Dickinson v National Mutual Life Association of Australasia Ltd (trading as AXA Australia)
[2003] VSC 325
•5 September 2003
| SUPREME COURT OF VICTORIA | Not Restricted | |
| DIVISION COMMERCIAL & EQUITY DIVISION | ||
No. 2107 of 2001
| LANCE MURRAY DICKINSON | Plaintiff |
| V | |
| THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (TRADING AS AXA AUSTRALIA) ROBERT BRUCE BROADELY | Defendant Third Party |
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JUDGE: | SMITH J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 – 8 , 11 and 12 August, 2003 |
DATE OF JUDGMENT: | 5 September 2003 |
CASE MAY BE CITED AS: | Dickinson v AXA |
MEDIUM NEUTRAL CITATION: | [2019] VSC 325 |
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Insurance contract – alleged non-disclosure – duties of broker – loss of opportunity to impose exclusion clause.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr M. Titshall QC and Mr S. Anderson | Holding Redlich |
| For the Defendant | Mr S. Kaye QC and Mr C. Hanson | Lander & Rogers |
| For the Third Parties | Mr J. Middleton QC and Mr B. Griffin | Deacons |
HIS HONOUR:
The Proceedings
By Writ filed 4 December 2001, the plaintiff, Lance Murray Dickinson, sued the defendant, AXA Australia, to recover benefits allegedly payable under a contract of insurance.
The plaintiff was a chiropractor. The contract of insurance, policy number P 300305948, was a Risk Protection Package which provided insurance cover for total and permanent disablement, business expenses and professional income loss. The policy was issued on 1 July 1999 and renewed on 1 July 2001 and 1 July 2001 . The defendant purported to avoid the policy on 4 October 2001.
In its defence in these proceedings, the defendant relied upon a number of matters. At the trial, however, it relied solely upon alleged fraudulent non-disclosure by the plaintiff of a CT scan of the plaintiff's spine undertaken on 16 May 1996 and an x-ray of the spine undertaken on 23 July 1997 and their results.
The defendant also issued third party proceedings on 3 October 2002 against Robert Bruce Broadely, its insurance agent who had dealt with the plaintiff. In their current form, the defendant has sought indemnity and damages from Mr Broadley on the basis of an alleged breach of his obligation as its agent to exercise reasonable care and skill in advising the plaintiff on the appropriate procedures for completion of application forms, in asking questions set out in the proposal and in informing the plaintiff of his obligations as to disclosure.
Progress of the Proceedings
The hearing of the proceedings commenced on 5 August 2003. On 12 August 2003, final submissions having been made by counsel for the third party and defendant, the plaintiff and the defendant settled the plaintiff's claim. By consent the following orders were made in the proceedings between the plaintiff and the defendant.
" ORDER
(1)a declaration that the plaintiff is entitled to be indemnified under the terms of the policy numbered P300305948, referred to in paragraph 5 of the Amended Statement of Claim herein ('the policy');
(2)a declaration that the defendant's cancellation or avoidance of the policy is invalid; and that the defendant is liable to pay the plaintiff the benefits due to him under the terms of the policy;
(3)order that the defendant resume payments to the plaintiff of the income protection benefits provided for by the policy in accordance with the terms of the policy (presently payable at the rate of $2,273.20 per week), the first payment to be made on 2nd September 2003;
(4)order that the defendant pay to the plaintiff damages in the sum of $953,545.87, being $735,000 for lump sum total and permanent disability benefit and $218,545.87 for arrears of income protection benefits under the policy'
(5)order that the defendant pay to the plaintiff damages in the nature of interest agreed in the sum of $190,000;
(6)order that the defendant pay the aforesaid sums for damages and interest within seven days of the date hereof,
(7)order that the defendant pay the plaintiff's costs of this proceeding, including reserved costs."
The orders made in paragraphs 1 to 4 gave effect to the 1999 policy. It remains to determine the issues arising in the Third Party proceedings.
The first issue to determine is the reasonableness of the settlement of the plaintiff's claim.
Reasonableness of settlement
Counsel for the defendant submitted that the only basis upon which the defendant could avoid the 1999 policy was fraudulent non-disclosure by the plaintiff. Counsel submitted that to establish such fraudulent non-disclosure it was necessary to secure a finding that the evidence of Mr Broadely should be accepted in preference to that of Mr Dickinson. Further, even if Mr Broadely's evidence of those events was to be preferred to that of Mr Dickinson, the defendant still had to prove that the non-disclosure in 1999 of the 1996 CT scan and 1997 x-ray was fraudulent in circumstances where it was common ground that Mr Broadely had not taken Mr Dickinson through the detailed questions of the proposals and, at its highest for the third party, had asked broad questions of him about whether there had been any changes in his health over the previous two years and whether he had received any medical treatment in that time.
Counsel for the third party stated that their client did not necessarily accept that the settlement was fair and reasonable.[1] No submission was advanced, however, to support an argument that it was not. This is understandable in view of the fact that one of the major arguments advanced on behalf of the third party was that even if fraudulent non-disclosure was shown, the defendant could not prove that it would have declined to issue the policy if appropriate disclosure had occurred and so could not prove causation.
[1]The transcript records acceptance but I do not believe that to be correct.
In my view, the settlement is a fair and reasonable one. The defendant was right to be concerned about its prospects of having the evidence of Mr Broadely preferred to that of Mr Dickinson. Without going into the details of such evidence, it is sufficient if I state that in my view the evidence of Mr Dickinson as to conversations with Mr Broadely in 1997 and 1999 concerning proposals for insurance cover should be preferred. I found Mr Broadely to be an unsatisfactory witness. The reality was that the plaintiff was not asked any questions about prior medical history and, in particular, was not asked questions about CT scans, x-rays or medical treatment. Further, it is clear on the evidence that at the time of those radiological examinations there was no back problem and examinations revealed no more than normal degeneration and no evidence of potential back symptom. As a result, the plaintiff did not believe that there was an issue about his back and anything to cause the defendant concern. Having regard to those matters, the defendant has proceeded correctly on the basis that it would not be able to establish fraudulent non-disclosure.
I will refer in more detail to the causation aspect in my analysis of the issues in the third party proceedings. It will be seen that the defendant also faced major difficulties on that issue.
I turn to the issues raised in the third party proceedings. To understand these issues it is necessary first to refer to the history of dealings between the plaintiff, the defendant and the third party.
Third party proceedings – insurance and health background
The complete insurance history is detailed and complex. For the purpose of these proceedings, it is sufficient to refer to the following policies and matters.
(a)In 1993, the plaintiff obtained an income protection policy, no 21322M6, from the defendant , the cover provided being $1000 per week.
(b)In August 1995 the plaintiff obtained a policy, policy number 8546066/5, providing compensation of $300,000 for total and permanent disablement.
(c)In April 1996, the plaintiff slipped while walking downhill at his farm , falling on the thoracic section of his spine. A few weeks later he fell off his ride-on mower, falling on the same section of his back. He was winded in both falls. With the second fall, he felt sharp pain in the thoracic region and thought that he may have broken a rib. At his wife's urging, he had a CT scan rather than an x-ray. He had a choice of two sections and chose the lumbar spine and thoracic spine sections. The report of that scan showed:
(i)mild facet joint degenerative change in the lower lumbar spine (L5 – S1; L4 – L5),
(ii)a minor degree of left-sided postero-lateral disk protrusion at
L5 – S1 which did not displace or compress the left S1 nerve root,
(iii)degenerative change of the anterior osteophyte formation of the thoracic spine at multiple levels, most prominent at T8 – 9,
(iv)mild concavity of T11 inferior end plate which had the appearance of a Schmorl's node,
(v)the changes in the spine were described as being of longstanding and no recent pathology was identified.
(d)On 28 January 1997, the plaintiff applied for and obtained an increase in his death trauma and disablement insurance cover from $315,000 to $500,000 (under policy number 8546066/5). His then partner, Dr McCarthy, took out insurance to cover disablement of the plaintiff for $200,000 (policy number 8555940/9). They also applied for and obtained business expense protection cover of $1,500 per week (policy number 210270450). The plaintiff dealt with the third party in arranging this insurance. He did not mention to the third party the falls or the CT scan and what it revealed. I am satisfied, however, that the proposals were signed in blank and the third party asked no questions that might have elicited such information.
(e)On 23 July 1997 the plaintiff underwent x-rays of his pelvic girdle and two regions of his spine. No further deterioration in the condition of the thoracic or lumbar spine was noted.
(f)In April 1999, the plaintiff and his colleague, Dr McCarthy, decided to end their partnership. This required reorganisation of their insurance protection. The plaintiff discussed the reorganisation with the third party. He recommended termination of existing policies and their replacement by what was known as a Risk Protection Package which combined the cover provided by the earlier policies. On 26 April 1999, the plaintiff signed the necessary proposal documents in blank. The cover sought was a lump sum total and permanent disablement cover of $700,000, income protection of $2000 per week and business expense cover of $3000 per week. The existing policies were terminated. In particular, the $200,000 disablement cover taken out by Dr McCarthy was terminated and the amount added to the plaintiff's lump sum disablement cover under the new policy. Again , I am satisfied that the third party asked no questions which would have elicited information about the earlier CT scan and x-ray. Again, the plaintiff did not volunteer the information. On 2 July 1999 the defendant issued the policy.
(g)On 19 July 1999, while attending a patient, the plaintiff suffered a disk prolapse at L4 – L5. He submitted income protection and business expense claim forms. These claims were accepted on 27 August 1999 and payment commenced.
(h)On about 28 September 1999 the defendant updated the business protection plan at no additional charge. In March 2000, the defendant sought the plaintiff's Medicare claims history from the Health Insurance Commission. It received that claims history on 10 April 2000. The claims history revealed the fact of the CT scan and x-ray but not the results.
(i)On 3 July 2000, the defendant renewed the Risk Protection Package. Later that year on 29 October 2000, the plaintiff made a claim for total and permanent disablement under the Risk Protection Package. On 15 March 2001, the defendant denied liability on the basis that the plaintiff was not totally and permanently disabled. On 17 May 2001, the plaintiff's solicitor's wrote to the defendant seeking payment of the total and permanent disability cover, then $735,000, and income protection payments for life. On 5 June 2001, the defendant replied stating that it was prepared to review the claim and would contact the plaintiff's solicitors with details in 30 days.
(j)On 30 June 2001, the defendant agreed to renew the Risk Protection Package. Time passed while the defendant investigated the medical issues. Subsequently, in about September 2001, the issue of possible non-disclosure was raised within the defendant. On 4 October 2001 the defendant wrote to the plaintiff denying liability to pay the sums insured, sought to avoid the policy on the basis of non-disclosure and foreshadowed claims for alleged overpayments.
Third Party Proceedings -- defendant's case
The defendant argues that it was an implied term of the agency agreement with the third party, that the third party would discharge his duties under the agreement with reasonable care and skill. Alternatively, it argues that the third party owed a common law duty of care to the defendant in carrying out his duties. The third party does not dispute the existence of those duties.
The defendant further argues that in having the 1997 applications signed in blank and not asking questions as to the plaintiff's health necessary to complete the forms, the third party was in gross breach of his duties. The defendant further argues that, similarly, in having the 1999 applications signed in blank and not asking questions as to the plaintiff's health necessary to complete the forms, the third party was in gross breach of his duties. Counsel relied on the third party’s admission that if he had asked no questions about the plaintiff's health it would have been "appallingly derelict" of him. The defendant argues that there was a higher onus on the third party to go through the proposal form in 1999 because the 1997 proposal was signed in blank.
The defendant submits that if the third party had carried out his duties with reasonable care, it would have been provided in 1997 with information as to the CT scan and in 1999 with information as to the CT scan and the x-ray. It also submits that having been provided with that information, it would have imposed a "full back" exclusion on the plaintiff and so would not have been liable to the plaintiff under the 1999 policy. As a result of the breach of contract or negligence of the third party, the defendant argues that it, the defendant, is liable to the plaintiff under the 1999 policy but entitled to damages from the third party for his breach of contract or negligence, the damages comprising the liability under the policy and the amounts already paid to the plaintiff. The defendant also submits that the third party is liable to indemnify it pursuant to clause 5.1 (c) (iii) of the agency agreement.
Third party proceedings – third party’s case
Counsel for the third party accept that it was not a good thing for the third party to proceed with proposals signed in blank. They argue, however, that the third party’s failure to complete the proposals by questioning the plaintiff would not have resulted in any different outcome. Counsel submit that it should be found on the evidence that the plaintiff was aware of his obligation to disclose relevant information. Counsel further submit, as I understand the argument, that, if asked general questions or the questions in the proposals, the plaintiff would not have disclosed the CT scan or x-ray because he did not believe that they revealed any problems and he did not believe that he had any back problems. Counsel for the third party also submit that if the information had been revealed, it would not have made any difference to the defendant's decision to provide the cover at the premium charged because on proper analysis, the evidence that would have been revealed did not warrant any reassessment of the risk. They submit that the evidence called for the defendant to suggest the contrary should be rejected. Counsel submit that the defendant has failed to prove that appropriate disclosure of the CT scan and x-ray and investigation of the history surrounding them would have caused the defendant to decline to insure the plaintiff or impose a "full-back" exclusion.
The third party also advances an alternative partial defence. If the defendant establishes its case against the third party in respect of the 1999 policy, the third party submits that the defendant's right to any indemnity or damages is limited to a comparison of the defendant's liability under the 1999 policy with its liability under the 1997 policies. The defendant submits that the correct comparison is with its liability under the policies existing prior to the 1997 policies (the 1993 and 1995 policies) . The defendant argues that the third party breaches of duty in 1997 entitle it to indemnity or damages in respect of its liability under the 1997 policies. The third party relies upon the same causation arguments in support of his position in relation to the 1997 policies.
Third party proceedings – defendant’s alternative case; lost opportunity
Finally, the defendant submits that if it has not made out its primary case, it has nonetheless established, on the balance of probabilities, that the failure of the third party to properly carry out his duties denied it the opportunity to impose a “full-back” exclusion and it is entitled to compensation on that basis.[2]
[2]Malec v. J. C. -Hutton Pty Ltd (1990) 169 C. L. R. 638, 642 -- 3; Sellars v. Adelaide Petroleum NL (on 1994) 179 C. L. R. 332,349 -- 50, 355.
The third party submits that the issues are not appropriately analysed in terms of lost opportunity and that liability ultimately depends upon whether the defendant proves on the balance of probabilities that performance by the third party of his duties in the manner suggested by the defendant would have resulted in a "full-back" exclusion being inserted.
Third party proceedings – the issues
Understandably, the third party has not sought to challenge the proposition that he was in breach of his duties to the defendant as its agent if it is found that the plaintiff signed proposals in blank and he failed to put to the plaintiff the questions asked in the proposals themselves. Plainly he was in breach in not doing so. The following matters appear to be the key issues.
•If the third party had asked the plaintiff the specific questions in the proposals, would the plaintiff have revealed the CT scan and the x-ray ?
•If the plaintiff had revealed the CT scan and x-ray in 1999, would the defendant have imposed a "full-back" exclusion in 1999?
•If the plaintiff had revealed the CT scan in 1997, would the defendant have imposed a "full-back" exclusion in 1997?
•If the defendant has not proved on the balance of probabilities that it would have imposed such an exclusion clause in 1999, did the third party’s breach of duty deprive the defendant of an opportunity to do so? If so, what is the assessment of that lost opportunity?
•If the defendant has not proved on the balance of probabilities that it would have imposed such an exclusion clause in 1997, did the third party’s breach of duties deprive the defendant of an opportunity to do so? If so, what is the assessment of that lost opportunity.
Would the plaintiff have given the information if the third party had carried out his duties?
The plaintiff was cross-examined extensively by counsel for the defendant and the third party. A variety of formulations were cleverly used by counsel. Using general language in their questions, they were able to obtain what might appear to have been conflicting answers. For example, asked by counsel for the defendant what his response would have been if the third party had asked him if there was anything he "wanted" or "needed" to tell him about his medical history or medical health, he responded that he would have told the third party about the CT scan and x-ray. On the other hand, when asked by counsel for the third party about his response if he had been asked by the third party how his health had been since 1995, he said he would not have mentioned the CT scan. The critical question, however, is what would have been the plaintiff's response if asked the questions in the proposals -- in particular questions concerning any back disorders and x-rays[3]. He plainly said in evidence that if asked those questions specifically he would have responded by mentioning the CT scan and x-ray. I accept that evidence.
If the defendant had been made aware in 1999 of the CT scan and x-ray would it have imposed a "full-back" exclusion?
[3]Questions 9.6 and 10.1 of 1997 proposal (and their equivalents, 9 (f)11 (a) of 1999 proposal). The questions were
Counsel for the defendant submits that care must be taken to ask the correct question - namely, what would the defendant have done, not what would any other insurer have done if it had received the same information.
The defendant has attempted to establish its case by calling two witnesses associated with the defendant. The first was Mr Stevenson, its present Life Underwriting Manager. He was employed by the defendant in the underwriting department in 1995 and was trained by the persons who considered the 1999 proposals -- Ms Law and Mr Jones.
Mr Stevenson gave evidence that the defendant would have imposed a "full-back" exclusion clause in 1999 if told of the 1996 CT scan. Counsel for the defendant submits that Mr Stevenson's evidence should be accepted. Counsel has referred to the concessions by both the plaintiff and the third party as to the relevance of the information to the defendant. Reliance is placed upon the third party’s concession that information was critical to the defendant.
It can be said that while the plaintiff enjoyed a "AA" rating with the defendant, nonetheless as a chiropractor the health of his back was essential for him to be able to continue to work as a chiropractor. Further, it was plainly relevant for the insurer to consider the relevant reports and the history of the episodes in 1996 and the nature of the pain associated with them. But the issue to be determined is what would have happened if the insurer had had that information.
It is put for the defendant that Mr Stevenson's opinion that his colleagues would have imposed a "full-back" exclusion was not tainted by the wisdom of hindsight. In particular, it is put that he had not been made aware of the injury sustained by the plaintiff. He in fact had not been told the precise history. He plainly was aware, however, that the plaintiff was seeking to recover under the policy and that there was an issue about non-disclosure. While he was probably honest in his expression of opinion, that opinion was affected by his loyalty to the defendant and by the strong view he held that people do not obtain a CT scan unless there is sufficient pain in the region examined to require a CT scan.
In justifying his conclusion, Mr Stevenson identified four matters of particular concern.
(a)The first was that a CT scan of both the lumbar and thoracic spine indicated the existence of a widespread rather than a localised spinal problem. In cross-examination, he said the CT scan would have been the primary reason for imposing a back exclusion.
He assumed, in expressing his opinion, that there had been back pain in the regions examined. No doubt in 1999, an underwriter considering the proposal would have been concerned that that might have been the case. As acknowledged by Mr Stevenson, however, the reason for the CT scan would have been investigated. Such an investigation would have revealed that there was no injury to the spine in 1996, there had been no back problems in the intervening years despite the heavy workload undertaken by the plaintiff and that the CT scan, together with the x-ray, were carried out for preventative reasons. An underwriter in 1999 would also have wanted an explanation as to why the CT scan had not been mentioned in 1997. It would have been revealed that the defendant had not asked the relevant questions and that the plaintiff did not believe that there was any back problem.
(b)Mr Stevenson also relied upon the evidence of degenerative changes in the various areas of the spine and the proposition that the defendant would have needed to consider whether the insured had increased chances of future problems as compared with the general population. He said he would have been concerned about them even if satisfied that there was nothing significant in the fact that a CT scan had been taken. If unclear about the risk, he would have referred the issue to the CMO.
Accepting for present purposes that the defendant’s underwriter would want to consider such matters, it is clear on the evidence that the degenerative change shown was normal for a person of the plaintiff's age and did not point to an increased chance of future problems.
(c)He also referred to the existence of a Schmorl’s node as shown by the CT scan. He expressed the opinion that while such a finding was not uncommon it was more common in a person experiencing back pain.
It appears that this opinion was based on what he was told in training. It is erroneous. The medical evidence is that that finding has no bearing on the possibility of future problems. That would have been the medical advice at that time.
(d)Finally, he referred to the fact of a minor degree of disk protrusion at L5-S1. He saw this as predisposing the plaintiff to increased danger of future problems compared with the rest of the population. Again this was not supported by the medical evidence.
In the end, the opinion of Mr Stevenson as to what the defendant would have done should be rejected if only because it was not based on the exact history and he did not consider or accept the scenario that the CT scan did not occur because of any spinal pain or problem but occurred as a precautionary measure and because of the care taken by the insured to monitor the state of his spine. I am satisfied that that is the picture that would have emerged in any investigation at the time. In other words, assuming the underwriter would have investigated the matter, that investigation would have revealed that there was no history of back problems, that the spine, while showing degenerative change, was normal and that there was no evidence of any particular vulnerability to problems revealed by the CT scan. It would also have emerged that the plaintiff was a person who took care of his back.
I note that in cross-examination, Mr Stevenson was referred to the guidelines supplied at the time to underwriters in an attempt to introduce some objectivity into the assessment of risk. Invited to apply the guidelines, he accumulated all the listed items that could be applied, although they plainly overlap, and arrived at a score of 22, a score that would in all probability have resulted in a denial of insurance or at least a "full-back" exclusion. But the guidelines themselves stated that they were devised to provide a point system method "to determine whether or not a back exclusion should be imposed for clients with a history of back complaint"[4]. A little later it was stated "our main aim is to provide underwriters with a tool to assess clients with back problems". Mr Stevenson regarded it as likely that the plaintiff had a back problem because he had had a CT scan. It is clear, however, on the evidence that would have been revealed in any investigation conducted at the time, that he did not have a back problem and did not have a history of back complaint. Thus the guidelines had no operation.
[4] p 15
In the end, for the above reasons, Mr Stevenson's evidence of what an underwriter would have done cannot be relied upon. In any event, the question ultimately is what would Ms Law and Mr Jones have done. Mr Stevenson acknowledged that if the defendant had decided to impose an exclusion, the third party would have negotiated on behalf of the plaintiff with Mr Jones. He also acknowledged that we do not know with certainty what he would have done – or Ms Law. He conceded that it remained possible, though “highly unlikely”, that he would not have imposed an exclusion. In the current state of the evidence, the failure to call Ms Law or Mr Jones as witnesses or to explain their absence enables the conclusion to be more readily drawn that no exclusion clause would have been imposed.[5]
[5]According to Mr Stevenson, Ms Law and Mr Jones are working for a re-insurer, Swisse Re, in Singapore.
The defendant also relies upon the evidence of its current Chief Medical Officer (CMO), Dr McClellan. He was its CMO in 1999. His evidence was that he would have advised the imposition of a "full-back" exclusion if he had been consulted in either 1997 or 1999. The significance of his opinion is that it is probable that the 1999 proposal would have been referred to the Chief Medical Officer of the defendant for his consideration in the event of disclosure of the CT scan and x-ray. Although it might also have been referred to a re-insurer, or independent medical expert, the CMO's opinion in 1999 would have been a critical opinion. Unfortunately, however, the opinion he expressed in evidence was affected by his assumption that there were significant back symptoms in 1996.
Dr McClellan referred to the various degenerative changes revealed in the CT scan. His view was that they were not "normal" and were important because back injuries are recurrent and get progressively worse. Critical to his opinion, however, was his assumption, which he was very reluctant to abandon, that the taking of a CT scan indicated that the insured had had significant back symptoms and that the fact that it was in two regions - the thoracic and lumbar spines - indicated that the insured had been selective and concerned about symptoms in those areas. He agreed, however, that it came down to whether the plaintiff’s evidence that he had had no back symptoms was accepted. Under cross-examination, he ultimately was prepared to concede that if investigation had revealed that there was in fact no history of back symptoms or the seeking of medical advice, he would not have been alarmed by the presence of degenerative changes revealed by the CT scan. To that extent, he agreed with the plaintiff's experts. He also conceded under cross-examination that the degenerative change of the osteophyte formation of the thoracic spine, something on which he had sought to rely, were anterior and not posterior and, therefore, less likely to be a problem. He also conceded under cross-examination, that if they were asymptomatic they were probably not relevant.
He made these concessions notwithstanding his connections with the defendant, his desire to support the defendant’s case and his obvious suspicions of the claim, suspicions he maintained throughout his evidence.
Thus, the opinions of Mr Stevenson and Dr McClellan did not assist the defendant. It remains to consider the issue in light of the information that would have been available to the defendant if the matter had been investigated.
As noted above, an underwriter in 1999 would have been concerned about the fact of the CT scan and the fact that it had not been disclosed in 1997. It would also have been concerned about the fact of a back x-ray in 1997. Bearing in mind, however, the value of the insured’s business, the AA rating of the insured and the standing and value to the defendant of the third party as agent, the matter would have been investigated. The defendant would not have simply rejected the application.
As noted above, an investigation of the issues would have revealed that there was in fact no injury to the spine in 1996 and no problem in the back then or in the intervening years, and that the CT scan and x-ray were carried out for preventative reasons. Investigations would also have revealed that the failure to mention the CT scan and the x-ray arose not from a wish to conceal it but from a failure on the part of the third party agent to do his job properly and the insured’s view that there was nothing amiss. There was likely to have been an examination of the plaintiff by the C. M. O. or an independent medical expert or both. On the evidence before me, a back examination would have confirmed that there was no back problem in existence and no history of back complaint. It is also probable that they would also have reported that the degenerative change shown in the spine was normal for a man of the plaintiff’s age and did not itself have a bearing on the assessment of insurance risk. I refer to the unchallenged opinion of Professor Bogduk, based on the CT scan report that the features reported are "not known to constitute a potential or risk for subsequent injury or development of symptoms". I refer also to the similar unchallenged opinion of Dr Slezak, himself the CMO of four Life Insurance companies. In those circumstances, the probabilities are that the defendant would have accepted the case advanced by the valued agent and valued client and would not have required a "full-back" exclusion or a limited exclusion -- for example, relating to the thoracic spine. Thus the defendant has failed to make out its case on this point.
Would the defendant have imposed a "full-back" exclusion in 1997 if the plaintiff had revealed the CT scan?
In 1997, if the CT scan had been revealed, it would probably have prompted further investigation and possible medical examination of the plaintiff. There would not have been the level of suspicion that would have existed in 1999 if the CT scan had then been disclosed for the first time. But the defendant was likely to have wondered if the taking of the CT scan pointed to the existence of pain in the back which might be associated with the degenerative change shown. Any investigation, however, would have removed such concerns and, in fact, the insurer would have been reassured that it was dealing with an insured conscious of the need to monitor his health and, in particular, the need to look after his back. It is true that the plaintiff's medical history in 1997 following the CT scan, would have been significantly shorter than that available in 1999, but enough time would have elapsed during which the plaintiff had been working full time and untroubled by any back problems to reassure the defendant. The value of the business and the value of the broker would also have been an influence.
In all the circumstances, I am satisfied that a “full-back”, exclusion would not have been imposed in 1997. Thus the defendant has failed to make out its case on this point.
Did the third party’s breaches of duty in 1999 deprive the defendant of an opportunity to require a "full-back" exclusion clause?
Plainly, if the defendant had been informed in 1999 of the CT scan and x-ray, it would have had an opportunity to consider whether and to what extent it might limit cover under the new proposals. The third party's breach of its duties to the defendant deprived it off the opportunity to consider such protection.
The situation is one where the court in assessing the claim has to consider hypothetical events. It can only do so in terms of the degree of probability of the events occurring. The question here is the degree of probability of the defendant imposing a "full-back" exclusion if informed of the CT scan and x-ray in 1999. I have already indicated that, on the balance of probabilities, I do not consider that the defendant would have imposed such an exclusion. That, of course, does not dispose of the question. It remains possible, for example, that the defendant after suitable investigation, would have been left with a small but lingering doubt about the situation because of the fact that
(a)a CT scan had been taken of the lumbar and thoracic spine and the possibility that that occurred because of some pain or discomfort in that area notwithstanding the assurances to the contrary of the insured;
(b)the presence of degenerative changes, albeit normal for the plaintiff's age.
Assessing such a lost opportunity is difficult because it involves a consideration of the steps that the defendant might have taken to investigate the matter, the level of any remaining doubt and other factors that might have affected a decision to impose a “full-back” exclusion. The greater the investigation, on the evidence before me, the less concern the insured should have had and the less likely it is that the insured would have taken advantage of the opportunity presented. There were also commercial pressures that would have discouraged suspicion and the imposition of a "full-back" exclusion. Further, the defendant always had the option of a partial back exclusion – for example, a thoracic exclusion. But it must also be remembered that the defendants' officers could always impose a "full-back" exclusion even if it could not be rationally justified.
In Sellars v. Adelaide Petroleum NL[6] it was said that
"...the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable."
[6] (1992) 179 C. L. R. 332 ,355
In all the circumstances, I am satisfied that an opportunity was lost of some value and of more than negligible value. I suggest that the lost opportunity should be assessed on the basis that there was a 20 percent probability of the defendant using the opportunity to impose a “full-back” exclusion clause.
Did the third party’s breaches of duty in 1997 deprive the defendant of an opportunity to require a "full-back" exclusion clause in 1997?
I accept that if a “full-back” exclusion had been imposed in 1999 the plaintiff would have renewed his existing policies. It is, therefore, necessary to consider this question.
In 1997, as noted above, the situation was different. While the probabilities are that the disclosure of the CT scan would have led to an investigation of the state of the plaintiff's spine, the investigation would not have been conducted in any atmosphere of suspicion and concern in contrast to any investigation in 1999, if that had been when it was first disclosed. An investigation would have revealed no cause for concern. Any medical examination would have strongly supported that conclusion. It seems to me that the chances of the defendant imposing such an exclusion clause in 1997 are so low that any opportunity lost should be regarded as being of no value. Accordingly the defendant has not proven a loss in the form of a lost opportunity to impose a “full-back” exclusion clause in 1997.
Conclusion
In light of the conclusions reached on the critical questions, the defendant has made out its claim against the third party, but only for loss in the form of the lost opportunity to impose a “full-back” exclusion in 1999. That lost opportunity should be assessed on the basis that there was a 20 per cent probability of the defendant using the opportunity to impose the "full-back" exclusion clause. In assessing the loss, it will be necessary to compare the liabilities of the defendant under the policies in existence in 1997 with those under the 1999 policy. I will hear further submissions, if necessary, from the parties on these matters.
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"9. At any time in your life have you ever suffered from the following:
. . .
• back or neck disorder, spinal condition, sciatica, whip-lash.
10. During the last 5 years (other than for colds or influenza):
• Have you attended a doctor or health professional for any illness, injury, operation, blood test
inherited disorder or genetic test, medical test, x-ray or review of a previously diagnosed
condition?"
. . .
The questions were the same in the 1999 proposal.
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