NSWCA re-examines hailstorm damage dispute, deductibles and interest
- Published 21.10.2021
The NSWCA recently ruled in favour of Allianz on an appeal on the application of multiple policy deductibles arising from hailstorm damage to 122 project homes in Kellyville and Rouse Hill NSW.
In the original decision the trial judge held that only one deductible of $10,000 was payable by the insured for the claim for 122 damaged roofs and that interest ran from the time Allianz was, from an objective view, reasonably able to make a determination on the claim to be accepted for $1,400,678.
On appeal, the NSWCA held that a deductible was applicable for each of the 122 damaged roofs, reducing Rawson’s claim to $266,671 plus interest, and maintained the primary judge’s findings on the time interest under s57 of the Insurance Contracts Act 1984 (Cth) (the ICA) ran from.
On 18 February 2017, a severe hailstorm caused damage to the roofs of 122 residential project houses being constructed by Rawson Homes in Kellyville and Rouse Hill NSW.
Rawson submitted a claim under an Allianz annual building works policy for the hail damage and various issues arose during the claim, including:
- whether settlement was to be made on a repair or replacement basis;
- whether there was only one applicable deductible for the claim or 122 deductibles, one for each damaged roof; and
- the date from which it became unreasonable for Allianz to withhold payment on the claim, being the date from which interest became payable.
At first instance
The first instance judgment dealt with two issues of wider significance to insurers.
The first was whether one deductible or 122 deductibles were payable for the one storm event.
Allianz argued that Rawson had brought a claim for each damaged house within the housing developments and that a $10,000 deductible applied for each house.
The trial judge found that only one deductible of $10,000 was applicable and considered that:
- the hailstorm that gave rise to Rawson’s claim was a single event;
- the hailstorm could not be broken up into different storms for each damaged roof; and
- this view conformed to ‘common sense’ and the ordinary and natural meaning of the undefined word ‘event’ used in the definition of ‘Deductible’ in the policy.
The second major issue was the date from which interest under s57 of the ICA should run.
Section 57 of the ICA affords an insurer a reasonable period to investigate a claim and determine its position based on each claim’s circumstances. The trial judge noted that this was an objective assessment and that the actions taken by Allianz, whether based on reliable or accurate information or not, were not to be taken into account in determining what an objectively reasonable period of time to investigate this claim would be.
In assessing this period, the trial judge noted:
the steps and time taken to instruct a loss assessor, have a third party inspect and report on the damage, consider the First Report and the costing information received from Rawson Homes, seek further information if needed and then come to a decision, is relevant to assessing what was an objectively reasonable time for Allianz to investigate the issues and the date beyond which it was unreasonable for Allianz to continue to resist withholding payment
The trial judge considered the date upon which it became unreasonable for Allianz to have withheld payment on the information before it to be the time taken to complete the above steps, being a period of thirteen months from the hailstorm.
Relying on expert evidence obtained by aerial drone imagery of the 122 roofs, Allianz contended that it was reasonable for it to have delayed payment of the claim on the basis that the roofs were capable of repair rather than replacement.
The trial judge was not persuaded by this argument, reiterating that the standard of assessment of a reasonable time is an objective one. In doing so, her Honour referred to HIH Casualty & General Insurance v Insurance Australia Ltd (VSC 2006) at :
To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder’s claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.
Interest was awarded on Rawson’s claim for $1,400,678 following the period of thirteen months allowed for reasonable assessment after the hailstorm.
Allianz appealed on the issue of whether a $10,000 deductible was applicable only once or to each building contract for the 122 project homes, but not on the issue of when interest ran from.
The appeal judges unanimously overturned the original decision, finding that on the proper construction of the building works policy a separate policy had essentially been issued for each building contract for each project home.
The appeal judges agreed with the trial judge’s reasoning that the hail storm was a single event, but disagreed with her Honour’s ruling that the policy definition of deductible was ambiguous.
The appeal judges affirmed that the starting point for construction of the policy was not the definition of a deductible but the insuring clause as it triggers cover. Justice White relevantly noted:
 As Allianz submits, the starting point for the construction of the policy should not be the clause headed “Application of Deductible”, but the insuring clause. The insuring clause provided for cover for “Contract Works against an Indemnifiable Event”. That cover was provided in respect of works described in an Insured Contract and the indemnity was provided in accordance with the Basis of Settlement which in turn provided cover to the extent that losses were included in the Sum Insured. The Sum Insured was the amount specified in the Schedule for any one loss or series of losses arising out of one event covered by the policy for any one Insured Contract after deduction of the relevant Deductible.
The natural and ordinary meaning of the words of the policy are that Allianz insured Rawson Homes against loss or damage in respect of each Individual Contract up to the limit of the Sum Insured subject to a relevant or applicable Deductible. The Schedule to the policy shows that each event that would give rise to a claim would also trigger the relevant Deductible.
 There is no ambiguity to be resolved in favour of the insured.
Hailstorm claims are a common occurrence in Australia and often bring about disputes over settlement on a cost to repair versus cost to replace basis.
Where multiple properties are insured under a single policy, damage to these properties from a hailstorm will likely be considered to be one event, however, whether one or multiple deductibles apply should always be considered from the starting point of the wording of the insuring clause and what the parties have agreed in the schedule. In certain claim events and policies, a deductible can be found to apply to each separate insured building or subject matter where damage resulted from one underlying event.
When dealing with a hail claim that is likely to end up in a dispute it is important to consider what a reasonable period of time to finalise the claim would be. While an insurer can and should rely on the advice it receives regarding policy coverage or basis of settlement, it must be remembered that ultimately an incorrect assessment or the wrong advice are not grounds for delaying any claim settlement. This decision remains a reminder of the potential for costly interest payments to be added to an insured’s entitlement if an insurer does not proceed reasonably – and reasonably quickly – with a claim.