Lockwood & Lockwood v Insurance Australia Ltd (T/As SGIC Insurance)
[2010] SASC 140
•12 May 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
LOCKWOOD & LOCKWOOD v INSURANCE AUSTRALIA LTD (T/AS SGIC INSURANCE)
[2010] SASC 140
Judgment of The Honourable Justice Kourakis
12 May 2010
INSURANCE - THE POLICY - PRINCIPLES OF CONSTRUCTION
INSURANCE - MOTOR VEHICLES - INSURANCE FOR MOTOR VEHICLES FOR LOSS OR DAMAGE - WARRANTIES AND CONDITIONS EXCLUDING LIABILITY
Appellants’ motor vehicle taken by their son without consent and written off – appellants’ vehicle insured with respondent – respondent rejected appellants’ insurance claim pursuant to exclusion clause which stated respondent could refuse claim if vehicle was being driven by an unlicensed person – appellants appeal Magistrate’s decision upholding respondent’s refusal of claim – whether clause operates to exclude claim when vehicle driven by unlicensed person without consent of claimant – whether clause operates to exclude claim when vehicle driven by unlicensed person who has stolen the vehicle – whether, pursuant to s 35 of the Insurance Contracts Act 1984, at time of entering insurance policy, respondent clearly informed appellants that vehicle would not be covered if someone known to them took the vehicle without their consent and wrote it off.
Held: Appeal allowed – exclusion clause only operates to exclude claim when vehicle driven by unlicensed person with consent of claimant – appellants’ son stole the vehicle and clause does not apply to an unlicensed person who has stolen the vehicle – at time of entering insurance policy, respondent did not clearly inform appellants that vehicle would not be covered for the event that occurred – Magistrate’s order set aside – judgment entered for plaintiffs in the sum of $14,400.
Criminal Law Consolidation Act 1935 s 134; Insurance Contracts Act 1984 s 34, s 35; Insurance Contracts Regulations 1985 reg 5, reg 6, referred to.
Maye v Colonial Mutual Life Insurance Society Ltd (1924) 35 CLR 14, applied.
WORDS AND PHRASES CONSIDERED/DEFINED
""theft" - "stolen""
LOCKWOOD & LOCKWOOD v INSURANCE AUSTRALIA LTD (T/AS SGIC INSURANCE)
[2010] SASC 140Magistrates Appeal: Civil
KOURAKIS J: Until the 20th December 2007 the Mitsubishi sedan owned by the appellants, Mr and Mrs Lockwood, was in good working order. However, on that day their 14 year old son, who by reason of his age was necessarily unlicensed, secretly took the vehicle from the family home and drove it to a nearby park. It was his intention to return the vehicle to the family home, no doubt in the hope that his parents would never notice that it had gone. His hopes were dashed when he rolled the car in the park and so substantially damaged it that the cost of repair exceeded its agreed value of $14,440. In short, the Lockwoods’ son wrote off the family sedan.
The parties agree that the Lockwoods did not consent to their son taking the family vehicle and, like almost all parents, would have strongly objected to him taking it if they had known of his intention to do so.
Fortunately, the Lockwoods had insured with the respondent (the policy). I shall refer to the respondent by its trading name, SGIC Insurance. Unfortunately for the Lockwoods, SGIC Insurance rejected their claim. It did so pursuant to a clause in that part of the policy document which deals with the making of claims. I shall refer to the clause as the unlicensed exclusion clause. On its face, the unlicensed exclusion clause appears to reserve to SGIC Insurance a discretion to refuse a claim and cancel the policy if, at the time of the incident for which the claim is made, the vehicle was being driven by “a person” who was not licensed to drive.
The Lockwoods consulted a solicitor and brought proceedings in the Magistrates Court against SGIC Insurance for breaching the policy. The Magistrate carefully considered the unlicensed exclusion clause. He found its terms to be clear and unambiguous. On its face, it does extend to any person and is therefore capable of applying to the Lockwoods’ son, even though he had taken it without the consent of his parents. The Magistrate saw no reason to read into the exclusion clause words which would limit the denotation of the word “person” to persons who had taken the insured vehicle without the consent of the insured. However, and I think somewhat inconsistently with that conclusion, the Magistrate held that he need not consider whether the exclusion clause would be enlivened in the case of the theft of the vehicle.
The Lockwoods now appeal the Magistrate’s decision. In my view the appeal should be allowed. I agree that, when read in isolation, the unlicensed exclusion clause does appear to give SGIC Insurance a discretion both to refuse a claim and cancel a policy where the driver is unlicensed, even if the driver has taken the insured vehicle without the consent of the insured, and indeed even if the driver is an unlicensed thief. However, I do not think it is right to consider the exclusion clause in isolation. The denotation of the word “person” is very obviously affected by the text and structure of the other parts of the policy. It is not possible to resolve the proper construction of the exclusion clause without considering whether the discretion of SGIC Insurance to refuse a claim and cancel the policy arises even where the unlicensed driver has stolen the insured vehicle. In my view, the clause would not allow SGIC Insurance to refuse a claim for damage caused by an unlicensed thief who is not known to the family; if the clause is so construed, it cannot at the same time be allowed an application to persons known to the family who drive the insured vehicle without consent. In any event, on the agreed facts that I have just recited I do not share the difficulty of the Magistrate in finding that the Lockwood’s son had indeed stolen their car within the meaning of that term in the policy, even though he always intended to return it.
I shall allow the appeal and enter judgment for the Lockwoods in the sum of $14,440. I explain my reasons below.
The policy
The terms of the policy appear in a booklet which bears the title “Motor” and the sub-heading “product disclosure statement and policy booklet”. The booklet in fact contains the terms of four different policies, many of which are common to all four policies; each term is marked in a way which indicates the policies to which it applies. The motor insurance policy taken out by the Lockwoods is described in the booklet as the “comprehensive policy”.
I shall explain the overall structure of the policy before turning to the terms of the applicable provision. The policy is divided into several parts. The introduction describes how the policy and disclosure booklet is set out. The next part is entitled “what this policy covers” and sets out the scope of the indemnity for various identified events. I shall refer to that part as the cover part of the policy. The next part of the policy sets out various options and extensions of cover that can be purchased. There then follows a part which is entitled “what you are NOT covered for – general exclusions”. Each exclusion clause in that part commences with the words “we will NOT cover”. The unlicensed exclusion clause does not appear in the general exclusion part. The next part of the booklet describes the operation of a help line which SGIC Insurance provides to facilitate claims. There then follows a part entitled “taking out insurance” which explains both how to obtain a policy and how the premium is calculated. The next part deals with the grounds and procedure for cancellation of the policy by the insured or the insurer. The unlicensed exclusion clause does not appear in this part. There follows a part which explains the insured’s duty of disclosure, provides some information about privacy matters and describes a complaint procedure. The next part is entitled “claims”. The “claims” part of the booklet deals with the procedure for making a claim and the applicable excesses for particular claims. It is in the “claims” part that the unlicensed exclusion clause is found.
I turn next to the particular terms which bear most directly on the construction of the unlicensed exclusion clause. The indemnity provided for accidental damage in the cover part of the policy is expressed and tabulated in the following way:
If your vehicle suffers accidental damage We will decide whether to [repair; replace or pay the value of your vehicle] However [an excess may apply, no claim bonus may be affected]
The indemnity for theft appears in the following terms under the heading “theft or attempted theft”:
If your vehicle is stolen and not found We will [replace or pay the value of your vehicle] However [we will not cover personal items; an excess may apply]
The comprehensive policy also provides indemnification for loss or damage caused by vandalism or a malicious act in a similar format to the theft indemnity.
In addition to covering damage to the insured vehicle, the cover part of the policy indemnifies the driver of the insured vehicle for legal liability to a third party. However, that indemnity is expressly limited to the insured and to those licensed persons whom the insured permits to drive the vehicle. Amongst the general exclusions set out in the latter part of the policy to which I earlier referred, the indemnity against legal liability is expressly subjected to the following exclusion:
We will NOT cover
Øanyone who, in the five years before the incident, has
obeen refused vehicle insurance or had it withdrawn, cancelled or its renewal not offered or refused,
ohad any driver’s licence cancelled, suspended or special conditions imposed, or
obeen convicted of a criminal offence related to fraud, theft or burglary, arson, criminal or wilful damage, unless
we have been advised of the relevant circumstances and we have specifically agreed to cover them under your Policy.
The only other exclusions mentioned in that part of the policy booklet in which general exclusions are set out which have any application to damage caused to the insured’s vehicle are exclusions of the cost of hiring an alternative vehicle, loss or damage that occurs outside of Australia, tyre damage and mechanical and electrical failures.
The unlicensed exclusion clause on which SGIC Insurance relies appears, as I mentioned earlier, in that part of the booklet dealing with claims. It appears under the heading “Things that may put your claim or insurance cover at risk.” and reads:
We may refuse a claim, cancel this policy or do both if at the time of the incident
Øyour vehicle was being driven or was attached to a vehicle being driven by a person who was under the influence of any alcohol or drug
Øyour vehicle was being driven or was attached to a vehicle being driven by a person who was not licensed or permitted to drive it
Øyour vehicle was being driven or was attached to a vehicle being driven by a person who, in the last five years
ohas had any driver’s licence cancelled, suspended or special conditions imposed
ohas been convicted of a criminal offence relating to fraud, theft or burglary, arson, criminal or wilful damage, unless
we have been advised of the relevant circumstances and we have specifically agreed to cover that person under your Policy.
In the “claims” part of the policy there also appear exclusion and cancellation clauses relating to claims arising out of incidents where the vehicle was in an unsafe condition, used in a race, used for a business or deliberately driven in a dangerous manner.
The meaning of theft
I have been urged by SGIC Insurance to give the words “theft” and “stolen” their ordinary meaning and not to define them in accordance with the statutory definition of theft found in s 134 of the Criminal Law Consolidation Act 1935.
I agree that the words should be given their ordinary meaning. In fact, it is precisely for that reason that I reject the respondent’s submission that the words “theft” and “stolen” have the same meaning as the now centuries old definition of the common law offence of larceny. The ordinary meaning of the verb “to steal” is “to take or take away dishonestly or wrongfully, especially secretly”.[1] The ordinary meaning happens to coincide more with the modern statutory definition of theft than with the common law offence of larceny.[2] In the context of the policy, the meaning of the word “stolen” probably extends to the secret movement or conveyance of the insured vehicle.[3] Theft has a related meaning.[4]
[1] Macquarie Dictionary Online, definition of “steal” (1).
[2] Criminal Law Consolidation Act 1935 s 134.
[3] Macquarie Dictionary Online, definition of “steal” (4).
[4] Macquarie Dictionary Online, definition of “theft”.
In my view, the indemnity for theft extends to any dishonest taking of the insured vehicle which materially interferes with the owner’s proprietary interest in it. A person steals a vehicle for the purpose of the policy if he or she takes the vehicle without the owner’s permission in circumstances where he or she knows the owner would not consent and knowing that the degree of their interference is material and wrong.
Contextual and purposive construction
In construing the policy in this case, I would adopt the same approach adopted Isaacs ACJ in Maye v Colonial Mutual Life Assurance Society Ltd.[5] Isaacs ACJ said:
At the risk of repetition, I may cite Fowkes’s Case. There Cockburn C.J. said: ‘that insurance conditions must be construed in the sense in which the agreement would be understood by a layman who was about to enter upon an insurance transaction’. Blackburn J. said:--‘In all deeds and instruments the language used by one party is to be construed in the sense in which it would be reasonably understood by the other. If there is any ambiguous phrase, another rule of construction, which was also known to the civil law, applies, ‘Verba chartarum fortius accipiuntur contra proferentem.’ ... Ambiguous words ... ought to be construed in that sense in which a prudent and reasonable man on the other side would understand them.’ See per Lord President Inglis in Life Association of Scotland v Foster at p. 359, and per Lord Deas and per Lord Ardmillan. At page 371 it is, in effect, said that the meaning of one party's obligation is that which the other party is to understand, and the learned Judge adds ‘not that which, in my own favour, I wrap up in general phrase, or hide in multiplicity or generality of words, and mean to put upon it myself’.[6] (footnotes omitted)
[5] (1924) 35 CLR 14.
[6] Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 at 26-7.
I accept that, if the unlicensed exclusion clause is read in isolation, there is no textual basis upon which to limit the breadth of the word “person”. However, there are many contextual reasons to do so. If the word “person” is read to include a person using the insured vehicle without the insured’s consent, the policy as a whole can hardly operate coherently. The reasons for reading down the word “person” are as follows.
First, it is I think incongruent with the very concept of theft insurance for an insurer to reserve a right to refuse that claim based on the personal characteristics of the thief.
Secondly, the clause which excludes indemnification of the legal liability of unlicensed drivers, which is in similarly wide terms, refers to “anyone” but plainly does not refer to thieves. That must be so because the third party liability cover itself only extends to licensed drivers who have the permission of the insured to drive. It follows that the exclusion of legal liability for “anyone” who has been refused insurance, has had a licence cancelled or has been convicted of a criminal offence must be a reference to “anyone” who had the permission of the insured to drive. The overall coherence of the policy would be promoted by a construction of the word “person” in the unlicensed exclusion clause which is consistent with the denotation of the word “anyone” in the third party liability exclusion clause.
Thirdly, an unlimited construction of the word “person” in the exclusion clause would render the primary cover for theft largely nugatory. It is a notorious fact, well known to this Court in its criminal and appellate jurisdictions, that many vehicles are stolen by persons who are under the influence of alcohol or drugs, are unlicensed, have had their licenses cancelled or suspended or who have been convicted of dishonesty offences in the past.
Fourthly, the proviso to the unlicensed exclusion clause “unless we have been advised of the relevant circumstances” can have no sensible application to a person who has stolen the car. I acknowledge that the proviso would still have some work to do even if the word “person” were to be read widely, but its presence suggests that the exclusion clause was directed at unlicensed persons who drove with the permission of the insured.
Finally, but in my view very importantly, the circumstances set out in the exclusion clause do not only provide a basis for refusing a claim but also enliven a discretion on the part of SGIC Insurance to cancel the policy. A construction which would confer on SGIC Insurance a discretion to cancel the policy where the thief who steals and damages the insured vehicle is unlicensed can only be described as absurd and capricious. By absurd and capricious I mean that such a construction not only operates harshly but that it serves no rational purpose, even from the perspective of the insurer, and is inconsistent with the very idea of theft insurance.
It is convenient to mention here that I am not persuaded by the submission that a literal approach should be taken to the unlicensed exclusion clause and the word “person” construed widely, notwithstanding the absurd results to which I have referred, because the circumstances merely enliven a discretion on the part of SGIC Insurance to refuse the claim. It is submitted that the discretion cannot be exercised capriciously because SGIC Insurance is subject to a statutory and common law duty of utmost good faith.[7] The submission is, in effect, that it is all a matter of trust. It is submitted that the incoherence and tension to which I have referred are both resolved once it is understood that the discretionary power is granted on the understanding that it will be exercised justly. In my view, the contextual matters to which I have referred and which suggest a more limited construction of the word “person” are not in any way diminished by the circumstance that the exclusion clause merely grants a power and does not unconditionally disentitle the insured in the excluded circumstances.
[7] Insurance Contracts Act 1984 (Cth) s 13.
My reasons for taking that view are these. The grant of the power to deny the claim is a significant derogation from the manifest purpose of the policy, which is to indemnify the insured for accidental loss, theft and damage. If the power is viewed as a power to extirpate cover for unlicensed drivers from the primary indemnity for theft and damage given by the cover part of the policy, it may be accepted that the duty of utmost good faith would materially limit the circumstances in which the discretion could be exercised adversely to the insured. If, however, the exclusion clause is read as a limitation on the scope of the indemnity provided by the clauses in the cover part of the policy, but with the recognition that SGIC Insurance may in its discretion waive the limitation, then it is difficult to see that the duty of utmost good faith would be breached often, if at all, if SGIC Insurance were simply to insist on the application of the unlicensed exclusion clause. If the latter construction of the nature of the power is adopted, there is very little difference in the practical effect of the unlicensed exclusion clause even though it is expressed in terms of a power, and not a right, to refuse. Moreover, a different construction of the nature of the power might be taken depending on whether the clause applies to persons driving with or without the permission of the insured. In the case of unlicensed persons whom the insured has allowed to drive the vehicle the latter construction is more likely. However, if the clause applies to thieves, the former construction is more likely. The same clause can hardly be construed differently depending on the circumstances to which it applies. All of this confirms my view that the unlicensed exclusion clause was intended to apply only to persons who drive the insured’s vehicle with the permission of the insured.
The ambiguity with the policy in this case is not found in the words of a single clause but in the juxtaposition of that clause with the balance of the policy. In my view, the layperson entering into this policy would understand the unlicensed exclusion clause to apply to the circumstance to which it most naturally applies; to persons who drive the vehicle with the consent of the insured. The unlicensed exclusion clause therefore does not apply to the circumstances of this case. Alternatively, I would find that the unlicensed exclusion clause does not apply to an unlicensed person who has stolen the car within the meaning of that term of the policy explained in [16] – [18] above and I would find on the agreed facts that the Lockwood’s son stole the car in that sense.
Insurance Contracts Act 1984 (Cth)
The Lockwoods rely on the Insurance Contracts Act 1984 (Cth) (the Act) in the alternative to their primary case which is founded on the construction of the policy which I have accepted. It is nonetheless appropriate that I deal with it.
Sections 34 and 35 of the Act provide:
34 Interpretation
In this Division:
minimum amount, in relation to a claim, means the amount declared by the regulations to be the minimum amount in relation to a class of claims in which that claim is included.
prescribed contract means a contract of insurance that is included in a class of contracts of insurance declared by the regulations to be a class of contracts in relation to which this Division applies.
prescribed event, in relation to a prescribed contract, means an event that is declared by the regulations to be a prescribed event in relation to that contract.
35 Notification of certain provisions
(1) Where:
(a) a claim is made under a prescribed contract; and
(b)the event the happening of which gave rise to the claim is a prescribed event in relation to the contract;
the insurer may not refuse to pay an amount equal to the minimum amount in relation to the claim by reason only that the effect of the contract, but for this subsection, would be that the event the happening of which gave rise to the claim was an event in respect of which:
(c)the amount of the insurance cover provided by the contract was less than the minimum amount; or
(d) insurance cover was not provided by the contract.
(2) Subsection (1) does not have effect where the insurer proves that, before the contract was entered into, the insurer clearly informed the insured in writing (whether by providing the insured with a document containing the provisions, or the relevant provisions, of the proposed contract or otherwise) or the insured knew, or a reasonable person in the circumstances could be expected to have known:
(a)where the effect of the contract, but for subsection (1), would be that the liability of the insurer in respect of a claim arising upon the happening of the event would be less than the minimum amount--what the extent of the insurer's liability under the contract in respect of such a claim would be; or
(b)where the effect of the contract, but for subsection (1), would be that the insurer would be under no liability in respect of such a claim--that the contract would not provide insurance cover in respect of the happening of that event.
(3) Regulations made for the purposes of this section take effect at the expiration of 60 days after the day on which they are notified in the Gazette.
(4) Where regulations made for the purposes of this section are amended after the day on which a particular contract of insurance is entered into, the amendments shall be disregarded in relation to the application of subsection (1) to that contract.
The Insurance Contract Regulations 1985 (Cth) (the Regulations) prescribe motor vehicle insurance.[8] They also prescribe damage and theft as prescribed events.[9]
[8] Insurance Contracts Regulations 1985 (Cth) reg 5.
[9] Insurance Contracts Regulations 1985 (Cth) reg 6.
The effect is that if, contrary to my construction the policy does allow SGIC Insurance to refuse the claim in the circumstances of this case, then SGIC Insurance is prohibited by s 35 of the Act from doing so unless it had clearly informed the Lockwoods in writing that the contract would not provide insurance cover in the event that their car was stolen, or at least driven without their permission, by an unlicensed person.
In my view the Lockwoods were not so informed. The exclusion clause, which on this part of the Lockwoods’ claim I must accept applies literally and unaffected by its context, would not when read by a reasonable person in the position of the Lockwoods have clearly informed them that they would not be covered in the events which occurred.
I so hold for the following reasons. SGIC Insurance relies entirely on the provision of the policy booklet as the only information given to the Lockwoods about the scope of their cover. Section 35(2) of the Act recognises that in some circumstances the provision of the policy may be enough, but it does not deem the provision of the terms of the policy to be a sufficient disclosure in all cases. The unlicensed exclusion clause would be read by a reasonable person in the position of the Lockwoods as more naturally referring to accidental damage occurring when the insured vehicle was driven by a person they had permitted to drive. It does not expressly refer back to the theft cover. There is no reference to the unlicensed exclusion in the column of the cover part of the policy where provision is expressly made for the limitations on the theft cover it provides. Indeed, as I have already observed, the unlicensed exclusion clause does not appear in the general exclusion part or the cancellation part of the policy.
A reasonable person would have been surprised to learn that the policy did not cover the circumstances in which the Lockwood’s vehicle was damaged. A reasonable person would expect a motor vehicle insurance policy to meet the circumstances of this case. The scope of the policy set out in the Regulations reflects that view and for that reason imposes a duty on an insurer who excludes that cover to clearly inform the insured of the exclusion. The terms of the policy, far from being calculated to alert an insured to the unlicensed exclusion clause, hid it in a “multiplicity [and] generality of words”.[10]
[10] Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 at 27.
I find that the Lockwoods were not clearly informed that they would not be covered in the event that transpired, nor could they reasonably have known that they would not be covered. If I had construed the policy not to apply to the circumstances of the Lockwood’s claim, I would have applied s 35 of the Act.
Conclusion
I allow the appeal. I set aside the order of the Magistrate. I enter judgment for the plaintiffs in the sum of $14,400.
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