Allen v QBE Syndicate 1886 at Lloyds

[2010] QDC 4

DISTRICT COURT OF QUEENSLAND

CITATION:

Allen v QBE Syndicate 1886 at Lloyds [2010] QDC 4

PARTIES:

ALLEN

Plaintiff

V

QBE SYNDICATE 1886 AT LLOYDS

Defendant

FILE NO/S:

DC 2691 of 2008

DIVISION:

Civil

PROCEEDING:

Trial Division

ORIGINATING COURT:

District Court of Queensland, Brisbane

DELIVERED ON:

2 February 2010

DELIVERED AT:

Bundaberg

HEARING DATE:

29 January 2010

JUDGE:

Clare SC DCJ

ORDER:

The claim is dismissed.

CATCHWORDS:

Insurance – duty of disclosure –whether duty applies to faulty memory – waiver of compliance with duty -  misrepresentation – meaning of “obviously incomplete answer”- Insurance Contracts Act 1984 (Cth) ss21(1) & (3), 26 (1), 27, 28.

Midaz v Peters McCarthy Insurance Brokers Pty Ltd [1999] 1 Qd R 279, distinguished.

COUNSEL:

Mr A. Sinclair for the plaintiff

Mr G. Del Villar for the defendant

SOLICITORS:

Schultz Toomey O’Brien Lawyers for the plaintiff

McLachlan Chilton Lawyers for the defendant

1. The plaintiff, Douglas Allen, restored, collected and sold old cars.  He held a comprehensive insurance policy for 2 cars.  On 4 February 2008, he applied for and obtained an extension of the policy to a third car, a 1969 Torana GTR coupe.  Three weeks later Mr Allen reported that the Torana was stolen from a shopping centre. Soon afterwards, it was found burnt out in the state forest. Mr Allen made a claim under the policy for $ 50,000, which was the insured value of the car.

1. The insurer rejected the claim on the basis that Mr Allen had not disclosed his true traffic history.  The insurer maintained that this failure constituted either a misrepresentation or a breach of Mr Allen’s duty of disclosure of the kind that reduced the insurer’s liability to nothing.  Mr Allen brought this action in damages to recover the value of his car.

Witnesses

1. The trial was very short and the issues were confined. There were only 2 witnesses: Mr Allen and Mrs Adams, a senior underwriter for the broker, Ryno Insurance Services, who had dealt with Mr Allen over the telephone.  The evidence of the witnesses’ prior communication was largely uncontentious, although there were some relevant shades of difference. For example, it was common ground that when he sought coverage for the Torana, Mr Allen was asked about his traffic history and in response he expressed some uncertainty about whether he had had one or more  speeding tickets in the last 5 years.  Mrs Adams indicated that she told Mr Allen he should take the most cautious approach, so that if he had any doubt, he should obtain a copy of his traffic history.  On the other hand, Mr Allen’s evidence was that he advised Mrs Adams he may have had as many as 3 tickets and she told him his oral answer to her was “fine”.   Having observed Mrs Adams and her approach to her job, I am satisfied that she did not encourage a casual approach to the issue of disclosure on the proposal form.  She was a credible witness who impressed as a cautious underwriter of experience.  I also note that the written proposal Mr Allen later submitted  included a signed acknowledgement of the potential consequences for non disclosure or untrue statements.

1. Another divergence went purely to the credit of the witnesses.  Mr Allen testified that Mrs Adams had invited him to increase the insured value of his other cars on the policy.   Mrs Adams’ evidence was that it was Mr Allen who initiated the request to increase the policy cover, and that his proposed revaluations were so high they were rejected.  I find Mrs Adams the more reliable witness.       

Particulars of the defences

1. There was a contract of insurance and a claim made under it for loss suffered through the insured events of theft and fire.  The insurer did not dispute the theft or fire.  Fraud was not pleaded.  The only bases on which it claimed relief from liability were non disclosure and misrepresentation.  The two defences rested on the same particulars, namely an incomplete response to a question about the traffic history.   Mr Allen’s notation on the proposal form indicated he had only one traffic infringement notice in the previous 5 years, where in fact he had received 5 notices.

1. The form included a question about whether Mr Allen “had any traffic offence, charges, infringements, convictions or disqualifications (excluding parking fines) in the past 5 years?”  Mr Allen answered “yes” to that question.  The form called for details, with columned headings above rows of blank lines. Mr Allen made an entry on only one line. His entry addressed the various headings in this way-

Date of the incident – “unknown”
Person involved – “Doug Allen”
Details of offences, infringements, conviction or disqualifications – “exceeding the speed limit”
Amount of penalty or disqualification period – “unknown.”

1. Mr Allen agreed that the way he filled out the form indicated one traffic violation only in the 5 year period preceding February 2008.  He admitted that was the meaning he had intended to convey.  He also admitted it was untrue.

1. Between April 2003 & March 2007, he had been fined 4 times for speeding and once for using a mobile phone while driving.  On 2 occasions he had exceeded the speed limit by more than 13 km.

1. The case put by the insurer is that had Mr Allen had given a true answer on the proposal, the insurer would not have accepted the risk.

Potential relief for the insurer

1. The rights and remedies of the insurance contract are governed by the InsuranceContracts Act 1984 (Cth) (the Act).  The extent of an insurer’s protection from either misrepresentation or a failure by the insured to comply with duty of disclosure is set out in section 28.  Section 28 relevantly provides:

(1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:
(a) failed to comply with the duty of disclosure; or
(b) made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

1. The first point to be made is that the insurer cannot escape liability at all unless it proves that it would not have entered into the contract, with the same premium and terms if Mr Allen had complied with his duty of disclosure or if he had not made a misrepresentation. This is the effect of subsection (1).

1. Secondly, in the absence of fraud, an insurer cannot simply avoid the contract. Its potential relief is confined to subsection (3). The operation of subsection (3) can reduce the insurer’s liability on the claim only to the extent of  placing the insurer in the same position that it would have been in, if proper disclosure had been made.

1. In the present case, the insurer pleaded that proper disclosure or a true answer on the form would have resulted in a refusal to insure the car. The onus is on the insurer to show that it would not have made the additional endorsement to the policy if it had known that Mr Allen had received 5 infringement notices in the 5 year period. The insurer’s case depended upon the evidence of Mrs Adam.

1. Mrs Adam referred to the Ryno Underwriting Policy Guidelines. The guidelines contained a table directing action for specified risk factors. There were 2 categories, “referrable risk” and “unacceptable risk”. Any matter in a proposal which was listed under “referrable risk” had to be referred to a senior underwriter. One of those matters listed was“4- 8 infringements”. Within the category of “unacceptable risk’ was the item: “9 or more infringements”. The guidelines also stated that only a senior underwriter had the authority to provide insurance cover where information fell in the “unacceptable risk” category. The implication then was that a senior underwriter had a discretion to extend insurance in any case, even one involving more than 8 infringements.

1. Mrs Adams seemed surprised by the concept of such discretion. Her evidence was that she took a more rigid line than the guidelines required.  She initially spoke in vague and somewhat confusing terms but the meaning became very clear. She said treated 5 infringements as the cut-off point.  Her evidence was that she would refuse insurance if there were 5 speeding or other infringements of a substantial nature, including use of a mobile phone. If an applicant indicated 4 violations she might, or might not, call for a search of the traffic records, but she was emphatic that for 5 substantial infringements insurance would be refused. She said the hardline approach was taken because of the specialist nature of this type of insurance for classic cars.

1. Mr Allen had submitted his proposal for insurance through Ryno Insurance Services, as a broker for the insurer. Ryno had 2 senior underwriters. Mrs Adams was one of them and her evidence was that the other senior underwriter had the same approach to 5 infringements that she did.

1. After his claim was denied, Mr Allen attempted to test the insurer’s assertion that it would have rejected his claim if it had known about his history. He obtained another quote from Mrs Adams, using a false name. He used similar details for the car, but this time nominated 4 traffic offences. The enquiry was not rejected outright. Mrs Adams sent through a quote, but endorsed on the quote was a condition that a search of the traffic history be obtained.  The quote does not take matters very far. It certainly does not undermine Mrs Adams’ evidence that 5 offences were treated as an automatic exclusion. On the other hand, it does show a cautious approach when 4 offences were disclosed. I do not place much weight on it however because the experiment was conducted after Mr Allen’s claim had been rejected and Mrs Adams was then alert to the issue.

1. Counsel for Mr Allen submitted that Mrs Adams’ evidence should not be accepted because it is unlikely that Rhino’s practice would be more stringent than the insurer’s guidelines. Counsel also suggested a risk that Mrs Adams view was infected by inexperience and hindsight. It is correct that she had only worked for Rhino for a short time before she dealt with Mr Allen, but she had specialised in insurance for classic cars for 13 years. I do not accept that she could be mistaken about the Ryno approach to traffic infringements at the time of the proposal. She appeared to be an honest witness. I accept her evidence about the arbitrary approach to 5 infringements. It follows that I am satisfied that, if Mr Allen’s last 5 infringements had been disclosed, his proposal for insurance cover would have been declined.

Was there non-disclosure?

1. The duty of disclosure is described in section 21of the Act.  Section 21 relevantly provides:

(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant.

(2) The duty of disclosure does not require the disclosure of a matter…
(d) which compliance with the duty of disclosure is waived by the insurer.

(3) Where a person:
         (a) failed to answer; or

(b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.

1. For the s 21 duty to arise, the particular fact must be known to the insured and it must be a relevant fact, that is a fact relevant to the decision of the insurer about whether to accept the risk and if so, on what terms. Subsection (1) further confines the duty to relevant matters which the insured knows to be relevant or which a reasonable person in the position of the insured could be expected to know was relevant.

1. Mr Allen’s insurance was against damage to the car. There is a clear and logical link between reckless driving and risk of damage to a car. That point was made even more obvious by the specific questions about driving history on the proposal form.  I am satisfied that a reasonable person in Mr Allen’s position would have appreciated that a series of notices for speeding and unlawfully using a mobile telephone could increase the risk of the insurer and therefore would be a relevant matter for the insurer to consider before deciding to provide the insurance.

1. Less straightforward was the preliminary issue of Mr Allen’s knowledge. The statutory duty of disclosure is limited to relevant facts that are known to the insured:  Midaz v Peters McCarthy Insurance Brokers Pty Ltd [1999] 1 Qd R 279. A person cannot disclose what he does not know. In Midaz the insured company had leased out the insured premises and did not know that its tenant stored dangerous chemicals on the premises. As a result, the landlord had no obligation to disclose the presence of the chemicals. It was excused by its ignorance, even though the particular fact was something it should have known about. In the present case, Mr Allen’s level of awareness was in a different category to that of Midaz because Mr Allen had known of the undisclosed material facts. He did not dispute the traffic history which was tendered. He had known about the offences on it, the fines imposed and the points lost. He had received the notices and paid the fines. His evidence was that he subsequently forgot when those things had happened. He said they seemed to have been a long time ago and he had wrongly thought only one instance occurred within the 5 year period.  He did however acknowledge that at the time of the proposal, he was conscious of the possibility of at least a second violation, because he had said so to Mrs Adams. 

1. In fact, Mr Allen’s last speeding incident was only 11 months prior to the proposal form. The second last offence was 20 months prior to that. What is notable is that, for the majority of the 20 month interval, Mr Allen was on a good behaviour licence, which is a licence with reduced points. He was on that licence because of the accumulation of demerit points. He had lost points on 4 separate occasions over the preceding 2 years. Those matters all fell within the relevant 5 year span, between 2003 and 2008. The total traffic history spread over 14 years. The longest gap in it was less than 2 years. Conversely, the most concentrated offending period was between April 1999 and June 2007, with 9 entries. During the broader period Mr Allen had suffered both disqualification and the cancellation of his licence. There is no suggestion that Mr Allen suffered from any special impairment. He appeared to be a middle aged man of appropriate intelligence.

1. I find it unlikely that Mr Allen managed to forget all of his recent convictions, bar one , or that he had forgotten that he had, within the past 5 years, been on a good behaviour licence.  Nonetheless, it is credible that he may not have remembered exactly how many violations had been cited in that time. He chose not to refresh his memory from his private records or the records of the Department of Transport.

1. Counsel was unable to find any authority to clarify the significance of impaired memory for the duty in section 21.  In my view the Midaz case must be distinguished from the present facts. I am satisfied that Mr Allen’s own admissions were sufficient to establish his knowledge of the 5 traffic infringements. The mere fact that he could not recall the dates of those matters, or had a mistaken belief about the dates, did not mean that those traffic infringements were not “known to” him. It would be an absurd consequence if an insured was to be excused from his obligations of disclosure simply because the detail in documentation received (and still accessible) was too complex or too specific to recall from memory.

1. Because Mr Allen had knowledge of his true traffic record, he had an obligation to disclose it. He failed to meet his obligation.

Was disclosure waived?

1. Counsel for Mr Allen submitted that any non disclosure was irrelevant because the insurer had effectively waived compliance. Counsel argued that the answer in the proposal form was an “obviously incomplete answer” within the meaning of section 21(3).

1. Where the proposal document requested details of traffic violations, Mr Allen had given an answer which was incomplete on its face. He had made the notations “unknown” in response to the headings “date” and “amount of penalty”. Because the insurer had accepted that “obviously incomplete answer” the insurer must be taken to have waived compliance with the duty of disclosure in so far as the missing details of that single speeding offence. But does the operation of subsection (3) deem a wider waiver?  

1. The plaintiff’s argument that the waiver extended to the whole traffic history went like this:  Mr Allen had disclosed the possibility of a second offence to Mrs Adams, the underwriter. She stood as agent for the insurer. She was put on notice that Mr Allen was uncertain about whether he had accumulated a second infringement notice in the time period.  Soon after Mrs Adams had spoken to Mr Allen, before he had time to obtain a copy of his traffic history, he submitted the proposal. His completed proposal acknowledged only one infringement, notwithstanding his earlier statements of an imperfect memory.   The contention was that when Mrs Adams received the proposal, she should have known that the response for the traffic history was incomplete because it mentioned only the one matter.

1. An imperfect recollection does not necessarily equate to an “incomplete” answer.  In the information Mr Allen had given Mrs Adams on the telephone, a second offence was a possibility but not a fact. Therefore, from Mrs Adams perspective, the failure to note a second offence on the form, may or may not have been an error. In my view, the term “obviously incomplete” in subsection (3) must mean something more than a possible omission.  For that reason I conclude that the issue of waiver in subsection (3) does not apply to the whole 5 year history. The insurer should only be taken to have waived disclosure of the date and fine relating to one speeding ticket. The insurer could not be taken to have waived disclosure of the existence of other infringements.

Misrepresentation

1. An alternative defence pleaded by the insurer was misrepresentation. Was the notation of a single traffic infringement a misrepresentation?

1. A misrepresentation ordinarily refers to an inaccurate or untrue statement of fact.  The term is not defined in the Act, but section 26 (1) narrows the scope of the term so that a statement made on an honest and reasonably held belief is not to be treated as a misrepresentation. Subsection (1) reads: “Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that the person held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation.”

1. It is logical to conclude from section 26 that a misrepresentation under the Act would extend to an untrue representation which a reasonable person in the position of the insured would not have believed to be true.

1. I am satisfied that a reasonable person who had accumulated Mr Allen’s traffic history would not have believed that only one of those matters had happened in the last 5 years.  I have reached that conclusion because the real facts were so markedly different and their consequences had been significant for Mr Allen.

1. Mr Allen accepted that his answer on the form indicated that he had had only one speeding offence in the 5 year period.  He intended it to have that meaning.  His answer was untrue and any belief that he may have held to the contrary was unreasonable.  Accordingly, I am satisfied there was a misrepresentation in the proposal.

1. Counsel for Mr Allen referred to Section 27. Section 27 relevantly provides that “A person shall not be taken to have made a misrepresentation by reason only that the person …gave an obviously incomplete …answer” in a proposal form.  As I have already identified, there was an obviously incomplete answer in respect of the disclosed speeding incident, but the answers were not obviously incomplete as regards the broader traffic history.

1. It follows that Mr Allen’s omission of 4 infringements was not protected by either section 26 or 27. It amounted to a misrepresentation, as well as a breach of his duty of non disclosure.

Conclusion

1. If instead of the misrepresentation the true facts had been disclosed, the insurer would have declined to provide the insurance.  Accordingly, the application of section 28(3), reduces the insurer’s liability to nil.

1. Mr Allen’s claim is dismissed.