’Twas the night before Christmas when an insurer denied liability, stating the insured had not provided sufficient information to support the claim.  Two and a half years and a sleigh ride through the Courts later, the insurer is ordered to pay the claim as well as an unwanted Christmas extra: penalty interest.

That bah humbug outcome could have been avoided if the insurer had taken a single step…

Damage and Delay in the Workshop

Cape Byron Power I Pty Limited and Cape Byron Power II Pty Limited (the Plaintiffs) commissioned construction and engineering works at two sugar refineries.  Included in this work was the implementation of a boiler with a steam turbine generator.

The Plaintiffs held two policies with its insurer, one of which was a debt servicing standing charges insurance policy (the Policy).  Under the Policy, the insurer agreed to pay the amount of the debt servicing standing charges during a period of Delay caused by damage to the works.  

The generator was damaged.  After its repair, rectification was required for other elements of the works.  Practical completion was delayed.  Mrs Claus would not have been impressed.

The Plaintiffs claimed under the Policy, citing a delay of 96 days caused by damage to the generator.

Coal in the Insurer’s Stocking

As Santa needs his elves, the insurer enlisted the help of an expert to investigate the Plaintiffs’ claim. The expert’s report commented that the Plaintiffs had not provided any documentation to show the works would have been completed any earlier in the absence of the delay associated with the generator. The insurer rejected the claim.  

The Plaintiffs led additional evidence at trial. The Court found in favour of the Plaintiffs and turned its attention to interest.

Counting Down the Days

Section 57 of the Insurance Contracts Act 1984 (Cth) requires an insurer to pay interest on an amount payable in relation to a contract of insurance commencing the day from which it was unreasonable for the insurer to have withheld payment.

The Court held that the time from which it was unreasonable for the insurer to have withheld payment was the day it rejected the claim, several Christmases ago. The Court reasoned that in taking a position that insufficient evidence was provided, the insurer was entitled to ask for further information if it wished. Had it done so and the Plaintiffs had commenced proceedings without providing that information, then the insurer’s conduct might have been reasonable.

In fact, asking for additional information may have reduced the period for which penalty interest was payable. An example of that may be found in a more recent case (Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 10) [2018] NSWSC 37), where the insurer’s obligation to pay penalty interest only started to run after a reasonable time had elapsed from the provision of information it had requested from the insured.

All the Trimmings for the Insured

In finding for the Plaintiffs on both quantum and interest, the Court considered itself bound by the ‘unusual’ structure of the Policy.  Although properly characterised as a loss policy, the payout was calculated not by a measure of loss but by payment of financing costs over a particular time. However, the language of the Policy was clear and no party had suggested the Policy was unenforceable on its terms. Accordingly, the result that the Plaintiffs were arguably over-compensated was, the Court held, irrelevant.   

The Court also rejected the insurer’s submission that adverse inferences should be drawn from the Plaintiffs’ failure to call evidence from certain witnesses. The Court stated that the justification for an adverse inference degrades over time. In this case, more than eight years had passed since the events in question. The Court was not prepared to infer that witnesses who existed then still remained in the Plaintiffs’ camp and should have been called by the Plaintiffs. The Plaintiffs’ case was no less credible because of its failure to call additional witnesses. 

Naughty or nice, the decision of Cape Byron Power 1 Pty Ltd v HSB Engineering Insurance Ltd [2017] NSWSC 1081 is a lesson for insurers not to deny now and ask questions later.

Polczynski Robinson advises on policy wording and claims disputes. For more information please contact Dajana Malnersic or Nicola Bailey on 02 9234 1500.