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Claim for interest under the Insurance Contracts Act

Claim for interest under the Insurance Contracts Act

Published on December 5, 2013 by Adrian O’Dea

Claim for interest under section 57 of the Insurance Contracts Act 1984 (CTH)

Practitioners acting in relation to a claim made by an insured pursuant to an insurance contract (or under the Insurance Contracts Act 1984 (Cth) (“ICA”)) may find the Judgment of Hislop J in Thompson v NSW Land and Housing Corporation (No 3) [2013] NSWSC 1658 of interest.  Carroll & O’Dea acted for the insured (Pestkil) in the Supreme Court of New South Wales proceedings.
In the Judgment, his Honour considered the claim made by Pestkil against the insurer (Gerling) for interest pursuant to s 57 of the ICA.

Section 57 of the ICA provides:

“Interest on claims

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 the 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 subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.
4) This section applies to the exclusion of any other law that would otherwise apply.
5) In subsection (4):

law means:

(a) a statutory law of the Commonwealth, a State or a Territory; or
(b) a rule of common law or equity.”

Section 57 of the ICA is primarily “punitive” legislation and is intended to secure prompt payment of claims by insurers.  The compensatory effect is secondary and not determined by considerations peculiar to the insured.
Hislop J commented that it was appropriate for the Court to follow Nicholas J’s decision in Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857, (2007) 213 FLR 174, where Nicholas J held at [7]:

“In my assessment, the cases to which I have referred establish that the question of reasonableness is to be judged by reference to the true position in respect of the claim with allowance to be made for the insurer to have a reasonable period of time within which to investigate the claim and to consider its position. The discretionary determination is to be made having regard to the particular circumstances of the case, including the probable issues which require investigation. Under the Act the court is not required to evaluate and pronounce upon the opinion or decision making process of the insurer. It is not relevant that the insurer acted bona fide in denying the claim, or when the judgment of the court established the insurer’s liability to pay it. In short, the award will be calculated on the basis of what the court finds is a reasonable time for completion of the insurer’s investigation of the claim … Under s 57(2) liability to pay interest is to be calculated with regard to the day on which it was unreasonable for the insurer to withhold payment of the amount after it had become liable to pay it in response to a claim.”

and at [23]:

“… acceptance of the insurer’s principal submission would involve the court in an evaluation of the reasonableness and bona fides of the position adopted by it. The cases make plain that this is a task which should not be undertaken.”

Pestkil succeeded in its claim for interest under s 57 of the ICA, with Hislop J accepting Pestkil’s submissions that:

(a) The true position is that Gerling was liable to pay an amount under the contract of insurance;
(b) Gerling withheld payment of the amount after it had become liable to pay the amount in response to Pestkil’s claim;
(c) It was unreasonable for Gerling to withhold payment of a claim when all the investigations for a decision had been completed (Vintix Pty Ltd v Lumley General Insurance Ltd (1991) 24 NSWLR 627 at 650, affirmed in Lumley General Insurance Ltd v Vintix Pty Ltd (1991) 24 NSWLR 625) and a decision had been made; and
(d) From the time indemnity was refused by Gerling on 13 February 2008 it had been unreasonable for Gerling to withhold payment of costs and expenses as they were incurred by Pestkil.

Hislop J also commented that it is unnecessary that a claimant for interest under s 57 of the ICA establish that it has suffered loss as a result of being deprived of the use of money paid by it to its legal advisers.

Other points to highlight include:

• The history and principles of application of s 57 of the ICA and s 101(4) of the Civil Procedure Act (“CPA”) differ markedly;
• S 57 of the ICA applies to the exclusion of any other law that would apply (and thus prevails over s 101(4) of the CPA); and
• S 57 of the ICA applies in relation to claims under a contract of insurance even if there is no litigation on foot.

 

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