Paul Raymond Stone v Tower Australia Ltd

[2003] NSWSC 777

Reported Decision: (2003) 12 ANZ Insurance Cases 61-584

Supreme Court

CITATION:	Paul Raymond Stone v Tower Australia Ltd [2003] NSWSC 777
HEARING DATE(S):	24.03.03; 25.03.03; 26.03.03; 27.03.03
JUDGMENT DATE:	26 September 2003
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Nicholas J
DECISION:	Plaintiff entitled to Declaration and Order sought in summons. Cross Claim dismissed.
CATCHWORDS:	INSURANCE - CONSTRUCTION OF POLICY DOCUMENTS - CONTRA PROFERENTEM PRINCIPLE - Whether Defendant obliged to indemnify Plaintiff in accordance with insurance policy - Whether declaration and order for payment be made - Whether failure to cancel existing insurance policy prevents recovery of payment - Whether intention of parties to incorporate condition as part of insurance contract. - HELD Plaintiff entitled to declaration and order sought in summons. - CONTRACT - AGENCY - Whether Cross Defendant to Second Amended Cross Claim liable to indemnify Defendant against loss suffered. - HELD Cross Claim dismissed.
LEGISLATION CITED:	Insurance Contracts Act 1984 (Cth) s 13 Fair Trading Act 1987 (NSW)
CASES CITED:	C E Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 Condogianis v Guardian Assurance Co Ltd [1921] 2 AC 125 Joel v Law Union & Crown Insurance Company [1908] 2 KB 863 Johnson v American Home Assurance Company (1998) 192 CLR 266 Jones v Dunkel (1959) 101 CLR 298 Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 Permanent Trustee Australia Company Ltd v FAI General Insurance Company Ltd (2001) 50 NSWLR 679 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Provincial Insurance Co Ltd v Morgan [1933] AC 240 Thomson v Weems [1884] 9 AC 671 Woolfall & Rimmer Ltd v Moyle [1942] 1 KB 66 Yorkville Nominees Pty Ltd (in liq) v Lissenden (1986) 160 CLR 475
PARTIES :	Paul Raymond Stone - Plaintiff, Cross Defendant to First Cross Claim Tower Australia Ltd - Defendant, Cross Claimant to First Cross Claim and Amended Second Cross Claim Brian King - Cross Defendant to Amended Second Cross Claim
FILE NUMBER(S):	SC 50141/02
COUNSEL:	P Taylor SC/R J Powell - Plaintiff, Cross Defendant to First Cross Claim G Gee QC/A McInerney - Defendant, Cross Claimant to First Cross Claim and Amended Second Cross Claim M L Williams SC/D Weinberger - Cross Defendant to Amended Second Cross Claim
SOLICITORS:	Bowring Stone - Plaintiff, Cross Defendant to First Cross Claim P W Turk & Associates - Defendant, Cross Claimant to the First Cross Claim and Amended Second Cross Claim McCabe Terrill - Cross Defendant to Amended Second Cross Claim

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Nicholas J

26 September 2003

50141/02 Paul Raymond Stone v Tower Australia Ltd

JUDGMENT

1 His Honour: These proceedings arise from the refusal by Tower Australia Ltd (Tower) of the claim by Mr Paul Raymond Stone (Mr Stone) under an insurance policy.

2 By his Summons the Plaintiff (Mr Stone) seeks a declaration that the Defendant (Tower) is obliged to indemnify him in the sum of $1,193,481.00 in accordance with the policy which it issued to him and is described as a Crisis Care Plus policy (“the CCP policy”), and an order for payment of that amount.

3 The claim is defended on several grounds which, essentially, are based upon Mr Stone’s failure to cancel the life insurance policy he held with Lumley Life Ltd (“the Lumley policy”) after he received the policy issued to him by Tower. In summary, the grounds of defence are that:

(i) There was no concluded agreement between Mr Stone and Tower as to a contract of insurance in that Mr Stone failed to comply with a condition precedent to a binding contract.

(ii) Alternatively, Mr Stone failed to comply with a condition precedent, alternatively a condition subsequent, which obliged him to cancel the Lumley policy in order to recover under Tower’s policy.

(iii) Mr Stone acted in breach of his obligation of good faith to Tower pursuant to s 13 Insurance Contracts Act 1984 (Cth).

(iv) Mr Stone’s conduct was misleading or deceptive and in contravention of the Fair Trading Act 1987 (NSW).

(v) Mr Stone’s conduct otherwise gave rise to an estoppel such that he is prevented from relying on the terms of the policy.

4 The Defendant also brings a cross-claim against its agent, Mr Brian King (Mr King) on grounds of breaches of terms of its agency agreement with him, and negligence.

Background

5 On 8 March 1996 Lumley Life Ltd issued the Lumley policy, a combined life insurance and trauma policy which provided cover to Mr Stone of $1,000,000.00.

6 On 21 July 1997 a meeting took place between Mr Stone and Mr King during which policies available from Tower were discussed and compared with the existing Lumley policy held by Mr Stone. In the course of the meeting Mr Stone completed a number of documents by way of application to Tower for certain policies which comprised its Total Protection Package. These documents were those entitled “Application for Total Protection Package” signed by Mr Stone on 21 July 1997, and two documents each entitled “Personal Statement”, one of which was signed by Mr Stone on 21 July 1997, and the other which was signed by him and also by Dr Kerrie King, on 24 July 1997. The effect of Mr Stone’s evidence, which I accept, was that the handwriting appearing in the personal statement which was signed on 21 July 1997 is Mr King’s except, of course, where Mr Stone’s signature appears.

7 In the document entitled “Application for Total Protection Package” (the application) it is seen that application was made for new policies being those described as “Crisis Care Plus”, “Income Guarantee Plus”, and “Business Overhead Expenses”. The life to be insured was that of Mr Stone. The details of benefits sought under each policy were given in spaces provided in the form.

Under the heading “D. DETAILS OF BENEFITS – CRISIS CARE PLUS” the amount sought for crisis benefit was $1,000,000.00. A footnote to this item was in these terms:

“4 The Crisis Benefit must be at least $20,000 and no greater than $1,000,000”.

8 Under this heading was also information in footnotes 5 and 6 which explained the extra death benefit and the total and permanent disablement benefit in these terms:

“5 The Extra Death Benefit amount that can be applied for is unlimited, providing the Life Insured meets Tower’s normal underwriting requirements. The Extra Death Benefit cannot exceed 6 times the Total and Permanent Disablement Benefit if the Special Waiver TPD applies.
6 The TPD Benefit must be at least $20,000 and no greater than the total death cover (that is the Crisis Benefit plus any Extra Death Benefit) to a maximum of $1,500,000”.

9 Elsewhere in the document Mr Stone stated that his occupation was that of a solicitor and that the name of his business was Perkes & Stone.

10 The personal statement signed by Mr Stone on 21 July 1997 contained a number of matters of significance. On the cover page was this statement:

“All of the questions asked on this Personal Statement are relevant to the decision of whether or not Tower Life Australia Ltd ACN. 050 109 450 (“Tower Life”) accepts the risk and, if so, on what terms. Consequently, all questions must be answered correctly and completely ….”.

A more solemn statement to like effect was in the notice as to the duty of disclosure on the first page.

11 The document contained parts and headings which identified the categories of information to be provided by an applicant. As is common, the information sought was almost entirely by way of answers to the questions set out in the document. In many cases further information was sought with regard to the answer made to the preceding question, as the following examples show:

“2. Details of Life Insured

…
(2) Do you intend travelling outside Australia?
(If yes, state where, when and how long)
3. Occupational Details
…
(7) Do you intend changing occupations? (If yes,
give details)
…
8. Sports/Aviation/Other Activities
Do you currently engage or have intention of engaging in:
(a) Aviation ….
(b) Diving
…
(f) Football
If Yes, to any of the above, please complete the relevant statements on pages 7 or 8.
…
12. Aviation Statement
Do you hold a pilot’s licence? (If yes, state type and date issued)
Do you intend to change the scope of your present licence? (If yes, give details)
…
(8) Do you intend to engage in any form of aviation other than the above categories? (If yes, provide details)”.

12 Of fundamental importance in these proceedings were the questions and answers contained in part 5 “Insurance History”.

13 Question 1(c) was: “Do you have any life insurance, TPD, crisis care or income protection policies in force on your life with other Companies?”

14 In response a tick was placed in the box marked “Yes”. Stated in a box next to this question was the name “Lumley”, with which Mr Stone had a crisis care policy for $1,000,000.00 and an income protection policy for $9,375.00 income per month.

15 Question 2(d) was:

“(d) Will this Tower Life insurance policy replace any other Policy?
If YES, I will cancel the other Policy as detailed on acceptance of the Tower Life insurance”.

In response a tick was place in the box marked “Yes”. The name “Lumley” was placed in the adjoining box which appeared under the heading “If “Yes” give details below”. Hereafter I shall refer to these questions and answers as “5.2(d)”.

16 Part 16 of the personal statement contained a declaration beneath which Mr Stone signed his name. It is in these terms:

“I agree that this personal statement, the application and any other statements or declarations completed by the applicant or me shall be the basis or the contract for effecting the insurance described in the disclosure statement/application. I understand that all of the questions asked on this personal statement, the application and any other statements or declarations completed by the applicant or me are relevant to Tower Life’s decision whether to accept the risk and, if so, on what terms.
I hereby declare that I have been clearly informed in writing of the general nature and effect of the duty of disclosure.
I further declare that the answers shown in this personal statement, the application and any other statements or declarations completed by the applicant or me are true and that I have not withheld any information which might be material to the insurance. To the extent that the answers are not in my own handwriting they have been checked by me and I certify that they are correct”.

17 It was common ground that Mr Stone had received the document entitled “Customer Information Brochure” (the brochure). I understood that the case was conducted on the basis that it had been provided to him by Mr King at or about the time of the meeting on 22 July 1997. This contained all the major conditions of the total protection package. In particular, it contained a section entitled “Key Features Statement – Crisis Care Plus”.

Under the heading “The Policy” was stated:

“This Customer Information Brochure contains all the major conditions of the policy. The policy wording starts on page 24. Other conditions or other documents that apply to your policy will be forwarded to you after our acceptance of your application. If you decide to purchase Crisis Care Plus these conditions become part of your policy document”.

Under the heading “Premiums” was stated:

“Providing your premium payments are paid by the due dates we guarantee renewal of your policy each year irrespective of changes in the health, occupation or pursuits of the Life Insured, or any claims on your policy”.

Under the heading “Information On Your Policy” was stated:

“Tower will send you a Policy Schedule as evidence that your application is accepted. You will also receive a Policy Information Statement. Your policy which includes the policy wording in this brochure, your Policy Schedule, your application, personal statement and any special conditions, exclusions or endorsements make up your contract of insurance with Tower”.

Under the heading “When Benefits Will Not be Paid” was stated:

“There are some conditions under which benefits will not be paid. These conditions include suicide, attempted suicide and self-inflicted injury in some circumstances”.

18 Another section was entitled “Policy Wording – Total Protection Package”.

Under the heading “Part A – Introduction” was stated:

“If you apply for a policy and your application is accepted by Tower Life, your policy document will comprise the terms and conditions for the policy you have selected and are contained in this Brochure, as well as the Policy Schedule, application, any personal statements, and any special conditions, amendments, or endorsements that may apply.
It is important that you read and understand what is contained in your policy wording because it affects how your policy operates and what will happen when you make a claim”.

19 Part B contained general policy conditions applicable, inter alia, to the CCP policy. Under the heading “Condition 1 – Definitions” were the following:

“Commencement Date.
Means the date the Policy commences. It is shown in the Policy Schedule.
Policy.
Means the legal contract between the Policyowner and Us. This document, the application, the personal statement, the Policy Schedule and any special conditions, amendments, or endorsements make up the entire contract”.

20 The conditions of the CCP policy are to be found at pp 37-46 inclusive of the brochure. The introductory words at p 37 state:

“The following Conditions apply if you take out a Crisis Care Plus policy. These Policy Conditions must be read and interpreted with the General Policy Conditions in Part B and the definitions of disablement that appear in Part C. These parts start on page 25 of this Customer Information Brochure”.

21 Condition 3 describes the benefits under this policy, and the events on which they are payable.

22 Condition 6 contained what were described as “General Limitations And Exclusions”. The introductory words are:

“This Condition explains the events that will not be covered by this Policy and the limitations and reductions of benefits payable under it”.

Clause 6.5 provided for a three month exclusion period in respect of claims arising out of certain medical conditions, one of which was cancer.

23 On 22 July 1997 Mr King sent to Mr Stone a client advice record which he requested be signed and returned to him.

24 On 24 July 1997 Tower wrote to Mr Stone a letter in which it stated:

“We are currently processing your application and will inform your adviser of any additional requirements necessary to enable completion”.

The letter referred to the number given to the application as 11442116. This became the number referable to the CCP policy when it was issued and in relevant correspondence.

25 On 5 August 1997 Tower sent Mr King a memorandum headed “Outstanding New Business Requirements” advising of requirements to be made of Mr Stone for a medical examination and a repeat liver function test.

26 On 13 August 1997 at 6.02pm Tower sent by facsimile to Mr King a memorandum headed “Outstanding New Business Requirements” in which were details of the CCP policy. Also appearing therein was the following:

“First Times
Requested Requested Details Status
13/08/1997 1 ACCEPTED AT ORDINARY RATES
SUBJECT TO Outstanding
13/08/1997 1 CANCELLATION OF LUMLEYS POLICY. Outstanding”

The notation on the document indicates that it was received at 6.33pm that day.

27 On 14 August 1997 at 12.28pm Tower sent by facsimile to Mr King a letter which advised that “… the policy had now been accepted and will be issued shortly”. Details to appear on the policy schedule were given which included the commencement date as 14 August 1997, the policy owner and life insured, Mr Stone, and of benefit and premiums.

The letter advised that he will receive his copy of the policy schedule when the policy document had been issued to the client.

There was no statement that acceptance was subject to cancellation of the Lumley policy.

28 On 14 August 1997 Tower also wrote to Mr Stone. Relevantly, it stated:

“Please find enclosed your Crisis Care Plus Policy Schedule. It and the attached information complete your policy. Please make sure that the data recorded is correct and file this, along with the brochure and Policy Document given to you when you completed the Application, with your other important documents”.

29 The copy of the policy schedule in evidence is dated “18/09/97”. It records that the CCP policy commenced on 14 August 1997. Details relevant to the amount of benefit and to the amount and manner of payment of the premium were set out. The policy expiry date was 14 August 2057, and Mr Stone was recorded as the owner.

It informed Mr Stone that if the policy did not meet his needs he might return it to Tower within 14 days and any premiums paid would be refunded.

30 Apparently there was enclosed with the letter of 14 August 1997 a document entitled “Policy Information Statement” referable to the CCP policy. The introductory words were as follows:

“This policy information statement provides an overview of the life insurance contract that You now have with Tower Life Australia Limited ACN 050 109 450 (“Us”, “We” or “Our”). The attached Policy Schedule is evidence of that contract.
The policy wording in Your customer information brochure describes all the major conditions of Your policy, including details of all benefits and the terms and conditions under which those benefits are payable.
Your insurance policy includes Your Policy Schedule, the policy wording, “Your application, personal statement and any special conditions, exclusions or endorsements. You should keep the Policy Schedule and Your customer information brochure together in a safe place”.

31 Under the heading “Premiums” appeared this statement:

“We guarantee not to cancel or place any further restrictions on Your policy irrespective of changes in the health, occupation or pursuits of the Life Insured or any claims made on Your policy. We guarantee that We will not amend or vary the premium rates for Your policy unless We amend the premium rates applicable to all policies or group of policies under the same table of rates. We will give You 3 months written notice of any variation in premium rates”.

32 Under the heading “Your Duty of Disclosure” appeared this statement:

“We have issued the policy in accordance with the application completed by You and any supporting documents We have obtained. As the contract is based on the accuracy of the contents of these documents, You have a duty to disclose in them any information which is material to the risks We are insuring”.

33 On 14 August 1997 Mr King wrote to Mr Stone a letter, the relevant contents of which are:

“We write to you today with respect to our recent conversations about your insurance. It would now be appropriate (sic) cancel your Lumley policies as your replacement coverage was issued by Tower Life yesterday afternoon.
Accompanying this letter please (sic) a pro-forma of the required cancellation letter to Lumley Life Ltd, one which you should immediately sign and send out”.

34 The enclosure referred to in the letter was addressed to Lumley Life Ltd, dated 14 August 1997 and reads as follows:

“I wish to cancel the above numbered policy with effect from today.
Would you please cease drawing on my bank account effective immediately as I no longer want this insurance”.

35 On 30 January 2002 Mr Stone underwent a colonoscopy which resulted in a diagnosis of carcinoma rectum.

36 On 14 February 2002 Mr Stone notified Tower of the cancer diagnosis and made a claim for payment under the policy.

37 By its letter of 25 April 2002 Tower advised Mr Stone that the claim was declined. It went on to say:

“The decision to decline your claim is based on the fact that it was a condition precedent to Tower entering into the Policy that you would cancel the Lumley Life Limited policy. When you applied for the Policy, you warranted that you would cancel the existing trauma policy held with Lumley Life Limited. You did not however, cancel that policy.
Tower would not have issued the Crisis Care Policy to you on any terms if it knew that you were not going to cancel the Policy. As a result, Tower is entitled to avoid the contract from inception and we enclose a cheque for $24,979.62 comprising a refund of all premiums paid on the Policy …”.

38 On 26 April 2002 Mr Stone received from Lumley Life Ltd a cheque in the sum of $1,250,488.00 in satisfaction of his entitlements under the Lumley policy.

Mr Stone’s evidence

39 Mr Stone’s evidence was that approximately each year he and Mr King would meet and review his insurances, and Mr King would bring him up-to-date on policies as and when they were available. Such a meeting took place on 21 July 1997 when Mr King told him of benefits under policies available from Tower which his existing Lumley policy did not provide. During this meeting Mr Stone decided to apply for Tower’s total protection package and to submit the application and personal statement.

40 It was his evidence, which I accept, that at the time he made the personal statement on 21 July 1997 it was intended that the Tower policy would replace the Lumley policy. He was cross-examined about his answers in 5.2(d). He said that he was saying then that he would cancel the Lumley policy upon acceptance by Tower, and that at the time it was his intention to do so. He knew the questions asked in the personal statement were relevant to Tower’s decision as to whether or not it accepted the risk and, if so, on what terms, as stated on the cover page of the document. He also said that he knew he had to tell the truth in answer to the questions in the statement and that everything in the document was of interest to Tower.

41 In his affidavit sworn 4 October 2002, Mr Stone said that at no time did he believe that it was a condition of the Tower policy that he cancel the Lumley policy. He adhered to this evidence under cross-examination during which he said that no one told him that the policy was conditional on the cancellation of the Lumley policy, and at no time was there a discussion with Mr King about any need to cancel it if Tower’s policy was issued. Mr Stone did not accept that by his answer in 5.2(d) he promised to cancel.

42 Mr Stone said that he received the material from Tower but read nothing as to the policy being conditional on the cancellation of the Lumley policy. He also said that when he received the letter of 14 August 1997 from Mr King he had not changed his intention to cancel the Lumley policy. He said that he actually signed the pro-forma letter to Lumley Life Ltd but it stayed on his desk for some days. He explained that he changed his mind and decided not to cancel after taking into account the absence in the Tower policy documents of a statement that it was conditional on cancellation, his concern that his family be provided for, and the fact that he now had two policies which he could afford. In the circumstances he decided to keep both policies, and he did so.

43 I find Mr Stone’s evidence was truthfully given and no submission was made that it was not. I am satisfied that his answers in 5.2(d) were true, and that at the time they were made it was in fact his intention to cancel the Lumley policy upon acceptance of the Tower policy. I am also satisfied that such remained his intention until Mr Stone changed his mind in the circumstances described.

44 I also accept Mr Stone’s evidence that he was not told that the Tower policy was conditional on cancellation of the Lumley policy, and that there never was any discussion with Mr King to that effect. It may be noted that no evidence was led to contradict this evidence, and there is no material in the documents which has the effect of doing so.

The agency agreements

45 Tower alleges that at all material times Mr King was its agent pursuant to an agency agreement dated 1 October 1995 (“the first agency agreement”) and one dated 24 October 1995 (“the second agency agreement”). It contended that the scope of the contractual duties and obligations owed by Mr King to Tower are to be found in both agreements which are to be read together, alternatively it was contended that these duties and obligations are found in either agreement.

46 Mr King admits that he was the agent of Tower pursuant to the second agency agreement, and contends that his duties and obligations are governed exclusively by it.

47 The parties to the first agency agreement were Tower, Crown Insurance Services (Intermediaries) Pty Ltd, described as “the Principal Agent”, and its directors, described as “the Principals”. The recitals were as follows:

“A. Pursuant to an Agency Agreement contemporaneously made with this Agreement Tower has appointed the Principal Agent to arrange contracts of insurance on behalf of Tower.
B. In consideration of the Principal Agent agreeing to observe and perform its obligations contained in the Agency Agreement and this Agreement, Tower has agreed to provide the Principal Agent with financial assistance upon the terms and conditions contained therein”.

48 Clause 2.2 provided:

“”Agency Agreement” means the agency agreement pursuant to which the Principal Agent is appointed and authorised to act as the non-exclusive agent of Tower for the purposes of procuring and arranging insurance related business offered by Tower as the same may stand, varied, amended or added to from time to time;”.

49 Clause 2.4 provided:

“”Agreement” means this agreement including any schedules or annexures as the same may stand varied, amended or added to from time to time;”.

50 Pursuant to cl 3.11 the principal agent undertook to comply with the competency requirements listed in Schedule 2. These requirements include those relevant to the explanation and discussion of recommendations with the client (cl 3.4.1), the completion of necessary documentation, including completion and signing off of the proposal and other documents, and the finalisation of underwriting documents (cl 3.5).

Clause 4.3.2 stated:

“Underwriter’s decisions are clearly explained to clients”.

Clause 4.3.3 stated:

“Clients are assisted to make appropriate decisions regarding solutions to their needs and objectives”.

51 The parties to the second agency agreement were Tower and Mr King. Its commencement date was 24 October 1995.

52 The cover page contains the following statement:

“This agreement sets out the basis on which we (Tower Life) appoint you as our agent in relation to life insurance. Each of us must show the utmost good faith to the other in all of our dealings under this agreement”.

53 The relevant provisions of cl 6 are:

“You must not do anything that will prejudice us in relation to our business or give rise to our becoming liable to anyone. In particular, you must not do any of the things set out in 6.1 – 6.6. You must indemnify us for any loss that we suffer because you fail to comply with this clause.
You must not:
6.4 Do anything to waive a provision in a policy or the forfeiture of a benefit under a policy.
6.5 Publish or use our logo, letterhead or any document relating to our products or business which we have not approved in writing”.

Mr King

54 Mr King did not give evidence in the case. In evidence in Tower’s case against him was his statutory declaration made 24 April 2002 in which he stated that he was an agent of Tower and had arranged a proposal for the policy. He stated that he was aware that Mr Stone held a similar policy with Lumley Life Ltd and that the Tower policy was to replace it. He stated that “within 24 hours of receiving advice from Tower of the issue of the Policy, I wrote to Stone advising him to cancel his Lumley’s policy. This letter was addressed directly to Stone”. Included with his letter was a pro forma cancellation letter for Mr Stone to sign and forward to Lumley Life Ltd. These are the documents referred to in paras 33 and 34 above.

The re-insurance agreement

55 The re-insurance agreement between Tower and the re-insurer, Cologne Life Re-Insurance Company of Australia Ltd, was in evidence. It provided that Tower’s retention for crisis insurance was a maximum of $125,000.00. Relevantly, it also provided for automatic re-insurance above the retention level up to a maximum of $1,000,000.00 where any life was underwritten by Tower (Art. 3), and that the re-insurer’s liability commenced and terminated simultaneously with that of Tower (Art. 4).

Mr Davidson’s evidence

56 In his affidavit sworn 5 December 2002 Mr Andrew Davidson said that he was Tower’s chief underwriter from January 1995 until September 1997. His experience was that Tower’s re-insurers would not provide re-insurance for an insured where the combined total of all crisis insurance held by an insured exceeded $1,000,000.00. For that reason, Tower did not accept applications for crisis insurance where the benefit sought exceeded that limit unless the applicant agreed to cancel any existing crisis policy with another insurer to reduce the level of insurance available on the one life to $1,000,000.00 or less.

57 Mr Davidson referred to a situation involving a Mr Isaacs whose application to Tower for a crisis policy was accepted subject to cancellation of his existing crisis policy with another insurer, it having been indicated by Mr Isaacs in his personal statement that he would do so. On learning after acceptance of his application that Mr Isaacs had not cancelled the existing policy, Mr Davidson directed his colleague, Miss Lilamand, to advise the agent that the policy must be cancelled by Mr Isaacs failing which he would reduce or cancel the contracts with Tower.

58 With reference to Mr Stone’s answers to questions part 5, 1(c) and 2(d) of the personal statement, he said that he assessed the application on the basis that he would accept it subject to cancellation of the existing Lumley policy. Mr Davidson went on to say that had Mr Stone indicated in response to 5.2(d) that he would not cancel the Lumley policy he would have contacted Mr King, the agent, and told him to inform Mr Stone that he could not have a $1,000,000.00 trauma policy from Tower and still keep his existing $1,000,000.00 crisis insurance, because Tower’s underwriting guidelines only permitted crisis insurance up to a maximum of $1,000,000.00 on any one life and that included any crisis insurance already held by an insured with another insurer. If, in response, he was informed that Mr Stone intended to keep the Lumley policy he would have declined the application.

59 Mr Davidson also said that in circumstances such as the present, Tower would notify the agent that it had accepted the application subject to cancellation of the existing policy and rely upon the agent to inform the insured to cancel. There was no procedure in place for Tower to verify that the insured had in fact cancelled the existing policy, and it relied upon the insured to make good his promise to do so.

60 He explained that the reason that Tower observed the $1,000,000.00 combined cap on crisis insurance was because it could not obtain re-insurance on a crisis policy where the insured had combined trauma insurance greater than $1,000,000.00. Specifically, its re-insurers would not re-insure a risk where the combined total of all crisis insurance held by the insured exceeded $1,000,000.00. Being unable to obtain re-insurance in such circumstances, Tower was not prepared to offer crisis insurance where the $1,000,000.00 cap would be exceeded.

61 During cross-examination Mr Davidson accepted that Tower’s practice was to issue a crisis policy to a person known to hold a similar policy prior to its cancellation by that person, and to come on risk on that basis. He agreed that, as a matter of course, Tower would issue its policy without first obtaining evidence of cancellation, based on the undertaking of the insured that the existing policy with another insurer would be cancelled. He also said, in effect, that, although prior to 1997 it was not the practice to include a requirement in the contract documents for the cancellation of other policies, it was the practice to accept the insurance subject to cancellation and to advise the agent accordingly.

62 I am satisfied that this evidence was truthfully given.

Ms Lilamand’s evidence

63 The evidence of Ms Helen Lilamand was contained in her affidavit sworn 3 December 2002. It was submitted as evidence of the business practice of Tower. She was not required for cross-examination. She said she is employed by Tower as an underwriter, and as the manager of risk strategy. She has been employed as an underwriter by Tower since February 1995. She referred to the application of Mr Isaacs which was accepted subject to the cancellation by him of his existing crisis policy it having been indicated in his personal statement that he would cancel it. She said that shortly after acceptance by Tower of Mr Isaacs’ application she was informed that he had not cancelled his existing policy whereupon she informed the agent to request Mr Isaacs to cancel failing which she would reduce or cancel the contracts with Tower.

64 She was involved as an underwriter in evaluating Mr Stone’s application for the policy. Relevant to her assessment were the answers to the questions 1 and 2 in part 5 of the personal statement. She said that by reason of those answers she proceeded to underwrite his application on the basis that acceptance by Tower was subject to cancellation by him of his Lumley policy. Had she known that Mr Stone was not going to cancel the policy she would not have proceeded any further with the assessment of the application, and it would have been declined because he already held the maximum limit of crisis insurance available. She said had she at any time after she accepted Mr Stone’s application subject to cancellation of the Lumley policy become aware that he had decided not to cancel the Lumley policy, she would have advised the agent that unless he did so, and provided written proof thereof, his policy with Tower would be cancelled. If after contacting the agent the Lumley policy was not cancelled she would have cancelled Mr Stone’s policy with Tower.

65 Ms Lilamand first became aware that Mr Stone had not cancelled the Lumley policy when he lodged his claim under it.

Mr Molesworth’s evidence

66 The evidence of Mr Michael Lynn Cairns Molesworth was contained in his affidavit sworn 4 December 2002. He was not required for cross-examination. He said he is the managing director of General Cologne Life Re Australia Ltd, the re-insurer in respect of the Tower policy. He was appointed managing director in July 1999.

67 In para 29 of his affidavit he says:

“In my experience, based on my knowledge of the market and our clients practices, all of the life insurers to whom Cologne provided reinsurance for crisis polices, assessed and underwrote applications for crisis policies in 1997 by reference to the maximum limit of $1 million for any one life. This had the effect that, if the applicant already held the maximum level of coverage for a crisis policy, insurance would be accepted ‘subject to cancellation’ of the existing crisis policy with the other insurer. This also had the effect that, if the applicant already had a crisis policy with another insurer for cover less than then (sic) maximum limit or ‘cap’, the new coverage with the client life insurer would be limited so that the sum of the total of benefits for all crisis policies held by anyone person would not exceed the maximum limit of $1 million. This limitation would apply even if the Insured could justify a greater amount based on the usual salary multiples”.

68 He also said that where an applicant held an existing crisis policy with a life insurer for the maximum limit of coverage, he would require his client or life insurer to advise the applicant that insurance coverage would not be accepted unless the existing crisis policy with the other life insurer was cancelled.

69 In para 39 of his affidavit he stated that he was asked to assume that:

“(a) in 1997, Cologne provided reinsurance to a life insurer for crisis policies;
(b) an application was made to the life insurer for a crisis policy (“the client insurer”) with a benefit of $1 million;
(c) the applicant for the crisis policy disclosed to the client insurer that the applicant held $1 million worth of crisis cover with another insurer;
(d) the applicant disclosed to the client insurer that the applicant intended to cancel the existing crisis policy;
(e) all other relevant underwriting criteria were satisfied;
(f) the client insurer accepted the application for the crisis policy subject to the cancellation of the existing crisis policy;
(g) after acceptance by the client insurer of the application for the crisis policy, the applicant decided not to cancel the existing crisis policy with the other insurer;
(h) the client insurer subsequently discovered that the applicant had not cancelled his existing crisis policy with the other insurer;
(i) the applicant suffered a medical condition which triggered payment of a benefit under both crisis policies;
(j) the client insurer paid the benefit under the crisis policy, and sought indemnity, to the extent of any relevant insurance treaty, from the reinsurer”.

70 In para 40 of his affidavit he said:

“Bearing in mind the assumptions I have been asked to make in paragraph 39 above, I am asked to express an opinion on whether, in those circumstances, I would have indemnified the client insurer. My opinion is that, as the client insurer had acted in breach of Cologne’s underwriting guidelines and underwriting authority, the request for indemnity by the client life insurer would have been refused”.

Condition precedent to contract

71 As its first ground of defence Tower contended that cancellation of the Lumley policy was a condition precedent to the formation of the contract of insurance, and as the condition was not fulfilled there was no such contract.

72 Although the written submissions of the parties dealt with the issue, in the course of oral submissions Senior Counsel for Tower, Mr Gee QC, in effect abandoned the ground and, in my opinion, it was appropriate that he did so. It is therefore unnecessary to do more than briefly indicate my reasons for this opinion.

73 It is clear that a binding contract came into existence on 14 August 1997 as evidenced by Tower’s letter of that date to Mr Stone, the documents enclosed with it, the policy schedule dated 18 September 1997, and Tower’s facsimile to Mr King of 14 August 1997 advising of its acceptance of the policy. It is common ground that the contract documents were the personal statement dated 21 July 1997, the policy schedule dated 18 September 1997, and the relevant material in the brochure.

74 On the assumption that 5.2(d) is taken to be incorporated as a condition of the CCP policy, as a matter of construction it expresses a condition the non-fulfilment of which may relieve Tower of liability under it, as against a condition precedent to the formation of the contract of insurance. The documents which constitute the contract in this case do not support a construction that formation of a binding contract of insurance between Tower an Mr Stone depended on fulfilment of the condition (Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at pp 541-543; 551-552).

75 In its written submissions Tower relied upon a second ground in support of this defence. It was to the effect that Tower’s memorandum of 13 August 1997 to Mr King, which contained the statement “Accepted at ordinary rates subject to cancellation of Lumley’s policy”, constituted notice to Mr Stone that acceptance of his application was subject to a condition requiring such cancellation. On the assumption that, in the circumstances, the memorandum did express a condition to that effect, my view is that upon its proper construction it should not be categorised as a condition precedent to the formation of the contract of insurance, but as a condition as to performance and liability.

76 To the extent that the ground remains as a defence to Mr Stone’s claim I reject it.

Representation or Condition?

77 Tower submitted that 5.2(d) was incorporated in the contract of insurance with the effect of a condition that Mr Stone would cancel the Lumley policy upon acceptance of the CCP policy, alternatively that Tower’s liability under the CCP policy was subject to cancellation by Mr Stone of the Lumley policy. It submitted that this was the conclusion to be reached following the proper construction of the several documents which constituted the CCP policy as defined.

78 It was put that by the answer “Yes” to the question “Will this Tower Life Insurance Policy replace any other policy?” Mr Stone made a representation to the underwriter that the Tower life policy will replace the Lumley policy. The effect of that representation read with the words “If Yes I will cancel the other Policy as detailed on acceptance of the Tower Life Insurance” should be understood as an undertaking by Mr Stone to cancel the Lumley policy which became incorporated into the contract as a condition upon the issue of the CCP policy on 14 August 1997.

79 On behalf of Mr Stone it is submitted that no promissory obligation is evidenced by the documents, and he denies that there was any such condition in the contract.

Principles

80 The effect of 5.2(d) is a matter of construction. The contract is to be construed as a whole, and where a policy incorporates by reference other documents, all must be read and construed together in order to arrive at the true contract. In Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 at pp 22-23 Isaacs ACJ stated that cannons of construction were that “… If by reason of its own language in relation to the matter, or by reason of the context or of conflicting or differing provisions elsewhere, a term when fairly read is doubtful or ambiguous and reasonably susceptible of two constructions, that construction should be adopted which is the more favourable to the assured, because that is of the two the more reasonable in the circumstances” and that “… If one of the documents is ambiguous in its terms but another is clear, then force is to be given to the one the terms of which are clear, so as to interpret the one containing ambiguous terms”.

81 However, if there is an inconsistency between the policy and the proposal, the policy, being the later and more formal document, will prevail in the absence of some indication of intention to the contrary. (Yorkville Nominees Pty Ltd v Lissenden (1986) 160 CLR 475 at 481 per Gibbs CJ).

82 In cases such as this, where the contract consists of a number of documents, there should be kept in mind the dictum of Lord Watson in Thomson v Weems [1884] 9 AC 671 at p 687:

“Notwithstanding that the warranty is express there still remains the consideration what must be held to be the subject matter of the warranty. That is a point to be determined in each case, according to the just construction of the question and answer taken per se and without reference to the warranty given. In the present case, the seventh question proceeds from the company, being printed on a form of proposal issued by them for the use of persons who may be desirous of effecting an assurance. The question must, in my opinion, be interpreted according to the ordinary and natural meaning of the words used, if that meaning be plain and unequivocal and there be nothing in the context to qualify it. On the other hand, if the words used are ambiguous they must be construed contra proferentes , and in favour of the assured”.

83 It is necessary for the Court to be satisfied that Mr Stone intended that his answers to the question posed in 5.2(d) would become a condition of the CCP policy. In Joel v Law Union & Crown Insurance Company Ltd [1908] 2 KB 863, whilst dealing with an issue concerning the accuracy of statements in a proposal form being made a condition of the validity of the policy, Fletcher Moulton, L.J. at pp 886-887 said:

“… the insurers must prove by clear and express language the animus contrahendi on the part of the applicant; it will not be inferred from the fact that questions were answered, and that the party interrogated declared that his answers were true. This is only what a witness does when he declares he has given true evidence. He is stating his belief, and not making a contract”.

84 Relevant also is the passage from the advice in Condogianis v Guardian Assurance Company Ltd [1921] 2 AC 125 at pp 130-131:

“The more serious proposition arose on the construction of the question and answer. In a contract of insurance it is a weighty fact that the questions are framed by the insurer, and that if an answer is obtained to such a question which is upon a fair construction a true answer, it is not open to the insuring company to maintain that the question was put in a sense different from or more comprehensive than the proponent’s answer covered. Where an ambiguity exists, the contract must stand if an answer has been made to the question on a fair and reasonable construction of that question. Otherwise the ambiguity would be a trap against which the insured would be protected by Courts of law. Their Lordships accept that doctrine to the full, and no question is made of the soundness of it as set forth in many authorities, of which the judgment of Vaughan Williams L.J., in Etherington’s Case , and Moulton L.J., in Joel v. Law Union and Crown Insurance Co. are recent examples.
But upon the other hand, the principle of a fair and reasonable construction of the question must also be applied in the other direction – that is to say, there must also be a fair and reasonable construction of the answer given ; and if on such a construction the answer is not true, although upon extreme literalism it may be correct, then the contract is equally avoided”.

85 The requirement for clarity and certainty in contracts of insurance which incorporate by reference the proposal and other documents doubtless reflects recognition of the difficulty which confronts an assured in seeing the extent of his rights and obligations, and what acts or omissions on his part may involve a forfeiture of the insurance (e.g. Provincial Insurance Co Ltd v Morgan [1933] AC 240 at p 252).

86 Courts also recognise that the context in which the words claimed to express a condition are found in a document may obscure or conceal the importance which the insurer would wish to have attached to them. The tendency is against a construction, language permitting, the result of which would show that the document was, in reality, a trap for the assured. In Woolfall & Rimmer Ltd v Moyle [1942] 1 KB 66 at p 73, Lord Greene MR said:

“All I mean is that the underwriters, if their intention was to limit their risk in the way in which Mr. Beney would have it limited, have used language which entirely fails to make that intention clear. I cannot help thinking that, if underwriters wish to limit by some qualification a risk which, prima facie, they are undertaking in plain terms, they should make it perfectly clear what that qualification is. They should, with the aid of competent advice, make up their minds as to the qualifications they wish to impose and should express their intention in language appropriate for achieving the result desired. There is no justification for underwriters who are carrying on a wide spread business and making use of printed forms, either failing to make up their minds what they mean, or, if they have made up their minds what they mean, failing to express it in suitable language. Any competent draftsman could carry out the intention which Mr. Beney imputes to the document, and, if that was really intended, it ought to have been done”.

87 In Johnson v American Home Assurance Company (1998) 192 CLR 266, Kirby J referred to two principles which assist in the interpretation of insurance contracts. He said, at p 274:

“The first is that a fair and reasonable construction should be adopted which would take into account the variety of persons entering an insurance contract and the entitlement of such persons to know the bargain which they have secured”.

and at p 275:

“More recently, it has been accepted that the contra proferentem principle may still be useful where each of the competing constructions is strongly supported by argumentation and where dictionaries and logic alone cannot readily carry the day for either party. Then, it is not unreasonable for an insured to contend that, if the insurer profers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering”.

The policy documents

88 With these principles in mind I now turn to the analysis of the documents which constitute the insurance contract in this case.

89 The brochure contained the wording of the total protection package which included the CCP policy. As the definition of “Policy” in Part B shows, the entire contract is made up of the conditions applicable to the CCP policy, the application, the personal statement, and any special conditions, amendments, or endorsements.

90 Apart from what is contained in the policy schedule there were no special conditions, amendments or endorsements.

91 In order to determine whether it was the intention of the parties at the time the contract was made to have incorporated a condition in the terms claimed by Tower, it is necessary to have regard to the circumstances in which Mr Stone completed the application and personal statement. This involves consideration of the representations made, and the information provided, to him by Tower which include statements in those documents and in the brochure.

92 The brochure was an important document intended by Tower to be relied upon by applicants. This is plain from the opening words of the application itself which are as follows:

“Before you sign this application form, be aware that the life company or adviser is obliged to have provided you with a brochure containing a summary of the important information in relation to these products. This information will help you to understand the products and to decide whether they are appropriate to your needs”.

93 The brochure contained material explanatory of the CCP policy. It stated that it contained all the major conditions of the policy, and that other conditions or other documents that applied would be forwarded after acceptance of the application. These other conditions would become part of the policy document if the applicant decided to purchase the policy.

94 There was also a statement that renewal was guaranteed provided premium payments were made by the due dates, irrespective of changes in health, occupation, or pursuits of the life insured, or any claims on the policy. Thus, for example, it was represented to Mr Stone that it was open to him to change his mind from the intention stated in answers to questions 2, 3, 8 and 12 in the personal statement.

95 The brochure described the benefits provided under the CCP policy, and the circumstances in which benefits would not be paid. The reader was referred to pages of the policy wording in which the relevant conditions appear, including Condition 6 which was said to explain the events not covered by the policy, and the limitations and reduction of benefits payable under it.

96 The brochure contained no reference to Tower’s requirements of an applicant who held an existing life policy with another insurer, or to the likelihood that acceptance by it of the application was conditional upon cancellation of such existing policy. Consistent with the opening statement in the application referred to, it is reasonable to infer that if such matters were regarded by Tower as important to it, and/or to an applicant, it would have included appropriate information about them. The absence thereof suggests, at least, that Tower did not consider it important to provide such information to assist an applicant in deciding on an appropriate product.

97 I turn now to the application, the relevant details of which are set out in paras 7 and 8 above.

98 Footnotes 4 and 6 in section D specified requirements as to the amount of cover for crisis benefit and for total and permanent disablement benefit respectively under the CCP policy. Footnote 5 details similar, and other, requirements in respect of extra death benefit. As is apparent, there is no indication that any cover, or the amount of cover, available under this policy would be subject to cancellation of an existing policy, or to limitation with regard to the amount of cover under an existing policy. Tower knew, of course, that under its re-insurance contract it was constrained as to the amount of cover it could provide. Had it intended to draw the attention of an applicant who was the holder of an existing policy to the requirements and/or limits it was obliged to impose as a consequence of its reinsurance arrangements, section D provided an obvious context in which to do so.

99 With regard to the personal statement, I make the following observations.

100 The note on the cover page explains to the applicant that the questions asked are relevant to Tower’s decision whether or not to accept the risk and, if so, on what terms. It is reiterated in the note on the first page as to the duty of disclosure.

101 Thereafter are set out under 15 headings a series of questions and answers typical of which are those set out in para 11 above. It is clear that many of the questions seek information of Mr Stone’s intention as to future conduct or in respect of a future situation. (e.g. Pt 2 q(2); Pt 3 q(7); Pt 9 q(3); Pt 12 q(2), (8)).

102 Synonyms for the phrases “do you intend” or “do you have intention of engaging in” in these questions are “do you have in mind to do …” or “do you have in mind doing …”.

103 In my opinion the words of the question in 5.2(d) should be understood to be of similar effect. The words of this question are equivalent to a question in terms “Will you replace any other policy with this Tower Life Insurance policy?” So expressed, it becomes plain that the question is seeking information of Mr Stone’s intention as to replacement of the Lumley policy with its policy. Such a construction is consistent with the clear purpose of the document, its structure, and with the wording and sense of the other questions which Tower required Mr Stone to answer.

104 It follows, in my opinion, that the words “If YES I will cancel the other Policy as detailed on acceptance of the Tower Life Insurance” should be understood as a statement of intention to cancel the other policy on acceptance of the Tower Life Insurance. If it is right to hold that the words “Will …. replace” are a question as to intention, it is difficult to contend that the words “I will cancel” are not also a statement of intention, appearing as they do in the form of a statement which is expressed to be conditional upon the answer to that question.

105 It follows that the words “I will cancel” cannot be understood in their context to be the equivalent of ”I agree to cancel” or “I undertake to cancel”.

106 Furthermore, the very words of 5.2(d), read alone or with the “basis clause”, convey no meaning that failure to cancel will disentitle Mr Stone to the insurance for which he is applying. Indeed, if it was held to be otherwise, the question itself as formulated would be quite misleading. This is because the question seeks to ascertain whether or not it is intended to replace the other policy with the Tower policy. Had the answer been “No”, it would convey that it was not the applicant’s intention to replace the existing with the new, from which it would be reasonably concluded that the intention was to hold both. Nothing in the document suggests that it was not open to Mr Stone to do so or that he would be denied liability if he did.

107 Furthermore, the essential question is were the words of 5.2(d) intended to mean that the Lumley policy must be cancelled on acceptance, failing which Mr Stone would lose the benefits of the CCP policy. Had the draftsman intended to procure from Mr Stone an agreement to cancel, to become incorporated as a condition of the contract when the policy issued, it would have been simple enough to use words such as “agree” or “undertake” which may have led to that result. In my opinion it was incumbent upon the draftsman to do so. Similarly, it was simple enough to have included words which made clear that failure to cancel would disentitle him to claim the policy benefits, and it was necessary to do so. The cases show the requirement for an underwriter to make clear its intention to limit the risk to be undertaken, and the entitlement of persons entering an insurance contract to know the bargain intended to be made. (Woolfall & Rimmer Ltd v Moyle (supra); Johnson v American Home Assurance Company (supra)).

108 Alternatively, if it be thought that there is ambiguity as to the sense, or meaning, in which the words of the question and the statement are to be understood the issue must be decided in favour of Mr Stone. In this case clear language was required to enable it to be said that the parties intended 5.2(d) to be a condition of the contract and that non-compliance by failure to cancel would discharge the insurer from liability. (Condogianis v Guardian Assurance Company (supra); Joelv Law Union & Crown Insurance Company Ltd (supra); C E Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 per Deane, J at 542). The language of 5.2(d) fails this requirement. It does not evidence Mr Stone’s agreement to a condition in the terms claimed by Tower in these proceedings.

109 Furthermore, even assuming that 5.2(d) should be read as a statement by Mr Stone that he agreed or undertook to cancel the Lumley policy, in my opinion the “basis clause” in Pt 16 of the personal statement, and the incorporation of the personal statement in the policy, does not have the effect of converting 5.2(d) into a condition.

110 The intention of the parties as to the conditions of a contract is to be ascertained from the documents which evidence it. Relevantly, attention must be paid to the statement in the declaration made by Mr Stone which included these words:

“I understand that all of the questions asked on this personal statement, the application and any other statements or declarations completed by the applicant or me are relevant to Tower Life’s decision whether to accept the risk and, if so, on what terms ”.
(emphasis added)

111 As earlier noted, a statement in the same, or similar, terms was also on the cover page, and in the notice of the duty of disclosure on the first page.

112 By this statement Mr Stone acknowledges his understanding that the information he has provided is relevant to Tower’s decision whether to accept the risk and, if so, on what terms. Thus the information is submitted for Tower’s consideration and risk assessment as an important part of the process which may or may not result in a contract between them.

113 It is clear from the wording of the statement that the information is sought and provided with the intention, and for the purpose, that Tower will use it to formulate the terms on which it will accept the risk, if it decides to accept. The wording reasonably understood engenders the expectation that if, having regard to the information, acceptance of risk is to be subject to terms or conditions, Tower will inform the applicant of them. Although couched in language intended to state Mr Stone’s understanding, the words also convey an assurance by Tower that if acceptance is subject to any condition Tower will inform him accordingly by specifying the condition in an appropriate document. Thus it is reasonable to conclude, for example, that Tower thereby represented to Mr Stone that if some action was required of him such as cancellation of his Lumley policy as a condition of Tower’s liability, he would be informed accordingly.

114 As part of the ordinary process it would be expected that Tower would advise Mr Stone of any condition as to liability which it required arising from its assessment of the information. That it would in fact do so was foreshadowed by the information in the brochure (paras 17, 18, 19 above). This is quite plain from the statement therein made under the heading “The Policy” in these terms:

“This Customer Information Brochure contains all the major conditions of the policy. The policy wording starts on page 24. Other conditions or other documents that apply to your policy will be forwarded to you after our acceptance of your application. If you decide to purchase Crisis Care Plus these conditions become part of your policy document”

115 Even if it is assumed that by 5.2(d) Mr Stone was stating his agreement to cancel the Lumley policy, it seems to me that it amounts to no more or less than information to be taken into account by Tower in deciding whether to accept the risk. Unless Tower so stipulated, Mr Stone would never know whether acceptance was conditional upon his fulfilment of that agreement. Absent appropriate notification from Tower it was open to Mr Stone to proceed on the basis that Tower did not require him to cancel the Lumley policy.

116 Accordingly, it seems to me that for Tower to have achieved the conversion of 5.2(d) into a condition of the policy it was necessary for it to inform Mr Stone in clear terms of the condition it required. 5.2(d) had no promissory effect because Tower did not specify a condition based upon it. In other words, to give it contractual effect it was necessary to write it into the contract.

117 The policy issued on 14 August 1997 and Mr Stone and Mr King were so advised by Tower (paras 21 and 23 above). The documents contain no reference to the Lumley policy or any wording to the effect that Tower’s liability was subject to its cancellation.

The memorandum of 13 August 1997

118 Tower relied upon its memorandum to Mr King of 13 August 1997 as evidence of the existence of the condition claimed.

119 The contents of the memorandum are set out in para 26 above.

120 It submitted that in respect of this transaction Mr King was the agent of both Tower and Mr Stone. It was put that, as a consequence, Mr Stone should be taken to have been fixed with knowledge of the notification made in the memorandum to Mr King of a condition that the policy was accepted at ordinary rates subject to cancellation of Lumley’s policy.

121 It was also put that the memorandum formed part of the contract of insurance and evidenced the condition that Tower’s acceptance of Mr Stone’s application was conditional on cancellation of the Lumley policy within a reasonable time.

122 In my opinion the submission must be rejected. Firstly, the memorandum was not incorporated in the policy when it issued on 14 August 1997. Secondly, I am not satisfied that the evidence proves that Mr King was in any relevant sense the agent of Mr Stone.

123 It was common ground that Mr King was Tower’s agent for the purpose of arranging the sale of its insurance products to Mr Stone. Although in evidence Mr Stone agreed that Mr King had acted as an insurance intermediary in respect of insurance that he sought from time to time for some years, and referred to him in evidence as his broker, the true position was that in this transaction Mr King was acting as the agent of Tower and the adviser of Mr Stone.

124 Mr King’s dual role is plain from the terms of paragraph 2 of the client advice record in which he describes himself as follows:

“2. Declarations by your life insurance adviser
I am a general insurance broker and I am a life insurance agent of the following companies: Lumley Life … Tower Life …. Under the Insurance (Agents and Brokers) Act of 1984 the life companies listed above are responsible for my professional conduct with respect only to life insurance. In all respects my obligations are to you, my client; as a matter of course I endeavour to act always in your best interest – to advise you as I would advise myself. I bring to bear all my professional skills, knowledge and ability to provide you with the best service and advice of which I am capable, enough to have earned to designation FALA (Fellow of the Australian Lifewriters Association). The life insurance companies I represent pay me by way of commissions based on the products I employ in finding solutions to your particular needs and, therefore, I am able to provide you with the benefit of my professional expertise without charging you any fees for life insurance consultations”.

125 As a matter of fact the distinction was recognised by Tower in its letters to Mr Stone of 24 July and 14 August 1997 in which it referred to “your adviser”, obviously meaning Mr King.

126 I have found no support in the evidence for the proposition that Mr Stone in fact authorised Mr King to receive communications from Tower by which he would be bound, and/or held out to Tower that Mr King was so authorised. There is no evidence that Tower proceeded on the basis that Mr King was so authorised. The letters indicate otherwise. So too does the evidence of Mr Davidson (affidavit paras 31, 32, 33, 36, 43 and 45).

127 The true position is, and I find, that Mr King was Tower’s agent to whom, after consideration of his application and personal statement, it communicated its requirements the fulfilment of which were, no doubt, relevant to the decision to accept the risk and, if so, on what terms. It follows that it was Mr King’s function as Tower’s agent to inform Mr Stone of these requirements and to arrange for him to comply. A good example of this process is the memorandum of 5 August 1997 (para 25 above).

128 In the circumstances of this case it defies reality to suggest that the knowledge of Mr King of Tower’s requirements should be taken to be knowledge which bound Mr Stone irrespective of whether Mr King had informed Mr Stone of them. Reliance was placed on the passage from the judgment of Handley JA in Permanent Trustee Australia Company Ltd v FAI General Insurance Company Ltd (2001) 50 NSWLR 679 at pp 694-698. The issues with which His Honour was concerned were non-disclosure, and whether the principal was bound by the knowledge of the agent to insure. It provides no support for Tower’s submissions on this issue.

129 Accordingly, I hold that Tower’s memorandum to Mr King of 13 August 1997 is not probative of the existence of the condition claimed by Tower.

Conclusion

130 The analysis of the documents which make up the policy as defined enables further observations to be made. None contains a statement that Tower intended the inclusion in the contract of the condition it now claims. No requirement for such was presented to Mr Stone for his consideration.

131 It is evident from the documents that no information was given as to the significance to Tower of the fact that an applicant held a similar policy with another insurer, and no statement was made as to the limitation to its liability which would be imposed upon persons entering into an insurance contract who held a similar policy with another insurer. One may be forgiven for thinking that the situation indicates some tension between those involved in the marketing of Tower’s products and those involved in the assessment of risk and in deciding the terms upon which insurance would be undertaken.

132 For example, in the application, it was represented that the brochure contained a summary of the important information in relation to the products offered. However, although the brochure referred to some conditions under which benefits will not be paid, and included the policy wording itself in which Condition 6 purported to explain limitations, reductions, and exclusions, there was nothing on this subject. In this context the observations made in paras 96, 98 and 107 above are apposite. I respectfully adopt the passage from the speech of Lord Russell of Killowen in Provincial Insurance Co v Morgan (supra) at p 250:

“For myself I think it is a matter for great regret that the printed forms which insurance companies prepare and offer for acceptance and signature by the insuring public should not state in clear and unambiguous terms the events upon the happening of which the insuring company will escape liability under the policy. The present case is a conspicuous example of an attempt to escape liability by placing upon words a meaning which, if intended by the insurance company, should have been put before the proposers in words admitting of no possible doubt”.

133 The impression I gain from all of the documents is that an applicant in the position of Mr Stone who read them with care would have been lulled into thinking that, so far as Tower was concerned, there was no impediment to continuing to hold an existing policy after Tower had issued its policy in response to the application.

134 As is apparent from the above, in my opinion the CCP policy did not include the condition claimed by Tower. I find that there was not incorporated in the policy a condition to the effect that Mr Stone would cancel the Lumley policy upon acceptance of the CCP policy, alternatively that Tower’s liability under the CCP policy was subject to cancellation by Mr Stone of the Lumley policy.

The other grounds

135 The additional and alternative grounds of defence are summarised in para 3 above.

136 These grounds proceeded on the basis that 5.2(d) was found to be a condition incorporated in the contract whereby Mr Stone undertook to cancel the Lumley policy. Central to these was the contention that Mr Stone had not done what he had promised to do, having changed his mind about cancellation and having failed to inform Tower in circumstances in which it was alleged he was obliged to do so. For example, the conduct said to be misleading and deceptive was the making of the representation by 5.2(d) that he undertook, upon acceptance, to cancel the Lumley policy coupled with his silence in failing to notify Tower of his change of mind not to do so.

137 The issue as to the application of s 54 Insurance Contracts Act 1984, (Cth) was the subject of extensive submissions by the parties. A question addressed was to what, if any, extent Tower’s interests were prejudiced as a result of Mr Stone’s failure to cancel the Lumley policy. It was to this matter that the evidence of Tower’s re-insurance arrangements, including that of Mr Molesworth, Ms Lilamand and Mr Davidson was relevant, it being Tower’s case that its prejudice was entering into the contract and/or the likelihood of being denied its re-insurance cover.

138 As I have found that Mr Stone was under no obligation or duty pursuant to 5.2(d) to cancel the Lumley policy, it is unnecessary to decide the questions raised on these alternative grounds. The conclusion to which I have come disposes of all grounds raised by way of defence to Mr Stone’s claim.

The cross-claim against Mr King

139 In its Amended Second Cross-Claim Tower claims that Mr King acted in breach of his duty of care towards Tower and of his obligations under the first and second agency agreements which are outlined in paras 47-53 above. It claims that Mr King is liable to indemnify it against loss suffered as a consequence.

140 No claim is made against Crown Services (Intermediaries) Pty Ltd, the principal agent under the first agency agreement.

141 Tower claims that the agreements should be read together in order to determine the scope of Mr King’s obligations as its agent. It is put that these agreements evidence Mr King’s undertaking to comply with the competency requirements in Schedule 2 to the first agency agreement (para 50 above), and to provide an indemnity to Tower in the terms set out in cl 6 of the second agency agreement (para 53 above).

142 As noted earlier (para 46) Mr King admits that he was the agent of Tower pursuant to the second agency agreement, and contends that his duties and obligations are governed exclusively by it.

143 Tower alleges that Mr King acted in breach of the competency requirements under the first agency agreement and in breach of the implied term of reasonable care under the second agency agreement in that:

(i) He failed to so advise Mr Stone so as to ensure that he understood the effect of the documents which he signed on 21 July 1997. It was alleged that Mr Stone was unaware that the effect of his answer to the question posed in 5.2(d) was his agreement to cancel the Lumley policy and that situation was caused by Mr King’s failure to act with care and competence whilst attending, and participating with, Mr Stone in and about the completion of the documents. The failure was to convey the message that once the policy was accepted it was not open to Mr Stone to change his mind.

(ii) Upon receiving the memorandum of 13 August 1997 he failed to inform Mr Stone that acceptance by Tower of the application for the CCP policy was subject to cancellation of the Lumley policy. It was alleged that the letter of 14 August 1997 from Mr King to Mr Stone was not sufficient to discharge his duty to act with care and competence.

144 It may be noted that Tower’s written submissions dated 24 March 2003 included the following:

(i) Mr King was aware after 14 August 1997 that Mr Stone had not cancelled the Lumley policy and he failed to so advise Tower at any time prior to 25 April 2002. As Mr King continued to receive commission payments from Lumley in respect of the Lumley policy, and from Tower in respect of the Tower policy, he knew, or ought to have known, that the replacement and cancellation of the Lumley policy were matters which were material to Tower in accepting Mr Stone’s application for insurance. It was put that Mr King must have appreciated that it was a significant matter to Tower that Mr Stone would carry out his promise to cancel the Lumley policy, and in failing to advise Tower that it had not been cancelled, Mr King failed to discharge his duties of care and competence.

(ii) Pursuant to the first agency agreement Mr King owed Tower a duty of good faith, and by failing to advise Tower that Mr Stone had not cancelled the Lumley policy Mr King had acted in breach of that duty.

During the hearing (T p 147) Mr Gee QC informed the Court that Tower no longer alleged that Mr King had breached some duty to Tower to inform it that Mr Stone had not cancelled the Lumley policy. I have proceeded on the basis that the duty to which he referred was a duty of care and competence and also a duty of good faith. No oral submissions were put in support of either matter. I have therefore treated these submissions as abandoned and say no more about them.

145 It was submitted that Mr King was bound by the two agency agreements. The first agency agreement contains the competency requirements which were said to oblige him, inter alia, to clearly explain the underwriter’s decisions to clients and to assist them to make appropriate decisions regarding solutions to their needs and objectives. By cl 6 of the second agency agreement he agreed not to do anything which would prejudice Tower in relation to its business or give rise to it becoming liable to anyone.

146 It was in breach of these provisions, so it was alleged, that Mr King failed to advise Mr Stone of the significance of the question and answer in 5.2(d) and that he failed to convey to Mr Stone the information contained in Tower’s memorandum to him of 13 August 1997.

147 Essentially, therefore, Tower claims that Mr King is liable for its loss occasioned by Mr Stone’s failure to cancel the Lumley policy. Its case depends upon a finding that Mr King was duty bound to inform Mr Stone, either on the occasion when the documents in support of the application were completed, or upon receiving the memorandum of 13 August 1997, that Tower’s acceptance was subject to cancellation of the Lumley policy, failing which it was not liable under the CCP policy.

148 For the purpose of deciding this claim I have assumed, without deciding, that Mr King was bound by both agency agreements.

149 In my opinion the finding that the CCP policy did not include the condition claimed renders inevitable the dismissal of the cross-claim. My reasons may be shortly stated.

150 As to the allegation concerning the events of 21 July 1997, in my view Mr King was under no duty to inform Mr Stone that the effect of his answer to question 5.2(d) was that his agreement to cancel the Lumley policy was a condition of Tower’s acceptance. As I have found that was not the true effect of the answer, had Mr King advised Mr Stone that it was he would have been in error.

151 In any event, there is no support in the evidence for the contention that Mr King failed to do what was required of him even assuming his obligations derived from both agency agreements. On Mr Stone’s evidence I find that Mr King did comply with the competency requirements in the first agency agreement. He explained and discussed the products, assisted in the completion of the necessary documents, and assisted Mr Stone in making the decision to apply for products which suited his needs and objectives. With regard to cl 4.3.2, no underwriter’s decision was identified which was said not to have been explained. This is understandable because at this time no relevant decision had been made by Tower.

152 Further, I am not satisfied that Mr King owed a duty to Tower to inform Mr Stone about its reinsurance limitations, and that the extent of his cover might be limited if he maintained his existing policy, and that Tower’s acceptance would be subject to cancellation of that policy. As earlier found, the documents which Mr King was obliged to explain, which include the brochure, the application and the personal statement, said nothing about these matters. Specifically, the only conditions which might have been explained at this time were those of the policy as set out in the brochure. They did not include the condition claimed in these proceedings. In such circumstances the contention that Mr King’s advice should have ranged beyond the information in the documents cannot be sustained.

153 The claim of breach evidenced by Mr King’s letter to Mr Stone of 14 August 1997 must also be rejected. It is claimed that the letter was insufficient to inform Mr Stone in clear terms of the information which Tower had conveyed to him in its memorandum of 13 August 1997 received by Mr King at 6.33pm.

154 Tower’s difficulty with this claim is that it had accepted and issued the CCP policy on 14 August 1997 which did not include a condition as to cancellation. There was nothing Mr King could have done to alter the terms of the contract at this time. Indeed, even if he had informed Mr Stone of Tower’s requirement it would have had no contractual force and it would have been wrong for him to suggest to Mr Stone that it did. Mr Stone was perfectly entitled to ignore the requirement had Mr King put it to him in the terms suggested by Tower. In my view there is no basis upon which it may be found that Mr King owed a duty to Tower to procure Mr Stone’s agreement to do something which under the policy he was not obliged to do.

155 On behalf of Mr King, Mr Williams, SC, also submitted that, even assuming duty and breach as alleged, the evidence did not establish that Mr King’s conduct caused any loss to Tower, alternatively that had Mr King discharged the duty Tower’s loss would have been averted.

156 It was accepted that had Mr King advised Mr Stone that acceptance of his application was subject to cancellation there were a number of possible outcomes. Firstly, Mr Stone may have ignored the advice, made no cancellation, and maintained both policies. Secondly, he may have cancelled the CCP policy, in which case there would have been no claim. Thirdly, he may have cancelled the Lumley policy in which case Tower would have the benefit of its reinsurance cover.

157 As to the first possibility, it was submitted for Tower that Mr Stone’s evidence supported the inference that had Mr King advised him as to the requirement for cancellation, Mr Stone would have cancelled the Lumley policy. It was put that this inference arises from his evidence that a significant factor which led him to change his mind was that he had not been told of the requirement, and that he understood that his answer to 5.2(d) was material to Tower’s consideration of his application.

158 In my opinion a review of all of Mr Stone’s evidence does not support the inference claimed. Mr Stone was not asked, and did not say, what he would have done had he been told that Tower required cancellation of the Lumley policy and/or that by reason of its reinsurance arrangements it would not allow him to keep both policies. Whether he would have acted differently in the circumstances is, on the evidence, a matter of speculation. Whatever he chose to do was outside Mr King’s control.

159 The Court was thus left with a choice among rival conjectures, and it is not authorised “ … to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others”. (Per Dixon, CJ in Jones v Dunkel (1959) 101 CLR 298 at p 305). In my opinion, therefore, it has not been established on the probabilities that had Mr King discharged the duty alleged, the risk of loss to Tower would have been averted. Further, it has not been established that if Mr Stone’s change of mind resulted in loss to Tower, that situation was caused by the conduct of Mr King.

160 For the above reasons I have come to the conclusion that the cross-claim against Mr King should be dismissed.

Decision

161 For the above reasons, I hold that Mr Stone is entitled to the declaration and order sought in the Summons. I also propose to order that the Cross-Claim and Amended Second Cross-Claim be dismissed.

162 It is appropriate that I direct the Plaintiff to bring in short minutes of the declaration and orders. The parties may also address me in relation to interest and costs. Arrangements should be made with my Associate by 3 October 2003 for the re-listing of the matter.

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Last Modified: 10/09/2003