The High Court today delivered judgment in the matter of Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788  HCA 38.
The respondent (Delor Vue) is the body corporate for a complex of apartment buildings in far north Queensland which were damaged by Tropical Cyclone Debbie on 28 March 2017. The premises were insured under an Allianz composite policy of insurance issued by Strata Community Insurance (SCI) as Allianz’ agent.
SCI advised Delor Vue that the claim would be honoured, save that the policy would not cover repairs to the defective material and construction of the roof – only resultant damage (email). Allianz engaged experts to advise in relation to the extent of the works and paid $192,472 for temporary repairs, loss of rent, alternative accommodation expenses and engineer’s fees. SCI subsequently clarified the indemnity position by advising that resultant damage was covered but not pre-existing defects. SCI then advised that if the offer was not accepted within 21 days it reserved its rights to reduce the claim to nil relying on non-disclosure and alleged misrepresentation (s 28 of the Insurance Contracts Act) (letter).
Delor Vue commenced proceedings in the Federal Court seeking to hold Allianz to cover under the policy terms. Delor Vue relied upon election, waiver, estoppel and the duty of utmost good faith. The primary Judge, Allsop CJ, found that the email contained a clear representation or promise that cover was confirmed and Allianz was estopped from relying on s28(3) ICA. In addition, Allianz had “waived” the benefit of s28(3) and breached its duty of good faith. Allsop CJ rejected the allegation that Allianz was bound by an election.
The majority of the Full Court found no error in the primary judge’s findings in relation to estoppel, waiver and good faith, but also found that Delor Vue was entitled to succeed on election (Allianz Australia Insurance Limited v Delor Vue Apartments  FCAFC 121).
High Court Appeal
There were 4 grounds of appeal, being election, waiver, estoppel and good faith.
The issues for determination were:
- Whether the doctrine of election can prevent an insurer from changing positions in relation to the application of s28(3) of the ICA to a claim.
- Whether Allianz had waived its right to rely upon s28(3) of the ICA.
- Whether Delor Vue established reliance on the promise, that it materially changed its position as a result of the reliance and would suffer a material detriment as a result of a change in position.
- Whether Allianz breached its duty of utmost good faith in reversing its indemnity position.
High Court majority decision
The High Court (Kiefel CJ, Edelman J, Steward J and Gleeson J; Gageler J dissenting), allowed the appeal on all four grounds of appeal. The majority concluded:
- The waiver of the 28(3) ICA defence recorded in the email was revoked by the letter. The revocation was found to be permissible as, in the law of contract there are limited exceptional circumstances in which a gratuitous waiver of rights is irrevocable – none of which were present in these proceedings.
- The waiver of the s 28(3) ICA defence did not involve an election between alternative and inconsistent sets of rights, such as to give rise to an irrevocable “election by affirmation”.
- Delor Vue did not establish that it had suffered any detriment in reliance on Allianz’s representation such that Allianz was estopped from revoking its waiver.
- There is no free-standing obligation upon an insurer, independent of its contractual obligations, to act in a manner which is decent and fair and, therefore, there was no basis to find that Allianz breached its duty of utmost good faith.
Justice Gageler would have dismissed the appeal on the basis that irrevocable election was established, Allianz had waived the right to rely upon s 28(3), Allianz was estopped from departing from the position communicated in the email, and the statutorily implied contractual requirement that Allianz act towards Delor Vue with the utmost good faith entailed that Allianz was from then on bound to adhere to the position it had announced.
Insurers generally will be heartened by the decision on all four grounds. However, the finding by the majority that the duty of good faith does not require insurers to act in a manner consistent with commercial standards of decency and fairness, and there is no duty not to resile from a previous representation, may come as a surprise to many.
This article is intended to provide a general summary only and does not purport to be comprehensive. It is not, and not intended to be, legal advice.
© YPOL Pty Limited