Practitioners acting in relation to a claim made by an insured
pursuant to an insurance contract (or under the Insurance
Contracts Act 1984 (Cth) ("ICA")) may find the
Judgment of Hislop J in Thompson v NSW Land and Housing
Corporation (No 3)  NSWSC 1658 of interest. Carroll
& O'Dea acted for the insured (Pestkil) in the Supreme
Court of New South Wales proceedings. In the Judgment, his Honour
considered the claim made by Pestkil against the insurer (Gerling)
for interest pursuant to s 57 of the ICA.
Section 57 of the ICA provides: "Interest on claims
Where an insurer is liable to pay to a person an amount
under a contract of insurance or under this Act in relation to a
contract of insurance, the insurer is also liable to pay interest
on the amount to that person in accordance with this
The period in respect of which interest is payable is the
period commencing on the day as from which it was unreasonable for
the insurer to have withheld payment of the amount and ending on
whichever is the earlier of the following days:
the day on which the payment is made;
the day on which the payment is sent by post to the person
to whom it is payable.
The rate at which interest is payable in respect of a day
included in the period referred to in subsection (2) is the rate
applicable in respect of that day that is prescribed by, or worked
out in a manner prescribed by, the regulations.
This section applies to the exclusion of any other law that
would otherwise apply.
In subsection (4):
a statutory law of the Commonwealth, a State or a
a rule of common law or equity."
Section 57 of the ICA is primarily "punitive"
legislation and is intended to secure prompt payment of claims by
insurers. The compensatory effect is secondary and not determined
by considerations peculiar to the insured. Hislop J commented that
it was appropriate for the Court to follow Nicholas J's
decision in Sayseng v Kellogg Superannuation Pty Ltd
 NSWSC 857, (2007) 213 FLR 174, where Nicholas J held at
"In my assessment, the cases
to which I have referred establish that the question of
reasonableness is to be judged by reference to the true position in
respect of the claim with allowance to be made for the insurer to
have a reasonable period of time within which to investigate the
claim and to consider its position. The discretionary determination
is to be made having regard to the particular circumstances of the
case, including the probable issues which require investigation.
Under the Act the court is not required to evaluate and pronounce
upon the opinion or decision making process of the insurer. It is
not relevant that the insurer acted bona fide in denying the claim,
or when the judgment of the court established the insurer's
liability to pay it. In short, the award will be calculated on the
basis of what the court finds is a reasonable time for completion
of the insurer's investigation of the claim ... Under s 57(2)
liability to pay interest is to be calculated with regard to the
day on which it was unreasonable for the insurer to withhold
payment of the amount after it had become liable to pay it in
response to a claim."
and at :
"... acceptance of the
insurer's principal submission would involve the court in an
evaluation of the reasonableness and bona fides of the position
adopted by it. The cases make plain that this is a task which
should not be undertaken."
Pestkil succeeded in its claim for interest under s 57 of the
ICA, with Hislop J accepting Pestkil's submissions that:
The true position is that Gerling was liable to pay an amount
under the contract of insurance;
Gerling withheld payment of the amount after it had become
liable to pay the amount in response to Pestkil's claim;
It was unreasonable for Gerling to withhold payment of a claim
when all the investigations for a decision had been completed
(Vintix Pty Ltd v Lumley General Insurance Ltd (1991) 24
NSWLR 627 at 650, affirmed in Lumley General Insurance Ltd v
Vintix Pty Ltd (1991) 24 NSWLR 625) and a decision had been
From the time indemnity was refused by Gerling on 13 February
2008 it had been unreasonable for Gerling to withhold payment of
costs and expenses as they were incurred by Pestkil.
Hislop J also commented that it is unnecessary that a claimant
for interest under s 57 of the ICA establish that it has suffered
loss as a result of being deprived of the use of money paid by it
to its legal advisers.
Other points to highlight include:
The history and principles of application of s 57 of the ICA
and s 101(4) of the Civil Procedure Act ("CPA")
s 57 of the ICA applies to the exclusion of any other law that
would apply (and thus prevails over s 101(4) of the CPA); and
s 57 of the ICA applies in relation to claims under a contract
of insurance even if there is no litigation on foot.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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