Ce Heath Underwriting & Insurance (Australia) Pty Limited v Edwards Dunlop & Co Limited
[1992] HCATrans 325
.
. ' - ----~~
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No Sl54 of 1991 B e t w e e n -
C.E. HEATH UNDERWRITING &
INSURANCE (AUSTRALIA) PTY
LIMITED
Appellant
and
EDWARDS DUNLOP & CO. LIMITED
Respondent
DEANE J
DAWSON J
TOOHEY J
GAUDRON J
McHUGH J
| Heath(2) | 1 | 6/11/92 |
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON FRIDAY, 6 NOVEMBER 1992, AT 10.51 AM
Copyright in the High Court of Australia
| MR D.F. JACKSON, QC: | May it please the Court, I appear with |
my learned friend, MR W.P. KEARNS, for the
appellant. (instructed by Blake Dawson Waldron)
MR R.B.S. MacFARLAN, OC: If the Court pleases, I appear
with my learned friend, MR M.A. PEMBROKE, for the
respondent. (instructed by Mallesons Stephen
Jaques)
| DEANE J: | Mr Jackson? |
| MR JACKSON: | Your Honours, may I hand to the Court copies of |
our outline of submissions? Your Honours, as is
apparent from the outline of submissions, the
appeal is concerned with two issues of construction
of policies of insurance, providing cover against
employees' fraud.Your Honours, I propose, in dealing with the
first issue, to take Your Honours to the relevant
provisions of the policies and so my argument on
that will be relatively longer than the argument on
the second point, which will be relatively
short. May I proceed immediately to the first issue? Your Honours, the first issue is whether, in
cases where the policy is renewed annually, the
insurer's potential liability under a policy of
this type is for losses discovered at any time
during the whole of the period of the policy,
including the periods of renewal. That is theissue which would lead to the success of the other
side and has led to it below. We would put it that
the effect of renewal is to extend the band of time within which losses might be discovered so that the band is larger than would be the case if the policy stood alone, that is, if there had not been
renewal, but at the same time there remains a band,
that is, on each renewal the expiration of the prior policy means that the point at which the band
commences moves forward a year, as does the point,
of course, at which the band finishes.
Your Honours, may I move immediately to the basic facts and then to the terms of the policies.
The basic facts may be stated very shortly. They
appear at page 45 going through to the top of the
next page to about line 17 on page 46 in the
reasons for judgment of Mr Justice Brownie who
heard the matter at first instance. As
Your Honours will see from that passage, a number
of important matters appear.
The first is that the period during which the loss occurred was the period 1982 to June 1988, and
| Heath(2) | 2 | 6/11/92 |
the first losses occurred in the period prior to
the loss was discovered in July or August 1988.
31 May 1983 no claim was made in respect of that
period, and that was because neither of the
relevant policies was in force until 31 May 1983.
Your Honours, the third feature is that it was
accepted that the appellant was liable to indemnify
the respondent in respect of losses occurring on or
after 30 April 1987, and the periods to be dealtwith, putting them annually, are thus four: the
first is a slightly truncated period, 31 May 1983
to 30 April 1984; the second is the period from
30 April 1984 to 30 April 1985, and the third and
fourth are the two succeeding periods, each of a
year, covering similar dates.
Your Honours, I have used the expression,
30 April 1984, for example, to 30 April 1985, and although the starting and finishing dates are the
same in the several years, there is no overlap, in
fact, because the expression "from" and "to" is
used in the description of them.
Now, Your Honours, during those periods, two
policies, successively, were in force.
Your Honours, I should say perhaps more accurately,
as we would put it, two types of policies
successively were in force. The first was a policy that perhaps I can call for brevity the ISR policy, the industrial special risks.
Now, Your Honours, as appears from
Mr Justice Brownie's reasons for judgment at
page 45, lines 12 to 15, that policy was in force
for the first two of the periods to which I have
referred. It was then relevantly - and I say
"relevantly" because the second policy dealt with
only, in effect, a sector of the area that had been
covered by the earlier policy - replaced by the BF,
or blanket fidelity policy, for the succeeding periods and thereafter. And the cover provided by
the earlier policy, the ISR policy, included,
amongst other things, specifically loss due to, to
put it shortly, embezzlement. That appears,
Your Honours, from page 20.
Your Honours will see at page 20, commencing
at the top of the page, a heading:
(3) Employee Dishonesty -
and Your Honours will see, in the second and third
lines, that:
| Heath(2) | 6/11/92 |
this policy extends to include loss of the
property insured resulting from any fraudulentor dishonest act(s) -
et cetera. Your Honours, could I just mention in
passing that in the top line of the page you will
see a reference to:
General exclusion l(b) -
that should be to l(c). That appears - l(c) is on
page 32. I do think I need to take Your Honours to it, but I mention it.
DEANE J: That is a mistake in the policy.
| MR JACKSON: | Yes. | Now, Your Honours, one remains at |
page 20, what is apparent from the terms of
clause (3)(iii), at about line 15, is that the
appellants liability, under that policy was not toinclude a loss unless the loss had been:
discovered within twelve months of the
termination of this policy -
so, in effect, the loss had to occur within the
twelve months of the policy, but it could be
discovered up to a year afterwards.
So that if one takes, for example, the first
period of that policy, which was 31 May 1983 to
1984, the last date for discovery of loss under the
policy was 30 April 1985, and the losses in
question were not discovered until more than three
years later, July to August 1988.So that, Your Honours, if one paused at that
point, unless there was something more, the losses
occurring during the term or terms of the ISR
policy could not be claimed because of the late
discovery of the fraud. And, Your Honours, that is the situation in respect of both those terms.
Now, Your Honours, there was no provision of
the ISR policy itself which allowed for an
extension of the period within which there might be
discovery on renewal of the policy or any other
event. And so the basis, and indeed the only
basis, on which it might be contended that the
losses discovered in 1988 might yet be covered is
to be found in the replacement policy which is the
BF policy.
Now, Your Honours, the insuring clause of that
policy appears at page 34 and may I take
Your Honours to it. It commences at line 4. Now,
| Heath(2) | 4 | 6/11/92 |
Your Honours if I could just read out the relevant
parts of it, it says:
The Underwriter ..... agrees to indemnify the
Insured against any loss of money or other property which the Insured shall sustain through any fraudulent or dishonest act or
acts committed by any of the Employees -
Et cetera. So, Your Honour, that gives the cover
and the policy contains a number of conditions and
limitations and indeed extensions.
The first is to be found in section 1 which
appears at page 35 commencing at line 30. It is
one of the two important provisions of the policy.
Now, Your Honours will see it provides that:
Loss is covered under this Policy only if
discovered not later than one year from the
end of the Policy Period.
And then it goes on to say that:
Subject to General Agreement C, -
to which I will come in a moment -
this Policy applies only to loss sustained by
the Insured through fraudulent or dishonest
acts committed during the Policy Period -
Now, Your Honours will see that section 1 does two
things: the first is that it limits the cover to
loss sustained by acts which occur during the
policy period itself; the second is that it
requires that the loss so occurring be discovered,
of course in the policy period itself, but also
within - there is an extension of time - within ayear from the end of that period.
Your Honours, section 1 uses the expression
"the policy period" and that term is given meaning
by page 40, item 2. Your Honours will see thatpage 40 contains a number of declarations which
give a meaning to the policy, the second of which
is to say:
Policy Period: 12 months from noon on 30th April, 1985.
Your Honours, if one were to stop at that point, it would be apparent, we would submit, that the
position in relation to losses, if I can put it
that way, would be that they were recoverable under
the policy if they occurred during the policy
period itself or were discovered during that period
| Heath(2) | 6/11/92 |
or within 12 months thereafter. But the terms, as Your Honours will see from section 1 - if I could
go back to page 35 - the second sentence of it is
expressed to be:
Subject to General Agreement C -
and general agreement C appears at the top of the
page. It is the operation of general agreement C
which is the critical factor in the case.
Your Honours will see that the terms of general agreement C operate in circumstances where:
the coverage of this Policy -
that is the BF policy -
is substituted for any prior policy of
insurance carried by the Insured ..... which
prior policy is terminated, cancelled or
allowed to expire as of the time of such
substitution -
that is the substitution for any prior policy of
insurance at the new time when the new policy comes
into force.
Your Honours, in those circumstances, as
Your Honours will see from the remaining parts of
the first paragraph of general agreement C, the
policy will then cover loss not otherwise covered
by it but where certain criteria are satisfied.
Those criteria seem to be three, leaving aside the
particular requirements of the three provisos.
The first is that the loss must be discovered
within one year after the period of the current policy, because, Your Honours, it refers to the expression:
which is discovered as provided in Section 1
of the Conditions and Limitations.
If one goes down to section 1, it says:
discovered not later than one year from the
end of the Policy Period.
Your Honours, could I also say, just in passing,
that if, of course, the loss was discovered during
the policy period of the current policy, the
immediately preceding policy would apply anyway
because the year for discovery under that policy
would not yet have expired.
| Heath(2) | 6 | 6/11/92 |
Your Honours, the second thing is that the loss must have occurred during the policy period of
the previous policy and that that is so is apparent
from the words which appear at about lines 8 and 9
on page 35 and which would have been recoverable by
the insured under such prior policy. The third thing is that the year - and this is to repeat the
comment which I made in respect of the first of
three criteria - after the expiration of the
earlier policy must have come to an end becauseotherwise there would be no need for the provision.
Your Honours, there are also some further
require~ents in provisos 1, 2 and 3 to condition c.
I shall not go to them in any detail now, but I
would ask Your Honours to refer to them. Could I
just say something first about the application of
those provisions to the events which occurred. It
seems apparent enough that the BF policy was a
policy which, in one sense, could be regarded as
being substituted for the ISR policy, even though
the insurers were the same.
In that regard, Your Honours, if one goes to
page 40, what one sees as item 5 in the
declarations to the BF policy is that it refers to the coming to an end of the prior policy, which is
the ISR policy. I should just mention in passing that Your Honours will see from the last two lines
the signature at page 40 that it was dated 31 July
1985 but the BF policy, as appears from item 2,
came into force from 30 April 1985. It does notappear from the evidence one way or the other, but
it may have been that the ISR policy continued in
fact for a slightly longer period but the new
policy was backdated and the earlier policy treatedas cancelled from the earlier date.
Your Honours, that is the position as between
the ISR policy and the BF policy. One comes to a situation, of course, that if it is right to treat
special condition C and the renewal of the BF policy year to year as creating, as we would
submit, a new contract from year to year - a new
contract each year, I should say - if it is right
to treat it in that way, then the situation is that
there could not be any loss claimed under general
agreement C in respect of the losses that were
sustained during the period of the ISR policy,
because all the extensions of time potentially
given by general agreement C would have expired,
anyway - expired before discovery of the loss.
So that the question then becomes
fundamentally one of the effect of the renewals of
the BF policy. Your Honours will see that the policy was renewed for a number of years
| Heath(2) | 6/11/92 |
thereafter, with there being a very significant
increase at one point from $500,000 to $1.5 million
in the amount of cover. The several documents reflecting the renewals commenced immediately after
page 40. The first is at page 41. Your Honours will see at line 15 that there is a renewal from 30
April 1985. I am sorry, Your Honours, I should have said that is the original policy; the date is
wrong.
Could I just say that in respect of that
document, you will see at page 41 there is part of
it that cannot be read on the left side of it. The
correct words are those typed in on the right-hand
side of the page. The first renewal appears at page 42. You will see that it is a renewal from 30 April 1986 to 30 April 1987.
Might I just say in passing that the majority
in the Court of Appeal appear to have arrived at
the conclusion, which we would submit is very
difficult to sustain, that the effect of the
renewal was not, when one read this document and
the original policy document together, to make the
period referred to at page 42 the policy period,
for the purposes of the policy. I will come to that a little later, but that is what the majority
seem to have done.
One comes then to page 43, the renewal for the next year, and then to page 44. Your Honours will see at page 43 the increase in the amount of the sum insured to $1.5 million, and you will see in respect of each of the renewal certificates that it
says:
This insurance is renewed for a further period of 12 months, subject to the terms and conditions of the policy.
Now, Your Honours, what we would submit is that
renewal in that form effects a new contract in substitution for its predecessor, and that there is
a new contract of insurance in respect of each
year.
The issue has arisen, Your Honours, on a
number of occasions in various courts, but
particularly in circumstances where questions have
arisen about the need to disclose, before renewal,
matters which would be required to be disclosed if
a new policy were being effected and, Your Honour,
the burden of the authorities, in our submission,
is that they indicate that there is a new contract
on each occasion of renewal.
| Heath(2) | 6/11/92 |
The position is different in respect of life
insurance, there being in many cases a contract of
insurance which continues subject, of course, to
coming to an end if a premium is not paid. The position is also different, Your Honours, in circumstances where one sees a contract of insurance which gives a right to renew, and that is
regarded as being somewhat different.
McHUGH J: | Mr Jackson, if the majority view was right, would you expect the premium to increase, having regard |
| to the extension of the policy? | |
| MR JACKSON: | Your Honour, if one spoke in constant dollar |
terms, one would really, yes, and maybe extend
significantly, but - - -
| McHUGH J: | Was there any evidence of that? |
MR JACKSON: There seemed to have been arguments to that
effect without there being evidence one way or the
other. Your Honours see the figures, of course, but they are complicated by the increase in
the - - -
MCHUGH J: Yes.
MR JACKSON: | - - - and all one can say really is page 43 and page 44 you see more or less the same figure for an | |
| increase in another year, in effect. | ||
| Now, I wonder if I might go, and I will do so as briefly as I can, to the authorities and I will | ||
| give Your Honours also some references to discussions in the text books, and we have the | ||
| ||
| passage which appears in 25 Halsbury, Fourth | ||
| ||
| see in paragraph 490, particularly the second sentence, that - |
nothing is payable to the assured if the stipulated event does not occur within that
time.
I will not take Your Honours particularly to
paragraphs 491, 492 or 493, but the particular
issue is dealt with specifically at 494 where the
view is expressed:
Where the policy is renewable only by mutual
consent -
as, of course, is the case here
each renewal constitutes a fresh contract.
| Heath(2) | 9 | 6/11/92 |
Then there is a discussion of the application of
the duty of disclosure. Your Honours, might I say that that paragraph was adopted as being a correct
statement of the position by Mr Justice Hutley in
the Court of Appeal in New South Wales in National
& General Insurance v Chick, (1984) 2 NSWLR 86 at
page 95, starting between A and B, where His Honour
states the legal position by adopting that
paragraph. Mr Justice Samuels at page 107F dealt with the matter, not directly, but by reference to
the fact that the duty to disclose arises anew upon
renewal. His Honour referred to Lambert v Co-
operative Insurance Society Ltd. That is a
decision of the English Court of Appeal.
Your Honours, it really says no more than exactly
what His Honour took from it. It does not discuss
the underlying reason for it, but the underlying
reason would seem to be the existence of a new
contract.
Your Honours, a somewhat rather similar view
had earlier been expressed, though slightly more
tentatively, in two New South Wales cases. The first is Brown v Graham, (1963) SR(NSW) 365, a
decision of the Full Court of the Supreme Court of
that State. At page 370 at about point 2 on the
page in the joint judgment of the Court,
Your Honours will see, the second sentence, it
said:
For some purposes there is, it has been
decided, a new contract of insurance -
et cetera. And, Your Honours, some earlier
expressions of a rather similar view were seen
again in the Full Court in Hanley v The Pacific
Fire and Marine Insurance Company, (1893)
14 NSWR 224, Cases At Law. The two passages, Your Honours, are - the first passage is page 229,
about point 3, Yours Honours will see that in the
judgment of Chief Justice Darley, the paragraph commencing, "The second point argued was this", and
Your Honours, if I can go to the fifth line of that
paragraph:
It is now said that the fact of this refusal
should have been brought to the notice of the
defendant when the policy was renewed by the
plaintiff. There is no doubt that an
insurance on a fire policy is only for a year,
and that the renewal is, in point of fact, a
fresh contract.
And Mr Justice Windeyer, at page 231, about
point 9, declined from expressing a definite
opinion. He said:
| Heath(2) | 10 | 6/11/92 |
It has been argued with great
force ..... that to hold a renewal to be an
entirely fresh contract, will be to expose the
insured to great risk of vitiating his policy
by innocently forgetting to state some fact
which might effect the renewal.
Your Honours will see that he set out the
arguments and then indicated an inclination to the
view - at the end of the paragraph at 232, about
point 3 - indicated an inclination to the view that
there was a second contract.
Your Honours, if I could conclude the New
South Wales statements in relation to the position
by reference to a dictum of Mr Justice Grove in
International Specialist Underwriters Ltd v Heiman,
(1987) 9 NSWLR 201. At the bottom of page 203G
His Honour simply said that:
The reference in the policy which
indicated that renewal was contemplated does not alter the situation that any continuance
of the policy is conditional upon both payment
of premium by the insured and acceptance by
the insurers. The nature of any such transaction is the entry into a fresh contract
unless this occurs -
et cetera.
Your Honours, I am sorry to have taken a few moments in relation to that, but may I move
immediately to the position in South Australia
where the issue was dealt with by the Full Court of
that State in In re Kerr, (1943) SASR 8.
Your Honours, could I just say something about the
policy in question there? The policy in question
was one of indemnity insurance, the nature of which
is referred to by Mr Justice Mayo at page 15 at
about point 8. He speaks of it as being: first policy -
as being:
an indemnity against the occasions of loss,
damage or liability -
et cetera -
during the period -
which he then sets out. There was also an
extension of the policy giving cover for other
matters and the nature of the extension appears at
| Heath(2) | 11 | 6/11/92 |
page 16, about point 5, the paragraph commencing
with the words:
The second instrument -
Now, Your Honours, the question of the effect of renewal of the policy relevantly in relation to the first of those contracts was discussed in a passage
which commences at the bottom of page 15 and then
goes on to page 16, at about point 5, and it is
clear from that passage that His Honour regarded
each renewal as being a new contract, and
Your Honours will see at the second line, for
example, on page 16:
The insured was under no obligation to renew
the right to indemnity, unless he so desired,
and if he did so desire, the company might
have declined to accept any further liability.
Strictly, a "renewal" is descriptive of a
repetition of the whole arrangement by
substituting the like agreement in place of that previously subsisting, to be operative
over a new period, whereas an "extension" betokens a prolongation of the subsisting
contract -
I invite Your Honours to read to the end of that
paragraph.
The other members of the court were of the
same view. That that is so appears in the reasons
for judgment of Chief Justice Napier at page 14, at
about point 5, and it is in the paragraph
commencing:
On this view of the policy -
Your Honours will see, particularly, at about the
middle of that paragraph:
year, which is made anew from year to year. They re not satisfied by a contract for one
And Mr Justice Richards, at page 15 at about
point 3 on the page, says:
But what has to endure, ie "to last, continue in existence" ..... is a contract.
And then, if Your Honours go down to about point 6
on the page, the remainder of that paragraph
commencing with the words:
Existence of liability -
| Heath(2) | 12 | 6/11/92 |
indicates that His Honour's view was clearly that
renewal gave rise to a new contract.
Your Honours, the issue was discussed in
Scotland in Law Accident Insurance Society Limited
v Boyd, (1942) SC 384. Now, in that case,
Your Honours, renewal of a third party policy had
been obtained without disclosing a conviction which
had occurred during the currency of the policy and
at first instance it was held that the renewal was
a new contract and that the duty of disclosure
existed in respect of the renewal. That appears inthe reasons for judgment of Lord Stevenson at
page 388, Your Honours, in a passage which
commences at about point 2 where he says:
This last contention -
the is where the passage commences. The passage goes through to the end of that paragraph at about
point 8 on the page and Your Honours will see,
particularly, at about point 6 to 7, His Lordshipsays:
I think renewal is a new contract, as indeed
the word implies -
Now, there was an appeal from that decision
and a similar conclusion was arrived at.
Lord Cooper, at page 391 in the passage commencing
at about point 2 on the page, it is the paragraph:
As a matter of construction of the policy
which is the written record of the contract of
insurance. I suggest to Your Lordships that there is no doubt that this - like most motor
accident policies - was a contract of
insurance which only persisted for a year at a
time and which required by means of a new
contract between the parties to be renewed at
the end of each "period of insurance."
And His Lordship elaborates upon that, and also
Lord Wark, at page 392, at the commencement of his
reasons for judgment. One sees that the court "adhered", which I assume means dismissed the
appeal.
Your Honours, the last case to which I wish to
take Your Honours in any detail is a decision of
Mr Justice Sachs in the Queens Bench Division in
Webb and Hughes v Bracey, (1964) 1 Ll LR 465, at
466 and Your Honours will see at the last paragraph
on 466 going over to the top of the next page he
refers to the term "renewal" being a term:
| Heath(2) | 13 | 6/11/92 |
in common commercial and lay use, despite the
fact that, of course, technically a fresh
policy is issued each year -
May I also give Your Honours a reference to
Stokell v Heywood, (1897) 1 Ch 459, a decision of
Mr Justice Kekewich - the icing on the cake, as it
were, Your Honours - however, adopted in some of
the other decisions to which I have referred, in
which he adopts the same view, although, Your
Honours, on another question, one might doubt the
correctness of the decision in relation to the
ambit of the - - -
McHUGH J: That is the authority that was cited in Halsbury,
paragraph 490?
| MR JACKSON: | Yes, Your Honour. | What he says seems |
absolutely orthodox, if I may say so with respect.
I referred earlier to the fact of taking
Your Honours to the views of some text writers.
May I do so very briefly. First, Derrington and
Ashton, The Law of Liability Insurance, 1990. The relevant page is page 40. Your Honours will see the heading "Renewal" and then the second paragraph
under that heading: · Renewal is regarded as a new contract;
but, since a renewal usually, though not
necessarily, incorporates the conditions of
the original policy and keeps alive its
promises for a further period, its general
effect may be described as a new contract for
the renewal of an old bargain~
Then I would refer Your Honours to the commencement
of the last paragraph on that page also. Sutton's
Insurance Law in Australia, the second edition, at paragraphs 3.26 and 3.162, deals with the issue.
Your Honours will see at paragraph 3.26 on page 121 in the third line of that paragraph:
for it is well established that where a policy
is renewable only by mutual consent, each
renewal or indeed variation during the term of
the cover constitutes a fresh contract - I will not go to the detail of paragraph 3.162.
Could I give Your Honours then a reference to
another Australian work, Kelly and Ball, Principles
of Insurance Law in Australia and New Zealand,
1991, paragraph 3.183 at page 105. In that
paragraph the authors essay a test, namely:
Whether a "renewal" falls into one category or
the other depends on whether it is effected in
| Heath(2) | 14 | 6/11/92 |
accordance with a term of the original
contract which imposes an obligation on the
insurer to continue cover on payment of a
premium that is set out in, or assessed by
reference to, the original contract.
| TOOHEY J: | Mr Jackson, are these authorities and textbook |
references designed to demonstrate that the use of
the word "renewal" has a particular meaning or that
the use of the word "renewal" aside, the sort of
insurance policy we have here is only effective forthe period of the initial policy?
| MR JACKSON: | Your Honour, they demonstrate, with respect, |
both things but may I say the important of them is
the latter - I am sorry what I should say is this:
it demonstrates that a policy of this kind, by
being renewed - if I could use the expression
neutrally for the moment - is the bringing into
being of a new policy, a new contract.
Undoubtedly, the terms pick up what was in the
previous one so far as material.
As to the second matter, Your Honour, the point I was simply seeking to make about it was
that those references do seem to indicate that the
term "renewal", to the extent to which it may be
regarded as a technical term, in relation to
policies of this kind, really means that there is a
new contract on each occasion of renewal and,
certainly, it does not mean the obverse.
| TOOHEY J: | I was wondering what expression one would use to |
bring about the obverse.
| MR JACKSON: | Your Honour, it is perhaps that one has to go |
really to the level behind just the word "renewal",
because what one is looking at is the question
really, "What is the effect of the parties agreeing
to", if I could put it neutrally, "extend the
operation of a contract that was between them
before?" It is possible to say - if one has a contract
which contains within it an obligation on the
parties to it to extend its term on payment of a
premium, then one say, "Well, it is the onecontract, albeit having an extended operation.".
If all one sees is that there is a circumstance
where, if the parties agree, they will have another
contract on similar terms, or they will do the same
thing for a different period, then the inference
one would draw, we would submit, is that what one
has is a new contract, different from the first.
TOOHEY J: In the sort of situation that we are concerned
with here, as you put the argument, it is very hard
| Heath(2) | 15 | 6/11/92 |
to imagine a situation in which there was not each
year a new contract.
| MR JACKSON: | Yes, Your Honour, for this class of insurance, |
it is certainly so. It would be most - it would be unusual - I should not say ''most unusual" because
practices change, no doubt, from time to time. But it would be unusual for a policy which was expressed as a policy for a term of the year to be
a policy which gave rise to other than a new
contract when it was renewed.
Your Honour, I added a qualification because
one could imagine a large enterprise entering into
an agreement with an insurer that for payment of
premiums worked out in particular ways over, say, a
five-year term, it would have an entitlement torenew and continue the original policy during that
term. It may be that a difficult question might arise then in respect of, say, the forward loss in
the fourth year, whether that was under the
original contract or the later contract. But
ordinarily speaking, this is a simple enough case,
Your Honour.
Your Honours, may I give Your Honours two
other references without taking Your Honours to the
detail of them: one was Colinvaux's Law of
Insurance 6th Ed 1990 paragraph 1-38; the other is
a summary of the position in the United States
contained in 43 American Jurisprudence 2d, in the
section on insurance, particularly paragraph 443.
And, Your Honours, could I just say in passing that
the view that a new contract is effected in cases
of this kind is reflected in - and I put it no
higher than that - two provisions of the InsuranceContracts Act 1984, section 11(9) and also
section 58.
Now, Your Honours, I am sorry to have taken a
little while doing that, but I have done it for this reason that, in our submission, it is
apparent, we would submit, that if one is looking
at the renewal of the policies, of the BF policy, each of the policies is one which would expire at the end of the year for which it is in force and a
new coverage for the succeeding year would come
into play.
Now each of the renewal certificates, which
Your Honours will see commence at page 42, provides
for there to be a period during which the policy is
in operation. If I could ask Your Honours to bear
that in mind, and they specify the period each time
of the year, and go back from there to page 35 and
to section 1, commencing at line 30, it is clear
that a critical feature of the policy is:
| Heath(2) | 16 | 6/11/92 |
that loss is covered ..... only if discovered not later than one year from the end of the Policy Period -
And then the word "Policy Period" is described as
the period during which the loss itself must occur,
in line 35.
Now in the original policy - by original I
mean, for the first year of it - it is quite
apparent, as appears from page 40, that the policy
period is:12 months from noon on 30th April 1985 - Your Honours, each of the renewal certificates is
in respect of a defined period of a year and one
would have thought, if I may so submit, with
respect to Their Honours in the majority in the
Court of Appeal, that they could not have more clearly expressed the notion - the renewal
certificates - that there is a new policy on terms
similar to the old, but with the significant
difference that there is a new period of cover.
And Your Honours, what else, we would ask
hypothetically, could that period be but the policy
period for the purposes of the policy, whichconsists of two things at any time, the original
document plus renewal certificate. And if one is looking to see what is the policy period in respect
of, say, the second year of it, the answer
inevitably, it is the period referred to in the
renewal certificate.
Your Honours, may I go then to the reasons in
the courts below. And if I could go first and briefly to the essence of the view taken by the
primary judge, which was in our favour, and with
Mr Justice Brownie, that appears at page 51 lines 4
to 16, and what Your Honours will see is that
His Honour there essentially said that each year each renewal gave rise to a new policy period and,
of course, one just put that into operation as
being the relevant policy period for the purposes
of section 1 and then that takes one up to general
agreement c.
Your Honours, could I move then to the reasons
which attracted the majority in the Court of
Appeal, the opposite conclusion. They are to be
found in Mr Justice Clarke's reasons, because
Mr Justice Hope agreed with his reasons, and they commence relevantly at page 69.
At the top of page 69 in the first paragraph,
His Honour refers to a matter which really rather
| Heath(2) | 17 | 6/11/92 |
recurs through His Honour's reasons for judgment.
He says:
Although the position regarding losses
which occurred during the period covered by
the first renewal of the Fidelity Policy was
slightly more complicated (there being no
definition of "policy period" in the renewal
certificate) -
Your Honours, as a matter of exact language that is
correct, but one does not find "policy period"
defined in the renewal certificate, but I submitted
twice already that if one looks at the two
documents together it is manifest what the policy
period is.
Your Honours, he then sets out the argument
for the present respondent commencing at about
line 19 on page 69 and going through to the bottom
of the page, and says that the policy period would
effectively be - the argument was the policy period
would effectively be extended upon each renewal.
Then he arrives at page 71 at about line 12 at his
conclusion. He says: Although it is not free from doubt I
consider that when the policy was renewed a
new policy of insurance did not come into
existence.
But, in effect, there was a variation.
Your Honours, might I make a number of
submissions in relation to the matters he refers to
in the parts which go to support his reasons for
judgment there. The first is that he refers at about line 17: My principal reasons for saying this are -
and he says, first: the use of the same policy number - Now, Your Honours, no doubt that is a fact of some
relevance, but it could not, we would submit, be
definitive on the question whether there was or
there was not a new contract.
Your Honours, the second thing is that he
refers at line 19 - he says as one of his principal
reasons:
the reference to "the terms and conditions of
the policy" in the endorsement to which I havealready made reference.
| Heath(2) | 18 | 6/11/92 |
What he means there, Your Honours, is that if one
goes, for example, to page 42 between lines 20 and
25 Your Honours will see the expression:
THIS INSURANCE IS RENEWED FOR A FURTHER PERIOD
OF 12 MONTHS, SUBJECT TO THE TERMS ANDCONDITIONS OF THE POLICY.
He derives some support for the notion that there
is one extended contract from that expression.What we would submit in relation to that is that
words of that kind will always appear, or would be
implied in any renewal of a policy unless the terms
of the policy as renewed were set out in extenso.
The third thing is that his reference between
lines 20 and 25 to the words:
and for such further period or periods as may
be mutually agreed -
is one of two things. It either is neutral, or if anything it militates against,the notion of there
being a continuation of the one contract because itspeaks of mutual agreement, terms which really
suggest, if anything, a new contract.
Finally, Your Honours, at the bottom of
page 71 and the top of page 72, he speaks of the
variation of the sum insured. A variation in the
sum insured was a very significant variation. It
increased the sum insured by three times. If it
takes the matter anywhere, we would submit, it does
not assist the respondent. At the top of page 72, Your Honours will see that he underlines the words -
any one period of insurance -
in the renewal certificate when the amount was
increased. That suggests, of course, that different periods of insurance are involved, not
that there is one period of insurance, but that
there are different periods of insurance involved,
as indeed would be the case with condition C.
The other thing about it is this: that the
term "period of insurance" used in the renewal
certificates looks just a little like an expression
having a rather similar meaning, "policy period",
used in the policies themselves.
Your Honours, finally the core of His Honour's
reasoning seems to be on the next page, page 73,
between lines 5 and 12. He says:
| Heath(2) | 19 | 6/11/92 |
On the other hand the period of the
policy would, in the absence of a defined
meaning, normally be understood to refer to
the whole of the period when the policy
remained in force.
No doubt that is correct but, if one is looking at
a policy that speaks of policy period, gives a
year, then renews a policy for a year, why is not
the policy, we would submit, looking in the
ordinary way to a policy which was in existence for
a year, then another policy in existence for
another year, each time being a new contract.His Honour's reasoning does seem to rely essentially upon the notion that the policy somehow
did not define policy period, did not define the term "policy period" after the first year, and I
have referred to that already. Your Honours, at
page 74, line 19, His Honour again summarizes a
number of factors leading him to his conclusion. I will not read that paragraph out and I have really made the submissions that I wanted to make in relation to the substance of it, but could I say just one thing, and that is that the reference to "extension" in line 24 is something which really is
heterodox, we would submit, rather than orthodox,the orthodox view being that there is a new contract each year. The remainder of His Honour's reasons consists
of an elaboration of that point, including at
page 76, about line 11, a reference to section 9 of
the policy. Your Honours will see that in a sense,
I suppose, it is a bit like the curate's egg -
there is a bit of something in it for everyone
really, if that be the right analogy. At that
reference, it says:"Regardless of the number of years this Policy
shall continue in force and the number of limit of liability ..... shall not be cumulative from year to year or period to period." premiums which shall be payable or paid, the
It is true to say that the provision refers to the
number of years this policy shall remain in force,
but that surely means no more than the number ofyears for which it shall be renewed, but it then
goes on to emphasize that the limits of liability
are not cumulative. So that each policy or each year is to be considered differently.
Your Honours, our submission is that if one goes back to page 35, what one sees is that the
effect of provision C, assuming for the moment that
each renewal amounts to a substitution, is that one
| Heath(2) | 20 | 6/11/92 |
has a situation where there is in effect a band of
three years. The band consists first of the year in which the loss occurs, secondly of the year
under the policy for the preceding year in which it
might be discovered, and then the effect of the
clause is to give another year for further
discovery. But the band itself moves each year;it is not one where the starting point remains the
same.
Your Honours, those are the submissions which
we make in, in effect, paragraphs 8 to 10 of our
outline of submissions.
| DEANE J: | Mr Jackson, was Con page 35 a special clause for |
this insurance or was it just a general - - -
| MR JACKSON: | Your Honour, can I say it is a provision of |
some general application. I cannot give you an exact answer to that in this sense, Your Honour,
that the broad concept is one which is not unknown,
and I will be coming to deal with that in just a
moment, slightly.
| DEANE J: | What I was really going to ask you is, on your |
argument, does C do anything?
| MR JACKSON: | Yes, it does, Your Honour. |
| DEANE J: | Can you give me an example of what C does that |
would not be covered, in any event?
MR JACKSON: Certainly, Your Honour. On the argument I have
been advancing so far, what C does is this: let us
assume that there is a loss which is sustained in a
year - if I could use calendar years, for example.If one has a policy, the period of which is, say, 1985. If that policy is not renewed, then losses which occur during 1985 may be the subject of
claims at any time after they are discovered which
may be, of course, during 1985 or may go to the end of 1986.
Your Honours, let us - absent c, if there were
a renewal of the policy for 1986, then the position
would be that losses which occurred during 1986 might be the subject of claims up to the end of
1987. But the effect of C is to allow 1985 claims,
which are discovered in 1987, to be the subject of
claims but not after the end of 1987.
| TOOHEY J: | Mr Jackson, what is it that continues this |
three-year coverage that you speak of. Clause C
reads:
If the coverage of this Policy is substituted for any prior policy of insurance -
| Heath(2) | 21 | 6/11/92 |
You can see readily enough that the first year the
blanket policy comes into existence. That is in
substitution for what was there before. But insubsequent years, you treat the substituted policy
as if it is a continuous substitution for what was
there before, do you?
| MR JACKSON: | No, Your Honour, I am sorry. | We would put the |
argument in two ways, Your Honour. The second argument to which I will come in a moment is that
it is not really right to treat there as being any
substitution year by year in respect of the
renewals of the policy. I am assuming for the moment there is. Your Honour, perhaps I am putting it badly.
What I am seeking to say is this: what we would
say, in our second submission to which I will come
in a moment, that the true situation is that a
provision of this kind, C, is one designed to give
a concession in circumstances where, for example,
one has an insurer taking over from another insurer
or where the business has been got from another insurer; the substitution of one policy for one policy.
TOOHEY J: It is a sort of transitional provision on one
view of it.
| MR JACKSON: | Yes. |
| TOOHEY J: | I mean, that may not be the only view. |
| MR JACKSON: | I understand that, Your Honour. | It is capable, |
no doubt because of the way in which item 5 was
expressed on page 40, of operation in relation to
the preceding policy there was with us. But it
does not go beyond that. It does not go beyond the first year, in effect.
TOOHEY J:
I understand that, but I thought you were suggesting that - - -
| MR JACKSON: | No, I am sorry, that is the argument I am going |
to put next.
TOOHEY J: All right, I will withdraw - - -
| MR JACKSON: It is just | that the reason I have done it that |
way is because the argument we would put next is one that does not appear to be reflected in any of the judgments below. They seem to be on the basis that there is a - although the point was argued, it does not seem
to have attracted anyone. So assuming that
| Heath(2) | 22 | 6/11/92 |
DEANE J: Can I take you back because, I am sorry, I did not
follow your example in answering my question about
c.
MR JACKSON: Certainly. Your Honour, what I am seeking to
say is if one assumes that what occurs on
renewal -
DEANE J: No, take your example. There was loss in 85.
| MR JACKSON: | Loss in 85. |
DEANE J: Discovered in 86.
| MR JACKSON: | Covered by the policy, first policy. |
| DEANE J: You then get this policy for 87. | It has nothing |
to say to the situation because the loss we are
talking about was not covered by the 86 policy
which is the policy for which the new policy is a
substitute.
| MR JACKSON: | I am sorry, Your Honour. There is no gap in |
the policies.
| DEANE J: | I follow that, but I just cannot see that if your |
argument is correct, and no doubt I am missing
something, that Chas any operation at all.
MR JACKSON: Well, Your Honour, it has just this operation:
if one has loss in 85, the loss would, under the 85
policy, have to be discovered by the end of 86.
| DEANE J: | I see. |
| MR JACKSON: | If there were no renewal of the policy then the |
position would be, of course, that would be the end
of it. Because there is a renewal -
DEANE J: But the renewal was the 86 policy?
MR JACKSON: | Yes, the renewal is the 86 policy. In respect of loss that occurred in 85, all it does is to have |
| the effect of saying that that loss may be discovered, because of the renewal, up to the end of 87. |
DEANE J: But it does not say that, unless I am missing
something. It says that the loss had to be covered
by the policy for which this is substituted which,
if your argument be correct, was the 86 policy. It
is only if you look at the thing as a continuous
thing that this is a substitute for the 85 policy.
| MR JACKSON: | The 86 policy, Your Honour, is substituted for |
the - Your Honour asked me what operation it had. If one has the 86 policy relating to 86 loss then
| Heath(2) | 23 | 6/11/92 |
that loss, of course, has to be discovered by the
end of 87.
| DEANE J: | Which adds nothing because they could claim for |
that under the 86 policy.
| MR JACKSON: | Oh yes, Your Honour, that is right, it adds |
nothing to the coverage under the 86 policy, but
what it does do is give an extra year for discovery
of loss which would have been under the 85 policy.
Could I indicate why that is, Your Honour?
McHUGH J: It is because of the exception clause.
| MR JACKSON: | Yes. |
| DEANE J: | I see. | So it does not add a year to the 85, it |
adds a year to the 86 loss.
| MR JACKSON: | No, Your Honour, it adds a year to the 1985. |
Not for the loss but for the discovery.
DEANE J: But this is the 1987 policy we are talking about?
MR JACKSON: Well, no, Your Honour, we are talking about a
number of policies on the way through.
DEANE J: But in the example, the new policy is the 1987
policy, is it not?
MR JACKSON: Well, Your Honour, one assumes that.
| DAWSON J: | No, but you were talking about the 1986 policy. |
| MR JACKSON: | I was talking about 1986. |
| DEANE J: | We were at cross purposes, yes. |
| MR JACKSON: | Your Honour, that is why I describe it as a |
moving band, as it were, where the effect of
renewal is to give you a further year to discover loss under the preceding year's policy.
| DAWSON J: | And if you did not have that extra year it would |
not matter because you would recover under the
original policy because it had a year attached to
it.
| MR JACKSON: | It had a year, yes, Your Honour, and that year, the year after it is the year within which loss is |
| is extended by a year. | |
| DAWSON J: | The effect of C is that provided the loss |
occurred in 1985 is to extend the period - - -
| Heath(2) | 24 | 6/11/92 |
| MR JACKSON: | Of discovery. |
DAWSON J: - - -for a year. That is, so that it is two
years after 1985 you are allowed to have discovery.
| MR JACKSON: | Yes, and if you renew in 1987 it means that |
loss you suffer in 1986 you can discover up to the
end of 1988.
DAWSON J: But it is a maximum of two years all the way
along?
MR JACKSON: Yes. It gives you an extra year. That is the
submission we make, Your Honour, on the operation
of it, on the assumption that one treats the words
"coverage of the policy" being substituted for any
prior policy as being brought into operation by
each renewal.
But, Your Honours, could I move then to the
second submission which we make which is in
paragraphs 11, 12 and 13 of our outline of
submissions and that relates to the validity of the
assumption that a renewal of the BF policy does
constitute a substitution for the previous policy.
Now, Your Honours, if one looks at the· terms
of general agreement C, it speaks of the coverage
of this policy being substituted for any priorpolicy of insurance carried by the insured, not
necessarily with the insurer. It does not say that at all, the words are not used, which prior
policies, terminated, cancelled or allowed to
expire as to the time for such substitution and then the provision commences to operate and you will see, for example, if you look at condition 2
between lines 15 and 18, that what it requires is
the loss would have been covered under this policy
if this policy had been, with its agreements,
limitations and conditions, had been in force at
the time when the acts or defaults were committed. Your Honours, that is a provision which, we
submit, recognizes the existence of possible
differences in conditions between the policies and
so what we would submit really, is that a term like
general agreement C is really directed to a
different situation altogether, and that is a
situation where this insurer is, in effect, taking
over from a previous insurer, albeit in
circumstances where there might be a cancellation
of the prior policy, there might be a termination
of the prior policy, or the agreement between them
might be that as soon as your policy with X runs
out, we will take it over. In return for that we will give you the benefit of general agreement C.
| Heath(2) | 25 | 6/11/92 |
Now it is also possible to take the view that
if you substitute, instead of your general policy,
the industrial special risk policy, a particular
policy dealing with embezzlement and things of that
kind, then the cover under the new policy willaccept a run off from the previous one.
But, Your Honours, the terms of it do not
really seem very apt, we would submit, to apply to
circumstances where once the new policy has been
obtained, what you have is renewal of the policy
year by year. Your Honours, those are our submissions.
| DEANE J: | Thank you, Mr Jackson. | Mr MacFarlan. |
| MR MacFARLAN: | If the Court pleases. Your Honours, may I |
hand to the Court copies of our outlined
submissions. The question before the Court is one of construction. It is not one of ascertaining
what is the strict contractual or legal position as
to whether a contract of insurance which is renewed
gives rise to a new contract. That consideration
may be of some assistance in resolving the question
of construction, but ultimately it is the terms of
the document which is under consideration which
must prevail, and the expression which requires
construction is the expression "policy period",
because that is the expression used in the time
limitation which is imposed in respect of the
discovery of a loss, and that appears at page 35 of
the appeal book, line 20.
The term "policy period" in precisely that
form appeared in the original policy, as
Your Honours have seen at page 40. That period was
not surprisingly defined as the 12 month period to
which the original policy related and His Honour at
first instance focussed on that description of
policy period and regarded that as conclusive, but what His Honour, with great respect, did not have
regard to was the fact that the policy was renewed
from time to time and, as we say, the policy period
was extended. Now putting it - - -
McHUGH J: That makes the from date in each of the renewals
redundant, does it not? Take page 42:
Renewal -
From 30th April 1986 to 30th April 1987 -
The words "30th April 1986" play no part on your
argument, do they?
| Heath(2) | 26 | 6/11/92 |
| MR MacFARLAN: | We say not, Your Honour, because the earlier |
period is dealt with in the original certificate on
the previous page.
| McHUGH J: | When you say not, you mean they play no part or |
they do play a part?
| MR MacFARLAN: | No, they do play a part, Your Honour, because |
they identify the date of commencement of the
further period, which is referred to a little lower
down on page 42, about line 23. It is said:
THIS INSURANCE IS RENEWED FOR A FURTHER PERIOD
OF 12 MONTHS, SUBJECT TO THE TERMS AND
CONDITIONS OF THE POLICY
That expression contemplates that there will be one continuous policy within which there will no doubt
be periods of insurance. What is said in that expression is that there is to be a further period
of insurance effectively within or under theumbrella of the existing policy.
McHUGH J: But if your argument is right, if this policy was
renewed for 20 years, then in the 21st year you
could recover for losses that occurred in the first
year, could you not?
| MR MacFARLAN: | Yes, Your Honour. |
| McHUGH J: | I must say that strikes me as absurd; | absolutely |
absurd, with great respect.
| MR MacFARLAN: | Your Honour, that is perhaps the nature of the type of loss which is insured, namely one of |
| McHUGH J: | Why go to the trouble of carefully crafting one |
year and then a year onto it, and then just out of
the blue you have a renewal certificate which just
goes on and on and on and just extends the period?
| MR MacFARLAN: | The concept of the insurance, Your Honour, as |
we put it is that the insured is looking to have
continuous insurance against that loss. There is
no necessary defiance of common sense in the
proposition that is inherent in our argument that
paying a premium for a further year's insurance
involves also paying for, as part of the bargain, an extension of the time for discovery of loss in the previous year.
McHUGH J: It increases the chance that the insurer will be
liable.
| MR MacFARLAN: | The insurer will be liable, yes. | It is of |
benefit to the insured, there is no doubt about
| Heath(2) | 27 | 6/11/92 |
that. It extends the period of discovery.
Your Honour, there is no defiance of common sense,
as I say, in that because on any view of it, that
is what has been done in at least one instance in
respect of these policies. If I could take the
example of the first year of the blanket policy,the premium paid for that year of course in part
related to losses incurred in that first year, but
it also paid for an extension of the period for discovery of at least the final year of the ISR policy - we say more than the final year, but at
least that.
McHUGH J: That is a very different thing, Mr MacFarlan,
from saying that you just get unlimited cover year
by year by year by year.
| MR MacFARLAN: | It is not unlimited cover, Your Honour, |
because the loss - - -
McHUGH J: | It is still limited to the 500,000 or the 1.5 million or whatever it is. |
| MR MacFARLAN: | Yes, but the critical point, Your Honour, is |
that the loss has to occur during the period of
insurance. All that is being extended is the timefor discovery. It is sensible, in our view, to
contemplate that the insured will want to be
protected against loss incurred whilst he was
insured with the same insurer but discovered duringthe policy, however long it is on foot or within 12
months of its termination. There is certainly
nothing in the nature of that bargain that leads
one to suggest it is outrageous and one should
depart from what the terms of the policy say.
| McHUGH J: | If you had been issued a new policy in the terms |
of the original fidelity policy instead of being
given a renewal certificate, your argument would
have no legs, would it?
| MR MacFARLAN: | I am sorry, Your Honour. |
McHUGH J: If instead of being given this renewal
certificate you got a new policy handed to you for
the same premium your argument would fail.
MR MacFARLAN: That is certainly so, Your Honour, but that
is unlikely and what happened when the ISR policy
was replaced by the blanket policy was that an
express provision was obtained and incorporated in the policy which would have the effect of insuring
that continuity, namely general condition c. So despite the change in policies, the parties
intended to retain that continuity and it is acontinuity which was necessary to be expressly
or the amount available to the Insured under
such other policies, as limited by the terms
and conditions thereof, for any such loss, if
the latter amount be the larger.
It speaks of:
shall not exceed, in the aggregate, the amount
stated in -
this policy and the amounts stated in the other
policy -
if the latter amount be the larger.
Your Honours, I have to say it is not entirely
clear what "in the aggregate" means. "In the
aggregate" is clear enough. What is not very clear is why the expression is used -
if the latter amount be the larger.
But could I just say that whilst perhaps one cannot
get a very clear answer from the policy to the
particular question, what does seem to be indicated
by the provisions of section 10 is that it does layemphasis on the term "policy period", and that the
term "policy period" seems to be the period of each
year of the policy.
The last thing I wish to say is this: that in relation to our learned friend's basic submissions,
as it were, it is not right to say that if their
submissions are right, it is just the period of
discovery which is being extended. What is happening is that the period during which the loss
| Heath(2) | 46 | 6/11/92 |
can occur does not shorten. A year does not drop off, as it were, each year, so it is a question of
loss, not just a question of extension of the
period of discovery.
But, Your Honours, the other thing is if it be
that, as their argument fundamentally seems to be,
what you have is one policy, one policy at least so
far as the BF policy is concerned, that seems to be
a view which is really contrary to the whole nature
of renewal in this class of policy, and also
suffers from the difficulty that each policy
renewal expresses the policy to be one in operation
for a particular and specific time; and also, each
renewal document - Your Honours have seen those
already at, for example, page 42 - says:
THIS INSURANCE IS RENEWED FOR A FURTHER PERIOD
OF 12 MONTHS -
Now, Your Honours, why, we would ask, is the
relevant period of 12 months not the policy period for the operation of the policy? Your Honours, as
submitted earlier, we will give Your Honours the
relevant numbers of dollars.
| DEANE J: | The Court is indebted to counsel and will reserve |
its decision in this matter. Adjourn the Court
until next Tuesday, at 10.15.
AT 1.12 PM THE MATTER WAS ADJOURNED SINE DIE
| Heath(2) | 47 | 6/11/92 |
0