Welcome to our General Insurance Insights newsletter, bringing you the latest case notes on key judgments from March and April 2024 affecting general insurers in Australia.
Sayers Property Holdings Pty Ltd & Anor v AIG Australia Ltd [2024] VSC 139
The first plaintiff operated a hospitality and gaming business at a property it leased from another party (the lessor). In 2010, the first plaintiff entered into a 10-year agreement to lease with an option to purchase the property for a fixed sum. Approximately halfway through the term of the lease, the first plaintiff notified the lessor of its desire to exercise the option. The lessor denied that request.
In 2017, the first plaintiff issued proceedings against the lessor seeking specific performance in relation to the sale of the property. The lessor, by way of defence and counterclaim against the first plaintiff and one of its directors, the second plaintiff, sought to set aside or avoid the agreement and, in the alternative, an order for equitable compensation. The plaintiffs notified its management liability insurer, the defendant, of the lessor’s counterclaim.
The proceeding as between the plaintiffs and the lessor resolved in 2019, with the plaintiffs paying a higher price than previously agreed to purchase the property. The plaintiffs then sought to claim the difference between the purchase price under its policy with the defendant. When the defendant challenged the basis for that claim and otherwise reserved its position, the plaintiffs issued proceedings against the defendant alleging breach of the policy.
At trial, the Court’s focus was on the insuring clause of the policy. It stipulated that the defendant “shall pay the Loss of any Company arising from Corporate Liability”, with “Loss” defined as any amount the plaintiffs were legally liable to pay, including settlements, “resulting from a Claim“.
In examining the meaning of “resulting from“, the Court found that there was insufficient causal connection between the settlement amount (being the difference between the purchase prices) and the lessor’s claim for equitable compensation, being the only relief that could be considered a “Loss” under the policy. Further, it found that the settlement amount was part of a global or “all in” settlement that was multi-faceted, conferred a variety of commercial and legal benefits on the parties and was not capable of being disaggregated to apportion some part of the amount to the claim for equitable compensation.
Accordingly, the proceeding against the defendant was dismissed.
Click here to view the full case.
Raymond v Lewis [2024] QCA 43
The appellant, a builder, constructed a multi-storey house in 2005 and 2006 on a property located in Paddington, Queensland. Upon completion, the property was sold to the vendor. In 2017, the vendor sold the property to the respondent, who, shortly thereafter, identified a series of defects associated with the subfloor, driveway and garage.
The respondent commenced proceedings against the appellant claiming damages, in negligence, for pure economic loss. The appellant appealed on the basis that the trial judge had erred in finding that the appellant owed the respondent a duty of care.
The Court of Appeal confirmed that Bryan v Maloney remains the principal authority for determining whether a duty of care is owed by a builder to a subsequent purchaser in cases involving original construction defects. However, it noted that, in light of the subsequent decisions of Woolcock Street Investments Pty Ltd v CDG Pty Ltd and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288, for that type of duty of care to exist there must be relevant vulnerability on the part of the purchaser at the time they acquire the property. Specifically, there must be inability to protect themself from loss sustained as a result of any construction-related defects.
In this case, the Court of Appeal found that the relevant vulnerability did not exist, because the defects were discoverable and could have been identified by an expert engaged by the respondent. However, she failed to make those arrangements and instead relied on previous reports obtained by the vendor. In other words, the respondent had failed to the take reasonable steps available to protect herself against any economic loss stemming from her purchase of the property.
On that basis, the Court of Appeal found that the appellant did not owe the respondent the relevant duty of care and allowed the appeal.
Click here to view the full case.
Marmara v Kmart Australia Limited [2024] NSWDC 89
The plaintiff was shopping at the defendant’s store when two mountain bikes, balanced on top of another customer’s trolley, fell on her from behind. At the time, the plaintiff was in the checkout section of the store, when the other customer, who was standing in a nearby queue, let go of his trolley whilst he was trying to manoeuvre the bikes through a self-service checkout.
The plaintiff brought a claim in negligence against the defendant. The plaintiff’s main allegation was that the defendant had failed to identify the risks posed to customers associated with transporting mountain bikes within the store and otherwise implement an appropriate system to supervise or assist customers in doing so.
In dealing with those allegations, the Court considered scope and content of the duty of care owed by the defendant pursuant to s5B of the Civil Liability Act 2002, in particular the foreseeability and significance of the relevant risk of harm and the steps taken by the defendant to alleviate that risk.
The Court found that the defendant had breached its duty of care. In doing so, it rejected the defendant’s argument that the risk that a customer might overload a trolley with bulky items which might fall and injure someone else was “relatively insignificant“. That finding was made with regard to the number of customers that normally passed through the self-checkout area and the fact that customers did not have the benefit of the expertise of a cashier in helping them handle and scan their goods. The Court also pointed out that the defendant had accepted that it was aware of the need for there to be a system to assist customers with bulky and/or heavy items by developing its system. The problem was it was not properly implemented. There was insufficient training provided to staff and those who had received training were permitted to disregard the system. There were also no signs telling customers the relevant service was available.
In assessing the reasonableness of the defendant’s system, the Court had regard to different systems that could have been used, such as flat-bed trolleys and not permitting customers to move large items without the assistance of a staff member.
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Coulter v Bush; Coulter v Domain Residential Northern Beaches Pty Ltd [2024] NSWSC 267
The plaintiffs were tenants of a residential property owned by the first defendant. The second defendant was a real estate agency that was retained by the first defendant to sell the property. In preparation for an open house, an agent employed by the second defendant put away some of the plaintiffs’ belongings, being mostly damp bedding. That bedding was placed on shelving in close proximity to a light fitting. A fire broke out shortly afterwards and burned down the property.
The plaintiffs brought a claim against the first and second defendants for loss of their contents as a result of the fire. The first defendant, by crossclaim against the second defendant, claimed damages for property restoration costs.
After hearing expert evidence called by defendants, the Court held that, on balance, the actions of the second defendant’s employee were the most likely cause of the fire, noting that there were no other probable causes of ignition.
The Court went on to find the second defendant legally liable to both the plaintiff and the first defendant on the basis that the risk of a fire caused by putting or throwing bedding against a burning light was “obvious” and, therefore, foreseeable, and a reasonable person in the employee’s position would not have created that risk or would have taken precautions against any harm materialising. The Court otherwise dismissed the claims against the first defendant as it could not possibly or remotely have conceived that the second defendant’s employee would do what she did.
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Commens t/as Subsonic Music v Certain Lloyd’s Underwriters subscribing to Policy No ALTCNX1900332 [2024] FCA 434
The applicant operated a music festival in Riverwood Downs in regional NSW. The 2019 edition of the festival was cancelled and the applicant sought cover in relation to associated losses under an event cancellation policy issued by the respondent.
By way of a preliminary determination, the Court was required to consider three questions:
- Was the cancellation of the festival necessary, and the sole and direct result of a cause not excluded under the policy and beyond the control of the applicant?
- If not, did s54 of the Insurance Contracts Act 1984 prevent the respondent from refusing to pay the claim?
- Was the respondent liable to reimburse the applicant for the net loss resulting from the cancellation of the festival?
The Court answered “no” to each of those questions.
In relation to the first question, the applicant argued that the festival was cancelled because of bushfires in the region or, alternatively, extreme drought conditions. The Court rejected those arguments and attributed the cancellation to the applicant’s efforts to increase the capacity of the festival and consequent conditions that were imposed by the local council (shortly before the event took place), which the applicant failed to comply with. On that basis, the Court found that there was not a “necessary cancellation” of the festival to trigger the insuring clause and that the exclusions relating to the insured’s failure to “make all necessary arrangements for the successful fulfillment of the event” and to “ensure that… all necessary authorisations” are obtained, and for losses arising out of the withdrawal of support by the owners of the property, each applied.
The Court, in turn, found that the applicant was unable to rely upon s54 of the Insurance Contracts Act 1984, because his own acts and omissions had caused or contributed to the festival’s cancellation.
For those reasons, the Court found that the respondent was not liable to indemnify the applicant in relation to his losses.
Click here to view the full case.
This newsletter was written by Ashley Harding, Partner, Theodore Heretakis, Associate, and Madeleine Dashiell, Law Graduate.
