Katherine Electronic Services Pty Ltd (ACN 009 642 728) v CGU Insurance Limited t/as Commercial Union Insurance (ACN 004 478 371) and:Nonpareil Pty Ltd t/as Pfitzner and Partners Insurance Brokers(ACN 009 611 358)
[2003] NTSC 72
•20 JUNE 2003
Katherine Electronic Services Pty Ltd v CGU Insurance Limited
t/as Commercial Union Insurance and Nonpareil Pty Ltd
t/as Pfitzner & Partners Insurance Brokers [2003] NTSC 72
PARTIES:KATHERINE ELECTRONIC SERVICES PTY LTD (ACN 009 642 728)
v
CGU INSURANCE LIMITED t/as COMMERCIAL UNION INSURANCE
(ACN 004 478 371)
AND:
NONPAREIL PTY LTD t/as PFITZNER & PARTNERS INSURANCE BROKERS
(ACN 009 611 358)
TITLE OF COURT: SUPREME COURT OF THE NORTHERN TERRITORY
JURISDICTION: CIVIL
FILE NO:No. 137 OF 2000 (20015230)
DELIVERED: 20 JUNE 2003
HEARING DATES: 2–6 JUNE 2003
JUDGMENT OF: ANGEL J
REPRESENTATION:
Counsel:
Plaintiff:P O’Dwyer SC & Dr J De Koning
First Defendant: S Ower
Second Defendant: J Kelly
Solicitors:
Plaintiff:Ward Keller
First Defendant: Hunt & Hunt
Second Defendant: Cridlands
Judgment category classification: C
Judgment ID Number: ang200305
Number of pages: 8
ang200305
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWINKatherine Electronic Services Pty Ltd v CGU Insurance Limited
t/as Commercial Union Insurance and Nonpareil Pty Ltd
t/as Pfitzner & Partners Insurance Brokers [2003] NTSC 72
No. 137 of 2000 (20015230)
BETWEEN:
KATHERINE ELECTRONIC SERVICES PTY LTD (ACN 009 642 728)
Plaintiff
AND:
CGU INSURANCE LIMITED t/as COMMERCIAL UNION INSURANCE
(ACN 004 478 371)
First Defendant
AND:
NONPAREIL PTY LTD t/as PFITZNER & PARTNERS INSURANCE BROKERS
(ACN 009 611 358)
Second Defendant
CORAM: ANGEL J
REASONS FOR JUDGMENT
(Delivered 20 June 2003)
The plaintiff was the occupier of a property known as Shop 2/31 Katherine Terrace Katherine where it conducted business selling electrical goods. In January 1998 stock and plant of the business were damaged by flood waters from the Katherine River overflowing directly into the premises. At the time the plaintiff had a business insurance policy with the first defendant obtained through the second defendant insurance broker under which damage due to flood was excluded but damage by storm, tempest or rain water was included.
As in the case Elilade Pty Ltd v Nonpareil Pty Ltd (2002) 12 ANZ Ins Case 61–535, one issue is whether certain stock and plant of the plaintiff’s business was damaged initially by inundation of waters due to storm tempest or rain water. The first defendant insurer says the plaintiff’s entire loss was due to flood and therefore not covered by the policy. The plaintiff says there was an initial inundation before the flooding of the Katherine River and that some though not all the damage is covered by the insurance policy in so far as the damage is attributable to storm tempest or rain water and unrelated to flood.
The plaintiff’s claim against the second defendant is on the basis that the broker failed to exercise reasonable care in not arranging flood cover for the plaintiff in that flood was a known hazard relevant to the plaintiff’s Katherine premises and that both the desirability for flood cover and express exclusion of flood cover in the proposed policy ought to have been drawn to the plaintiff’s attention.
It was common ground that the Katherine River broke its banks and flooded the town in the vicinity of the plaintiffs’ premises at some time between 2 am and 3 am on 27 January 1998. It is the plaintiff’s case against the first defendant that at some time around 8 pm on 26 January 1998 the subject premises were inundated with storm water. There was no witness who saw water first enter the plaintiff’s premises. The plaintiff called an hydrologist, Dr Weeks, who expressed the opinion that if as witnesses said, and I find, water was pooling in the rear yard of the plaintiff’s premises adjacent to the rear building alignment at 7.30 pm, given the heavy rain fall both before and after 8 pm it was very likely that storm water entered the plaintiff’s premises from the rear at some time about or after 7.30 pm. This opinion was expressed having regard to the floor levels of the plaintiff’s building and the ground levels to the rear of the building and is consistent with eye witness accounts, which I accept, that at about 7 pm water had entered inside the floor of the business premises of Terrace Tapes situate diagonally across Katherine Terrace from the plaintiff’s premises, and that at 8 pm or shortly thereafter water some 400 mm deep was on the floor at Terrace Tapes. The floor level of the Terrace Tapes premises was 104.72 metres above sea level. With 400 mm of water therein, the level of water at Terrace Tapes would be some 105.12 metres above sea level. The floor level of the plaintiff’s premises was 105.065 metres above sea level. Given that 20.5 mm of rain fell during the hour between 8 pm and 9 pm, I unhesitatingly accept the conclusion of Dr Weeks that the plaintiff’s premises were inundated with storm water around 8 pm. This was some hours before the Katherine River waters reached the plaintiffs’ premises.
I find that storm water was the sole proximate cause of certain stock and plant damage in the plaintiff’s business which the parties have agreed is in the sum of $26,122.04. The plaintiff and first defendant are further agreed that the plaintiff is entitled to interest pursuant to s 57 Insurance Contracts Act 1984 on that sum from 30 June 1998 to date of judgment at a rate of nine per cent, such interest calculated to 5 June 2003 being $11,754.92 and thereafter at a daily rate of $6.44.
There will be judgment for the plaintiff against the first defendant accordingly.
As regards the plaintiff’s claim against the second defendant insurance broker there is a sharp conflict between the evidence of Mike Smith, the proprietor of the plaintiff, and the witness Glenda Campbell, who on behalf of the second defendant in 1996 effected the plaintiff’s business insurance policy with the first defendant.
The plaintiff commenced its business of selling electrical goods in July 1988 and at first insured with CIC Insurance Limited. It remained with CIC Insurance Limited until July 1991 when it insured with Zurich. From 1992 to 1996 it again insured with CIC Insurance Limited. From 1996 until 1998 the plaintiff insured with the first defendant. All these insurances were effected through the brokerage of the second defendant. Prior to the renewal of the CIC Insurance Limited policy falling due in July 1996, Glenda Campbell contacted Mr Smith and recommended that the insurance be changed over to the first defendant. In early July 1996 Glenda Campbell attended the plaintiff’s premises with a proposal form. According to Mike Smith, Glenda Campbell filled in some of the boxes asking questions as she went. He said most of the questions related to changes in the amount of insurance. According to Smith Mrs Campbell did not ask him whether he wanted flood cover. Smith said if he had been asked whether he wanted flood cover he would have inquired as to how much extra it would cost and that he does not recall ever being asked that question nor does he recall being given any advice as to how much extra insurance cover for flood would have cost. Smith is adamant that at no stage did anyone on behalf of the second defendant recommend that he take out flood cover or explain the need for flood cover or say flood cover was expressly excluded from his policy. He says:
“I believe I would have taken out flood cover if the difference in premium had been around say $1,500 to $2,000. If the difference in premium had been higher I think I would have queried the quote and/or asked for another one to be obtained.”
Smith also gave evidence that following the Katherine floods in January 1998, as a consequence of a conversation with another shop owner about flood insurance cover he became concerned because he did not know whether he had flood cover or not and that he returned to the plaintiff’s shop premises and spent half a day looking for his insurance policy.
Glenda Campbell gave a quite different version of events. According to her she went carefully through each item in the proposal form with Mike Smith. She said she read out each item on the proposal form as a question and thereafter recorded his response by ticking or refraining from ticking the relevant box. Paragraphs 20 and 23 of her witness statement are as follows:
“20.When I got to the box headed ‘SECTION 1 … continued” “VARIATIONS AND EXTENSIONS’ on page 3, I asked Mike Smith whether he wanted each variation or extension in turn. If Mike Smith asked me any questions about a particular cover, I answered him. If Mike Smith said yes, he wanted a particular extension, I ticked the box. If he said no, he didn’t want it, I didn’t tick the relevant box. Mike Smith said ‘yes’ to ‘Reinstatement and Replacement’ and ‘Accidental Damage’ and ‘no’ to ‘Extra Cost of Replacement’ and ‘Flood’. I also filled in the amount of $2,000.00 for accidental damage after asking Mike Smith what amount of cover he wanted.
23.
When we got to the question about flood, I asked Mike Smith if he wanted flood cover and read him the words in brackets – that is, ‘Additional premium and survey required.’ Mike Smith pointed to the front of his shop. There is quite a step up from the footpath in Katherine Terrace – about 2 foot high. He said, ‘My shop is quite a bit higher than street level. If I get water in here then the rest of the town will be in big trouble,’ or words to that effect. It stuck in my mind because it was the second time in a couple of days that someone in Katherine Terrace had said essentially the same thing to me and I thought it interesting.”
Glenda Campbell was closely cross–examined on her statement. She agreed with the cross–examiner that the second defendant’s new business invoice to the plaintiff had been sent by another employee, the witness O’Hehir, rather than herself and that the pronoun “I” in her statement should in many instances be recorded as “Pfitzner & Partners”. Having carefully considered the evidence of both Glenda Campbell and Mike Smith I prefer the evidence of the latter. I consider Mrs Campbell to be an honest but mistaken witness who has somehow built up a false reminiscence. I accept Smith’s evidence that following the flood he did not know whether he had flood cover or not and I am fully satisfied that he never made an informed choice not to have flood cover.
It was submitted that in the event I found Mr Smith did not have the question of flood cover specifically drawn to his attention that the insurance broker was in breach of its duty of care consistent with Elilade Pty Ltd (supra) which the parties accepted accurately stated the law. The second defendant failed to exercise reasonable care in that it did not advise the plaintiff of the availability and desirability of procuring flood insurance. The second defendant did not raise the issue of flood insurance with the plaintiff or discuss the flood exclusion in the policy it effected with the first defendant. The plaintiff engaged the second defendant as the plaintiff’s insurance broker and as such the second defendant was obliged both contractually and in tort to advise the plaintiff sufficiently to enable the plaintiff to make an informed decision about its insurance requirements. In performing its duty to the plaintiff the second defendant ought to have raised expressly with the plaintiff whether it required flood insurance and to have expressly drawn its attention to the fact that flood cover was excluded from the first defendant’s policy.
There remains the issue whether the second defendant’s breach of duty has caused the plaintiff’s loss, the plaintiff’s loss being the agreed total loss of $205,000 less the amount of indemnity payable by the first defendant. Having heard the evidence of Mr Smith I am satisfied on the balance of probabilities that had he been advised concerning flood cover he would have obtained such cover. I have already referred to some of what he has said on this issue. It is also I think significant that in respect of other properties in Katherine before 1998 he did have flood cover. For example, in 1994 Smith and his wife owned a block of land at Morris Road, Katherine. He also owned a house property at Coolibah Crescent. During 1994 he received a renewal notice in respect of the existing insurance over those properties advising him that the existing flood cover was no longer offered. As a consequence of that he changed insurers and maintained flood cover. The Coolibah Crescent property was sold early in 1995 and the Morris Road property continues to be insured with flood cover.
It follows that the plaintiff has made out its case against the second defendant. There will be judgment for the plaintiff against the second defendant in the sum of $205,000 less $26,122.04. The parties agree that as between the plaintiff and the second defendant the plaintiff is entitled to interest on the sum of $143,319.79 only from 5 June 2003 to date of judgment at the rate of eight per cent being a daily rate of $31.4126.
I shall hear the parties as to the final arithmetic and terms of judgment and as to costs.
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