A recent decision sheds some light on how long an insurer has to
make its decision on whether a policy responds without being liable
to pay interest (McConnell Dowell Middle East LLC v Royal &
Sun Alliance Insurance plc (No 2)  VSC 49).
If a claim is payable, interest is likewise payable for
"the period commencing on the day as from which it was
unreasonable for the insurer to have withheld payment of the
amount" (section 57 of the Insurance Contracts Act 1984
Frequently from an insured's perspective there is enough
information for the insurer to make a decision. From that of the
insurer, however, there are still some areas of uncertainty. The
crucial question therefore is how long that insurer can take to
make its decision without becoming liable to pay interest.
This ultimately will be a question of fact, but the Victorian
Supreme Court has given some guidance in how it will be
In this case, the plaintiff, a mining contractor, formed a joint
venture with other companies under which it rented out its
equipment. That equipment was insured by the defendant. It
disappeared from the mining sites, triggering the claim.
Complicating the situation was the location of the joint venture, a
complex and volatile country, so further investigation and recovery
by the plaintiff was too dangerous. Unfortunately, this also made
getting to the bottom of the affair rather difficult for both
insured and insurer.
The Court said that:
the existence of a bona fide dispute as to liability is not
relevant to section 57 - so it does not matter that an insurer
genuinely thinks the policy doesn't respond
the subsequent course of events in the litigation does not
necessarily set the test as to the day upon which it was
unreasonable for the insurer to have withheld payment; and
the fact that the exact circumstances surrounding the loss of
the equipment remained unclear, even after the trial, does not mean
that an insurer who chooses to request further information and
defer a decision on policy liability until such time as the picture
is clear (when the practical reality is that the picture may never
become as clear as the insurer might wish) can avoid the running of
interest on a payment which the Court has ultimately held should
have been made by the insurer at an earlier time.
In this case, the reasonable period for inquiry was held to be
four months from the time that the plaintiff asked if the policy
responded to the loss.
As the Court acknowledged, this is a question of fact to be
determined, having regard to all the circumstances of the case, and
will be for the Court to determine.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).