The proceeding arose from the high-profile fire at a storage warehouse in West Footscray. The warehouse contained large quantities of toxic chemicals, and the fire had a severe impact on the surrounding community and environment.
The Supreme Court of Victoria held that an insured was not covered by an expired policy despite ongoing email negotiations regarding renewal and an offer for a 14-day extension on the policy as there was no acceptance of any offer by the insured at the time of the fire.
We outline the facts and discuss how insurance companies can mitigate the risks associated with negotiating renewed insurance policies after their expiration date has arisen.
The fire occurred on 30 August 2018 and was the subject of investigations by the Coroner, the Victoria Police Arson and Explosives Unit, the Environment Protection Authority, WorkSafe, Maribyrnong City Council and the Metropolitan Fire Brigade.
The Plaintiff, the owner of the warehouse, claimed indemnity under a property insurance policy for losses caused by the fire. The warehouse was a total loss.
The policy was dated to expire on 24 August 2018, six days prior to the fire. The Plaintiff relied on emails exchanged on 24 August 2018 and one email on 29 August 2018 to argue that there was an agreed extension of 14 days from 24 August 2018 to 7 September 2018.
The Plaintiff submitted that this was either due to an implied acceptance of an offer to extend the cover for 14 days, or the formation of a unilateral contract which was accepted by conduct on behalf of the Plaintiff, being the consideration of the terms for renewal in the new policy.
By way of background, on 18 July 2018, the defendants' representative advised the Plaintiff's insurance broker that the policy was due to expire on 24 August 2018. In early August emails were exchanged about particular terms to be amended in the renewed policy regarding the occupancy of the property.
On 24 August 2018, the defendants' representative declined to renew the insurance policy due to concerns about what was being stored in the warehouse. However, given the policy expired that day, they offered a 14-day extension with a net premium of $3,506.06. The plaintiff's broker replied providing additional information and asked the defendants' representative to review the decision to decline the renewal of the policy but did not refer to the 14-day extension.
On 27 August 2018, emails were exchanged providing further information on the proposed terms of the renewal policy. On 29 August 2018, the defendants' representative sent the plaintiff's broker the renewal quotation and repeated the offer of the 14-day extension in exchange for an extra premium.
The fire started at 5.00am on 30 August 2018. The plaintiff's broker responded accepting the terms of the renewal policy at 8.44am on 30 August 2018. On 2 October 2018, the plaintiff's broker remitted the premium to the defendants' representative, which was returned by cheque dated 4 October 2018.
Riordan J held that at no time after the offer to extend the policy for 14 days was sent by the defendants' representative on 24 August 2018 did the plaintiff provide acceptance. For this to occur, reference to the 14-day extension and acknowledgement of the promise to pay the premium of $3,506.06 was required.
The plaintiff's request for the defendants to reconsider their refusal to renew the original policy was consistent with an intention not to accept a mere extension.
Riordan J considered the case of Canberra Pools Pty Ltd v MMI General Insurance Ltd (2000) 98 FCR 296 in outlining the principles regarding contracts to renew or extend insurance policies. His Honour distinguished that case as the parties had agreed the insured was being 'held covered' after the expiration of the original policy and therefore, there was an implied term that the cover would continue for a reasonable time in the absence of termination by either party. Here, the email on 9 August 2018 stated that 'no automatic hold covered provisions apply' and therefore Riordan J refused to accept that there was an implied term that cover continue for a reasonable time.
Riordan J also outlined the principles regarding unilateral contracts as considered by Australian Woollen Millsand Gippsreal Ltd v Registrar of Titles and Kurek Investments Pty Ltd (2007) 20 VR 157. His Honour found that a reasonable business person would read the offer of extension in the 29 August 2018 email as a repeat of the earlier offer of extension made on 14 August 2018, which no doubt required acceptance. This was the only interpretation that made commercial sense as the plaintiff was required to commit to payment of an extr
His Honour suggested that a unilateral contract as referred to in Australian Woollen Mills could arise if the insurer promised to hold the insured covered for a period of 14 days in exchange for the insured considering a proposed renewal of the policy, but this was not the case on the facts. The quid pro quo for the extension was not consideration of the terms of the renewed policy but the promise to pay an extra premium — which did not occur.
This case illustrates the importance of expressly accepting offers which are intended to be relied upon as it is difficult to prove implied acceptance in the absence of clear language.
Insurers should be wary of creating unilateral contracts, such as that referred to in Australian Woollen Mills in circumstances, where an extension of an insurance policy is offered in exchange for considering the new terms of a renewal policy. However, as in this case, insurers can avoid this by ensuring their offer of extension requires agreement to pay an additional premium.
In addition, insurers should remain vigilant about the consequences of granting 'held cover' to insureds, in that those with 'held cover' will have their cover extended by an implied term, for a reasonable period, in the absence of termination by either party.
The court decision is available here.
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