Allianz has won a High Court appeal over a dispute triggered when the insurer declined to cover apartment damage caused by Cyclone Debbie, after a year earlier agreeing to pay for some of the repairs despite undisclosed defects.

The court heard the initial commitment in May 2017 was “ambiguous” over its extent and after incurring nearly $200,000 of costs the insurer clarified the following May that it would cover repairs and replacements for an estimated total of $918,709.90, with Delor Vue Apartments to pay for other works.

The insurer said if the terms were not agreed to, it would decline indemnity due to the non-disclosure. Delor Vue rejected the offer and took legal action, saying Allianz remained bound by the 2017 commitment and had waived its right to decline cover.

The Federal Full Court in a split judgment previously found in favour of the apartment complex, but the High Court majority decision handed down this week supported the Allianz appeal.

“In the law of contract there are limited circumstances in which a gratuitous waiver of rights becomes irrevocable,” Chief Justice Susan Kiefel and Justices James Edelman, Simon Steward and Jacqueline Gleeson said in the decision.

“In this case, where the body corporate did not establish that it had suffered any detriment in reliance upon the insurer's representation, none of those limited circumstances is present.”

Allianz had not breached its duty of utmost good faith when, “acting lawfully and honestly”, it clarified the extent of its offer, while requiring acceptance for it to waive the non-disclosure rights, the judgment says.

The court was told Delor Vue Apartments in Cannonvale, near Airlie Beach, comprised 11 buildings each with about six residential lots. Before entering into the policy Delor Vue knew that the buildings had serious non-structural defects, with soffits and eaves badly constructed and affixed.

After the cyclone, Allianz agreed to grant indemnity despite the non-disclosure, for certain parts of the damage, including for internal water damage and repairs to fascia and guttering and roof sheeting in some circumstances.

Allianz then discovered more defects with the roof construction, relating to the trusses and the way they had been tied down to the building.

“Since it was necessary for all the work to be commissioned at the same time, Allianz and Delor Vue needed to agree on the sequence of work and the costs they would each incur. But a dispute arose as to those matters,” the judgment says.

Delor Vue’s solicitors wrote to Allianz on May 3 2018 saying the failure by the insurer to state its position on indemnity “with any clarity” had caused delays in the progression of the claim and in the repairs. Other allegations were also made.

Allianz responded on May 28, reiterating the non-disclosure by Delor Vue and proposing what it described as a “settlement”, and said its loss adjusters had quantified Allianz’s cost of repairs from the cyclone damage at $918,709.90, while Delor Vue’s cost of repair or replacement of pre-existing defects totalled $3,579,432.72. The letter said the indemnity offer would “lapse” if it was not accepted.

By that stage, Allianz had paid to Delor Vue amounts totalling $192,471.74 for building repairs, compensation to unit holders for loss of rent, alternative accommodation expenses and professional fees.

The majority High Court decision says the only sense in which Allianz could be said to have “revoked” its waiver on May 28 was that the continued operation of the waiver was made conditional upon acceptance of terms, in order to resolve the dispute between the parties, within a reasonable time.

Delor Vue had not shown any detriment that could be inferred due to the loss of an opportunity to engage in repair works itself between May 2017 and May 2018 and there was a “clear benefit” from the money spent by Allianz.

There was no breach of the duty of utmost good faith, with the 2018 letter giving “more detailed and precise content” to the offer outlined a year earlier, the decision says. The judgment points to a comment in the Full Court that said Allianz was adding content to an offer to “pay a large gratuitous amount in respect to a liability which did not exist” albeit with a limited time of acceptance.

In a dissenting view, High Court Justice Stephen Gageler said Allianz’s reassertion in May 2018 of its statutory right to decline cover was “unreasonable, indeed capricious”, after the insurer had a year earlier unequivocally announced it would not be relying on that right.

“Whether or not that fully informed and unequivocally communicated choice constituted a legally operative waiver, in my opinion, the statutorily implied contractual requirement that Allianz act towards Delor Vue with the utmost good faith entailed that Allianz was from then on bound to adhere to the position it had announced,” he said. “Allianz was not entitled to go back on its word. It was not entitled to blow hot and cold.”

The decision is available here.