an indemnity insurance policy that makes lodgement of a claim a condition precedent to liability, the concept of a promise to indemnify (to make good the loss or to hold harmless against loss) in the context of a property damage insurance policy is such that the promise is enlivened when the property damage is suffered.’[1]  The majority did not accept that there was an implied term requiring the performance of the obligation to investigate and assess a claim within a reasonable time.[2]  This conclusion must be correct.  It is difficult to see why such a term would be implied either in fact or in law, in light of the insurer’s obligation of utmost good faith and implied duty to co-operate.
 
Conclusion
 
It is intuitively difficult to see how an Insurer can be in breach of the Policy before it has had a chance to review, assess and determine its liability under the Policy and assess the amount properly payable under the Policy.  However, the judgment of the majority is constructed upon the foundation of the English authorities that a cause of action under an indemnity policy accrues upon the happening of the insured event. The approach is consistent with the principle that causes of action for breach of contract arise upon breach regardless of whether or not the damages are quantifiable then. 
 
There has been much criticism of the principle that a cause of action under an indemnity policy accrues upon the happening of the insured event.  It would be ideal if the High Court has the opportunity to determine whether this principle should be applied in Australia.
 
Laina Chan

[1][2019] NSWCA 27 at [209] and [213].

[2][2019] NSWCA 27 at [213]

Congratulations to 9 MTECC members recognised in Doyles Guide 2019

The following MTECC members have been recognised in Doyles Guide 2019:

In the ‘Leading’ category for senior counsel in Victoria:

• Hugh Foxcroft QC (and ‘Recommended’ Australia-wide)
• Richard Manly QC
• Francis Tiernan QC
• Michael Whitten QC (and ‘Recommended’ Australia-wide)

In the ‘Recommended’ category for senior counsel in Victoria:

• David Levin QC
• Tim Margetts QC
• Martin Scott QC

In the ‘Leading’ category for junior counsel in Victoria:

• Andrew Downie

In the ‘Recommended’ category for junior counsel in Victoria: 

• Roman Rozenberg

Congratulations to the above MTECC members for the recognition.
 

MTECC member book

MTECC member Laina Chan has published a book with John Carter titled ‘Contract and the Australian Consumer Law’. Details of the book are here.
 

MTECC member article

MTECC member Laina Chan has published an article in BCL, cited as Insuring Risk in Construction Projects (2018) 34 BCL 378. A summary of the article follows:
 

Construction projects are inherently risky in terms of cost, time and quality. Part of the risk is managed by insurance. The article identifies the types of insurance that are typically available on construction projects and focuses upon Contractors All Risks Insurance and Professional Indemnity Insurance only. Both are forms of liability policies. Some of the key issues that can arise in considering the scope of coverage and indemnity under each type of policy are highlighted and discussed.