The Qld Court of Appeal has held that an insurance company was required to pay the Sum Insured to the insured owner of a building that was destroyed by fire, and that amount was not to be reduced by any input tax credits to which the insured was entitled.

The appellant leased a property it owned to a company which carried on business as a mattress and furniture warehouse. The appellant was registered under the GST Act, it treated payments of rental it received from the lessee as being subject to GST, it treated expenditures relating to the property (including insurance premiums and money spent to repair or rebuild the buildings) as giving rise to input tax credits in an amount equal to the GST payable on those supplies, and it submitted GST returns on that basis.The buildings and their contents were totally destroyed by a fire on 25 April 2007. The fire was an insured event under an insurance policy made between the appellant and the respondent insurer in February 2007. In addition to the section of the policy covering destruction of the buildings by fire up to the “Sum Insured”, there were separate sections, each having a separate Sum Insured, for removal of debris, destruction of contents, and business interruption. The insured’s loss exceeded each Sum Insured.

On 21 August 2007, in response to a claim under the policy the respondent paid to the appellant a total amount made up of 10/11ths of each Sum Insured of id=”mce_marker”,800,000 (building), id=”mce_marker”50,000 (contents), id=”mce_marker”0,000 (“Removal of Debris – Additional to Extra Benefit id=”mce_marker”0,000”), and id=”mce_marker”40,000 (Business Interruption, Annual Revenue). The payment reflected the insurer’s construction of the provision which was in issue in the appeal, General Condition 16.2 of the policy, which it was claimed provided for the respondent to reduce the amount paid to take account of any input tax credits to which an insured might be entitled. The trial judge held that the insurer’s construction was correct. The appellant contended that the trial judge should have held that the insurer was obliged to pay the whole amount of each Sum Insured.

The Qld Court of Appeal agreed with the appellant and held that the reduction of 1/11th of the Sum Insured which the insurer made from its payment was not authorised by General Condition 16.2. The Court said the “more natural construction” of the amount of the payment which the insurer was obliged by the policy to pay to the insured was the Sum Insured. It therefore concluded that the appellant was entitled to recover the amount of that reduction, namely id=”mce_marker”60,826.86.

(Mattress Innovations Pty Ltd v Suncorp Metway Insurance Limited [2013] QCA 377, Qld Court of Appeal, Holmes and Fraser JJA and North J, 13 December 2013)

[LTN 245, 18/12/13]

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