Montclare v Metlife Insurance Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2005 10156

JOHN MONTCLARE	Plaintiff
v
METLIFE INSURANCE LIMITED (ACN 004 274 882) and RIVKIN DIRECT INSURANCE AGENCIES PTY LIMITED (ACN 073 632 292)	Defendants

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JUDGE:	GINNANE J
WHERE HELD:	Melbourne
DATE OF HEARING:	12–16, 19–23, 26–28, 30 May, 2–3 June 2014
DATE OF JUDGMENT:	25 June 2015
CASE MAY BE CITED AS:	Montclare v Metlife Insurance Ltd
MEDIUM NEUTRAL CITATION:	[2015] VSC 306

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INSURANCE – Life insurance – Group policy – Certificate of insurance – Whether plaintiff an insured for the purposes of the Insurance Contracts Act 1984 (Cth) – Insurer’s remedies – Non-disclosure – Misrepresentation – Whether innocent or fraudulent – What insurer would have done if no misrepresentation – Underwriting evidence – Insurance Contracts Act 1984 (Cth) ss 3, 10, 11, 21, 22, 23, 25, 26, 28, 31, 33 – Life Insurance Act 1995 (Cth) ss 9, 11.

SET-OFF – Whether insurer could rely on set-off if Insurance Contracts Act 1984 (Cth) did not apply to insurance cover – Whether insured liable in negligent misstatement to insured – Whether insured liable for misleading and deceptive conduct – Australian Securities and Investments Commission Act 2001(Cth) ss 12DA(1), 12GM(5) – Fair Trading Act 1985 (Vic) ss 11, 41(3B).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Bingham	Maurice Blackburn
For the First Defendant	Mr J J Gleeson QC and Mr B Jellis	Norton Rose Fulbright

TABLE OF CONTENTS

Section A. Introduction

Summary
Metlife’s defence
Mr Montclare’s reply
Summary of issues
Summary of conclusions
Background facts
The relationship between Mr Montclare and Mr Shilton
The life insurance applications

Section B. Was Mr Montclare a party to a contract of insurance under the ICA?

The business arrangement between Rivkin Direct Management and Citicorp
The insurance documents
The trust deed
The Citicorp master policy
Customer Information Brochure
The insurance application form
Mr Montclare’s insurance application forms
Customer Purchase Record
Policy Information Statement
The first certificate of insurance
The second certificate of insurance

Legal principles relating to group policies
Provisions of the ICA dealing with the rights of third parties to enforce contracts of insurance
Submissions about whether Mr Montclare was an insured under the ICA
Mr Montclare’s submissions
Metlife’s submissions

Consideration of submissions
Was there one contract or two?
Conclusion

Section C. Metlife’s defence based on non-disclosure and misrepresentation

The provisions of the ICA dealing with disclosure and misrepresentation
Did Citicorp inform Mr Montclare of the duty of disclosure?
Conclusion

Mr Shilton’s signatures
The first insurance application
The application to NRMA
The April 1999 letter requesting increased cover
The signing of the April 1999 letter requesting increased cover
The second insurance application form
The financial purposes letter of May 1999
The signing of the May 1999 letter
The accuracy of the May 1999 letter

The parties’ credit
The expert handwriting evidence
Consideration of Mr Holland’s evidence

Additional reasons for not accepting Mr Montclare’s evidence about Mr Shilton signing the documents
Conclusions about Mr Shilton’s signatures on the four documents

Insurer’s remedies for the insured’s allegedly fraudulent misrepresentations or non-disclosures concerning Mr Shilton’s signatures
Mr Montclare’s case that he had Mr Shilton’s authority to sign the documents
Were Mr Shilton’s and Mr Montclare’s misrepresentations and non-disclosures about Mr Shilton’s signatures fraudulent?
Consideration of submissions
Insurer’s remedies for the insured’s allegedly innocent misrepresentations concerning Mr Shilton’s signatures
Mr Montclare’s application to NRMA Life Ltd
Conclusion

Consequence of Mr Shilton’s and Mr Montclare’s misrepresentation and non-disclosure about the NRMA insurance
Conclusion

Metlife’s arguments in respect of the financial purposes letter of May 1999
Conclusion

The avoidance

Section D. Did Mr Shilton and Mr Montclare fail to disclose aspects of Mr Shilton’s medical history or make misrepresentations concerning them?

Mental health pleadings
Mr Shilton’s medical history
Psychiatrists consulted by Mr Shilton
Dr Tan
Dr Kahans

The alleged suicide attempts
The 1981 incident
The December 1989 incident

The general practitioner — Dr Burgin
Expert medical evidence
Dr Shan
Dr McLaren
Dr Neill

The evidence of Mr Shilton’s friends regarding his mental health
Mr Hancock
Mr Beattie

The evidence of Mr Montclare and witnesses called as part of his case regarding Mr Shilton’s mental health history
Mr Montclare
Mr Pollard
Mr Duke
Ms Burnett
Ms Hadziavdic
Ms Vujanovic

Did Mr Montclare or Mr Shilton make a misrepresentation about, or fail to disclose, Mr Shilton’s mental health history?
Metlife’s submissions
Mr Montclare’s submissions

Consideration
Non-disclosure
Conclusion

Misrepresentation
Conclusion

Mr Montclare’s separate representation
Conclusion

Section E. What would Metlife have done if the misrepresentations had not been made or if disclosures had been made?

Metlife’s other mental health files
The hypothetical scenarios
The parties’ submissions
Mr Montclare’s submissions
Metlife’s submissions

Consideration of submissions
Conclusion

Should the Court disregard the false answer?
Conclusion

Section F. Metlife’s claim to a set-off

Breach of duty of care
Conclusion

Misleading or deceptive conduct
Conclusion

Final Conclusion

HIS HONOUR:

Section A. Introduction

The plaintiff, John Montclare, sues Metlife Insurance Limited (‘Metlife’), the first named defendant, claiming $1.1 million as a life insurance benefit. The life insured was Mr Graeme Shilton who died by suicide on 22 January 2001. He was 43 years old.

Mr Montclare’s case is that he obtained life insurance on the life of Mr Shilton with Metlife (then called Citicorp Life Insurance Limited (‘Citicorp’)) initially for $300,000, and later for $1.1 million. In 2005, Metlife purchased Citicorp.[1]
[1]Transcript of 2011 hearing (‘T (2011)’) 113.

Metlife admitted that it entered into a contract of insurance with Mr Montclare on the life of Mr Shilton and that, from 10 June 1999, the benefit payable under that insurance was $1.1 million. However, Metlife contended that Mr Montclare was not entitled to payment of that sum.

Summary

I find that the life insurance cover obtained by Mr Montclare was pursuant to contracts of insurance under which he was an insured for the purposes of the Insurance Contracts Act 1984 (Cth) (‘the ICA’). Citicorp, now Metlife, issued that insurance and was a party to the contracts of insurance. Mr Shilton made a fraudulent misrepresentation to Citicorp before the contracts were entered into in answer to a question about his medical history. That misrepresentation had effect as though it had been made by Mr Montclare. Metlife validly avoided the contracts of insurance under s 29(2) of the ICA. The proceeding will therefore be dismissed.

The insurance issued by Metlife excluded claims involving death by suicide where this occurred within 13 months of the insurance commencement date. Metlife did not rely on that exclusion.

The proceeding was commenced in 2005 and came to trial before another judge of the Court over four days in May and June 2011. Because of late discovery by Metlife and Mr Montclare’s desire to consider calling further evidence, the trial was adjourned out of the list. When the trial recommenced before me in May 2014, the trial proceeded for 16 days. The parties agreed that the evidence of witnesses, being Mr McCowan, Mr Ridgeway and Dr Kahans, given at the hearing in May 2011, was to be regarded as evidence before me. I made orders to that effect. Mr Montclare’s case is that the life insurance cover, upon which his claim relied, was issued under a Citicorp Life Insurance Master Group Life and Disability Insurance Policy (Group and Non Group Members) (‘master policy’) between Metlife and Rivkin Direct Management Pty Ltd (‘Rivkin Direct Management’). Rivkin Direct Management was a related company to the second defendant, Rivkin Direct Insurance Agencies Pty Ltd (‘Rivkin Direct Insurance Agencies’). Rivkin Direct Management was a company associated with Mr Rene Rivkin. It acted as trustee of the master policy. It was not registered as an insurer.

The bulk of Rivkin Direct Management’s business was dealing with trustees of superannuation plans, employers and individuals who wanted to become life insureds.[2]
[2]T 500.

On a number of occasions in this judgment, I use the name ‘Rivkin’ where it is unclear from the evidence which Rivkin company should be referred to.

Rivkin Direct Management was deregistered in 2002. There was no master policy issued by Citicorp to Rivkin Direct Insurance Agencies. Counsel for Mr Montclare said that Metlife took no point about the absence of Rivkin Direct Management.[3] Mr Montclare pleaded that the second defendant, Rivkin Direct Insurance Agencies, was ‘joined as a party to this proceeding solely in order to bind it to the outcome of this proceeding and no relief is sought against it other than an order for the payment to the plaintiff of sums received by the second defendant from the first defendant in respect of the plaintiff under the master policy’. Mr Montclare contended that nothing of significance to the outcome of this proceeding turns on the fact that Rivkin Direct Management is not a defendant.
[3]Transcript of 2013 hearing (‘T’) 22.

Rivkin Croll Smith Insurance Agencies Pty Ltd (‘Rivkin Croll Smith Insurance Agencies’), and later Rivkin Direct Insurance Agencies, marketed the policies. They were agents of Citicorp, to sell and promote the renewable term life insurance product ‘Term Life and Term Life Executive Plan’.

On 26 July 2006, Rivkin Direct Insurance Agencies gave an undertaking to Master Kings ‘to pay to the Plaintiff within 7 days of receipt any sums received by the Second Defendant from the First Defendant in respect of the Plaintiff under the insurance policy which is the subject of this proceeding’. By the combination of the effect of that order and the order Beach J made during the first hearing of this proceeding, the second defendant was excused from further attendance until submissions were made about costs.

Mr Montclare argued that his insurance cover was not as an insured for the purposes of the the ICA and, therefore, he did not have the statutory obligations relating to disclosure and misrepresentations that are imposed on an insured by the ICA.

Metlife’s defence

Metlife denied that it has any liability to Mr Montclare. By letter dated 6 December 2001, Metlife gave notice to Mr Montclare’s legal representatives of its intention to avoid any policy, pursuant to s 29 of the ICA. Metlife relied on allegations of misrepresentation and non-disclosure by Mr Montclare and Mr Shilton, either fraudulent or negligent, and upon the rights given to it under the ICA. In its further amended defence, Metlife pleaded that it was entitled to, and did, by its letter of 6 December 2001, or ‘hereby’, namely by the delivery of the pleading, avoid the contracts of insurance, ‘alternatively the contracts alleged by the plaintiff’.

Metlife’s case was that Mr Shilton and Mr Montclare had misrepresented or failed to disclose: who had signed Mr Shilton’s signature in the two insurance applications and in two letters concerning those applications; the purpose of the insurance; Mr Montclare’s previous attempts to obtain insurance; and statements and details of Mr Shilton’s medical history.

Metlife alleged that Mr Montclare signed Mr Shilton’s name on both insurance applications and on two letters: one of 7 April 1999, to increase the amount of the cover, and a second of 29 May 1999, to state the purpose of the increased cover.

Metlife alleged that, in both applications, Mr Montclare represented that the answers given by Mr Shilton were, to the best of Mr Montclare’s knowledge and belief, true and that Mr Montclare had made such enquiries as were appropriate to constitute a proper foundation for his knowledge and belief that the answers given by Mr Shilton were true.

Metlife also alleged that Mr Shilton and Mr Montclare falsely answered questions concerning Mr Shilton’s medical history, including a question whether he had ever had a ‘mental or nervous disorder or breakdown’. They thereby failed to disclose or made misrepresentations as to whether Mr Shilton had ever suffered from a mental or nervous disorder or breakdown.

It also alleged that Mr Shilton and Mr Montclare falsely answered questions concerning their applications for insurance to other insurers and that Mr Montclare and Mr Shilton failed to disclose that they had unsuccessfully sought life insurance from NRMA Life Ltd (‘NRMA’). Metlife alleged that Mr Shilton and Mr Montclare made false statements about the purpose of the applications for life insurance.

Metlife separately contended that Mr Montclare had made false representations to Metlife that the answers given by Mr Shilton were, to the best of his knowledge, true and correct and that he had made such enquiries as were appropriate to constitute a proper foundation for his knowledge and belief that the answers given in the insurance applications were true and correct.

Metlife contended that it was entitled to and did avoid the contracts of insurance under s 29 of the ICA. Metlife submitted that, had it known of these fraudulent non-disclosures and misrepresentations at the time of application, it would not have entered the contracts of life insurance with Mr Shilton or Mr Montclare on the same terms and, therefore, it was entitled to avoid the contracts under s 29(2) of the ICA.

Alternatively, if the non-disclosures and misrepresentations were innocent, Metlife’s case is that if the required disclosure had occurred and if the misrepresentation had not occurred, it would have decided not to enter contracts of life insurance with Mr Montclare, on any terms. Metlife contended that, on this alternative basis of innocent misrepresentation and non-disclosure, it was entitled to avoid the contracts of insurance under s 29(3) of the ICA.

Metlife alleged, in the alternative, that in the event that the ICA did not apply to the insurance granted to Mr Montclare, he and Mr Shilton had engaged in negligent misrepresentation, in breach of their duty of care at common law, and/or misleading and deceptive conduct, under the Australian Securities and Investments Commission Act 2001 (Cth) and s 11 of the Fair Trading Act 1985 (Vic). Metlife said that if it does have any liability to Mr Montclare, those causes of action give it rights of set-off that exceed the amount of any such liability.

Mr Montclare’s reply

Mr Montclare denied that he or Mr Shilton were guilty of any non-disclosure or made any misrepresentation. As previously stated, his case was that he was not an insured under a contract of insurance for the purposes of the ICA and therefore not subject to the obligations that it imposes and remedies that it gives. He also alleged that Metlife did not provide him with the notice of his disclosure obligations required by s 22 of the ICA.

Mr Montclare disputed that Metlife has any right of set-off against his claim.

Summary of issues

Both parties provided the Court with their statement of the issues in the case. They identified many issues. In broad and general terms, the issues are:

(a) What was the legal relationship between the parties relating to life insurance on Mr Shilton’s life?

(b) What obligations did the parties owe each other under the ICA?

(c) Were there non-disclosures or misrepresentations by Mr Shilton or Mr Montclare?

(d) Were any non-disclosures or misrepresentations by Mr Shilton or Mr Montclare fraudulent?

(e) Would Citicorp have declined to issue insurance cover either under the contracts that it entered into or, on any terms and conditions, if it had been aware of the matters not disclosed or misrepresented?

(f) If the insurance cover was not subject to the provisions of the ICA, did the alleged non-disclosures and misrepresentations entitle Metlife to remedies, including under causes of action in negligent misstatement and misleading or deceptive conduct that permitted Metlife to set-off any claim Mr Montclare may have under the insurance contracts?

Summary of conclusions

In relation to the above issues, I have reached the following conclusions:

(a) Mr Montclare was subject to the obligations imposed by the ICA, in respect of the insurance cover granted by Citicorp. The two certificates of insurance issued by Citicorp were contracts of insurance that were subject to the provisions of the ICA.

(b) Citicorp did not give Mr Montclare notice of their disclosure obligations under the ICA and therefore can only rely on fraudulent non-disclosure and fraudulent or innocent misrepresentations.

(c) and (d)

Mr Shilton and Mr Montclare fraudulently represented to Citicorp that they had not been refused insurance. Mr Shilton made a fraudulent misrepresentation in response to question 9H about his medical history. That misrepresentation had the same effect as though it had been made by Mr Montclare

(e) Metlife has proved that it would not have entered into the contracts of insurance if Mr Shilton had not made a misrepresentation about his medical history in answer to question 9H contained in the insurance application forms. That misrepresentation had the same effect as though it had been made by Mr Montclare.

(f) Because the contracts of insurance were subject to the provisions of the ICA, Metlife’s causes of action in negligent misstatement and misleading and deceptive conduct cannot be relied on. In any event, those causes of action would not succeed.

It is important to note that Metlife did not rely on, or plead, a breach of the duty of utmost good faith or common law fraud. It relied on the statutory remedies provided by the ICA. Those remedies do not provide a right to avoid a contract of insurance on the ground of fraud alone. The insurer must prove that it would not have entered into the contract of insurance if, in general terms, the fraud had not occurred. This requirement is discussed below.

Background facts
The relationship between Mr Montclare and Mr Shilton

Mr Montclare was born in 1970 and after leaving school completed a hairdressing apprenticeship, undertook some acting and studied for a diploma of financial markets. In 1993 or 1994, when he was working as a male escort, Mr Shilton phoned him and they met.[4] Mr Montclare ‘provided a service’ to Mr Shilton who continued to contact him regularly. They became friends and developed a sexual relationship which continued until Mr Shilton’s death.[5] They met on most days and spent a couple of nights most weeks at each other’s homes. Mr Shilton did not own a car and on occasions Mr Montclare drove him to where he needed to go.
[4]T 88.
[5]T 91, 133–4.

Mr Shilton was born in 1957 and was a renowned classical saxophonist. He taught the saxophone at the Victorian College of the Arts (‘VCA’) and elsewhere and, in 2001, shortly before his death, was appointed head of the woodwind department at the VCA.[6]
[6]T 89, 103.

Mr Shilton left half his residuary estate to his father and half to Mr Montclare. He nominated Mr Montclare as his preferred beneficiary for his superannuation fund benefits.

The life insurance applications

Mr Montclare and Mr Shilton discussed buying property and living together. [7] According to Mr Montclare’s evidence, in 1998, when Mr Shilton was planning to travel overseas, he suggested taking out life insurance. He wanted Mr Montclare to be the beneficiary of the policy so that he would be financially secure.[8] That led to the making of the first insurance application.[9]
[7]T 90–1, 93.
[8]T 146.
[9]T 91.

In 1998, Mr Montclare was 28 years of age.[10] His evidence was as follows. He said that he was partially dependent on Mr Shilton, who assisted him in paying rent, and that he had become used to his help.[11] Mr Shilton gave Mr Montclare gifts and paid about $400–500 of his living expenses each month.[12] Mr Montclare said he needed this support because he was studying and did not have regular employment.[13] He said that he was not very good with money and spent what he had on clothes, phone bills, car services, and occasionally at the casino.[14] He said that they obtained life insurance on Mr Shilton’s life because they were in love and Mr Shilton wanted to provide for him.[15]
[10]T 149.
[11]Ibid.
[12]T 90.
[13]T 150.
[14]Ibid.
[15]T 149.

Mr Montclare denied that he had persuaded Mr Shilton to take out life insurance or that Mr Shilton was ambivalent about it or did not want it to occur.[16]
[16]T 144.

In 1999, they inspected properties.[17] In March 1999, they obtained pre-approval for a loan of around $300,000 and Mr Montclare’s father agreed to lend him $100,000. Mr Montclare and Mr Shilton decided to buy two small investment properties and subsequently increased their pre-approved finance to around $600,000.[18]
[17]T 93, 256.
[18]T 93, 95.

Mr Montclare gave evidence that in early 1999, they decided to purchase property in Port Melbourne. They deferred doing so, however, because they were advised that property prices would fall after the millennium.[19] In fact, they never did purchase property.[20]
[19]T 93–4.
[20]T 138.

In 1998, before applying for life insurance, Mr Montclare read the Rivkin Direct Term Life Insurance Customer Information Brochure (‘Customer Information Brochure’).[21] A table in the brochure indicated that Metlife required the life insured to undergo a medical examination when he was aged 41 or older and the cover sought exceeded $300,000.[22]
[21]T 156.
[22]Plaintiff Courtbook (‘PCB’) 180; T 156–7.

In November 1998, Mr Montclare applied for life insurance cover on Mr Shilton’s life for the amount of $300,000. Mr Montclare denied that they applied for that cover because no medical examination was required.[23] He said that Mr Shilton ‘didn’t have anything wrong with him’.[24]
[23]T 157.
[24]Ibid.

On 21 January 1999, Rivkin sent Mr Montclare a certificate of insurance providing life insurance cover on the life of Mr Shilton for $300,000.

By an application dated 17 April 1999, Mr Shilton (or Mr Shilton and Mr Montclare) applied to Rivkin Croll Smith Insurance Agencies to increase the cover to $1.1 million. Citicorp approved that increase from 10 June 1999 and sent a second certificate of insurance providing for cover on Mr Shilton’s life of $1.1 million.

Section B. Was Mr Montclare a party to a contract of insurance under the ICA?

The first issue is whether Mr Montclare was an insured under the ICA so that its provisions relating to disclosure and misrepresentations applied to his entry into the insurance contracts.

If he was not an insured, but had a contractual right to claim life insurance payments from Metlife, perhaps as a third party beneficiary, then the provisions of the ICA on which Metlife relied did not apply to him.

Part IV of the ICA is a statutory code which replaces the common law on non-disclosure and misrepresentation applying to an insured and an insurer before they enter an insurance contract. Mason CJ, Dawson, Toohey and Gaudron JJ discussed this effect of the ICA in Advance (NSW) Insurance Agencies Pty Ltd v Matthews in the following terms:[25]

Section 33 provides:
The provisions of this Division are exclusive of any right that the insurer has otherwise than under this Act in respect of a failure by the insured to disclose a matter to the insurer before the contract was entered into and in respect of a misrepresentation or incorrect statement.

The evident intention of the legislature is to replace the antecedent common law regulating non-disclosure, misrepresentations and incorrect statements by insured persons before entry into a contract with the provisions of Pt IV. To that extent Pt IV is a statutory code which replaces the common law. Accordingly, the circumstances in which it is legitimate to resort to the antecedent common law for the purpose of interpreting the statute are extremely limited: see Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd. However, in the light of our view as to the meaning of the relevant provisions of the statute, we do not find it necessary to resort to the common law or to explore the bases on which it may be permissible to engage in that exercise.[26]

[25](1989) 166 CLR 606.

[26]Ibid 615 (citation omitted).

The expression ‘contract of insurance’ is not defined in the ICA. However, s 10 provides:

10 Contracts of insurance
(1)A reference in this Act to a contract of insurance includes a reference to a contract that would ordinarily be regarded as a contract of insurance although some of its provisions are not by way of insurance.
(2)A reference in this Act to a contract of insurance includes a reference to a contract that includes provisions of insurance in so far as those provisions are concerned, although the contract would not ordinarily be regarded as a contract of insurance.
(3)Where a provision included in a contract that would not ordinarily be regarded as a contract of insurance affects the operation of a contract of insurance to which this Act applies, that provision shall, for the purposes of this Act, be regarded as a provision included in the contract of insurance.

Section 11(1) defines ‘contract of life insurance’ to mean ‘a contract that constitutes a life policy within the meaning of the Life Insurance Act 1995’.

Section 9(1) of the Life Insurance Act 1995 (Cth) specifies particular contracts as constituting a life policy for the purposes of that Act. The first contract specified is the most relevant for present purposes. It is:

(a)a contract of insurance that provides for the payment of money on the death of a person or on the happening of a contingency dependent on the termination or continuance of human life;

Section 11(9) provides:

Subject to subsection (10), a reference in this Act to the entering into of a contract of insurance includes a reference to:
(a)in the case of a contract of life insurance — the making of an agreement by the parties to the contract to extend or vary the contract;
…

Sutton on Insurance Law[27] contains the following description of life insurance:

What has been described as ‘the classic definition of life insurance’ is found in Bunyon [Bunyon on Life Assurance (5^th ed, 1914) 1]:
The contract of insurance has been defined by Tindal CJ to be that in which a sum of money “as a premium is paid in consideration of the insurer’s incurring the risk of paying a larger sum upon a given contingency” … The contract of life insurance may be further defined to be that in which one party agrees to pay a given sum upon the happening of a particular event contingent upon the duration of human life, in consideration of the immediate payment of a smaller sum or certain equivalent periodical payments by another. This consideration in money is termed the premium or premiums, and is paid either in one sum, when it is termed a single premium, or by a succession of periodical instalments.

[27]W I B Enright and R M Merkin, Sutton on Insurance Law (Lawbook, 4^th ed, 2015) vol 2, 552 (citations omitted) (‘Sutton on Insurance Law’).

Mr Montclare pleaded three alternative bases for his claim, none of which relied on him being an insured for the purposes of the ICA.

First, he contended that Metlife provided him insurance cover under the master policy in respect of Mr Shilton as life insured.

Secondly, and alternatively, Mr Montclare contended that on or about 21 January 1999 Metlife provided him with cover under the ‘alternative master policy’ by the issue of a certificate under the alternative master policy to him as certificate holder in respect of Mr Shilton as life insured.

Thirdly, Mr Montclare contended that on or about 7 January 1999, he, as a certificate holder, entered into a policy of term life insurance with Metlife. This alternative policy was constituted by the certificate of insurance and a schedule and a master policy. The terms of this alternative policy included that cover would commence by the issue of a certificate by Rivkin Direct Management, alternatively Rivkin Direct Insurance Agencies, to him as certificate holder.

Mr Montclare pleaded that Rivkin Direct Insurance Agencies, alternatively Rivkin Direct Management, held the benefit of the cover under the master policy, or the alternative master policies, in trust for him. He pleaded that the defendants refused or failed to pay him the sum insured and, in the case of Metlife, did so in breach of the policies and that as a result he suffered loss and damage.

Metlife contended that Mr Montclare was an insured pursuant to contracts contained in two certificates of insurance and that the obligations imposed by the ICA applied to him. The certificates were self-contained and contained all the terms of the insurance.

Metlife did not dispute that life insurance cover could be provided without the person entitled to the benefit of the insurance being an insured for the purposes of the ICA, as Mr Montclare contended, but disputed that that had happened in this case.

The business arrangement between Rivkin Direct Management and Citicorp

I will next consider the arrangement between Rivkin Direct Management and Citicorp for the provision of insurance to members of the public and the documents that were issued as part of that arrangement.

Mr Terence McCowan, a solicitor, helped establish the Rivkin Direct insurance business and was appointed a director. He approached Citicorp seeking to have it structure a policy that Rivkin Direct Insurance Agencies could supply to persons seeking insurance. He described Citicorp as essentially an insurance wholesaler without a retail arm. Citicorp had group policies for ‘industry groups or social groups’ and Mr McCowan said that Rivkin was ‘just another group which did insurance through Citicorp Life’.[28] He described the structure of the arrangement reached as involving Citicorp as the insurer and Rivkin Direct Management as the group-holder, who would sell sub-policies ‘for want of a better word’ based on the master policy.[29] Citicorp’s master policy contained the terms of insurance under which it granted cover to individuals.[30] However, he did not wish to express an opinion on whether Citicorp issued a policy of insurance to individuals such as Mr Montclare under a group policy as distinct from granting insurance cover to the individual. He did say that there was a contract entered into between the insured and Citicorp on similar conditions to the master policy.[31]
[28]T 428.
[29]Ibid.
[30]T 505.
[31]Ibid.

Mr McCowan drafted the terms of the insurance application forms which Mr Montclare submitted to Rivkin Direct Management.

Rivkin Croll Smith Insurance Agencies, which was another company in the Rivkin group, was the marketing arm for the sale of the insurance cover. Rivkin Croll Smith Insurance Agencies, and later Rivkin Direct Insurance Agencies, sold the insurance cover by direct mail and advertising and Mr Rivkin promoted it on television programs.

On 5 June 1996, Citicorp wrote to Rivkin Croll Smith Insurance Agencies. The letter was headed ‘Broker Pool Opportunities’. The letter commenced:

As previously discussed with Max Rosas of this office, Citicorp Life has a complete range of Risk Insurance Products which can be badged and used exclusively by the Advisers representing your organisation.
You will be aware our Broker Pool alternative consists of Term, Trauma and Income Protection, and is an excellent advantage for Risk Insurance Advisers for not only the reasons of exclusivity.
….
The insurance contracts must be issued to an independent party as trustee of the plans who will be responsible for most aspects of administration, which includes production of all new business and renewal bordereaux in an acceptable format.[32]

[32]Defendant Courtbook (‘DCB’) 448–9.

Mr McCowan gave evidence that Rivkin Direct Management was the independent trustee which held the policy.[33]
[33]T 480.

The operation of group policies is described in Sutton on Insurance Law in the following terms:

An important feature of the modern life insurance market is that all products can be sold both on an individual basis as well as a group basis. The group market involves a policyowner which is either an employer or a superannuation fund. The employer group schemes are structured on the basis that the life insured is an employee or a dependant of an employee; the employer is the policyowner and can be the agent of the life insured for the purposes of the insurance. The superannuation fund schemes are structured on the basis that the life insured is a member and beneficiary of a trust fund and these dual capacities shape important features of the law on group schemes. The policyowner is the trustee of the fund. The person whose life is insured is the life insured. It is the policyowner, not the life insured, who enters into the contract, is obliged to pay the premium, has standing to claim and is entitled to receive the benefit amounts paid by the life insurer.[34]

[34]Sutton on Insurance Law, above n 27, vol 2, 599 (citations omitted).

Neither Mr Montclare nor Mr Shilton was an employee. There is an issue whether they or one of them was member or beneficiary of a trust fund.

The insurance documents

I will next describe the documents that implemented the arrangement between Citicorp and Rivkin.

The trust deed

There was a draft trust deed naming Rivkin Direct Management, which was yet to be incorporated (it was incorporated on 3 September 1996), as trustee for the purpose of acting as the legal owner of a disability, trauma and life insurance policy or policies to be effected with such life insurance companies as the trustee may direct.

The trust deed in evidence was unexecuted. It was faxed on 30 August 1996, by Rivkin Croll Smith Insurance Agencies to Citicorp, with a cover sheet on which the question was asked:

Mark, herewith is our draft Trust Deed.
Can you clarify if & when a purchaser has to complete the ‘Appendix A’ à only group business.[35]

[35]PCB 126.

Metlife did not admit that the draft trust deed was executed. Mr McCowan could not recall whether it had been, but said that he assumed that it had been because otherwise the policies would not have been marketed.[36]
[36]T 481.

The draft trust deed recited that:

A. The Trustee has resolved to act as trustee for the purpose of acting as the legal owner of a disability, trauma and life insurance policy or policies to be effected with such life insurance companies as the Trustee may select.
B. The Trustee has agreed to effect the said policy with the Life Office for the benefit of Superannuation Plan Trustees, Individuals and Employers who wish to jointly participate in a single disability, trauma and life insurance policy for the purpose of obtaining the terms and conditions which are normally available to trustees of large superannuation funds and large employers.
C. The Life Office has agreed to issue a group disability, trauma and life insurance policy to the Trustee on the lives of the members of superannuation funds, the trustees of which participate in the group pool established hereunder, on the lives of employees of employers that participate in the group pool established hereunder and on the lives of individuals.[37]

[37]PCB 127.

The deed witnessed that:

the disability, trauma and life insurance policy or policies effected for the purpose of this Deed shall be held in trust by the Trustee for the trustees of superannuation funds, individuals and employers that become parties to this Deed and the said policy or policies shall be administered in accordance with the provisions set out herein. This Trust shall be known as the Rivkin Direct Disablement and Life Pooled Trust.[38]

[38]Ibid.

‘Policy’ was defined in the draft trust deed to mean ‘the group policy or policies effected by the Trustee pursuant to the provisions of this Deed’.

The draft trust deed provided for a written application to be made to the trustee by three categories of persons. First were Superannuation Plan Trustees who wished the members of their funds to become lives insured under the ‘Policy’. Second were employers who wished their employees to become lives insured under the ‘Policy’. Third, and of relevance to this case, were individuals who wished to become insured under the ‘Policy’. Mr Montclare was said to fall into the third category. Persons in each of the categories could apply to the trustee to participate in the deed by completing the application form, which was Appendix A. The trustee could accept such applications and the successful applicant then became a ‘Participating Individual’ in the deed.

Appendix A was headed Application for Participation by a Participating Trustee, Employer or Individual and stated:

[NAME] ………………………………………………………………………………. (hereinafter called ‘the Participating Trustee’ or ‘the Participating Employer’ or ‘the Participating Individual’ as the case may be) hereby applies to participate as an equitable owner in the insurance policy (herein called ‘the Policy’) administered by Rivkin Direct Management Pty Ltd (hereinafter called ‘the Trustee’) pursuant to the Deed dated this date made by the Trustee and to include members of the superannuation fund administered by the Participating Trustee or employees of the Participating Employer or Participating Individuals as Lives Insured under the Policy and in consideration of the acceptance by the Trustee of the Participating Trustee or Employer or individual as a participant in the equitable ownership of the Policy, the Participating Trustee or Employer or Individual undertakes to make contributions to premiums under the Policy and agrees to become a party to the Deed dated this date made by the Trustee and be bound by that Deed as if it were originally named therein.
Dated this ……………………….... day of ………………...………… 199 ……….
The Common Seal of  )
……………………………..  ) ……………………………..
was affixed by the authority  )
of the Board of Directors  ) ……………………………..
in the presence of  )
……………………………..
……………………………..[39]

[39]PCB 132.

The deed defined the terms ‘Life Insured’ and ‘Participating Individual’ as follows:

‘Life Insured’ means the member of a superannuation fund (the trustee of which becomes a party to this Deed) or an employee of an Employer that becomes a party to this Deed or an individual who becomes a party to this Deed or an individual who becomes a party to this Deed and who becomes a life insured under the policy.
‘Participating Individual’ means a person who becomes a party to this Deed pursuant to the provisions hereof.[40]

[40]PCB 127–8.

Clause 7 of the trust deed provided:

7. INSURANCE PROCEEDS
Upon being advised of the occurrence of an event that is insured under the Policy, the Trustee shall make a claim under the Policy for the insurance proceeds payable in respect of that event and shall immediately, upon receipt of the proceeds of the Policy in respect of the insured event, pay the amount of those proceeds to the Participating Employer of the Life Insured or the Participating Trustee of the superannuation fund of which the Life Insured was a member or the Participating Individual or his legal personal representative.[41]

[41]PCB 129.

Of importance in this proceeding was that Mr McCowan gave evidence that, in practice, the applicant for insurance or customer did not sign the Application for Participation by a Participating Trustee, Employer or Individual contained in Appendix A, but only signed the application for insurance form.[42]
[42]T 483.

Mr Montclare submitted that Rivkin Direct Management had waived the formality of an application by persons who wished to become Participating Individuals. It was not suggested that Mr Shilton or Mr Montclare ever applied in writing to become Participating Individuals under the trust deed.

But, as no executed trust deed is in evidence and there is no evidence of Mr Shilton or Mr Montclare applying to become Participating Individuals, it is unclear how the trust deed can apply to, or assist in the identification of the legal character of Mr Montclare’s insurance cover.

I proceed on the basis that the trust deed, whether in the form of the draft trust deed that was in evidence, or in any other form, did not apply to the insurance cover that Mr Montclare obtained.

The Citicorp master policy

The Citicorp Life Insurance Master Group Life and Disability Insurance Policy (Group and Non Group Members) states that:

[i]n consideration of receiving from the Policyowner premiums as and when they fall due, we shall subject to these terms and conditions pay to the Policyowner the individual amounts of insurance set out in this Policy.[43]

[43]PCB 145.

Rivkin Direct Management was named in the first schedule as the ‘Policyowner’.

Mr McCowan was shown a copy of the master policy and said that he presumed that it was a copy of the master policy which Citicorp issued to Rivkin. Mr Montclare did not receive a copy of the master policy.

The operation of the master policy, for the purposes of the present case, turns on its definition of ‘Participating Person’, which is:

Participating Person means any person (not being a Participating Employer, Participating Trustee or Participating Entity) acting in the capacity of trustee, nominee or otherwise who applies to the Policyowner to participate in this Policy by including any persons in respect of whom the Participating Person has an insurable interest as Members under this Policy.[44]

[44]PCB 147.

Mr Montclare contended that he was a ‘Participating Person’ because he applied to Rivkin Direct Management to participate in the master policy in relation to Mr Shilton, who was the member.[45]
[45]T 1713.

The master policy provided for members: ‘Group Persons’ and ‘Non Group Persons’. Clause 2.1 states:

We may accept for membership any Non Group Person nominated by the Policyowner for insurance cover (the type of cover to be nominated by the Policyowner) equal to:
(i) the Sum Insured; and/or
(ii)the Monthly Benefit (subject to the Monthly Benefit not exceeding the Maximum Monthly Benefit).[46]

[46]PCB 150.

‘Group Person’ means a ‘person nominated by the Policyowner for membership under this Policy at the request of a Participating Trustee, Participating Employer or Participating Entity’. This definition is of persons who are usually granted insurance cover under group policies.

‘Non Group Person’ means a ‘person nominated by the Policyowner for membership under this Policy at the request of a Participating Person’. The inclusion of non-group persons extends the class of persons who can obtain cover under the policy beyond the members of a group.

When a member dies, then subject to the provisions of the policy, Citicorp pays to the ‘Policyowner’ the sum insured for that member (clause 5). The ‘Policyowner’ holds the money in trust for the benefit of the member and, where applicable, in accordance with the terms of any trust deed (clause 25). Clause 25.2 provides that all benefits will be payable in the manner set out in the first schedule. That schedule provides that death benefits are payable in a lump sum.

Clause 28, which deals with the ‘Free Look’ period for ‘Non Group Members’, refers to Participating Person receiving a certificate of insurance in stating:

If the Participating Person within 14 days of receipt of their Certificate of Insurance requests for the insurance to be cancelled, we will cancel the insurance from inception and refund any premium that has been paid.

Customer Information Brochure

Rivkin Direct Management and Citicorp issued a Customer Information Brochure for term life insurance.[47] Rivkin Direct Management’s name was at the top of the coversheet. The following information appeared at the foot of the cover:

CITICORP
Rivkin Direct   Insurance is issued by:
is marketed by:   Citicorp Life Insurance Ltd
Rivkin Croll Smith   ACN 004 274 882
Insurance Agencies Pty Ltd
ACN 073 632 292

[47]PCB 173.

Under the heading ‘Information on Your Insurance’, the brochure stated:

When your application for Rivkin Direct Term Life Insurance is accepted, a Certificate of Insurance and Policy Information Statement will be sent to you detailing the cover selected. Please ensure that these documents are read carefully in conjunction with this Customer Information Brochure.

In a ‘Q & A’ section of the brochure, the following information appeared:

Q How do I apply for Rivkin Direct Term Life Insurance?
AApplications can only be effected after completion of a current application form contained in this Customer Information Brochure.
This Customer Information Brochure is for the general public and provides information of a general nature outlining the benefits and other conditions of the Certificate of Insurance which is issued under the Master Policy.

The insurance application form

The Rivkin Direct Management application form, that was of the type that Mr Montclare and Mr Shilton completed, was on tear out pages in the middle of the Customer Information Brochure. An applicant for insurance would send the completed form and payment to Rivkin Croll Smith Agencies Direct Insurance Agencies, which would forward the payment to the administrator of the insurance, Jacques Martin Administration & Consulting Pty Ltd, which, in turn, would distribute part of the premium to Citicorp and part to Rivkin Direct Insurance Agencies.[48] All cheques were to be made payable to ‘Rivkin Direct Trust Account’.
[48]T 485, 489, 492, 499.

Next, the application form would be sent to Citicorp, where underwriters would assess the application and might require the applicant to undergo a medical examination. Citicorp would advise Rivkin Direct Management of the life cover that it was willing to grant and confirm the premium rate.[49]
[49]T 493, 499, T (2011) 82.

Mr Montclare’s insurance application forms

Mr Montclare and Mr Shilton forwarded two insurance application forms, the first was for $300,000 cover and the second for $1.1 million, and they are described below.

Customer Purchase Record

The insurance applicant to whom cover was granted received a Customer Purchase Record and had a 14 day cooling off period. The Customer Purchase Record in this instance recorded the following customer details: the applicant as John Montclare Enterprises and the life insured as Graham Shilton. This misspelt Mr Shilton’s first name of Graeme. It nominated Rivkin Croll Smith Insurance Agencies as agent of the life office, which in turn was described as Citicorp. The insurance was described as Rivkin Direct Term Life Insurance with cover of $300,000.

Policy Information Statement

On 3 February 1999, the administrator of Rivkin Direct wrote a letter to Mr Montclare headed ‘Rivkin Direct Term Life Insurance Policy Information Statement’ (‘Policy Information Statement’), which stated:

Thank you for selecting Rivkin Direct as your choice of Term Life Insurance.
Please find attached your Certificate of Insurance which is evidence of the contract between yourself, Rivkin Direct Management Pty Ltd and the insurer, Citicorp Life. A schedule is attached to your Certificate and together these documents provide full details of your cover.[50]

[50]PCB 202.

The letter summarised Mr Montclare’s insurance cover and included the following details:

Rivkin Direct Term Life Insurance Cover
Should the Life Insured die while the insurance remains in force, subject to the exclusions outlined in the certificate, the Sum Insured will be paid to you. If Life Insured is diagnosed as being terminally ill with a remaining life expectancy of less than 6 months, then the sum insured or $750,000, whichever is the lesser will be paid.
…
Exclusions
There will be no entitlement to a Death Benefit in the event of suicide occurring within 13 months of the date of commencement or reinstatement of the Insurance. A Terminal Illness Benefit will not be payable if the illness or injury arises from self inflicted injury (or complications arising thereafter).[51]

[51]PCB 203.

The Policy Information Statement stated that Rivkin Direct Term Life Insurance is issued from the No 1 Statutory Fund of Citicorp Life Insurance Ltd ACN 004 274 882.

The first certificate of insurance

The Policy Information Statement sent to Mr Montclare was accompanied by a certificate of insurance of seven pages. The schedule to the certificate was signed ‘for and on behalf of Rivkin Direct’ but was not signed by Metlife. Metlife’s case is that the certificates of insurance contained the terms of the insurance contract under which Mr Montclare was an insured.

The certificate stated:

This Certificate of Insurance sets out the cover provided under a Master Group Life and Disability Insurance Policy (dated 1 October 1996) between Citicorp Life Insurance Ltd and Rivkin Direct Management. In the event of the Death, Terminal Illness or Total and Permanent Disablement (if applicable) of the Life Insured, any Benefits payable under that Policy will be paid directly by the Insurer to us as trustee. We will then pay the Benefit to you in accordance with this Certificate of Insurance.[52]

[52]PCB 206.

The ‘us’ referred to was Rivkin Direct Management and the ‘you’ was Mr John Montclare.

Mr Graeme John Shilton was listed in the schedule as the life insured.

Under the heading ‘Policy Cover’, the certificate stated:

(a)Insurance cover will be provided under this Certificate for an initial period which commences on the Commencement Date and ends on the first Annual Renewal Date provided you have paid the ‘Total Initial Premium’ (or the first instalment) specified in the Schedule.
(b)Subject to the age limitations contained in this Certificate, we shall renew cover for further periods of one year upon receiving your request to do so accompanied by the total annual premium (or the first instalment for that year) prior to the expiry of each period of annual cover.
(c)Your entitlement to any Benefit is subject to the terms and conditions of this Certificate and any special conditions contained in the Schedule.
(d)This Certificate is issued on the basis of the information disclosed to the Insurer in the application form, as well as in the personal statements and declarations made by you and the Life Insured.
(e)All Benefits payable under this Certificate shall be paid in Australian Dollars.[53]

[53]PCB 207.

There were no special conditions contained in the schedule.

The certificate described the ‘Death Benefit’ as payable:

(a) If during any period of cover the Life Insured should die, then we will pay you the Sum Insured that has been paid to us by the Insurer.
(b) Where a Death Benefit is paid it will discharge all of the Insurer’s obligations under the Master Policy and no further benefits of any kind shall be payable under this Certificate.[54]

[54]Ibid.

The certificate described the circumstances in which insurance liability ceased, which included ‘upon cancellation of this insurance or the Master Policy for any reason’.

The issuing of the certificate was recorded in Jacques Martin Administration & Consulting Pty Ltd’s bordereau report for February 1999, which was sent to Citicorp.

The second certificate of insurance

A second certificate of insurance was issued to Mr Montclare for term life cover of $1.1 million with a commencement date of 10 June 1999.

The second certificate was dated 7 January 1999, but that appears to have been in error as it was accepted by the underwriters on 8 June 1999.[55] Mr Montclare gave evidence that he received it.[56]
[55]PCB 243–4.
[56]T 100–1.

The second certificate was also signed by Rivkin Direct.[57] It did not have an accompanying Policy Information Statement, although Mr Gary Ridgeway, who was called as a witness in the plaintiff’s case, stated that such a letter would have been sent. Mr Ridgeway commenced employment with the second defendant, Rivkin Direct Insurance Agencies, in late 1998 and was its manager and sole employee.
[57]PCB 246.

The opening paragraph of the second certificate stated:

This Certificate of Insurance sets out the cover provided under a Master Group Life and Disability Insurance Policy (dated 1-10-1996) between Citicorp Life Insurance Ltd ACN 004 274 882 and Rivkin Direct Insurance Agencies Pty Ltd ACN 073 632 292. In the event of the Life Insured’s Death or Terminal Illness or Total and Permanent Disablement (where chosen as an option) any Benefits payable under that Policy will be paid directly by the Insurer to us as trustee. We will then pay the Benefit to you in accordance with this Certificate of Insurance.

The pronoun ‘you’ was defined as Mr J Montclare.

Mr McCowan said that the second certificate of insurance was incorrect because it referred to a master group life and disability insurance policy between Citicorp and Rivkin Direct Insurance Agencies, whereas the Rivkin company named should have been Rivkin Direct Management.[58] Rivkin Direct Insurance Agencies never entered into a master policy.
[58]Ibid; T 490.

The insurance certificates were signed on behalf of ‘Rivkin Direct’ without further identification of the company that was intended to be referred to.

Mr Ridgeway said that amounts payable under claims were paid directly to the claimant, who was entitled to the benefit of the life insurance and not to any trustee or intermediary.[59] In this case, Mr Montclare wrote to Mr Ridgeway on 4 October 2001 requesting that a settlement cheque be sent to him as the certificate holder.
[59]T (2011) 83.

The second certificate contained a few provisions that were not in the first certificate. One was an ‘Important Notice’ which stated:

This is not a savings plan. The primary purpose of this policy is to provide a benefit in the event of your death or total and permanent disablement (if selected). If you terminate your plan at anytime, you will not get anything back.[60]
[60]PCB 246.

Legal principles relating to group policies

Before summarising the parties’ submissions on whether Mr Montclare was an insured, it is important to consider further the legal relations created by group policies. Mr Montclare’s case is that his insurance cover arose under a group scheme and not as a party to a contract of insurance. It is important to keep in mind that Mr Montclare was not seeking insurance as an employee, who was a member of an employer group or insurance which was an additional benefit attached to a superannuation scheme. He was seeking insurance as an individual on the life of another person, Mr Shilton, although under an arrangement that provided insurance cover to members of a group.

I have previously quoted the passage from Sutton on Insurance Law concerning group policies.

In Hannover Life Re of Australasia Ltd v Sayseng[61], Santow JA, with whom Spigelman CJ and Tobias JA agreed, described the group life policy under consideration as follows:

The Group Life Contract was an agreement to pay benefits to the Trustee, and Insured Persons were not intended to be parties to it. Hannover did not insure or purport to insure Mr Sayseng, and nor is he entitled to recover pursuant to s 48(1) of the Insurance Contracts Act 1984.

[61][2005] NSWCA 214, [30].

In Erzurumlu v Kellogg Superannuation Pty Ltd,[62] Ball J stated:

Although a member is not a party to the contract with the insurer who provides insurance cover to the trustee of a superannuation fund, the member has standing to enforce the contract as a beneficiary of the trust which holds the insurance policy as one of its assets. The member does not have a personal claim but is entitled to seek an order that the insurer pay to the trustee the amount due to the trustee under the contract: Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945 at [78]ff.

[62][2013] NSWSC 1115, [54].

The High Court decision in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd[63] recognised the right of a person who is entitled to claim under an insurance policy to sue to enforce that rights.
[63](1988) 165 CLR 107.

However, the position of an individual who applies for life insurance cover on the life of another person under a group policy appears not to have been considered in detail by any authority.

Provisions of the ICA dealing with the rights of third parties to enforce contracts of insurance

Prior to June 2014, there was no provision in the ICA imposing obligations of disclosure or liabilities for making misrepresentations on third party beneficiaries under life insurance policies.

Section 48 of the ICA imposed those obligations on third party beneficiaries only in respect of contracts of general insurance and not in respect of contracts of life insurance.[64]
[64]See Green v AMP Life Ltd [2005] NSWSC 370, [80]–[81] and [2005] NSWACA 354 (appeal dismissed).

Section 48A applied to life policies for the benefit of another person, but did not impose any obligations of disclosure or penalties for making misrepresentations. In any event, it has been interpreted as relating to policies effected by persons on their own lives and not to policies effected by another, for example a superannuation fund trustee for the benefit of members.[65]
[65]See Hannover Life Re of Australasia Limited v Sayseng [2005] NSWCA 214; Peter Mann and Candace Lewis, Mann’s Annotated Insurance Contracts Act (Thomson Reuters, 6^th ed, 2014) 318.

Clarke JA in C E Heath Casualty & General Insurance Ltd v Grey, considering the provisions of Part IV of the ICA, stated:[66]

What is clear from these provisions is that the obligation to disclose, and not to make misrepresentations, is cast upon a person intending to enter into a contract of insurance and the consequences of non-compliance are visited only upon persons who actually enter into such a contract. What is of greater importance is the fact that there is no obligation to disclose, or not misrepresent, before a contract is entered into, imposed upon a person entitled to recover the amount of a loss pursuant to s 48(1). Nothing in s 28 provides that anything he or she does, or fails to do, before the contract is concluded in any way disentitles him or her from successfully maintaining a claim.

[66](1993) 32 NSWLR 25, 46.

Recently, in ABN AMRO Bank NV v Bathurst Regional Council,[67] a Full Court of the Federal Court consisting of Jacobson, Gilmour and Gordon JJ applied the reasoning of Clarke JA and stated:

We do not think it was intended that where a non-party who is, under the contract, defined as one of the insured failed, fraudulently, to comply with the duty of disclosure under s 21, this could result in the avoidance of the contract between the insurer and the innocent insured, the other party to the contract.

[67](2014) 224 FCR 1, [1644].

The question of the rights and obligations of third party beneficiaries under contracts was considered in the Review of the Insurance Contracts Act 1984 (Cth) (‘the Review’) which was commissioned by the Commonwealth Government and published in June 2004. The Review recommended that:

Section 48A of the [Insurance Contracts] Act should be amended so that: … it is clear that a third party can bring an action against an insurer without the intervention of the policy owner …[68]

[68]Alan Cameron and Nancy Milne, ‘Review of the Insurance Contracts Act 1984 (Cth) — Final Report on Second Stage: Provisions other than Section 54’ (Commonwealth of Australia, June 2004) 93.

The Review also recommended that third party beneficiaries under contracts of insurance should have:

·the same rights and obligations as an insured for the purposes of subrogation;
· the duty of utmost good faith (but not pre-contractually) …[69]
[69]Ibid 88.

The Review led nine years later to the passage of the Insurance Contracts Amendment Act 2013 (Cth), which substituted new subsections (1), (2) and (3) of s 48 and (1) and (2) of s 48A of the ICA, which new subsections commenced on 28 June 2014. The new subsections had the following intention:

The intent of sections 48 and 48AA (as amended) is that third party beneficiaries should be in no better position, in terms of their ability to claim, than the insured. An insurer should be entitled to raise defences relating to the conduct of an insured, including conduct occurring prior to the time the contract was entered into.
To make it clear that, in defending an action by a third party beneficiary:
•an insurer may raise defences relating to the conduct of the insured; and
•the conduct that may be raised may have occurred either after the contract was entered into or before (for example, non-disclosure).[70]

[70] Explanatory Memorandum, Insurance Contracts Amendment Bill 2013 (Cth) 43.

The new s 48 deals with contracts of general insurance and the new s 48A with life policies. Section 48A provides:

48A Life policy for the benefit of third party beneficiary
(1)The following paragraphs have effect in relation to a contract of life insurance to the extent that the contract is expressed to be for the benefit of a third party beneficiary (who may be the life insured):
(a)the third party beneficiary has a right to recover from the insurer any money that becomes payable under the contract even though the third party beneficiary is not a party to the contract;
(b)if the third party beneficiary is not the life insured, any money paid to the third party beneficiary under the contract does not form part of the estate of the life insured.

(1A)Paragraph (1)(a) has effect in relation to a contract of life insurance that is maintained for the purposes of a superannuation or retirement scheme, subject to:
(a) the terms of the contract and the scheme; and
(b) any other law;
relating to the payment of money under the contract or the scheme.

(2) Subject to the contract, the third party beneficiary:
(a)has, in relation to the third party beneficiary’s claim, the same obligations to the insurer as the third party beneficiary would have if the third party beneficiary were the insured; and
(b)may discharge the insured’s obligations in relation to the payment of any money to the third party beneficiary under the contract.

(3)Nothing in this section restricts the capacity of a person to exercise any right or power under a contract of life insurance to which the person is a party. In particular, nothing in this section restricts the capacity of a person:
(a)to surrender a contract of life insurance to which the person is a party; or
(b)to borrow money on the security of a contract of life insurance; or
(c)to obtain a variation of a contract of life insurance, including a variation having the result that the contract ceases to be a contract to which this section applies.

This legislative history is significant because it establishes that the ICA, at the time relevant to these proceedings, did not impose the obligations of an insured on a third party beneficiary to a life insurance contract. The ICA has imposed those obligations on third party beneficiaries only since June 2014.

If Mr Montclare’s submissions are correct, he was not a party to a contract of insurance to which the ICA applied, but was a third party beneficiary under the master policy or a third party with rights to enforce it. On that argument, the ICA imposed no obligation on him to make disclosure, nor did it provide Citicorp with any remedy against him if he failed to disclose material facts or made a misrepresentation, even a fraudulent misrepresentation. If Mr Montclare is correct in this submission, then subject to some technical arguments about the identification of the correct Rivkin company that he needed to sue and the determination of Metlife’s set-off, he would succeed regardless of any fraudulent conduct on his part or by Mr Shilton.

I state again that it is important to keep in mind that Metlife did not rely on a defence that Mr Montclare had breached his duty of utmost good faith that is prescribed by s 13 of the ICA or is recognised at common law.

Submissions about whether Mr Montclare was an insured under the ICA
Mr Montclare’s submissions

Mr Montclare submitted that insurance cover was provided under the master policy issued by Metlife to Rivkin Direct Management on or about 1 October 1996 and under a trust arrangement made between Rivkin Direct Management and Mr Montclare in 1999. No contract of insurance was entered into in 1999. For the purposes of the ICA, the trustee, Rivkin Direct Management, was the ‘insured’, as it was the contracting party to the master policy that Citicorp issued. Mr Shilton was the ‘life insured’. Mr Montclare was a beneficiary under the trust, and a ‘third party beneficiary’ for the purposes of the ICA. Because Mr Montclare was not an insured, he was not subject to the provisions of the ICA concerning non-disclosure or misrepresentation.

Premiums were paid to the Rivkin trust account and the bordereau account referring to the premiums paid by Mr Montclare were recorded as part of the master policy accounts. Approximately 300 policies were issued under the master policy.[71]
[71]T 1712, T (2011) 113.

Mr Montclare was a ‘Participating Person’, who applied to the ‘Policyowner’, Rivkin Direct Management, to participate in the master policy by including Mr Shilton as a member under the policy.

Metlife treated Mr Montclare’s claim as made under the master policy and processed his application under the trust deed and group policy arrangement without attending too closely to the details required by that arrangement.

The master policy and the trust deed were drawn in contemplation of, and by reference to, each other. The certificates of insurance described the life cover provided under the master policy.

Mr Montclare’s case, that he had insurance cover, relied on a number of the documents to which I have referred, including the Customer Information Brochure, Citicorp’s letter of 5 June 1996 to Rivkin Croll Smith Insurance Agencies and the certificates of insurance. He submitted that he was treated as a ‘Participating Person’ without having to have made a written application to be so treated.

The Policy Information Statement that accompanied the first certificate of insurance stated: ‘[p]lease find attached your Certificate of Insurance which is evidence of the contract between yourself, Rivkin Direct Management Pty Ltd and the insurer, Citicorp Life’.[72] That did not evidence a contract of insurance between Citicorp and Mr Montclare. Rather it was ‘a shorthand way of saying there is a contractual arrangement, i.e. for the due administration of the trust between Mr Montclare and Rivkin Direct Management and a contract, being the master policy, between Rivkin Direct Management and Citicorp Life’.[73] Rivkin Direct Management was obliged to make claims on behalf of Mr Montclare under the master policy and was bound, as trustee, to pay any amount that it received to him.
[72]PCB 202.
[73]T 1714–5.

The certificates of insurance certified to the beneficiary that the trustee would act in accordance with the trust deed, and established that the insurance had been effected pursuant to the master policy.

Alternatively, Mr Montclare submitted that he and Mr Shilton were joint members under the master policy.

Metlife’s submissions

Metlife submitted that the certificates of insurance were ‘self-contained’ contracts of insurance between it and Mr Montclare. The certificates substantially recorded the terms and conditions of the contract or contracts of insurance.

The policy of life insurance was not issued under the master policy. If it had been, only Mr Shilton could have been a member entitled to benefits and only his estate could claim the amount insured. Mr Montclare and Mr Shilton never applied to become members of the master policy under the procedures set out in it and the trust deed. The trust deed was not mentioned in the Customer Information Brochure and it did not form part of the insurance arrangement.

The Policy Information Statement referred to the attached certificate of insurance and described it as ‘evidence of the contract between yourself, Rivkin Direct Management Pty Ltd and the insurer, Citicorp Life’.[74] This was an assertion of a tripartite contract, with Mr Montclare as the insured and Citicorp the insurer. Rivkin Direct Management was not an insurer or the insured but the recipient and trustee of any benefit paid by Citicorp for the certificate holder.
[74]PCB 202.

There were two contracts of life insurance for the purposes of the ICA, which arose from the two applications for life insurance made by Mr Montclare with Mr Montclare being the insured and Citicorp the insurer. The written terms of the two contracts were contained in the Customer Information Brochure, the first and second applications for life insurance by Mr Montclare and the related certificates of insurance, schedules and Policy Information Statement dated 3 February 1999.

Each application gave rise to a contract of insurance based on a conventional contractual analysis of offer, acceptance and consideration. By completing the application forms, Mr Montclare made offers to Metlife to enter into a contract of life insurance. Mr Montclare’s offers were accepted by Citicorp by its issue of the Policy Information Statement and the first and the second certificates.

Mr Montclare’s interpretation of the arrangement would produce an unbusiness-like and absurd result. It would render pointless the disclosures that Mr Shilton made in the two insurance applications.

Metlife relied on the House of Lord’s decision in Swain v The Law Society,[75] which considered an arrangement whereby premiums were paid by solicitors when effecting insurance under Law Society’s professional indemnity scheme, which was a compulsory scheme established under statute. The brokers employed by the Law Society received a commission from the insurers on the premium paid and shared it with the Law Society, which used the money for the benefit of the profession as a whole. The question determined was whether the Law Society was accountable to solicitors for the money that it received under a commission-sharing agreement. The House of Lords held that it was not, because it was not a trustee of the master policy contract. Lord Brightman described the insurance arrangement in place as:

(1) The master policy [which] is a contract between the insurers and The Law Society under which the insurers bind themselves to provide solicitors with insurance on the terms of the certificate of insurance on payment of the appropriate premium, and to provide insurance for former solicitors without payment of premium [and] (2) The certificate of insurance [which] evidences a contract between the insurers and the named solicitor under which the insurers bind themselves to indemnify the solicitor and all others who come within the definition of the assured.

[75][1983] 1 AC 598, 616.

Mr Montclare submitted that Swain’s Case was not analogous to the present circumstances as it concerned attempts to characterise a statutory scheme as imposing a trust relationship on the Law Society, in circumstances in which there was an agreement between the trustee and the insurer that the insurer would enter into contracts with the solicitors. I agree that the circumstances considered in Swain’s Case are quite different from those in the present case, and it is therefore not of direct assistance in resolving this case.

Consideration of submissions

The issue for decision is whether Mr Montclare obtained life insurance cover from Citicorp under a contract of insurance regulated by the ICA and, therefore, was an insured under the ICA with the duties of disclosure and subject to the liabilities for misrepresentation imposed on an insured by that Act.

I consider that the certificates of insurance were contracts of insurance for the purposes of the ICA. They were contracts of insurance that provided for the payment of money on the death of a person. They stated both that the cover was provided under the certificates of insurance and that it was provided under the master policy. They stated that Citicorp provided life insurance cover to Mr Montclare ‘under this Certificate’. They repeated many of the provisions of the master policy. The fact that the insurance cover given under the certificates of insurance was, in turn, provided under the master policy does not prevent the certificates from being contracts of insurance.

Certificates of insurance can constitute insurance contracts. Professor M Clarke in his work, The Law of Insurance Contracts,[76] states that if a certificate appears to be a complete statement of the insurance contract, subject to contrary terms in the certificate, that should preclude reference to the policy at all, especially if the certificate contains a statement that it shall take the place of the policy. If the certificate is evidently not a complete statement of the terms of the contract of insurance, the courts have compared the contents of the certificate and the policy and held, in case of conflict, usually in favour of the insured, that the certificate prevailed.
[76]Malcolm A Clarke, The Law of Insurance Contracts (LLP, 4^th ed, 2002) 454–55.

In Kelly and Ball Principles of Insurance Law, the authors state:

There is much less difficulty in identifying the terms of the final contract than there is in identifying the terms of interim cover. The terms of the final contract are normally found in the policy or, less frequently, in the master policy referred to in the certificate of insurance that is given to the insured.[77]

[77]David St L Kelly and Michael Ball, Kelly and Ball Principles of Insurance Law, Butterworths (at Service 43) [5.0040].

A certificate of insurance can in appropriate circumstances be the legal instrument conferring rights and imposing obligations on an insured.

The two certificates of insurance were contracts whereby Citicorp agreed to provide insurance cover. The certificates gave Mr Montclare, as certificate holder, the right to claim insurance benefits from Citicorp. Those were benefits that were to be provided under the master policy. The certificates contained Mr Montclare’s entitlement to receive benefits provided by the master policy, subject to any modifications contained in the certificates. Those features of the certificates are sufficient to constitute the certificates as contracts of insurance. Viewed objectively, the certificates gave Mr Montclare enforceable legal rights. The fact that insurance entitlements had their source in the master policy did not prevent Mr Montclare’s contractual entitlements being contained in, and arising from, the certificates of insurance. The master policy envisaged that certificates of insurance would be issued. It is true that the certificates were signed by Rivkin Direct, but they were sent to Mr Montclare as a result of Citicorp’s approval of his application for life insurance cover.

The master policy was a group policy and Rivkin Direct Management was not an employer or a superannuation fund trustee, but was the ‘Policyowner’. However, the master policy allowed individuals, namely ‘Non Group Persons’, to become members and it allowed persons to participate by becoming ‘Participating Persons’. Although the master policy was part of a group insurance scheme, the certificates of insurance could still be contracts of insurance for the purposes of the ICA.

The insurance cover was issued by Citicorp. Rivkin Direct Management was the ‘Policyowner’ under the master policy but received any payments under the policy on trust. That obligation explains why the Policy Information Statement described the certificate of insurance as evidence of a contract of insurance between Mr Montclare, Rivkin Direct Management Pty Ltd and Citicorp Life.

Under the certificates of insurance, amounts paid under the policy are made in respect of a member (clauses 4.2 and 25.1 of the master policy), but are made to the ‘Policyowner’, who pays them to the certificate holder.

I do not consider that Mr Shilton or Mr Montclare ever became ‘Non Group Persons’ or Participating Individuals under the master policy. Instead, the benefits payable under the certificates of insurance were agreed to be paid to Mr Montclare under the master policy without him participating in the group scheme in relation to which the master policy played a central role. The scheme of insurance cover upon which Mr Montclare relied was never implemented in his case. Rather, Citicorp issued certificates of insurance to him. I consider that those certificates were contracts of insurance.

The master policy and the certificates of insurance both stated that the payment of entitlements following a claim discharged all the insurer’s obligations under the master policy, and that no further benefit would be payable under the certificates. That statement reflected the fact that the entitlements were payable pursuant to the master policy. However, Mr Montclare’s right to obtain those entitlements was conferred by the certificates of insurance.

It is significant, but not decisive, that any amount payable on a life insured’s life was payable to Rivkin Direct Management to be held for Mr Montclare. Mr Montclare had the right to notify Rivkin Direct Management of an entitling event and it would then notify Citicorp. Citicorp agreed to pay any sum due to Rivkin Direct Management, which, in turn, agreed to hold the sum on trust for Mr Montclare and pay it to him. The evidence of Mr Ridgeway suggests that Citicorp did not apply this practice and that Citicorp dealt directly with the person who held the insurance cover. The interposition of Rivkin Direct Management between Citicorp and Mr Montclare does not prevent the certificates of insurance being contracts of insurance. Mr Montclare’s right under the certificates to make a claim and receive entitlements from Citicorp through Rivkin Direct Management was evidence of the contract or contracts of insurance between Mr Montclare and Citicorp.

The object and purpose of these certificates of insurance were to provide life insurance payments to Mr Montclare upon Mr Shilton’s death. Insurance policies are to be interpreted as commercial documents and with a view to achieving their purpose. As Gleeson CJ stated in McCann v Switzerland Insurance Australia Ltd:[78]

A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.

[78](2000) 203 CLR 579, [22] (citations omitted).

His Honour also stated in International Air Transport Association v Ansett Australia Holdings Ltd[79] that:

In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contact calls for an understanding of the genesis of the transaction, the background, and the market.

Secondly, an insured person should not be in a position to profit from his fraud … By his conduct, the defendant has prevented Tyndall from obtaining further medical evidence for the purpose of deciding whether it will accept the risk and enter into the policy. Tyndall was denied the opportunity of establishing the true facts and denied the opportunity of deciding not to accept the risk. If insurers must discharge this difficult evidentiary task, that will in turn severely diminish any incentive for fraud.[582]

[581][1999] SASC 445.

[582][1999] SASC 445, [96]–[98].

Debelle J also considered the position of a ‘take up option’, which entitled the insured, after a medical event had occurred, to obtain additional life insurance, and stated:

Tyndall has not led evidence to prove that it would not have been prepared to enter into the contract on any terms if the defendant had complied with the duty of disclosure and had made no misrepresentation. The facts to be proved under s 29(3) of the Act differ from those to be proved under s 29(1)(c). In the absence of such evidence, Tyndall cannot rely on s 29(3).[583]

[583]Ibid [110].

As Debelle J observed, there is a difference in the structure of s 29(1)(c) and s 29(3). The difficulties confronting an insurer in establishing its actions in hypothetical situations are inherent in the provisions of the ICA which give insurers remedies if they can establish misrepresentations or non-disclosures. Section 29(3) places an onus on the insurer to prove that it would not have been prepared to enter into a contract of insurance with the insured on any terms.

I consider that the application of the words of s 29(1)(c) and (2) leads to the same conclusion as Davies JA reached in Schaffer’s Case in respect of innocent misrepresentation under s 29(3), where the insurer seeks further information before making a decision on whether to grant insurance cover. Where the insurer says that, if there had been no non-disclosure or misrepresentation and therefore disclosure had occurred, it would have required further information and made further investigation, it must prove that, at some point, the applicant’s offer would probably have been declined.

This conclusion appears to be the view of the authors of Sutton on Insurance Law in the following passage concerning s 29(3):

It is not necessary for the insurer to prove that it would have made a final decision declining the insurance at the time it actually entered into the contract. It is not sufficient to ground the avoidance right that the insurer would have deferred the decision. It must be shown that the particular insurer would not have entered into the contract presumably on the same terms, conditions or premium, had he or she known the true position.[584]

[584]Sutton on Insurance Law, above n 27, vol 2, 630 (citations omitted).

I consider that Metlife has proved that, applying the negatives contained in s 29(1)(c), Citicorp would not have entered into the same life insurance contract with Mr Montclare if Mr Shilton had not made the fraudulent misrepresentations about his medical history that I have found that he did.

I consider that the evidence establishes that upon an affirmative answer being given to the question and the condition of depression being disclosed, Metlife would have sought further information from Dr Kahans and Mr Shilton. Although medical questionnaires were not being used in 1998 and 1999, the other mental health files to which I have referred, indicate that information was often sought from treating doctors, usually general practitioners. Mr Shilton’s general practitioner, Dr Burgin, had only seen him on a few occasions for minor ailments. So, it is likely that Metlife would have sought information from the last treating psychiatrist, Dr Kahans.

I consider that Dr Kahans, in 1998, would have reported that Mr Shilton had suffered from reactive depression and had attempted suicide in 1989. Mr Shilton’s suicide attempt in 1989 was a significant factor, not present in any of the Metlife mental case files examined at the trial. In those circumstances, I consider that the effect of Mr Haber’s evidence was that Metlife would, at best, only have granted insurance with a loading.

Citicorp would not have had access to the friends’ evidence of Mr Shilton’s statements about suicide. Nor, obviously, would it have had access to the evidence of the three expert psychiatric witnesses

I accept the explanation for Mr Bereny not giving evidence. I am not persuaded that the fact that other Citicorp underwriters were not called is decisive in this case. This is because of my assessment of Mr Haber’s evidence. It has to be borne in mind that Citicorp had a small number of staff in its underwriting department.

I found Mr Haber’s evidence persuasive. He gave clear evidence that Citicorp would not have entered into the same contract of insurance if Mr Shilton had not made the misrepresentation. He had no association with Metlife and appeared independent. He readily agreed to propositions that did not assist Metlife’s case. Examples of this were his evidence in respect of Metlife’s decisions about whether to issue insurance if it had learned that Mr Shilton had not signed the four documents, or if it had learned of NRMA’s refusal to provide insurance cover.

I do not consider that Mr Haber’s evidence was the exercise of hindsight. He did assume that Mr Shilton had suffered suicidal ideation in the 1990s and there was no evidence of that. However, he gave evidence of a number of scenarios in which no suicidal ideation was present, but in which he considered that Citicorp would have imposed a loading.

Mr Haber’s evidence gained some support from the other mental health applications that were referred to in evidence. The other cases were evidence of actual office practice, which can be of more assistance than guidelines.[585] Mr Haber’s evidence suggests that each case was looked at individually.
[585]Cf Duthie v Rolf H Wick & Assoc Pty Ltd (1994) 120 ACTR 1, 8-9.

Mr Haber placed considerable importance on the fact that Mr Shilton had attempted suicide. That made the case a greater risk than other cases which he had underwritten.

I accept Metlife’s submission that Mr Haber’s evidence about whether it would have entered into the first contract of insurance is also applicable to the issue of whether it would have entered into the second contract of insurance. There is no material difference between the issues relevant to Citicorp’s entry into the first contract of insurance and its entry into the second contract.

There is force in the opinion of Debelle J in Tyndall’s Case[586] that an insured should not be able to benefit from fraud which has resulted in the insurer deciding not to seek further information before deciding to insure. In all areas of the law, including insurance law, fraud usually unravels everything. But s 29(2) does not adopt that approach. The insurer carries the onus of proving that it would not have entered into the contract. Nor has its case been assisted by the absence of Mr Bereny’s evidence. I also take into account the danger of hindsight being exercised, particularly when all the witnesses knew how Mr Shilton’s life ended.
[586][1999] SASC 445.

However, I consider that Metlife has established that it is probable that if Mr Shilton had not made the misrepresentation, had answered the question in the affirmative and had disclosed his condition of depression and treatment by Dr Kahans, then after receiving a report from Dr Kahans, Citicorp would not have insured Mr Shilton’s life on the terms ultimately entered into.

I will now consider an alternative consideration. I will express my conclusions on the assumption that Mr Shilton’s misrepresentations arising from the answer to question 9H had been innocent. In those circumstances, I would not have been satisfied that Metlife had established that it was entitled to avoid the insurance contracts under s 29(3).

It is unclear, in view of Mr Haber’s differing responses to the hypotheses put to him, whether the insurer would have refused to provide cover on any terms or granted it, and, if so, on what terms and subject to what loading.

Conclusion

Metlife has established that it would not have entered into the same contract of insurance with Mr Montclare if the misrepresentation in answering question 9H had not been made.

Should the Court disregard the false answer?

The next issue is Mr Montclare’s submission that the Court ought exercise its overriding power under s 31 to disregard Metlife’s avoidance of the contracts of insurance, as it would be harsh and unfair, in the circumstances, not to do so and the insurer had not been significantly prejudiced by the failure of disclosure or misrepresentation. Section 31 deals with circumstances where the issue is whether, despite the insured having been guilty of fraud, relief should nevertheless be granted to him or her.[587]
[587]Plasteel Windows Australia Pty Ltd v C E Heath Underwriting Agencies Pty Ltd (1989) 5 ANZ Ins Cas 60-926, 75,973.

Section 31 of the ICA states:

31 Court may disregard avoidance in certain circumstances
(1)In any proceedings by the insured in respect of a contract of insurance that has been avoided on the ground of fraudulent failure to comply with the duty of disclosure or fraudulent misrepresentation, the court may, if it would be harsh and unfair not to do so, but subject to this section, disregard the avoidance and, if it does so, shall allow the insured to recover the whole, or such part as the court thinks just and equitable in the circumstances, of the amount that would have been payable if the contract had not been avoided.
(2)The power conferred by subsection (1) may be exercised only where the court is of the opinion that, in respect of the loss that is the subject of the proceedings before the court, the insurer has not been prejudiced by the failure or misrepresentation or, if the insurer has been so prejudiced, the prejudice is minimal or insignificant.
(3)In exercising the power conferred by subsection (1), the court:
(a)shall have regard to the need to deter fraudulent conduct in relation to insurance; and
(b)shall weigh the extent of the culpability of the insured in the fraudulent conduct against the magnitude of the loss that would be suffered by the insured if the avoidance were not disregarded;

but may also have regard to any other relevant matter.
(4)The power conferred by subsection (1) applies only in relation to the loss that is the subject of the proceedings before the court, and any disregard by the court of the avoidance does not otherwise operate to reinstate the contract.

Metlife submitted that it had been significantly prejudiced by the failure to disclose or misrepresentations and, therefore, s 31(2) did not apply.

I do not consider that the Court should disregard the avoidance of the insurance contract under s 31 of the ICA on the facts of this case. It would not be harsh and unfair not to do so. Mr Montclare has to establish that the avoidance should be disregarded. I am not persuaded that in respect of the misrepresentation in the answer to question 9H that it would be harsh and unfair to allow Metlife to avoid the contract. The evidence suggests that that question was important and that an affirmative answer would have probably have affected the terms upon which any insurance would have been issued.

The following statement of Debelle J in Tyndall Life Insurance Co Ltd v Chisholm[588] is applicable:

In other words, this is a case where the insurer has been prejudiced by the non-disclosure and misrepresentation. It was induced to enter into the contract because of the non-disclosure and misrepresentation. It would not have done so had full disclosure been made, thus providing it with an opportunity to investigate the cause of the bleeding. Tyndall has made a substantial payment. The prejudice to it is not minimal or insignificant. The onus is on the defendant to establish an absence of prejudice for the purposes of s 31(2) …[589]
[588][1999] SASC 445.
[589]Ibid [103] (citation omitted).

Conclusion

Metlife has established that it was entitled to avoid the contracts of insurance that it entered into with Mr Montclare. It did avoid those contracts either by Citicorp’s solicitors’ letter sent on 6 December 2001 or by its defence filed in this proceeding.

Section F. Metlife’s claim to a set-off
Breach of duty of care

Metlife contended that if it had not entered into a contract of insurance with Mr Montclare that was governed by the ICA, then it could set-off any amount for which it was liable to Mr Montclare by the damages it could recover from him and Mr Shilton under separate causes of action.

I have decided that the contracts of insurance were subject to the ICA and therefore the determination of these alternative claims is not strictly required. But in case I am wrong in my conclusions, I will consider these alternative claims.

Metlife alleged that Mr Montclare and Mr Shilton engaged in negligent misrepresentation. In its defence, it pleaded the following:

[A]t all material times, in circumstance where:
(a) the plaintiff and the deceased knew that the first defendant would rely on the information contained in the first application, the second application and the purpose of cover representation in deciding whether to enter into a policy of insurance with the plaintiff in respect of the deceased’s life;
(b)it was reasonably foreseeable that the first defendant would suffer loss if the plaintiff and the deceased did not ensure that all information contained in the first application, the second application and the purpose of cover representation was accurate;
(c)the first defendant was vulnerable to damage if the plaintiff and the deceased failed to exercise reasonable care in completing the first application, the second application and in making the purpose of cover representation

the plaintiff and the deceased owed a duty of care to the first defendant to ensure that the information contained in the first application, the second application and the purpose of cover representation was accurate and/or that they disclosed all relevant information to the first defendant.[590]

[590]Defence [40].

Metlife submitted that Mr Montclare and Mr Shilton breached this duty of care by failing to ensure that the information provided to Metlife was accurate, and failing to disclose all relevant information to Metlife.[591] This breach resulted in the non-disclosure and/or misrepresentation of matters relevant to Mr Shilton’s mental health, which caused Metlife to enter into the contracts of insurance and thereby to attract a liability. This liability constitutes Metlife’s loss, if the Court finds that Mr Montclare would otherwise have a valid claim under the contracts of insurance.[592]
[591]Ibid [41].
[592]T 1566.

In asserting the existence and scope of such a duty, Metlife noted that the elements of a claim for negligent misstatement often overlap with those that apply to other categories of duty related to pure economic loss. Metlife referred the Court to Johnson Tiles Pty Ltd v Esso Australia Pty Ltd,[593] a case involving allegedly negligent advice in which Gillard J, in reference to the House of Lords decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd,[594] summarised the elements required for establishing that a duty of care for negligent misstatement exists:
[593][2003] VSC 27; see also Hill v Van Earp (1997) 188 CLR 159.
[594][1964] AC 465.

(i)the advice is required for a purpose which is known to the adviser when the advice is given;

(ii) the plaintiff relied upon the statement made by the defendant;
(iii)the adviser knows the advice will be communicated to the plaintiff either specifically or as a member of an ascertainable class in order to be used for the purpose;
(iv)that the adviser, expressly or impliedly, undertook the responsibility of exercising reasonable care in making the statement;
(v)it is expressly or impliedly known that the advice is likely to be acted upon without independent enquiry;

(vi) that the plaintiff, in reliance upon the statement, suffered loss.[595]

[595][2003] VSC 27, [716].

Metlife submitted that the touchstone of liability is that the maker of the statement knows that it will be relied upon. In this case, the purpose of the application form was to obtain information that Metlife would rely upon in deciding whether to underwrite a policy of life insurance, and this purpose and its reliance was communicated to the insured by the terms of the application form itself and by the application process more generally.

Metlife pleaded that by reason of the alleged breaches by Mr Shilton and/or Mr Montclare, it became entitled to rescind the contracts of insurance or, alternatively, Mr Montclare is not entitled to damages or a declaration that he is entitled to the benefits under the master policy.[596] In written submissions, Metlife contended that damages for negligent misrepresentation were not sought by way of counterclaim, but that it relied upon the alleged negligent misrepresentation as a ‘circularity of action set-off’, in the event that Mr Montclare was otherwise entitled to relief under the contracts of insurance. At the hearing, Metlife was unable to refer to any authority for the proposition that an insurer could rely upon a set-off in such circumstances, in relation to an insurance claim.[597]
[596]Defence [42]–[43].
[597]T 1566.

It is important to again state that Metlife did not plead that Mr Montclare had breached the duty of good faith, either that imposed by the ICA or that recognised by the common law.

Mr Montclare denied that any duty of care of the kind alleged by Metlife arose in law. Even if any such duty of care arose, he denied that his acts constituted a breach of such duty, that a breach of such duty entitled Metlife to rescind any policy or cover, and that Metlife did, in fact, rescind any policy or cover.[598]
[598]Reply to Further Amended Defence of First Defendant dated 12 August 2011 [31].

Mr Montclare submitted that the claim against the deceased for breach of duty of care was not properly constituted, as the estate of Mr Shilton is not a party to this proceeding.[599] Counsel for Mr Montclare described as ‘novel’ the proposition ‘that a breach of duty of care by Mr Shilton or indeed by Mr Montclare would entitle Metlife to avoid the group life policy with Rivkin’.[600] Further, no set-off was pleaded and, in any event, Metlife has identified no basis upon which a set-off is available against a claim made under a policy of life insurance.
[599]T 1745.
[600]T 1745.

In the alternative, Mr Montclare submitted that Metlife’s action in negligence is statute barred by s 5(1) of the Limitation of Actions Act1958 (Vic), insofar as it requires an action founded in tort to be brought within six years of the cause of action accruing. Although the limitation period may be postponed in cases of fraud under s 27(a) and (b) of that Act, only s 27(a) would be applicable in this instance, as s 27(b) relates to concealment of the cause of action by fraud rather than an action based on fraud.

Mr Montclare further submitted that the ICA is a code, replacing the common law, and that the grant of a set-off would subvert the provisions of ss 33 and 55 of the ICA. In particular, s 33 of the ICA made clear that the insurer has no rights otherwise than under the ICA in respect of a failure by the insured to disclose a matter to the insurer before the contract was entered into and in respect of misrepresentation made by the insured.

Metlife submitted that in the event that Mr Montclare’s submission that the obligations imposed by the ICA did not apply to him, then the common law did. If, for the purposes of the ICA, Metlife is not the ‘insurer’ of Mr Montclare as the ‘insured’ under a ‘contract’, then the s 33 limitation on the insurer’s rights should not apply in the present circumstances, as the circumstances fell outside the scope of div 3 of pt IV of the ICA.

Conclusion

I do not consider that Metlife has established that Mr Montclare or Mr Shilton owed it a duty of care to ensure that the information contained in the first application, the second application and the purpose of cover representation was accurate and/or that they disclosed all relevant information to Metlife. The relationship between Metlife and Rivkin Direct Management was governed by contract which in turn was regulated by the requirements of the ICA, including with respect to matters of disclosure and representation. Metlife could have taken steps to protect itself from the risk of loss in the event that reasonable care was not taken by a person taking out life insurance under the master policy.

In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288,[601] the High Court recently reviewed the basis upon which a duty of care may arise so as to avoid pure economic loss. At common law, the general rule is that damages for economic loss which are not consequential upon damage to person or property are not recoverable in negligence even if the loss is foreseeable.[602] The exception to this general rule for negligent misstatement requires not only satisfaction of the criteria summarised by Gillard J in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd[603] and relied upon by Metlife, concerning the purpose for which information is provided and the reliance that is known to be placed upon it, but also consideration of the vulnerability of the party that has sustained a loss as a result of placing reliance upon the information. Crennan, Bell and Keane JJ stated that:

the concept of vulnerability could be invoked as the rationale explaining the exceptions to the general rule. Vulnerability, in this field of discourse, is concerned not only with the reasonable foreseeability of loss if reasonable care is not taken by the defendant, but also, and importantly, with the inability of the plaintiff to take steps to protect itself from the risk of the loss.[604]

[601](2014) 313 ALR 408.

[602]Ibid [127].

[603][2003] VSC 27.

[604]Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408, [130].

Their Honours also noted that statutory provisions may supplement the common law of contract by providing special protection to identified classes, and concluded, in relation to the requirement of vulnerability in establishing a duty of care for pure economic loss:

The common law has not developed with a view to altering the allocation of economic risks between parties to a contract by supplementing or supplanting the terms of the contract by duties imposed by the law of tort.[605]

[605]Ibid [132] (citations omitted).

French CJ stated that the notion of vulnerability ‘has become an important consideration in determining the existence of a duty of care for pure economic loss’ and refers to one party’s ‘incapacity or limited capacity to take steps to protect itself from economic loss arising out of [the other party’s] conduct’.[606] Hayne and Kiefel JJ placed similar weight upon this consideration, concluding that one party’s reliance upon the other taking reasonable care is not, in itself, sufficient evidence of vulnerability:

Reliance, in the sense just described, may be a necessary element in demonstrating vulnerability, but it is not a sufficient element. As noted earlier, vulnerability is concerned with a plaintiff’s inability to protect itself from the defendant’s want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.[607]

[606]Ibid [22] (citations omitted).

[607]Ibid [57].

Metlife’s business as an insurer involved the calculation of risk in providing contracts of insurance in a wide range of circumstances. There is no evidence before the Court to indicate that, in issuing a master policy to Rivkin Direct Management, Metlife was unable to bargain for contractual remedies in the event of non-disclosure or misrepresentation by individuals taking out life insurance under the master policy. The alleged misrepresentations and non-disclosures of Mr Montclare and Mr Shilton are of no bearing in determining what Metlife could have done to cast upon Rivkin Direct Management the economic burden of any negligent misrepresentation by an insured under the master policy.

Metlife has not demonstrated any vulnerability and, therefore, no duty of care was owed to it at common law by Mr Montclare or Mr Shilton.

Misleading or deceptive conduct

In the alternative to the submissions made in relation to the ICA, Metlife relied upon the misleading or deceptive conduct provisions in s 12DA(1) of the ASIC Act 2001 (Cth) and s 11 of the Fair Trading Act 1985 (Vic). Metlife submitted that the misrepresentations and non-disclosures it alleged against Mr Montclare and Mr Shilton constitute misleading or deceptive conduct within the meaning given in those Acts.

Section 12DA(1) of the ASIC Act 2001 (Cth) and s 11 of the Fair Trading Act 1985 (Vic) both limit their application to a person, in trade or commerce, engaging in conduct that is misleading or deceptive or likely to mislead or deceive. Whilst both parties relied, in relation to the conduct aspect of these provisions, upon their general submissions concerning Mr Montclare’s conduct and his obligations under the ICA, a preliminary issue requiring determination is whether the relevant conduct may be construed as being ‘in trade or commerce’.

Metlife submitted that the relevant conduct of Mr Montclare was ‘in trade or commerce’ because the misrepresentations were part of applications for a monetary insurance benefit and in consideration of the payment of a monetary premium. Further, it relied on authority for the proposition that a representation can be made in trade or commerce even though it is not in the trade of the person making the representation, so long as it is in the trade of the person to whom the representation is made.

Mr Montclare submitted that he had not engaged in trade or commerce because he applied for insurance in consideration of the payment of a premium. His applications for insurance were isolated transactions for personal purposes, and there is clear authority that such transactions are not ‘in trade or commerce’.[608] Further, he submitted that there was no authority, and none cited by Metlife, for the proposition that the act of purchasing goods and services by an individual has the legal consequence that that individual is acting in trade or commerce. The High Court has made clear that the phrase ‘in trade or commerce’ concerns dealings in the course of activities and transactions which, of their nature, bear a trading or commercial character. This was not an appropriate characterisation of what had occurred in this case.
[608]O’Brien v Smolonogov (1983) 53 ALR 107; Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, 127–8; Franich v Swannell (1993) 10 WAR 459, 481; Australian Competition and Consumer Commission v Gary Peer & Associates Pty Ltd (2005) 142 FCR 506, [91]–[93].

In Concrete Constructions (NSW) Pty Ltd v Nelson,[609] Mason CJ, Deane, Dawson and Gaudron JJ stated that:

the reference to conduct “in trade or commerce” in s 52 [of the Trade Practices Act 1974] can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character.

[609](1990) 169 CLR 594, 603.

Metlife noted that a representation can be made in trade or commerce even where it is only in the trade of the person to whom the representation is made and not in the trade of the person making the representation..

Conclusion

I would have considered that Metlife’s misleading or deceptive conduct cause of action could not succeed for other reasons upon which Mr Montclare relied. First, Metlife is out of time in bringing any applications under these Acts, by virtue of the time constraints imposed by s 41(3B) of the Fair Trading Act 1985 (Vic) and s 12GM(5) of the ASIC Act 2001 (Cth). As no application was made under these Acts until more than three years after the cause of action accrued, Metlife is statute barred from making applications under these provisions. The ASIC Act 2001 (Cth) commenced after the life insurance had already been issued. Metlife made no submissions in relation to these limitation provisions. I accept Mr Montclare’s submission on these issues.

Secondly, Mr Montclare submitted that the recognition of a right of set-off, pursuant to the provisions of the ASIC Act 2001 (Cth) and Fair Trading Act 1985 (Vic), would subvert ss 33 and 55 of the ICA and thereby undermine the legislative intention that the ICA have the status of a code governing contracts of insurance.[610] In support of this submission, Mr Montclare referred to the following statement of Dawson, Toohey, Gaudron and Gummow JJ in Antico v Heath Fielding Australia Pty Ltd:[611]

Section 55 evinces a legislative intention to establish a regime which will overcome the perceived inequities to the insured in the operation of the common law remedies available to the insurer.[612]

[610]T 1744.

[611](1997) 188 CLR 652.

[612]Ibid 668.

Metlife did not cite any authority supporting the proposition that the statutory causes of action could be brought against an insured who has obtained life insurance cover. Life insurance is regulated by the Life Insurance Act and the ICA.

I am not satisfied that Metlife has established any basis for applying the misleading and deceptive conduct provisions of the ASIC Act 2001 (Cth) or Fair Trading Act 1985 (Vic) in the present circumstances.

Final Conclusion

Metlife has established that it was entitled to avoid, and has avoided, the contracts of insurance that Citicorp entered into with Mr Montclare. The proceeding is dismissed.

[2015] VSC 306

25 June 2015