The recent decision of the New South Wales Court of Appeal in Globe Church Incorporated v Allianz Australia Insurance Ltd  NSWCA 27 considered when a cause of action for damages for breach of contract arose under an indemnity policy of property insurance.
The proceedings concerned a claim by Globe Church Incorporated (Globe) against Allianz Australia Insurance Ltd and Ansvar Insurance Ltd (the Insurers) under an Industrial Special Risks Insurance Policy (the Policy) arising out of alleged property damage occurring to a church building and its contents. Globe first made a claim under the Policy in respect of the alleged property damage in September 2009. The Insurers denied liability under the Policy in April 2011 and September 2011. Globe subsequently commenced proceedings in November 2016 alleging that the denial of indemnity (or failure to indemnify) was a breach of the Policy and that it had suffered loss and damage by reason of the breaches.
One of the questions before the Court was whether the claims under the Policy were barred by the Limitation Act 1969 (NSW), which provides that an action for breach of contract must commence within six years from the date on which the cause of action first arose. In determining this question, the Court considered when a cause of action for damages arises against an insurer of an indemnity policy for breach of the insurance contract.
The Insurers submitted that the date at which a cause of action for damages under an indemnity policy of insurance arose was the date of the property damage. Hence, the Insurers argued that the claims could not be maintained since the property damage occurred more than six years before proceedings commenced.
Globe submitted that its causes of action for damages arose when the Insurers denied the indemnity, or on the lapse of a ‘reasonable time’ to perform the contractual promise to indemnify. Globe relied on the approach of Giles J in Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564, being that there is a distinction between the promise of an insurer to indemnify and a breach of that promise, and only when the insurer fails to do what was required of it could a cause of action for damages for breach of contract accrue to the insured.
In finding that the claims under the Policy were barred by virtue of the Limitation Act 1969 (NSW), Bathurst CJ, Beazley P and Ward JA held that:
The ‘approach’ taken by Giles J in Penrith City Council has not been endorsed by the Court. In these circumstances, and noting the importance of consistency when construing indemnity policies, the Court determined that the intermediate authorities on this issue, including Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159 and Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd  TASFC 6, should be followed.
The intermediate authorities make clear that, in the absence of a provision that makes lodgement of a claim a condition precedent to the liability to indemnify under the contract of insurance, the concept of a promise to indemnify in the context of a property damage insurance policy is such that the promise is enlivened when the damage is suffered.
It is at the time of the property damage that the insured has not been ‘held harmless’ against the loss and would be entitled to sue to enforce the promise to indemnify against property damage.
This decision confirms that a cause of action against an insurer for damages for breach of an indemnity policy of insurance accrues on the occurrence of the insured event (e.g. the property damage) and not the date upon which an insurer denies liability in response to a claim made under an indemnity policy. This is of course subject to the express terms and conditions of the policy, and in particular any conditions precedent to the liability to indemnify.
In the construction context, indemnity policies of insurance are commonplace. Parties to those insurance contracts ought to be aware that, based on this decision, a claim may be statute barred unless proceedings are commenced within the relevant limitation period, with the clock running from the occurrence of the insured event.
It will be interesting to see how this decision will be applied by the courts going forward.
The full decision can be found here.