Insured or Assignee – Court of Appeal highlights the importance of triggers in the insuring clause

Meeting the definition of 'Insured' under a policy of insurance or being assigned the right of an Insured to claim under a Policy does not give rise to an entitlement to indemnity especially where the Insured or assignee fails to establish that the insuring clause is triggered.

 

Judgment date: 12 April 2019
Citation: Delta v Mechanical and Construction Insurance Pty Ltd [2019] QCA 62
Jurisdiction: Supreme Court of Queensland – Court of Appeal

Background

In May 2006, Delta was contracted to undertake excavation works in preparation for the construction of a high rise building in Brisbane. Delta entered into a subcontract with Team Rock Anchors (TRA) whereby TRA would install anchors to secure retaining walls within the excavation. TRA failed to correctly install the anchors which resulted in one of the retaining walls moving. After attempting to re-install the anchors, Delta was eventually required to backfill the entire excavation and start the excavation process again in order to avoid damage occurring to the remainder of the property.

In 2012, Delta sued TRA for damages for breach of contract. TRA issued a cross-claim against its insurer, Mechanical and Construction Insurance Pty Ltd (MECON) seeking indemnity in relation to Delta's claim. MECON denied TRA's claim and the cross-claim against MECON was eventually dismissed. The claim between Delta and TRA was settled in May 2016 by way of a settlement deed where TRA agreed to pay Delta $2,581,179.18 and TRA assigned its rights under the MECON Policy to Delta.

In 2017, Delta sued MECON claiming it was entitled to indemnity as an Insured under the MECON Policy and also as an assignee of TRA's rights under the Policy pursuant to the settlement deed. In 2018, the Supreme Court of Queensland held that Delta was not entitled to indemnity under the MECON Policy either as an insured or an assignee.

On 12 April 2019, the Court of Appeal dismissed Delta's appeal.

Questions on Appeal

The questions decided on appeal were:
  1. Whether a claim by Delta as assignee of TRA’s claimed right to an indemnity of the settlement amount under the settlement deed of $2,581,179.18 could be established.
  2. In the alternative, whether Delta was an 'Insured' under the MECON Policy and was therefore entitled to indemnity in respect of costs incurred in undertaking temporary protective repairs, in an amount of $1,478,000.
There was no dispute that TRA had properly assigned it's claimed right to indemnity under the MECON Policy. Therefore, Delta needed to establish that TRA was entitled to indemnity under the MECON Policy.

An extract from the relevant insuring clause is set out below:

"In accordance with the terms, exclusions and conditions of the Policy MECON will provide indemnity for all amounts which you become legally liable to pay in compensation of Property Loss that happens … as a result of an Occurrence which arises in connection with your Business.

With MECON’s prior written permission…MECON will also pay:

…. costs incurred by you for temporary protective repairs undertaken to prevent any immediate threat of Property Loss or Personal Injury."

Decision

Delta as 'assignee'

The Court of Appeal held that indemnity was not available to Delta as assignee of TRA's rights to a claim under the Policy as it could not establish that TRA was entitled to indemnity as the insuring clause was not triggered and pursuant to the application of an exclusion. It noted that:

  • TRA was unconditionally liable to Delta for the settlement amount pursuant to the settlement deed so that Delta was 'legally liable' to pay compensation.
  • TRA had not suffered 'Property Loss' as a result of an 'Occurrence' as the loss incurred in preventing the movement of the retaining wall could only be construed as 'expected' Property Loss which was a result of TRA’s breach of contract which was not alleged to be an 'Occurrence'.
  • As Delta did not plead a 'loss of use' case in the Supreme Court, it could not construe such loss as 'Property Loss' within the meaning of the Policy.
  • In the event that the insuring clause was triggered, MECON was entitled to deny the claim based on an exclusion for damage caused as a result of excavation below 10 metres, pursuant to section 54(2) of the Insurance Contracts Act 1984.

Delta as an 'Insured' principal

The Court of Appeal held that Delta was not entitled to indemnity in respect of temporary repairs.  In doing so, the Court of Appeal provided the following reasons:

  • While there was some ambiguity in the description of 'Insured' in the schedule of cover, the MECON Policy should be given a 'business-like' interpretation and consideration should be given to its commercial construction rather than construing the ambiguity in favour of the Insured.1
  • Cover in respect of costs of prevention of “any immediate threat of Property Loss or Personal Injury' could only apply where an Insured could become legally liable for such costs but even if this was not the case, such cover does not extend to a principal's liability based on the definitions within the MECON Policy.
  • The costs incurred by Delta in respect of temporary repairs could not be characterized as a liability in any event.
  • Delta's claim was time-barred on the basis that Delta incurred the costs of temporary repairs more than 6 years before it made the claim. In reaching this particular conclusion, the Court of Appeal also followed a recent decision of the NSW Court of Appeal where McCabe Curwood acted for the second defendant insurer.2

Key Principles

This decision serves as a reminder of the following key principles:

  • The onus remains with the Insured to establish that indemnity is available under a policy of insurance by establishing that the circumstances of the incident and the loss fall within the insuring clause.
  • Consideration of whether damage falls within the insuring clause requires detailed reflection on the party claiming the loss and the type of damage sought to be covered and if one element of the insuring clause cannot be met, then cover is not available.
  • When an Insured settles a claim directly or assigns its right to indemnity under a policy, it is important to consider the terms of any settlement agreement or assignment as those terms are likely to have an effect on whether cover is in fact available.


1 contra proferentem

2 Globe Church Incorporated v Allianz Australia Insurance Limited & Anor [2019] NSWCA 27

Contributors

Isabel Cusumano Associate