Brooklyn Lane Pty Ltd v MIC Australia Pty Ltd
[2001] VSC 33
•21 February 2001
| SUPREME COURT OF VICTORIA | |
| COMMON LAW DIVISION | |
| Not Restricted | |
No. 4623 of 1999
| BROOKLYN LANE PTY LTD (ACN 007 361 113) (trading as Sturgess Real Estate) | Plaintiff |
| v | |
| MIC AUSTRALIA PTY LTD (ACN 058 890 047) | Defendant |
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JUDGE: | Balmford, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28-30 November, 1 and 4-8 December 2000 | |
DATE OF JUDGMENT: | 21 February 2001 | |
CASE MAY BE CITED AS: | Brooklyn Lane Pty Ltd v MIC Australia Pty Ltd | |
MEDIA NEUTRAL CITATION: | [2001] VSC 33 | |
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Negligence – Defendant engaged by Plaintiff to procure insurance policies – Plaintiff’s business destroyed by fire – Denial of liability for loss of accounts receivable by insurance company – Whether the Defendant exercised proper skill and care in carrying out the Plaintiff’s instructions – Breach of contract – Whether the Defendant breached a contract between the parties to procure insurance for the contents of the premises on a reinstatement basis rather than a market value basis – Whether the Defendant breached a contract between the parties to procure insurance for loss of accounts receivable.
Dickson & Co v Devitt (1916) 86 LJKB 315.
Marvin Manufacturers (Aust) Pty Ltd v Chamber of Manufacturers Insurance Limited (1992) ANZInsCas 61-122.
Norwest Refrigeration Services Pty Ltd v Bain Dawes(WA) Pty Ltd (1984) 157 CLR 149.
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) ALR 361.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr John Selimi | James Karavias & Co |
| For the Defendant | Mr Daniel Flynn | Tress Cocks & Maddox |
HER HONOUR:
Introduction
The plaintiff company carried on business as a real estate agent from 1990 to 1996. The defendant company is an insurance broker and was engaged by the plaintiff between March 1990 and April 1995 to procure policies of insurance on its behalf in relation to certain classes of loss. In pursuance of that engagement the defendant took out a series of policies with Mercantile Mutual Insurance (Australia) Pty Ltd (“the insurance company”). On 7 June 1995, during the currency of one of those policies, the plaintiff’s business premises at 7 Walker Street, Dandenong were destroyed by fire. It appears to be accepted that the fire was deliberately caused, but there is no evidence of any charge having been laid. The plaintiff claimed under the policy, but the insurance company denied liability. On 17 October 1995 the plaintiff issued a proceeding in this Court against the insurance company (“the earlier proceeding”). On 25 November 1998 the earlier proceeding was settled, with an express denial of liability, for an unitemised amount of $225,000, inclusive of interest and costs. It is common ground that the derivation of that amount was not discussed between the solicitors who negotiated the settlement.
In the present proceeding the plaintiff claims that as a result of the defendant’s breach of the contract between the parties, or alternatively its breach of a duty of care owed by it to the plaintiff, the plaintiff was underinsured in respect of the contents of the building, and not insured at all in respect of inability to recover accounts receivable. Accordingly, the plaintiff claims, it was forced to compromise the proceeding against the insurance company. It claims for loss constituted by the difference between the net amount (if any) recovered in respect of certain items of the loss and the amount which it claims would have been recovered if the defendant had procured a policy of insurance in what is claimed to be the terms of its retainer.
On that basis the plaintiff claims damages of:
$126,000 on the ground that the contents of the premises were insured on a market value basis rather than a reinstatement basis; and
$294,000 on the ground that the policy in respect of business interruption did not cover the loss of accounts receivable.
The claim in contract
The contractual claim relies on the evidence of Mr Bruno Strangio, who was at all relevant times general manager of the plaintiff company. He said that from 1982 to 1996 he had employed Mr Paul Vasdekis as his insurance broker, in respect of several different businesses which he had operated. Mr Vasdekis had been associated with several different companies in that period but it is not in issue that at all relevant times he was a director of the defendant, and was responsible for the defendant’s dealings with the plaintiff, and that most of the relevant conversations took place between Mr Strangio and Mr Vasdekis. Mr Strangio said that he and Mr Vasdekis had conversations “twenty times a year in general, on everything”.
There are substantial differences between the evidence of Mr Strangio and that of Mr Vasdekis, and a number of matters which cast doubt on the credit of Mr Strangio.
(i)Mr Strangio said that until after the fire he had trusted Mr Vasdekis one hundred per cent; he never needed to read policies which were sent to him because Mr Vasdekis always explained what type of insurance he was offering. However, after his attention had been drawn to a number of invoices which he agreed that he had received from the defendant, he was asked whether he read them when he received them, and replied, “I always checked the letters, the insurance letters, yes”. And when reminded of that evidence the next day, he said with regard to the invoice for the policy in respect of the period 15 April 1994 to 15 April 1995, that he read that document when Mr Vasdekis brought it to his office, and while Mr Vasdekis was there. He said, “I check the documents out as to what I was promised and what I was offered, that's the insurance we were paying for, that's what I wanted to make sure we would get.” Later that day he again confirmed that he always checked insurance letters. It was fundamental to the case for the plaintiff that the plaintiff never received any document from the defendant other than renewal notices and confirmation notices, which Mr Strangio referred to as “letterheads”, never received any policy document or any certificate of insurance, and, until after the fire, never received any document indicating that accounts receivable were not insured. The case was that had the plaintiff received any such document, Mr Strangio would have read it and contacted the defendant to have it corrected.
(ii)In examination in chief Mr Strangio said more than once that the files and documents relating to the plaintiff’s business were “totally destroyed” in the fire; “There was nothing in existence, what I could visibly see at the time of the fire. Everything was burnt”. However, there was extensive evidence by Mr Strangio and others of discussions which began almost immediately after the fire relating to proposals for the files of the business which had been damaged in the fire to be restored by a company known as Restorx. (See paragraph 15 below). The employee of Restorx who gave evidence described herself as a “fire and water restoration technician” and said that there were “lots and lots of boxes” of files. Mr Strangio was well aware when giving his evidence in chief that the files, while damaged, were in a state where restoration was possible. They had not been “totally destroyed”.
(iii)It was put to Mr Strangio in cross-examination that after some files had been restored by Restorx he did not collect them because he had no filing cabinets and no place to put them. He replied, “That is definitely incorrect. We couldn't collect because Restorx wouldn't give them to us until the insurance had paid them the $10,000.” He was then shown an affidavit sworn by him in the earlier proceeding which included the following passage:
I have not collected the 25% of the files from Restorx because the Plaintiff has no filing cabinets and no place to put the same.
His response was “That could be a typographical error.”
(iv)Mr Strangio said that if it had been possible after the fire to locate the sole agency agreements in respect of sales of businesses, the plaintiff would have proceeded to recover the commissions due to it. However, all of the amounts claimed as commissions which would have been recoverable but for the fire were described as owing at 30 June 1993 and apparently had not been recovered as at the date of the fire, 7 June 1995, almost two years later. No explanation was given as to why they had not been recovered already, and there is nothing to suggest that any further steps would have been taken had there been no fire.
(v)There is no evidence of steps taken to pursue any of the debts claimed as commissions, totalling $175,000, save that the headings to the list of those debts indicate that some form of recovery mechanism was in place in respect of $120,000. Mr Strangio gave evidence as to the procedures normally adopted by the plaintiff to recover debts, as did Ms del Vecchio, formerly of the staff of the plaintiff, whom I regard as a witness of truth. Ms del Vecchio said that she did all the typing in the office, but had not typed any letters seeking recovery of commissions owing. Mr Strangio claimed that the debtors were the most important part of the business and so it was essential to insure them. That being so, it is surprising that so little effort seems to have been made to recover the debts in question.
(vi)It is not in issue that when the question of restoration of the files was discussed after the fire, Mr Strangio refused to make any assessment of which files were most important and should be restored first, insisting that every file which was in the office was of equal importance. This seems unlikely.
(vii)Mr Strangio said that it was not until 15 April 1994 (see paragraph 9 below) that the plaintiff discovered that its insurance policy had lapsed and it was not insured at all. However, this is inconsistent with the documents evidencing the discussion with Mr Flynn, a director of the plaintiff, which is referred to in paragraph 18 below.
(viii)The most significant matter in this context relates to Exhibit 1. As I have already said, it was fundamental to the case for the plaintiff that the plaintiff never received any document from the defendant other than renewal notices and confirmation notices, which Mr Strangio referred to as “letterheads”, never received any policy document or any certificate of insurance, and, until after the fire, never received any document indicating that accounts receivable were not insured.
Exhibit 1 consists of four faxed sheets, which I will refer to as sheets 1 to 4. Sheet 1 is a printed facsimile transmission form headed Sturgess Real Estate (the business name of the plaintiff) and is a communication from Mr Strangio to Mr Vasdekis dated 26/5/94. The handwritten text reads (with spelling errors corrected):
Paul please add in the policy other interested parties, as per the business pak signed and lodged with you
I am faxing copy of the business pak for your reference
We await amended certificate with the proper parties.
A note at the foot of the page in a different writing is a direction to include B & F Atingo Investments Pty Ltd as an interested party and is signed “Paul” and dated 26/5/94.
Sheet 2 is a “Business Pak” insurance proposal with the insurance company, completed with the name and address of the plaintiff as “insured” and signed by Mr Flynn, of the plaintiff. Under the heading “Other interested parties” there appears the name and address of “B & F Atingo Investments Pty Ltd”.
Sheets 3 and 4 are headed “Certificate” and describe a Business Pak policy issued by the insurance company to the plaintiff, for the period 15 April 1994 to 15 April 1995, and set out, inter alia, the amounts insured under the headings Fire, Business Interruption, Theft, Money, and Legal Liability. Under Fire on sheet 4, appear the words “Reinstatement and Replacement (inc. extra cost) included? N.” Under Business Interruption on sheet 4 there appear the words “Outstanding Accounts Receivable not insured”. Thus a reader of sheet 4 would be made aware that the contents of the building were not covered for reinstatement and replacement cost, and that outstanding accounts receivable were not insured.
The fax header on Sheet 1 reads:
03 7925050 May 26 ’94 14:12 Sturgess Real Estatea [sic]
The fax headers on the succeeding sheets are identical, save for the omission of “03 7925050” (which is the fax number of the plaintiff as appears from the printed portion of sheet 1) and the times, which read:
Sheet 2 14:12
Sheet 3 14:13
Sheet 4 14:14
It is apparent that all four sheets were sent together, between 2.12 and 2.14 p.m. on 26 May 1994. It is also apparent that the purpose of the transmission was to ask the defendant to include the name of B & F Atingo Investments Pty Ltd as an Other Interested Party on the certificate of insurance (sheets 3 and 4) and to return the certificate to the defendant. It is also apparent that sheet 4, setting out that contents were not covered for reinstatement and replacement cost and that outstanding accounts receivable were not insured, was being sent by the plaintiff to the defendant, and must have therefore been, at some stage, received by the plaintiff, contrary to the consistent evidence of Mr Strangio.
The certificate was in due course amended and returned to the plaintiff after the inclusion of the name of B & F Atingo Pty Ltd.
Photocopies of those four sheets appear in the defendant’s court book at pages 186, 187, 189 and 188, in that order. Pages 186 and 187, that is, sheets 1 and 2, were put to Mr Strangio in examination-in-chief, and he said that he had faxed those two sheets to Mr Vasdekis with two other sheets, copies of which were at pages 183 and 184 of the defendant’s court book. He had never seen the documents copied at pages 189 and 188, and had never received any document described as a certificate from the defendant before the fire. He said that if he had received page 188 (that is, sheet 4), he would have contacted Mr Vasdekis and made him rectify it immediately, because his understanding had been that the plaintiff was covered for reinstatement and replacement of contents and for outstanding accounts receivable.
However, pages 183 and 184, which appear to be the second and third pages of the Business Pak document, show no sign of ever having been faxed. In any case, the purpose of faxing the first page of that document was to show to Mr Vasdekis the name of the firm to be included as an Other Interested Party. There would have been no point in including the second and third pages.
Exhibit 1, that is, the original four faxed sheets, was put to Mr Strangio in cross-examination. He reiterated that he had faxed sheets 1 and 2 to the defendant, but had never seen, and had not faxed, sheets 3 and 4. He made no attempt to explain the fax header indicating that sheets 1-4 had been sent consecutively over two minutes. He did say that the fax machine at the plaintiff’s office had not included the name “Sturgess Real Estatea”; it had read “Sturgess Real Estate”. In re-examination he said that he thought that the machine was programmed to show the date and telephone number only. However, he did not suggest that the fax header on sheets 1-4 had been forged or otherwise fraudulently created.
(ix)Finally, Mr Strangio consistently produced a cloud of words rather than a straight answer to a question. There were a number of points which he was concerned to make, and he made those points repeatedly, regardless of whether they constituted an appropriate answer to the question which had been put.
All these matters lead inevitably to the conclusion that, where the evidence of Mr Strangio is inconsistent with the evidence of any other witness, I should disregard the evidence of Mr Strangio.
Insurance for loss of accounts receivable
It is convenient to deal first with the claim for breach of a contract to insure for loss of accounts receivable. Mr Strangio said that when the plaintiff entered the real estate business in March or April 1990, he asked Mr Vasdekis to come and see him at his office, which was then in Koornang Road, Carnegie, and discuss his insurance requirements. Mr Vasdekis came and inspected the premises, because he had a rule before setting up an insurance to inspect the premises and see how beautiful they were and have a cup of coffee. At that stage, Mr Strangio said, a business interruption policy was not necessary, because the business was only in the setting-up stage and had no income. However, he said that Mr Vasdekis had explained that such a policy covered debtors, money coming in, money going out and commissions.
He said that when the initial business interruption cover, which was section B of the policy, was taken out some months later, it was for a total cover of $400,000, and that this amount was recommended by Mr Vasdekis when Mr Strangio told him that the business was expected to generate income in the next year of between $250,000 and $400,000. The amount was increased in May 1991 to $440,000. Mr Strangio said that this was done because Mr Vasdekis “used to advise us for the first year to incorporate debtors because debtors will happen in this sort of industry where people don’t want to pay their commissions”. In March 1993 he and Mr Vasdekis had “discussed to insure at 440 and then review it on an annual basis”. (He appears to have meant that he instructed Mr Vasdekis to do so.). Each year at the time of renewal Mr Vasdekis would ask him what the turnover of the business was, the amount of commissions, and the amount of trade debtors. He would then advise Mr Strangio of a figure and add twenty per cent on top. Mr Vasdekis had always advised him that accounts receivable were covered under section B of the policy. (It should be noted here that the expressions “debtors” and “accounts receivable” were used interchangeably throughout the hearing of this matter.)
In April 1994, Mr Strangio said, there was a break-in at the office of the plaintiff and some eight or ten thousand dollars worth of equipment was stolen. He rang Mr Vasdekis in the morning of 15 April 1994 and was told that the insurance policy had lapsed and the plaintiff was not insured. He arranged a fresh cover, and he and Mr Vasdekis discussed the appropriate amounts. Mr Vasdekis asked him the amount of the turnover and the debtors, and Mr Strangio told him the turnover in the next year was expected to be seventy to eighty thousand dollars and the amount of debtors was approximately 170 to 180 thousand dollars. Mr Vasdekis added an extra twenty percent, saying that you should always over-insure, and the amount of cover under section B of the policy, for business interruption, was fixed as $280,000. The plaintiff received a cover note showing that amount.
Mr Strangio was concerned to reiterate throughout his evidence that Mr Vasdekis had explained on numerous occasions from 1990 that debtors were covered under the business interruption section of the policy. He said that Mr Vasdekis had never suggested that there was no reason for a real estate business to insure its debtors.
The proposal form for the fresh cover taken out in April 1994 shows the sum insured for “trading profit” under policy B as $280,000. Mr Strangio said that when Mr Vasdekis brought that form in to his office to be signed he asked Mr Vasdekis what was meant by “trading profit”, and was told that it included debtors. By this stage the premises of the business were in Walker Street, Dandenong.That proposal form does not state that debtors were not insured.
When the policy was renewed in April 1995, he said that Mr Vasdekis again told him that debtors were covered in section B of the policy. Expected income in the next year was seventy to eighty thousand dollars. The cover under section B was $294,000, far in excess of any expected income. It included income, debtors, the twenty percent over-insurance, and indexation by the insurance company.
After the fire, Mr Strangio said that the plaintiff conducted its business from various offices, including the office of the plaintiff’s solicitor. In May 1996 the rent roll was sold to another agent for $33,000 in order to pay the creditors and the business was closed down.
He said that at no time before the fire did he see a copy of the insurance policy. After the fire a copy was given to him by Mr Turner, who was at all relevant times managing director of the defendant. He said repeatedly that throughout the period from late 1990 until after the fire the plaintiff received renewal notices and confirmation notices from the defendant, but never received any policy document or any certificate of insurance. He never received any document until after the fire which stated that accounts receivable were not insured. Had he done so, he would have rung Mr Vasdekis and asked him to rectify the policy, because it did not cover what he had been told was covered. When he received the policy document and certificates after the fire, together with a claim form, he read the certificates and then rang the defendant and complained that “these certificates are different to what we were supposed to be insured for”.
Mr Strangio said that after the fire Mr De Koning, the insurance company’s loss assessor, introduced him to Mr Gerhardt of Restorx and discussed the restoration of the files. He told Mr De Koning that the files needed to be restored as soon as possible in order for the business to continue. Mr Gerhardt said that it would cost between ten and twenty thousand dollars to restore the files. The insurance company paid ten thousand dollars for some restoration. The plaintiff did not pay any of that because it could not afford it. Only 50 to 80 of the rent roll files were restored. Probably 1000 files remained unrestored. He said that he asked the insurance company for an advance of $40,000 to restore as many files as possible and to buy furniture, so that the business could keep operating. However, Mr De Koning recommended that it not be paid and it was not paid.
Mr Strangio said that the earlier proceeding was settled the night before the trial was due to commence. The plaintiff believed that the figure was not right, but had had no choice but to accept the settlement because it was “running out of cash flow to fight it in court”. There is no other evidence before the Court as to the reasons of the plaintiff for agreeing to the settlement, save that the settlement document itself recites the agreement of the parties to settle the proceeding “solely for the purpose of avoiding the costs and inconvenience of a trial”. The only other evidence relevant to the settlement is the solicitors’ letter described in paragraph 25 below.
Mr Vasdekis said that he had been in practice as an insurance broker for thirty years. He was adamant that he had never had any discussion with Mr Strangio about insurance for outstanding accounts receivable, because he believed it to be totally inappropriate for a real estate agent. For a real estate agent, all accounts receivable were traceable. A policy for outstanding accounts receivable excluded traceable accounts and bad debts. Mr Strangio had never asked him to provide accounts receivable insurance. Mr Strangio had not complained to Mr Vasdekis after the fire that the plaintiff was not covered for accounts receivable. His only complaint at that stage was the delay by the insurance company in paying the claim.
Mr Vasdekis said that he had no input into the way in which the amounts of $440,000 cover referred to in paragraph 8 above were made up. He produced an internal document of the defendant indicating that the policy taken out by the plaintiff had lapsed on 14 March 1993 because the premium had not been paid. The defendant’s systems provided for two invoices to be sent to the client before the policy was cancelled for non-payment, when a cancellation notice would be sent. This was so that there could be no misunderstanding by the client as to the position. He produced documents showing that in July 1993 a fresh policy was discussed with Mr Flynn of the plaintiff, but said that in the event that policy was not taken up.
He referred to documents showing that a new policy was taken out by the plaintiff on 15 April 1994, but had not heard of the break-in described by Mr Strangio (see paragraph 9 above). He said that the amount of cover for business interruption in that policy, namely $280,000, was based on Mr Strangio’s estimate of gross profits for the ensuing twelve months. There was no discussion of outstanding accounts receivable. Mr Strangio did not tell him then that there were trade debtors of $175,000.
He said that the certificate copied in the court book at pages 189 and 188, and faxed in sheets 3 and 4 of Exhibit 1, (see paragraph 5(viii) above) would have been received by the plaintiff by virtue of the system known as Brokerlink, which was by April 1994, and has continued to be, operated by insurance brokers and insurance companies throughout Australia. He confirmed that he had received Exhibit 1 and had written the note signed “Paul” on sheet 1. He produced documents indicating that the name and address of B & F Atingo Investments Pty Ltd had been inserted on a fresh certificate which had been sent to the plaintiff.
He said that in 1995 the amount of cover for business interruption was increased from $280,000 to $294,000. This was done automatically by the insurance company when the policy was renewed. He had no discussion with Mr Strangio about the amount of the cover.
He said that the policy taken out on 15 April 1994, after the period when the plaintiff was not insured, would have been a new policy, not a renewal. When a new policy was created, a copy of the policy booklet would be sent routinely to the client. This would also be done when there was a change of policy wording or if the client asked for the booklet.
In cross-examination Mr Vasdekis agreed that he would recommend to a client to over-insure, but not by twenty percent. In any case, he said, “if you cannot produce your loss you cannot claim it”. He said that he had never been to the plaintiff’s business premises in Dandenong, or inside the premises in Carnegie.
There are numerous inconsistencies between the evidence of Mr Strangio and that of Mr Vasdekis, who was unshaken under extensive cross-examination. If, for the reasons above stated, the evidence of Mr Strangio is disregarded, it is apparent that the plaintiff’s claim for breach of a contract to procure cover for inability to recover accounts receivable cannot succeed. No such contract is established. I cannot find that Mr Strangio, on behalf of the plaintiff, at any time gave instructions to the defendant to procure such a cover.
Insurance of contents
I turn now to consider the claim for breach of a contract to insure the contents of the premises on a reinstatement basis rather than a market value basis. That claim appears to have been abandoned by the plaintiff (see paragraph 31 below) but attention was given to it by counsel for the defendant, and accordingly it seems appropriate that I give it some consideration. It is not in issue that the intention of both parties had been that the defendant would procure for the plaintiff a policy relating to the contents of the building which should provide cover on a reinstatement basis. However, Mr Vasdekis said in evidence that due to an error in the office of the defendant, about 30 policies, including that applicable to the plaintiff at the time of the fire, had been issued on a market value basis. The mistake was discovered well before the fire, and the defendant obtained from the insurance company an undertaking that all of the policies would be paid as though the cover had been for reinstatement. The plaintiff had never complained before the fire that the cover was for market value only. Mr Vasdekis said that after the fire the defendant had notified Mr Strangio and the solicitors for the plaintiff of the undertaking by the insurance company. Mr Strangio gave evidence that he had received this information from Mr Vasdekis shortly after the fire, and had also received a copy of a document from the insurance company saying that all the relevant policies had been altered. It appears to have been common ground that the market value of the contents was $35,000 and the replacement value $161,000. However, the amount for which the contents were insured under the policy operative at the time of the fire was $126,000. And I note that on 30 November 1998, in a letter to their client advising of the outcome of the earlier proceeding, the solicitors for the insurance company stated that, “There is no dispute that the insured was entitled to the sum insured for contents, $126,000”.
Mr Flynn, for the defendant, referred to the passage from the judgment of Brennan J in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 154 ALR 361 at 363 to the effect that the relevant measure of damages was
the difference between what the principal would have obtained from the third party had the agent exercised reasonable skill and care and what the principal could reasonably obtain by compromise with the third party. It follows that, in proving damages, the principal must show
(i)what would have been obtained from the third party absent the defendant ‘s negligence, and
(ii)that, having regard to any weakness in the plaintiff’s claim against the third party caused by the agent’s negligence, the amount accepted in settlement was reasonable in the circumstances.
The only evidence relevant to the ascertainment of damages on that basis is the solicitors’ letter of 30 November 1998 referred to in paragraph 25 above, to the effect that there was no dispute that the plaintiff was entitled to the full amount of cover for the contents, and the evidence of Mr Strangio in paragraph 16 above as to the reason for the plaintiff’s agreeing to the settlement. That being so, there is no ground on which I could find that the plaintiff suffered any loss as a result of the error in the policy.
However, in his opening address, Mr Selimi, for the plaintiff, if I understood him correctly, stated that the basis of the claim had changed, and it was now based on the construction of a particular provision of the policy. The policy covering the plaintiff at the time of the fire, like those which had applied earlier, included in section A, relating to loss by fire, an extension providing for payment of reinstatement and replacement value. However, the policy at the time of the fire, unlike the earlier policies, contained the following condition:
5.1.1.6If You do not reinstate or replace the property We will only pay the amount under this Policy A which would have been payable if this Extension had not applied.
He referred to the evidence of Mr Strangio that the plaintiff had had no funds to replace the contents after the fire and had not done so, and that this was because the insurance company had denied liability and accordingly had made no payment which would enable replacement. Accordingly, Mr Selimi submitted, had the earlier proceeding come to trial, clause 5.1.1.6 would have had the effect that the plaintiff would have recovered from the insurance company only the market value of the contents and not the replacement value.
Mr Flynn on this point submitted that where the insured did not replace the contents because the insurance company had denied liability and accordingly the insured had received no funds with which to replace the contents, no reputable insurance company would raise the defence under clause 5.1.1.6, and if it did so, the defence would not be upheld by a court. This is a hypothetical (although convincing) response to what can only be regarded as a hypothetical claim, given the absence of any evidence that the plaintiff suffered loss in this regard.
Finally, in his opening address Mr Selimi said that the issue relating to the contents insurance “is not what I can describe as the crux of my client’s claim”. By the end of the trial, eight sitting days later, the only reference to this issue in his final address was the submission that if Mr Strangio had received a certificate of insurance which indicated that the contents were not covered for reinstatement and replacement, and that there was no cover for loss of accounts receivable, he would have noticed and complained. In his cross-examination of Mr Vasdekis, Mr Selimi was concerned only to establish that the plaintiff had made no complaint on this matter before the fire, which went to support his submission that before the fire the plaintiff had received no document indicating either the nature of the cover on the contents, or the absence of any cover for loss of accounts receivable. When Mr Vasdekis, in answer to a question, responded that the client had never been prejudiced about the contents, Mr Selimi said, “I’m not suggesting that there was prejudice in that regard”.
I conclude, therefore, that the claim in respect of the contents insurance, whether based in contract or in negligence, was intended to be abandoned and accordingly I will not deal with it further.
The claim in negligence
As Vincent J said in Marvin Manufacturers (Aust) Pty Ltd v Chamber of Manufacturers Insurance Limited (1992) ANZInsCas 61-122 at 77,611 - 12:
Broadly speaking, the limits of the duty imposed upon a broker are directly dependent upon the nature of the relationship which exists between the broker and its client, including the terms of the contract between them. Within its area of responsibility, the broker must exercise reasonable care and skill in the performance of its duties. Unless there exists a real reason for doing so, a broker cannot be regarded as burdened with a general duty to ensure that its client is impervious to loss or risk of loss through the absence of insurance, nor would it necessarily be obligated to explain in detail the effect of each term of a contract of insurance. In other words, the duty of a broker has to be viewed in a sensible and practical way, bearing in mind that the broker acts on instructions, does not purport to provide legal advice, and that in commercial insurance transactions clients may often be experienced business persons or corporations with well developed capacities to identify and act in their own interests.
It is not in issue that Mr Strangio is such a person.
The claim in negligence, as put by Mr Selimi, began with the proposition that the paramount duty of an insurance broker is, having undertaken with the client to obtain insurance, to exercise proper care and skill in carrying out the client’s instructions. (See Geoffrey W. Hill & Associates (Insurance Brokers Pty Ltd) v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZInsCas 61-012 at 76,767 per Kirby P). I have already indicated (see paragraph 24 above) that I am unable to find that the plaintiff at any time gave instructions to the defendant to procure a cover for loss of accounts receivable.
Mr Selimi submitted further that, in the absence of any such instructions, the defendant had in any event a duty to procure such a policy, in view of the importance of debtors to the plaintiff’s business, or in the alternative, a duty to inform the plaintiff that no such cover had been obtained. He relied first on the following passage from the judgment of Brennan J in Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 at 170-1:
The standard of care expected of a broker is higher than the standard expected of one who does not hold himself out as possessing a special skill. Those who, like insurance brokers, hold themselves out as possessing special skill and who invite custom to their business on that account cannot complain if, in the absence of disclaimer, they are held liable for the consequences of failing to exercise that skill in carrying out a customer’s commission . . . But the duty of care owed by a broker relates to the doing of what the broker is employed to do.
That case does not appear to me to be authority for the propositions for which it was cited by Mr Selimi. His submission was that “what the broker was employed to do was to put into place an effective policy of insurance which covered the full gamut of the plaintiff's business”. However, there is no evidence that Mr Strangio gave such a general instruction to Mr Vasdekis. Mr Strangio was concerned to reiterate many times that he expressly instructed Mr Vasdekis to procure a policy covering accounts receivable, but did not say that he gave a general instruction of that kind.
Mr Selimi also relied in this context on a passage from the judgment of Aitkin J in Dickson & Co v Devitt (1916) 86 LJKB 315 which he cited from the Australian & New Zealand Insurance Reporter at 16,303. That passage reads:
. . . when a broker is employed to effect an insurance, especially when the broker employed is a person of repute and experience, the client is entitled to rely upon the broker carrying out his instructions and is not bound to examine the documents drawn up in performance of those instructions and see whether his instructions have, in fact, been carried out by the broker. In many cases the principal would not understand the matter and would not know whether the document did, in fact, carry out his instructions. Business could not be carried on if, when a person has been employed to use care and skill with regard to a matter, the employer is bound to use his own care and skill to see whether the person employed has done what he was employed to do. I think the principal is entitled to rely upon the reputation of the person whom he employs.
That is little more than another statement of the duty of the insurance broker to carry out his instructions. It is not authority for the propositions for which it was cited by Mr Selimi.
In any case, the evidence of Mr Vasdekis was that he was at the time, and still is, strongly of the view that insurance of accounts receivable is not appropriate for a real estate business (see paragraph 17 above). Mr Vasdekis is an insurance broker of very considerable experience. No expert evidence was called by the plaintiff in rebuttal of his evidence on that subject. Two other insurance brokers, Mr Turner and Mr Lane, both of whom had been associated with the defendant at the relevant time, were called by the defendant. They were cross-examined as to the importance of insurance of accounts receivable generally, but not on the relevance of such cover in a real estate business. There is no basis (save that his company is a party to this proceeding) on which I could reject the expert opinion of Mr Vasdekis, and I do not do so. That being so, I find that if Mr Vasdekis had been instructed generally to procure a policy covering the full gamut of the plaintiff’s business, he would not have been under a duty to include cover for loss of accounts receivable. No specific authority was cited by Mr Selimi for the proposition that he had a duty to inform the plaintiff that no such cover had been obtained.
The list before the Court of debts totalling $175,000 in respect of commissions on sales which were claimed by the plaintiff to be outstanding at the time of the fire showed that all of them were owing as at June 1993. No claim was made in respect of any amounts incurred after that date, in 1994 or 1995. The evidence of Mr Strangio was that all of those amounts had been incurred in the last two months of 1993; there were no outstanding debtors from 1990, 1991, 1992 or the greater part of 1993. He gave no credible explanation for this circumstance. There is no evidence of any other witness on this matter, and to an extent it is supported by the accounts of the plaintiff which were before the Court. Mr Fitzgerald, who was called by the defendant as an expert witness on accounting matters, expressed the view that this was an unusual situation, particularly as in respect of $120,000 out of a total of $175,000 the list indicated that there was some form of recovery mechanism in place.
The evidence of Mr Vasdekis (see paragraph 19 above) which I accept, is that Mr Strangio did not tell him that there were trade debtors of $175,000. If, in the absence of other evidence, the evidence of Mr Strangio set out in the preceding paragraph as to the genesis of the claimed debtors is to be accepted, it supports the view expressed by Mr Vasdekis and set out in paragraph 17 above that insurance of accounts receivable is not appropriate for a real estate business. The evidence is that $175,000 in debts were outstanding, all incurred on a period of two months and in no other period over five and a half years. Without being advised of that situation, Mr Vasdekis could not have been expected to know of the existence of the debtors, and it was reasonable for him to proceed on the basis that insurance of accounts receivable was not appropriate for the plaintiff.
I find that there is no basis upon which I could find that the defendant had a duty either to procure for the plaintiff a policy covering loss of accounts receivable or to notify the plaintiff that no such cover had been procured. The claim in negligence accordingly fails.
Conclusion
For the reasons given, the claim of the plaintiff will be dismissed. Counsel may wish to make submissions as to costs.
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