The insured airline company made a claim on its insurer following an aviation incident in which its Cessna aircraft was ditched in the sea off Green Island. The plane was recovered approximately 42 hours after it was ditched. It was insured for $1.8 million.
Clause 1(a) of the policy conferred a right of election on the insurer which stated that the insurer 'will, at its option, pay for, repair or pay for the repair of accidental loss or damage to the aircraft'.
The insured wanted the full sum insured for the plane because it did not believe the plane would be safe enough to return to service. The insurer considered that the plane was a repairable prospect (the salvage was estimated at $150,000) and sought to have the plane repaired or to pay for the repairs as it was entitled to do under the policy.
The insurer sent three letters to the insured regarding the repairs. The first letter outlined the insured's right to elect what to do with the plane as set out in clause 1(a) of the policy. It enclosed a copy of the repair and an authority to repair for the insured to sign. The letter asked the insured to instruct the repairer to proceed with the repairs. The insurer also noted that the insured would be required to pay for any non-accident related damage. Finally, the insurer required the insured to sign a release accepting the repairs as being complete and satisfactory on completion.
The second letter, sent about three weeks later, included a further quotation for repairs and another authority to repair for the insured to sign. The third letter, sent another two days later, responded to queries raised by the insured as to whether the plane would be safe after the repairs and whether it could be returned to service.
It was not disputed that the plane was a repairable prospect. The issue that was in dispute was whether the insurer had made a valid election to repair the plane. It is an accepted principle of law that the words or conduct ordinarily required to constitute an election must be unequivocal. The party making the election does not need to express their intention to make the election.
The insurer argued that the letters it sent to the insured clearly indicated it had elected to have the plane repaired. The insurer argued that it was not inconsistent with an election to ask the insured to sign an authority to repair, as it was not asking the insured to repair the plane or pay for it.
However, the Queensland Court of Appeal found that the insurer had not made a valid election to repair the plane. If the insurer had made that election, then there would have been no need for the insured to give instructions to the repairer or sign an authority to repair. The insurer needed only to arrange for the plane to be repaired.
The Court of Appeal was also critical of the scope of the authority to repair which the insurer had asked the insured to sign, as it would have made the insured liable for all other costs and non-accident related repairs. The Court of Appeal considered that that requirement made the insurer's purported election conditional on the insured agreeing to pay for the other costs and non-accident related repairs, and therefore, there was no valid election. The same criticism was made of the requirement for the insured to sign a release at the completion of the repairs.
QBE Insurance (Australia) v Cape York Airlines Pty Ltd
The insurer in this case was penalised for asking too much of its insured and for attempting to appease the concerns of its insured. The notion that an insurer need only exercise its right to election without regard to anything else does not sit well with the commercial reality of insurers trying to provide customer service to their insureds.