High Court overturns cyclone indemnity decision

By Resolve Editor Kate Tilley

The High Court, in a 4:1 majority decision, has found an insurer is entitled to deny indemnity, despite telling a client it would indemnify them.

The case has been previously reported in Resolve with the initial Federal Court decision in the September 2020 issue and the Full Court of the Federal Court decision in December 2021.

The Full Court had rejected Allianz’s appeal against a decision it had exhibited “less than the utmost good faith” in a dispute with the body corporate of a Queensland apartment complex that was badly damaged by Cyclone Debbie in 2017.

Full Court Justices Neil McKerracher and Craig Colvin reject the appeal, while Justice Roger Derrington would have allowed it.

The Delor Vue complex at Cannonvale, near Airlie Beach, was built in 2008-2009 by developer Delorain Pty Ltd and builder Beachside Constructions (National) Pty Ltd. It has 11 multistorey residential apartment buildings with 62 lots.

Cyclone Debbie hits

The policy placed with Allianz-owned underwriting agency Strata Community Insurance (SCI) was incepted on 23 March 2017. Tropical Cyclone Debbie hit on 28 March 2017, tearing roofs from several buildings in the complex and causing serious damage to others.

The cyclone damage identified other problems with the buildings and a dispute arose between the insurer and the body corporate about what would be covered.

At trial, the body corporate argued the insurer was bound by a gratuitous representation that it would grant indemnity because the insurer:

1. had irrevocably elected not to exercise its power to rely on the defence arising from nondisclosure
2. had waived its right to rely on the defence arising from nondisclosure
3. was estopped from resiling from its representation that it would grant indemnity, and
4. had failed to act with the utmost good faith.

Federal Court Chief Justice Allsop upheld the body corporate’s claims on (ii), (iii) and (iv). The Full Court majority dismissed an appeal, finding all four claims by the body corporate were established.

In the High Court, the majority of Chief Justice Susan Kiefel and Justices James Edelman, Simon Steward and Jacqueline Gleeson allowed the appeal. They said: “In the law of contract there are limited circumstances in which a gratuitous waiver of rights becomes irrevocable.

“In this case, where the body corporate did not establish that it had suffered any detriment in reliance on the insurer’s representation, none of those limited circumstances is present.

Majority judgement

“And the insurer did not breach its duty of utmost good faith when, acting lawfully and honestly, it clarified the extent of its offer of indemnity, but required that offer to be accepted for it to waive the defence based on nondisclosure.” 

The majority judgement said Delor Vue knew the apartment buildings had serious non‑structural defects, which were not disclosed to Allianz before its entry into the policy.

Delor Vue had always sought to rely on a 9 May 2017 email from SCI said, in part: “Despite the non-disclosure issue, [SCI] is pleased to confirm that we will honour the claim and provide indemnity to [Delor Vue], in line with all other relevant policy terms, conditions and exclusions.”

The parties had ongoing, lengthy arguments about roof repairs required first to ensure the buildings were watertight before internal repairs could start. The High Court majority said the terms of the 9 May 2017 email were unclear on whether Allianz considered it necessary for Delor Vue and Allianz to reach agreement about which roof repairs each party would pay for before those repairs were done.

The High Court majority said dissenting Appeal Court Justice Derrington was correct in saying Allianz was not precluded from revoking its promise by any doctrine of election, waiver, or estoppel and Allianz had not failed to act with the utmost good faith in revoking the waiver of its right to rely on the defence under s28(3) of the Insurance Contracts Act.

In his dissenting judgement, High Court Justice Stephen Gageler agreed with Chief Justice Allsop and Full Court Justices McKerracher and Colvin. He said: “Allianz’s approach to assessing the injustice arising from its change of position is too granular and takes insufficient account of the temporal dimension of Delor Vue’s reliance on the position SCI had represented.”

‘Capricious’ decision

Justice Gageler said Allianz was “not entitled to go back on its word. It was not entitled to blow hot and cold.

“Even if Allianz were not … bound by the implied contractual requirement of utmost good faith never to depart from the position announced in the email of 9 May 2017, the fact that a year then passed, during which Delor Vue relied on the announcement to its detriment and during which SCI, as agent for Allianz, went on to adjust the claim in accordance with the terms of the contract of insurance, is sufficient to render Allianz’s reassertion of the statutory right on and from 28 May 2018 unreasonable, indeed capricious.”

Allianz Australia Insurance v Delor Vue Apartments CTS 39788 [2022] HCA 38

Hall & Wilcox commentary

Barry.Nilsson.Lawyers commentary

Moray & Agnew commentary