The time of inception on an insurance policy has recently been considered by the High Court in Body Corporate 74246 & Ors v QBE Insurance (International) Limited and Allianz Australia Insurance NZ [2017] NZHC 1473.
Facts
A unit title building was damaged in the 4 September 2010 earthquake, which hit Christchurch at 4:35am. The building was insured by QBE for the period "4 September 2009 at 4pm to 4 September 2010 at 4pm". Allianz also provided insurance cover with an effective date of 4 September 2010 and an expiry date of 4pm on 4 September 2011. The Allianz policy did not say the exact time of inception on 4 September 2010.
QBE made a settlement payment to the Body Corporate for the cost of the repairs but argued that the property was double insured at the time of the earthquake on 4 September 2010. QBE sought a 50% contribution to the settlement amount from Allianz.
The Court considered three issues:
- whether to interpret the Allianz policy as incepting at 4pm of 4 September 2010, when the QBE policy expired;
- whether to imply a term into the Allianz policy as to the inception time of 4pm on 4 September 2010; and/or
- whether the Allianz policy should be rectified so that the policy incepted at 4pm of 4 September 2010.
The Court found that the Allianz policy, when read in context, incepted at 4pm on 4 September 2010. QBE was responsible to pay the entire settlement amount it had paid.
Interpretation
The Court agreed with Allianz that its policy should be interpreted to incept at the time QBE's cover expired. All parties to the pre-placement negotiations intended the Allianz cover would replace the QBE cover when it expired. There was no suggestion or intention from the insured to obtain double cover. The communications and documents implied that the intention was to obtain "seamless, rather than overlapping, cover", which is standard practice.
Implied term
The Court questioned whether the term to be implied would spell out what the policy, read against the relevant background, would reasonably be understood to mean. In light of the correspondence from pre-inception negotiations, and evidence from industry experts, His Honour found that, had it been necessary, he would have implied an inception time of 4pm to Allianz policy.
Rectification
The Court was not satisfied that rectification of the Allianz policy was appropriate in this situation. His Honour described rectification as a discretionary equitable remedy, available to "ameliorate the harsh effects of the strict application of rules of contractual interpretation". Instead, the appropriate remedy here was the objective interpretation of the Allianz policy, or implying a term into the policy that would respond to a "clearly unintended consequence of standard drafting".
Comment
While the finer details of an exact inception time may not seem significant during pre-inception negotiations, insurance companies and insureds may wish to err on the side of caution and include an inception time, or at least make it clear what they intend, to avoid disputes such as this one.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
