Greentree & Anor v FAI General Insurance

[1999] HCATrans 169

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S171 of 1998

B e t w e e n -

GEOFFREY ARTHUR GREENTREE and SUZANNE FRANCES GREENTREE

Applicants

and

FAI GENERAL INSURANCE COMPANY LTD

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 JUNE 1999, AT 11.21 AM

Copyright in the High Court of Australia

MR A.T. McINNES, QC:  If the Court pleases, I appear with my learned friend, MR W.N. MARKS, for the applicant.  (instructed by Baker & Borthwick)

MR D.L. DAVIES, SC:  If it please the Court, I appear with my learned friend, MR F.C. CORSARO, for the respondent.  (instructed by Tress Cocks & Maddox)

MR McINNES:   Your Honours, our basic submission is that the Court of Appeal did not follow Antico v Heath Fielding Australia Pty Ltd 188 CLR 652. I notice it was a matter in which your Honour was involved.

GUMMOW J:   That does not make it any better or worse.

MR McINNES:    Well, I do not wish to be seen to be lecturing to your Honour on what your Honour had already decided.  Your Honours, the three Justices essentially came to different ‑ ‑ ‑

GUMMOW J:   Can I ask you, in this case who are the parties to the proceeding in so far as to section 6 of the Law Reform Act application?

MR McINNES:    The applicants and the respondent.  So that leave was sought to proceed against the insurer, who was the respondent in this matter.

GUMMOW J:   Yes, and the insured is not joined in such an application.

MR McINNES:    No, your Honour.

GUMMOW J:   Never?

MR McINNES:    No, the insured was sued ‑ ‑ ‑

GUMMOW J:   But in the way section 6 is administered in New South Wales and these applications are made, are they just bipartite?

MR McINNES:    Yes, your Honour, as I understand it.  The Chief Justice, pages 28 and 29, ultimately came to the conclusion that there were two claims to be considered.  Firstly, the claim made by the applicants and the claim by the insured, and he found that the claim by the applicants was external to the policy and precedes any consideration of its effect.  Your Honours, our submission is that that is not correct.  The policy which is relevantly set out at page 32, finds the claim ‑ ‑ ‑

GUMMOW J:   Can I take you immediately to what is troubling me?  What is troubling me is what is set out in Mr Davies’ submissions at page 84, and it goes to suitability of vehicles.  What is being said, shortly, is the cart has come before the horse in this case, the way this proceeding has been run.

MR McINNES:    Well, your Honour, leave was refused by Justice Bainton because he said that the terms of the Act did not apply and a number of sections of the Acts was put to him, but section 54 in the Insurance Contracts Act was put to him and on that basis leave was refused. So, unless we get over the hurdle of the determination of a right pursuant to section 54 then, of course, we cannot get leave to proceed.

GUMMOW J:   The question is you are not going, ultimately, to succeed unless you succeed under section 6.  Why should we involve ourselves in this threshold question?

MR McINNES:    Well, we are not going to succeed at the present time, pursuant to section 6, because his Honour has held that section 54 has no application to the leave application. If we come within the relief granted by section 54, then, of course, we go back to the court and ask for leave and say that the ruling was incorrect, it does apply, and we should have leave. So, we cannot do anything else.

GUMMOW J:   No, I can understand that.

MR McINNES:    We do not say that it necessarily concludes the matter because the Court would have a discretion for other reasons to refuse it, but the only refusal at the moment is because we do not come within the Insurance Contracts Act.  Shortly, if I might go back to what the Chief Justice said, your Honour ‑ ‑ ‑

GUMMOW J:   Could you just take us through section 54 of the 1984 Act, the Insurance Contracts Act, and explain to us how, you say, applying your clients’ situation, how it fits within section 54 in terms of its language?

MR McINNES:   Well, the contract of insurance was a contract for claims made and notified during the period of insurance.  The time that the damage occurred, or became apparent, was after the insurance policy had lapsed and, according to the contract, then that entitles the insurer to refuse to pay the claim.

GUMMOW J:   Was that by reason of some act of the insured or of some other person?

MR McINNES:    The failure to make the claim was some other person, your Honour, because it is the applicant.  No one knew about the damage until after the expiration of the policy.

HAYNE J:   So, what is the failure?  A claim was not made during the currency of the policy and no claim could be made during the currency of the policy, nobody knowing of the event giving rise to the claim.

MR McINNES:    That is right, your Honour, yes.

HAYNE J:   How does 54 then work, on your case?

MR McINNES:    Well, the claim was not made by reason of some act of the insured or some other person we are some other person - and it is an act that occurred ‑ ‑ ‑

GUMMOW J:   “Act” is defined as including omission?

MR McINNES:    Yes, your Honour, so it is an omission.  Occurred after the contract was entered into.  It is not an act to which subsection (2) applies and the section then provides:

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 –

and we come within that.

HAYNE J:   Is the consequence of this contention that one cannot write, as an insurer, a claims made and notified policy that limits the insurer’s liability to pay claims made and notified during currency?

MR McINNES:    Yes.

HAYNE J:   The consequence is that those policies can no longer be written, effectively.

MR McINNES:    Well, the insurer has to take into account the effect of section 54(1) if they are going to write those policies. They will not necessarily be resolved from liability.

HAYNE J:   So that claims made policies become events based, not claims based policies.

MR McINNES:    Yes.

HAYNE J:   It is a startling result, is it not, Mr McInnes, founded upon the words “refuse to pay a claim by reason of some act” understood, or omission “of the insured or of some other”.

MR McINNES:    Yes, but provision is made, of course, for any prejudice to the insurer to be taken into account.  So, if there is a genuine prejudice, then the claimant cannot succeed.

HAYNE J:   Well, one might be forgiven for saying the prejudice was, “I did not agree to pay you – I agreed to pay you for claims made and notified, not otherwise”.

MR McINNES:    Within the reading and the way the section is made, it does not say that, your Honour.  In Antico, of course, the appellant was obliged under the terms of the policy to get the permission of the insurance company before legal expenses were incurred and to obtain a QC’s opinion and the like, and they wrote but they did not get the permission of the insured ‑ ‑ ‑

GUMMOW J:   That was the insured’s act ‑ ‑ ‑

MR McINNES:    The insurer, I am sorry.

GUMMOW J:   The act or omission is just an Antico - - -

MR McINNES:    Yes. They did not get permission. They proceeded with the proceedings and this Court held that it came within section 54(1). In my submission, there is no real difference between that situation and the present situation in that the Act obviously intends that where there is a claim, and it is a matter of form, perhaps, that the insurer cannot refuse to pay the claim. Their Honours did not follow Antico, in our submission, they – just as I said, the Chief Justice held that the claim was outside the policy – external to the policy because of two claims.  There were not two claims, in my respectful submission.  There is only the one claim.  That is the claim of the applicants.  What the insured had to do was to notify the insurance company so that that reasoning, in my submission, is not correct.

HAYNE J:   You say the word “claim” in 54 refers to what?

MR McINNES:    No, it is the claim at page 32, your Honour, that we are considering, at line 42, and it is part of the policy:

The company agrees subject to the limitations terms and conditions hereinafter mentioned or endorsed hereon:

1.  To indemnify the Insured against any claim for compensation first made –

so, that is the claim we are talking about and his Honour held that there was the second claim by the insured.  But the insured does not have a second claim.  All the insured is required to do is to notify the insurance company of the claim.

HAYNE J:   But if the insured notifies the insurer and says, “I am not making a claim”, the insurer says, “Thank you so much, good morning”.  The insured must make his or her claim for indemnity and is not that the claim mentioned in 54, the claim on the policy, which may be occasioned by a claim on the insured by a third party, understandably?  But the claim in 54(1) is the claim on the insurer, is it not?

MR McINNES:    Well, it is really the claim on the insured, in my submission, because that is what the policy says. That the claim is made on the insured and the insured then tells the insurer about it. In one sense, of course, it is true that in the general sense it is a claim but it is not relevant, in my submission, to section 54, the insured’s claim.

The President held that there was a difference between a failure to notify and a failure to claim and that was the fundamental difference between the – at page 59, and he used the claim as the claim of the applicants:

It is one thing to say that the insured’s failure to notify receipt of a claim within the period of cover may be treated as an omission….. It is another thing entirely to invoke s54 where the insured had not even received a claim within the period of cover.

My submission is that Antico’s Case is authority for the proposition that that is not correct. It is equally true to say that the omission to make a claim is a claim for the purpose of section 54 as it is a failure to notify and, indeed, Antico’s Case was a case where the claim for legal expenses was not made within the required time until after.  Justice Handley read down the word “omission” and held that the failure of the insured or someone else to perform an act for the benefiting policy was what was meant by some third party.  Now, that flies right in the face of Antico’s Case, in my submission.

The Court there said that the act was not to be read down, it was a beneficial act and it must be given full and free meaning, although in Antico’s Case it was not necessary to rely on the beneficial argument because it was a clear case.  The causal connection with which the Chief

Justice and the President concern themselves was that in Antico’s Case at page 670, at a line about point 5:

The questions of sufficiency of causal connection which are significant for the present case arise at the next stage, in an analysis of s 54(1). The issue here is whether the Insurer may refuse to pay the appellant’s claim “by reason of” some act or omission of the appellant which occurred after entry into the relevant contract of insurance. If so, the Insurer may not refuse to pay the claim “by reason only of” that act or omission –

Now, the reference to ambulances being struck by lightning and burglars not burgling within the right year are not analogous to the causal connection that is required in this case.

GUMMOW J:   The President dealt with this question of causal connection, did he not, in his judgment?

MR McINNES:    Yes, your Honour:  the ambulance being struck by lightning.  May I refer to page 669 of Antico’s Case - and it is my submission that the Court of Appeal should have followed what was said to be the correct procedure – at about point 6:

Section 54 does not postulate a liability of the insurer to pay a claim which has been made. Rather, it takes as its starting point the existence of a claim –

as we have here –

and a contract the effect of which is that the insurer may refuse to pay the claim -

both exist in the present case –

The section directs attention to the reason founding the refusal, namely a particular act or omission on the part “of the insured or some other person”. The term “act”, when used in s 54, includes a reference to an omission.

We submit that that is what the Court of Appeal should have found.  They are the matters I want to put.

GUMMOW J:   Thank you.

MR DAVIES:   Your Honour, first of all, this is not a suitable vehicle.  The applicants had to get over two hurdles.  The first was that they had to show that section 6 of the Law Reform Act applied. Secondly, that section 54 could operate on any other perceived ‑ ‑ ‑

GUMMOW J:   They had been shut out of their chance to show the first.  That is their complaint, is it not?

MR DAVIES:   But, your Honour, the problem is that the section 6 matter was found against them in a way quite unrelated to section 54. They did not appeal that to the Court of Appeal. The Court of Appeal assumed it in their favour simply for the purposes of deciding section 54. So that, even if ‑ ‑ ‑

GUMMOW J:   What then do you say would happen if we got involved in this and found favourably on 54 to the present applicant?

MR DAVIES:   Well, your Honour, it would leave a bit of a procedural mess because the trial judge has found against them on a point which was not challenged on appeal and that would simply leave this Court in the position of having given a sort of advisory opinion on section 54 with no benefit to the applicant.

GUMMOW J:   We have had enough suggestions about that for one morning.

MR DAVIES:   Yes.  So, your Honour, in that sense, it is a quite unsuitable vehicle.  Had they appealed the section 6 point, that is whether claims made policies were caught by section 6 of the Law Reform Act and had that determined against them, presumably, they would be up here asking for special leave on that point. But by not appealing the trial judge’s finding there, they have implicitly accepted that and they are forever shut out, even if this Court decides section 54 in their favour.

Your Honour, the second reason that special leave should not be granted is that, really, for the reasons stated by Justice Hayne, that it would convert claims made policies into occurrence based policies which cannot possibly be what section 54 was intended to do. One can take the analogies by the President in the court below about arsonists, or about having a motor vehicle policy and your house burns down and you make a claim under your motor vehicle policy. It cannot be said that an omission to take out a house policy was an omission to which section 54 responds. Section 54 has to assume, in the first instance, that there is a relevant insurance policy but that there is some ability of the insurer to refuse to pay under that policy.

GUMMOW J:   Yes, now, you say what you have just said is consistent with Antico?

MR DAVIES:   We say it is completely consistent with what is said in Antico and that this Court, having exhaustibly looked at section 54 less than two years ago in Antico, it is quite unnecessary for any further judgment on that section to be given.

GUMMOW J:   Yes, Mr McInnes.

MR McINNES:    Your Honour, the reasoning of Justice Bainton, as I said earlier, was that section 54 did not apply. That is why he refused leave. So it is not for reasons other than the Insurance Contracts Act, and the motor vehicle policy is irrelevant because the passage I read from Antico shows what is needed for a causal connection. It is the claim and the omission in the terms of the contract. So that does not apply to motor vehicles or any other form of insurance. It may be an omission but it is not an omission to which section 54 applies.

GUMMOW J:   Having regard to the course of conduct of this litigation, particularly the application under section 6 of the Law Reform Act, the Court is of the view that this is not a suitable vehicle to test the question sought to be raised as to the construction of section 54 of the Insurance Contracts Act.  Accordingly, special leave is refused.

MR DAVIES:   We ask for costs.

GUMMOW J:   Refused with costs.

AT 11.45 AM THE MATTER WAS CONCLUDED