AUSTRALIAN CONSOLIDATED PRESS HOLDINGS LTD v ROYAL INSURANCE (GLOBAL) PTY LTD and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL COLE and BEAZLEY JJA, and DUNFORD AJA 20 February 1997, 21 February 1997 [1997] NSWCA 33 CONSTRUCTION of insurance policy — value of loss to be determined prior to reduction for deductibles. Cole JA Consolidated Press Holdings Limited and other corporations and individuals were insured between 30 June 1994 and 30 June 1995 under a Fire Extraneous Perils Combined Material Damage and Business Interruption Policy issued by the eight respondent Insurers. The Insureds had a quantity of gold bullion in the strong room of its premises at 54-58 Park Street, Sydney. Between 28 April and 1 May 1995 thieves broke into the strong room and stole the bullion, occasioning damage to doors, locks, carpet and the safe. The parties have agreed upon the cost of making good the damage. They also agreed that the policy covered theft of the bullion, although the value of the bullion is not yet agreed. It is agreed that the value of the bullion exceeds $A5 million. It is convenient, for the purposes of illustrating the competing positions of the Insurer and the Insured to set forth the monetary contentions of the parties whilst recognising that the value of gold is not yet agreed. Insurer Insured a) Gold Bullion limit of liability 5,000,000.00 a) Value of Gold 5,416,9: b) b) Value of Alluvial Gold 330,152 c) Repairs to safe 1,500.00 c) Repairs to Safe 1,500.01 d) Repairs to doors/locks 6,944.85 d) Repairs to doors/locks 6,944.8: e) Repairs to carpet 475.00 e) Repairs to carpet 475.00 5,008,919.85 5,755,9 f) Less unabsorbed remainder of deductible (985,976.00) f) Less unabsorbed remainder of aggregate (985,97 deductible g) Less deductible this loss (5.000.¢ Amount payable under Policy 4,022,944.85 Amount payable under Policy 4,764,9 Amount paid under Policy 4,022,944 less amount received 4,022,9- Further amount payable NIL Further amount payable 742,049 Bainton J upheld the construction of the policy which the insurer's calculation illustrates. It is from that construction that this appeal is brought. RELEVANT POLICY PROVISIONS By cll: "The Insurers agree... that if the property insured... shall be lost damaged or destroyed from any cause not otherwise excepted by the Policy... the Insurers... will pay the Insured the amounts calculated in accordance with the provisions of: 2 UNREPORTED JUDGMENTS S1 of the Policy or if any of the provisions of the Basis of Settlement Clause are not applicable the value of the Property insured at the time of the happening of its destruction or the amount of such damage or at their option to reinstate or replace such property or any part thereof. and further will pay the Insured the amount of loss calculated in accordance with the provisions of: S11 of the Policy should the business carried on by the Insured at the premises in consequence of the said loss damage or destruction, other than loss, damage or destruction to property in transit, be interrupted or interfered with (and for the purposes of this Section of the Policy any such loss damage or destruction shall hereafter be termed "damage"). Provided that the liability of the Insurers shall in no case exceed in respect of the Policy or either Section of the Policy the limits of liability as expressed in the Schedule in relation thereto or such other limits or sub-limits of liability as may be substituted therefor by memorandum hereon or attachment hereto signed by or on behalf of the Insurers.1 The natural reading of this primary obligation clause is that the Insurer is obliged to pay to the Insured the value of goods lost, but that obligation is qualified by subsequently stated limits. The starting point of the Insurer's obligation however is the value of goods lost which obligation may be reduced by a qualifying limit. The policy has only two clauses. The primary clause is that to which I have referred. The second clause is a lead insurer clause binding co-insurers to follow the lead insurer's decision. Thereafter each of the Insurers signed the policy. The succeeding forty pages comprise a schedule to the policy containing additional applicable clauses. Although the primary insuring clause does not, in terms, incorporate the provisions in the schedule as part of the policy, it is clear that all parties intended that it be so. C19, relevantly, is in the following terms: *LIMITS OF LIABILITY The Insurers limits of liability for any one loss or series of losses arising from the one event at any one situation shall not exceed the amounts hereinafter specified in respect of claims payable under this Policy and the Insured's Multi-Perils Policy. S1 and s2 Combined A$500,000,000 Inclusive of the following sub-limits which sub-limits only apply to the Indemnity under S1 (unless otherwise specified). Definition (a) (3) Burglary and theft A$3,000,000 (But A$5,000,000 in respect of bullion)."2 It is not clear to what "Definition (a)(3) Burglary and theft" refers. C110 is a definition clause. C110.3 provides: "10.3 Burglary and Theft Means loss or damage to property (other than money as herein defined) which has been stolen or property upon which an attempt to steal has been made."3 C111 of the original policy document was headed: 1. Appeal Book, p26-p27. 2. Appeal Book, p29. 3. Appeal Book, p31. URISTRALIAN CONSOLIDATED PRESS HOLDINGS LTD v ROYAL INSURANCE (GLOBAL) PTY LTD and ORS (Cole JA) *11. DEDUCTIBLES (Combined sI and sII)" Whilst cl11 was not specifically referred to, an endorsement to the policy which endorsement applied at the date of loss, read as follows: Deductible: The Insured shall bear all claims and claims costs up to an amount of A$1,000,000 in total during each twelve (12) month insurance period. Upon exhaustion of the A$1,000,000 aggregate, the Insured shall bear the following amount in respect of each loss or series of losses arising out of the one event except earthquake in California 5% of location value (subject to US$250,000 minimum): All claims in excess of the first deductible (s) mentioned below under this policy contribute towards the aggregate deductible. * Earthquake, (excluding California, USA) subterranean fire or volcanic eruption (a) A$20,000 or (b) an amount equal to 1% of the total asset value located at the situation. whichever is the lesser. Whichever * Earthquake in California, USA US100,000 * All other losses A$5,000"4 The parties are agreed that that endorsement replaced the pre-existing cll1. SI of the policy dealing with loss, damage or destruction of property, as distinct from consequential loss or business interruption loss dealt with in sII is contained in cl14 to cll6 inclusive. Cl14 specifies the property insured. C115 deals with extensions principally related to damage or destruction of property, and C116 specifies the Basis of Settlement. Cl16.1 provides: "16. 1 Basis of Settlement It is declared and agreed that in the event of loss or destruction of or damage to the within described property the basis of settlement of any loss shall be: (i) On property (other than that specified below) the cost of replacement or reinstatement in accordance with the Special Provisions hereinafter contained."5 The cost of replacement of gold bullion is plainly its value at the date of loss. Thus the Insurer has agreed both by Cll of the Policy and pursuant to Cl16.1 to pay to the Insured the cost of replacement (or value) of goods lost, subject to the limits of liability agreed in cl9, and the application of the deductible clause agreed in the endorsement replacing cl11. The consequential loss provisions are addressed in sII. Within that section are cl17 to cl19 inclusive. It is not entirely clear whether cl20 headed "Special Conditions" applies only to consequential losses within sII, or applies generally. I think on balance that cl20 applies only in relation to consequential loss provisions under sII. I have formed that view principally for two reasons. First, the clause deals with the obligation of the Insured to take reasonably practical measure to minimise "interruption of or interference with the business to avoid or diminish the loss" consequent upon the happening of damage, and further requires production of business books to permit verification of that loss. Second, the succeeding clause, cl21, is headed "EXCLUSIONS (Applicable to sI and sII)". This suggest that cl20 was not applicable to both sections. C123, headed "Conditions", is similarly stated to be "applicable to sI and sII'. Relevantly it provides as follows: "23.1 Definitions of Terms 4. Appeal Book, p68. 5. Appeal Book, p41. 4 UNREPORTED JUDGMENTS This Policy and the Schedule shall be read together as one contract and any word or expression to which a specified meaning has been attached in any part of this Policy or the Schedule shall bear such meaning wherever it may appear." 23.3 Insured's Action after Theft or Damage The Insured shall, upon becoming aware of any loss by theft and of any wilful or malicious damage which may give rise to a claim under this Policy, take all reasonable steps to trace and recover any missing properly and give immediate advice to the Police of such loss. 23.4 Notification of Claims On the happening of any loss, damage or destruction, the Insured shall forthwith give notice thereof to the Insurers and shall as soon as practical deliver to the Insurers a claim in writing containing as particular an account as may be reasonably practicable of the several articles or portions of property lost, destroyed or damaged and of the amount thereof respectively having regard to their value at the time of the loss, damage or destruction together with details of any other Insurances on any property hereby insured. The Insured shall also give to the Insurers all such proofs and information with respect to the claim as may be reasonably required, together with (if demanded) a statutory declaration of the truth of the claim and of any matters connected therewith. 23.8 Insurers' Rights On the happening of any loss, damage or destruction in respect of which a claim is or may be made under this Policy..." It thus contemplates a loss, and the subsequent making of a claim. Further the clause requires the Insured to specify the value of goods lost in the claim, thus making clear that the "claim" is not the maximum amount which the Insurer is obliged to pay under the policy but the true value of the loss suffered. C123.11 provides: 23.11 Author It is hereby agreed and declared that this Policy Wording, including any and all attachments thereto by way of schedules, specifications, definitions, clauses, warranties, conditions, endorsements or otherwise, is to be construed at all times as having the authorship of the Insurers."7 THE COMPETING ARGUMENTS The Insurers' contention, upheld by Bainton J, was that in calculating the Insurers' obligation to pay one commenced with the limit of liability under the policy prescribed in cl9 (relevantly $5 million), and applied to that sum the deductible provisions found in the substitute cll1. As the maximum liability under the policy was $5 million, subject to reduction for deductibles, there could not be a "claim" for any sum in excess of $5 million. "Claim" meant the amount which the Insured was contractually entitled to claim, meaning contractually entitled to be paid prior to application of any deductible provision. It did not mean the value of the property lost. In contrast, the Insured contended that one 6. Appeal Book, p63, p64, p65. 7. Appeal Book, p66. URISTRALIAN CONSOLIDATED PRESS HOLDINGS LTD v ROYAL INSURANCE (GLOBAL) PTY LTD and ORS (Cole JA) commenced by determining the value of the property lost, which was the amount of the Insured's claim, deducted from that sum any deductibles, and thereafter applied the monetary cap provision. In my opinion the Insured's contentions are correct. Cll makes clear that if the basis of settlement clause does not apply the insurer will pay to the Insured "the value of the property insured". The basis of settlement clause (cl16), provides that in the event of loss the Insurer will pay the cost of replacement. That is the value of the goods lost, not the maximum amount in respect of which a claim may be made, although that obligation is qualified by the capping provisions. Further, the provisions of cl23 and in particular cl23.4 require that the claim which is lodged is to specify the value of the goods at the time of the loss. It does not restrict this by reference to the monetary capping provisions. Such a provision accords with the manner in which a claim for loss or damage for goods insured is made. Where an Insurer has insured against loss of particular goods, in the event of loss the Insured claims the value of the goods lost. The obligation of the Insurer is to pay that value unless there are provisions restricting that obligation either by way of deductibles or by way of a monetary cap. Such an approach involves reading the word "claims" where it first appears in the substitute cll1 as meaning "losses". Plainly the word "claims" where used firstly in the first paragraph, and in the second paragraph cannot mean "claims". It must mean "losses" if cll1 is to have any sensible meaning. So read the clause accords with what would be expected, and makes commercial sense. Cl9 specifies the limits of the Insurers' liability. That means the maximum amount which, in given circumstances, the Insurer is obliged to pay. C19 does not specify the limit of liability in a monetary sum subject to deduction of deductibles. To my mind it is tolerably clear that the combined operation of Clauses 9 and substitute Cll1 when read with Cl1 is that the Insured is entitled to be reimbursed the value of goods lost except that that value is liable to be reduced by the amount of aggregated deductibles in any one year up to the sum of $1 million so that the Insured bears the first $1 million of Insured losses. Thereafter on any claim a particular deductible applies, here $5,000. Subject to that the Insured is entitled to receive the residue value of goods lost up to the maximum amount being the limit of the Insurers' liability specified in cl9, here $5 million. The Insurer contended that such a construction meant that "the limit of the policy in respect of the theft of bullion is not $5 million but $6 million or such lesser sum as results from the deduction of the sum claimed of the then value of the aggregate deductible". The use of the expression "limit of the Policy" is misleading. The correct notion is the limit of the Insurers' liability which is specified in C19 to be $5 million. That limit applies after the Insured has borne the deductibles specified in the Policy. The cover given by the insurer is not $6 million: it is $5 million, although a loss of $6 million would need to be suffered before the Insurer would be called upon to pay $5 million, had there been no prior deductibles in that year. In such circumstances if the Insurers' construction was correct, the Insurers' liability would be $4 million, but that is contrary to cl9 which caps its liability of $5 million. It follows that the appeal should be upheld, and the judgment of Bainton J set aside. I would propose the following orders: 1. Appeal upheld. 2. Judgment of Bainton J set aside. 6 UNREPORTED JUDGMENTS 3. Judgment for the appellant in a sum to be agreed. In the event of there being no agreement within fourteen (14) days, the matter be returned to the Commercial Division for determination of quantum. 4. The respondent is to pay the appellant's costs of the appeal and of the 5 proceedings at first instance but is to have, if qualified, a certificate under the Suitors Fund Act in respect of the proceedings in the Commercial Division. Beazley JA I agree with Cole JA. Dunford AJA I agree with Cole J.1. Appeal upheld. 2. Judgment of Bainton J set aside. 3. Judgment for the appellant in a sum to be agreed. In the event of there being no agreement within fourteen (14) days, the matter be returned to 15 the Commercial Division for determination of quantum. 4. The respondent to pay the appellant's costs of the appeal and of the proceedings at first instance but to have, if qualified, a certificate under the Suitors Fund Act in respect of the proceedings in the Commercial Division. Counsel for the appellant: PG Hely QC/JE Robson Solicitors for the appellant: Gilbert and Tobin 25 Counsel for the respondent: CRR Hoeben SC/MT McCulloch Solicitors for the respondent: Peter A Collins and Associates