De Vito Transport v Commercial Union Assurance No. DCCIV-98-1016

DE VITO V COMMERCIAL UNION ASSURANCE CO.
[2000] SADC 63

Judge Bright
Civil

On 16th October 1997 a Ford Louisville prime mover, with a tautliner trailer loaded with citrus produce capsized a little west of Rankin’s Springs in New South Wales. It was owned by the plaintiff, Mr. DeVito, and insured with the defendant. The plaintiff had entrusted the vehicle to his employee, Mr. Eaton, to drive it to Brisbane. Mr. Eaton permitted his then partner Ms. Good to drive it and she was at the wheel when it crashed. The plaintiff has made a claim, agreed at $90,000, for repairs to the prime mover, pursuant to the insurance policy. The defendant has denied liability for the claim.
There is no dispute as to the wording of the policy, but there is dispute as to its meaning, and also as to whether section 54 of the Insurance Contracts Act restricts any ability the defendant may have to refuse the claim.
The policy begins with an extract from the Insurance Contracts Act. Next come what are called “Important Notices”.   Of relevance is Notice 6:
“6.     Acceptance of Driver Questionnaires
You must notify the Company of all drivers prior to them driving any Insured Vehicle.   This notification must be given on the Company’s standard Driver Questionnaire form.   Cover will not be effective until each driver has been accepted by the Company and you have been notified of the Company’s acceptance.
Failure to submit a Driver Questionnaire will result in any claim being denied if the Driver does not satisfy our underwriting guidelines.
If a Driver Questionnaire is submitted after an event giving rise to a claim, and the Company accepts the driver, a penalty excess of $3,000 will apply in addition to any other excess.”
There is then an index to the contents of the policy. At page 5 is “Our Agreement”, which provides:
“The policy wording, Schedule (which expression includes any Schedule substituted for the original Schedule) and Endorsements (if any) are to be read together and any word or expression to which a specific meaning has been given in any part bears that meaning wherever it appears.
When the Insured named in the Schedule pays or agrees to pay the Company the premium, the Company agrees, subject to the terms, exclusions, limitations and conditions contained in, or endorsed on, or otherwise expressed in the Policy, to provide insurance in the manner and to the extent herein described during the Period of Insurance stated in the Schedule, or any subsequent period in respect of which payment of the premium or a promise to pay the premium is made to, and accepted by, the Company.”
At page 6 are certain “Definitions”, including:
“Driver - means the Insured or any person with the Insured’s permission driving, using or in charge of the Insured Vehicle or Substitute Vehicle.”,
“Insured - means the person(s), company(ies) or firm(s) named as the Insured in the Schedule of this Policy and subsidiary companies, only if also named in the Schedule.”.
At page 7 are certain “General Conditions”.   I quote:-
1.      Duty of the Insured
The liability of the Company is conditional upon:
(a)    payment of the premium by the Insured;
(b) the notification as soon as possible by the Insured to the Company of any change materially varying any of the facts or circumstances which existed at the commencement of each Period of Insurance, including notification of any new or additional driver on the Company’s standard Driver Questionnaire form;.....”
General Condition 2 permits the insurer to cancel the policy in various circumstances. In this case the policy was not cancelled, but this claim pursuant to it was denied. Other cover remained in force.
At page 8 we come to “General Exclusions”, of relevance:-
“The Company will not pay claims for:
.............
8. any destruction, loss, damage, fire or liability caused, sustained or incurred where the Insured Vehicle is driven by or in control of any person who is under 25 years of age or has held the relevant class of drivers licence for less than 2 years;
.............
10. Any destruction, loss, damage, fire or liability caused, sustained or incurred by a Driver who is not acceptable by the Company; ........”
Exclusion 10 is followed by the following words, contained within a printed rectangle:-
Note
If we do not have a completed Driver Questionnaire at the time an event giving rise to a claim occurs, the claim will be denied if the Driver does not satisfy our underwriting guidelines.”
At page 10 we finally come to “Section 1”, which deals with “Loss of or Damage to Insured Vehicle”.   It provides:-
“Following physical loss or destruction of, or damage to, the Insured Vehicle caused by any accident or misfortune:
1.      The Company will, at its option, either:
(a)    repair, reinstate or replace the Insured Vehicle; or
(b)    make a cash payment to the Insured, owner or other party who has an interest in the Insured Vehicle to the extent of that interest, and such payment by the Company will be in full and final discharge of that interest;
.........
3.      The Company will pay either:
(a)    the reasonable cost of protection and removal [of the vehicle] or
(b)    the reasonable cost expended by the Insured in the recovery or the return of the Insured Vehicle following theft, ........”
Section 2 of the Policy deals with Third Party Liability. Then there are various endorsements. The Schedule (on renewal) to the policy identifies the plaintiff as the insured. It lists various prime movers, including the subject of this claim, as being insured. At the foot of the list of insured vehicles are the following words:-
“Important Notice
We must be notified of all drivers PRIOR to them driving any Insured Vehicle. This notification must be given on the Company’s standard Driver Questionnaire form.
Failure to submit a Drivers Questionnaire will result in any claim being denied if the Driver does not satisfy our guidelines.
Please refer to you policy wording or this office if in any doubt about this requirement”.
I pause to note that the insurer could have done little more to make plain its attitude to drivers in respect of whom it had not given any approval. Not only is its requirement set out in the original policy, but also on the renewal notice.
Mr. Eaton’s name is not among those listed, but it is agreed that, after the date of the Schedule (11th June 1997) and before he drove the insured vehicle, a Questionnaire was submitted to the defendant. Mr. Eaton was approved as a driver. No Questionnaire was submitted in respect of Ms. Good until after the accident. The defendant then refused to approve her. It did so on the ground that she had not held the relevant licence to drive a heavy articulated vehicle for 2 years.
It will be recalled that General Exclusion 8 provides that the defendant will not pay claims for loss where the insured vehicle is driven by or in control of a person who has held the relevant licence for less than 2 years. Exclusion 10 excludes loss sustained by a Driver not acceptable to the defendant.
“Driver” (upper case “D”) is defined to include any person driving, using, or in charge of the vehicle, with the permission of the insured. The defendant, purporting to rely on exclusion 10, alleges that Ms. Good drove with the consent of the plaintiff and is a Driver who is not acceptable to it. Alternatively, purporting to rely on exclusion 8, she was driving (lower case “d”) or in control, without having held a licence for long enough.
The plaintiff denies giving any permission to Ms. Good to drive the vehicle. Thus, he argues, Ms. Good was not a Driver (upper case “D”) within exclusion 10, nor, he argues, does exclusion 8 apply to a driver (lower case “d”) driving without his knowledge or consent.
Evidence, which I accept, was led to establish that, not only did the policy refer to exclusion of drivers who had held licences for less than 2 years, but also that underwriting guidelines had been formulated by those responsible within the defendant for doing so, which included a guideline to the same effect. I accept that, not only was Ms. Good not in fact approved, but also that the defendant would not have approved her if application had been made, either before the accident, or after it, but with reference to driving at the time (section 1, clause 3).
Reading the policy literally, it is clear that the claim comes within General Exclusion 8. Unless the plaintiff permitted Ms. Good to drive, it does not come within General Exclusion 10, as she would not be a Driver, but, if he did permit her to drive, both 8 and 10 would apply.
The plaintiff argues that he did not consent and that, in those circumstances, neither 8 nor 10 apply. He argues that it would frustrate the whole basis of the insurance if cover did not extend to the acts of a driver (lower case) who drove without his consent or knowledge. For example, he argues there would be no cover for the acts of a thief, though (it is said) cover for theft and for damage by a thief is clearly intended.
The defendant contends that this is a misconception. The defendant’s liability is not triggered by “theft”; it follows “physical loss or destruction of, or damage to [the vehicle]”. A vehicle might be recovered undamaged after a theft, in which case (section 1, paragraph 3 (b)) only the cost of recovery would be payable. Alternatively, it might not be recovered at all, in which case there would be “physical loss”, for which he defendant would pay. Such loss, arguably, might occur either at the moment of theft, or, perhaps, when it was finally accepted that the vehicle could not be recovered. In either case, the status of the thief’s driving licence, or his age, would be irrelevant - it might well not be known.
But, what of a vehicle stolen, but recovered in a damaged state, if it should transpire that it was damaged while being driven by a person who had not held the appropriate licence for 2 years (or who was not approved)? It certainly seems unlikely to me that the parties intended that to be a relevant factor in a claim arising out of events following a theft.
The defendant argues that General Exclusion 8 does not apply to a case of theft, but applies to drivers other than thieves. Importantly, it argues that the absence of consent of the insured, is irrelevant. This argument is partly based on the wording of various other general exclusions. General Exclusion 2 excludes liability when a driver is drunk. However, by clause 2 (e) the exclusion does not apply if the insured “proves that he was not aware and could not reasonably have been aware that the Driver was at the time so affected”. As it refers to a Driver, (upper case “D”) we are dealing with a driver who drives with the consent of the insured, but of whose inebriation the insured proves he was unaware (and could not reasonably have become aware). For this purpose the insured is not barred from recovery by something about which he did not and could not know. There is no similar proviso to General Exclusion 8.
Dealing specifically with theft, I note that a number of exclusions refer to it. General Exclusion 1 excludes liability for “any destruction, loss, damage, theft, fire or liability caused sustained or incurred when the Driver was not [properly licensed]”. Again, this does not apply if the insured did not and could not reasonably have known of that. This formula is repeated specifically referring to “theft” in General Exclusions 2 (alcohol), 3 (unsafe or unroadworthy, etc.), 4 (intentional loss or damage), 9 (unattended vehicle), and 11 (while insurer hires out vehicle). Theft is not referred to in General Exclusions 5 (loss through nuclear accident), 6 (war, etc.), 7 (where used as a concrete carrier), 8 (exclusion for a driver licences for less than 2 years) and 10 (driver not approved by insurer).
I find the wording of the policy most obscure. Why should the status of the licence of a Driver (i.e. an authorised Driver) be of relevance to what happens when a truck is stolen? But, it appears to be a basis for refusing to meet a theft claim. It is equally hard to relate the risk of theft to the matters set out in many of the other exclusions. I accept that it is easy to see an increased risk of various forms of loss or damage if used or driven in the various excluded ways. For indemnity following theft to turn on whether the loss was partial, resulting from damage while being driven by someone with the wrong licence or with the right licence, or total, when the licence would not matter, relating to, e.g, a failure to relocate a truck after theft, seems absurd.
Surely what the parties must have intended was exclusion of loss or damage occurring when events giving rise to exclusions were authorised or at least connived at by the insured. Indeed, as the exclusion in respect of drunkenness suggests, there is probably an intention that the insured shall take positive steps to prevent the insured vehicle being used in circumstances which might give rise to exclusions, in default of which claims will be refused.
However, what the parties may have intended is largely beside the point. The outcome of the case is to be determined by what they agreed. That agreement is set out in the policy. There has been no claim that the policy should be rectified. The most I could do (if so persuaded) would be to imply, as a matter of law, some condition necessary to implement what must have been the common intention, albeit ambiguously expressed.
Here there was never any negotiation about conditions. Perhaps the premium may have been negotiated - the evidence is silent - but the terms of the policy to be issued do not appear to have been addressed. I infer that the plaintiff wanted “comprehensive insurance” on the terms then standard for the defendant - and that that is what he got. I do not expect either side turned its mind to the events which occurred.
Here, if I accept the plaintiff’s evidence, the truck was being driven by a person who had no authority to do so, who would not have been permitted to do so if she had asked, and who was not known by the plaintiff to be driving at any relevant time. If that be so, she was not a Driver (upper case) excluded by General Exclusion 10. However, unless I imply some further words into General Exclusion 8, the truck was being driven (lower case “d”) by a person who had held a licence for less than 2 years. Consent, knowledge or other states of mind of, or acts by, the insured, are not mentioned in that exclusion. It purports to be a blanket exclusion when the truck is so driven
I accept that there are problems about what might be the outcome of a claim for theft in various circumstances. This is not a claim for theft. There is no suggestion that Ms. Good intended permanently to deprive the plaintiff of the truck. Possibly her driving might amount to what would be classed in this state as “illegal use”, but I cannot see any argument based on that which might assist the plaintiff. I cannot conclude that, because one interpretation in a case of theft might be that the age and experience of the thief were irrelevant, I should now apply that interpretation to use or driving by a person who was not a thief. General Exclusion 8 does not expressly purport to apply in the case of a theft, and that may be a way of avoiding the alleged problems in the case of theft, at least in the case of thieves who have not held a licence for long enough.
I find myself driven to the (unpalatable to me) conclusion that want of permission by, or knowledge of the plaintiff that such a person is driving is irrelevant. By its plain words, the policy provides that payment will not be made. In case I am wrong, I shall later deal with evidence on the question whether the plaintiff did, or did not, know that Ms. Good was sometimes driving the truck.
Before I do that, I must look to see whether section 54 of the Insurance Contracts Act restricts any right the defendant may have to refuse to pay. The first position of the defendant is that its refusal to meet the claim does not arise from some “act” or “omission” of the plaintiff within the meaning of section 54 (which I shall set out later), rather, it is because the claim simply does not come within the policy at all. If this claim had been made pursuant to, say, a CTP policy in respect of the truck, it would have been refused because such a policy simply does not purport to cover claims for property damage. That is easy.
Here, it is said, the policy does purport to cover claims for property damage, but not in all circumstances. One such circumstance is when it is being driven by, or under the control of a person who has held a licence for less than 2 years. Damage while being driven by such a person simply does not come within the four corners of the policy. As a matter of construction, it is hard to distinguish between an area which is covered, but subject to exclusions, and an area limited by and never purporting to cover some other area referred to in the policy.
On my interpretation, exclusion 8 applies. The fact that it is called an exclusion is not definitive of whether it is an exclusion, or whether it merely delineates an area never within the policy. However, it seems to me more apt to call it an exclusion from what would otherwise be the field than to see it as part of the initial delineation of the field. I reject this argument of the defendant.
I must look at section 54. I set it out.
54 Insurer may not refuse to pay claims in certain circumstances
(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.
(2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.
(4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
It is necessary to see what is the “act” relied on by the defendant to refuse to pay the claim. It must be that the truck was being driven by a person who had not held a licence for 2 years. I note that “act” is defined to included “omission”. Arguably, there may have been an omission in the sense of a failure to prevent such a driver from driving. If consent were relevant, that might be so. On my construction, it is not, so the “act” must be the driving by such a driver. I note that the “act”, referred to in section 54, is not only the act of the insured, but also “of some other person”.
Section 54 (2) permits an insurer to refuse to pay where the act could reasonably be regarded as being capable of causing or contributing to the loss. It seems to me that the defendant need only show a fairly tenuous link where it points to what
could reasonably
be regarded as
being capable of
causing, or
contributing
a) to the loss.
In particular, the insurer is not required to prove that the act was, in fact, the cause, or a substantial (or other) cause of the loss. Subsection 54 (1), expressly provides that, if subsection (2) applies, then subsections 54 (1), (3) and (4) do not apply. I accept that as being the correct interpretation. The consequence is that, even if the plaintiff were to prove that some, or none, of the loss was caused by “the act”, it could not recover if “the act” came within subsection (2).

The wording of subsection (2) appears to suggest the contrary, as it is expressed to be “subject to the succeeding provisions” of section 54. Fortunately, I do not need to resolve this question on the facts of this case, even assuming I were not bound by authority.
The accident happened at about daybreak. It was not suggested that the state of the light played any part. The weather was fine, Ms. Good had been descending a hill which was fairly steep, but not a problem of any note. She was negotiating a right hand bend. She was on a bitumen road of sufficient width. It had a slight reverse camber - that is, it sloped down to the left. On the left was a dirt verge which fell away more sharply. She says that she was driving at a speed at which the corner should have presented no problem.
She took her eyes off the road (possibly to look at the radio - she cannot now recall why) for a moment. When she looked back, she found that her front left wheel had gone into the dirt on the left of the bitumen. She tried to steer back to the right. As she did so, she felt the back of the trailer kick out to the left in the dirt. This caused the prime mover to steer more sharply to the right than she had expected. At about this stage, Mr. Eaton, who had been asleep, grabbed the wheel and tried to help her straighten up, by steering back to the left. (The extent of his intervention was not suggested to have been enough for there to be an argument that he took over the driving, thereby putting the vehicle back under the control of an authorised Driver). The prime mover crossed over to the right hand dirt verge and, as Ms. Good tried to steer back on to the road, it capsized onto its right side.
There was no suggestion that any mechanical defect, or other cause beyond the control of a reasonable driver, played any part. Ms. Good had only held the relevant licence for a few months. She had done a certain amount of driving before getting her licence, while learning to drive. She had been a passenger in the truck for thousands of kilometres and had had the opportunity to see Mr. Eaton driving it. In my view, she could only be categorised as an inexperienced driver of trucks.
I have no doubt that, within the meaning of section 54 (2), her act of driving while so inexperienced could reasonably be regarded as capable of having at least contributed to the occurrence of the loss. Further, I find that the plaintiff has not proved, and could not prove that some, or none, of the loss was caused by that inexperience. Even if subsections (3) or (4) applied, the plaintiff would not succeed. That is so regardless of who bears the onus. Accordingly, whether the refusal to pay is authorised by subsection (2), or whether the plaintiff has failed to bring himself within the rest of section 54, the result is the same. The plaintiff must fail. The defendant is permitted to refuse the claim and has done so.
I noted that, if I were wrong about Exclusion 8 applying to drivers not authorised or permitted by the plaintiff to drive, the result could be different. I shall therefore summarise my views on this aspect of this case.
The plaintiff, Mr. DeVito, denied knowing that Ms. Good had ever driven the truck, until after the accident. It is clear that she had done so on a number of occasions. Relevantly, she drove it on one, and, possibly, more occasions within the plaintiff’s own transport depot at Waikerie. It appears that she drove it to a fuelling point after Mr. Eaton had alighted. Other employees saw her do that. It is probable that she could have been seen from the plaintiff’s office, at least for a part of such a drive. Mr. DeVito says that he did not see or learn of that.
On one occasion, while Ms. Good was driving in Western Australia, the truck hit some kangaroos and spotlights were damaged. That damage was minor and was repaired at the plaintiff’s Waikerie depot. It was known to some employees that Ms. Good had been at the wheel. Mr. DeVito says it did not come to his attention.
All drivers were required by law to keep log books and to deposit copies of certain pages from their log books with the plaintiff. He left a cardboard box in his office into which to place these duplicates. Ms. Good is noted as being a “Two-up” driver on the originals of various such duplicates. The plaintiff says he never inspected those duplicates. - and he had no obligation or reason to do so. He was required to keep them for a period, so they could be inspected by Road Transport Inspectors, but they were not of other relevance to him.
Mr. DeVito was aware that one other driver’s partner began to drive. He sought authorisation from the defendant for her to do so. Authorisation was refused. He then declined to permit her to drive. That driver left his employ, taking his partner with him. I do not infer from that that he knew that other drivers’ partners drove, or that he acquiesced in such a practice. I do not infer that he knew anything about Ms. Good driving.
It was suggested that Mr. DeVito had, on an occasion when Mr. Eaton had been unwell and unable to drive a truck to Sydney, telephoned Mr. Eaton’s home and spoken to Ms. Good. Ms. Good told me that Mr. DeVito asked if she could drive to Sydney. She was unclear whether this was a serious request. Mr. DeVito denied any such request. If made, I can only regard it as jocular.
A number of DeVito employees who, the defendant alleged, were likely to have known that Ms. Good was sometimes driving, were called. All denied any such knowledge (apart from having seen her move the truck within the depot).
In my view, the positive case that Mr. DeVito knew of, or acquiesced in, Ms. Good driving is very weak.
What gave it currency was a series of actions by, or on behalf of, Mr. DeVito, which suggested to the defendant that Mr. DeVito was falsely claiming that Mr. Eaton had been the driver, though being well aware that he was not. The defendant received a claim form from the plaintiff’s broker naming Mr. Eaton as the driver. The plaintiff claims that, at the time he signed that form, (a) he believed that to be true, and (b) that the form was signed in an incomplete state, as knowledge was sketchy. It was, he said, superseded by a further claim form correctly naming Ms. Good.
Meanwhile, information had come to the defendant from another source that Mr. Eaton had not been the driver. Not surprisingly, it smelled a rat. There was then some rather ambiguous contact between the defendant and the broker. The defendant was, by now, suspicious of the broker.
Perhaps the most significant aspect of this part of the dispute is an allegation that Mr. DeVito, personally, knew that Ms. Good had been the driver on the day of the accident. He denies that. However, an employee told me that Mr. DeVito spoke to him on the day of the accident and referred to Ms. Good as having been the driver.
If Mr. DeVito knew that at that time, he must have been told about it by Mr. Eaton. It is not clear whether Mr. Eaton rang to advise Mr. DeVito of the accident, or whether Mr. DeVito, hearing from elsewhere, rang Mr. Eaton at a hospital to see if he was OK. Either way, he could have been told.
Despite his denials, I strongly suspect that he was told and that he then put his head in the sand, knowing that Ms. Good’s involvement would mean trouble with his insurer. His broker may have been party to this, but it is not proved. Proper disclosure was made before the decision to reject the claim was taken. If there was a deliberate misleading, it was short lived. The correction may have been because the broker then ascertained the true position, or it may have been that Mr. DeVito and the broker realised that the defendant knew about Ms. Good anyway.
These remarks on the facts are obiter to my decision and only touch on quite extensive evidence. It is not necessary to make specific findings. If I had to, I expect I would find that the plaintiff was not aware that Ms. Good was, or was likely to be, driving the truck which he had entrusted to Mr. Eaton. I would probably find that he found out that this had happened on the day of, but after the accident.
For the reasons I have earlier given, there will be judgment for the defendant. I will hear the parties on costs.

[2000] SADC 63

1 June 2000