The recent Queensland Court of Appeal decision of QBE Insurance (Australia) Limited v Cape York Airlines Pty Ltd [2011] QCA 60 provides some useful guidance on making a valid election to repair under an insurance policy.

This appeal confirms the finding of the primary judge that there was not a valid election to repair the aircraft pursuant to the policy of insurance given that the election did not meet the requirements of being “clear and unequivocal”. 

Background

Cape York Airlines Pty Ltd (CYA) held an insurance policy with QBE in respect of one of its Cessna 208 aircraft. The aircraft had an insured value of $1.8 million.  CYA made a claim on this insurance policy as a result of damage sustained to this aircraft when it ditched in the sea off Green Island, Cairns on 8 February 2004.  The insurance policy allowed for QBE to elect to “pay for, repair, or pay for the repair of, accidental loss of or damage to” to the aircraft.  CYA were not convinced that a repair would return the aircraft to the condition it was prior to the ditching and sought that QBE pay out the insured value of $1.8 million.  QBE intended to repair the aircraft rather than pay out the insured amount.  QBE obtained a quote for repair and argued that it had elected to repair the aircraft by way of three letters sent to CYA. These letters also made several demands of CYA:

  1. That CYA instruct QBE’s nominated repairer to proceed with the repairs. This condition implies that CYA was directly contracting with the repairer to do the required works. 
  2. That CYA sign an “Authority to Repair” the aircraft in accordance with the quote, which was construed as an attempt to limit their liability to the amount specified in the quote.  This also required CYA to agree to pay the repairer “all other costs and non-related accident repairs”.
  3. The third letter required CYA to sign an assurance as to the quality of works performed by the repairer.

The issue and decision at first instance

The issue at first instance was whether QBE had elected under the policy to repair the aircraft by way of these three letters.  The primary judge decided that these letters did not constitute an effective or valid election to repair the aircraft under the policy.  The question on appeal was whether the primary judge had erred in making this determination.

The Appeal

The Court of Appeal concurred with the decision of the primary judge in that the purported election to repair the aircraft by QBE was invalid.  In making this determination, the Court was guided by general principles for election that “a party can only be held to have elected ‘if he has so communicated his election to the other party in clear or unequivocal terms’”, as stated in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27 per Brennan J.  Brennan J was also of the opinion that an election must be unqualified as well as unequivocal.  The requirements imposed by QBE on CYA amounted to a qualified election and therefore, was deemed to be ineffective. Judgment was entered for CYA for the insured amount plus the interest accrued since the date of the incident.

Comment

Insurance companies should be cautious to only make demands of the insured which comply with the terms of the insurance policy.  If a communication is intended to amount to an election under the policy, it should be made in clear and unequivocal terms.