| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : HUDSON -v- NRG VICTORY AUSTRALIA LIMITED [2002] WADC 78 CORAM : WILLIAMS DCJ HEARD : 26-27 MARCH 2002 DELIVERED : 1 MAY 2002 FILE NO/S : CIV 2211 of 2000 BETWEEN : GEOFFREY HUDSON Plaintiff
AND
NRG VICTORY AUSTRALIA LIMITED (002 971 477)
Defendant
Catchwords: Insurance - Life insurance - Defendant alleging fraud
Legislation: Insurance Contracts Act 1984, s 21 and s 29 (Clth)
Result: Plaintiff entitled to judgment
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Representation:
Counsel:
Plaintiff : Mr B L Nugawela
Defendant : Mr P G McGowan
Solicitors:
Plaintiff : S C Nigam & Co
Defendant : Deacons
Case(s) referred to in judgment(s):
Von Braun v Australian Associated Motor Insurers Ltd (1998) 10 ANZ Ins Cas 61-419
Case(s) also cited:
Agip (Africa) Ltd v Jackson & Ors [1990] Ch 265
Anderson v Lynch (1982) 17 NTR 21
Commercial Union Assurance Co of Australia Ltd v Beard (2000) 11 ANZ Ins Cas 61-458
Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259
Economides v Commercial Assurance Co plc [1998] QB 587
Godfrey v Britannic Assurance Co Ltd [1963] 2 Lloyd's Rep 515
Khoury & Anor v Government Insurance Office of New South Wales (1983-1984) 165 CLR 622
National Bank of Australasia v Morris [1892] AC 287
Plasteel Windows Australia Pty Ltd v C E Heath Underwriting Agencies Pty Ltd (1989) 5 ANZ Ins Cas 60-926
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WILLIAMS DCJ:
Introduction 1 In June 1993 the plaintiff effected total and permanent injury insurance cover with the defendant, an insurance company. In 1998 the plaintiff made a claim on the defendant in respect to the policy. The plaintiff was covered for four units under the policy each unit being for a sum of $40,000. The plaintiff was entitled to two units of cover automatically on becoming a member of the fund, however in applying for the additional cover of two units the plaintiff was subject to a duty of disclosure pursuant to s 21 of the Insurance Contracts Act 1984. 2 The defendant accepted that the plaintiff was totally and permanently injured and paid the plaintiff in respect to two units of cover. In respect to the other two units of cover the defendant declined to pay claiming the plaintiff had fraudulently misrepresented his medical condition in the member application form.
The evidence 3 The plaintiff was born on 23 April 1959. He left school at 15 years of age. He had various jobs including spray painting, security guard and labourer. In September-October 1990 he commenced employment as a spray painter for Total Corrosion Control Pty Ltd. 4 According to the plaintiff he started to develop a rash and swelling due to epoxy based products. The rash only occurred on the exposed parts of his body namely his forehead, neck and wrists. He consulted a Dr Lagan, a general practitioner, in October 1990 and stopped work in November 1990. Eventually he saw a solicitor and issued proceedings in this court claiming damages against Total Corrosion Control Pty Ltd on 26 November 1991 on the basis, inter alia, that he continued to suffer from his condition on exposure to any form of light or heat and which required him to consult physicians and take medication and use cortisone cream, allergy tablets and calamine lotion. Those proceedings were settled on 21 May 1992. 5 The plaintiff stated in evidence that he was aware that he had to avoid hard physical work and exposure to sunlight and that he had to work in an air-conditioned environment. He was also aware that might be the situation for the rest of his life.
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6 He had not worked for approximately 2 years when he took a job in October 1992 with Briteshine Cleaning Services until 15 February 1993. In February 1993 he commenced work with Heat Containment Industries. He told Heat Containment Industries that he was unable to work with epoxy based products but not that he had to avoid hard physical work and exposure to sunlight and that he was required to work in an air-conditioned environment. He completed a forklift course and was working out of large sheds which were not air-conditioned in Naval Base. He worked as a loader, a forklift driver and a packer. It was all indoors in a large well ventilated shed. He described the temperature inside as being cooler than outside. Initially he was employed as a casual but in May 1993 he was given a permanent position. He was working 10-12 hours per day 6 days per week.
7 He completed the member application form on 9 June 1993. At the time that he completed the member application form he responded to the following questions as follows: "(i) I have not received medical advice that: … (c) I have a medical condition which is going to affect my ability to carry out the normal duties of my occupation. THIS STATEMENT IS TRUEþ (iii) I have never had any of the following: … (e) neck, back or shoulder injury or disease which (i) has required more than 2 weeks off work; (ii) has recurred more than twice; (iii) which is still causing me trouble … THIS STATEMENT IS TRUEþ"
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8 In October-November 1993 he started getting a rash. The rash spread to all over his body. On 7 January 1994 he saw Dr Lagan and he has not worked since then.
9 On 31 August 1998 he made an application for payment of benefit in respect to his disablement. 10 Although he told Mr Leers, the plant manager with Heat Containment Industries, that he had dermatitis and had been off work for 2 years and that he was concerned of the risks to his health, he did not indicate any of those matters on the member's application form. The reason for that was that he considered that his problems had settled and that he had recovered from the dermatitis. He did not have post-occupational dermatitis at the time of filling out the form. 11 Mr Dirk Leers is the plant manager at Heat Containment Industries. He was responsible for employing the plaintiff. He was unable to recall what the plaintiff told him about his health. The nature of the business was the manufacture of dry concrete. He described the work environment as quite dusty but well ventilated. As part of the plaintiff's employment he was required to load some 60 bags weighing 25 kilos on to a pallet. He described that as reasonably heavy work. Further down the line there was lifting of the product into the hopper. 12 Mr Rool Roozendaal is the underwriting and claims manager for the defendant. He has had 25 years experience in the insurance industry and his duties were to evaluate all medical conditions in relation to insurance. He described the member application form as being for membership of the Superannuation Trust of Australia. The defendant was the insurer of that fund, under a re-insurance agreement. The basic unit of benefit was $40,000. Some 20,000 lives were insured under the fund and they were not dependant upon occupation or geographical areas. In 1993 it was the position that all members of the fund had one unit of automatic cover. In 1996 that was increased to two units of automatic cover. 13 In respect to the member application form of the plaintiff because he had answered "yes" to all questions in part B on the form the matter would not be referred to Mr Roozendaal for assessment. If one or more answers were not ticked then the matter would be referred to him for assessment. In that case he would be likely to obtain further medical evidence. If the plaintiff had indicated prior medical treatment then Mr Roozendaal would have obtained further evidence to evaluate the risks. If he had known that
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the plaintiff had been off work for 2 years with dermatitis he would have declined the application.
Insurance Contracts Act 1984 14 Section 21 of the Insurance Contracts Act 1984 provides as follows: "(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that - (a) the insurer knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant. (2) The duty of disclosure does not require the disclosure of a matter - (a) that diminishes the risk; (b) that is of common knowledge; (c) that the insurer knows or in the ordinary course of his business as an insurer ought to know; or (d) as to which compliance with the duty of disclosure is waived by the insurer. (3) Where a person - (a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to, a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter." 15 Section 29 of the Insurance Contracts Act 1984 provides as follows:
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"(1) This section applies where the person who became the insured under a contract of life insurance upon the contract being entered into - (a) failed to comply with the duty of disclosure; or (b) made a misrepresentation to the insurer before the contract was entered into, but does not apply where - (c) the insurer would have entered into the contract even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into; or (d) the failure or misrepresentation was in respect of the date of birth of one or more of the life insureds. (2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3) If the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with or the misrepresentation had not been made, the insurer may, within 3 years after the contract was entered into, avoid the contract. (4) If the insurer has not avoided the contract, whether under sub-section (2) or (3) or otherwise, he may, by notice in writing given to the insured before the expiration of 3 years after the contract was entered into, vary the contract by substituting for the sum insured (including any bonuses) a sum that is not less than the sum ascertained in accordance with the formula SP,where -
Q S is the number of dollars that is equal to the sum insured (including any bonuses); P is the number of dollars that is equal to the premium that has, or to the sum of the premiums that have, become payable under the contract; and
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Q is the number of dollars that is equal to the premium, or to the sum of the premiums, that the insurer would have been likely to have charged if the duty of disclosure had been complied with or the misrepresentation had not been made. (5) In the application of sub-section (4) in relation to a contract that provides for periodic payments, "the sum insured" means each such payment (including any bonuses). (6) A variation of contract under sub-section (4) has effect from the time when the contract was entered into."
The issues 16 The defendant accepts that the nature of the policy is that of a life policy and that s 29 is the applicable section. The defendant further accepts that the 3 years referred to in s 29(3) has expired and that the defendant is fairly within s 29(2) and must prove fraud. 17 It is a submission of counsel for the defendant that in s 21 the plaintiff has a positive duty of disclosure and the question was whether the plaintiff had complied with that duty. The insurer has set out the statutory obligation on the member application form which constitutes a flashing light to an uninformed insured. The duty of disclosure is marked "important". The insured knew that the matters were relevant and did not provide the necessary information on the application. 18 The plaintiff does not contend that the matters were not relevant and I accept that the events were relevant. 19 The defendant makes three complaints with respect to the member application form in respect to Part B - Personal Health Statements: 20 I propose to take each of those three matters in turn.
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Answer (i)(c)
21 In this section the plaintiff ticked as being true that he had not received medical advice, that he had a medical condition which was going to affect his ability to carry out the normal duties of his occupation. 22 As at June 1993 the plaintiff accepted that he had received medical advice from Dr Hall, that he was prevented from working in conditions of heat, sunlight or where he was sweating. This in my view is medical advice which goes to his ability to carry out the normal duties of his occupation. His duties included lifting bags of cement of 25 kilos onto a pallet which held 60 bags. He accepted that this caused him to perspire. 23 I therefore concluded that he misrepresented to the defendant that he had not received medical advice, that he had a medical condition which was going to affect his ability to carry out the normal duties of his occupation.
Answer (iii)(e) 24 Under this clause the plaintiff stated that he never had any neck, back or shoulder injury or disease which - 25 The plaintiff's evidence in relation to this was that in September-October 1990 he developed a rash and swelling to his neck. In my view that would constitute a disease. I concluded therefore that the plaintiff has misrepresented to the defendant that he never had a neck disease which has required more than 2 weeks off work; has recurred more than twice and was still causing him trouble.
Non-disclosure 26 Furthermore I am of the view that the plaintiff was under a duty to disclose these matters to the defendant. I am satisfied that the plaintiff knew or could reasonably be expected to know that they were relevant to the defendant's decision whether to accept his application for increased cover.
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Whether the misrepresentations and non-disclosures were made fraudulently
27 A fraudulent misrepresentation is one made with an absence of an actual and honest belief in its truth: it is a deliberate decision by the insured to mislead or conceal something from the insurer, or recklessness amounting to indifference about whether this occurs: Von Braun v Australian Associated Motor Insurers Ltd (1998) 10 ANZ Ins Cas 61-419 and Sutton Insurance Law in Australia 3rd Edition par 3.138. 28 The plaintiff's evidence was that at the time he completed the member application form on 9 June 1993 his problems had settled and that he considered that he had recovered from dermatitis. He did not consider that he had post-occupational dermatitis at the time of filling out the form. Specifically in relation to question (i)(c) he did not receive medical advice that he had a medical condition which was going to affect his ability to carry out the normal duties of his then occupation, that is as a packer, fork and loader driver. 29 In relation to answer (iii)(e) he did not consider that post-occupational dermatitis was a disease. 30 The plaintiff's evidence was that it was not until he was notified by the administrators of the fund in 1998 that he even knew that he had insurance cover. 31 The evidence establishes the plaintiff last saw a doctor with respect to the dermatitis on 27 August 1992. The plaintiff's evidence was that he worked for Briteshine Cleaning Services in September or October 1992 to 15 or 16 February 1993. He did not have any problems with that employment. In February 1993 he commenced with Heat Containment Industries. In May 1993 he became a permanent employee. At that time he had no problem with his sweating. He had settled his common law claim for damages on 21 May 1992. At the time that he completed the application form on 9 June 1993 he had lost no time at work and he had no problems until October-November 1993 when he started to get a rash all over his body and saw Dr Lagan in January 1994. 32 I accept this evidence on behalf of the plaintiff. I am not satisfied that the plaintiff had the fraudulent intent at the time that he completed the application form on 9 June 1993. 33 I am fortified in this finding by the fact that the plaintiff did not proceed to make any claim under the insurance policy and he was not
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aware that he had insurance cover until 1998 when the administrator to the fund wrote to him advising him of that fact.
Section 26 Insurance Contracts Act 1984 34 Section 26(1) of the Insurance Contracts Act 1984 provides as follows: "Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that he held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation." 35 In my view this section also applies to the plaintiff in respect to his answers to: par (i)(c) and par (iii)(e) of the member application form. 36 It follows in my view that the defendant is not able to avoid the contract.
Conclusion 37 I will hear from the parties as to the amount of the judgment to be entered in the plaintiff's favour.
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