Building and Construction, COVID-19, Insurance, property, Property Damage

Compelling a Trustee to make Distribution – Saunders v Vautier

25 March, 2015

COVID-19 has interrupted life in Australia as we know it. In the context of insurance, COVID-19 was declared to be an ‘insurance catastrophe’ by the Insurance Council of Australia on 11 March 2020, with the consequences of the catastrophe being unknown.

The purpose of this article is to look at a number of the practical issues we have encountered in business insurance and provide suggestions for the steps insurers and insureds can take to best prepare themselves for the continuing changes as a result of COVID-19.

Business Insurance

There is significant commentary which identifies the presence of exclusions in business interruption cover for quarantinable disease.1 Such exclusions will apply for direct losses which arise from Government Restrictions implemented for COVID-19. However, there are a number of issues which we are seeing in the face of COVID-19, including:

  • Notification of risk for the developing COVID-19 changes
  • Property insurance for unoccupied premises
  • Managing existing claims- delays in repairs or reinstatement following damage to property
  • Indirect Business Interruption losses
  • Calculation of the indemnity period.

We look at each of these issues, in the face of the evolving changes from COVID-19.

Changes in risk

Most business and property policies impose an obligation on an insured to notify its insurer of any change in circumstance which may alter its risk, with the obligation continuing throughout the period of insurance. Undoubtedly, COVID-19 imposes risks on all businesses, and most of these risks will continue to evolve with time.

The question is: what obligations does an insured have to notify an insurer of these continually evolving changes to its business?

The simple answer is, it probably doesn’t. In most wordings, the duty of disclosure is limited to circumstances which are not common knowledge, or something which an insurer should know about. Therefore, unless the risk arises outside the known Government Restrictions and is unique to the insured’s own business, the Government Restrictions for COVID-19 are unlikely to impact on an insured’s duty of disclosure.

Relevantly, the duty of disclosure applies to circumstances which may affect an insurers’ decision to provide cover, and the terms of that cover. In circumstances where the restrictions are operating across Australia, and are intended to be temporary measures, we consider it is unlikely that COVID-19 will alter the long-term assessment of cover available under business policies.

Unoccupied premises

It is common for first party property insurance to contain an exclusion for damage or theft to property during an extended period of non-occupation (i.e. 60 days). The logic behind the exclusion is the risk of damage or theft will increase where a premise is unoccupied, and therefore, an endorsement of cover is required for this increased risk.

So, what happens where a property is temporarily closed as a result of Government Restrictions and does this constitute being unoccupied for the purpose of an exclusion?

‘Unoccupied premises’ is not usually defined in insurance policies. In considering the application of such an exclusion, the New South Wales Court of Appeal has confirmed the meaning of ‘occupy’ varies according to the context in which it is used, and bona fide occupancy was “a question of fact and degree” dependent on the circumstances in question.2

On a strict reading, the temporary closure of a business as a result of the Government Restrictions does not constitute non-occupation of premises, as the premises remain occupied, but are not open for business. Further, a number of insurers have implemented steps to protect insureds, including no increases to premiums for closed premises, which override a non-occupation exclusion.

Delays in repairs or reinstatement

It is almost inevitable that ongoing Government Restrictions will impact on the timing of repairs or reinstatement for existing property claims.

So, what is the insurance position where the repairs or reinstatement are delayed (and therefore, time and costs are increased), as an indirect result of COVID-19?

Insurers need to undertake an assessment on the proximate cause of the loss. If the loss results from a Government Restriction (i.e. forced closure of the building contractor), then it will be necessary to consider the application of any exclusions for disease. However, if the cause of the loss is more remote (i.e.- delays in obtaining materials and delivery times as a result of increased pressure on the workforce during the COVID-19 period), exclusions for disease may not apply.

Most policies impose an obligation for repairs or reinstatement to be ‘commenced and carried out with reasonable dispatch’, with the insurer entitled to reduce its liability for costs which result from delays. However, ‘reasonable’ is likely to be construed in the context of the current COVID-19 environment, and close consideration will need to be given to what is ‘reasonable’ in these circumstances.

Indirect Business Interruption losses

Ordinarily, business interruption cover is triggered by an insured event of loss or damage, and cover is only available for the losses which result from the insured damage. Further, as has widely been reported, most business interruption policies contain exclusions for losses which result from disease.

But what happens where the interruption is more remote (i.e. delays or difficulties in sourcing stock or materials due to COVID-19), and who incurs these losses?

As a starting point, it is necessary to consider the proximate cause of the loss to determine whether it will, or wont, trigger any exclusions for disease.  For direct losses (i.e. business closure by Government Restrictions), close consideration will be required of any applicable exclusions. However, for more remote losses (delays in processing orders), a more complex analysis may be required.

The law recognises that where there is more than one cause of loss, systems are required to apportion the loss across the different causes.3 This is important for more remote losses where exclusions may only be triggered in part, but other parts of the claim may be covered.

Insurers should be working with adjusters to ensure systems are in place (where possible) to apportion losses between the direct and indirect consequences of COVID-19.

Calculation of the indemnity period

All business policies contain an indemnity period for business interruption (usually between 12 and 36 months). So, what is the flow on effect of delaying repairs or reinstatement, and the subsequent interruption (which is not excluded) continuing outside the indemnity period?

Of all the issues addressed in this article, this is by far the most difficult to determine. Australia (along with the rest of the world) is facing unprecedented restrictions, and there are no applicable terms and conditions in the policies which can be considered.

It is our view this is a discretionary issue for insurers. Indemnity periods are set, as part of the risk calculation, and the premium is applied on this basis. Further, we are not aware of circumstances where the indemnity period has been amended by agreement, following a notified loss. The costs for insurers to do so, across a portfolio of claim, will be substantial.

1 COVID-19 is a quarantinable disease pursuant to the Biosecurity Act 2015.
2 McGeown v NSW Land and Housing Corp  [2015] NSWCA 23.
3 PMB Australia Ltd v MMI General Insurance Limited [2000] QSC 329.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
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