Locking the Insurer In

Introduction


While making good any claim for indemnity, an insured may secure from the insurer a position which is beneficial to that insured. But if the insurer seeks to resile from that position, how can the insured respond?


The answer is not always straightforward but finds its foundation in legal principles which may prevent the insurer from resiling, may punish the insurer for resiling or both


I have written about the decision of the Federal Court of Australia in Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2)[1]. The Full Federal Court of Australia has (by a majority) upheld that decision. The judgments of both Courts present an insightful examination of these principles.


The Principles


This note concerns the principles which may prevent the insurer from resiling. Those principles are: -

  • Election

  • Estoppel

  • Waiver

In broad terms, underpinning these principles is a notion that the insurer having acted deliberately, cannot undo that deliberate action. But a note of warning[2]: -


'Any discussion of the principles governing the circumstances in which a party's words or conduct may preclude [that party] from exercising a legal right which [it] possesses is beset with difficulties. They have their origin in the differences to be found in the various doctrines (election, waiver and estoppel) which may come into operation and in the differing concepts which each doctrine has at times been thought to embrace.'


The Decision


Background


In late March 2017, Cyclone Debbie inflicted significant damage along the north Queensland Coast.


At the time the insured held an insurance policy with Allianz. It submitted a claim for indemnity in respect of losses suffered in the cyclone.


On 9 May 2017, Allianz granted the insured indemnity in respect of its losses, to be adjusted. Allianz wrote to the insured in the following terms: -

‘Despite the non-disclosure issue (known defects) which is present, Strata Community Insurance[3] (SCI) is pleased to confirm that we will honour the claim and provide indemnity to the Body Corporate, in line with all other relevant policy terms, conditions and

exclusions.’


Some twelve months later, after working with the insured to adjust the value of the claim, Allianz resiled from its decision to grant indemnity and offered to settle the matter with the insured on a ‘take-it-or-leave-it’ basis.


The insured brought proceedings against Allianz seeking to hold it to its decision to grant indemnity. The Federal Court found for the insured. The majority of the Full Federal Court agreed.

Election


The common law doctrine of election is concerned with the circumstances in which a party is required by law to make a binding choice.


In the context of insurance, if an insurer has a right to deny indemnity but rather than doing so, it makes an informed decision to exercise its rights under the policy, it is making an election. An insurer may defer its election pending further investigations but once those investigations are complete, the insurer must as a matter of law make its election.


The majority of the Court was satisfied that in May 2017, the law had imposed upon Allianz an obligation to elect between denying the Insured indemnity or not and, if the latter, exercising its rights under the policy in a manner consistent with that decision.


Having elected the latter, Allianz could not reverse that election.


Estoppel


The key to estoppel is a representation upon which the insured relies to its material detriment.


In May 2017, Allianz stated how the insured’s claim for indemnity was to be resolved. As such Allianz made a representation. That representation established a relationship between the parties which enabled Allianz to exercise its entitlements and observe its obligations under the policy.


The relationship lasted for more that twelve months and in that time the insured suffered real detriment which the trial judge expressed in the following terms: -


'The arguments of the parties descended to aspects of prejudice in specific respects such as the speed of the works. But the prejudice here was not specific, nevertheless it was real. It involved the passage of 12 months in which (the insured) could have taken its own fate in its own hands and acted for itself in rectifying the property to the extent it was financially able to do so and in suing the insurer. How that all would have played out is impossible to tell. It is impossible because the parties conducted themselves on an entirely different basis. Allianz gained the benefit of assessing its own position by full access to the property and the full co-operation of (the Insured), being circumstances that arose because of the continuing relationship in adjusting the claim under the policy.’


Allianz resiled from the represented position without explanation.

The majority of the Full Court agreed with the trial judge that in light of the representation and its consequences particularly its detriment to the insured, it would be unjust, inequitable and unconscionable to permit Allianz to resile from its stated position in the May 2017 Email and it should be held to its stated position.

Waiver


The line between the principles of election and waiver is a very fine one to the point of being elusive. The trial judge observed the following: -


'The discussion by Isaacs J, in delivering the reasons of the Court[4] (Knox CJ, Isaac and Starke JJ), emphasised at 326 the intentionality of the distinct act, done with full knowledge, the intention being to treat the relationship as if the condition had not occurred, to prevent two inconsistent positions being taken: approbating to get some advantage to which he would not otherwise be entitled, and later reprobating by the inconsistent position.'


While the majority of the Full Federal Court preferred to see the passage quoted more in terms of ‘election’ than ‘waiver’, the majority accepted that if it was in error in its conclusion about ‘election’, Allianz waived its rights when it issued its May Email and could not resile from that waiver.


Key Points


This may be a case worthy of consideration by the High Court of Australia. Even so, for the time being, it provides a powerful example of how in the right situation, an insurer who takes a position favourable to the insured, can be prevented from resiling from it.


These principles are underdeveloped principles in Australian law let alone Australian insurance law. Yet, at least from an insured’s perspective they can work. But to my mind the duty of utmost good faith is working in the background. I will look at that in my second note on this case.


The name of the case is Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121 (9 July 2021). You can find it here.


If you have any queries, please reach out.


________________________

[1] Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588; [2] Sargent v ASL Developments Limited (1974) 131 CLR 634 at 655 [3] An Allianz backed underwriting agency [4] Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305

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