QBE INSURANCE (INTERNATIONAL) LTD v ALLIANZ AUSTRALIA INSURANCE LTD [2018] NZCA 239

QBE INSURANCE (INTERNATIONAL) LTD v ALLIANZ AUSTRALIA INSURANCE LTD [2018] NZCA 239[5 July 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA416/2017[2018] NZCA 239BETWEEN QBE INSURANCE (INTERNATIONAL)LIMITEDAppellantAND ALLIANZ AUSTRALIA INSURANCELIMITEDRespondentHearing: 28 March 2018Court: French, Brown and Gilbert JJCounsel: P Davies and C R Langstone for AppellantC M Laband and A R Tosh for RespondentJudgment: 5 July 2018 at 11 amJUDGMENT OF THE COURTA The appeal and cross-appeal are dismissed.B The appellant must pay the respondent costs for a standard appeal on aband A basis and usual disbursements. There is no award of costs on thecross-appeal.____________________________________________________________________REASONS OF THE COURT(Given by French J)Introduction[1] At 4.35 am on 4 September 2010, a major earthquake struck Christchurch.It caused significant damage to a commercial property owned by Body Corporate74246. The property was insured with QBE Insurance (International) Ltd.[2] The QBE policy was due to expire at 4 pm that same day. A month earlier,QBE had advised the insurance broker acting for the Body Corporate it did not wantto renew the policy. The broker had accordingly organised new cover with a differentinsurance company, Allianz Australia Insurance Ltd. The policy schedule provided byAllianz stated that the effective period of insurance was "04/09/2010" to "4pm on04/09/2011".[3] QBE accepted it was liable for the earthquake damage under its policy.However, it sought a 50 per cent contribution from Allianz on the grounds that as at4.35 am on the 4 September 2010, the property was insured by both companies.Allianz disputed this and QBE then issued proceedings in the High Court.[4] It was common ground that the Allianz policy commenced on4 September 2010. The issue was the start time. Did it commence, as QBE claimed,at 12 midnight on 4 September 2010, in which case the property was doubly insuredat the time of the earthquake and Allianz liable to contribute? Or did it commence at4 pm on the expiry of the QBE policy, in which case Allianz was not on risk at theearlier time of the earthquake?[5] In the High Court, Whata J held that, correctly construed, the Allianz policycommenced at 4 pm and therefore Allianz was not liable.1 Although it was notnecessary to his decision, the Judge also addressed a fall back argument raised byAllianz that if the policy did mean what QBE claimed, then it should be rectified.Justice Whata held rectification was not available.21 Body Corporate 74246 v QBE Insurance (International) Ltd [2017] NZHC 1473 [HC decision]at [42] and [67].2 At [63]–[66].[6] QBE now appeals the decision. Allianz cross-appeals the Judge's ruling onrectification.Factual background[7] The insurance broker acting for the Body Corporate was Mr James. He hadworked in the insurance industry for over 40 years. After QBE notified him it did notwant to renew the policy, he consulted the Body Corporate and was instructed to finda new underwriter. Mr James had heard that Allianz was looking to gain a foothold inthe New Zealand property market. Accordingly on 19 August 2010, he emailedAllianz's business development manager asking him if he would:like to provide terms for The attached Body Corp. at present with QBE.Apparently does no longer fit into their "category"[8] Attached to the email was a summary Mr James had prepared detailing theterms of the expiring QBE policy. The summary showed the period of insurance was"04/09/2009 to 04/09/2010".[9] On receipt of the email, Allianz used the information from the schedule to loadthe risk onto its computer system. The computer system then produced premiumfigures which Allianz's business development manager Mr Lowe emailed to Mr Jamesthe following day saying:thanks for submission on above. Is there a valuation on the building?Looking at following:-MD comp rate .105%, Eq rate .065%BI comp prem $175, Eq rate .065%Pl/Sl comp prem $275.per standard Allianz wordings, including Property Owners Endorsement onthe PLAny queries let me know.[10] Mr James responded saying the figures looked good and that there was nocurrent valuation.[11] Following the exchange of emails, Mr Lowe confirmed to Mr James that allwas in order. Mr James took instructions from the Body Corporate. In accordancewith those instructions, he then verbally accepted Allianz's quote and instructedAllianz to hold the risk covered from 4 September 2010. It appears the placing of theinsurance was done verbally over the telephone at some time prior to4 September 2010.[12] It was common ground that at no stage did Mr James or Mr Lowe everspecifically discuss the start time for the Allianz policy. It was also common groundthat the Body Corporate never instructed Mr James to obtain double insurance. Nordid Mr James ever ask Allianz to provide cover that overlapped with the QBE policy.[13] In accordance with standard insurance practice, Mr James was required to sendAllianz the closings within 30 days of the policy start date. This he did in the form ofan insurance summary which he forwarded to Allianz on 16 September 2010. It wassimilar to a summary he had earlier sent to the Body Corporate on 4 September 2010.[14] The summaries both contain a reference to the period of insurance as being"04/09/10 to 04/09/11".[15] When Allianz received Mr James' summary, it was scanned into the company'scomputer system and an employee manually added the effective date and the expirydate. This generated a welcome letter which Allianz sent to the Body Corporate.The letter dated 19 November 2010 enclosed an invoice for the total annual premiumas well as the policy schedule. Both the invoice and the schedule contained thefollowing notation:Period of Insurance:Effective Date: 04/09/2010Expiry Date: 4pm on 04/09/2011Insured: Body Corporate 74246[16] Evidence was given that at the relevant time the Allianz computer system didnot have a time field for the effective date and therefore it was not possible to type ina start time. There was also evidence that when employees manually entered thestart date, the computer system automatically assumed the risk was to expire12 months in the future. It was possible to manually override this to cater for thesituation where the policy period was not 12 months. However, it was not possible tooverride the 4 pm expiry date on the computer system because all Allianz policiesexpired at 4 pm.[17] Finally, we note that following the 4 September earthquake, Mr James lodgeda claim only with QBE.The High Court decision[18] In the High Court, Whata J focused on the interpretation of the phrase in theAllianz policy schedule "4/09/2010 [to] 4pm on 4/09/2011". He held that havingregard to the factual matrix, those words should be interpreted to mean that the policydid not incept until 4 pm on 4 September 2010.3 The Judge further held that ifnecessary he would have been prepared to imply a term to that effect.4 He did notconsider that rectification, as sought by Allianz, was either necessary or appropriate.5Arguments on appeal[19] In its written submissions, QBE contended Whata J reached the wrongconclusion because he wrongly considered double insurance was an evil and wronglyapproached the case from the standpoint of whether or not the parties to the Allianzcontract had intended to create a situation of double insurance. QBE argued this erroraffected virtually all aspects of the judgment and resulted in the Judge accepting andrelying on evidence of the subjective thoughts, opinions and intentions of thoseinvolved in the negotiations of the Allianz policy.[20] According to QBE, the correct approach was for the Judge simply to determinethe meaning of the Allianz contract by applying ordinary principles of interpretationand then examining what consequences might flow from that determination. To put itanother way, the correct question was not whether the parties had intended to contractfor double insurance but rather whether that was the result of the words they used.QBE submitted the plain meaning of the Allianz policy was that it came into force atmidnight on 4 September 2018. This being the plain and unambiguous meaning, no3 At [67].4 At [57].5 At [63].further interpretation or addition of words was either required or justified. Wordsshould mean what they say.Analysis[21] It is not surprising that the Judge focused on the interpretation of the words inthe schedule because the schedule was the focus of the pleadings. However, theschedule should not have been the focus. That is because, in our view, the correctanalysis of the evidence is that the contract of insurance had already been formedbefore the schedule came into existence. The schedule may be an aid to interpretingthe contract but it was plainly not the contract itself.[22] We consider the contract of insurance was formed by the email and telephonecommunications between the broker as agent for the Body Corporate and Mr Lowefor Allianz. They negotiated and agreed on cover. A binding contract of insurancethus came into existence well before 19 November 2010 when Allianz first created itsschedule.[23] We further consider that it is immaterial Messrs James and Lowe did notdiscuss a specific start time. What they did discuss and agree on was that the contractwas to take over from the existing QBE policy on the expiry of that policy, whatevertime that might be. That was the whole purpose of the contract. Whether or not theyeach subjectively assumed that would be 4 pm, because of their own usual practicesor understanding of industry norms, is essentially beside the point.[24] When we put this analysis to counsel for QBE at the hearing, Ms Davies agreedthe contract was formed by the communications between the broker and Mr Lowe andthat the schedule was not part of the contract. She said she had made that point toWhata J in the High Court but it had not been addressed in the judgment. However, shesubmitted the analysis was not fatal to QBE's argument because of the reference to"standard Allianz wordings" in Mr Lowe's email of 20 August 2010. That referencemeant, in her submission, that Allianz's policy document — but not the schedule —was incorporated into the contract. And because of the way the policy documentdefined "period of insurance" it meant the effective date was 4 September 2010.[25] We accept that may well be the case but it does not answer the critical pointthat viewing the communications objectively what was sought and what was agreedto be provided was a policy that incepted on the expiry of the QBE policy.The reference to 4 September 2010 in the policy documents is not inconsistent withthat. 4 September 2010 was undoubtedly the agreed effective date. But also agreedwas that the specific start time on the effective date was to coincide with the expiry ofthe QBE policy.[26] It follows the appeal must fail.[27] It also follows there is no room for an implied term and no basis forrectification. Rectification is a remedy that only arises where the recorded terms of acontract do not reflect the true agreement between the parties.6 That is not the situationin this case. The cross-appeal must therefore fail.Costs[28] As regards costs, counsel agreed these should follow the event and becalculated on the basis of a standard appeal.[29] Counsel did not however agree on the issue of whether there should beallowance for two counsel. Counsel for Allianz, Ms Laband, submitted two counselshould be allowed because of the volume of legal analysis required. We do not acceptthat submission. This case was, correctly analysed, a simple one. We therefore do notconsider it appropriate to certify for two counsel.[30] Counsel also disagreed as to how an unsuccessful cross-appeal should impacton costs. Ms Davies argued that if QBE were to lose on the appeal but win on thecross-appeal then costs should be viewed in the round and costs on the appealaccordingly reduced. Ms Laband submitted that costs should lie where they fell onthe cross-appeal and full costs be awarded on the appeal.6 Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd [2013] NZCA 442, (2013)13 TCLR 702 at [30]; Davey v Baker [2016] NZCA 313, [2016] 3 NZLR 776 at [37] and [40];Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560 (CA) at [33]; andChartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [48].[31] For the reasons traversed above, we consider the rectification argument wasmisconceived. But it occupied a minimal amount of hearing time and in thosecircumstances our view is that it would be unjust to reduce the costs otherwise payableto Allianz.Outcome[32] The appeal and the cross-appeal are dismissed.[33] The appellant must pay the respondent costs for a standard appeal on a band Abasis and usual disbursements. There is no award of costs on the cross-appeal.Solicitors:Fee Langstone, Auckland for AppellantDLA Piper, Auckland for Respondent