RASO v NRMA INSURANCE LTD T/AS NRMA HOME INSURANCE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, PRIESTLEY and HANDLEY JJA 14 and 15 July 1992, 14 December 1992 [1992] NSWCA 202 FIRE INSURANCE — arson. INSURANCE — contract of indemnity — sum insured — insured only entitled to indemnity. EVIDENCE — privilege against self-incrimination — claim of privilege — adverse inference not to be drawn. The appellants held fire policies covering a holiday home and its contents which were destroyed by fire. The insurer claimed that the appellants had been privy to the arson. The trial Judge upheld this defence. On appeal - Held (1) Reliance by the male appellants on the privilege against self-incrimination in relation to their income tax affairs did not entitle the trial Judge to draw adverse inferences against them. "Taking the Fifth" (1991) 65 ALJ 412 approved. (2) Disbelief of the appellants' evidence by the trial Judge did not furnish evidence to the contrary supportive of the insurer's case. (3) The trial Judge had failed to properly consider whether the appropriate conclusion on all the evidence was that the insurer had failed to discharge the onus of proof. (4) The evidence before the Court did not support the trial Judge's conclusion that the appellants were privy to the arson. (5) Damages must be assessed on the basis that was most beneficial to the insurer. Because the policy was a contract of indemnity the insured were not entitled to the sum insured but only to the lesser figure representing the loss of market value due to the fire. Mahoney JA I agree with the judgment of Handley JA and the orders proposed. Priestley JA I have had the benefit of reading Handley JA's reasons in draft. For the reasons he gives, I agree that the appeals should be allowed and judgments entered in favour of the appellants. As I understood the appellants' arguments concerning damages under the building policy, it was not contended that the indemnity principle discussed by Handley JA was not relevant to the construction question. That being so, I agree with Handley JA's conclusions concerning damages in regard to both policies. The facts of the cases could have raised questions about the date from which interest should run. In the present cases the sums involved were not of much significance, and in view of the approach taken by the parties, I think the way Handley JA has dealt with interest is appropriate. I agree with the orders proposed by Handley JA. Handley JA This is an appeal by the plaintiffs from judgments entered by his Honour Judge Mahoney QC for the defendant insurer in two actions brought by the appellants under fire policies covering a home and its contents. The house, a holiday home, was located at 102 Elizabeth Drive Broulee on the south coast of New South Wales. The registered owners were Caterina Raso and Rosa Madaffari and they were the insureds under the fire policy on the building. The contents policy was in the name of their husbands, Antonio Raso and Dominic Madaffari. A neighbour who lived next door to the house was woken by a loud explosion about 2 am on 27 September 1985. When she investigated the noise she found that the house was on fire. She had the fire brigade called but the house and its 2 UNREPORTED JUDGMENTS contents were almost totally destroyed. The respondent, the insurer on risk, claimed that the owners or some of them had deliberately arranged the fire and rejected the claims under the policies. The judge upheld this defence. The insurer's case depended on circumstantial evidence. The house was unoccupied and it was clear that the two couples were in Canberra at all relevant times. There was no suggestion either at the trial or before us that any of the insured had been at or near the premises shortly before the explosion. They all had good alibis. There was also no evidence that anyone had been seen near the premises that night or shortly before. The house had been last used by the Madaffaris and their children between 12 and 15 July that year. The Judge found on the basis of expert evidence that the explosion was the result of deliberate action by a person or persons unknown and this had caused the fire. The Judge also found that for some time before the fire the property was not readily saleable because of departures from the approved plans and specifications, and that it had been on the market for many months without attracting a buyer. He also found that because of their financial difficulties the insured had a motive for deliberately procuring payouts under the policies. The two husbands had been in partnership as builders but in 1981 Mr Madaffari had been injured in a motor vehicle accident and was no longer physically able to do the ordinary work of a builder. By 1985 the business activities of the partnership were much reduced. Earlier it had been engaged in the construction of townhouses and factories in the Canberra-Queanbeyan area and townhouses and cottages on the South Coast. The Judge held that the business required a large cash flow. There was evidence that the only cash flow through the partnership bank account between May 1984 and September 1985 was a $90,000 bank advance which was used to retire a $30,000 overdraft and to meet a $55,000 bank bill that was falling due. The judge found that the partners' finances on the evidence disclosed in the case were in a parlous condition and that Mr Madaffari had been so badly injured that he was in receipt of social service benefits and was unable to resume an active role in the workforce. He also found that the $90,000 advanced by the bank had been procured on the strength of assurances about the pending sale of the Broulee property and the likely sale price which were known by the male plaintiffs to be false. The Judge rejected as unduly optimistic evidence by an officer of the Commonwealth Bank who handled the plaintiffs' accounts and recommended the $90, 000 advance that in his opinion and in the opinion of the bank the partners at the relevant time were good credit risks. The Judge said that Mr Madaffari and Mr Raso were unimpressive witnesses who in various ways had attempted to mislead the court and he rejected their evidence unless it was independently corroborated. Both men had claimed privilege when cross examined about their failure to lodge income tax returns. On this basis the Judge concluded that they had been dishonest with regard to income tax matters and were persons who, on at least one occasion, had been prepared to mislead someone in authority for the purpose of obtaining a financial advantage. On the whole of the evidence, and in the light of these findings, the Judge held that the insurer had made out a case which had convinced him to the required extent that the two male plaintiffs had procured the explosion and fire at the premises and had then fraudulently taken part in making claims under the URJRASO v NRMA INSURANCE LTD T/AS NRMA HOME INSURANCE (Handley JA) 3 policies. He said that he had to choose between wanton vandalism by strangers on the one hand and fraudulent action by the plaintiffs or some of them on the other. He said: "Tf it had been wanton vandalism, then it is an extraordinary coincidence for it to have happened to property of people who were in straitened circumstances, who had had no cash flow for many months and whose targeted property was not a readily saleable commodity on the real estate market, even if sales in that part of the State had been brisk, which they were not at the relevant time. Added to this is the fact that the vandalism involved the use of petrol which had to be brought on to the premises and the extent of the vandalism was total destruction." His Honour then turned to consider the position of the wives. He said: "Certain parts of Mrs Madaffari's evidence satisfy me that she was privy to what the two men were doing and how they proposed to effectuate their plans. By making her claim jointly with theirs and suing upon it, I infer she had thrown in her lot with theirs at all relevant times." He added that Mrs Madaffari had knowingly given false evidence that her husband did not speak or write English, and that the Broulee property was not for sale at the time of the fire. Accordingly he found that she was a party to the plan to defraud the underwriter. His Honour concluded: "Tf Mrs Madaffari was a party to the escapade then her joint policy owner and joint property owner, Mrs Raso must have been a party to it as well. This is also borne out by her evidence about the way all four of them became involved in the formulation of the contents policy claim and their various attendances on the underwriters (premises) at Dickson ACT and by the very nature of the insurance fraud... attempted." On the basis of these findings the Judge concluded that the insurer had established a circumstantial case of arson with the privity of all four insured and the two actions were dismissed. The appellants challenged many of his Honour's findings of fact. They accepted, as they must, the findings on credibility and all findings based on the rejection of the appellants as witnesses of truth. However Mr Porter QC for the appellants submitted that this Court should reverse other significant findings which he said were contrary to the independent and unchallenged evidence of other witnesses or contemporary documents. He also submitted that his Honour had misdirected himself on two important matters of law. Once these errors were corrected and proper findings substituted his submission was that the insurer's circumstantial evidence case must fail. The Judge's finding that the Broulee property was not readily saleable was based on the evidence of a Council building inspector. In my opinion an examination of his evidence, and the records of the Council lead inevitably to a conclusion different to that reached by the trial Judge. The most important matter relied upon by the underwriter was that the concrete floor slab had not been constructed in accordance with the approved plans. The Council required the level to be at least 300mm above the highest known flood in the area. Mr Raso had constructed the formwork so that the slab would not reach this height. The discrepancy was picked up by Council staff before the slab was poured. The Council required the appellants to raise the height of the slab. Mr Raso objected and there was an on-site inspection with the building inspector and a number of the councillors. Mr Raso wanted the slab to be the same height as the slab of the house next door which was on the same flood level. Following the inspection the Council agreed to allow Mr Raso to construct 4 UNREPORTED JUDGMENTS the slab at the lower level provided the owners released the Council from liability for any flood damage which might result. The wives gave the Council the required release and the Council then allowed Mr Raso to erect the slab at the lower level. It is clear that this departure from the approved plans was approved by the Council in advance with full knowledge of the facts. The variation was not the result of a mistake by the builder. The building inspector also gave evidence that the flood level on which the Council's original requirement was based had been achieved in 1976 or 1977, that there had not been such a flood since and in the meantime flood works had been constructed to prevent such recurrence. On 30 March 1984 Mr Raso applied to the Council for a s317A certificate for the property. An on-site inspection followed with Mr Raso on 16 April when outstanding matters were drawn to his attention. These were later itemised in a letter to the owners' solicitors dated 18 May. They were: "1. Provision of an upgraded survey report; 2. Provide satisfactory stormwater disposal; 3. Rectify defects with septic tank fitments; 4. Easing of windows." There was also an outstanding Council requirement for a 1.42m excavation at the rear of the land to be properly protected by a retaining wall or otherwise. Notwithstanding these matters the building inspector agreed that practical completion had occurred and allowed the owners to go into occupation and commence using the house. He agreed in cross examination that the upgraded survey report was a routine requirement for the purpose of checking the relationship between the eaves and gutters and the boundaries of the property. He said that the other outstanding matters were "relatively minor" and that if they had been attended to and the survey had been satisfactory the Council would have issued a s317A certificate. The owners could have obtained such a certificate by attending to the outstanding matters at little trouble or cost. They did not bother to do so. The level of the concrete slab was the result of a deliberate decision by the owners and a purchaser aware of the facts should not have been concerned. This was the view at the time of the appellants' solicitors who provided them with a letter dated 6 June 1984 setting out the facts, which could be given to any estate agent retained to sell the property. The insurer called a Mr Hedgecock who inspected the property and made an offer for it in March 1984 which he later withdrew "because the building did not comply with Council regulations". He was not asked any further questions about this matter but Mr Fraser the estate agent said in a letter to the husbands that Mr Hedgecock had withdrawn because he had become aware from an inspection of the Council file that the floor had been built below the required level and the owners had given the Council an indemnity. The owners made no attempt to explain the whole position to him. This evidence did not establish that the property was unsaleable or unattractive to potential buyers. In October 1984 the owners obtained approval for the construction of a substantial garage on the property and this was completed in May 1985. The garage was fitted out with a refrigerator, a kitchen sink and a stove and equipped with tables and chairs so that the owners could lunch in this area with their families and keep sand out of the house. Although this work was undertaken by the owners, there is no evidence that they bothered to obtain the survey, carry out the minor work required by the Council or to reapply for a s317A certificate. URJRASO v NRMA INSURANCE LTD T/AS NRMA HOME INSURANCE (Handley JA) 5 The Judge rejected the evidence of the plaintiffs that the subject property was not on the market for sale in the months before the fire. While there was some evidence that it was it was also clear that the owners had not been actively pursuing its sale. The property was listed with an agent, Mr Fraser, in September 1982 before construction was complete. He wrote to the husbands in May 1984 advising them of Mr Hedgecock's decision to withdraw his offer. He gave evidence that following this letter Mr Raso told him that the owners would keep this property for their own use and would try to sell their other beach house at 60 Elizabeth Drive. Mr Raso listed this other property with Mr Fraser and it was sold in October 1984. The subject property remained listed with Mr Fraser until a dispute arose about commission on the sale of No 60. Mr Fraser also said that over an unspecified period up to October 1984 his firm had sold three units owned by the partnership nearby at Bateman's Bay. The second agent Mr Stephenson was asked by Mr Raso in January 1985 to list the property for sale for $85,000. He was instructed not to erect a For Sale sign on the premises and was never given the keys. He had no further contact with the owners until after the fire. This independent evidence establishes that the owners had not been active during 1985 in attempting to sell this property. In some sense the property may have remained on the market but long before the fire this had become little more than a formality. The owners' attitude displayed indifference rather than urgency and indicates that they were not anxious to achieve a quick sale. The agent thought that the asking price was too high for the slow market at the time but the owners never reduced it to achieve a quick sale. The Judge's finding that the property was not readily saleable because of the matters referred to by the building inspector is inconsistent with his evidence and cannot be supported. Furthermore the evidence of the estate agents does not support a finding that in the months before the fire the plaintiffs had made serious attempts to sell the property or that they had acted as if they were anxious to achieve a sale. The judge made no finding that the property was over insured. A faint submission to this effect was made but must be rejected. The sum insured was increased from $68, 000 to $77, 000 from 26 November 1984 but this was recommended by the underwriter in its offer of renewal "to cover increasing values". The evidence does not enable any finding to be made that the former sum represented an over-insurance. The parties agreed that the loss of market value at the date of the fire was $37,000 but the cost of reinstatement was then $50,300, the substantial garage was undamaged and the footings, foundation brickwork and concrete slab were also undamaged and reuseable. The findings that the partnership had a limited cash flow in the months before the fire and that the plaintiffs' overall financial position provided them with a motive for arson were central to the Judge's acceptance of the underwriter's case. Here again I am constrained by uncontested evidence independent of the plaintiffs to reach a different conclusion. There was in fact no evidence that the partnership or the plaintiffs were under any financial pressure during this period. There was no evidence that any creditor had demanded immediate payment or had sued to recover a debt. The Commonwealth Bank held the accounts of the partnership and the two families. There is no evidence of pressure from the Bank for repayment of the moneys owing on the partnership overdraft or bill facility. 6 UNREPORTED JUDGMENTS The partnership also obtained development finance from Mercantile Credits which held mortgages over their properties including the two houses at Broulee. The relevant advance was approved on in August 1983 and the internal submission to management stated that the partners had been clients of the company since 1968 "and we have always regarded them as excellent". The loan was increased in March 1984 to cover a temporary liquidity problem, but at that time completion of the sales of three units was pending. Presumably the debt was reduced soon afterwards by the proceeds of those sales, and later by the proceeds of the sale of 60 Elizabeth Drive. Neither party called any witness from Mercantile Credits and there was no other evidence as to its dealings with the partners after March 1984 except that its mortgage over the subject property was discharged in December 1985. The Judge relied on the absence of any cash flow through the partnership account with the Commonwealth Bank in the months before the fire apart from the proceeds of a fresh loan. However independent evidence established that the partnership had been able to sell some of its properties during this period. 60 Elizabeth Drive, Broulee was sold in October 1984 and the same agent had been able to sell three South Coast units for the partnership over an unspecified period before that. It is not clear whether these were the same units for which contracts had been exchanged prior to March 1984. Moreover between October 1984 and May 1985 the plaintiffs had built a substantial garage on the subject property without increasing their debt to the Commonwealth Bank or operating on the partnership account. The principal difficulty with these findings is that his Honour apparently overlooked the sale of industrial land and buildings at 42 Stephens Road, Queanbeyan for $425,000. The partners owned half of this property in common with Mr G and Mr R Barbaro. The property had been listed for sale with agents on 16 April 1985 and a sale, subject to exchange, had been negotiated by 28 August. Contracts were exchanged on 16 September, eleven days before the fire. The purchasers only paid a deposit of $10,000, but the agreed date for completion was 28 November and completion in fact took place on 4 December. There is nothing to indicate that the vendors were concerned at any stage with the ability or the willingness of the purchasers to complete the sale. On settlement the balance of purchase money was paid to the Commonwealth Bank. Loans totalling some $51,000 to the vendors were repaid. The balance was divided equally between the partners and the Barbaros and $173,398.59 was paid into a joint account in the name of the partners. An internal Commonwealth Bank document dated 21 August 1985 showed that the partners at that time had an overdraft of $29,282 (in excess of the approved limit of $20,000) and a bill discount facility of $60,000 due on 25 November. The Bank also had loans to the partners and the Barbaros which then totalled approximately $56,000 against the security of the Queanbeyan property valued at $230,000. Mr and Mrs Raso had a credit in their personal account of $192 but the Bank held security from them valued at $221,160. Mr and Mrs Madafarri had a credit balance in their current account of $963 and the partners and the Barbaros had a credit balance in another current account of $8,435. There is nothing in the diary note of the same date, the last before the fire, which indicates that the Bank was concerned at its position or was applying any pressure on the partners. In fact the Bank then agreed to amalgamate their overdraft and bill facility, to charge a lower interest rate, and to allow repayment URJRASO v NRMA INSURANCE LTD T/AS NRMA HOME INSURANCE (Handley JA) 7 over ten years. The Bank noted that this "would be adequately covered" and did not require the account to be reviewed until June 1986. The Judge was unimpressed by the evidence of Mr Radford, the Commonwealth Bank officer called by the plaintiffs. He thought that Mr Radford's assessment of the credit worthiness of the partners was "more than somewhat sanguine in the methodology... employed." However the critical fact was that the Bank was not applying pressure on the partners to reduce their debts and had just agreed to repayment over ten years. It does not matter that the Bank may have been unduly optimistic. The important fact is that it was not provoking a financial crisis for the partners which might have provided a motive for arson. I conclude therefore that there was no evidence that the property was unsaleable or that the plaintiffs had been making serious attempts to sell it before the fire. There was also no evidence that in the months or weeks before the fire the partners and their wives were facing any sort of financial crisis or were under pressure from a single creditor. In fact eleven days before the fire they and the Barbaros had exchanged contracts for the sale of an industrial property at Queanbeyan for $425,000 and in due course the proceeds of this sale cleared the partnership debts to the bank. These conclusions are fatal to the underwriter's circumstantial evidence case because they establish that the partners and their wives had no financial motive for arson. Mr Porter QC for the appellants also challenged the inferences drawn by the Judge because the partners had claimed privilege against self incrimination. He submitted that the Judge was not entitled to draw any adverse inference from the claim of privilege and he relied upon an article by Mr Justice Young on "Taking the Fifth" in (1991) 65 ALJ 412 and the authorities there referred to. Mr Hamilton QC for the respondent cited no authority to the contrary and did not seek to support the inferences drawn by the Judge. Although the Judge's adverse findings against the partners and their wives on credit cannot be disturbed these findings provide no basis for any positive inference of their involvement in the arson. It has been established since Jack v Smail (1905) 2 CLR 684 at 698 that disbelief of a witness's evidence does not furnish evidence to the contrary. The situation is different where there is other evidence from which inferences can be drawn. See Steinberg v FCT (1975) 134 CLR 640 at 694-695 per Gibbs J. The fact that a witness has told lies may, in some circumstances, provide evidence against that witness. However there are strict limits to this principle as demonstrated by the decision in R v Heyde (1990) 20 NSWLR 234 at 246 where Clarke JA said: "\.. there is only a very limited class of lies by an accused which are capable of constituting corroboration of the evidence of a prosecution witness... The most helpful test is that which emerges from Eade (Eade v The King (1924) 34 CLR 154) and that it is only lies which suggest that the liar cannot give an innocent explanation of proved facts, or that he is unable to account for what witnesses say they saw in any way consistent with his own innocence which are capable of providing corroboration. " Although this is not a criminal case the principles stated by Clarke JA are still applicable because they determine whether lies are capable of supporting an inference relevant to the matters in dispute. In the present case there is no other evidence directly implicating the plaintiffs and it follows therefore that their lies, as found by the trial Judge, are not evidence that they were guilty of arson or conspiracy to commit arson. 8 UNREPORTED JUDGMENTS His Honour said that he had "to choose between wanton vandalism by strangers on the one hand and fraudulent intent by the plaintiffs or some one or others of them on the other hand. If it had been wanton vandalism then it is an extraordinary coincidence". In my opinion this is not a permissible process of reasoning to a conclusion in a circumstantial evidence case. It assumes that there are no other possible explanations for the fire. The plaintiffs said that they were not aware of having any enemies but it is possible that they did. Another possibility is that the arsonist made a mistake and destroyed the wrong house. However apart from these speculative possibilities the Judge's reasoning is flawed because it ignores the burden of proof and the possibility that the party with the burden may have failed to discharge it. The point is illustrated by the decision of the House of Lords in Rhesa Shipping SA v Edmunds (The Popi M) (1985) 1 WLR 948. The appeal arose from an action by a ship owner under a marine policy for a total loss of the vessel when it sank in a calm sea in daylight. There was no obvious explanation for the loss and the trial Judge considered that he had to choose between the ship owner's theory that the vessel had collided with a submerged submarine and the underwriter's theory that the hull had failed through wear and tear. The Judge did not accept the wear and tear theory and he therefore concluded that the ship had collided with a submarine although there was no evidence that a submarine was in the area at the time and he regarded this explanation for the loss as highly improbable. The House of Lords reversed this finding and dismissed the action. Lord Brandon who delivered the principal speech said at 955-956: ".., the Judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases however in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take." It is clear that the trial Judge was not compelled to choose between the two alternatives he referred to and that he misdirected himself in failing to consider whether the underwriter had failed to discharge the burden of proof. Moreover the evidence did not enable the Judge to make findings which positively excluded other possible causes of the fire. The inability to exclude other possible causes even though they may be considered unlikely necessarily operates to the detriment of the party bearing the legal onus of proof. In the circumstances I have reached the firm conclusion that the findings of complicity in arson against the two husbands cannot be supported. Indeed in my respectful opinion there was in truth no evidence in this case which implicated the two husbands in the fire. While the circumstances were certainly suspicious findings of complicity in arson cannot be based on suspicion alone but must be based on proof and here there was none. This Court must also set aside his Honour's findings that the wives were parties to a conspiracy with their husbands and each other to commit arson. His Honour's reasoning on this issue, quoted earlier in these reasons, cannot be supported. The conduct of the wives in helping to prepare the fire claims and then suing on their policy cannot logically sustain findings of knowing participation in a criminal conspiracy. Mrs Madaffari's lies in the witness box, as found by his Honour, are a matter of suspicion but again do not provide any basis for a positive finding of complicity in arson. The URJRASO v NRMA INSURANCE LTD T/AS NRMA HOME INSURANCE (Handley JA) 9 reasoning behind his Honour's finding that Mrs Raso was a party to the conspiracy amounted to nothing more than a finding of guilt by association. Accordingly the appeals must be allowed and judgments entered in favour of the appellants in the two actions. The contents policy was in the name of the husbands. At the trial the value of the contents was agreed at $6,095, and the husbands are entitled to recover this sum with interest. The claim under the policy on the building is not so simple. CL1 of the respondent's "Plain English" policy provides: "1. COVER FOR THE HOME We will cover you if any of the events which are listed below destroys or damages the home. This means that we may choose to: - pay you the sum insured, or - pay you the cost of repairing or - replacing the home, or - repair or replace the home." The sum insured under the building policy was $77,000. The house was not totally destroyed because the footings, foundation brickwork and concrete slab were intact and could be incorporated into a new house. At the trial the parties agreed that at the date of the fire the cost of rebuilding the premises would have been $50,300 and the then loss of market value was $37,000. The appellants submitted that they should be awarded the cost of reinstatement or alternatively the loss of market value. The appellants did not claim to be entitled to the sum insured no doubt because this was not a valued policy and the indemnity principle stood in the way of any such claim. The language of the policy ("we may choose to") confers an option on the underwriter to either pay the sum insured or to reinstate or pay the cost of reinstatement. The underwriter did not exercise the option. However it is clear from The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 92-93 and the cases there cited that "where there are two or more ways in which a defendant might perform the contract, the court in assessing damages adopts the mode of performance which is most beneficial to the defendants." Accordingly the underwriter is entitled to have the damages against it assessed on the lower of the available figures. In terms this Plain English policy does not confer on the underwriter the option of paying the insured the loss of market value. However Mr Hamilton QC has submitted that this is its necessary legal effect when the option to pay the sum insured is read subject to the overriding effect of the indemnity principle. The decision in British Traders Insurance Co Ltd v Monson (1964) 111 CLR 86 establishes the relevant principles. At 92-93 Kitto, Taylor and Owen JJ in their joint judgment said: "Tt is convenient to deal... with... the case for the respondents. Its fault lies... not in the fact that it begins with the policy, but... that it gives the policy a meaning which neither general understanding nor the law of insurance will support. It concentrates attention upon the words of obligation 'if the property insured... be destroyed... by fire... the company will pay to the insured the value of the property... ' If those words are to be read in isolation from their context, no doubt the obligation is to pay the full value of the property, regardless of the quantum of loss sustained by the respondents by reason of the destruction by fire. But the all important fact is that they are words in a document possessing 10 UNREPORTED JUDGMENTS unmistakably and on its face a character which flatly contradicts the notion that the obligation of the company is to pay more than the amount of the respondent's loss. It is issued by an insured company. It is headed 'Fire Insurance Policy'. All its provisions, even the very words that are relied upon for their literal meaning are characteristic of fire insurance policies. It is far too late to doubt that by the common understanding of businessmen and lawyers alike the nature of such a policy controls its obligation, implying conclusively that its statement of the amount which the insurer promises to pay merely fixes the maximum amount which in any event he may have to pay, and having as its sole purpose, and therefore imposing as its only obligation, the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk. " Windeyer J succinctly summarised the applicable principles at 104 as follows: "... because an insurance contract is a contract of indemnity, the amount recoverable under the policy could not exceed the sum necessary to indemnify the Monsons against the loss actually sustained by them in consequence of the fire. An assured is not entitled to recover the amount specified in the policy unless it represents his actual loss. The amount specified fixes only the maximum liability of the insurer under the policy." See also at 94, 98-99 and 101. It follows that, despite the language of its policy, the respondent was not bound to pay the sum insured. It could have elected to indemnify the insured for the loss of market value. In the events that happened this was the mode of performance most beneficial to the respondent. Since the garage was undamaged and the footings, foundation brickwork and concrete slab of the house were intact and reuseable the owners were only entitled to recover for a partial loss. If a reinstatement basis is not applied it must follow that they can only recover the loss of market value. In my opinion the owners are entitled to recover $37,000 being the agreed loss of market value with interest. The parties, understandably enough, did not devote a great deal of attention at the trial to the date from which interest should run. The issue was touched on before this Court and we were provided with calculations based on interest running from 27 September, 27 November 1985 and 8 January 1986 when the underwriter repudiated liability. The appellants did not develop a submission that interest should run from the date of loss. In the circumstances I am content to adopt 27 November 1985 as the date from which interest should run. Compare Legal and General Insurance v Eather (1986) 6 NSWLR 390 at 409 and Insurance Contracts Act 1984 (Cth) s57(2) which was not in force at the time of the fire. The following orders should be made: (A) In Action No 53/1987 between Caterina Raso and Rosa Madaffari and NRMA Insurance Ltd (i) Appeal allowed with costs. (ii) Set aside the judgment for the defendant entered in the District Court. (iii) Substitute judgment for the plaintiffs for $66,945.34 and costs with effect from 25 May 1990. (B) In Action No 54/1987 between Antonio Raso and Dominic Madaffari and NRMA Insurance Ltd (i) Appeal allowed with costs. (ii) Set aside the judgment for the defendant entered in the District Court. (iii) Substitute judgment for the plaintiffs for $11,028.09 and costs with effect from 25 May 1990. URJRASO v NRMA INSURANCE LTD T/AS NRMA HOME INSURANCE (Handley JA) 114 Counsel for the Appellants: CA PORTER QC/GC LINDSAY, Instructed by: ENNIS SMITH and BRADBURY (BATEMAN'S BAY) Counsel for the Respondent: J HAMILTON ac/J DUNCAN, Instructed by: 5 ABBOTT TOUT RUSSELL KENNEDY