Stephen Forgacs v Lumley General Insurance Limited [2007] NSWSC 1506

New South Wales Supreme Court

CITATION : Stephen Forgacs v Lumley General Insurance Limited [2007] NSWSC 1506

HEARING DATE(S) : 14 December 2007 JUDGMENT OF : McDougall J at 1

EX TEMPORE JUDGMENT DATE : 14 December 2007

DECISION : See paragraph [38] of the judgment

CATCHWORDS : INSURANCE – disputed claim under householder's defined events policy – whether binding agreement for compromise reached in correspondence – no question of principle.

PARTIES : Stephen Forgacs (Plaintiff) Lumley General Insurance Limited (Defendant)

FILE NUMBER(S) : SC 5797/07

COUNSEL : J E Marshall SC / D S Weinberger (Plaintiff) M Speakman SC / N E Chen (Defendant)

SOLICITORS : O'Sullivan Saddington Lawyers (Plaintiff) Turkslegal (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

McDOUGALL J

14 December 2007 (ex tempore - revised 21 January 2008)

5797/07 STEPHEN FORGACS v LUMLEY GENERAL INUSRANCE LIMITED JUDGMENT 1 HIS HONOUR: The plaintiff (Mr Forgacs) insured his house with the defendant (Lumley) pursuant to a householders defined events policy of insurance (the policy) current from 30 June 2006 to 30 June 2007. In April 2007, a water main burst, causing some minor damage to the house. Mr Forgacs made a claim for that. In June 2007 there was an enormous storm, affecting Mr Forgacs' house among others. Mr Forgacs says that his house suffered major damage as a result of that storm. He has made a claim for that. 2 Lumley asserts that it is not liable to indemnify Mr Forgacs. Nonetheless, it has entered into correspondence with him (both direct and through the respective solicitors) in an attempt to negotiate a compromise. The question for decision is whether a binding compromise has been reached. 3 By order made on 5 December 2007, the questions of whether a compromise was made and, if it were, what were its terms were ordered to be determined separately and in advance of all other issues in the proceedings. In the result, the parties accept that the result of those separate issues can be addressed by reference to prayer one of the summons. In substance prayer one claims a declaration that "pursuant to and by virtue of the exchange of" certain correspondence, Lumley agreed to indemnify Mr Forgacs for a sum equal to the cost of repairs to his house arising from the events in April and June 2007 as assessed by Mr John Meredith of Rider Levett Buchnall (RLB). The parties agreed that if I determined that question in favour of Mr Forgacs then I should not make an order as sought by prayer two (which sought an order that Lumley indemnify Mr Forgacs for the assessed cost), but should reserve liberty to apply. 4 Lumley's contention in relation to indemnity is based on section 6 of the policy, which sets out a number of "General Exclusions". One of those, set out in clause 6.1(j), provides that the policy does not cover "faulty workmanship, inherent defect, errors or omissions in design, structural defects and faulty design". It is a little difficult to understand what separate work that definition does having regard to clause 7(e) of the "defined events", but it is unnecessary to pursue that fascinating question of construction. Equally, since the parties have not put before the Court any material relating to workmanship, defect, design, errors and the like, the strength of Lumley's case based on the relevant exclusions can be put to one side. It is sufficient to note that the defence was asserted, and I assume, asserted in good faith. 5 To understand the respective contentions, it is unfortunately necessary to have regard to a number of letters. The first to which the parties took the Court is a letter of 13 September 2007 from Mr Forgacs to Lumley. That letter set out a number of complaints, and said that Mr Forgacs "would like to settle this claim as a matter of urgency as (he) cannot afford to lose any more nights sleep worrying about what is going to happen to the house". The letter concluded by rejecting an offer of $430,000.00 apparently made by Lumley and threatening the involvement of lawyers. 6 Lumley replied on 19 September 2007. That letter did a number of things, including asserting that in Lumley's view if it were obliged to indemnify Mr Forgacs, the method of indemnification should be in accordance with something proposed by Mr Andrew Shirley, of Shirley Consulting Engineers (SCE). Having articulated that dispute, the letter made the following points among others: In the hope of resolving both claims we most recently offered you the sum of $430,000 in finalisation of both the April 2007 and June 2007 claims. We note your letter rejects that offer as well. As previously discussed, Lumley is, given your rejection of the two offers, prepared to agree to indemnify you for a sum equal to the cost of repairs to the premises subject to those costs being fully quoted and a full scope of works being prepared by an independent building consultant and structural engineer. In our view, this offer is more than reasonable and represents the maximum extent of Lumley's potential liability under the policy in relation to both the April and June 2007 claims.