Aon Risk Services Australia Limited v Lumley General Insurance Limited
[2005] FCA 133
•25 FEBRUARY 2005
FEDERAL COURT OF AUSTRALIA
AON Risk Services Australia Limited v Lumley General Insurance Limited
[2005] FCA 133
INSURANCE – whether contract of insurance created in favour of hotel proprietor at instance of insurance broker – longstanding underwriting relationship between insurance broker and insurer/underwriter – destruction of hotel by fire – denial of liability to indemnify upon basis that no contract of insurance brought into existence – whether insurance incepted by operation of bordereau relationship between insurance broker and insurer/underwriter – implications of practice of bordereau whether contract of insurance alternatively created by offer and acceptance between the insurance broker and insurer/underwriter
Corporations Act 2001 (Cth) ss 916A and 916E(2)
Trade Practices Act 1974 (Cth) s 52Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 applied
Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Limited (1985-1986) 160 CLR 226 applied
Kelan Pty Limited v General Accident Insurance Co Australia Limited (1987) 8 ANZ Ins Cas 61‑285 (affirmed on appeal (1997) 9 ANZ Ins Cas 61-369) applied
Sickness and Accident Insurance Association v General Accident Corporation (1982) 19R 977 referred to
McElroy v London Assurance Corporation (1897) 24R 287 referred to
Prudential Insurance Co. v Commissioner of Inland Revenue [1904] 2 KB 658 referred to
Wenzel and Another v Australian Stock Exchange Ltd (2002) 125 FCR 570 referred to
Re National Savings Bank Association (Hebb’s Case) (1867) LR 4 Eq 9 referred to
Yona International Limited v La Reunion Francaise Societe Anonyme D’Assurances et de Reassurances and Others [1996] 2 Lloyds Rep 84 referred to
Prime Forme Cutting Pty Ltd v Baltica general Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-028 referred to
MLC Life Ltd v Navari Pty Ltd (1996) 9 ANZ Ins Cas 61-332 referred to
Jones v Dunkel (1959) 101 CLR 298 applied
Johnson v American Home Assurance Co (1997-1998) 192 CLR 266 referred to
Provincial Insurance Co Ltd v Morgan [1933] AC 240 referred to
Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd [2004] VSC 1 appliedAON RISK SERVICES AUSTRALIA LIMITED, RIFON PTY LIMITED (AS TRUSTEE FOR THE ROXY TRUST), ARDILO PTY LIMITED (AS TRUSTEE FOR THE ROXY OPERATIONS TRUST) AND LUMLEY GENERAL INSURANCE LIMITED
N 550 OF 2003
CONTI J
25 FEBRUARY 2005
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 550 OF 2003
BETWEEN:
AON RISK SERVICES AUSTRALIA LIMITED
FIRST APPLICANTRIFON PTY LIMITED (AS TRUSTEE FOR THE ROXY TRUST)
SECOND APPLICANTARDILO PTY LIMITED (AS TRUSTEE FOR THE ROXY OPERATIONS TRUST)
THIRD APPLICANTAND:
LUMLEY GENERAL INSURANCE LIMITED
RESPONDENTJUDGE:
CONTI J
DATE OF ORDER:
25 FEBRUARY 2005
WHERE MADE:
SYDNEY
INDEX OF JUDGMENT
Page Paragraphs Headings 1-9 1-14 Description of the principal issues arising and of the background to the formulation of those issues 9-28 15-41 Outline in more detail of the context (other than the detail of relevant correspondence) in which the dispute crystallised and of the nature of the dispute 28-31 42-46 Areas of factual dispute between the parties as formulated by the applicants 31-40 47-57 The contracting practices in more detail in operation between AON and SLE at the times material to the subject dispute and the implications of those practices to the circumstances giving rise to the present dispute 40-51 58-68 The notion of bordereau and the terms thereof as between AON and SLE 51-55 69-76 The applicant’s claim to amendment of the bordereau by way of 20% premium reduction from SLE as agent for Lumley in exchange or return for conceding a $5000 excess or deductibility on claims 55-61 77-86 The alternative case of the applicants – an insurance contract constituted by offer and acceptance 61-64 87-91 The cause of action of the applicants for misleading and deceptive conduct on the part of SLE 64-65 92 Lumley’s submissions in response to the applicants’ submissions – outline of structure 65-71 93-103 Mr Quinlan did no more than ask for a quotation on 31 May 2000 and that is what he received (Lumley’s first submission) 72-75 104-110 Mr Quinlan knew what the rules of the scheme required to incept cover and he did not comply with those rules (Lumley’s second submission) 76 111 Absent AON taking up the quotation, SLE could not know whether the business had been placed with it or with its competitor, SGIO (Lumley’s third submissions) 77-79 112-115 Alternatively, if the quotation on 3 June 2000 was an offer capable of acceptance it was not accepted in time because the law does not permit an offer of insurance to be accepted after the occurrence of the risk being insured (Lumley’s fourth submission) 79-88 116-124 As a matter of ordinary contract law, an offer cannot be accepted without the acceptance being communicated by the offeree to the offeror (Lumley’s fifth submission) 88-92 125-129 Not only was there no communication of acceptance of the quotation by AON to SLE, AON did not communicate to Rifon and Ardilo (its customers) that cover had been accepted prior to 27 June 2002. AON did not issue a cover note to Rifon and Ardilo, even when a cover note was requested (Lumley’s sixth submission) 92-96 130-135 Even on 25 June 2002, AON did not take steps to ensure that cover was bound (Lumley’s seventh submission) 96-102 136-148 SLE did delegate to AON the right to incept insurance within certain agreed parameters. The parameters were agreed in writing as Commonwealth legislation requires (Lumley’s eighth submission) 102-105 149-152 The proposed cover for the Parkview Hotel did not fall within the specific parameters of the binder/Hostpak Scheme (Lumley’s ninth submission) 105-106 153 Mr Quinlan’s lack of training (Lumley’s tenth submission) 106-108 154-157 The insurance for the Parkview Hotel was outside the scope of the delegation to AON under the Hostpak Scheme (Lumley’s eleventh submission) 108-109 158-159 AON’s principal witness, Mr Carr, accepted only Mr McGovern had the necessary authority to agree with SLE an amendment to the scope of AON’s delegation under the Hostpak Scheme (Lumley’s twelfth submission) 109-118 160-176 Knowing that only Mr McGregor could have agreed an amendment to the scope of the delegation from SLE under the Hostpak Scheme, AON cannot be taken to have relied on a statement by Mr Bailey to Mr Carr as effecting an amendment (Lumley’s thirteenth submission) 119-121 177-179 There is no evidence that Mr Quinlan believed insurance was incepted on 3 June 2002 (Lumley’s fourteenth submission) 121 180 The SLE Stamp (Lumley’s fifteenth submission) 121-122 181 Lumley’s conclusion to its submissions 122-138 182-213 Conclusions 138 214 Costs
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 550 OF 2003
BETWEEN:
AON RISK SERVICES AUSTRALIA LIMITED
FIRST APPLICANTRIFON PTY LIMITED (AS TRUSTEE FOR THE ROXY TRUST)
SECOND APPLICANTARDILO PTY LIMITED (AS TRUSTEE FOR THE ROXY OPERATIONS TRUST)
THIRD APPLICANTAND:
LUMLEY GENERAL INSURANCE LIMITED
RESPONDENTJUDGE:
CONTI J
DATE OF ORDER:
25 FEBRUARY 2005
WHERE MADE:
SYDNEY
THE COURT DECLARES THAT:
1.Upon the true construction of written communications between the first applicant and SLE Worldwide Australia Pty Limited as agent for the respondent, and in the events which have happened, the respondent is liable and obliged to indemnify the second and third applicants or alternatively the first applicant as assignee of the second and third applicants in relation to loss and damage sustained in consequence of the destruction of the Parkview Hotel at Grafton by fire on 27 June 2002.
THE COURT ORDERS THAT:
2.The applicants and the respondent respectively lodge with the Associate to the Trial Judge within 14 days written submissions upon the form of declaratory relief to be granted in conformity with the Court’s reasons for judgment, and as to orders as to costs of the proceedings, including amendments to pleadings.
3.Subject to any special order as to costs to be made within the scope of Order 2 above, the respondent pay the applicants’ costs of the proceedings.
4.The proceedings be stood over until Tuesday 5 April 2005 at 4.15pm for directions as to the further conduct thereof, including the quantification of the applicants’ claim.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 550 OF 2003
BETWEEN:
AON RISK SERVICES AUSTRALIA LIMITED
FIRST APPLICANTRIFON PTY LIMITED (AS TRUSTEE FOR THE ROXY TRUST)
SECOND APPLICANTARDILO PTY LIMITED (AS TRUSTEE FOR THE ROXY OPERATIONS TRUST)
THIRD APPLICANTAND:
LUMLEY GENERAL INSURANCE LIMITED
RESPONDENT
JUDGE:
CONTI J
DATE:
25 FEBRUARY 2005
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Description of the principal issues arising and background to the formulation of those issues
The ultimate issue arising in the proceedings is whether a contract of insurance in relation to the Parkview at Grafton (‘the Parkview’) in the State of New South Wales was created and in operation between the second and third applicant hotel owners and operators Rifon Pty Ltd (‘Rifon’) and Ardilo Pty Ltd (‘Ardilo’) as the insured and the respondent Lumley General Insurance Limited (‘Lumley’) as the insurer by the time the Parkview was destroyed by fire on the morning of 27 June 2002. Grafton, is of course a major country town located in northern New South Wales. It is an issue which may be thus simply stated, but the identification of what may have constituted any such contract and for what reasons, is a matter of difficulty and complexity. It is readily apparent, from the comprehensive written submissions of the parties, that the task of setting out adequately and accurately the background circumstances, the nature and scope of the issues arising and their implications, and the respective contentions of the parties and supporting reasons, is as difficult as may be encountered in insurance litigation. There is additionally a subsidiary issue alternatively arising as to whether Lumley engaged in misleading or deceptive conduct arising out of the circumstances giving rise to the insurance issues.
The first applicant AON Risk Services Australia Limited (‘AON’) is of course a well known insurance broker and an assignee of the causes of action of Rifon and Ardilo pleaded against Lumley. The principal claim of the applicants is that the alleged contract of insurance was brought into existence, and remained in force and effect at all material times up to and including the time of the fire, as a result of arrangements made between AON on behalf of those hotel owners and operators of the one part, and SLE Worldwide Australia Pty Limited (‘SLE’) as agent for and on behalf of Lumley as insurer of the other part. There is no dispute as to those respective agency relationships. The hearing of the trial was set down to commence on 3 May 2004 but by agreement of the parties actually began on the afternoon of 4 May 2004.
The nature and scope of the contractual arrangements in issue is complex, and fall to be understood in the light of the convention which arose historically between insurance brokers and insurance companies, in particular in relation to the insurance of country hotels, which was known in the insurance industry as bordereau. It was country hotels in Australia which were the subject of the arrangements the subject of the bordereau convention conducted by SLE with at least AON. That history was conveniently, and I think non‑controversially, outlined in the second affidavit of Mr Carr, a divisional director of the AON Speciality Group, as follows:
‘Under an old-style bordereau, the agent accepts risks throughout a certain period, and only advises the underwriter at the end of the period of the risks that have been accepted. For example, with a monthly bordereau, the agent might accept risks on the 2nd, 7th, 15th and 29th of the month, and the first that the underwriter knows of those risks is when it receives the bordereau listing the risks at the end of the month. So in that old style bordereau, the underwriter might be on risk for most of the month, without knowing it until the next bordereau comes in from the agent.’
It may be readily inferred that the bordereau convention evolved at a time of communication delays and exigencies of former times. Thus the historical reason for the bordereau appears to have reflected the delay in communications between country and city on the one hand, and the need for immediate grant of insurance cover on the other.
Mr Carr described the operation of the arrangements in their present form, which was referred to in communications between the parties as the country hotel bordereau or scheme, or similar expressions, as follows:
‘The country hotels scheme therefore required immediate notification to SLE (through the two page survey and one page declared values/limits of liability sheet) of business accepted under the scheme.
I would regard a risk as bound under the scheme from the date the documents were sent through to SLE.
…
My expectation on 31 May 2002 in relation to the Parkview Hotel was that Owen Quinlan would simply place the risk with SLE, using the documents required under the scheme. I did not expect Mr Quinlan to ask for a quote, and then to come back to me with the quote and ask me to see if the client was happy with the quote – nor did any of those things happen.’
The abovementioned Mr Owen Quinlan was at all material times employed as a broker in the Hotel Insurance Division of the AON Specialty Group. His experience in the insurance industry as a broker and liability underwriter extended back to at least 1986, though he had not long been in AON’s employ at the time the subject controversy arose. In short, the applicants’ case was that Lumley as underwriter was placed at risk under the bordereau in operation between AON and SLE, as the actual contracting parties for that purpose, prior or up to the time of notification to the insurer of underwriting business accepted by the insurer’s broker. It would appear that an insurer would normally conduct a bordereau relationship only in circumstances of an established relationship with a broker.
The ‘two page survey and one page declared values/limits of liability’ documents above referred to by Mr Carr comprised the vehicle for information to be notified by brokers, including AON, to SLE as agent for Lumley by way of establishment of a particular bordereau. The two page survey document was headed ‘Hostpack Property Information’ (‘Hostpack’ was spelt by the parties in their written submissions, in the case of the applicants as ‘Host Pack’ and in the case of SLE as ‘Hostpak’; the latter will be the spelling adopted in these reasons). That survey required at least some of the information to be provided which might be expected by a prospective insurer of an Australian country hotel seeking fire insurance cover. The accompanying single page document headed ‘Declared Values/Limits of Liability’ required details of the risks and exposures applicable to be insured and the values respectively assigned in relation thereto. Neither document contained reference to Lumley or SLE; the mark ‘AON’ appeared on both, which was doubtless why the AON Specialty Group placed hotel insurance risks with another insurer, as well as SLE as agent for Lumley.
The applicants’ case for indemnity was outlined in four alternative ways as follows:
i)AON acting as agent for SLE for the purpose of underwriting country hotel risks, the latter company operating as agent in turn for Lumley, effected a contract of insurance between Rifon and Ardilo as the insured and SLE as the insurer, either on 31 May 2002 or 3 June 2002, by exercising AON’s authority under a bordereau agreement; or
ii)a contract of insurance came into existence by virtue of AON making on 31 May 2002 or 3 June 2002 an offer to SLE (conveyed by facsimile transmission) that Rifon and Ardilo as the insured would enter into the same at such premium rate as SLE might specify, being an offer which was accepted by SLE on 3 June 2002 by way of SLE completing and re-faxing to AON the Declared Values/Limits of Liability form which had been earlier filled out and faxed by AON to SLE on 31 May 2002;
iii)on 3 June 2002 SLE as agent for Lumley made an offer to AON, by virtue of completing and re-faxing to AON a declared values/limits of liability form, to the effect that Lumley would enter into a contract of insurance with Rifon and Ardilo as the insured on the basis stated in that form; that offer was accepted by AON when it commenced to process the invoice for the insurance premium to Rifon and Ardilo on or shortly after 3 June 2002, AON having already assured Rifon and Ardilo that the Parkview would be insured from that date; that unorthodox manner of acceptance by AON of the offer made by SLE was permitted by the practices historically implemented by the two parties, being practices which required that in due course, AON would advise SLE that it had accepted the offer of insurance by delivering a ‘closing’ to SLE in relation thereto; or
iv)on 31 May 2002 AON made an offer to SLE as agent for Lumley that Rifon and Ardilo would enter into a contract of insurance with Lumley at such premium rate as SLE might specify, that offer was accepted by SLE on 25 June 2002 when it forwarded to AON a copy of AON’s earlier 3 June 2002 fax of the Declared Values/Limits of Liability form filled out (to which I have described above as re-faxing) addressed to SLE, upon which appeared SLE’s identification stamp (called by the applicants in the proceedings, SLE’s ‘button stamp’).
The complexity of the third and fourth alternative ways in particular are difficult to fully comprehend until more of the detail of the case and its background has been narrated. The four ways so outlined were not necessarily intended by the applicants to be read in a mutually exclusive manner. Despite the apparent complexity and differences in wording of those four descriptions of the applicants’ case, there is not a substantial difference between them. Each description involved the completion of insurance arrangements between Rifon and Ardilo as the insured and SLE as agent for Lumley as the insurer by the time of the fire on 27 June 2002, and drew upon the evolution of traditional practices which had operated between SLE as agent for Lumley as insurer and AON as broker for the insured, including practices in relation to the insurance premium rating of country hotels. They were practices which appear to have reflected communication delays of former times between country and capital cities in Australia. Those practices differed from the more familiar city household and motor vehicle insurance practices and procedures involving the issue of cover notes, pending the submission of signed insurance proposals and the assessment and subsequent payment of premiums, and ultimately the issue of standard forms of insurance policies recording the conditions of indemnity in comprehensively worded detail. They were practices based rather on the proximity of evolved relationships between insurance brokers and hotel proprietors, and the relationships between those brokers and city based insurers.
In addition to the applicants’ claims framed in contract, the applicants brought a cause of action in the alternative, pursuant to Part V of the Trade Practices Act 1974 (Cth) (‘TP Act’), to the effect that the applicants were misled and deceived by Lumley’s agent SLE into believing that Lumley would accept that a contract of insurance had been created by the circumstances in which SLE issued to AON SLE’s critical re-faxed communication to AON on 3 June 2002 and/or SLE’s subsequent re-faxed communication to AON of 25 June 2002, each such communication comprising the Declared Values/Limits of Liability single page form previously filled out by AON on behalf of Rifon and Ardilo, and by then bearing the handwriting and signature of an SLE employee Ms Prasad, together with the handwritten date of 3 June 2002, except that later re‑faxed copy was additionally impressed with SLE’s so‑called button stamp.
As I have mentioned above, the Court was informed that by agreement (in the nature of assignment) made between AON and the second and third applicants (Rifon and Ardilo), AON acquired from Rifon and Ardilo the right to enforce their causes of action against Lumley; the applicants pointed out that since AON and the insured have sued together, the Court should not be concerned as to which of the applicants has title to the insureds’ rights of action against Lumley, and further that Lumley would obtain a good discharge if the Court should enter judgment against Lumley in favour of the applicants jointly and that judgment be satisfied. It is apparent that the case is essentially and in reality brought at the instance of AON, and that the joinder of Rifon and Ardilo has occurred in order to avoid a defence in the nature of abatement. By mutual agreement of the parties, the hearing of any issue as to quantum has been deferred.
My brief outline above of the applicants’ case is digested in considerably more detail in the applicants’ comprehensive written submissions of 39 pages provided to the Court on 10 August 2004, and the respondent’s even more lengthy written submissions of 48 pages provided to the Court on 20 September 2004, to which the applicants briefly rejoined in writing on 15 October 2004. These reasons for judgment are of necessity lengthy, because of the need to extract much of the documentary evidence, as well as address the comprehensive submissions of the parties. Neither party subsequently made application to address the Court orally, but I was invited to hear such oral submissions as I might require. Lumley’s submissions did not conform at all in sequence to the order in which the applicants framed their contentions, and thus created considerable difficulty for the Court to conveniently determine in what ways, and to what extent, issues were purportedly joined. Unfortunately therefore the task of the Court in identifying precisely where the parties came to issue, and in what respects, became a complex task, particularly in the light of the amount of viva voce as well as documentary evidence cited by Lumley’s submissions in purported answer to the applicants’ submissions.
The opening theme of Lumley’s submissions was that the Court was being asked ‘to rule that the giving of a quotation for insurance can render the giver of the quotation liable as if the quotation had resulted in a valid and binding contract’, yet the quotation given on 3 June 2002 by SLE to AON, so Lumley contended, ‘remained unaccepted until after the fire that was the risk to be insured against’. Accordingly Lumley submitted that ‘there can be no liability in those circumstances, and [Lumley] should succeed.’ The applicants’ response from the outset, and in my opinion correctly so, was that such opening theme did not come at least directly to issue with the applicants’ case, emphasising that the applicants relied primarily upon a bordereau insurance case, and only alternatively thereto upon a case of offer and acceptance. That replication of the applicants was well founded. Lumley’s lengthy submissions refrained incidentally from using the term bordereau, if at all, despite the use of that term in SLE’s own communications to AON.
Lumley provided at the commencement of its written submissions the following opening, which is appropriate to at once record as an aid to illustrating the complexity of the issues tendered by Lumley:
(i)SLE provided AON with a quotation for insurance in respect of the Parkview on 3 June 2002, but AON did not purport to accept that quotation prior to 27 June 2002, being of course the date when the Parkview was burnt down;
(ii)the law does not permit an offer of insurance to be accepted after the occurrence of the risk being insured against;
(iii)as a matter of ordinary contract law, an offer cannot be accepted without the acceptance being communicated by the offeree to the offeror;
(iv)not only was there no communication of acceptance of the quotation by AON to SLE, AON did not communicate prior to 27 June 2002 to Rifon and Ardilo, the joint owners of the Parkview, that cover had been effected;
(v)SLE delegated to AON the right to incept insurance within certain agreed parameters; the parameters were agreed in writing, as Commonwealth legislation requires;
(vi)the insurance for the Parkview was outside the scope of the delegation to AON (which Lumley identified in its submissions by the description the ‘Hostpak Scheme’);
(vii)the applicants’ principal witness Mr Carr, the divisional director of the Hotel Insurance Brokers section of AON’s administration, accepted that only Mr McGovern, AON’s National Manager of the Hostpak Scheme, had the necessary authority to agree with SLE as to amendments to the scope of AON’s delegation;
(viii)in any event, Mr Bailey, the National Property Manager of SLE, did not represent that the scope of the delegation had been amended to include insurance policies with a $5000 excess; AON did not allege such a representation at any time prior to amending its statement of claim on 29 April 2004 (being two business days before the hearing of the proceedings), and to Mr Carr’s reply affidavit sworn on the day the trial was to commence;
(ix)the applicants did not call evidence from Mr McGovern to contradict Mr Bailey’s denial in his affidavit that there had been no amendment to the scope of the delegation to include insurance policies with a $5000 excess (such as for the Parkview);
(x)knowing that only Mr McGovern could have agreed on an amendment to the scope of the delegation from SLE, AON cannot be taken to have relied, and AON did not rely, on any statement by Mr Bailey to Mr Carr as effecting an amendment to the scope of AON’s delegation; and
(xi)thus the applicants cannot succeed because no contract of insurance was formed before the occurrence of the risk insured against.
Lumley’s written submissions were thereafter re-framed into fifteen segments, and more convenience for reference, I will adopt that framework in my presentation and resolution of Lumley’s submissions.
The reference above to Mr McGovern was to a person described in the evidence as the manager of AON’s country hotel business, while his subordinate, Mr Carr, was the most senior officer of the division of the AON Specialty Group known as AON Risk Services Australia Limited. The reference above to Mr Bailey was to a senior executive of SLE by way of National Property Manager, being Lumley’s principal witness in the proceedings. AON’s principal witnesses in the proceedings were the abovementioned Mr Carr, and his subordinate AON employee Mr Quinlan, who had only recently joined AON from another insurance company. The contentions in (vii), (ix) and (x) above were maintained, notwithstanding that the applicants’ case was presented implicitly upon the footing that all relevantly pleaded conduct on AON’s part was wholly adopted and affirmed by its directors by virtue of its bringing these proceedings. In that regard, there was no challenge to AON’s retainer made by Lumley in the proceedings. I should also mention at the outset that the increase of the maximum insurance excess or deductible, in relation to claims against Lumley, from a former maximum sum of $2500, for the time being to $5000, was of course per se wholly to the advantage of Lumley and correspondingly to the disadvantage of AON and its insured customers. However the applicants asserted a quid pro quo to that increased excess or deductible by way of reduction in premium rates of 20%.
The applicants’ initial response to Lumley’s outline of its case was that the same did not present a fair summary or analysis of the applicants’ case, and in particular, of that perhaps most critical aspect of the applicants’ case, namely the terms of what constituted by then the bordereau insurance arrangements or conventions in operation for the time being evolved between SLE on behalf of Lumley on the one hand, and AON as broker on the other, representing for instance the presently insured entities (ie Rifon and Ardilo). Thus if the applicants’ bordereau case is soundly conceived, what SLE provided to AON was not a quotation for insurance in the nature of an offer of insurance, but confirmation of insurance effected, in a sense unilaterally by AON as broker, upon the footing of the crystallisation of operation of the existing insurance ‘umbrella’ arrangements in the nature of a convention (ie the bordereau) between AON and SLE on behalf of Lumley in relation to the insurance of country hotels in Australia. That criticism of the thrust of Lumley’s case was well founded, and exemplified the extent of Lumley’s frequent failure to come directly to issue with the applicants’ case. Because SLE acted at all times as agent for Lumley, reference to either in these reasons can be read almost invariably to be reference to the other.
Outline in more detail of the context (other than the detail of relevant correspondence) in which the dispute crystallised and of the nature of the dispute.
Prior to 30 May 2002, Rifon and Ardilo orally retained AON as their insurance broker to procure on their behalf both property and business interruption insurance in respect of the Parkview for the period 31 May 2002 to 28 May 2003. That insurance broker relationship had been already established in earlier contexts, directly or indirectly. Rifon and Ardilo had entered into a contract for the purchase of the Parkview, and completion thereof was due to occur, and subsequently did in fact occur, on 3 June 2002. The managing director of Rifon and Ardilo, Mr Kingston, sent a faxed message to AON on 30 May 2002, marked for the attention of AON’s Mr Carr, which sought written confirmation that an insurance cover was by then in place, and which referred to the circumstance that the ‘handover’ of the Parkview was to take place on the following Monday 3 June 2002. There was never a written response to Mr Kingston’s fax. It is apparent that AON had omitted or neglected to act promptly to Mr Kingston’s earlier request in that regard. AON’s Mr Quinlan dispatched by fax to Lumley at 5.26pm on 31 May 2002 (being a Friday) the three page AON insurance initiating process, duly filled out in detail, which I have already described, that is to say, the two pages headed ‘Hostpak Property Information’ and the third page headed ‘Declared Values/Limits of Liability’, each in the printed pro forma provided earlier by SLE to AON, and stipulated by SLE to be used for the purpose of implementation of SLE’s bordereau insurance practices. Both of these forms were purportedly filled out by Mr Quinlan, upon the footing of cover purportedly to take effect from 31 May 2002 to 28 May 2003 in favour of Rifon and Ardilo as the insured in respect of the Parkview. No specific reference to SLE or Lumley appeared on either form, however as mentioned above, each had printed AON’s mark.
At that time there was in force an underwriting agreement made on 29 June 2001 between Lumley of the first part, Pacific Underwriting Corporation Pty Ltd of the second part and SLE of the third part, for SLE to market, arrange and enter into cover in relation to the insurance risks therein described as agent for Lumley. There was no dispute in the proceedings that SLE was the agent of Lumley in all material respects for the purposes of resolution of the issues arising. Nor was there any dispute that the benefit of any such insurance arrangements was held at all material times on behalf of the applicants Rifon and Ardilo as the owners of the Parkview. It is not necessary for me to set out any of the terms of that agreement.
As I have foreshadowed, the applicants’ case was that at the material times, the arrangements in force between AON of the one part and SLE on behalf of Lumley of the other part, in relation to the Parkview, constituted in terms a bordereau, or an agreement or convention in the nature of a bordereau. I have later set out in these reasons a description of the notion of bordereau. As further foreshadowed already, the implications of the bordereau arrangement or convention, as outlined by the applicants, were that AON on behalf of SLE was entitled to constitute or bring into existence contracts of insurance in respect of country hotels in Australia between the persons or entities having insurable interests therein, and Lumley as insurer or SLE as agent on its behalf, on the basis of a unique form of offer and acceptance effected as between AON on behalf of the insured and SLE as agent for Lumley as insurer. That process did not involve any traditional process of offer and acceptance, but took the form of nomination to the insurer of insurable risks by way of completion and submission of certain information, being information of the kind required by the two forms I have already identified, and which will later appear in these reasons, what was unique was that insurance cover was intended to take effect simultaneously with the lodgement by the broker of the nomination with the insurer.
The applicants’ case was further that the terms of a contract of insurance of the kind into which Rifon and Ardilo were to enter as principals, per medium of AON, were acceptable to SLE in advance by reason of the existing terms and practices of the bordereau, and that therefore the critical issue to be resolved was whether or not that contract of insurance did come into existence from the outset, at the instance of AON as broker, between Rifon and Ardilo as insured and SLE as agent for Lumley as insurer. Put more specifically, was there an absence of any essential step required to be undertaken, or of the fulfilment otherwise of any essential condition to be satisfied, on the part of AON as broker for the applicants, in order to bring into existence the contract of insurance sued upon. The alleged outstanding controversial step or condition, postulated by Lumley, was described by Mr Bailey in the context of his giving the following evidence under cross‑examination, as follows:
‘Just so that it is clear, all that’s missing so to speak from there being an insurance on your view of things is a confirmation from AON that this quote was acceptable? --- Yes that and, obviously reading Paula Meyer’s comment down the bottom as well but, yes, AON did not ask us to go on risk buying cover.
I understand you infer that but putting aside that note? --- Sorry yes.
All that was missing was AON’s reply signifying that the quote was accepted? --- That’s correct.
If Mr Quinlan on 25 June [2002] had said to Ms Meyer, please bind cover, then cover would have been bound immediately? --- I am sure she would have, yes.’
I will later refer in more detail to what Mr Bailey above described as ‘Paula Meyer’s comment down the bottom as well’, referring thereby to the foot of the Declared Values/Limits of Liability form filled out by AON and faxed to SLE on 31 May 2002. Where issue was thus joined by the applicants focused upon the operation of the bordereau concept or principle in the circumstances of the case, which on the applicants’ case did not require the explicit giving of any such confirmation or request for cover or acceptance of a premium quotation.
Ms Paula Meyer, who had been employed by SLE at the material times as an underwriter, being apparently Mr Bailey’s principal subordinate, gave the following evidence to not dissimilar effect of Mr Bailey:
‘It is the case, is it not, that so far as you understand SLE’s practices the only thing you say is missing for there to be a binding insurance is that there was no confirmation of cover made before the fire occurred? --- That’s correct. Also to that document we also issued, it was my practice to issue at the end of every month, a letter back to each state branch telling them what cover had been bound.
Now just taking my question one step further for the sake of clarity, the terms of the proposed insurance of the Parkview Hotel were perfectly satisfactory to SLE had a request for confirmation of cover been made? --- That’s correct, yeah.
Indeed if Mr Quinlan on 25 June [2002] had asked you to confirm cover during that discussion that is something you would have done immediately? ‑‑‑ Yes I would have said okay I will check with my manager to see if we can back date it because obviously the date that cover would be required I believe was 31 May [2002] and I would have then gone back to Owen in writing and confirmed whatever date that we had accepted and agreed to go on risk …
It was usually the case, was it not, where a closing of the type of exhibit A6 was received by SLE, SLE went on risk for the period of insurance stated in the closing? --- Yes that’s correct.’
From the perspective of the applicants, as will later be explained, there was a procedural distinction between an agreement ‘to go on risk’, to adopt Ms Meyer’s above expression, and a so-called ‘closing’.
The principal issue emerging, as to whether the contract of insurance propounded by the applicants did (or did not) come into existence at any material time, because of the absence of acceptance of the alleged premium quotation propounded by Lumley, and therefore of any alleged binding or confirmation of cover communicated or confirmed by AON to SLE, and in particular by Mr Quinlan of AON to Ms Meyer of SLE (and/or Ms Prasad of SLE, I would add for completeness), involved the Court’s consideration of inferences which each party respectively sought to propound or draw from a great deal of viva voce testimony and documentary evidence, and in particular, at least from the applicants’ primary perspective, the documentary evidence and stipulations as to the terms of the bordereau for the time being prevailing. Before summarising that material, first from the applicants’ submissions, and subsequently from the respondent’s submissions, and in particular the extent to which the same are controversial, I should describe the evidentiary material, being material of essentially a documentary nature, upon the basis of which the applicants contended that an enforceable contract of insurance took effect prior to the fire on 27 June 2002.
As already foreshadowed, the applicants asserted that pursuant to the bordereau, to the extent that the same remained in operation as between AON and SLE in relation to country hotels in Australia, AON brought into existence a contract of insurance between the insureds (ie Rifon and Ardilo) and SLE as agent for the insurer Lumley, either on Friday 31 May 2002 or Monday 3 June 2002. That outcome was said by the applicants to have resulted at least primarily by virtue of the exercise by AON of its authority under the bordereau to the extent then in operation between AON of the one part and SLE as agent for Lumley, of the other part. There was seemingly no explicit dispute at least as to the subsistence of an insurance convention between AON and SLE at the material times, the terms whereof may be gleaned from documentation emanating from SLE communications with AON. The critical issue boiled down to whether the same was activated or otherwise crystallised in operation in favour of Rifon and Ardilo, and in favour of AON as broker relevantly on their behalf, in and by the events which happened. What was primarily asserted by the applicants to have occurred, in consummation and fulfilment of that process of obtaining insurance cover, was AON’s implicit confirmation, as contained in Mr Quinlan’s fax on AON’s behalf to SLE sent at 5.26pm on Friday 31 May 2002 to Ms Meyer of SLE, and/or as processed by Ms Prasad of SLE on that following Monday 3 June 2002, and thereupon re-faxed to AON on that following Monday, to the effect that Rifon and Ardilo would enter into a contract of insurance in relation to the Parkview at such rate of insurance premium geared at least to the risk of damage or destruction by fire, and otherwise subject to the then prevailing terms and conditions of the bordereau.
That AON fax of 31 May 2002 to SLE comprised, as I have earlier particularised, three pages, together with a fax cover sheet. Contained within one page of that faxed material, being the single page I have earlier identified as headed ‘Declared Values/Limits of Liability’, were details of the risks proposed for cover, and the respective values or sums required to be the subject of indemnity, as follows:
‘Section 1 : Material Damages
Declared Values for the purpose of Co-Insurance and Premium
Buildings and adjoining structures $600,000
Stock in Trade and/or Merchandise $20,000
Plant machinery and all other Property and
Contents $400,000
Computer Systems Records and others $200,000Total Declared Value $1,220,000
Sub-limits of Liability
Accidental Damage $25,000Section 2 : Business Interruption
Item 1 Gross revenue – Hotel only including Bistro,
Bottleshop $200,000/$250,000
Gaming revenue $580,000
Professional fees $25,000
Additional Increased Cost of Working $25,000Section 3 : Burglary/Theft – Contents including
liquor, tobacco and cigarettes $10,000Section 4 : Money
Money in hand or nightsafe $15,000
Money on the Business Premises during your
Normal Business Trading Hours $15,000
Money on the Business Premises outside your
Normal Business Trading Hours $15,000
Money in Locked Safe $15,000Excess
Applicable to all Sections of the Policy (except Earthquake
Excess which is as per Policy) $5,000 XS’Thus it may be seen that the insurance of the Parkview proposed by AON on behalf of Rifon and Ardilo, and upon the hotel building in particular, came within the $10 million limit of authority conferred by Lumley upon its employee Ms Prasad, as processor of these bordereau forms, as the total sum the subject of an approved indemnity, inclusive of the hotel building. The other two pages of that faxed material comprised the Hostpak Property Information form, which was required to be filled out in order inter alia to determine the relevantly applicable insurance premium rate. Relevant to the disputes arising was that the single page form headed ‘Declared Values/Limits of Liability’, submitted by AON to SLE, nominated the above excess or deductible of $5000 as applicable to all prospective insurance claims. Neither form was, nor was required to be, signed by or on behalf of Rifon and Ardilo, such was the relative extent of informality involved in the activation of the bordereau in relation to a particular risk, and reflecting no doubt as it did implicitly the proximity of the relationship between AON and SLE. I should observe in passing that although the ‘Limit of Liability’ space provided for in this form was left blank, nothing turned on that circumstance.
Comprising the other two pages of AON’s fax to Lumley sent on 31 May 2002, the Hostpak Property Information form, was reference to the applicants Rifon and Ardilo, implicitly as owners and operators (or proposed owners and operators) of the Parkview, as the Insured, and to the period of insurance required, being as aforesaid 31 May 2002 to 28 May 2003. The Parkview was by then scheduled to be the subject of completion of purchase by Rifon and Ardilo on the following Monday 3 June 2002, as AON well knew. As I have mentioned, that form also was not, nor was required to be, signed by or on behalf of Rifon and Ardilo. Thereafter was set out insurance survey information concerning the structure and condition of the Parkview buildings, its fire protection equipment and various hotel operational details. Neither that Hostpak Property Information form, nor the Declared Values/Limits of Liability form, contained any explicit reference to, or the provision for, the premium or the premium rate, though it would appear that neither were required to be stated otherwise by the terms of the bordereau. Both of those two forms, comprising in all those three pages making up two unusual insurance forms, were then in current use between AON and SLE, and had been so at least since 14 January 2002, having been apparently framed by SLE. That documentation thus served a somewhat analogous function to that of the traditional and familiar insurance proposal commonly used, for instance, in household and motor vehicle insurance contexts.
On Monday 3 June 2002 at 2.04pm, there was re-faxed back to AON from SLE the that same single page headed ‘Declared Values/Limits of Liability’ as Mr Quinlan had originally faxed to SLE on the preceding Friday 31 May 2002. Apparently it was not part of the convention to adopt any similar course in relation to the Hostpak Property Information form. That ‘re‑faxing’ was undertaken by Ms Prasad, an experienced underwriter in the employ of SLE since 1998, and one of three persons (including Ms Meyer) engaged as middle executive SLE employees in the exercise of the underwriting function on behalf of SLE, the third being a Mr Hudson. It was Ms Prasad and not Ms Meyer who thus processed those forms. Each of Ms Prasad and Ms Meyer gave evidence in the proceedings on behalf of Lumley. Before that re‑faxing occurred, Ms Prasad wrote on the single re‑faxed page headed ‘Declared Values/Limits of Liability’, first, at the top right hand corner, ‘Attention : Owen Quinlan’ (the copy in evidence did not entirely reproduce the surname ‘Quinlan’), and second, just below the middle of that single re‑faxed page, in large handwriting in an available blank space, the following:
‘RATE : .22% G
XS : $5,000
ALL LOSSES’Underneath that handwritten material was added Ms Prasad’s signature and the date ‘3/6/02’. The ‘G’ apparently stood for ‘gross’, and the ‘XS’ to ‘excess’, or what is also commonly referred to in insurance parlance as ‘deductible’.
The premium rate of .22% so specified by SLE happened to be the same as that appearing in Mr Bailey’s important preceding email to Mr McGovern of AON of 4 March 2002, under the heading RATES, as applicable to brick walled country hotels, not having ‘Any Timber Floors’, and located in towns with a full time fire brigade. However 30% of the total areas of the Parkview floors were of timber construction, the remainder of the floors being built in concrete, as had been duly disclosed in the Hostpak Property Information form submitted to SLE by AON on behalf of Rifon and Ardilo. Had the Parkview floors been wholly concrete, and not just 70%, the Parkview would have qualified prima facie for that .22% rate. On the other hand, had the floors been wholly timber, the Parkview would have qualified for a rate of .275%. The above sum of $5000 for ‘excess’ in relation to claims, inserted on the Declared Values/Limits of Liability form, was asserted by Mr Bailey on behalf of SLE to be outside SLE’s then prevailing notified parameter, of $2500 for ‘excess’, as stated in his said SLE fax to AON of 4 March 2002, notwithstanding that $5000 had been nominated as the excess in the Declared Values/Limits of Liability form submitted by AON, as well as having been so assessed by Ms Prasad (ante) in her own handwriting on the copy re-faxed by her. That constituted, on Lumley’s submission, a critical basis for the proposition that the Declared Values/Limits of Liability form disclosed a proposal for insurance outside the then prevailing guidelines of the bordereau. In Mr Bailey’s last preceding email of relevance to the bordereau, sent by him on behalf of SLE to AON on 4 March 2002, notice had been given by SLE that its ‘deductible’ (ie excess) entitlement was thereby increased from $1000 to $2500. As I have earlier affirmed, an increase in the amount of a deductible (or excess) alone would involve a change solely in favour of the insurer, as necessarily therefore would have been a further increase of the excess from $2500 to $5000, as I have already foreshadowed, unless the insured was to be compensated with a premium reduction, as the applicants also contended to be the case. As foreshadowed above, Mr Bailey emphasised in his evidence however that his primary concern, at about the time insurance was sought for the Parkview, was SLE’s level of premium income, which was said to be not then more than ‘break even’, or approximately so, and thus an increase in the deductible or excess tended to threaten the quantification of premium income. No financial material in that regard was placed in evidence by SLE.
As I have already indicated, by 3 June 2002, the need for AON to secure cover for the Parkview had become urgent. AON appears to have dallied in attending to the requests of Rifon and Ardilo to attend to the matter, and completion of the purchase was about to take place. Mr Quinlan testified that earlier on 3 June 2002, he had spoken to a person at SLE, who identified herself as Natasha, ‘re terms for Parkview’, and was told by her that Ms Meyer, being the SLE addressee of AON’s controversial faxed offer of 31 May 2002, was ‘not in’ but that she (ie Natassha) would look for the AON fax and ‘pass [it] on’. Mr Quinlan made a file note bearing date 3 June 2002 in his own handwriting to that effect. The evidence of Ms Prasad was that Natasha processed new business, renewals of existing business and premiums for SLE. Apparently no one at SLE did ring back Mr Quinlan, but Ms Prasad processed the Parkview material later on that day.
Ms Prasad explained in her affidavit evidence of 29 March 2004 that she had departed her place of employment at SLE at 4.00pm on Friday 31 May 2002, and therefore had not seen AON’s critical faxed material until the afternoon of the following Monday 3 June 2002. That material had been apparently placed in her tray by that time by Ms Meyer, the addressee at SLE of the faxed material, and there was apparently no consultation between Ms Meyer and Ms Prasad in relation thereto. Ms Prasad was an experienced insurance risk assessor at SLE. Ms Prasad said in fact that she was not advised by any other employee within SLE about the circumstances in which the AON fax had been sent to or received by SLE, nor did she talk to anyone within SLE about that faxed material before responding thereto. But as I have pointed out elsewhere in these reasons, there were only three persons then engaged by SLE to undertake the underwriting functions of office which she performed (being Ms Meyer, Ms Prasad and a Mr Hudson), and any consultation by her, at least with Ms Meyer, would have presumably been readily achievable, if thought to be appropriate. Ms Meyer had been the author of important preceding faxes of 9 and 14 January 2002 to AON (infra), headed respectively ‘SLE Country Hotels Scheme’ and ‘SLE Country Hotel Bordereau’ and copied to Mr Bailey, and the subsequent important fax from Mr Bailey to AON of 4 March 2002, headed ‘Country Hotel Bordereau’, had been copied to Ms Prasad. Ms Prasad had been earlier referred to as the recipient of a copy of another important fax of 2 August 2001 sent by Mr Bailey to Mr McGovern of AON, headed ‘Country Hotels’. Ms Prasad, as well as Ms Meyer, can be taken therefore to have been reasonably familiar with the implications of the bordereau convention. Each of those faxes is extracted later below in more detail.
Ms Prasad gave the following further testimony as to the circumstances of her writing upon, signing and faxing back to AON on 3 June 2002, that single page form headed ‘Declared Values/Limits of Liability’ (ie one of the three critical pages faxed by AON to Lumley for processing late on 31 May 2002), containing her abovementioned handwritten words ‘Rate : .22% G XS : $5000 All losses’, and her signature, and of her faxing back again to AON some 22 days later, that is, on 25 June 2002, a further copy of that critical single page bearing the same words, on this later occasion additionally bearing the impression of SLE’s stamp (ie SLE’s ‘button stamp’ so described by AON) placed over her signature earlier appended to that document:
‘I wrote the quotation on the AON documentation (the page headed “Declared Values/Limits of Liability”), signed the quotation and faxed it back to AON on 3 June 2002 at 14.05 hours. It did not then have the SLE Worldwide stamp on the page. I may have added the stamp later, but I cannot recall the exact circumstances of the stamping of this quotation.’
The addition of the affixation of SLE’s stamp was submitted by AON to have added at least a degree of authenticity to this critical document. The evidence certainly gives the inference that Ms Prasad was experienced and knowledgeable in and concerning the function she undertook on 3 June 2002 with regard to the Parkview.
In relation to the calculated premium rate of .22% appearing in Ms Prasad’s handwriting on the re‑faxed Declared Values/Limits of Liability form, Ms Prasad responded significantly in cross‑examination as follows:
‘Is there some document which was in existence at that time which indicated the basis on which you should rate this risk? --- There was the bordereau rating piece of paper that we had.
Right and did you apply that? --- Yes.’
Ms Prasad identified Mr Bailey’s earlier mentioned email of 4 March 2002 to Mr McGovern of AON, copied to her, as the document she understood contained (at least) the terms of a bordereau arrangement between AON and SLE as in force as at 3 June 2002. Incidentally both Ms Prasad and Ms Meyer described their function as employees of SLE as ‘underwriter’.
The following further answers in cross-examination were given by Ms Prasad in relation to that important Bailey email of 4 March 2002, (infra), and to the earlier email of 9 January 2002 from Ms Meyer to AON (supra), and to the Declared Values/Limits of Liability form which Ms Prasad re-faxed to AON on the two occasions I have identified above:
‘When you looked at this document after receiving it did you understand that it set out the terms of a bordereau arrangement between AON and SLE? --- Yes.
Did you use this document when you calculated the rate that you set out on page 14 of the bundle [that was, I interpolate, the AON document headed ‘Declared Values/Limits of Liability’]? --- That’s right.
I suggest to you that you started with a rate of .275 per cent because that was appropriate where there were any timber floors and the hotel was in a town with a full time fire brigade? --- That’s right.
You knew that there were timber floors because of the document on page 8 which you’d received which said that the floors were 30 per cent wood? --- That’s right.
You then applied, did you not, a 20 per cent reduction to accommodate the $5000 deductible? --- Yes
(I interpolate to confirm what she actually wrote down was ‘less 20% disc ($5000)’)
…
What was it that made you give the 20 percent reduction in premium in response to the excess of $5000? --- Well I knew that AON were… aware that they could take a further 15 percent for two and a half thousand excess, and then when they asked for $5000 I just worked it out myself and gave them an extra 5 per cent off.
Did Mr Bailey at any time say to you before you filled in the document … if a client or a broker is prepared to accept a $5000 deductible you should quote on the basis that the premium is reduced by 20 per cent? --- No.
…
Do you say in this case that the increase in the reduction of the premium from 15 per cent which was applicable to a two and half thousand deduction to 20 was just decided by you? --- Yes.
When you received the documents which are at pages 8, 9 and 10 [ie I interpolate to observe, the two pages headed “Hostpak Property Information” and the third page headed “Declared Values/Limits of Liability”, which I have already identified] at some time on 3 June 2002 you were satisfied, weren’t you, that there was no information missing which was necessary for you to calculate the rate? --- Yes.’
That Ms Prasad purportedly rationalised her premium calculation for the Parkview upon the footing, in part, of a gratuitous allowance of ‘an extra 5 per cent off’, was somewhat enigmatic, and did not serve to assist the credibility of Lumley’s case, as will become more apparent.
Ms Prasad’s last answer above extracted, in the light of her preceding answers, begs in reality the true commercial rationale for the premium reduction of 20% allowed by SLE in favour of Rifon and Ardilo, if it was not to accommodate the increased $5000 deductible in favour of SLE over and above the preceding $2500 deductible level specified in Mr Bailey’s preceding email to AON of 4 March 2002. Moreover there remains for critical consideration in this context the matter of Ms Meyer’s handwriting appearing at the foot of her email of 9 January 2002 to Mr Edwards of AON, which was copied to Mr Bailey (infra). Upon the footing of the foregoing evidence of Ms Prasad, it was submitted on behalf of AON that in this very case, Ms Prasad calculated the premium rate in reality on the basis that the bordereau for the time being, as identified by the applicants, relevantly applied, and used her record of the currently applicable bordereau rates for that purpose. There is substance in that submission, as will further emerge.
Ms Prasad concluded her affidavit in terms that reflected her advocacy of Lumley’s case, as follows:
‘11.At no stage did Mr Quinlan ask me to bind cover for the Parkview Hotel.
12.At no stage did I receive any acceptance of the quotation issued for the Parkview Hotel.’
That evidence begs the issue as to whether in the events which happened, cover had become bound, either by virtue of the bordereau process having been implemented, or as a matter of offer and acceptance according to the general law of contract, the former being the applicants’ primary and preferred case. In order for what I have already recorded to be put into context, it will be necessary for me to refer to more evidence, particularly of a documentary kind. In that regard I would point out that the evidence in the present proceedings is difficult to present in an adequately sequential way, that is, as indeed both parties implicitly experienced in the presentation of their respective written submissions to the Court.
As I have earlier recorded, there was faxed back to AON from SLE on 3 June 2002 the Declared Values/Limits of Liability single page document bearing Ms Prasad’s critical hand‑written endorsement ‘Rate : .22% G XS : $5000 All Losses’; that occurred at 2.05 pm. Mr Quinlan’s evidence was that when he received that faxed document so endorsed by Ms Prasad, ‘I regarded it as confirmation that SLE had bound the cover.’ It was submitted by AON that such testimony of belief on the part of Mr Quinlan was not in substance challenged in cross-examination, though I think that his belief in that regard would be relevant only to an explanation of his subsequent conduct, and would not constitute evidence of the objective fact as to whether or not SLE did thereby bind cover on behalf of Lumley in favour of AON and/or Rifon and Ardilo in conformity with the operation of the bordereau, or else by way of offer and acceptance. Mr Quinlan did not thereupon telephone SLE for confirmation to the effect that SLE had bound cover, consistently perhaps with that asserted belief on his part. In any event, Mr Quinlan ‘[s]ometime after 3 June 2002 … gave the fax from SLE of that date to John Charles of AON for him to prepare the account for the client for the premium,’ to cite his affidavit evidence. Yet to add to the complexity of the enigmatic applicants’ case, Mr Charles omitted to activate to SLE any such ‘account’ until after the fire.
The purchase of the Parkview was completed on 3 June 2002 by payment of the balance of the purchase price. Assurance had been sought and received verbally by the general manager of Rifon and Ardilo (Mr Camkin) on 31 May 2002, from either Mr Carr or Mr Quinlan (or both) of AON, to the effect that insurance covers were ‘in place’ as from 3 June 2002, being a request for confirmation subsequently made in writing by Mr Camkin by way of fax to Mr Quinlan of AON, and sent on 1 June 2002 in the following terms:
‘I refer to our conversation yesterday (31/5/02) regarding the Park View Hotel, 93 Prince St Grafton, confirming that there will be Insurance Cover effective Monday June 3, 2002 through AON Insurance for the following:
·Building and Contents
·Public Liability
·Fire
·Burglary
·Money loss
Can you please ensure we receive a fax (fax number 6643 3686) of the cover note by 10.30 am on Monday June 3, 2002 as this property settles at 11.30 am on this date, with David Kingston taking ownership at this time.
…’
Neither Mr Carr nor Mr Quinlan rang back in order to disabuse Mr Camkin as to the accuracy of what he claimed to have been so confirmed to him. No cover note as such was however subsequently issued by SLE by or on behalf of Lumley, or otherwise. It appears that the issue of cover notes played no documentary part in the bordereau process. If the bordereau had been validly implemented on AON’s part in relation to the Parkview, the contract of insurance in favour of Rifon and Ardilo would thus have been effected for the ensuing year of cover as and from 3 June 2002 (I would not impute that date as 31 May 2002, the AON faxed material not having been sent until after 5.00pm on that Friday, and thus outside business hours).
A matter of significance to the operation of the bordereau process, which should be at once pointed out, is that despite what was indicated by SLE’s critical email of 4 March 2002 to AON as to rating of premiums applicable to country hotels, by reference to the construction material of a hotel and to the availability of local fire brigade facilities, neither the Hostpak Property Information nor the Declared Values/Limits of Liability forms stipulated for the proposer to nominate a premium rate; what was instead required to be provided was information to enable SLE to calculate the rate. That a potentially significant matter in the context of the present litigious dispute, because as AON duly disclosed in that first-mentioned form, the flooring of the Parkview was 30% timber (the remainder being concrete and thus presumably the equivalent of brick for rating purposes); moreover the second-mentioned form required the stipulation of the applicable deductible or ‘excess’, which AON disclosed as $5000, significantly to that subject in issue arising in the proceedings. Ms Prasad’s calculations allowed for a $5000 deductible, conformably with what AON stipulated in the Declared Values/Limits of Liability form which it dispatched to SLE on 31 May 2003, and with what the applicants contended to have been accepted by them, in return for reduction in the premium rates by 20%. Ms Prasad claimed however, as appears from her evidence above extracted in some detail, that she did so only because AON ‘… asked for $5000’; that was a somewhat enigmatic answer, since there was no indication in the evidence that AON sought a higher deductible, implicitly to its disadvantage, at least per se.
Mr Quinlan also spoke of having a conversation ‘on or around 31 May 2002’ with Mr Carr, implicitly before he filled out Hostpak Property Information and Declared Values/Limits of Liability forms, which, after a subsequent telephone conversation with Ms Meyer of SLE, he sent to SLE on 31 May 2002 at 5.27pm by fax addressed to her. Once however Mr Quinlan received from SLE on 3 June 2002 at 2.04pm the faxed copy of the single page Declared Values/Limits of Liability form, containing the critical words ‘Rate : .22% G XS : $5000 All Losses’, he testified that he ‘regarded it as confirmation that SLE had bound the cover’. Mr Quinlan said that he reached that conclusion against the following background:
(i)on the previous Friday, he had informed SLE (and to the best of his recollection Ms Meyer, and being more likely so, since his faxed material of 31 May 2002 was addressed to Ms Meyer) that he wished to place the business with SLE, and he did not ask as such for ‘a quote’; his reason for not so asking was bound up with AON’s understanding of the nature and operation of the bordereau to the extent then still in operation; thus he claimed to have said to Ms Meyer ‘… I am not comfortable rating it. Could you please do the rating if I send you the information’, to which he asserted she duly agreed (Ms Meyer for her part did not recall any such conversation); for what it may ultimately matter, the 30% timber floor factor would understandably have presented somewhat of a dilemma to Mr Quinlan, particularly in the light of the imprecise description of the Hostpak Property Information form as to ‘Any Timber Floors’ (my emphasis). Quite apart from the entitlement of AON and its clients to a lower-rating calculation, by reason of SLE’s official confirmation of a premium discount of 15%, as specified in Mr Bailey’s email of 4 March 2002 to Mr McGovern, there remained the factor, as to what he believed to have been put in place by SLE, of a further increase in the excess or deductible to $5000;
(ii)under the scheme between AON and SLE, there were ‘pre-agreed ratings’ (that is, pricings) for different types of risk; thus he claimed that ‘I did not think that I needed a quote from SLE to show to the customer, because I assumed that Mr Carr would have made it known to the customer, if the customer did not know already, what the price would be … When I asked SLE to rate the risk, it was a matter of fitting this particular Hotel into the agreed scheme,’ Mr Quinlan referring thereby perhaps or apparently to the 30% timber floor component of the Parkview; and
(iii)because he had previously informed SLE that ‘I wished to place the risk with them, not because the risk formed part of an overall scheme, my reaction when SLE sent me a document with the rating on it, was that SLE was accepting the risk that I had offered the previous Friday’.
Had SLE rejected the risk, according to Mr Quinlan, AON had the option of another insurer for its country hotel clientele, a factor which SLE relied upon conversely in support of its contention that the SLE re-faxed Declared Values/Limits of Liability form of 3 June 2003, and subsequently of 25 June 2003, were merely offers of insurance or quotations of a premium rate.
Nothing further of relevance appears to have subsequently occurred until on or about 25 June 2002, when Mr Quinlan had a conversation with Mr Carr in his AON office, in the course of which Mr Carr asked him whether ‘the Parkview had been invoiced yet’. Mr Quinlan said that he could not then locate the Parkview file, but told Mr Carr nevertheless that the Hotel was ‘on cover’, and agreed that he would ‘find some paperwork’ so that an AON invoice could be prepared and sent to Rifon and Ardilo. Mr Quinlan thereupon obtained from SLE on that day a faxed copy of the two paged Hostpak Property Information and a further faxed copy of the one page Declared Values/Limits of Liability documents, the SLE sender or person responsible for the sending, to his recollection this time, being Ms Meyer, who did not in that context, or at any other time prior to the fire, appear to have communicated to AON anything to the effect that cover was not yet bound. That further re-faxed copy of the Declared Values/Limits of Liability form was the same as that which contained the handwritten endorsement of Ms Prasad, ‘Rate : .22% G XS : $5000 All Losses’, but which on this later occasion, as I have earlier mentioned, bore additionally SLE’s so‑called ‘button stamp’ placed over Ms Prasad’s earlier signature. Counsel for Lumley rejected the existence of any significance attributable to the addition of that stamp, but it may be said that to a third party, ignorant of the circumstance that the 3 June 2002 re-faxed copy was not stamped because the stamp had been temporarily mislaid by SLE, might conceivably have thought that the re-faxed copy bore some additional significance.
Mr Quinlan further deposed, by affidavit, against the objection of counsel for Lumley, as follows:
‘24.If Ms Meyer or anyone else from SLE had said something to me to the effect that cover was not bound, then, consistent with the instructions that Mr Carr had given me on 31 May 2002, to place the cover with SLE, I would have asked her to immediately bind cover.
25.When I telephoned SLE I felt somewhat embarrassed that I had mislaid the paperwork in relation to the risk. The reason that I explained to SLE my reason for needing the paperwork (that is, to invoice the client) was that I felt the need at the time to give a reason for my request for the documents to be resent.’
I admitted that ‘but for’ category of testimony of Mr Quinlan into evidence as at least arguably explicable as to his absence of further pursuit thereafter of confirmation of cover, the weight and significance thereof being of course another matter. Similarly admissible in my opinion was Mr Quinlan’s concluding paragraph of his affidavit evidence as follows:
‘26.If SLE had refused to bind cover, which did not occur, I would have immediately informed Mr Carr of that fact.’
I should add for completeness that there was never any notification of refusal of cover on SLE’s part communicated to AON at any time prior to the fire. Whether of course there occurred in fact a binding of cover in law in favour of Rifon or Ardilo (or AON on their behalf), prior to the fire on 27 June 2002, is of course the critical issue in the proceedings.
The remaining events not in apparent dispute, and which occurred prior to the fire on 27 June 2002 which destroyed the Parkview, were as follows:
(i)although as earlier mentioned, Mr Quinlan handed AON’s file to an administrative assistant Mr Charles of AON, shortly after 3 June 2002, to prepare the so-called policy closing and invoice, Mr Charles did not attend to any such documentary processing before 24 June 2002, when Mr Kingston wrote to AON to the effect that his companies Rifon and Ardilo had not yet received a cover note or premium invoice for the Parkview; as I have foreshadowed, Mr Charles did not do so until after the fire three days later;
(ii)thereupon Mr Carr instructed Mr Quinlan to obtain from SLE a further copy of the Declared Values/Limits of Liability form, the previous copy having been mislaid along with the file, so that AON could invoice Rifon and Ardilo; as earlier mentioned, Mr Quinlan had already advised Mr Carr that insurance cover was in place for the Parkview; on the same day, Mr Quinlan had a telephone conversation with Ms Meyer, the terms whereof being disputed;
(iii)in any event, Ms Meyer thereupon faxed to AON for Mr Quinlan’s attention the further copy of Parkview’s Declared Values/Limits of Liability form at 10.28am on 25 June 2002; as earlier mentioned, that faxed copy thus received by AON from SLE differed from that which AON had received back on 3 June 2002, in that as already indicated, SLE’s so‑called ‘button’ stamp’ had been placed over Ms Prasad’s signature previously endorsed thereon (ie as at 3 June 2002); and
(iv)Mr Quinlan calculated what he understood to be the premium amount appropriate to be invoiced to Rifon and Ardilo, being a calculation which reduced the .22% calculated by Ms Prasad (appearing of course upon the Declared Values/Limits of Liability single page form) by a further 20% discount, because he understood that such discount had been agreed as between AON and SLE, in circumstances where an insured would accept an excess of $5000 deductible in the case of any claim; Mr Quinlan did not then appreciate that in calculating the .22% which Ms Prasad had placed on the Declared Values/Limits of Liability form, that Ms Prasad had already reduced the Lumley premium rate by 20%, in arriving at her premium calculation of .22% upon the footing of the $5000 excess (see again [30] above).
The applicants’ bordereau case, which reflected its primary position in the litigation, was to the effect that the bordereau convention in operation generally between the parties, duly crystallised by way of binding of cover in respect of the Parkview, by virtue of the events which took place on 31 May 2002 or else on 3 June 2002, the latter case involving of course the re‑faxing on 3 June 2002 to AON of the Declared Values/Limits of Liability form signed by Ms Prasad. The former would appear to be the more correct, in the light of SLE’s ‘Country Hotel Procedure’ document, and in particular of what appeared under the heading ‘AON – Acceptable Risks’ (that document is later reproduced in full). Moreover the further re‑faxing of the same document by SLE to AON on 25 June 2002, by that time bearing SLE’s ‘button stamp’, was alternatively or additionally relied upon by the applicants as indicative of completion of the process of SLE’s underwriting of the risk prior to the fire which occurred two days later, or else as confirmation of a process of offer and acceptance.
On the same day as the fire, namely 27 June 2002, though after the Parkview had been already destroyed, AON caused to be delivered to SLE what I have already foreshadowed, and which appears to have been, a standard AON form of ‘Insurer Closing – Brokerage Tax Invoice’ addressed to SLE containing the following information:
‘Date Issue : 27.06.02
Client Name : Parkview Hotel – Grafton
Class of Insurance : Hostpack Mat Damage
Period of Insurance : From – 31st May 2002
To – 28th May 2003Policy No : (left blank)
Your Proportion : 100.0000%
Transaction Description : New Cover
Hostpack Material Damage Insurance
This document is a tax invoice…
We have confirmed to our Client on your behalf the Cover as set out. If the Premium details have been inserted please indicate your acceptance of this as our closing instruction.
Premium 3,160.96
Fire Service Levy 1,074.73
Premium & FSL GST) 423.57
Stamp Duty (No GST) 465.93Brokerage 395.12
GST on brokerage 39.51Total Amount A$ 4690.56’
Both of the statements appearing above the premium etc amounts were part of a standard printed form for insertion of individual detail of an alleged insurance cover in place for the stated period of time. The applicants’ case was that the timing of the ‘closing’ was of no adverse significance, and that on the contrary constituted a factor of significance in its favour, by reason of what appeared in SLE’s Country Hotel Procedure document to be later extracted and discussed. That expression ‘closing’ has been already referred to in Ms Meyer’s evidence extracted in [19] above. Finally I should record in this segment that by letter dated 22 July 2002, SLE’s Mr Bailey wrote to AON’s Mr Carr as follows:
‘ Parkview Hotel – Grafton
Please find attached our cheque for $4,690.56 representing full refund of premium paid to SLE on the 15th July, 2002 settlement statement for the above hotel.
As previously advised, SLE were not on risk for this client as cover was never bound with us.’Areas of factual dispute between the parties as formulated by the applicants
Notwithstanding the complexity of the factual background or matrix, as well as the nature of the disputes, the subject of the present proceedings, the applicants contended that there were relatively few areas of at least critical, as distinct from peripheral, factual differences between the parties the subject of issue.
The first such factual issue was framed by the applicants to be whether the terms of the bordereau in operation between AON and SLE were orally amended, in or about March or April 2002, and thus prior to the circumstances relating to the Parkview, to the effect that AON could bind Lumley to an insurance risk, in relation to which the insured entity was prepared to accept a claim deductible or excess of $5000 in return for reducing the premium rate calculable in the context to that agreement by 20%. The applicants contended that if the Court was to find that the bordereau was amended in those ways, then the applicants are entitled to succeed in the proceedings. It will be recalled that the last relevant formal communication made by SLE to AON, namely Mr Bailey’s email to Mr McGovern of 4 March 2002, stated ‘To increase deductible to $2500 discount of 15% applies to above rates’.
The second such factual issue was framed by the applicants to be whether Mr Quinlan in fact had a conversation on 31 May 2002 with a SLE representative, being ‘to the best of [his] recollection’ Ms Meyer, to the effect claimed by Mr Quinlan, being the conversation which included his alleged request for her to ‘do the rating’ upon the footing of the Hostpak Property Information and Declared Values/Limits of Liability documents which he faxed to her on that day. The applicants contended that it was not positively put to Mr Quinlan, in the course of his cross‑examination, that the conversation so related by him did not take place. Lumley’s evidence on the other hand was that Misses Meyer, Prasad and Field each stated that they did not have any such conversation, the applicants submitting in that regard that each of their respective testimonies could only be taken to mean that none of them could recall having any such a conversation. The applicants further contended that if the Court was to accept that the bordereau in operation by that time between AON and SLE included a term to the effect that the premium rate was to be reduced by 20%, in the circumstance where the insured would accept a $5000 deductible sum from claims, then AON effected the insurance cover, the existence whereof is the subject of the proceedings, by its own act pursuant to its bordereau arrangements made with SLE, and that the applicants were therefore entitled to succeed, even if the Court was not to accept Mr Quinlan’s version of that alleged conversation with Ms Meyer (or any other SLE employee) on 31 May 2002. That alleged conversation of 31 May 2002 was said by AON to be only significant if the proposed insurance contract fell outside the operation of the bordereau as then in force. If the proposed insurance did fall outside the bordereau, but if the Court was to accept Mr Quinlan’s evidence as to the occurrence and effect of his alleged conversation of 31 May 2002, the applicants’ case was that the applicants must succeed, given the implications of Mr Quinlan’s evidence that he had been instructed by Mr Carr to place the Parkview with Lumley through SLE, and further that all he needed to do was to obtain clarification of the premium rate, which he sought to do by his faxing of the documentation to SLE late on 31 May 2002.
The third such factual issue framed by the applicants was whether the telephone conversation between Mr Quinlan and Ms Meyer on 25 June 2002 occurred in or to the effect of the competing terms narrated by Mr Quinlan on the one hand, or by Ms Meyer on the other. As was correctly put on behalf of the applicants, the respective recollections of each of them involved areas of inconsistency. It was of course on 25 June 2002 that Ms Meyer had written on SLE’s copy of the Declared Values/Limits of Liability document the following note:
‘Owen rang – didn’t know if this was with us. Cover is not bound. He to advised (sic) correct dates’
Ms Meyer initialled the note and appended the date ‘25/6/02’. She testified by affidavit to having the following conversation with Mr Quinlan before doing so:
‘Mr Quinlan: Have you got anything on the Parkview at Grafton?
Ms Meyer: Hang on, I will go and have a look.’
She said that she then went to Mr Bailey’s office, where files of AON quotations and acceptances were retained for each State of Australia, and retrieved the AON (NSW) file, and then reviewed the Parkview quotation and transmission slip. Her account of her ensuing conversation with Mr Quinlan was recalled by her as follows:
‘Ms Meyer: Yes, we’ve got it and it was quoted and faxed on 3 June.
Mr Quinlan: Can you re-fax it to me because I can’t find anything.
Ms Meyer:Yeah, OK. Cover has not been bound. Are we supposed to be on risk?
Mr Quinlan: I don’t know. I will have to find out the date that cover is required from.’
As I have already recounted, that further re-faxing of the Declared Values/Limits of Liability document, bearing Ms Prasad’s handwritten details of 3 June 2002, with SLE’s button stamp appearing over her existing signature, occurred on 25 June 2002 at 10.28 am.
Further as to the third issue, it was said by counsel for the applicants that the resolution of the conflict of the evidence of Ms Meyer in relation to that 25 June 2002 telephone conversation with that of Mr Quinlan was only relevant in any event to the alternative basis upon which the applicants put their case, namely that of offer and acceptance. It was the applicants’ case that a contract of insurance had already been created by no later than 3 June 2002, either by AON’s implementation of the bordereau, or by offer and acceptance leading to an affirmative contract of insurance effected by no later than 3 June 2002.
The contracting practices in more detail in operation between AON and SLE at the times material to the subject dispute and the implications of those practices to the circumstances giving rise to the present dispute
Prior to the occurrence of the fire and at least from the time of SLE’s communication to AON of 2 August 2001, the terms of the bordereau had been undergoing restatement at the instance of SLE. I draw attention to the following critically important aspects of SLE communications with AON (which have been already more fully extracted in their respective contexts):
(i)emails of SLE to AON of 2 August 2001 and from AON to SLE, which included the following:
‘Survey to be forwarded with summary sheet immediately on risk’;
(ii)email of SLE to AON of 9 January 2002, which included the following:
‘Survey to be forwarded with calculation sheet to SLE immediately you place us on risk.’;
(iii)the Country Hotel Procedure emailed by SLE to AON on 14 January 2002 with the information ‘Attached is a copy of the SLE procedures that we have agreed to and which will be applied’, and which included the following in relation to the bordereau:
‘AON – Acceptable Risks
Each State to fax… a copy of
1) Quote/Calculation sheet (copy attached)
2) 1 Page Hostpack Property Information form (copy attached)as soon as you have bound cover.’
and in addition the following in relation to offer and acceptance:
‘AON – Referrals – New Business/Renewals : To be clearly indicated on Fax.
State to fax to mark a copy of
1) Quota Calculation sheet
2) Page Hostpak Property Information form
SLE will then advise rate and terms acceptable.
State to then confirm back to SLE if cover is or is not require.’; and(iv)email of SLE to AON of 4 March 2002, which included the following:
‘Also as matter of urgency can you reiterate to all concerned that closings and bordereau are to be correct and set within 14 days of the following month.
For any policy to incept we require two page survey with Declared Values/Limits of Liability page sent with rates’.
The case presented by Lumley, as articulated in its written submissions, tended to conflate the notion of bordereau with that of offer and acceptance. Unfortunately as I have earlier recorded, many of Lumley’s submissions did not come to issue with the way in which, or to the extent to which, the applicants’ framed their submissions, nor did they do so in any event sequentially to of the applicants. That has rendered the judicial task more difficult, and resulted in these reasons being more protracted than should otherwise have been the case. In the course of recording the submissions of both parties, which I have found necessary to do at some length, I have made a number of contextual observations, rather than defer from so doing cumulatively in these conclusions.
In my opinion, the documentation faxed by AON (Mr Quinlan) to SLE (Ms Meyer) on 31 May 2002, comprising of course the Hostpak Property Information and the Declared Values/Limits of Liability documentation, as filled out by AON, fulfilled the bordereau requirements of SLE’s Country Hotel Procedure. All that was required of AON by the bordereau was the provision of that ‘Quote/Calculation Sheet’ and the ‘2 Page Hostpak Property Information form… as soon as you have bound cover’, as so described in the Country Hotel Procedure, in order for crystallisation of the bordereau process to take full force and effect. The provision of a completed Hostpak Property Information document constituted the notion of a ‘survey’, being the expression used by the SLE emails which I have above cited. The words ‘as soon as you have bound cover’, where used in the Country Hotel Procedure segment relating to the bordereau, involved no formal documentary requirement (analogously for instance to the more familiar practice as to issue of an insurance cover note), other than the completion, and the subsequent dispatch, of those two forms by AON to SLE. The binding of cover for the Parkview by SLE was thus effected or put in place by the implementation, or put another way, the crystallisation of operation, of the bordereau process, in the context of course of the implicit authority given by Rifon and Ardilo to AON to incept the insurance cover in SLE’s name (see again in that regard the explanation of the bordereau process and implications provided by the High Court in Con-Stan Industries earlier cited in these reasons). That unusual though apparently traditionally established underwriting process, initiated and sought to be put in place by AON in relation to the Parkview, may thus be seen to have an operation somewhat analogous to the more traditional cover note issued by an insurer. The insurance cover so bound took effect in the bordereau process immediately prior to, and in anticipation of, the receipt and completion of processing, on the part of SLE of both the Hostpak Property Information and the Declared Values/Limitation of Liability documentation. All that effected the binding of cover, at the instance of AON, pursuant to and in conformity with what appears in the Country Hotel Procedure under the heading ‘AON – Acceptable Risks’.
It is rightly to be recognised that instructions as to the purport of operation of the bordereau, and the various other documentary stipulations, sourced and emanating as they did in and from SLE, reflected a charter of authorised underwriting based upon an already established relationship between insurer and broker, which had originated in those historical or traditional times when insurance brokers operated ‘in the field’ with large administrative infrastructures. It is evident that the controversial documentation which I have reviewed, containing as it did elliptical language, was not prepared by practising lawyers, but by participants in specialised fields of the insurance industry, who may be taken to have comprehended the bordereau convention for the time being in place under the auspices of SLE as agent for Lumley. One impression which I gained, in particular from the viva voce testimonies at least of Mr Quinlan and Misses Meyer and Prasad, was an absence of at least an entire understanding of the distinction between the bordereau on the one hand and offer and acceptance on the other, something for which none of them could be fairly criticised, given the extent of obscurity of expression contained in the relevant documentation which emanated from SLE.
Subsequently to the provision of the Country Hotel Procedure document by SLE to AON, which had occurred at least by 14 January 2002, SLE emailed AON on 4 March 2002 in the terms earlier extracted herein. As there appears, that email stipulated to AON in block letters that ‘[f]or any policy to incept we require two page survey with declared values/limits of liability page sent with rates’, referring thereby to at least the Hostpak Property Information and the Declared Values/Limits of Liability forms. Controversy arose however as to whether the concluding words ‘with rates’ introduced any change to the terms of the bordereau process in operation between AON and SLE contained in the Country Hotel Procedure document, and if so, whether in the events which happened in connection with the underwriting circumstances of the Parkview, any such additional requirement was satisfied by the applicants. The expression ‘rates’, in the context just cited, appears of course earlier in that email, and connotes premium rates. It is not a simple task to rationalise the addition of those concluding words ‘with rates’, in the context of the requirement ‘[f]or any policy to incept we require two page survey with declared values/limit of liability page sent with rates’. The email did not purport explicitly to amend the Country Hotel Procedure document, but the issue arises as to whether it did so by implication, and if so, with what consequences for instance in the present circumstances where Mr Quinlan was presented with the dilemma of a 30% timber component in otherwise concrete floors, in the context of the wording ‘Any Timber Floors’. Those circumstances apparently placed Mr Quinlan in a dilemma as to the correctly applicable rate or rate calculation to be adopted, and I would infer, with perhaps some justification. In any event, he sought clarity as to the applicable rate. Payment of the premium was not required by the bordereau process to be made at the time of faxing of those stipulated forms, but in conformity with subsequent provisions of the Country Hotel Procedure documentation respectively headed ‘SLE – 45 days out’, ‘SLE – 60 Day Remittance’ and ‘SLE – Unpaid… 90 days’.
The word ‘rates’ did not appear for the first time in the context of the 4 March 2002 email to AON. It was used in the singular and plural in the earlier SLE emails to AON of 2 August 2001, 15 August 2001 and 9 January 2002. It was also used in the singular by the Country Hotel Procedure in the offer and acceptance segment, and in particular in the context ‘SLE will then advise rate and terms applicable’. It is not without significance that the SLE 4 March 2002 email did not purport at least explicitly to amend the preceding ‘Country Hotel Procedure’ documentation, though consistently therewith, as in the case of the earlier SLE emails to AON, it emphasised the fundamental initiating procedural requirement for the submission by AON to SLE of the Hostpak Property Information and Declared Values/Limits of Liability forms. No provision was made at least explicitly by either of those forms for AON to insert a premium calculation. On the contrary, the offer and acceptance segment thereof stipulated that ‘SLE will then advise rate’, and also set out the procedures in relation (implicitly) to both that segment and the preceding bordereau segment. To resolve the ambiguity in my opinion thus arising by reference to the inclusion of the words ‘with rates’, and consistently with the subjection of SLE (as agent for Lumley) to the contra proferentem rule, I would not read SLE’s email of 4 March 2002 as stipulating to the effect that the words ‘with rates’ implied any obligation upon AON to provide a mathematical calculation of the applicable premium rate, so long as all facts and circumstances required to make that calculation were set out in those mandatory forms required to be submitted to SLE. Given the background and context to the SLE email of 4 March 2002, it was sufficient for AON to have provided the information needed for calculation of the rates, and thus of course the premium, and AON duly did so in the case of the Parkview, as is apparent from Ms Prasad’s testimony and course of conduct. No issue arose as to the accuracy of Ms Prasad’s premium rate calculation of .22%, albeit the rather enigmatic way at which she first allegedly arrived at the 20% premium deduction, instead of doing so directly by reason of what the applicants contended to have represented the consensual approach (see again [43] above). Moreover as I have in any event established in these reasons, Mr Quinlan asked Ms Meyer (or else Ms Prasad or Ms Field in that sequence of preferred recall) to ‘do the rating’, which was thereafter undertaken by Ms Prasad. Any requirement for AON to have done so was thus dispensed with implicitly by SLE’s conduct in complying with Mr Quinlan’s request.
I am therefore of the opinion that the requirements of the bordereau were satisfied, or at least substantially so, and that fire insurance indemnity on the part of SLE as agent of Lumley in respect of the Parkview took effect for the benefit of Rifon and Ardilo, by the direction of AON, by at least 3 June 2002, being SLE’s first working day after receiving AON’s fax sent earlier on 31 May 2002 after 5.00pm (if not earlier on 31 May 2002 by virtue of the operation of the bordereau provisions of the Country Hotel Procedure). It was therefore by or on 3 June 2002 when the process of inception of the operation of the insurance indemnity, by SLE as agent for Lumley as insurer in favour of Rifon and Ardilo as the insured, took effect in respect of the insurable value of the Parkview, as specified in the Declared Values/Limits of Liability form.
In reaching the above conclusion, I have taken into account, on the basis of the evidence, and so confirm, that the terms of the bordereau in operation between the parties, at the times material to the disputes the subject of the proceedings, included the following controversial conditions, namely that:
(i)SLE was entitled to a deductible or excess in the sum of $5000 in respect of all claims for indemnity; and
(ii)the premium rate prevailing as between AON (and therefore for the benefit in particular of Rifon and Ardilo) and SLE was to be reduced by twenty per centum (20%);
whether the documentary material so provided by AON qualified for indemnity upon the footing of the bordereau, or additionally or alternatively upon an offer or acceptance basis, which I am yet to finally address. I would therefore resolve the so-called first factual issue framed in [43] above in the affirmative, that is to say of course, in favour of the applicants.
In reaching the conclusions which I have thus far set out above, I would further record my finding that by reason of the events which took place on 3 June 2002, when Ms Prasad processed the Hostpak Property Information and Declared Values/Limits of Liability documents and thereafter re-faxed to AON the latter document containing her handwriting ‘Rate : .22%G XS : $5000 All Losses’, SLE thereby confirmed those terms to be contractually in operation between SLE and AON, being contractually in the alterative sense of completion of a process of offer and acceptance.
I would therefore confirm that the process unilaterally initiated by Mr Quinlan on 31 May 2002, reflecting as it did an activation of the bordereau in operation between SLE and AON in relation to the Parkview, as well as an offer to enter into a contract of insurance, did not in any event constitute the mere seeking and obtaining of an insurance premium quotation, consistently (for what it may matter) with his evidence as to his subjective intention in that regard, and moreover, as to his further evidence, which I would entirely accept, as to his conversation on 31 May 2002 with an officer of SLE preparatory to his sending the AON fax to SLE late on 31 May 2002 (that being most likely Ms Meyer as the addressee of that fax). As I have earlier recorded, Mr Quinlan was aware of the circumstance that completion of the purchase of the Parkview by Rifon and Ardilo was scheduled to take place on the following Monday 3 June 2002, and that insurance cover was required to be in force at least by no later than on that day. His long standing experience in the insurance industry would have alerted him to the adverse potential implications to Rifon and Ardilo as to completion of the acquisition of the Parkview without the requisite insurance requested by Mr Camkin being in place. Hence my finding, already foreshadowed, that Mr Quinlan did speak on 31 May 2002 to one of the three officers of SLE that he identified in his evidence, in the sequence of his preference of recall, Ms Meyer being of course his primary preference of recall. I would therefore resolve the second factual issue the subject of [44] above in favour of the applicants.
I should further record for completeness that neither the Hostpak Property Information form nor the Declared/Values Limits of Liability form required that AON stipulate any ‘rates’ therein. What those forms required AON to particularise or detail, in relation to the risk, in the case of the Hostpak Property Information form, was principally the nature of the hotel building, its construction details, its equipment relative to combating the outbreak of fire, and local fire brigade availability, those being at least the principal factors that were specifically stipulated by SLE’s 4 March 2002 email to AON for the purpose of calculation of premium rates. That form did not in terms require the quantification of the premium to be paid by the broker, but rather details relevant to the risk, such as to provide to SLE the criteria for ascertainment of the applicable premium rate for at least the first year of insurance. An application of the contra proferentem rule would require that the email of 4 March 2002 be read consistently with the Country Hotel Procedure document, such that binding of cover would effectively occur by the time of submission of the Hostpak Property Information and Declared Values/Limits of Liability data to SLE.
Quantification of the excess or deductible in favour of SLE involved different interpretative considerations to that of premium rates. That was because the Declared Values/Limits of Liability form explicitly stipulated for the excess (or deductible) amount to be stated, and if there was no prevailing agreement for the time being in force in that regard as between SLE and AON, it could have been open to SLE to decline the insured’s nominated figure, in which case the consequence might well be an absence of cover pending mutuality of agreement being reached in that regard. However as I have earlier observed, AON nominated the sum of $5000 in that form prior to the dispatch thereof by fax to SLE, which quantification SLE implicitly acknowledged by its re-faxed document containing Ms Prasad’s handwriting and signature, and her explicit reference to the sum of $5000 as the excess or deductible. Given that consensus was in any event already prevailing in that regard between AON and SLE, as was of course the applicants’ case, and which I have found to be correct, Ms Prasad’s faxed document of 3 June 2002 (that is of course the re-faxed copy of AON’s Declared Value/Limits of Liability document bearing Ms Prasad’s handwriting) accurately reflected, as well as operated to confirm, the prevalence of that consensus between AON and SLE. That was because in arriving at the premium calculation of .22% specified on the re-faxed document of 3 June 2002, she first made provision for a 20% premium reduction (see again [30] above). No confirmation by way of return communication of SLE was therefore required of AON, at least by any terms of the bordereau. If no such consensus had by then been reached on the 20% premium reduction element, issues might have arisen as to whether the operation of the bordereau nevertheless took effect, at the time of faxing by AON of the required documentation, subject to a condition subsequent as to quantification of the amount of the deductible or excess, but I need not resolve any such hypothesis.
Essentially for reasons based upon the evidence I have reviewed on the subject of the level of deductibility or excess of the time being in force, I am of the opinion that the sum of $5000 was mutually agreed and acknowledged between the parties as the correct deductible or excess figure prevailing as at 3 June 2002, and at material times thereafter. Moreover for reasons I have also foreshadowed, I am of the further opinion that as at 3 June 2002 and at the material times thereafter, consensus was in operation between the parties, and was duly implemented by SLE per medium of Ms Prasad, to the effect that in return for AON agreeing to the increase in the deductible or excess figure to $5000, AON would be entitled to put into operation and effect a premium reduction of 20% below the premium rates for the time being prevailing in favour of SLE, to which Ms Prasad gave due effect on behalf of SLE in favour of AON when calculating and recording the rate of .22% on the face of the re-faxed Declaration of Values/Limits of Liability document, bearing of course her signature as at 3 June 2002. I therefore confirm my conclusion already foreshadowed that the bordereau took effect at least on and from 3 June 2002 in favour of the applicants in respect of the Parkview, and that the applicants are entitled to declaratory relief accordingly.
It is also necessary or appropriate that I resolve the second and third factual issues which I have framed in [44] above, which relates essentially or largely to Mr Quinlan’s disputed telephone conversation of 31 May 2002 with either one of Ms Meyer, Ms Prasad or Ms Field, in that preferred sequence according to his testified recollection. That controversy relates to the contract issues, as distinct from the bordereau issue. As I there observed, the applicants contended that it was only necessary that I need do so, in the event that I was to determine, contrary to the conclusion which I have already reached, that the insurance contract proposed by AON on behalf of Rifon and Ardilo fell outside the operation of the bordereau for the time being in force. I have earlier summarised the evidence placed before me on the present contract issues. I have no good reason to doubt that I should accept Mr Quinlan’s testimony, to the extent of any conflict relevantly with any of SLE’s witnesses, on the subject as to what was said in the course of that telephone conversation, for the following reasons:
(i)I was impressed with Mr Quinlan as a credible witness, who answered questions of him in cross-examination spontaneously, and without advocating AON’s cause, in the course of so doing (he was no longer of course employed by AON at the time of the hearing, as was, I should further record, similarly the case with Ms Meyer);
(ii)he addressed the fax of 31 May 2002 of the relevant forms to Ms Meyer alone;
(iii)his telephone conversation with ‘Natassha’ on the morning of 3 June 2002 was consistent with his endeavours to ensure (with belated haste) that cover would be in place on the day of completion of acquisition of the Parkview;
(iv)Ms Prasad’s calculations of the premium rate of .22%, which she committed of course to writing upon the re-faxed material of 3 June 2002 to AON, involved a premium reduction of 20%, albeit that she asserted that she did not obtain that percentage figure from Mr Bailey (see [30] above), but merely ‘decided’ upon the same herself (the latter assertion to my mind impermissibly stretched her credibility, and I would not accept the veracity thereof);
(v)as I have already emphasised, Mr Quinlan appreciated the need for insurance to be in place in relation to the Parkview by no later than 3 June 2002, on which day settlement of the purchase thereof by Rifon and Ardilo was scheduled to take place, and did of course take place; up to that time, Mr Quinlan appears to have been somewhat dilatory, being conduct which, as a new employee, he would obviously have not wanted to rebound to his detriment; and
(vi)as I have also earlier indicated, there are credibility problems attending the accuracy of Ms Meyer’s handwritten note endorsed on the SLE’s retained faxed copy of Declaration of Values/Limits of Liability form; it is highly unlikely that Mr Quinlan would have said to her ‘I don’t know,’ in response to her alleged assertion ‘[c]over is not bound’, in the context of the objective events which, to his knowledge, had taken place on and before 25 June 2002.
At least for the foregoing reasons, not necessarily cumulatively, I would further resolve the second factual issue set out in [44] above in the applicants’ favour. It accords with the more likely and realistic content of the conversation between Mr Quinlan and Ms Meyer on that occasion.
It is appropriate in the circumstances that I should next conclude my determination the applicants’ alternative case based on offer and acceptance, which was put in the three alternative ways propounded earlier in [6(ii)], [6(iii)] and [6(iv)] above. There is force in the applicants’ contention that in the events which happened, the conduct of SLE in re-faxing to AON the Declared Values/Limits of Liability form on 3 June 2002 constituted an acceptance on SLE’s part of an offer constituted by AON’s fax of 31 May 2002. There is much to be said for the view that the substance and reality of the conduct of AON in faxing that form, and the accompanying Hostpak Property Information form, to SLE on 31 May 2002, containing the detail therein appearing, constituted (aside from bordereau implications) an offer of indemnity at such rate as SLE would calculate by reference to the prevailing ‘Rates’ material previously emailed by SLE to AON. Whether an offer and acceptance occurs in the course of an existing and continuing business/trading relationship needs to be analysed in that particular context, as distinct from an isolated transaction between strangers (Brambles ibid). The business relationship between AON and SLE had been in operation for many years, and was implicitly characterised by a significant measure of proximity and mutuality in relation to their dealings. Telephone communications were inferentially a feature of their business dealings. The inference clearly open to be drawn is that AON placed its portfolio of country hotels either with SLE (as agent for Lumley), or else with SGIO, to an extent not statistically in evidence, but with no other insurer. At least the number of country hotels involved in AON’s dealings with SLE was significant.
I should add for completeness that the circumstance that AON did not submit a so-called ‘closing’ until shortly after the first on 27 June 2002 is no answer to the applicants’ case. As appears in the Country Hotel Procedure documentation, the provision by AON to SLE of so-called ‘stapled closings’, at least in the case of the bordereau, and perhaps also in the case of offer and acceptance, was only required to be provided ‘by 15th of the next month’ after cover was bound: see what appears under the heading ‘AON – Closings’. The ‘closing’ in relation to the Parkview was therefore not required until 15 July 2002, though the same was in fact provided on the same day as, but shortly after, the fire on 27 June 2002 (see [41] above). Therefore the submission of Lumley that the purported closing of 27 June 2002 was ineffective in operation, because of the intervention of the fire earlier on that day, confused the requirement for the submission of a closing with the earlier time of commencement of the insurable risk.
It follows from my foregoing findings at least upon the bordereau cause of action that the applicants are entitled to succeed. In the light of the complexity of circumstances as between AON and SLE involved in this litigation, it is appropriate (as I have foreshadowed) that I should also resolve the additional or alternative case of the applicants brought upon the footing of offer and acceptance.
The applicants submitted that Mr Quinlan’s testimony as to what was said by Mr Quinlan on Friday 29 June 2002 to Ms Meyer (or alternatively to whom he otherwise spoke, being either Ms Prasad or Ms Field in that order of subsequent preference of his recall) was to the effect that AON wished to put the intended insurance of the Parkview with SLE, and that all that was required for him so to do was for SLE to specify the premium rate, since Mr Quinlan was unsure as to how to calculate the same. As I have already foreshadowed, it is in my opinion that his testimony in that regard should be accepted as both probable and credible (see again [36] above). As I have earlier emphasised, the circumstances which confronted Mr Quinlan by that time rendered it compelling for him to obtain cover by no later than the following Monday. Given the credibility of that testimony of Mr Quinlan, which I accept, what was effectively conveyed by Mr Quinlan on that contentious occasion was precisely to the effect contended for by the applicants, and conversely foreign or antithetical to the contention of Lumley that Mr Quinlan was ‘simply seeking a quotation’, and further that ‘that was all he received’.
Alternatively it was submitted by the applicants that SLE’s fax of 3 June 2002 (see again [24] above) constituted an offer by SLE, which, ‘as a matter of practice’; was capable of being accepted without an immediate response by AON to SLE; thus it was said by AON that ‘[i]t was sufficient for AON to internally accept the offer, and in due course invoice the insureds, send the insureds the relevant certificate of insurance, and advise SLE of the acceptance by forwarding a closing’.
In support of either submission, the applicants submitted that each of the foregoing mechanisms for creating a contact was unconventional, in the sense that:
(i)in the first case, AON was in effect agreeing to accept on behalf of its clients, without further response to SLE, whatever premium rate SLE would specify; and
(ii)in the second place, SLE effectively agreed to be bound, and thus to go on risk, on the basis of a deferred advice that cover had been bound at the premium rate specified.
The applicants provided two reasons why the foregoing ‘unconventional procedure’ for entering into a contract of insurance was not surprising:
(i)The Parkview Hotel was an uncontroversial subject for SLE’s Country Hotel scheme, and there was no issue otherwise than that the insurance was clearly acceptable to SLE (see again in that regard Mr Bailey’s concession recorded in [18] above and Ms Meyer’s concession recorded in [19] above).
(ii)AON had no reason to suspect that the premium rate to be provided by SLE would be at large, in the sense that it was possible that SLE would specify an unexpectedly high premium rate; rather AON had a reasonable expectation of the likely premium rate that SLE would specify (as indeed was borne out) upon the footing of the schedule of rates the subject of SLE’s email to AON of 4 March 2002; put another way by AON, the premium rate which SLE would and did specify was precisely predictable, and ‘the only problem was through inexperience Mr Quinlan was not sure how to calculate the rate’;
(iii)Lumley’s witnesses accepted that contracts of insurance were not always entered into by ‘a conventional process of strict offer and acceptance’, and also agreed that there were occasions when contracts of insurance were created in the same manner as the applicants submitted that a contract of insurance was created in the case of the Parkview.
There is clear force, in the light of the evidence which I have reviewed at length, in support of the foregoing submissions as to each of the three ways in which the applicants’ offer and acceptance case. The following circumstances propounded by the applicants do tend to support at least cumulatively my preferred expression of conclusion upon the applicants’ offer and acceptance case:
(i)the urgency from Mr Quinlan’s perspective of obtaining cover from SLE by no later than Monday 3 June 2002, when completion of the purchase was scheduled to occur, and whereafter the Parkview would be at the risk of Rifon and Ardilo;
(ii)the information as to ‘rates’ then currently set out in the SLE email of 4 March 2002 to AON (which of course were purportedly applied by Ms Prasad) when undertaking the exercise which she did relevantly on 3 June 2002;
(iii)the contention of Lumley in final submissions that Mr Quinlan merely asked for a premium quotation, and that was all he received, was divorced from reality, both in the light of the events and circumstances prevailing on 3 June 2002, which I have of course recorded in detail, and the nature of the established and existing underwriting relationship between the parties referrable to Australian country hotels through various State AON offices located throughout Australia;
(iv)if Ms Meyer had in fact informed Mr Quinlan on 25 June 2002 that cover was not bound, in conformity with her handwritten note, which I do not accept as credible (ante), Mr Quinlan would obviously have immediately requested that cover be bound; as was submitted on behalf of the applicants, ‘[i]t would have been gratuitously reckless for him to have failed to do so’.
In my opinion therefore, the applicants are entitled to succeed on their offer and acceptance case, at least upon the primary or preferred basis I have articulated.
I have already foreshadowed that I do not think that the applicants’ case for misleading and deceptive conduct has been sufficiently established in the particular circumstances of the case, and I need say little more on that issue. In short, I do not think that the re-faxed Declared Values/Limits of Liability document upon which Ms Prasad wrote on 3 June 2002 and then re-faxed to AON, and upon which she subsequently placed the button stamp and re-faxed again on 25 June 2002, could have objectively misled AON in any of the ways and to the extent contended by the applicants.
Costs
The applicants are entitled in principle to an award of their costs of the proceedings to date, save as to any exceptional circumstances relating to amendments to pleadings and any interlocutory processes for which no orders may yet have been made. The applicants have succeeded to clearly substantial extent. I direct that each of the parties lodge with my Associate within 14 days draft orders, together with any submissions as to costs in the light of each and all of the matters which I have resolved. Those orders should also relate to the further conduct of the proceedings.
I certify that the preceding two hundred and fourteen (214) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate:
Dated: 25 February 2005
Counsel for the Applicant: SD Robb QC with MJ Leeming Solicitor for the Applicant: Sparke Helmore Counsel for the Respondent: DD Knoll Solicitor for the Respondent: Piper Alderman Dates of Hearing: 4, 5, 6 & 7 May 2004 & 21 & 22 July 2004 Date of Final Submissions: 15 October 2004 Date of Judgment: 25 February 2005
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