REFORMING INSURANCE LAW: - Law Commission

8.14 Although the point is not finally resolved, 437 there is authority for the proposition that s 57
does not preclude an award of damages in addition to interest in an appropriate case. The basis
for damages here is the statutorily implied term of good faith in s 13: an insurer who failed to
make payment while aware of his obligation to do so would arguably be acting other than with
the utmost good faith and would thereby expose itself to an action for damages for breach of the
implied term. 438 There also appears to be recognition that a repudiation of the policy by the
insurers can, independently of the legislation, give rise to an action for damages for breach of
implied term, 439 a step refused in England. The argument that there is liability in tort for failing
to make a timely payment, based on the notion that the duty to act with the utmost good faith has
a common law tortious counterpart, has been rejected. 440 Treasury Review II, 2004, left open the
question whether there should be additional bad faith damages, but was of the view that interest
would be an adequate remedy in most cases, 441 and to that end recommended, in
recommendation 6.2, an increase in the rate of interest to 5% above 10-year Treasury Bond
yield: that recommendation has been picked up by the proposals for reform published by the
Treasury in February 2007. 442
8.15 What can English law learn from this? There are two separate issues here. The first is
whether interest should be payable as a matter of principle on all claims where insurers have not
made payment within a reasonable time, and not simply on those where the assured has
successfully brought proceedings against insurers for non-payment. This is the Australian
position. The second is whether the law should authorise payment of damages for consequential
loss caused by an insurer by late payment of the proceeds over and above the loss of the use of
money and, if so, whether damages should be payable only where the insurers are not acting in
good faith (seemingly the position under statute in Australia), whether they should be awardable
on the ordinary principles in Hadley v Baxendale 443 in the case of repudiation by the insurers so
that foreseeable loss to the assured (including loss of business) should be recoverable (apparently
the common law position in Australia) or whether damages should simply be available in all
cases of late payment leading to consequential loss. An issue may arise here as to whether what
was contemplated by the insurers should be tested at the date of the policy (as in Hadley v
437
Those questioned by the author had no doubt that damages are awardable.
438
Moss v Sun Alliance Aust Ltd (1990) 55 SASR 145; AMP Financial Planning Pty Ltd v CGU Insurance Ltd
[2005] FCAFC 185. See also: Hungerfords v Walker (1989) 171 CLR 125; Walker v FAI Insurance Ltd (1991) 6
ANZ Ins Cas 61-081; Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358. This approach
was subsequently doubted in Re Zurich Australian Insurance Ltd (1999) 10 ANZ Ins Cas 61-429, where the view
was expressed that there could be liability for damages only if there was breach of an implied term requiring
payment on a given date. It has been accepted in other cases that insurers are under an implied obligation to consider
a claim fairly and in good faith (Wylie v National Mutual Life Association of Australasia Ltd 1997, unreported;
Beverley v Tyndall Life Insurance Co Ltd (1999) 10 ANZ Ins Cas 61-453, McArthur v Mercantile Mutual Life
Insurance Co Ltd [2002] Qd R 197). This view has also accepted in England (Napier v UNUM Ltd [1996] 2 Lloyd’s
Rep 950) but as far as English law is concerned this does not give rise to an action for damages but merely a right to
have a claim accepted.
439
Tropicus Orchids Flowers & Foliage Pty Ltd v Territory Insurance Office [1999] NTSC 16, a case falling outside
the 1984 Act as the insurer was a state body. See Sutton, para 15.122.
440
Lomsargis v. National Mutual Life Association of Australasia Ltd [2005] QSC 199, although the possibility of
exemplary damages was there left open.
441
Paras 6.27 and 6.31.
442
In the draft Insurance Contracts Amendment Regulations 2007, reg 4.
443
(1854) 9 Ex 341.
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