Greinke v AAI Limited Trading as AAMI
[2019] ACAT 26
•25 February 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
GREINKE & ANOR v AAI LIMITED TRADING AS AAMI (Civil Dispute) [2019] ACAT 26
XD 1088/2018
Catchwords: CIVIL DISPUTE – motor vehicle insurance policy – missed instalment payment – direct debit dishonour – cancellation policy – failure to update direct debit details – failure to nominate reliable postal contact details – reciprocal duty of the utmost good faith
Legislation cited: Insurance Contracts Act 1984 (Cth) ss 12, 13, 14, 59, 62, 69
Cases cited:CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36
Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd (1989) QB 433
Re Zürich Australian Insurance Ltd [1998] QSC 209
Thornton v Shoe Lane Parking Ltd [1971] 1 All ER 686
Tribunal:Senior Member J Lennard
Date of Orders: 25 February 2019
Date of Reasons for Decision: 25 February 2019
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) XD 1088/2018
BETWEEN:
ANDREW JOHN GREINKE
First Applicant
GILLIAN CATHERINE DEMPSEY
Second Applicant
AND:
AAI LIMITED TRADING AS AAMI
Respondent
TRIBUNAL:Senior Member J Lennard
DATE:25 February 2019
ORDER
The Tribunal orders that:
1.The application is dismissed.
………………………………..
Senior Member J Lennard
REASONS FOR DECISION
Material facts
1.The applicants are the owners of a 2012 Volvo motor vehicle registered in the Australian Capital Territory.
2.The applicants had insured this vehicle with a comprehensive car insurance policy with the respondent since 2012.
3.On 5 January 2016 the respondent cancelled the applicants’ insurance policy in relation to the vehicle. This cancellation was as a result of a failure to pay instalments due to a missed credit card payment. The first applicant gave evidence that his credit card had been hacked by persons unknown and cancelled by the provider.
4.On 19 January 2016 the applicants entered into a contract of insurance with the respondent in relation to the above motor vehicle with a period of insurance commencing on 19 January 2016 and terminating on 19 January 2017. The premium on that insurance policy was to be paid by instalments due on or around the 19th day of each month, in the amount of $155.40, by direct debit from the first applicant’s AMEX credit card.
5.On 20 April 2016 the direct debit from the first applicant’s AMEX credit card failed.
6.The applicants gave evidence that the direct debit failure was as a result of the hacking of their credit card details, that this was the second time that this had occurred, and that while the first applicant had updated his credit card details with other persons with whom he had dealings he had failed to provide updated details to the respondent.
7.On or about 21 April 2016 the respondent sent a ‘Direct Debit Decline’ notice to the applicants. That notice was posted to a post office box in Canberra. That notice stated:
Your financial provider has advised us that our debit request has not been successful.
Please contact us on 13 22 44 to supply us with your new account or card details and ensure that the monthly instalment is available.
It is important to note that if your instalment is overdue, we can do one or both of the following
· refuse to pay a claim if an instalment is 14 days (or more) overdue
· cancel your policy without notifying you in advance if an instalment is 1 month (or more) overdue
8.On 7 May 2016 the applicants purchased travel insurance with the respondent for overseas travel commencing on 11 May 2016 and ending on 1 June 2016.
9.On or about 23 May 2016 the respondent sent a ‘Cancellation of your Policy’ notice to the applicants. That notice was posted to a post office box in Canberra. That notice cancelled the comprehensive car cover policy effective 20 April 2016.
10.On 3 June 2016 the motor vehicle was being driven by the first applicant when it was involved in a collision in a car park and sustained minor damage.
11.On 15 June 2016 the respondent declined to process a claim for that damage and informed the first applicant that the insurance policy had been cancelled.
Application
12.The applicants have had the car repaired at a cost of $9,975.91. The applicants assert that the cancellation of the policy was invalid as the respondent had acted in breach of contract. They claim an amount of $9,052.37, being the cost of the repairs minus the excess payment of $650 provided for in the contract of insurance, and also minus the missed instalments of $273.54.
13.The applicants contend that the contractual issues are as follows:
(a)That the termination of the contract of insurance was not done in accordance with the Insurance Contracts Act 1984 (Cth) (the Act). Section 59(1) of the Act provides that an insurer who wishes to exercise a right to cancel a contract of insurance shall give notice in writing of the proposed cancellation to the insured. The applicants assert that they did not ever receive a notice of intention to cancel the policy.
(b)That the respondent was required to comply with its duty of utmost good faith and that its conduct did not accord with this duty.
The contract
14.The current contract of insurance was entered into following the cancellation of the applicants’ contract of insurance in relation to the motor vehicle by the respondent as a result of a direct debit dishonour. The current contract of insurance is comprised of several documents:
(a)a document headed ‘Insurance Account’, issued on 19 January 2016 and posted to the applicants’ address, being a post office box in Canberra. That document states:
Please find enclosed your Certificate of Insurance, a copy of our Product Disclosure Statement (PDS) and Supplementary Product Disclosure Statements (SPDS) (if any). These documents form part of your contract of insurance with us and should be read carefully to understand what your policy covers including the conditions, limits and exclusions that apply.
(b)a three-page document headed ‘Certificate of Insurance’ for policy number MPA072505479;
(c)A document headed ‘Direct Debit Request Service Agreement’ which refers to policy number MPA072505479. That document states, inter alia:
5.It is your responsibility to:
·Ensure your nominated account can accept direct debits.
·Ensure there are sufficient funds available in the nominated account to meet each instalment.
·Advise us if the nominated account is transferred or closed, or the account details change.
·Ensure that all account holders on the nominated account agree to the debit arrangement.
6.If your direct debit is dishonoured or returned unpaid by your financial institution we may attempt to debit your account again. Your financial institution may charge additional fees for direct debit, including dishonour fees. Your PDS/SPDS explains what happens when an instalment is unpaid and when we may not accept your claim.
(d)A document headed ‘Comprehensive Car Insurance Product Disclosure Statement’. This is the “PDS” referred to in the Direct Debit Request Service Agreement. The Product Disclosure Statement contains the following information:
Overdue instalments
If you pay your premium by instalments and your instalment is overdue we can do one or both of the following:
·refuse to pay a claim if an instalment is 14 days (or more) overdue;
·cancel your policy without notifying you in advance if an instalment is 1 month (or more) overdue.[1]
[1] Comprehensive Car Insurance Product Disclosure Statement dated 1 October 2013 page 28
15.The Act provides at section 62 for the cancellation of instalment contracts of general insurance.
(1) An instalment contract of general insurance may include provisions inconsistent with section 59 with respect to the cancellation of the contract for non-payment of an instalment of the premium.
(2) An insurer may not rely on such a provision unless:
(a)at least one instalment of the premium has remained unpaid, at the time when the contract is sought to be cancelled, for a period of at least one month; and
(b)before the contract was entered into, the insurer clearly informed the insured in writing of the effect of the provision.
16.The contract of insurance between the parties, as set out in the PDS, states that the respondent may cancel a contract of general insurance without notifying the applicants if an instalment is one month overdue. The respondent cancelled the contract of motor vehicle insurance with the applicants on 23 May 2016. On 23 May 2016 the monthly instalments due on 20 April 2016 and 20 May 2016 had not been paid. Thus, although the clause as set out in the PDS is inconsistent with section 59 of the Act, the respondent is able, prima facie, to rely on it in terms of sections 62 (2) (a) & (b) of the Act.
Did the respondent clearly inform the insured (the applicants) in writing of the effect of the provision?
17.The applicants made submissions that they had never received the PDS relating to the contract of insurance that commenced on 19 January 2016. The applicants attached to their final written submissions a copy of the PDS they say was relevant to the original contract of insurance taken out in 2012. That PDS stated:
What happens if your instalment remains unpaid?
If our scheduled debit attempt is unsuccessful, we will send you one or more notices to inform you of the failure. We will also attempt to debit your account again during the four weeks immediately after our unsuccessful scheduled debit attempt.
AAMI will not accept any claims after an instalment payment has remained unpaid for a period of 14 days or more from its original due date.
If the instalment payment remains unpaid for one month or more from its original due date, AAMI may cancel your policy without giving you advance notice of the cancellation.[2](emphasis added)
[2] Comprehensive Car Insurance Policy Product Disclosure Statement copyright AAMI 2011 pages 43-44
18.The applicants submit that the relevant policy was entered into on 19 January 2016 and say that no warning was given orally over the telephone at this time about this term, nor did the policy documents posted to the applicants draw any attention to this term. I note that the policy entered into on 19 January 2016 was a new policy made necessary by the cancellation of the policy by the respondent as a result of an earlier direct debit dishonour.
19.It is reasonable to conclude that the applicants, as a result of the first direct debit dishonour, were aware of their obligations to ensure that direct debits were honoured, including ensuring that the respondent had the applicants’ proper and current AMEX card information. It is reasonable to conclude that the applicants understood that where a direct debit was dishonoured, and the instalment payments were overdue by more than a month, this would result in cancellation of the policy of insurance by the respondent. As a result of the direct debit dishonour on the first occasion, the respondent’s vehicle was not covered by insurance from 2 December 2015 to 19 January 2016. I note that the policy dated 19 January 2016 was negotiated over the phone as a result of a cancellation notice received by the applicants.
20.The respondent submits that documents provided to the applicants under cover of the letter dated 19 January 2016 in relation to the new policy, and similar documents provided in relation to the earlier policy, contained the provisions of the proposed contract. The respondent notes that the letter informed the applicants that the documents formed part of the contract and that they were advised to read carefully. The letter dated 19 January 2016 contained the following paragraph:
Please find enclosed your Certificate of Insurance, a copy of our Product Disclosure Statement (PDS) and Supplementary Product Disclosure Statements (SPDS) (if any). These documents form part of your contract of insurance with us and should be read carefully to understand what your policy covers including the conditions, limits and exclusions that apply.
21.The respondent made the following submissions:[3]
[3] Respondent’s Final Submissions dated 14 January 2019 [42]-[45]
The effect of section 62 and the Respondent’s reliance on it, was clearly explained on pages 28 and 42 of the PDS, under bolded headings.
The bolded headings read ‘Overdue instalments’ and the explanation reads:
‘if you pay your premium by instalments and your instalment is overdue we can do one or both of the following
·refuse to pay a claim if an instalment is 14 days (or more) overdue;
·cancel your policy without notifying you in advance if an instalment is 1 month (or more) overdue.’
The explanation is clear and concise for ease of understanding by any lay person, and the relevant overdue periods are bolded to draw further attention. It is noted that the Applicants are not merely lay persons, both being barristers.
22.The respondent drew the Tribunal’s attention to section 69 of the Act which provides that where it is not reasonably practicable to provide written information before a contract is entered into it may be provided later but within 14 days of the contract being entered into. The respondent notes that in the circumstances where the applicants were uninsured and applying over the phone for a policy of insurance to commence immediately, it was not reasonably practicable for the respondent to provide the applicants with the relevant information before the contract was entered into.
23.The evidence before me does not establish one way or the other whether the applicants received the PDS with the other documents dated 19 January 2016. If the Tribunal accepts the applicants’ evidence that the PDS was not received, I am nevertheless satisfied that the applicants — being legal practitioners, and in light of their insurance experience — had received policy documents which made it clear that if they should fail to pay an instalment, the insurer could cancel the policy without notice where an instalment was more than one month overdue. I note that the direct debit request service agreement specifically requires the insured to advise the insurer if the nominated account is transferred or closed, or the account details change. I further note that the direct debit request service agreement directs the insured to the PDS for an explanation of what would happen when an instalment is unpaid and when the insured “may not accept your claim”.
24.The provision in question in the PDS concerns what will occur if the insured fails to make an instalment payment in accordance with the terms of the contract. The respondent insurer relies on this statement in various PDS documents to the effect that the insurer will not accept any claims after an instalment payment has remained unpaid for a period of 14 days or more from its original date; and that if an instalment payment remains unpaid for a month from its original due date the insurer may cancel the contract of insurance without giving notice to the insured. This is not an unusual or onerous clause: it is it exactly as would be expected — that if the insured does not pay their premium, claims will not be paid and the policy will be cancelled. I am satisfied that the relevant provisions are not comparable to those contemplated by the court in Thornton v Shoe Lane Parking Ltd [1971] 1 All ER 686. There is no obligation to specifically or drastically draw to the attention of the insured those sorts of terms which one would expect to find in a contract of this type.[4]
[4]Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd (1989) QB 433
25.I am satisfied, on the evidence before me, that the respondent clearly informed the applicants in writing before, or at least within 14 days of, the formation of the contract, of the conditions that (i) should an instalment payment remain unpaid for 14 days no claim will be paid and (ii) that should an instalment payment remain unpaid for one month or more, the policy could be cancelled without notice.
26.I note that the applicants’ evidence is that they did not receive the Direct Debit Decline notice, and that therefore the applicants were not afforded the opportunity to provide correct and current AMEX account details. On my interpretation of the clause of the contract allowing refusal to pay a claim where an instalment payment remains unpaid for 14 days and cancellation of a contract where the instalment payment remains unpaid for one month or more, it is not necessary at this point to consider the issues raised about notice.
27.Therefore I am satisfied that the respondent was entitled to deny the applicants’ claim; and the respondent was entitled to cancel the contract without notice, in accordance with the terms of the contract.
Good faith duty
28.Section 13 of the Act provides:
The duty of the utmost good faith
(1) A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith.
29.This provision requires both insured and insurers to act towards the other party with the utmost good faith. The requirement to act with the utmost good faith is an implied statutory term of every contract of insurance. The duty arises in pre‑contractual negotiations, and extends throughout the period of the policy, and would apply to the way in which claims are made by the insured and dealt with by the insurer, as well as circumstances under which the insurer may decide to cancel a policy. Section 12 of the Act provides that this duty is not to be read down by any other law or any other provision of the Act.
30.Section 14 of the Act provides:
Parties not to rely on provisions except in the utmost good faith
(1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision.
(2) Subsection (1) does not limit the operation of section 13.
(3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise.
31.The duty of good faith imposed by the Act is not a fiduciary duty: the insurer is not required to prefer the interests of the insured above its own. It is rather a duty to have due regard to the insured’s interest in situations where the insurer has a conflict of interest, such as in the paying out of claims. The duty involves notions of fair dealing and honesty.[5] Primarily, the requirement to act in good faith imposes upon the insured a duty of full disclosure at the pre-contractual stage, and at the time of making a claim, as well as honesty in the making of claims. The insurer may fail to act in good faith where it unduly delays the payment of the claim, fails to explain to an insured the consequences of the breach of any particular or unusual term of the contract, and invalidly terminates the contract. Dishonest, capricious, or unreasonable conduct will all constitute a breach of the duty of good faith.
[5]Re Zürich Australian Insurance Ltd [1998] QSC 209 [82]-[84]
32.In CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 the following comments were made on the nature of the duty of utmost good faith:
(a)This is a mutual duty owed by both the insured and the insurer to each other.[6]
(b)Proof of dishonesty, or of a want of honesty, is not a necessary requirement to establish a breach of the duty to act with utmost good faith.[7]
(c)In the exercise of any discretion in relation to the contract or circumstances arising from the contract, each party must pay due regard to the interests of the other party.[8]
(d)Justices Callinan and Heydon stated:[9]
the sort of conduct that might constitute an absence of utmost good faith may have elements in common with an absence of clean hands according to equitable doctrine which requires that a plaintiff seeking relief not himself be guilty of tainted relevant conduct. We have referred to the doctrine of clean hands because, as with another equitable doctrine, that he who seeks equity must do equity, it invokes notions of reciprocity…
[6]CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 [175]-[178]
[7]CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 [129]-[133]
[8]CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 [15]
[9]CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 [257]
33.These and other authorities establish that the duty requires parties to observe commercial standards of fairness, reasonableness, decency and fair dealing. The duty of utmost good faith requires each party to deal honestly, and to have regard to the interests of the other party and to apply or invoke the terms of the contract in that context. The Tribunal is of the view that the duty of utmost good faith does not extend to an insurer sacrificing its own interests, or to an “obligation in an insurer to coddle its insured and to allow idiosyncratic judicial solicitude to replace principle”.[10]
[10]Re Zürich Australian Insurance Ltd [1998] QSC 209 [81]
34.The applicant made the following submissions in relation to the duty imposed by section 13 of the Act:[11]
[11] Applicants’ Submissions dated 7 January 2019 [24]-[32]
24. AAMI acted contrary to its duty of utmost good faith in s 13 of the Act.
25. AAMI claims it made its decision to cancel the policy because the applicants had not responded to its letter requesting updated card details.
26. The cancellation of the policy was a discretion exercisable by AAMI. The obligation of utmost good faith includes considering the interests of the insured when exercising that discretion.
27. AAMI took no steps to ascertain why there had been no response to the letter or even if it had been received, which it had not. AAMI also knew from its prior cancellation of the policy that its earlier letter posted to the applicants had never arrived.
28. AAMI failed to make any attempt to contact the applicants by email or telephone. This was despite [the first applicant] having complained to AAMI about its previous failure to make contact when cancelling the previous policy.
29. At the time of the decision to cancel the policy on 23 May 2016, AAMI knew that the applicants had purchased travel insurance on 7 May 2016 (which had been paid by credit card) and had been overseas since 11 May 2016.
30. Accordingly, AAMI knew that any letter posted to the applicants would not come to their attention if it arrived after 10 May 2016, if it arrived at all.
31. AAMI knew the applicants’ mobile telephone and email address details. It knew that the consequences of a cancellation of their policy would be very serious. The applicants had previously complained about AAMI’s failure to make contact by telephone or email before cancelling the policy.
32. AAMI cancelled the policy while the applicants were overseas without making any attempt to contact the applicants by telephone or email. Its decision to cancel the policy was in breach of its duty of utmost good faith.
35.The respondent made the following submissions in relation to the duty of utmost good faith:
(a)The respondent stated that:
The duty of utmost good faith is a reciprocal duty held by all parties to a contract of insurance. The Applicants and the Respondent must therefore be held to the same standard of utmost good faith.[12]
[12] Respondent’s Final Submissions dated 14 January 2019 (Respondent’s Final Submissions) [74]
(b)The premiums on the contract of insurance were being paid in an instalment arrangement; the obligation is on the applicants to ensure that their direct debit payment details are kept up to date.
[This] information is within the sole knowledge of the insured, and the Respondent must rely on the details with which they are provided.[13]
Where the Applicants’ card had been cancelled on several occasions, and their previous contract of insurance had been cancelled due to their failure to update direct debit details, the Applicants were clearly on notice of their obligation to ensure that their payment details remained up to date.[14]
(c)The post office box address was the contact postal address provided by the applicants in relation to the contract of insurance. The applicants had not updated these contact details, despite the applicants’ evidence that earlier correspondence had not been received at that address.
The Respondent submits that the Applicants cannot nominate their GPO Box as their postal address, and then assert the unreliability [of] this address and impose a burden on the Respondent to make attempts to contact them by other means. This conduct is not in the utmost good faith.[15]
(d)The respondent took positive action with regard to the applicants’ legitimate interests, after the direct debit failure: these included giving written notice to the applicants, seeking updated account details and making a repeated attempt at the direct debit transaction. The policy was cancelled more than one month after the first unpaid instalment was due. The accident for which the applicants demand indemnity occurred on 3 June 2016, 45 days after the first unpaid instalment was due.
(e)The respondent stated:
It would be too high of a burden on the Respondent to require them to attempt numerous methods of contact with every customer that failed to pay their instalment premium, or even every repeat offender, on each occasion that they failed to do so. The responsibility must lie with the Applicants and other insured persons to ensure that their postal address remains up to date.[16]
(f)The respondent also submitted that:
the action of a travel insurance policy being taken out by the Applicants from the Respondent’s travel insurance branch cannot result in knowledge of the Applicants’ overseas travel being imputed to the Respondent’s car insurance branch.[17]
[13] Respondent’s Final Submissions [83]
[14] Respondent’s Final Submissions [90]
[15] Respondent’s Final Submissions [92]
[16] Respondent’s Final Submissions [99]
[17] Respondent’s Final Submissions [102]
36.The primary cause of the cancellation of the policy was the failure by the applicants to pay their premium in instalments, as required by the contract. The duty of utmost good faith does not require the respondent to decline to rely on such a breach of contract. The applicants were aware that their credit card details had changed, and they were aware from a previous incident that a failure to update their details with the respondent would result in a cancellation of the contract. The applicants had not taken any steps to update those details with the respondent and continued to provide an address which to their own knowledge is unreliable. The duty of utmost good faith is a reciprocal one, and the applicants have not acted in good faith by failing to comply with the terms of their contract and then expecting that the respondents would, in total disregard of the respondent’s interests, provide retrospective insurance in relation to an accident that occurred more than 14 days after the unpaid instalment was due and in circumstances where, in accordance with the terms of the contract, the respondent had cancelled the policy. The applicants ask the respondent to sacrifice their own interests and to ‘coddle’ the applicants to a degree that is neither reasonable nor proper in the circumstances of a commercial contract of insurance.
37.The application is dismissed.
………………………………..
Senior Member J Lennard
HEARING DETAILS
FILE NUMBER:
XD 1088/2018
PARTIES, APPLICANT:
Andrew Greinke
Gillian Dempsey
PARTIES, RESPONDENT:
AAI Limited trading as AAMI
COUNSEL APPEARING, APPLICANT
N/A
COUNSEL APPEARING, RESPONDENT
N/A
SOLICITORS FOR APPLICANT
N/A
SOLICITORS FOR RESPONDENT
Moray & Agnew
TRIBUNAL MEMBERS:
Senior Member J Lennard
DATES OF HEARING:
7 December 2018
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