This case involved a tenant (Mr Hudson) who suffered a severe laceration when he fell in the shower on 14 May, 1996.
A crack in the glass shower screen had not been repaired as promised when he entered the tenancy agreement, some three months earlier in February 1996.
He alleged the owners’ failure to repair the crack had resulted in his injury.
Mr Hudson sued the owners, Mr and Mrs Khoury. He started proceedings in the District Court of NSW in 1997.
As part of the 1997 proceedings, the owners cross-claimed against the real estate agent who managed the property at the time of the accident – Wentworthville Real Estate Pty Ltd trading as Starr Partners in Western Sydney, NSW.
The cross-claim in this context involved the owners (who the tenant originally sued) claiming against Starr Partners and alleging that they were either wholly or partly liable for the injury and subsequent damages the plaintiff suffered.
The owners alleged the agent failed to notify them of the crack in the shower screen.
They also alleged the agent did not have a proper system of repairing and rectifying defects in the property it managed.
There was a management agreement in place which stipulated the agent’s obligations.
In August 2000, an out of court settlement was reached between Mr Hudson, the owners and Starr Partners.
The parties agreed to a lump sum compensation figure of $100,000 plus legal costs to be paid to Mr Hudson.
The owners and Starr Partners agreed to each pay 50 per cent of the $100,000 plus legal costs.
This brought an end to the court proceedings that started in 1997.
Later in 2000, Starr Partners started proceedings in the District Court of NSW against its insurer, Allianz.
Starr Partners sought coverage for the $50,000 plus legal costs of $39,302 from Allianz, under an existing professional indemnity insurance policy.
The policy started on 8 January 1998 and ended on 8 January 1999.
Allianz sought to enforce an exclusion clause within the policy of insurance (Exclusion (k)), which stated:
“Except as expressly provided for in the extensions, this Policy shall not indemnify the Insured in respect of any claim against the Insured:
For any alleged or actual bodily injury or property damage…”
Allianz also alleged an extract from an “important notes” section in an insurance quotation/application form document prepared by its broker formed part of the policy of insurance and therefore prevented Starr Partners from claiming under the policy. The note read as follows:
“The policy will NOT cover you for any liability involving bodily injury or property damage- public liability insurance should be arranged to cover this risk which may be an exposure if you manage property for others.”
Starr Partners was initially successful in the District Court. Allianz filed an appeal in the Court of Appeal, however that appeal failed.
The court analysed the relevant case law at the time and emphasised the importance of looking at the substance of the claim, rather than only interpreting the policy clauses in a strict or literal way.
It was found that the claim against Starr Partners was one for contribution/indemnity against the economic loss of the owners in meeting Mr Hudson’s claim for compensation.
Mr Hudson’s claim against the owners was for bodily injury, however the owners’ claim against Starr Partners was for contribution to the $100,000 plus legal costs.
The court found that the important notes section was not part of the policy.
It is merely a representation made by the insurer’s broker rather than text that modifies or is used to interpret the policy.
Overall, it was found that no exclusion applied and Starr Partners was entitled to the benefit of and cover under the insurance policy.
This case is a helpful reminder to real estate agents to:
- Ensure there is open and thorough communication with owners about the state of their properties, including maintenance and repair needs.
- Have in place proper systems of repairing and rectifying defects in properties.
- Be closely familiar and comply with the terms of any agreements that outline obligations such as for inspection, record-keeping, communication and repair/maintenance.
- Be closely familiar with insurance coverage including the purpose, terms/dates and contents of insurance policies.
- Lodge insurance claims as soon as possible after being notified of a claim or potential claim.
- Seek legal advice as soon as possible upon being notified of any claim and regarding insurance coverage.