Policy interpretation: Determining if a deductible is to be applied to each “claim” made under a policy, or if a deductible attaches to the single event arising in “claims” under a policy.
Rawson Homes (Rawson) is a building company based in New South Wales. Allianz Australia Insurance Limited (Insurer) was the insurer of an annual construction policy (Policy) held by Rawson. The Policy contained a $10,000 deductible. The definition of deductible in the Policy provided:
“’Deductible’ means either the amount of money specified in the Schedule or stated in the Policy for each applicable Section or type of loss as specified, that the Insured must contribute as the first payment for all claims arising out of one event or occurrence.”
On 18 January 2017, a severe hailstorm passed through Sydney causing damage to parts of a residential development (122 houses) that were being constructed by Rawson.
Rawson sought indemnity from the Insurer for the damage caused to the development as a result of the hailstorm. Whilst initially dispute arose in relation to a number of coverage issues, the primary dispute dealt with by the Court was in relation to the applicable deductible to be applied.
Rawson’s position was that one deductible of $10,000 was payable. The Insurer’s position was that a $10,000 deductible was payable in respect of each of the 122 damaged houses.
The decision at trial
In its decision, the Court commented that as a commercial contract, a policy of insurance is to be given a business-like interpretation. The task of interpretation is an objective one that requires attention to the language used by the parties, the commercial circumstances that the document addresses and the objects which it is intended to secure.
In interpreting the Policy, the Court made reference to the Policy definition of “deductible”, namely, that the deductible is payable for all claims arising out of one event. The Court determined that the Policy reflected an intention for the deductible to be payable “per event” and that the deductible attaches to and is to be paid by way of a contribution to all Material Damage claims arising from the “one event”. The Court characterised the hailstorm as the one event that gave rise to Rawson’s claim (or claims).
Ultimately, the Court determined that a reasonable businessperson would understand the definition of “deductible” in the Policy to mean that the amount of the deductible, namely $10,000, is to be contributed by Rawson as the first payment for all claims arising out of the one hailstorm.
An appeal by the insurer in 2021 was successful with the NSW Court of Appeal determining that the $10k deductible was applicable to the claim for damage to each house that was the subject of an individual insured contract. The Scheme of the policy was that there was a relevant deductible for the cover provided against losses arising from an indemnifiable event for each insured contract.
Implications for you
This decision provides yet another example of the importance of ensuring that a business-like interpretation is considered as part of any policy wording to ensure that, as seen in this case, the correct application of a deductible is applied.