Mercantile Mutual Insurance (Australia) Limited v Hans Juergen Edmund Schigulski No. SCGRG 93/302 Judgment No. 4137 Number of Pages 9 Insurance General

[1993] SASC 4137

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA OLSSON J

CWDS
Insurance - general - Insurance policy issued by appellant in respect of house owned by respondent - respondent claimed under policy for damage caused to house by vandals - appellant refused to pay claim - magistrate found appellant liable - appeal against finding - consideration of onus of proof in relation to insurance claim - appellant failed to discharge onus which it bore. Insurance Contracts Act 1984 (Cwth) ss21, 22, 54. Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR NSW 231 and Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303
(1982) 2 ANZ Insurance Cases 60-490, considered.

HRNG ADELAIDE, 17 August 1993 #DATE 31:8:1993
Counsel for appellant:     Mr J Radbone
Solicitors for appellant:    Adams Kandelaars
Counsel for respondent:     Mr P Scragg
Solicitors for respondent: Peter Scragg

ORDER
Appeal dismissed.

JUDGE1 OLSSON J This is an appeal against a judgment entered by a stipendiary magistrate, sitting in the Civil Division of the Magistrates Court at Adelaide, in favour of a plaintiff. When the proceedings came on for trial quantum was not in issue. The learned magistrate was only called upon to determine the issue of liability. 2. The plaintiff's action was commenced by summons issued against the appellant on 22 August 1990. He claimed the sum of $8,200, being the cost of repairs to a dwelling house at Mullaquana Road, Whyalla. He asserted that the appellant had, on 8 July 1988, issued a policy of insurance to the respondent in respect of the dwelling house. It was pleaded that the policy was in the sum of $39,000 and extended to and covered acts of vandalism. 3. In his particulars of claim the respondent pleaded that, in about the month of December 1989, whilst the policy was still on foot, the dwelling house in question was vandalised, with resultant damage as particularised. It was said that the appellant, having been duly notified of the damage, had not paid the claim. 4. The appellant appeared to the summons and later filed a formal defence to the claim. In that pleading it was expressly alleged that, on 8 July 1988, the respondent made a proposal for insurance in which he, in breach of his duty so to do, failed to disclose that, at or prior to the time of making the proposal:-
     (a) renewal of a policy of insurance in relation to the
     premises had been declined by a previous insurer;
     (b) the premises were vacant and would be vacant indefinitely. It was further pleaded that the policy issued in pursuant of the proposal contained an exception clause which limited liability in the event of an unnotified situation of the premises being left uninhabited for a period in excess of 60 consecutive days. 5. Oddly enough the pleading does not go on, expressly, to aver specific facts invoking that clause, although that was, no doubt, intended to be inferred. 6. The appellant acknowledged that it had received a claim form dated 3 January 1990 and that it had not paid the claim. It asserted that some items of claim were excessive and that some contents were not covered by the policy, due to their age. 7. The action duly came to trial before the learned stipendiary magistrate on oral evidence. On 24 April 1992 he published written reasons upholding the claim. 8. Having recited the taking out of the relevant policy of insurance, the learned magistrate made the following findings of fact on the evidence which had been led before him:-
    - That the appellant, through its employee Kinsman, well knew,
    at the time of the proposal, that the property was vacant and that
    the respondent was visiting it to carry out repair work. In this
    connection I understand the learned magistrate to have accepted
    the substance of the respondent's evidence to the effect that,
    when he went to the appellant's office to effect the insurance, a
    female staff member actually filled out the proposal form in
    response to information which he supplied on her request.
     He had deposed that it was she, and not he, who had ticked the
    box "Owner not occupying" when, in response to a query whether he
    was living there, he replied "No, the building is empty". In this
    regard it is to be noted that, against the marginal heading
    "Particulars of Occupancy" in the proposal form there are six
    boxes, the prima facie presumption being that one only would be
    ticked. Those boxes are titled, "Owner occupying" "Tenant
    occupying" "Holiday home" "Owner not occupying" "Shared
    accommodation" "Vacant premises".
     - That the appellant, having signed the proposal, did not
    thereafter formally notify the appellant that the premises had
    become vacant for in excess of 60 consecutive days, as adverted to
    in clause 2 of the general conditions of the policy. In this
    regard the learned magistrate noted that the evidence indicated
    that the premises had been vacated prior to the signing of the
    proposal and that, thereafter, the respondent had undertaken a
    progressive programme of repair work on it. 9. Although such an issue was not raised in specific terms in the defence, the appellant, at trial sought, in part, to rely on an exclusion of liability based on that portion of the unoccupancy clause which stipulated that premises would not be deemed to have been inhabited in any event unless slept in for two consecutive days and have been furnished to provide a reasonable standard of facilities for permanent occupation as a dwelling. As to this the learned magistrate said:-
    "It was conceded that the Plaintiff's property had a
    double bed, table and chairs for use by the Plaintiff and members
    of his family. The Plaintiff and others, I find, lived at the
    property when repairs were, I find, being made. The property also
    provided other essential facilities for human habitation namely
    running water for the bathroom and kitchen as well as power.
    Whilst opinions may vary as to what may constitute 'a reasonable
    standard' I am not convinced that I can make findings on the
    evidence that the property was not furnished for habitation. For
    the requirements of the Plaintiff the property was, I find,
    furnished to provide a reasonable standard of facilities for
    permanent occupation as a dwelling although some facilities were
    somewhat spartan."
     - That during the period of insurance cover the respondent made
    regular trips (sometimes alone and sometimes with his wife and
    others) to continue what he described as 'the long process of
    repairs to the property'. Later in his reasons the learned
    magistrate said that this occurred on weekends, when the plaintiff
    would have stayed for two consecutive days. He made that finding
    against the background of evidence given by the respondent to the
    effect that he had been going back and forth 'all the time'. He
    elsewhere testified that a great deal of work had been done and
    that he took a carpenter, in particular, up to Whyalla on about 8
    weekends, staying there over Friday and Saturday nights and
    returning on the Sunday nights. He further deposed that he also
    went up for similar periods on another 6-10 occasions. This
    evidence seems to have been accepted by the learned magistrate as
    a basis for concluding that the appellant had not made out a
    factual basis for invoking the non-occupancy exception. However,
    such a conclusion is somewhat difficult to align with portion of
    the cross examination of the respondent as to when the renovations
    were completed, when that is contrasted with earlier examination
    in chief. The learned magistrate concluded that the respondent
    entered into a sales agency agreement with a land agent on about
    13 November 1989 for the sale of the property and did so about
    four months after the renovations had been completed. The entry
    into the sales agreement was, of course, only shortly prior to the
    premises being vandalised. The respondent's evidence that the
    premises had only been vacated by the tenants 3-4 weeks before the
    insurance was effected appears to have been accepted by the
    learned magistrate.
     - That although the evidence on that topic was very sketchy, at
    least three years before the respondent lodged his proposal with
    the appellant, he had taken out an insurance policy in respect of
    the premises with Zurich Insurances. At one stage, the time of
    which had not been identified, there had been a payment of a claim
    under that policy and that at a date, which had also not been
    established, Zurich had cancelled the policy.
     - That the respondent had at no stage been fraudulent in his
    dealings with the appellant.
     - That, on the evidence, the respondent had taken reasonable
    care to protect and maintain the relevant premises. In the course
    of his judgment the learned magistrate gave consideration to the
provisions of section 54 of the Insurance Contracts Act 1984
    (Cwth), which reads as follows:-
        "54. (1) Subject to this section, where the effect of a
    contract of insurance would, but for this section, be that the
    insurer may refuse to pay a claim, either in whole or in part, by
    reason of some act of the insured or of some other person, being
    an act that occurred after the contract was entered into but not
    being an act in respect of which sub-section (2) applies, the
    insurer may not refuse to pay the claim by reason only of that act
    but his liability in respect of the claim is reduced by the amount
    6 that fairly represents the extent to which the insurer's
    interests were prejudiced as a result of that act.
     (2) Subject to the succeeding provisions of this section, where
    the act could reasonably be regarded as being capable of causing
    or contributing to a loss in respect of which insurance cover is
    provided by the contract, the insurer may refuse to pay the claim.
     (3) Where the insured proves that no part of the loss that gave
    rise to the claim was caused by the act, the insurer may not
    refuse to pay the claim by reason only of the act.
     (4) Where the insured proves that some part of the loss that
    gave rise to the claim was not caused by the act, the insurer may
    not refuse to pay the claim, so far as it concerns that part of
    the loss, by reason only of the act.
     (5) Where -
     (a) the act was necessary to protect the safety of a person or
    to preserve property; or
     (b) it was not reasonably possible for the insured or other
    person to do the act, the insurer may not refuse to pay the claim
    by reason only of the act.
     (6) A reference in this section to an act includes a reference
    to -
     (a) an omission; and
     (b) an act or omission that has the effect of altering the state
    or condition of the subject-matter of the contract or of allowing
    the state or condition of that subject-matter to alter." 10. In applying that section to the factual circumstances before him, the learned magistrate said:-
    "I am satisfied on my findings on the evidence that the
    Plaintiff's failure to notify the Defendant of his frequency of
    occupation is not a material breach that should disentitle him to
    succeed. The Plaintiff was, I find, actively engaged in
    restoration of the property and attended with others for that
    purpose on weekends when I find that he would have stayed for two
    consecutive days. Moreover the Plaintiff, I find, successfully
    negotiated a Sales Agency Agreement (see exhibit D1) with a
    representative of Myles Pearce and Norton Manning Real Estate on
    about 13th November 1989 for the sale of the property. It is a
    reasonable finding that the Agreement would not have been entered
    into by the Plaintiff and that Real Estate Firm if the property
    were not in a fit state for sale. The Plaintiff said that the
    Agent inspected the property. I have no sound reason to
    disbelieve the Plaintiff. I find that the Plaintiff paid $400 to
    the Agents as advertising and other fees pursuant to the Agency
    Agreement. That the property was damaged by unknown third parties
    shortly thereafter confirms the evidence of the Plaintiff's
    frequency of visits as he maintained himself and preserved the
property during this period of the Sales Agency Agreement." 11. In the course of his reasons the learned magistrate also adverted to section 21 and 22 of the Insurance Contracts Act. Those sections, so far as material for present purposes, stipulate that:-
    "21. (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 insured 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) ...
     22. (1) The insurer shall, before a contract of insurance is
    entered into, clearly inform the insured in writing of the general
    nature and effect of the duty of disclosure.
     (2) If the regulations prescribe a form of writing to be used
    for informing an insured of the matters referred to in sub-section
    (1), the writing to be used may be in accordance with the form so
    prescribed.
     (3) An insurer who has not complied with sub-section (1) may not
    exercise a right in respect of a failure to comply with the duty
    of disclosure unless that failure was fraudulent." 12. As I understand the reasons of the learned magistrate, he arrived at the positive conclusions that:-
    (1) the respondent had not breached his duty under subsection
(1) of section 21;
    (2) the appellant had not satisfied the requirement of
subsection (1) of section 22; and
(3) the provisions of subsection (3) of section 22 necessarily
    operated against the appellant. On the basis of his various
    findings the learned magistrate found the appellant liable under
    the policy of insurance issued by it. Judgment was entered
    against the appellant in the sum of $8,000 inclusive of interest,
    plus costs. 13. In its notice of appeal the complaints made by the appellant were expressed as under:-
    "The grounds of appeal are:
     1. That the learned Special Magistrate erred in finding that
    the appellant was liable to indemnify the respondent pursuant to
    the provisions of a policy of home building and home contents
    insurance entered into between the respondent and the appellant.
     2. That the learned Special Magistrate erred in finding that
    the appellant was liable to indemnify the respondent in respect of
    damage caused to his house and contents in about December of 1989.
     3. That the learned Special Magistrate erred in fact and in law
    in finding that the respondent's premises were furnished for full
    habitation within the meaning of the said policy.
     4. That the learned Special Magistrate erred in fact in finding
    that the premises were a home within the meaning of clause 1 of
    the said policy as the premises were not used principally and
    primarily as a place of residence at the time of the loss.
     5. That the learned Special Magistrate erred in finding as a
    matter of fact that the repair work being carried on by the
    respondent ceased only four months prior to the property being
    placed with agents for sale.
     6. Having found that the repair work ceased about four months
    before the property was placed for sale the learned Special
    Magistrate erred in fact and in law in finding that the property
    was inhabited within the meaning of General Conditions 2 of the
    said policy.
     7 That the learned Special Magistrate erred in fact and in law
    in finding that the respondent's failure to notify the appellant
    of the frequency of his occupation was not a material breach that
    should disentitle him to claim an indemnity under the policy.
     8. That the learned Special Magistrate should have found that
    the respondent was not entitled to an indemnity under the policy
    because the loss or damage was caused by the malicious deliberate
    or intentional acts of persons occurring whilst the building was
    not sufficiently furnished for full habitation.
     9. That the learned Special Magistrate should have found that
    the said policy did not cover the loss claimed by the respondent
    because the premises had been left uninhabited for a period
    exceeding 60 days without the written consent of the appellant.
     10. That the learned Special Magistrate should have found that
    the appellant was entitled to refuse to pay the respondent's
    claim." 14. On the hearing of the appeal Mr Radbone, of counsel for the appellant, in essence limited his arguments only to several major aspects. 15. His first point was that the learned magistrate had misconceived issues of onus of proof and had not directed attention to what was the initial primary question as to whether or not the respondent had discharged its onus of proving the existence of an event covered by the relevant policy of insurance. 16. He stressed that the relevant cover was described in Section 1 of the policy in these terms:-
     "If loss of or damage to the Home or Contents is caused
    directly by any of the Events listed below We will insure You in
    the manner set out in the Basis of Settlement Clause.
     1. BASIS OF SETTLEMENT ...
     2. EVENTS ...
    (e) Malicious, deliberate or intentional acts of persons (not
    being tenants or invitees) but not theft or loss or damage
    occurring whilst the building is not sufficiently Furnished for
Full Habitation ... " 17. The expression "Furnished for Full Habitation" is, elsewhere in the policy document, defined as meaning "Furnished to provide a reasonable standard of facilities for permanent occupation as a dwelling." 18. Considerable debate ensued between counsel as to what onus arose, under the policy as so expressed, as between the parties. Attention was drawn to divergent lines of authority bearing on this type of question. 19. Dicta in authorities such as Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR NSW 231 and Body Corporate Strata Plan No 4303 v Albion Insurance Co Ltd (1982) 2 ANZ Insurance Cases 60-490; (1983) VR 339 establish the propositions that the onus rests upon the insurer to prove a breach of conditions going to the existence or continued existence of the policy as a whole, whilst the onus remains with the insured of proving compliance with conditions which are conditions precedent to the accrual of liability. 20. Having said that, it is as well to bear in mind the dictum of Kaye J in the Body Corporate Strata Plan No 4303 Case (as reported in (1982) VR 699 at p702:-
    "If the defendant does not plead a condition and breach of
    it, due performance by the plaintiff is implied. However, in the
    event of the defendant pleading a condition precedent and non
    performance of it, those matters are put in issue, and the burden
    of proving due performance is thereby cast on the plaintiff." 21. Whilst it is true that that dictum arose in the context of the Victorian rules, the same principle arises in the Magistrates Court - indeed what fell from Kaye J is no more than a basic principle of general pleading. 22. I have stressed this aspect because, in my opinion, it assumes considerable importance in relation to the present case. 23. By his statement of claim the respondent pleaded the policy and the accrual of liability under it. The defence admitted the issue of the policy and denied liability only on the specific grounds that:-
    (1) the respondent had been in breach of its obligations
    to make full disclosure in the relevant proposal;

    (2) the respondent had breached the so-called "UNOCCUPANCY"
    provisions of the GENERAL CONDITIONS section of the policy. 24. Although the appellant now seeks to ventilate the issue that the relevant event giving rise to liability did not ever arise, in that the loss or damage occurred at a time when the premises were not "sufficiently Furnished for Full Habitation", the plain fact is that such an issue was never raised in the pleadings, although, clearly, reference was obviously made to it at some stage in the course of the trial. In my opinion it cannot therefore be relied upon to impeach the judgment now appealed against. It was not a legal issue in the case. 25. If I be wrong in that conclusion, it must be said that the onus clearly lay on the appellant to prove that, at the relevant time, the premises were not Furnished for Full Habitation, in the relevant sense. It simply did not do so. There was no definitive evidence at all as to exactly how many rooms there were in the premises and how each was furnished. All that is known is that the house had the normal services in operative condition and that certain (albeit spartan) items of furniture were present in some rooms. The question was simply not pursued in proper depth and, as a consequence, the appellant must be taken to have failed to discharge its onus in that regard. 26. The second major point ventilated by the appellant was that the evidence revealed unequivocally that it was excused from liability by virtue of the UNOCCUPANCY clause of the policy. 27. As appears from exhibit P1 that clause stipulates that:-
    "2. UNOCCUPANCY The cover provided by this Policy for
    Buildings and Contents shall be restricted to lightning or
    thunderbolt or earthquake for any period exceeding sixty (60)
    consecutive days during which the Buildings have been left
    uninhabited, unless You have notified Us in writing beforehand and
    obtained Our written consent for cover to continue. The period of
    60 consecutive days is to be reckoned from the time of last
    habitation without regard to the commencement or renewal date of
    the Policy. To have been inhabited, the Buildings must have been
    lived and slept in for at least two (2) consecutive days and have
    been furnished to provide a reasonable standard of facilities for
permanent occupation as a dwelling." (my emphasis) 28. The onus rested on the appellant to prove that the premises had been left uninhabited for a period of sixty consecutive days in the relevant sense ie that the buildings had not been lived and slept in for at least two consecutive days and over such a period had not been furnished to provide a reasonable standard of facilities for permanent occupation as a dwelling. 29. As to the first aspect the learned magistrate concluded that, at least up until the repairs were completed, there had been no breach because of the regular visits of the respondent and his wife or tradesmen for long weekends. Reference to that situation has already been made in my summary of the facts. 30. There was, patently, evidence upon which he could reasonably have made the finding in question. 31. The problem from the appellant's viewpoint, as I see the situation, is that the evidence bearing on the last four months following the completion of repairs was left in a most confusing and unsatisfactory state. The learned magistrate did not make express and definitive findings as to this aspect and, with respect, it is unclear as to what conclusion he finally came. In my opinion the state in which the evidence was left gave rise to a situation whereby the appellant had also failed to discharge its onus of demonstrating what was the actual situation in the critical four month period and how often and for what periods the appellant did then resort to the subject premises. Certainly, at page 6 of his reasons, the learned magistrate specifically refers to the frequency of the respondent's visits. 32. In this regard the learned magistrate appears, at page 4 of his reasons, to have applied an incorrect onus of proof. 33. His reasoning seems to have been that, even if there was a breach of the UNOCCUPANCY clause, then section 54 of the Insurance Contracts Act, 1984 (Cwth) operated to salvage the situation in favour of the respondent. 34. As I understand what he said it was to the effect that any omission by the respondent had to be seen in the light of the respondent's frequent visits and his maintenance of it in a good condition for sale. He felt that any breach was not what he described as a "material breach" for the purposes of subsection (2) of section 54. However, I agree with Mr Radbone that, in this regard, the learned magistrate appears to have applied the wrong test. The subsection directs its attention to acts or omissions which "could reasonably be regarded as being capable of causing or contributing to a loss in which insurance cover is provided ... ". It is difficult to perceive why a breach of the UNOCCUPANCY clause, particularly in relation to premises in the location of the subject premises, could not reasonably be so regarded. 35. However, that is not to the point. As I have said, it seems to me that the appellant did not ever satisfactorily discharge the onus which lay on it of proving the factual base for operation of the relevant exception clause in the policy, including the nature of all facilities, as I earlier pointed out. 36. The net situation remains that, such was the state of the evidence, that the learned magistrate was only able to find, with confidence, that repair work commenced shortly after the tenants vacated the property and that such work ceased about four months prior to 13 November 1989, when the property was placed in the hands of the selling agents. There was clear evidence that entitled the learned magistrate to find, as he did, that there was no breach of the UNOCCUPANCY clause whilst work was continuing. There was an almost total lacuna of evidence as to what was the occupancy situation in the four month period or what was in the house at that time. The evidence did not ever definitively reveal even the full extent of the house, let alone all that was in it, save for positive evidence of certain specific items to which the learned magistrate referred. 37. In short the appellant not only did not discharge the onus which it bore, but, on a perusal of the transcript, does not appear ever to have attempted to do so. 38. Whilst I do not necessarily agreed with certain of the reasoning expressed by the learned magistrate I am firmly of the view that the conclusion to which he ultimately came was, indeed, correct. 39. The appeal must be dismissed.