Feeney v Royal Sun Alliance No. DCCIV-00-797

HAZEL FEENEY v ROYAL SUN ALLIANCE LIFE ASSURANCE LIMITED
[2001] SADC 37

Judge Lunn
Civil

Mark Thomson has been involved in the insurance industry since 1983. From about 1995 he has been a representative of Rushmore Partners, a registered insurance broker which acts for prospective insured persons. The defendant is one of a number of insurers with which Mr Thomson has dealt in arranging various types of insurances for his clients. For some considerable time prior to 30 September 1999 Mr Thomson had been dealing with Nigel Feeney (“the deceased”) concerning insurance policies which he might take out. The deceased was a 42 year old accountant who was employed by Independent Corporate Services Ltd which was a subsidiary of David Gary Holdings Ltd. In the course of his dealings with the deceased Mr Thomson had given him a number of brochures published by the defendant concerning its insurance products, and in particular a document entitled “Risk Products Portfolio Customer Information Brochure” which had been issued on 16 June 1999 (“the Brochure”).
On Thursday, 30 September 1999 Mr Thomson saw the deceased and discussed with him taking out a life insurance policy with the defendant for $500,000. He had him sign an application for such insurance which was contained in the Brochure. Various details in the application form were filled in by either Mr Thomson or another employee of Rushmore Partners. Mr Thomson advised the deceased that an initial premium of $560 was payable. It was also negotiated between Mr Thomson and the deceased that for taxation reasons the deceased would contemporaneously join the Royal & Sun Alliance Superannuation Fund, which was run by the defendant, and that the premiums on the term life policy would be paid by the deceased’s employer as part of its compulsory superannuation contributions for him. The deceased was to arrange for his employer to send a cheque for the first premium to the defendant. The plaintiff, as the wife of the deceased, was named as the sole beneficiary of the deceased’s interest in the superannuation fund which was to be constituted by the life insurance policy.
On about 1 October 1999 the deceased’s applications for the life insurance policy and membership of the superannuation fund were received by the defendant. It was then envisaged that the application for insurance would be processed by the defendant and it would subsequently advise whether it was prepared to grant the insurance requested for the premium indicated or whether it would require a higher premium because of certain risk factors. (The premium which had been quoted was the least amount that it could be, and there was a possibility that it could be a greater sum. It is more correct to describe the $560 sought for the first premium as being on account of the first premium rather than as necessarily being the amount of the first premium.)
On about Saturday, 2 October the deceased and his family, Mr Thomson and his family and others went together on a holiday to the west coast of South Australia. There, unexpectedly and tragically, on 8 October the deceased was drowned. At about this time a letter was received at Mr Thomson’s office from the defendant requiring the deceased to undergo a medical examination by his general practitioner in support of his application for the life insurance. The letter also stated that the initial premium of $560 was required.
Immediately upon his return to Adelaide on 11 October Mr Thomson saw the deceased’s employer, obtained a cheque for $560 from the employer for the first premium on the insurance policy and took it to the defendant’s office. There he saw John Lipkiewicz, the State manager of the defendant, and inquired whether the defendant would pay out on the life insurance. The cheque for $560 was banked by the defendant in Sydney on 14 October 1999. It has never refunded the amount paid.
The sole matter in issue in this action is whether upon the submission of the application for life insurance the defendant had entered into a contract with the deceased for interim cover for him pending its acceptance or rejection of the application. Whether there was such an interim cover depends upon the legal effect, if any, of the premium amount of $560 not being paid before the death of the deceased.
There was a dispute on the evidence about when and how the cheque for $560 was received by the defendant. Mr Thomson said he had handed it to Mr Lipkiewicz at their meeting on 11 October, but Mr Lipkiewicz denied this and said he had declined to accept it. The office practice of the defendant was when such cheques were received their details were noted on a list which was then sent with the cheques to its head office in Sydney where the cheques were processed. The cheque in question was so noted on a list dated 13 October 1999 which most likely indicates that it was written up on that list either late on 12 October or on 13 October. If the cheque had been received by Mr Lipkiewicz on 11 October, it is more likely that it would have appeared on an earlier list. I find on the balance of probabilities that the cheque was forwarded by Mr Thomson’s office to the defendant by post or the like on either 11 or 12 October and was only received by the defendant on about 13 October. At the meeting on 11 October Mr Lipkiewicz did not acknowledge that the defendant was liable under the interim cover which also makes it unlikely that he would have then accepted the premium cheque.
The other major dispute on the evidence was what, if anything, Mr Thomson had told the deceased at or before their meeting on 30 September about the interim cover. The effect of Mr Thomson’s evidence was that he did not remember discussing anything about interim cover with the deceased. This is not surprising. The deceased’s death in the near future was a very remote possibility. Even if the topic was discussed, there is no basis to find that it included an intimation that the prior payment of the premium amount was a condition precedent to the interim cover taking effect. In a number of other insurances which Mr Thomson had effected for his clients with the defendant in 1999 he did not cause his clients to make immediate payment of the premiums upon the applications being lodged which suggests that he did not regard payment of the premium as being of any particular significance in protecting his clients’ interests. While overall I was not particularly impressed with the reliability of Mr Thomson’s evidence I am not prepared to infer that he did tell the deceased that it was necessary that he pay the premium with the application in order to obtain the interim cover.
I accept the evidence of Mr Lipkiewicz that on 23 October 2000 Mr Thomson told him that he had said to the deceased words to the effect “there was no cover if there was no premium”. As Mr Thomson’s evidence about what was said at the meeting on 11 October 1999 was incorrect, it is more likely that Mr Lipkiewicz’s version of this conversation is also correct. It was not explored as to how accurate Mr Lipkiewicz was able to be in his evidence about precisely what Mr Thomson had said. There is no evidence of the context in which it was said either between Mr Thomson and Mr Lipkiewicz or between Mr Thomson and the deceased. As will be mentioned below the context is important in whether it is to be treated as a condition precedent.
I reject the defendant’s contention that the statement of Mr Thomson that he had said to the deceased “there was no cover if there was no premium” is admissible evidence that he had made such a statement to the deceased. As Mr Thomson did not concede that he had made this statement to Mr Lipkiewicz I can only use my acceptance of Mr Lipkiewicz’s evidence of it to discredit Mr Thomson’s evidence generally, but not as evidence of the truth of the statement: “Cross on Evidence”, 5th Australian edition, para 17390 and the cases cited in the footnotes. The statement cannot be treated as an admission by the plaintiff as there is no evidence that Mr Thomson was her agent or that in making the statement he was acting as an agent of the deceased. I need not go into the difficult question of whether an admission made by him in the course of his agency for the deceased to act as his broker to effect the life insurance makes any admission made by him in the course of that agency binding on the plaintiff.
Any contract for interim cover was constituted by the acceptance by the deceased in his lodgment of his application of the offer for the interim cover contained in the Brochure. In construing the Brochure it needs to be borne in mind that it was an omnibus document which dealt with six types of insurance, only one of which was the subject of the application. Likewise the provisions about interim cover also related to other types of insurance apart from term life cover.
The relevant parts of the Brochure dealt with term life insurance for the nominated amount payable on the death of the applicant. The payment of either the initial premium or any subsequent premium was not stated to be a condition of such term life cover. Thus, if the defendant had accepted the deceased’s application, but the initial premium had not been paid, there would have been a policy of life insurance effected in the terms of the application. The actual terms of the term life policy offered by the defendant are not set out in the Brochure. It was not suggested that there was anything in the terms of the relevant policy which was material to what I have to decide.
It was accepted that any contract of interim cover was distinct from the contract for the policy of insurance, although it was collateral to it. The relevant parts of the Brochure concerning interim cover were as follows:
On page 5, in a section dealing solely with term life cover, it was stated:
“The Application Process
·.. To apply for Term Life Insurance you will need to complete the application form which is at the back of this brochure. Once we receive your application we will commence the underwriting procedure. This may involve further information (for example on your health) to be provided prior to acceptance.
Interim Cover
·.. While your application is being processed, we provide free Interim Cover for death or TPD (if you apply for TPD cover) as a result of injury or illness. Please refer to pages 49 and 50 for further details.
Cover Commences
·.. Cover commences once we have accepted your application. ……….”

At page 48 of the Brochure was the following Certificate (“the Certificate”):

“Certificate of Interim Cover
Protection while your application is being considered
Royal & Sun Alliance
are pleased to provide Interim Cover for:

___________________

Insured Person

(called you)

__________________

Policy Owner

The amount and circumstances in which we will pay vary accordingly to the kind of cover applied for as explained overleaf.

Interim Cover is not available if you have ever withdrawn an application or had an application declined for the type of policy applied for.

When Cover Begins

This certificate is valid from the date we receive:

·.. the completed application; and

·.. the first premium or deduction authority at our head office or any state office.

When Cover Ends

This certificate provides cover for 60 days or until the application is accepted, declined, cancelled or withdrawn - whichever is earliest.

___________________

Adviser’s signature

__John Day (sgd)__

John Day

Royal & SunAlliance

We rely on what you tell us
This certificate is dependent upon you and the policy owner providing complete and truthful answers in the application for insurance and complying with your duty of disclosure (as shown on page 45).”

Pages 49 and 50 of the Brochure (which were referred to earlier on its page 5) provided insofar as it is material to the present dispute:

“Interim Cover
The level of cover and circumstances in which we will pay vary accordingly to the policy applied for and our standard underwriting guidelines and practices, as described below. ………..
Term Life Insurance
If the application is for Term Life Insurance we will pay the benefit if you die during the period of the Interim Cover.
………….
The amount paid will be the lesser of
$500,000; or
......... the proposed sum insured; or the sum insured we would accept for you under our normal underwriting guidelines.
………….
When Benefits Will Not Be Paid

We will not pay any benefits if the application is one which we would not normally accept under our standard underwriting guidelines and practices.
Benefits will also not be paid where death or disablement is caused by:
suicide; or
......... intentional self-inflicted injury; or any pre-existing condition ie an illness or other condition relating to your health: …………..
The Application Process

If during the application process we decide to offer a modified policy, your Interim Cover will also be adjusted to incorporate the modified terms. If we require an additional premium due to your medical history, occupation or pastimes, your level of Interim Cover will be recalculated (and hence reduced) based on your proposed premium. We will notify you in writing if either of these circumstances applies.
If you are eligible to make a claim under the terms of this Interim Cover Certificate then, when we underwrite your application for insurance, we will take into account any change in the state of health as a result of the event entitling you to claim during Interim Cover. The insurance applied for may be declined or have special conditions imposed as a result.
……………”

The only express reference to the payment of the first premium in the provisions relating to interim cover was in the paragraph of the Certificate headed “When Cover Begins”. The role of the Certificate in the Brochure is unclear. The Certificate is not a policy for interim insurance: it did not contain the whole of the terms of the interim insurance. The names of the insured person and the policy owner were not filled in on the Certificate and the adviser’s signature did not appear on it.
Page 5, as quoted above, said that the further details of the interim cover were on pages 49 and 50. It did not refer to page 48 where the Certificate appeared. Pages 49 and 50 set out terms of the interim cover. Those provisions did not say that it was to be interim cover in the terms of the Certificate as if the Certificate was a policy document. The only reference to the Certificate was near the end of page 50 where it referred to “If you are eligible to make a claim under the terms of Interim Cover Certificate then, ………”. This could mean no more than a claim under the interim cover whether there was a Certificate or not. The Certificate appeared to be no more than a piece of salesmanship by the defendant to impress potential insureds about the special free interim cover which was being offered, presumably as an inducement for potential insureds to apply to the defendant for insurance. Insofar as it may be ambiguous whether any additional terms in the Certificate are to be incorporated into the terms set out on pages 5, 49 and 50 for the interim cover, that ambiguity is to be resolved against the defendant as it is its document.
It is significant that on page 5 the interim cover was stated to be provided “free”. While it is impossible to give a precise meaning to “free” in its context, it must mean here at least that no premium was payable for the period of the interim cover: Fraser v NRMA Holdings (1994) 52 FCR 1 at 27-30; on appeal (1995) 55 FCR 452 at 483. It was not disputed that if the premium had been paid on behalf of the deceased it would have had to have been repaid if the defendant had declined the insurance application. However, there was no obligation on the defendant to repay more than the amount paid to it, and to that extent there was a detriment to the insured in being kept out of the benefit of the money for the period in which it was in the hands of the defendant. Such a detriment is inconsistent with the interim cover being provided “free”.
On page 5 it was stated “Cover commences once we have accepted your application.” There was no reference to it being also subject to the payment of any premium. This cannot be contradicted by reference to the Certificate. It would be anomalous if the policy proper to which the premium amount related could come into effect without the premium being paid, but the interim cover to which the premium amount did not relate would not come into effect if the premium was not paid.
For these reasons I conclude that it was not a term of the offer of interim cover as contained in the Brochure that the premium amount was to be received before the death of the deceased. In that event it does not matter whether the deceased and/or Mr Thomson knew of the contents of the Certificate or not. I do not find that they did.
The defendant argued that Mr Thomson knew that it was a requirement of the defendant that the premium should be paid before any interim cover operated and therefore that it became a term of the interim cover. I cannot agree.
I accept that Mr Thomson believed as a matter of general practice that insurers, and including the defendant, did require payment of the first premium as a condition of granting interim cover. While the law is that the payment of the premium is not ordinarily a condition precedent to the contract of insurance: Georgoulis v Mandalinic [1984] 1 NSWLR 612, it is common practice for insurers to stipulate that they will not be liable to indemnify until the first premium is paid: “Macgillivary & Parkington on Insurance Law”, 7th edition, para 234. It depends upon the terms of the particular contract of insurance and whether the insurer chooses to impose this condition. The exhibit D1, which was some form of survey of products offered by numerous insurance companies as at 1 March 2001, does not establish that as at October 1999 it was a universal practice in the insurance industry to require payment of the first premium for a policy as a condition precedent for interim cover. It is also significant that that document does not refer to the companies in question, apart possibly from one, providing interim cover without charging a premium for it. The reported authorities on cover notes indicate that a common, and probably the general, practice with cover notes has been for the insurer to charge the premium from when the cover note commences. In that situation the payment of the premium at the time of the commencement of the interim cover is more significant than here where no premium was payable until the contract of term life insurance came into operation. Even if Mr Thomson had mistakenly believed that it was a contractual term for the interim insurance that the premium had to be paid at the outset, that does not make it a condition of the contract formed by the deceased’s acceptance of the terms of offer contained in the Brochure as I have found them to be. Similarly the fact that it was stated to be the policy of the defendant to require such initial premium payments does not thereby make it a term of the offer for interim insurance. It had to incorporate that requirement as a term of the offer for the interim insurance, but it is not shown to have done so.
In any event there was no evidence as to the terms of the interim cover offered by the defendant in its brochures which were the predecessors of that issued on 16 June 1999. The circular from the defendant of October 1998 suggests that the prior brochures were in somewhat different terms in that it refers to the details of the interim cover appearing on page 41 of the relevant brochure at that time whereas it is on pages 49 and 50 of the Brochure. Insofar as that circular applied to term life cover it reveals that there had been significant changes to the offers being made by the defendant for interim cover. It is impossible to conclude that there had been a substantial history of offers of the defendant’s term life policy over a number of years in such a consistent fashion that Mr Thomson must have known about any particular condition in them.

The defendant relied heavily on the decision of the Irish Court of Appeal in Sanderson v Cunningham [1919] 2 IR 234. There the plaintiff, through a broker which he employed, submitted a proposal to the defendant for the issue of a “Dreadnought” insurance policy over motor vehicles. The plaintiff was not personally aware of some of the terms of the Dreadnought policy, but his broker was well aware of them through having had many dealings with that particular policy over some years. The Irish Court of Appeal held that the plaintiff’s broker’s knowledge of the terms was to be taken as the plaintiff’s knowledge of the terms. That case is distinguishable here because there was no equivalent of the Dreadnought policy in relation to the interim cover. The Certificate did not contain all of the terms of the insurance. Furthermore, it was not established that the terms of the Certificate had remained constant for a sufficient period of time prior to September 1999 so that it could be reasonably inferred that Mr Thomson had knowledge of those terms through his prior dealings with the defendant. In any event, even if Mr Thomson knew of the terms of the Certificate and/or the practice of the defendant to require payment of the premium amount, that does not thereby incorporate them into the offer for the interim insurance which was constituted by the Brochure.
Even if the defendant had established that the reference in the Certificate to the interim cover beginning when it received the first premium was a term of the offer, or that Mr Thomson had told the deceased that there was no interim cover if there was no premium, I would not have construed those terms in their contexts as conditions precedent whose non fulfilment meant that no contract of interim insurance was formed. As the interim cover was “free” the defendant did not need to insist upon the payment of the premium in advance to ensure that it was paid for the period of the interim cover. While it may have been of minimal benefit to the defendant to have had the use of the money until a premium became payable or was to be refunded, this is of no real significance. The only significant role which any prepayment on account of the premium played in the transaction of interim insurance was that it helped to guarantee the bona fides of the applicant and made it more likely that it was a genuine application for insurance. As Mr Thomson mentioned it was not unknown for people seeking insurance to make applications to more than one company, and then presumably to repudiate any acceptances which were not on the best terms. A requirement to pay the premium with the application would have discouraged such insincere applications. It would have been open to the defendant to have repudiated liability on the interim cover here if it could have shown that it was not a bona fide application for insurance by the deceased: Mayne Nickless Ltd v Pegler [1974] 1 NSWLR 228. In that event whether the deceased had paid a premium or not would be relevant evidence about his bona fides. However, that defence has not been raised, and thus the significance of any failure to pay the premium on the issue of bona fides is irrelevant. If such a term was to be construed as a condition precedent to the formation of the contract of insurance, rather than as only material to bona fides, it needed to be very clearly expressed as a condition precedent: “Halsburys Laws of Australia”, volume 15, para 235-310 and the cases cited in footnote 2. This degree of satisfaction for finding a condition precedent is not established here.
It was not disputed that if a contract of interim insurance was found to exist the plaintiff was entitled to judgment for the full sum insured of $500,000. The plaintiff sought pre-judgment interest under s39 of the District Court Act from the issue of the summons on 15 June 2000 until judgment at a commercial rate of interest. I fix a lump sum in lieu of such interest of $21,000. Accordingly there will be judgment for the plaintiff for $521,000.

[2001] SADC 37

16 March 2001