Yasawa Island Resort Ltd v Western Pacific Insurance Ltd [2016] FJHC 276; HBC88.2010 (15 April 2016)

IN THE HIGH COURT OF FIJI
WESTERN DIVISION AT LAUTOKA
CIVIL JURISDICTION

Civil Action No. HBC No 88 of 2010

BETWEEN

YASAWA ISLAND RESORT LIMITED
PLAINTIFF

AND

WESTERN PACIFIC INSURANCE LIMITED
DEFENDANT

RULING

1. Yasawa Island Resort Limited (“YIRL”) had a business interruption policy and a material damage policy with Dominion Insurance Limited (“Dominion”) and also with Western Pacific Insurance Limited (“WPIL”).
   
2. Brokered by Insured Holdings Fiji Limited, the arrangement was that, in the event of an insured peril happening, Dominion and WPIL would provide 40% and 60% of the cover respectively for:
   

(i) any interruption to YIRL’s business arising from the peril and,

(ii) any material loss to the business (i.e. damage/loss to any material property of the business) as a result of the peril.

3. The first premiums were paid by YIRL on 04 December 2009.On 24 December 2009, YIRL’s hotel premises were burnt down. I am told from the bar table by Mr. Lowing, though there is no evidence of this before me, that the fire was caused by a disgruntled employee who was subsequently charged, convicted, and given a jail term for the offence. On 29 December, 2009, YIRL gave notice to Dominion and WPIL of the fire. Dominion immediately accepted liability for its share of the risk cover under the policies. It settled these promptly.
   
4. WIPL however denied liability and refused to settle. This led YIRL to file a claim on 29 April 2010.In its Statement of Claim, YIRL seeks:
   

(i) $2,523.00

(ii) damages for breach of contract

(iii) interest pursuant to Section 3 of the Law Reform (Misc Provision) (Death and Interest) Act from 24 December 2009 until payment.

(iv) costs on a solicitor client basis.

5. It appears that shortly after the claim was filed, WPIL was put under receivership in New Zealand. On 19 May 2011, however, judgment by consent (of the receivers) was entered against WPIL in the sum of $2,523,000.00.
   

ISSUES

6. YIRL’s entitlement to costs and interests is well settled in law. What I have to determine now though is whether or not YIRL, in addition to the settlement, is entitled to damages.
   

INTERESTS

7. Interest can be awarded under section 34 of the Insurance Law Reform Act 1996which provides:
   

"34. – (1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this Section.

(2) the period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is earlier of the following days:

(a) the day on which the payment is made;

(b) the day on which the payment is sent by post to the person to whom it is payable.

(3) The rate at which interest is payable in respect of a day included in the period referred to in sub-section (2) is the rate that is prescribed by regulation."

8. An affidavit of MakeretaVoi Downey filed on 25 May 2011 deposes thus:
   

INTEREST

8. I am advised and believe the Honourable Court has the discretion to award interest on debts and damages between the date when the cause of action arose (24 December 2009) and the date of the judgment (13 May 2011).

9. I annex and mark with the letter "C" a document prepared by me showing the interest payable on the liquidated debt at 10% to the 13 May 2011 being $FJD356, 639.84

9. Mr. Justice Mohammed Ajmeer in Kalabo Investment Ltd v New India Assurance Company Ltd [2014] FJHC 388; HBC02.2014 (30 May 2014) canvases the law relating to interest.
   
10. The interest rate under section 34(3) is prescribed by the Insurance Law Reform (Interest Ratesulations 2004. The. The interest rate payable in respect of each day included in the period referred to in that section is 1r annum. As per regulation 2, interest is calculated from the commencement date and accruescrues on a daily basis up to the date of payment.
    
11. I award interest at the rate of 10% being $FJD356, 639.84which is calculated from the date the cause of action arose (24 December 2009) to the date of the consent judgment (13 May 2011).
    

COSTS

12. Downey deposes as follows in her affidavit:
    

COSTS

10. I annex and mark with the letter "D" copies of accounts from the plaintiff legal advisers in respect to this matter. The total amount of legal costs payable to date is $FJD 110, 092. 37. I say the cost of legal advisors was a direct result of the defendant improperly refusing indemnity under the policies of insurance over the Resort.

13. In all of the cases cited to me by Mr. Lowing, the courts have awarded nominal costs around the vicinity of $1,000 to $2,000. I award costs in this case which I summarily assess at $2,500.
    

DAMAGES

14. The plaintiff claims damages in the sum of $1,500,00-00 ($1.5 million) which it says resulted from the non-payment of the insurance claim.
    
15. In paragraphs 5 to 7 of Downey's Affidavit, she sets out the basis for the claim for damages as follows:
    

5. I annex and mark with the letter "B" a document headed "Damages quantified" (the damages assessment document). I prepared the damages assessment document on the advice of my legal counsel. I say the matters of fact averred to in the damages assessment document were derived from the source materials including the plaintiffs' financial statements for the years 2006 to 2009 (inclusive) together with bank statements and like documentation.

6. I say that the non-payment of the insurance claim caused the plaintiff to borrow to rebuild the property damaged in the fire. The cost of borrowing was such that it caused Westpac Banking Corporation Ltd, our bankers, to include a condition on the loan approval that the loan was repayable on or before 31 January 2011 (the Condition). The insertion of the Condition caused the plaintiff to sell the Resort on a "forced sale" basis and reduced the value of the resort by at least $FJD1, 500, 00.

7. Annexed to the damages assessment document are valuations of Rolle Associates dated June 2010 and December 2008. As a qualified property valuer, I say the valuations are accurate and a proper reflection of the values of the property valued as at those respective dates.

16. I start by stating the basic principle that a claim under an insurance contract is a claim for damages for breach of contract. The issue is usually one concerning the measurement of an insured's basic entitlement to indemnity.
    
17. The question which arises in this case is whether or not a delay in payment can render the insurer liable in damages more than the insured's basic entitlement to indemnity?
    
18. Can the Court award damages over and above the basic indemnity cover which is the subject of the insurance contract? If so, would such a claim for damages be founded on contract, for example for wrongful repudiation of liability[1] or would it be based on common law principles? If the court were to allow such a claim for damages based on breach of contract, then what about the contracted limit of the sum insured?
    
19. In Kalabo Investment Ltd v New India Assurance (supra), Ajmeer J cited the following case:
    

In Protean (Holdings) Ltd & Ors v Home Assurance Co (1986) 4 ANZ Insurance Cases 60-683, the court held that 2 months was a reasonable time for full and proper investigation and the insurer was in breach after that.

20. I accept the above. But what exactly is the insured entitled to after that?
    
21. In Grant v Co-operative Insurance Society (1984) 134 N.L.J. 81, the insured recovered costs of repairs to the insured house as well as the costs of protecting the house while it was unoccupied and also the cost of alternative accommodation. They were not entitled, however, to damages for discomfort or for the mental anguish suffered by the wife against whom a wholly unfounded allegation of arson had been made.
    
22. In the above case, the insured had sought damages over and above the basic indemnity cover on the allegation that the insurer had wrongfully repudiated liability. The court assessed and awarded damages on the normal contractual principles of remoteness based on Hadley v Baxendale 9 Exch. 341, 156 Eng. Rep. 145 (1854).
    
23. The opposing view is discussed in Birds, Modern Insurance Law (4thed) (1997) at pages 262 to 263[2] is that the recovery of damages beyond basic indemnity is wrong in principle because the contract of insurance is essentially a promise by the insurer to the insured to indemnity the latter in the event of a specified loss or expense.
    

There is New Zealand Authority, Stuart v G.R.E. Assurance of New Zealand (1988) 5 A.N.Z. Ins. Cases 75, 274 to the same effect as Grant v Co-operative Insurance Society (1984) 134 N.L.J. 81, but in a marine case, The Italia Express (No. 2) [1992] 2 Lloyd's Rep. 281, the validity of these cases was doubted and it was held that the principle of recovery of damages beyond the basic indemnity was inapplicable to marine insurance. Hirst J felt that the nature of the contract of indemnity, in the light of authorities, militated against the availability of such damages. He relied in particular on a dictum of Lord Goff in The Fanti and The Padre Island [1991] 2 A.C at 35 that the promise of indemnity in an insurance contract is simply "a promise to hold the indemnified person harmless against a specified loss or expense" The reasoning of the learned judge is persuasive and has recently been approved and applied by the Court of Appeal in a non-marine insurance case (Sprung v Royal Insurance (U.K.) Ltd [1997] C.L.C. 70.

24. Birds appear to acknowledge the approach in paragraph 21 above as the applicable one. However, he appears to prefer the approach in Grant v Co-operative when he says:
    

Despite the logic of this result (referring to Sprung v Royal Insurance (U.K.) Ltd [1997] C.L.C. 70), it could be regarded as unfortunate that, damages are not recoverable from an insurer who unjustifiably delays in paying.

THE POSITION IN FIJI

25. In Fiji, the Fiji Court of Appeal in FAI Insurance (Fiji) Ltd v Prasad's Nationwide Transport Express Courier Ltd [2008] FJCA 101; ABU0090.2004S (16 April 2008), dealt with exactly the same issues, though in a slightly different insurance context.
    
26. The insured vehicle was used by the insured to fulfil its obligations under a cartage contract with the Government of Fiji. During the 18-month period when the vehicle was in a state of "un-repair", the insured had to hire other vehicles at its own cost to fulfil its obligations at a cost of $5,280 per month (i.e. a total of $102,960[3]). The evidence showed that the insurer had delayed considerably and deliberately in even assessing the claim.
    
27. The FCA reasoned that a term should be implied, to give the insurance contract business efficacy, that the insurer was obliged to carry out its obligations within a reasonable time. Otherwise, if an insurer could delay indefinitely, its obligations under the policy would have no value[4].
    
28. Having said that, the Fiji Court of Appeal then said that, once a finding is made that an insurer has breached its contract by failing to repair or replace the vehicle within a reasonable time, the Court is then entitled to award damages on ordinary common law principles, provided that the loss claimed flowed from the breach and was foreseeable[5].
    
29. Later, the Fiji Court of Appeal, after considering Sprung (supra) and a few other English authorities[6], resolved, for Fiji, the dilemma that bothered Birds (supra).
    

[93] ....An insurer is not automatically in breach of its obligations when it declines indemnity under a policy. That is for a court or arbitrator to decide and it would be unreasonable for an insurer to run the risk of consequential damages from the point of refusal of indemnity until determination by the court or arbitrator. When indemnity is declined, in part or in full, the insured can organise its business or affairs with some degree of certainty.

[94] At the point the claim is refused it sounds in damages, with those damages to be quantified when a court or arbitrator determines whether or not the claim was validly refused in full or in part and thus whether there was a breach at all when the claim was refused.

[95] In the present case, the insurer is in breach of its preliminary duty to assess the claim and determine the extent, if any, to which it will indemnify the insured. At the time beyond which it is reasonable to assess or determine a claim, the insurer is in breach of duty, and all that remains for the court is to assess whether any damages flow from that breach.

[96] In this situation damages do not sound at the time of breach because it is impossible to quantify them. And in this situation the insured cannot organise its affairs or business with any degree of certainty.

[97] The four English cases are not authority for a general proposition that insurers are not liable for consequential loss for breach of duty to assess and determine a claim within a reasonable time. If they can be interpreted as authority for such a proposition, then this Court respectfully disagrees.

(my emphasis)

APPLYING THE PRINCIPLES

30. I am bound by the FCA approach in FAI Insurance (Fiji) Ltd. However, in the particular circumstances of this case before me now, the delay in my view did not necessarily constitute a breach in terms of the FCA reasoning above.
    
31. My reasons follow.
    
32. I start by saying that WPIL has already consented to and settled the contracted limit of the sum insured on the business interruption policy. To award damages again on account of the factors deposed to in Downey's affidavit, prima facie, is to extend the scope of the ambit of the cover under the business interruption policy.
    
33. I accept that, as a matter of general principle, WPIL cannot be allowed to avoid liability for every consequential loss/damage caused by any delay on its part to fulfil its obligations to indemnify. However, just as the FCA said in FAI, WPIL is not automatically in breach of its obligations when it declines indemnity under the policy.
    
34. In this case, it is arguable that the fact that Dominion had settled its part of the claim promptly should be enough for WIPL to do the same for its part. However, if FAIis to be followed, then any damages to be awarded must be done so under common law. The problem in this case before me is that the plaintiff has only pleaded damages for breach of contract, not for common law damages.
    
35. In any event, there is no clear evidence before me to fortify the alleged forced sale and the consequential reduction in the value of the hotel. Also, applying Hedley v Baxendale, it is hard, in any event, to see how Westpac's stipulation, assuming it really did so (no evidence of such) as deposed to by Downey, was foreseeable:
    

I say that the non-payment of the insurance claim caused the plaintiff to borrow to rebuild the property damaged in the fire. The cost of borrowing was such that it caused Westpac Banking Corporation Ltd, our bankers, to include a condition on the loan approval that the loan was repayable on or before 31 January 2011 (the Condition). The insertion of the Condition caused the plaintiff to sell the Resort on a "forced sale" basis and reduced the value of the resort by at least $FJD1, 500, 00.

36. In the final, I make no award for breach of contract.
    

ORDERS

1. Interest at the rate of 10% being $FJD356, 639.84which is calculated from the date the cause of action arose (24 December 2009) to the date of the consent judgment (13 May 2011).
   
2. Costs to the plaintiff in the sum of $2,500.
   
3. No award as to breach of contract over and above YIRL's basic entitlement to indemnity, which has already been settled.
   

Anare Tuilevuka
JUDGE

15 April 2016.

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^[1]As happened in Grant v Co-operative Insurance Society (1984) 134 N.L.J. 81, available on LEXIS. See also discussion in John Birds,Modern Insurance Law (4^thed), Sweet & Maxwell,London, (1997). Print (at pages 262 to 263).
^[2]See footnote 1.
^[3]The mathematics seems a little inaccurate.
^[4]The FCA said thus:

26] For a term to be implied (1) it must be reasonable and equitable (2) it must be necessary to give business efficacy to the contract (3) it must be so obvious "it goes without saying" (4) it must be capable of clear expressions and (5) it must not contradict any express term of the contract: BP Refinery (Westernport) Pty Ltd v Shire of Hastings(1977) 180 CLR 266 at 282-3

[27] The appellant says that a term should not be implied because there is binding authority to the effect that there can be no damages for breach of such a term. In other words there is no business efficacy in implying a term if there is no remedy for its breach.
[28] The question of whether or not there is a remedy, and a discussion of the authorities relied upon by the appellant, are dealt with under Ground 7 below where this Court finds that damages can be awarded for such a breach.

[29] If an insurer could delay repairing or replacing a damaged vehicle indefinitely its obligations under the Policy would have no value.

[30] A term requiring the appellant to perform its obligations under clause 2.1(a) of the Policy within a reasonable time satisfies the five tests in BP Refinery (Westernport) and must be implied.

[31] In this case nearly 12 months after the accident the appellant had still not repaired or re-instated the vehicle or paid the respondent money for it, at which point it was seized by the Bank. Moreover it was not until 6 months after the accident that the appellant took effective steps to have the vehicle assessed. Having the vehicle assessed is an essential first step in the performance of the appellant’s obligation under clause 2.1(a) of the Policy.

[32] In this Court’s opinion the conclusion that the appellant did not repair or re-instate the vehicle within a reasonable time, or even begin to do so, is inescapable.

^[5]The FCA said:

[74] The Court is of the view that once the trial judge found that the appellant was in breach of its contract by failing to repair or replace the vehicle within a reasonable time, he was entitled to award damages on ordinary common law principles.

[75] It seems to the Court that the loss that the respondent claimed flowed from the breach, namely having to hire a replacement vehicle, was entirely foreseeable. The only question is, for what period should such hiring costs have been allowed.

[76] Logically the period would commence at breach (the time beyond which it was reasonable for the appellant to take steps to repair, reinstate or replace the vehicle or to pay the respondent the vehicle’s value) and continue until it was clear that the appellant was not going to repair, replace or pay the value of the vehicle.

^[6]The FCA said:

[92] The English decisions are authority in cases where the insurer declines indemnity or full indemnity within a reasonable time. In none of the cases were the insurers in breach of a duty to consider or assess the claims within a reasonable time. In each of the cases the insured knew within a reasonable time either that the claim had been declined or partly declined.