Policy inception: timing is everything

Time

Insurance Update

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It is common for contracts of insurance to have an inception date but not an inception time. The question then arises as to the time at which the policy incepts.   

The issue was considered recently by the High Court in Body Corporate 74246 & Ors v QBE Insurance (International) Limited and Allianz Australia Insurance Limited [2017] NZHC 1473. 

The factual background to the case was that a unit title development in Christchurch was damaged during the 4 September 2010 earthquake that happened at 4.35am. The Body Corporate had taken out a material damage policy with QBE. The QBE policy had an expiry time of 4pm on 4 September 2010. The Body Corporate lodged a claim with QBE for the earthquake damage. 

The Body Corporate had taken out a replacement material damage policy with Allianz. The Allianz policy had an "effective date" of 4 September 2010, but no time was specified. The 'expiry date' of the Allianz policy was 4pm on 4 September 2011. 

QBE paid the Body Corporate's claim, but argued that, at the time of the 4 September 2010 earthquake, there was double insurance on the basis that the Allianz policy had incepted at 12.01am on 4 September 2010, and so both policies were in force when the earthquake happened. QBE therefore joined Allianz as a third party to the proceeding and sought a 50% contribution to the amount it had paid to the Body Corporate. 

Allianz submitted that its policy commenced from the time of expiry of the QBE policy i.e. from 4pm on 4 September 2010, so that only the QBE policy was in force when the earthquake happened. 

The High Court agreed with Allianz 


The Court interpreted the Allianz policy by undertaking the exercise of identifying the objective intention of the parties to the policy. It concluded that the parties did not intend by the contract of insurance to provide double insurance. The clear intention of the parties, assessed objectively, was  simply to obtain seamless cover[1].   

Comment

The decision confirms what is already standard insurance industry practice, namely that where a replacement policy has an inception date but no inception time, it will incept at the expiry time of the expiring policy. If this was not the case, there would be a risk of double insurance or gaps in cover not intended by the parties to the policies[2]. 

The decision has been appealed by QBE and we will issue a further update in due course.

If you have any questions arising from this update, please contact one of our experts. 


[1] The court stated that had it been necessary to do so, it would have implied into the Allianz policy an inception time of 4pm.

[2] DLA Piper acts for Allianz in the proceeding.