Finadri v Westpac Life Insurance Services Ltd
[2018] VCC 2007
•5 December 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMON LAW DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-15-04395
| DENISE FINADRI | Plaintiff |
| v | |
| WESTPAC LIFE INSURANCE SERVICES LIMITED | Defendant |
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JUDGE: | HIS HONOUR JUDGE MURPHY | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 October 2018 | |
DATE OF RULING: | 5 December 2018 | |
CASE MAY BE CITED AS: | Finadri v Westpac Life Insurance Services Ltd | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 2007 | |
RULING
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Subject: Insurance
Catchwords: Insurance contracts – Fraudulent misrepresentations – Whether counterclaim properly pleaded - Whether insurer entitled to recover benefits paid without deduction of premiums
Legislation Cited: Insurance Contracts Act 1984
Cases Cited:David Securities Pty Ltd v Commonwealth Bank of Australia (1992) CLR 353, Tyndall Life Insurance Ltd v Chisholm (1999) SASC 445, Braun v Australian Associated Motors Insurers Limited (1998) ACTSC 122, Chapman v Greater Midwest Insurance Pty Ltd (1981) 1 NSWLR 479
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Hanson with Mr M A McLay | Melia Lawyers |
| For the Defendant | Mr A N Murdoch QC with Mr S E Gladman | Minter Ellison |
HIS HONOUR:
Introduction
1 On 10 October 2018, I ruled that the defendant was entitled to avoid a policy of insurance issued in favour of the plaintiff on the basis of fraudulent misrepresentations by the plaintiff upon which the defendant relied to issue the policy.[1]
[1] See Finadri v Westpac Life Insurance Services Ltd [2018] VCC 1636
2 In the proceeding, the defendant also sought to recover by way of counterclaim the sum of $36,710.45 paid to the plaintiff before it obtained sufficient information to avoid the policy on the grounds of fraudulent misrepresentation.
3 The plaintiff resisted the defendant’s counterclaim on the basis that: first, it had not been properly pleaded as a claim for money had and received, and second, that the plaintiff had been denied the opportunity to lead evidence to resist the claim on the basis that she had changed her position and thus it would be inequitable for her to be ordered to repay the monies received.
4 The defendant also sought to recover the whole of the monies paid to the plaintiff, without offsetting or deducting the sum of $4,610.24 being the premiums that the plaintiff had paid for the policy that had been avoided and additional premiums paid totalling $2,737.23[2] for other policies also cancelled.
[2] Comprising $903.77 for trauma/living benefit and $1,833.46 for life insurance and total and permanent disability.
5 For the following reasons I rule against the plaintiff and find that the defendant is entitled to the orders sought on the counterclaim without deduction of the premiums paid.
The counterclaim was properly pleaded
6 The purpose of pleadings is to define the scope of the dispute between the parties. It is clear from the defendant’s amended defence to the amended statement of claim and counterclaim dated 14 May 2018, that it was squarely raised by the defendant that it was seeking to avoid the policy under s29 of the Insurance Contracts Act 1984 (‘the Act’) on the basis of fraudulent misrepresentation. In its counterclaim, the defendant, having effectively repeated the basis upon which it sought to avoid the policy, namely that the plaintiff had an obligation of full disclosure before it had entered into the policy, that she had failed to comply with her duty of disclosure, that she had made misrepresentations that were false or alternatively reckless, pleaded under paragraph 38 that “had the plaintiff complied with her duty of disclosure and not made the misrepresentations the defendant would not have issued the policies on any terms”.
7 By way of relief, the defendant sought an order that the plaintiff repay monies paid to her under the policy. Alternatively damages were sought.
8 In her amended reply dated 15 May 2018, the plaintiff denied any misrepresentation and asserted in her defence to counterclaim that the paragraphs pleaded by the defendant “do not give rise to a cause of action”.
Consideration
9 I do not accept the submission by leading counsel for the plaintiff that the pleadings do not set out a cause of action, or otherwise that the plaintiff was not fully appraised of the position of the defendant in relation to the matters the subject of the counterclaim. Looked at as a whole, the position is crystal clear: the plaintiff was seeking to enforce the policy. The defendant was seeking to defend her proceeding on the basis that she owed a duty of disclosure to the defendant under the Act, she had fraudulently failed in that duty and the defendant was seeking to defend its earlier decision to avoid the policy on the grounds of fraudulent misrepresentation. The defendant was also seeking to recover by way of counterclaim, the money that it had already paid under the policy before it sought to avoid the policy.
10 It was submitted that the defendant should have properly pleaded a claim for money had and received, or a claim for money paid under a mistake of fact or law, in order to recover the amount paid under the policy. Had the defendant done this, the plaintiff would have been able to plead a change of position in order to resist the claim.
11 The defendant submitted that the plaintiff could not succeed in any such defence in any event given the authority of David Securities Pty Ltd v Commonwealth Bank of Australia (1992) CLR 353 at 386 where the court said that the authorities do not support a change of position defence where “he or she has simply spent the money received on ordinary living expenses”.
12 I am satisfied that those principles would be a complete defence to any resistance to the claim by the defendant to recover the benefits paid under the policy.
13 For the above reasons, I do not accept the plaintiff’s submission that the defendant has not articulated a cause of action in relation to recovery of the benefits paid.
Should the premiums paid by the plaintiff be offset?
14 In Tyndall Life Insurance Ltd v Chisholm (1999) SASC 445 Debelle J, in a decision where he found that the insurer was entitled to rely on s29 of the Act to avoid the policy on the grounds of fraudulent misrepresentation, ordered that the insurer had to deduct the premiums paid from the amount recovered.
15 It is not clear from the decision whether the premiums deducted from the amount sought to be recovered were the premiums referable to the original policy or to another policy that had been issued by the insurer under an option exercised by the defendant insured.
16 Section 31 of the Act allows for an adjustment between the parties where the court is satisfied that the insurer has not been prejudiced by the failure or misrepresentation or, if the insurer has been so prejudiced, the prejudice is minimal or insignificant. Although this provision is referred to adversely against the insured, it is not clear in Chisholm whether this provision was relied on by the court to order the deduction of the premiums.
17 In Braun v Australian Associated Motors Insurers Limited (1998) ACTSC 122, the court did allow a credit for the premiums paid in circumstances where there had been a fraudulent misrepresentation. In that case however, the court was allowing an equitable adjustment under s31 of the Act.
18 I was referred to the leading text Sutton On Insurance Law (4th ed, 2015) where at 13.430 the learned author says: “The authorities are uncertain about the rights of the insured to a return of premium when the insurer rightly avoids the insurance contract for fraudulent misrepresentation or non—disclosure”. The better view is that “premiums are never recoverable by the insured where he is guilty of fraud” (a number of cases are footnoted including Maye v Colonial Mutual Life Assurance Society Limited (1924) 35 CLR 14 at 29, where it is stated: “the generally accepted view is that premiums are never recoverable by the insured where he is guilty of fraud, although as a condition of active equitable interposition their return may be required.” An insured is not entitled either at common law or under the Act to a refund of the premium for the insured’s misrepresentation or nondisclosure on the ground of total failure of consideration, because the insured is not entitled to rely on her or his own misconduct as the basis for the claim”.
19 I was referred to Mann’s Annotated Insurance Contracts Act ( 6th ed, 2014) at 28.40, which states the position that where an insurer avoids a contract for innocent representation or innocent nondisclosure the insurer “is obliged to refund the premium”. The text goes on: “There are common law authorities that suggest that this obligation does not arise in respect of a fraudulent misrepresentation or a fraudulent nondisclosure”.
20 In Chapman v Greater Midwest Insurance Pty Ltd (1981) 1 NSWLR 479 at 487, Yeldham J refers to a number of cases and texts and says:
“In my opinion there is no rule that when a policy of insurance is avoided for material nondisclosure, and where the premium has been paid, each party is entitled to restitio in integrum (notwithstanding that in some cases at least the insured might be entitled to succeed in a quasi – contractual action for recovery of the premium as monies paid where the consideration has wholly failed).”
21 Section 31 does allow a premium adjustment in certain circumstances but the power must be exercised having regard “to the need to deter fraudulent conduct in relation to insurance”. Thus, this provision does not assist the plaintiff. Further, in any event, the plaintiff has not sought to prosecute an alternative claim for recovery of the premium.
22 The plaintiff argued that under s7 of the Act, the common law had been displaced by the provisions of s31. I do not accept that. While that section does ameliorate the position of an insured in certain circumstances, I am satisfied that it is not applicable here.
23 Further, I do not accept that the fact that the authorities that I have referred to above predate the Act does not mean that they do not remain relevant and authoritative where as I have found, there was fraudulent misrepresentation. In those circumstances, the common law position noted in Sutton ought prevail.
24 Applying the above principles, in resisting the defendant’s claim for all benefits paid without any offset for the premium, the plaintiff effectively does not come to the court with “clean hands”, as I have found that she fraudulently misrepresented her health status in order to induce the defendant to issue her a policy.
25 In these circumstances, I regard it as appropriate to apply the “better view“ and not to deduct the premiums paid by the plaintiff from the amount of benefits sought to be re-claimed by the defendant.
26 For all these reasons, I will make an order on the counterclaim as sought.
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