Authored by Donald Dinnie, Jakop Mphofu and Matt du Preez.
In December 2017, a robbery occurred at the premises of the insured in which armed criminals broke into multiple display cases and stole a large amount of jewellery. After the robbery, the store was cleaned before the insured and underwriters’ loss adjustors could examine the scene. Importantly, the stock-taking system that was used by the insured was paper based instead of digital. So, to make a record of what items were taken, different sources such as police photographs were used. The court accepted that the insured had successfully demonstrated the cost price of all the items that were stolen via this method of identification. Importantly, in the contract between the insured and underwriter, the insured’s obligations were to provide “all available information” to the underwriter in the case of a claim and did not make mention of how the information should be stored or produced.
The case became complicated when the general manager of the insured melted all the jewellery left in the smashed displays. The general manager did so in the belief that the goods were damaged and relied on a supposed agreement with the insurer’s loss assessor. Under cross-examination he admitted that 30-40% of the jewellery had not been damaged in the robbery. The insurer did not make a claim of fraud against the insured. Due to this admission, the insured could not identify which of the leftover items were damaged or not and the court subsequently deemed the damaged-stock claim unsubstantiated as per the policy.
Despite the insurer admitting liability for an amount of AUD $326,920 and not pleading fraud but only a lack of good faith on behalf of the insured, no payment was made. Instead, AUD $500,000 was tendered for settlement but, once that offer was rejected, not even the admitted amounts that were proven and due were paid by the insurer. The court found the insurer’s actions to be a breach of their contractual obligations and their duty to act in the utmost good faith. The insured was awarded judgment for the full value of the stolen stock and the damaged cases valued at AUD $1,431,759 (with interest) but not for the “damaged” stock claim of because the amount could not be quantified.
This case has shown that insurers in Australia must act in the utmost good faith even if they believe that the insured party failed to act in good faith in respect of part of a claim. If an insured party can substantiate a part of a claim that has been brought forward and the amount is due and payable, the insurer must make payment and should not wait until the entire claim has been quantified, as this would not be in good faith. By contrast, the position under South African law is materially different. South African insurance law does not recognise a general doctrine of utmost good faith in the same manner, and insurers are therefore not subject to the same obligations.
Catlin Australia Pty Ltd v Diamond World Jewellers Pty Ltd [2022] NSWCA 282 (21 December 2022)