An insured factory was totally destroyed by fire. The various losses (building, contents, business interruption etc) all exceeded the respective sums insured.
However the insurer did not pay out the full sums insured, but instead paid out only 10/11ths of each policy limit. In doing so it relied on a clause in the policy to the effect that, when making any payment under the policy in respect of the acquisition of goods or services, the insurer was entitled to reduce the amount by any input tax credit to which the insured would be entitled.
Rather surprisingly, a judge bought that argument when the dissatisfied insured sued the insurer. Less surprisingly, the Queensland Court of Appeal disagreed. It accepted the insured's argument that under the policy the sequence for calculating payments was:
- quantify the loss;
- apply the ITC reduction; and
- if the loss (so reduced) exceeded the sum insured, then the full sum insured was payable.
Mattress Innovations Pty Ltd v Suncorp Metway Insurance
When construing a clause in an insurance policy it helps to read the clause in the context of the policy as a whole and to bear in mind the logical purpose behind the clause.