Recent Decision on Duty of Utmost Good Faith in the Case of Fogarty v CGU Insurance Ltd

1. Case Name

 Fogarty v CGU Insurance Ltd [2015] ACTSC 44, see for more details.

 2.    Facts

 Fogarty had a policy with CGU that insured her residence against accidental loss or damage. In May 2009 there was a fire in the kitchen of the premises and Fogarty made a claim on her policy. CGU accepted the claim and elected to repair the damage proposing to replace the three damaged floorboards and re-sand and re-seal the entire kitchen floor. However Fogarty was concerned that the re-sanding would cause the kitchen floor to fail because it had been sanded previously and was wearing thin. She then pressured CGU to accept responsibility for replacing the whole floor in the event that the sanding caused failure. CGU refused to accept that responsibility.

3.    Issues in Dispute

  •  Did CGU breach the insurance contract by failing to repair the damage or pay for the proper cost of repairing it?
  • Did CGU breach the duty of utmost good faith in its handling of the claim?

 4.    Decision

  •  The policy provided coverage for “loss or damage as a result of a fire”, not any loss or damage as a result of, or caused by a defect, structural defect or faulty workmanship.
  • The policy also stipulated that the insurer would decide whether the claim would be settled by repair, rebuilding or payment to the insured of the cost of repair or rebuilding.
  • The original installation of the timber floor in the kitchen was defective in several respects, which Fogarty or CGU were not aware of prior to the fire. Fogarty was also advised when she previously had the floor re-sanded that it could compromise the structural soundness of the floor.
  • Originally the Magistrate found for Fogarty on the grounds that CGU had breached the insurance contract for failing to repair the damage or pay the proper cost of repairing it, but this was overturned on appeal and the Supreme Court of Victoria found for CGU.
  • This was because:
  1. The reason that the repairs were not undertaken was because Fogarty sought assurance from CGU in relation to the repairs resulting in further damage, which CGU were not prepared to give.
  2. While it may have been helpful to do so, the court found that CGU was under no contractual obligation to give that assurance to Fogarty.
  3. The court found that the actions of CGU fell well short of the type of acts of dishonesty, caprice and unreasonableness that would constitute a breach of the duty of utmost good faith.

 5.    Key Lesson

An insurer won’t breach the duty of utmost good faith if they refuse to agree to fulfil an obligation that is not otherwise named in the policy