QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd

NEW SOUTH WALES COURT OF APPEAL

CITATION: QBE MERCANTILE MUTUAL LTD v HAMMER WASTE PTY LTD & ANOR [2003] NSWCA 356

FILE NUMBER(S):
41080/02

HEARING DATE(S): 19 November 2003

JUDGMENT DATE: 09/12/2003

PARTIES:
QBE Mercantile Mutual Ltd - Appellant
Hammer Waste Pty Ltd - First Respondent
OAMPS Insurance Brokers Ltd - Second Respondent

JUDGMENT OF: Sheller JA Santow JA McColl JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): 2810/02

LOWER COURT JUDICIAL OFFICER: Palmer J

COUNSEL:
RBS Macfarlan QC/TD Castle - Appellant
IM Wales SC/A Fernon - First Respondent
MD Davies SC/MS White - Second Respondent

SOLICITORS:
PricewaterhouseCoopers Legal - Appellant
Ron Kramer Associates - First Respondent
Phillips Fox - Second Respondent

CATCHWORDS:
INSURANCE - construction - whether liability excluded under true construction of insurance policy - whether liability excluded by implied term - DUTY OF DISCLOSURE - Insurance Contracts Act 1984, s21 - knowledge of matter relevant to risk - alteration of risk

LEGISLATION CITED:
Insurance Contracts Act 1984

DECISION:
Appeal is dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41080/02
SC 2810/02
SHELLER JA
SANTOW JA
McCOLL JA

QBE MERCANTILE MUTUAL LTD v HAMMER WASTE PTY LTD & ANOR

A garbage truck owned by the first respondent and used in its garbage collection business, was in August 2001 insured by the appellant under the terms of a heavy haulage motor vehicle insurance policy. The second respondent had, since July 1997, acted as insurance broker for the first respondent. On 21 August 2001, this vehicle, while being driven by Mr Winstanley, an employee of the first respondent, was involved in a serious accident. The appellant denied the first respondent’s claim for coverage under the policy, in relation to the accident, on the grounds that Mr Winstanley had been “rejected” as a driver under the policy because he was outside QBE’s underwriting selection criteria as he had only two months’ driving experience in vehicles of the class in question.

The first respondent commenced proceedings against QBE seeking a declaration that QBE was liable to indemnify it in respect of claims arising from the accident, as well as, a claim for damages for breach of contract. The first respondent claimed in the alternative, that the second respondent had breached its duty of care in failing to advise of the rejection of Mr Winstanley’s driver’s declaration.

The trial Judge found that the first respondent was never informed prior to the accident on 21 August 2001 that Mr Winstanley had been rejected as a driver by QBE. In fact, the trial Judge held, that on a true construction of the policy, no provision operated to entitle QBE to exclude Mr Winstanley from coverage. The trial Judge also considered the duty of disclosure under s21 of the Insurance Contracts Act 1984 and held that there was no duty to disclose because the respondents lacked the requisite knowledge. Other issues included whether QBE, in respect of any liability to the first respondent, had any right of subrogation or contribution against the second respondent.

The appellant challenged the findings of the trial Judge as to the true construction of the policy and contended that Mr Winstanley, as a rejected driver, was not covered by the policy as a result of cl 4.1(c) of the policy or by reason of an implied term to give effect to cl 4.1(c). The appellant also submitted that the first respondent, or the second respondent as agent for the first respondent, had breached its duty of disclosure under s21(1) of the Insurance Contracts Act and therefore that the appellant’s liability in respect of the accident, should be reduced to zero. Central to the appellant’s argument, in relation to the duty of disclosure, was that the matter alleged to be known to the first respondent, was a matter that the first respondent, or a reasonable person in the circumstances, could be expected to know was a matter relevant to QBE’s decision whether to accept the risk.

Held: per Sheller JA, Santow and McColl JJA agreeing:

The trial Judge’s conclusions about the construction of the policy were correct. Mr Winstanley was not excluded by the policy, rather, if a driver’s declaration was not accepted, for whatever reason, there was only one consequence: a $1,000 excess applied unless the driver had a minimum of two years’ relevant driving experience and had not been charged or convicted as provided in the policy.
The implied term argument, that it was so obvious as to go without saying, that if QBE “rejected” a driver, it was entitled to refuse coverage under the policy to that driver, is contrary to the terms of the policy and introduces an exclusion which is not to be found in the exclusion clause. Moreover, if the policy was intended to operate in this way, QBE was misleading the recipient, in offering the policy in a booklet, which was said to contain all the terms of the policy.
The obligation of the insured is confined to the particular risk insured, and if the risk in respect of which a claim is made against the insurer differs from the risk it has insured, it is not liable to make good that claim. The risk covered, in this instance, was the chance of the loss, damage or theft of the vehicle as described in s1 of the policy and the chance of third party liability as described in s2 of the policy.
Law Guarantee Trust and Accident Society Ltd v Munich Reinsurance Co [1912] 1 Ch 138 applied.
Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1939) 39 SR (NSW) 174 cited.

Any alteration made during the currency of a policy, which affects the subject matter or the circumstances, is an alteration of the risk, since the state of facts contemplated by the insurer no longer exists in its entirety. There is, however, no alteration of the risk where an alteration, upon the true construction of a policy, might be taken to have been within the contemplation of the parties at the time the contract was entered into. Nor is there any alteration of the risk where the alteration does not affect the description of the policy, even though it increases the danger of loss.
Permanent Trustee Australia Ltd v FAI Insurance Company Ltd (In liquidation) (2003) 77 ALJR 1070 applied.
Baxendale v Harvey (1859) 4 H & N 445; 157 ER 913 applied.
There was no duty imposed by s21 of the Insurance Contracts Act or otherwise upon the first respondent to make the disclosure claimed. Mr Winstanley’s experience was not relevant to the policy to be renewed and was not the subject of any express requirement by the appellant to provide such information. The first respondent, or a reasonable person in the circumstances, having already informed the appellant of the name of its driver, would not be expected to know, when renewing the policy, that the fact that Mr Winstanley continued to be its driver, was a matter relevant to the appellant’s decision whether to accept the risk.
The knowledge of QBE consisted of an unjustified belief that the policy did not cover a vehicle driven by Mr Winstanley. This was entirely QBE’s error and the respondents did not cause this misunderstanding.

Legislation:

Insurance Contracts Act 1984

Cases cited:

Baxendale v Harvey (1859) 4 H & N 335; 157 ER 913
Law Guarantee Trust and Accident Society Ltd v Munich Reinsurance Co [1912] 1 Ch 138
Permanent Trustee Australia Ltd v FAI Insurance Company Ltd (In liquidation) (2003) 77 ALJR 1070
Shaw v Royce Ltd [1911] 1 Ch 138
Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1930) 39 SR (NSW) 174

ORDERS
Appeal dismissed with costs.
**********

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41080/02
SC 2810/02
SHELLER JA
SANTOW JA
McCOLL JA
Tuesday, 9 December 2003

QBE MERCANTILE MUTUAL LTD v HAMMER WASTE PTY LTD & ANOR

Judgment

SHELLER JA:
Introduction
The salient facts can be shortly stated. Hammer Waste Pty Ltd (Hammer) was in August 2001 insured by QBE Mercantile Mutual Ltd (QBE) on the terms of a policy of heavy haulage motor vehicle insurance, which covered a garbage truck owned by Hammer and used in its business of garbage collection. On 31 July 2001 QBE had renewed the policy for the ensuing twelve-month period. Hammer was a small company owned by a husband and wife, Colin and Jan Wilson. The truck insured fitted the description of a rigid body vehicle. According to the pleading, its gross vehicle mass exceeded 12,000 kilograms. The vehicle was classed heavy rigid or HR.
On 21 August 2001 while it was being driven by a person known as Neil or Michael Winstanley, whose date of birth was 11 January 1977, the vehicle was involved in a serious accident as a result of which two people were killed, the vehicle was severely damaged and considerable damage was done to other vehicles.
Shortly after the accident Hammer notified QBE of a claim under the policy. On 31 August 2001 QBE wrote to Hammer as follows:
“Unfortunately, the driver concerned in this accident, namely Neil Winstanley was not covered [under the policy] at the date of this accident, as Cover was Declined in respect to this person in a Fax dated 17 November 2000 to OAMPS Insurance Brokers from Greg Naghten of this Office. In his Fax he has specifically Declined cover for Neal Winstanley, on the basis of his only having two months driving experience in vehicles of this class, and as such was outside our Underwriting selection criteria.
Regrettably, we are unable to accept this claim on your Policy, and therefore your claim has been denied.
However, under the terms of the General Insurance Industry’s Code of Practice, which QBE Mercantile Mutual Limited fully supports, if you feel unable to agree with our decision you can request the matter to be further considered by our Internal Disputes Resolution Process. …”
QBE maintained that denial in a letter of 26 September 2001, which confirmed that the claim file had been reviewed through “our Internal Disputes Resolution Process”.
“We regret to advise that after consideration of all the evidence, our final decision is to maintain denial of payment in relation to your claim. The driver of the vehicle at the time of the accident, Neil William Winstanley, had been declined cover under the policy on the basis of his only having 2 months driving experience in vehicles of this class.
As this concludes our involvement in the matter we have closed our file.”
Hammer began proceedings in the Equity Division of the Court inter alia for a declaration that QBE was bound to indemnify Hammer pursuant to the policy in respect of all claims for property damage, including claims arising out of the accident, damage to the vehicle and the reasonable legal costs of Hammer in defending or settling the claims and any further claims arising by reason of the accident.
OAMPS Insurance Brokers Ltd (OAMPS) had, since July 1997, acted as insurance broker for Hammer in obtaining cover for their garbage collection vehicles and was joined as a defendant in Hammer’s amended statement of claim. QBE cross-claimed against OAMPS. The proceedings were heard by Palmer J, who on 29 October 2002 declared that QBE must indemnify Hammer pursuant to the policy in respect of all claims for property damage, including claims arising out of the accident, damage to the vehicle and the reasonable legal costs of Hammer in defending or settling the claims and declared that in refusing to indemnify Hammer in respect of the claims and in relation to the accident QBE had breached the policy. QBE appeals against this decision. QBE’s cross-claim against OAMPS was dismissed with costs. In the event that this Court upheld QBE’s appeal, Hammer cross-appealed against the other defendant, OAMPS.
Policy
The policy of insurance which was described as motor vehicle insurance heavy haulage and was contained in a booklet, began under the heading “Welcome to QBE Mercantile Mutual”, with the following paragraph:
“In this policy booklet you’ll find all the information you need to know about the type of cover(s) available, our terms and conditions, and making a claim. (my emphasis)
Please read this booklet and make sure that you are satisfied with what we offer.
Unless we have already agreed to issue a cover note, insurance protection only begins when we receive and accept your completed application form and the premium.
This booklet and the insurance schedule we send you form your legal contract with us, so please keep them together in a safe place.
…
About QBE Mercantile Mutual
…
QBE and Mercantile Mutual are household names in Australian Insurance with a combined experience of over 230 years. Backed by sizeable assets, both organisations are strong, financially secure, and well respected.”
It appears from the policy that QBE was acting as agent for QBE Insurance (Australia) Ltd and Mercantile Mutual Insurance (Australia) Ltd, which each underwrote the policy to the extent of 50 per cent. Under a heading “Our Agreement with You” appeared:
“This policy is a legal contract between you and us. You pay us the premium and we insure you against loss, damage and legal liability occurring within Australia or in transit between any ports in Australia, which happen during the period of insurance. There are limitations, conditions, exclusions and excess provisions in the policy. The excesses as set out in Section 4 apply to all claims, except where otherwise provided. The conditions in Section 5 and the exclusions in Section 6 apply to all Types of Cover.”
Section 1 of the policy provided cover for loss, damage or theft of the vehicle and section 2 for third party liability. In cl 2.1 “Property Damage” appeared the following:
“(a)We will cover the amount you may be held legally liable to pay for accidental damage to property belonging to others caused by or arising out of:-
…
(v)any person who is driving, using or in charge of your vehicle with your permission as if they were you and provided they are not entitled to indemnity under any other policy or statute and provided such cover is not otherwise excluded; (my emphasis)
….”
Section 3 dealt with additional benefits and is not relevant.
Section 4 was headed “Excesses”. Section 4.1 “Excesses” stated:
“An excess is the first amount which you must contribute for each claim arising out of one event.
You may also have to contribute more than one excess in respect of the one claim – the excesses are shown on the schedule and explained below. …
Before we pay your claim you must pay the applicable excesses either to us or to the repairer. We will tell you to whom they must be paid. However, if applicable eg a total loss, we may deduct any excess that you are liable to pay before we make a payment under this policy to you or anyone else.”
The first excess identified was “(a) Standard excess” and stated:
“You will have to contribute the first amount of every claim. This is shown on the schedule as the Standard Excess.
Where your vehicle is a rigid body vehicle with a gross vehicle mass exceeding 12,000 kilograms, the standard excess will be increased by 100% where the conditions as stated in 4.1(b)(ii) or 4.1(b)(iii) apply.”
Sub-paragraphs (b)(ii) and (iii) were part of the second excess.
The second excess identified was “(b) Age excess/inexperienced excess” applicable to vehicles with a gross vehicle mass less than 12,000 kilograms. Paragraph (b) was as follows:
“In addition to the Standard excess, you will have to contribute an Age excess or inexperienced driver’s excess if at the time of the accident giving rise to a claim the person driving your vehicle:
(i)is under the age of 21; or
(ii)between the ages of 21 and 25; (my emphasis) or
(iii)is aged 25 or more but has not held an Australian driver’s licence for two or more years for the type of vehicle being driven at the time of the accident.
The amounts of the Age or inexperienced driver’s excesses are shown in the schedule.
You will not have to contribute this additional excess if the only damage to your vehicle is a broken windscreen, window glass or is the result of storm or hail damage.
Under Exclusion 6.25 and 6.26, there is no cover for drivers under 25 years of age of articulated vehicles and drivers under 21 years of age of rigid body vehicles.” (my emphasis)
The language of the second excess makes clear that for rigid body vehicles with a gross vehicle mass exceeding 12,000 kilograms the standard excess was to be increased by 100 per cent where the person driving the vehicle was between the ages of 21 and 25. No cover was available for drivers under 21 years of age.
The third identified excess was headed:
“(c)Undeclared driver excess – except where exclusion 6.36 [sic 6.34] applies”
The excess provided as follows:
“In addition to the standard excess shown on the schedule, the following excesses apply.
Only applicable where the gross vehicle mass of the vehicle exceeds 12,000 kilograms [and therefore applicable to the Hammer truck] –

Two thousand dollars ($2,000) if at the time of the accident your vehicle is an articulated vehicle and is being driven by or is in the charge of any person from whom we have not received and accepted a Driver’s Declaration;
One thousand dollars ($1,000) if at the time of the accident your vehicle is a rigid body vehicle and is being driven by or is in the charge of any person from whom we have not received and accepted a Driver’s Declaration; (my emphasis)
These above mentioned excesses will not apply where a driver has a minimum of 2 years experience driving the same type of vehicle and has not been charged or convicted of any driving offence in the last 5 years excluding speeding offences, however the Excess(s) will apply if in the last five years, the Driver’s Licence was lost due to the accumulation of speeding offences or where there have been any accidents where the driver was at fault. (my emphasis)”

Two further specified excesses, identified in the Policy, “Tipping excess” and “Faultless excess” are not relevant.
Section 5 of the policy was headed “Conditions”. The relevant sections were as follows:
“5.1You must comply with all conditions.
Should you fail to comply with any of the following conditions we may be entitled to:-
(a)cancel the policy; or
(b)treat your policy as if it never operated; or
(c)reduce or refuse to pay a claim.
5.2Changes to information previously advised.
You must tell us immediately if there is any change:-
(a)to the names of the vehicle’s owners; or
(b)of the use of your vehicle(s); or
(c)by way of modification, to the manufacturer’s specifications to improve your vehicle’s performance, but only if your vehicle is a sedan, station wagon, 4 x 4 or a goods carrying vehicle with a gross vehicle mass under 3,000 kilograms.
5.3Before you renew your policy, you must tell us if:
(a)there are any changes to the regular drivers you have told us about; (my emphasis)
(b)any regular driver has had their licence cancelled or suspended for any reason;
(c)any insurer has refused to offer you renewal or cancelled a policy (wholly or partly in your name) during the past period of insurance if the reason was because of your particular circumstances.
If you do not tell us, we may be entitled to:-
(d)charge you an extra premium or impose a higher excess as would have applied; or
(e)deny all or part of your claim.”
It is not necessary to refer to the other conditions in section 5 of the policy.
Section 6 of the policy was headed “Exclusions” and began: “This policy does not cover:” after which there followed thirty-four paragraphs. Of such paragraphs these are significant:
“6.12loss of or damage to your vehicle or liability if your vehicle is being driven by:-
(a)you or by any person with your consent who is not licensed under any relevant law to drive such a vehicle; or
…
6.26loss of or damage to your vehicle or liability if any rigid body motor vehicle with a gross vehicle mass of 12,000 kilograms or greater is, at the time of an accident, being driven by or is in the charge of a person under 21 years of age.
…

6.34 loss of or damage to your vehicle or liability where the gross vehicle mass exceeds 12,000 kilograms [and therefore applicable to the Hammer truck] and we have not received and accepted a Driver’s Declaration and any of the following conditions occurred in the last 5 years:- (my emphasis)

the driver has had 2 or more claims where they were at fault; or
the driver has lost their Driver’s Licence for negligent driving, culpable driving or dangerous driving; or
the driver has been convicted of or charged with drug use, driving under the influence, or exceeding the prescribed concentration of alcohol in their blood or breath; or
the driver has been convicted or charged with any criminal offence.”
In the case of rigid body vehicles with a gross vehicle mass of 12,000 kilograms or greater, cover was excluded where the vehicle was being driven by an unlicensed person, a person under 21 or a person with the driving or criminal record described for whom QBE had not received and accepted a Driver’s Declaration.

Hammer employed Mr Winstanley as a new driver for the vehicle in November 2000. Hammer completed a Driver’s Declaration form shortly thereafter, which stated Mr Winstanley’s licence number, the class of licence (HR) and “years held this class: two months.” The Driver’s Declaration was on a Mercantile Mutual form. Accordingly, it referred to the conditions of the Mercantile Mutual policy which were significantly different. I shall return to refer to one notable difference. However, quite properly counsel for QBE did not rely upon these parts of the Driver’s Declaration form. Palmer J observed that the acknowledgement on the Driver’s Declaration did not reflect any term in the QBE policy issued to Hammer, and if anything, was a misrepresentation to Hammer as to the terms of its policy with QBE. The completed Driver’s Declaration was sent to OAMPS, who apparently sent it on to QBE. The senior underwriter, Greg Naghten, faxed OAMPS, attention Vanessa Leahey, on 17 November 2000:
“I have corrected the expiry date to 31.07.2001 but as advised the driver disclosed on the Driver’s Declaration attached to your closing 148739 is not acceptable to us.
The age of Mr Winstanley is not disclosed but on the basis of his only having two months driving experience in vehicles of this class he is outside our selection criteria.
Please ensure our mutual client is advised of this matter.”
In fact as Palmer J found, and this is not challenged, OAMPS did not so advise Hammer. Mr and Mrs Wilson remained at all relevant times ignorant of QBE’s statement that Mr Winstanley was not acceptable to it as a driver of the vehicle.
Palmer J’s reasons for judgment
Palmer J found that since at least 1995 the truck used in Hammer’s business had been insured with Mercantile Mutual. This was not an accurate statement. We were told by counsel that the original policy had been issued by Manufacturers Mutual Insurance (MMI) and was replaced in 1997 by a policy with Mercantile Mutual, a company quite independent of MMI. However, this is of no significance in this appeal. The trial Judge went on to set out the factual background and referred to an agreed statement of issues which, so far as relevant to this appeal, his Honour summarised thus:
“(i)whether, on the true construction of the Policy, QBE was entitled to decline to cover the truck while Mr Winstanley was driving it;
(ii)whether, on the true construction of the Policy, Hammer was required to disclose to QBE prior to the renewal of the Policy for the 2001/02 year that Mr Winstanley was a regular driver of the truck and, if so, whether the consequences of its failure to make that disclosure are to reduce the liability of QBE to nil.”
Turning to the construction of the policy, Palmer J said:
“18Hammer says that the Policy does not contain any term excluding cover if the truck is driven by a driver in respect of whom a Driver’s Declaration has been submitted and rejected by QBE. On the contrary, it says, the Policy expressly provides that the only consequence of that circumstance, on the facts of this case, is that it must pay an additional $1,000 excess in respect of the claim.
19QBE concedes that, on the facts of this case, none of the exclusions expressly contained in the Policy deny cover in the case of a driver whose Driver’s Declaration has been rejected. However, it says, cover is excluded in such a case as a matter of construction of the excess liability clause.”
His Honour set out what he regarded as the relevant provisions of the policy and noted that it was common ground that cl 6.34 did not apply because none of the bullet point conditions was met. He observed that, inter alia, in the schedule to the policy the amounts of the “Age or Inexperienced driver’s excesses” referred to in cl 4.1(b) of the policy were stated in the broker’s closing at $800 in respect of drivers under 21, $600 in respect of drivers over 21 and under 25, and $600 in respect of drivers over 25 with less than 2 years’ driving experience. His Honour next summarised QBE’s submissions on the construction of the policy as follows:
“21Mr Castle, who appears for QBE, submits that Mr Winstanley was not an ‘Undeclared Driver’ for the purposes of Clause 4.1(c) so that the truck would have been covered by the Policy subject only to a penalty excess. An ‘Undeclared Driver’, Mr Castle says, is a driver whose Driver’s Declaration has not yet been received by QBE at the time of the accident or, if it has been received, has not yet been accepted. In contradistinction, he says, a driver whose Driver’s Declaration has actually been received and rejected by QBE at the time of the accident is a ‘rejected driver’. Mr Castle then says that a ‘rejected driver’ is excluded from cover under the Policy because it was Mr Naghten’s understanding, and Ms Leahey’s as well, that the Policy did not apply to such a driver. I am unable to accept that submission, for the following reasons.”
The trial Judge’s rejection of this submission sprang from the policy’s failure to distinguish between “an undeclared driver” and a “rejected driver”. The expression “rejected driver” was nowhere used in the policy. Further, he said that cl 4.1(c) did not apportion different consequences according to which of three separate and distinct circumstances might occur, namely, a Driver’s Declaration was not received at all by the time of the accident, or it was received and accepted, or it was received but not accepted. The phrase “not received and accepted” referred to only one circumstance, namely, that at the time of the accident there was no acceptance by QBE of the Driver’s Declaration regardless of whether that non-acceptance was because the Driver’s Declaration had not been received or because it had been received but declined. If it was not accepted, for whatever reason, there was only one consequence. The $1,000 excess applied unless the driver had a minimum of two years’ relevant driving experience and had not been charged or convicted as provided.
For these reasons, his Honour was of the opinion that on the true construction of cl 4.1(c), cover was not excluded where, as in the present case, a Driver’s Declaration had been received and declined by QBE. As a result, in respect of the claim by Hammer, Hammer was bound to pay the standard excess with a 100 per cent increase because Mr Winstanley was under 25 and a further $1,000 excess because Mr Winstanley’s Driver’s Declaration had not been accepted.
In the alternative QBE relied upon what it described as an implied term. Palmer J said:
“32Mr Castle submits, in the alternative, that there must be implied in the Policy in order to give it business efficacy a term to the effect that cover is excluded where a Driver’s Declaration is received and not accepted by QBE. I am unable to accept that submission, primarily for the reason that such an implied term is inconsistent with the express terms of the Policy. Clause 6.34 expressly states that non-acceptance of a Driver’s Declaration will lead to exclusion of cover only when one of four specified circumstances has occurred in the previous five years. It would be inconsistent with the terms of Clause 6.34 to imply a term in the Policy which effectively deletes all the words in Clause 6.34 which follow the words ‘Driver’s Declaration’ so that the clause reads simply: ‘This Policy does not cover … loss of or damage to your vehicle or liability where the gross vehicle mass exceeds 12,000 kg and we have not received and accepted a Driver’s Declaration’.
33If it were necessary, I should add that in the light of the provision for an excess contained in Clause 4.1(c), I am unable to see how the implication of the suggested term is either equitable, necessary to give business efficacy to the Policy, or so obvious that it goes without saying.”
Dealing with Hammer’s alleged failure to disclose to QBE prior to the renewal of the policy for the 2001/02 year that Mr Winstanley was a regular driver of the truck, Palmer J said:
“40By paragraph 53 of the Further Amended Notice of Grounds of Defence, QBE alleges that the conduct of Hammer in continuing to employ Mr Winstanley to drive the truck, after receipt by Hammer through its agent OAMPS of notice that QBE had rejected Mr Winstanley’s Driver’s Declaration, was a matter either that Hammer knew to be a matter relevant to QBE’s decision whether to assume the risk or that a reasonable person in the circumstances would be expected to know was a matter relevant to that decision. The particulars to that paragraph refer to paragraph 3 of an Acknowledgment on the Driver’s Declaration signed by Mr Wilson in the following terms:
‘Acknowledgment by the Insured.
Rigid Trucks – Please note …
3.That cover is not granted to any vehicle whilst the vehicle is being driven by a person with less than 2 years’ experience driving rigid trucks or any person under 21 years of age.’
…
42Paragraph 54 of the Further Amended Notice of Grounds of Defence alleges:
‘By reason of [the allegation in paragraph 53] and the assumption of [QBE that Hammer would terminate Mr Winstanley’s services or arrange other insurance because of its rejection of his Driver’s Declaration] the failure of [Hammer] to inform [QBE] at the time of renewal of the Policy … that it was continuing to employ Mr Winstanley to drive the Vehicle was a breach of [Hammer’s] duty of disclosure under s.21 (ICA).’
43Paragraph 56 alleges that if Hammer had disclosed to QBE at the time of renewal of the Policy in July 2001 that Mr Winstanley was still driving the truck, QBE would not have renewed the Policy at all or would have renewed it only upon terms that liability was excluded whilst Mr Winstanley was driving.
44Paragraph 57 alleges that by reason of these circumstances the liability of QBE is reduced to nil under s.28(3) ICA.”
The trial Judge set out s21(1) of the Insurance Contracts Act 1984 and said:
“46There are three prerequisites to the imposition of a duty of disclosure under s21(1) ICA. The first is that there exists a ‘matter’ which is relevant to the insurer’s decision; the second is that that matter is known to the insured; the third is that the insured knows that the matter is relevant to the insurer’s decision or, if the insured does not know, then a reasonable person in the circumstances could be expected to know that it was relevant.
47The first question which arises is: what is the ‘matter’, relevant to QBE’s decision to renew the Policy, which existed at the time of Hammer’s obligation to disclose? According to paragraph 53 of the Further Amended Notice of Grounds of Defence, the ‘matter’ was that Hammer continued to employ Mr Winstanley to drive the truck after Hammer’s agent, OAMPS, had received advice of QBE’s rejection of Mr Winstanley’s Driver’s Declaration. However, paragraph 54 obliquely alleges an additional necessary element in the relevant ‘matter’, namely, that QBE assumed that Hammer would terminate Mr Winstanley’s services on receipt of notice that his Driver’s Declaration had been rejected. Indeed, if this factor is not part of the ‘matter’, it is difficult to see how the other two factors alleged in paragraph 53 could have made the ‘matter’ one which it was necessary to disclose since at the heart of the alleged duty of disclosure is the proposition that it was incumbent upon Hammer to disabuse QBE of the false assumption upon which QBE was going to renew the Policy.”
For the purposes of his analysis, Palmer J accepted that the “matter”, which was comprised of the elements alleged in paras 53 and 54 of the further amended grounds of defence, was relevant to QBE’s decision to renew the policy. The trial Judge said:
“50Section 21(1) ICA imposes a duty to disclose a ‘matter known’, not a ‘matter which ought reasonably to be known’. Constructive knowledge, while it finds a special place in contracts of marine insurance (see s24(1) Marine Insurance Act 1909 (Cth)), has no place in the law relating to contracts governed by the ICA. As Davies A-JA said in Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735, at 745:
‘… the terms ‘known’ and ‘knows’ are used in their common law sense. Their primary denotation refers to that which is actually known; but it would be wrong to import the word ‘actually’ into a provision such as s21. The section does not use it. The terms ‘known’ and ‘knows’ are used in their ordinary sense. Whether a matter is known is a question of fact.’
51 The third … ‘matter’ which Hammer knew in July 2001 could not in itself have been of any relevance to QBE’s decision to renew the Policy. All Hammer knew was that it had sent to QBE Mr Winstanley’s Driver’s Declaration, that Ms Leahey had made an enquiry from Mrs Wilson to obtain Mr Winstanley’s date of birth and frequency of driving the truck, and that after that it had heard nothing further about the matter at all. Any reasonable person in those circumstances would have been entitled to believe that QBE had been notified that Mr Winstanley was to be a regular driver of the truck and that it had no objection.
52Accordingly, in so far as the knowledge of Hammer itself is concerned, the requirements for the duty of disclosure under s21(1) ICA alleged in paragraphs 53 and 54 of the Further Amended Notice of Grounds of Defence fail at the second step because Hammer did not know the whole of the ‘matter’ which is alleged to be relevant.
53In the course of his final submissions, Mr Castle sought leave to amend paragraph 53 of the Further Amended Notice of Grounds of Defence by inserting an allegation that Hammer knew the ‘matter’ through its agent, OAMPS. I declined to grant leave to amend at that late stage in the trial for reasons which I gave in an ex tempore judgment. Mr Castle, however, submits that strictly speaking the amendment was not necessary because the knowledge of an insured’s agent is, in law, imputed to the insured: he relies on cases such as Lindsay and Ors v CIC Insurance Ltd (1989) 16 NSWLR 673 and Ayoub v Lombard Insurance Co (Aust) Pty Ltd (1989) 5 ANZ Ins Cas 60-933 ((1989) 97 FLR 284).
54 Let me accept for the moment that OAMPS was Hammer’s agent for the purpose of renewing the Policy. The question immediately arises: what did OAMPS, through Ms Leahey ‘know’ as at July 2001, within the meaning of that word for the purposes of s21(1) ICA? She knew that in November 2000 Hammer had sent in Mr Winstanley’s Driver’s Declaration and that Mr Naghten had rejected it. As I have held, Ms Leahey simply forgot to communicate that fact to Hammer. Even after the accident was notified to QBE and OAMPS in August 2001, Ms Leahey said, and I accept, that she believed that she had followed her usual practice in notifying an insured of the rejection of a Driver’s Declaration. I am satisfied that in July 2001, when the Policy was renewed, Ms Leahey was not conscious of the fact that she had forgotten to notify Hammer of the rejection of Mr Winstanley’s Driver’s Declaration. It follows that she could not have been conscious of the consequences of her forgetfulness, namely, that QBE would have assumed that Mr Winstanley had been dismissed whereas Hammer, being in ignorance of QBE’s rejection, would have continued to employ Mr Winstanley.
55Mr Castle’s submission really amounts to this: in July 2001 Ms Leahey ‘knew’ that QBE had rejected Mr Winstanley’s Driver’s Declaration in November 2000, and she ‘knew’ that QBE would have assumed that Hammer had dismissed Mr Winstanley because of that rejection; she ‘knew’ that she had forgotten to tell Hammer of Mr Winstanley’s rejection; therefore she ‘knew’ that Hammer would, in ignorance of the rejection, still be employing Mr Winstanley; she ‘knew’ that if QBE were not told that Mr Winstanley was still driving the truck, it would be acting on a false assumption in considering whether to renew the Policy; all of this ‘knowledge’ of Ms Leahey must be imputed to Hammer; Hammer failed to disclose what it ‘knew’ so that it breached its duty of disclosure under s21(1) ICA. This submission fails for the following reasons.
56First, Ms Leahey did not ‘know’ in July 2001 that she had forgotten to tell Hammer of Mr Winstanley’s rejection by QBE in November 2000. As the passage from Commercial Union quoted at paragraph 50 indicates, in s21(1) ICA the word ‘know’ is used in its ordinary sense; it implies actual, not constructive, knowledge both on the part of the insured and on the part of any agent or employee of the insured whose ‘knowledge’ is to be imputed to the insured. The obligation to disclose something ‘known’ can attach only to something which, at the time for disclosure, a person actually has in his or her consciousness or else something which exists in some record or other source of information which the person actually knows about and to which the person has access. So, for example, I ‘know’ my driving licence number for the purposes of s21(1) ICA even though I cannot recite it offhand because I actually know that it is to be found in the plastic card in my wallet.
57In this case, I accept Ms Leahey’s evidence that when she was processing the renewal of Hammer’s Policy, she did not look at Hammer’s file, and it did not come back to her mind that she had had a conversation with Mr Naghten in November concerning Mr Winstanley’s Driver’s Declaration. I am satisfied that the fact that Ms Leahey had forgotten to communicate to Hammer QBE’s rejection of Mr Winstanley’s Driver’s Declaration was something completely absent from her consciousness at the requisite time for disclosure to QBE. Even if she had looked in the file and had seen the 17 November facsimile from Mr Naghten, it is impossible to say that she would have actually known that she had forgotten to tell Mrs Wilson about the facsimile in the telephone conversation of 27 November. Ms Leahey might have recalled her omission or she might not. The absence of a letter of advice to Hammer may have put her on enquiry, but under s21(1) ICA constructive knowledge is not enough. Accordingly, the fact that Ms Leahey had forgotten to notify Hammer of QBE’s rejection of the Driver’s Declaration cannot be said to be ‘known’ to her or to OAMPS within the meaning of s21(1) ICA.
58Second, Ms Leahey did not ‘know’ that QBE had wrongly assumed that Mr Winstanley had been dismissed as a result of the rejection of his Driver’s Declaration. To ‘know’ for the purposes of s21(1) ICA means more than to suspect, believe or assume: ‘What is required is that the matter should be the subject of a true belief, held with sufficient assurance to justify the term ‘known’ ‘: per Hodgson CJ in Eq in Permanent Trustee Australia v FAI General Insurance Co Ltd (1998) 44 NSWLR 186, at 247; cited with approval on appeal: (2001) 50 NSWLR 679, at 688 and by the Queensland Court of Appeal in Australian Casualty & Life Ltd v Hall (1999) 151 FLR 360, at 371.
59Mr Castle relies on the following evidence [from Ms Leahey] to submit that Ms Leahey ‘knew’ that QBE had wrongly assumed that Mr Winstanley had been dismissed:
‘Q.          As at November 2000 based upon your experience as an underwriter and a broker, where a driver was rejected in respect of a driver’s declaration you would expect that an insured would not allow that driver to continue driving? A. I would not expect them to.
Q.           You would not expect them to continue driving? A. No.
Q.           You agreed with the proposition I put? A. With your statement?
Q.          Yes? A. Yes.
Q.           Based upon your experience as an underwriter, you knew that when Mr Winstanley’s driver’s declaration was rejected, that QBE would assume that Mr Winstanley would no longer continue driving a vehicle? A. That’s right unless he was aware that to do so he would be uninsured.
Q.           If Mr Winstanley was still driving the vehicle for whatever reason, then you would agree with me, based on your experience, that QBE MM’s assumption that Mr Winstanley was no longer driving the vehicle was wrong? A. Sorry?
Q.           I will put it to you again. Mr Winstanley was still driving a vehicle for whatever reason, then QBE MM’s assumption which you have just referred to would be wrong; would it not? A. It would be wrong.
Q.           As an experienced underwriter and broker you would understand that QBE MM should be told if their understanding about Mr Winstanley driving the vehicle was wrong; would you not? A. Yeah, yeah, they should be told, yes.
Q.           You agree with me; don’t you? A. Yes.
Q.           In your answer you agreed with my proposition; didn’t you? A. Yes.
Q.           Based upon your experience as an underwriter and a broker, if Mr Winstanley was still driving the vehicle, QBE MM should have been told that their understanding about Mr Winstanley was wrong, at least at the time of the next renewal of the policy; do you agree with that? A. That QBE should be told if he was driving the vehicle?
Q.           Yes? A. I think so.’
60It will be seen from this passage that, in truth, Ms Leahey was not giving evidence of what she actually knew QBE had in fact assumed in this particular case; she was merely giving evidence of her general experience as an underwriter and a broker and as to what she would suppose would happen in a hypothetical situation. Her evidence was not even expressly directed to her experience in dealing with QBE as distinct from other insurers or to dealing with the relevant QBE policy which provided that Hammer’s truck would still be covered while Mr Winstanley was driving, subject to the payment of additional excesses.
61Further, Ms Leahey did not ‘know’ that any assumption about Mr Winstanley which QBE may have made was, in fact, wrong. She did not ‘know’ that as a result of her failure to tell Hammer of QBE’s rejection of the Driver’s Declaration Mr Winstanley was still driving the truck in July 2001. If anything, had Ms Leahey turned her mind to the question, she would have assumed that she had told Hammer of the rejection in accordance with her usual practice and, in the light of her general experience as a broker, she would further have assumed that Hammer would have dismissed Mr Winstanley as a driver.
62For these reasons, I conclude that even if the knowledge of OAMPS, through Ms Leahey, can be imputed to Hammer, OAMPS did not ‘know’, within the meaning of s21(1) ICA, the ‘matter’ which is alleged in paragraphs 53 and 54 of the Further Amended Notice of Grounds of Defence to be relevant to QBE’s decision to renew the Policy. Accordingly, I conclude that Hammer has not failed in its duty of disclosure under s21(1) ICA and that it is entitled to indemnity under the Policy in respect of claims arising from the accident which occurred on 21 August 2001, subject to the payment of all excesses provided in Clause 4.1 of the Policy.”

Palmer J went on to make findings as to what would have been the position if Hammer had been informed in November 2000 that QBE had rejected Mr Winstanley’s Driver’s Declaration and QBE had been made aware, before renewing the policy, that Mr Winstanley was still driving the truck. He said:
64I accept without reservation the evidence of Mr and Mrs Wilson that they would not have permitted Mr Winstanley to continue driving the truck if they had been told that QBE had rejected his Driver’s Declaration. Mrs Wilson’s evidence in this respect is entirely consistent with her careful attitude to insurance with regard to the truck, which I have earlier described. Mr Wilson also struck me as a careful man, not as adept in business affairs as his wife, but prudent nevertheless. He had an unblemished driving record and I think it inherently unlikely that he would have permitted anyone to drive the truck if it were likely to cause any insurance problem.
65I accept also Mr Naghten’s evidence that he would have declined renewal of Hammer’s Policy in July 2001 if he had known that Mr Winstanley would still be driving the truck. Mr Naghten’s unchallenged evidence was that QBE had adopted and was at that time still applying MMI’s Underwriting Manual, although that manual applied to a previous policy of MMI which, unlike the relevant QBE policy, expressly excluded cover where a driver had had less than two years’ experience driving the relevant class of vehicle. Illogical as Mr Naghten’s evidence seemed to be, he adhered to it steadfastly.
66What has happened, therefore, is that QBE has renewed a policy when it would have declined renewal had it known the true facts. But QBE cannot decline liability under the Policy simply for that reason. It must show that it did not know the true facts because of a breach of Hammer’s duty to disclose those facts. For the reasons which I have given, Hammer is blameless of any breach of that duty.
67QBE’s liability has arisen because its own procedures for high volume renewal of policies exposed it to a calculated risk. It dealt with renewals by bulk process through OAMPS, agreed to accept risks and fixed premiums without first requiring the insured to complete a proposal or questionnaire in which proper disclosure of relevant matters could be elicited. No doubt such a procedure would have been time-consuming and labour-intensive and, by dispensing with it, QBE has saved itself a great deal in administrative costs. But it must accept the consequences of taking that calculated risk. It cannot deny liability under the Policy if it has accepted that Policy due to an administrative bungle for which Hammer is not responsible.”
Grounds of appeal
The appellant relevantly relied upon the following grounds of appeal:
“3.His Honour erred in holding that, on the true construction of the insurance policy between the appellant and the first respondent (‘the Policy’), Mr Winstanley was covered by the Policy in respect of the accident occurring on 21 August 2001 (‘the Accident’).
4.His Honour should have held that Mr Winstanley was not covered by the Policy in the year 2001/2002 as a rejected driver, being a driver in respect of whom a Drivers Declaration had been received but not accepted, on the true construction of clause 4.1(c) of the Policy or by reason of an implied term to give effect to clause 4.1(c) of the Policy.
5.His Honour erred in finding that the first respondent did not breach its duty of disclosure under s21(1) of the Insurance Contracts Act (‘the Act’) because Ms Leahey did not know in July 2001 that:
(a)she had forgotten to communicate the appellant’s rejection of Mr Winstanley’s Drivers Declaration to the first respondent; or
(b)the appellant had wrongly assumed that Mr Winstanley was no longer driving the first respondent’s truck.
6.His Honour should have found that the first respondent breached its duty of disclosure under s21(1) of the Act because the first respondent, or alternatively the second respondent, as agent for the first respondent, knew, or alternatively a reasonable person in the circumstances could have been expected to know, as at the time of renewal of the first respondent’s Policy for 2001/2002 that:
(a)the appellant would assume that Mr Winstanley would no longer be driving the truck after his Drivers Declaration had been rejected; and/or
(b)the first respondent ought to have disclosed to the appellant that Mr Winstanley, being a driver who was not acceptable to the appellant, was continuing to drive the truck.
7.His Honour should have found that the appellant’s liability under the Policy in respect of the Accident was reduced to zero under s28(3) of the Act by reason of the first respondent’s breach of its disclosure under s21 at the time of renewal of the Policy for 2001/2002.
…
13.His Honour erred in rejecting the appellant’s application to amend paragraph 53 of the Amended Grounds of Defence and should have allowed that amendment.”
In my opinion, the trial Judge’s conclusions about the construction of the policy were correct.
The initial policy with Mercantile Mutual had been arranged through OAMPS. In October 1999, pursuant to a joint venture agreement, QBE came into existence. QBE took over all the insurance of Mercantile Mutual, including the insurance policy for Hammer’s truck. A new standard form policy for this type of heavy haulage vehicle insurance was issued and, when the insurance for Hammer’s work was renewed in July 2000, the insurance was in the form of the policy which I have set out.
At about that time the general manager of QBE, Terry Ippotson, under the heading “Heavy Haulage Fleet & Owner/Driver Insurance Cover” wrote to policyholders explaining what were described as “important developments between QBE Insurance and Mercantile Mutual Insurance”. The letter continued:
“Our offer of insurance
Before you accept our invitation and pay your premium please read the enclosed new policy wording because there may be some variations in the terms and conditions of our offer from your existing insurance. You may find the information described overleaf helpful in this regard.”
The “information described overleaf” seems to have been a reference to the material under the heading “Important Notices”. This stated, inter alia,:
“When renewing your current contract your cover will automatically transfer to our new wording. There have been some significant changes to your previous contract and although we have detailed some of these extra benefit and contract changes you will need to read our new offer carefully to ascertain those changes in detail.”
Amongst the variations and under the heading “Additional benefits” were:
“Section 4.1(c) undeclared driver excesses reduced to:
$2,000 for articulated vehicles
$1,000 for rigid body vehicles
Additionally your new contract has been extended to automatically cover some drivers without an undeclared driver excess penalty. These are limitations and you must comply with these minimum requirements.”
There was one notable difference between the new policy and the old Mercantile Mutual policy. Section 4 of the Mercantile Mutual policy contained this exclusion:
“We will not be liable under this Policy for any claim made:
…
4.18if Your Vehicle is a rigid body vehicle and is being driven by or is in the charge of any person under the age of 21 years or over the age of 21 years but with less than 2 years’ experience in driving an articulated or rigid vehicle.”
The history of this claim suggests that this significant and fundamental change in the policy was either overlooked or ignored by those in QBE responsible for communicating with OAMPS or through it, Hammer. Under the old policy plainly a rigid body vehicle, being driven by a person with less than two years’ experience in driving an articulated or rigid body vehicle, was not covered. Equally plainly under the new policy there was no such exclusion. Clause 6.34 was a different exclusion which did not apply to Mr Winstanley. Instead, there was an excess payable in the case of drivers between the ages of 21 and 25 and another excess payable if QBE had not received and accepted a Driver’s Declaration in respect of the person driving at the time of the accident. It may have occurred to those in the motor vehicle insurance industry that, if drivers who were qualified by law and licensed to drive HR vehicles but inexperienced according to the insurers’ lexicon, were denied cover, such drivers could only obtain the necessary experience by driving while uninsured. However that may be, QBE had apparently abandoned a policy exclusion for inexperienced drivers in favour of a policy that imposed an excess where a claim was made in respect of a vehicle being driven by a driver with less than two years’ experience driving the same type of vehicle. In the case of rigid body vehicles there was no cover for drivers under 21 years of age.
I shall state what relevantly, in my opinion, the language of the policy meant. Hammer’s vehicle, because it was a rigid body vehicle of a gross mass exceeding 12,000 kilograms, was insured under the policy provided it was not being driven by a person under the age of 21 (see last paragraph of second excess) or by an undeclared driver who had two or more claims where “they” were at fault, or had lost “their” driver’s licence for negligent driving, culpable driving or dangerous driving or had been convicted of or charged with drug use, driving under the influence, or exceeding the prescribed concentration of alcohol in “their” blood or breath or had been convicted or had been charged with any criminal offence (exclusion 6.34). The 100 per cent increase of the standard excess applied if the driver was between 21 and 25. If QBE had not received and accepted a Driver’s Declaration there was an undeclared driver excess of $1,000. But this did not apply if the driver had a minimum of two years’ experience driving the same type of vehicle and had not been charged or convicted of any driving offence in the previous five years.
In this context Palmer J was of opinion that the phrase “not received and accepted” referred to only one circumstance, namely, that at the time of the accident there was no acceptance by QBE of the Driver’s Declaration, regardless of whether that non-acceptance was because the Driver’s Declaration had not been received or because it had been received but declined. The clause provided that if a Driver’s Declaration was not accepted, for whatever reason, then there was only one consequence: the $1,000 excess applied unless the driver had a minimum of two years’ relevant driving experience and had not been charged or convicted as provided. I agree with his Honour.
In relation to a submission that Mr Naghten and Ms Leahey understood the policy to exclude cover in the case of a rejected driver, Palmer J said that it was not explained how the understanding of those persons was relevant to the construction of the words of the policy. He continued:
“30… It is, perhaps, superfluous to add that Mr Naghten admitted that prior to rejecting Hammer’s claim he had read the terms of QBE’s Policy ‘only in a cursory way’, that he had not read it at all before advising QBE to reject Hammer’s claim, and that he had advised rejection of the claim simply because Mr Winstanley had less than two years’ relevant driving experience, although that was not a circumstance within any of the exclusion clauses in the Policy. Mr Naghten said that, as far as he was concerned, the fact that Mr Winstanley had less than two years’ relevant driving experience was enough to exclude liability ‘regardless of what the Policy said’. When Mr Naghten was asked in cross-examination for his understanding of how Clause 4 of the Policy worked, he displayed an obvious unfamiliarity with the clause. It seemed highly probable to me that he had never read the Policy or the clause with any degree of attention at all before he went into the witness box.”
Mr Macfarlan QC, on behalf of QBE, pursued the implied term argument on appeal suggesting, that it was so obvious as to go without saying, that if QBE “rejected” a driver as the result of the submission of a Driver’s Declaration, QBE was entitled to refuse under the policy to cover the vehicle when being driven by that driver. This flies in the face of those parts of the policy which I have highlighted and effectively introduces an exclusion which is not to be found in the exclusion clause. Moreover, it discriminates between those inexperienced drivers who put in a Driver’s Declaration and those who do not. Mr Macfarlan did not suggest that an insured owner which employed a driver in respect of whom no declaration had been submitted, could find itself in a situation, despite the terms of the policy, that while that driver was driving an insured vehicle, the vehicle was not covered by the policy. This concession underlines the artificiality of the argument.
Moreover, if QBE intended the policy to operate in this unexpressed way, then in offering the policy in a booklet which was said to contain all the terms of the policy, QBE was misleading the recipient in a very serious way. It is bad enough that Mr Naghten misled the broker, which was supposed to be protecting the interests of the insured, and, despite recognising that what Mr Naghten said was contrary to the terms of the policy, was apparently prepared to go along with what Mr Naghten said about it, without objection. In short, Mr Naghten sought to bully the insured’s agent, confident in the knowledge that if his erroneous views were passed on to Hammer, Hammer would no doubt have felt bound to terminate Mr Winstanley’s employment. Section 37 of the Insurance Contracts Act provides that an insurer may not rely on a provision in a contract of insurance “of a kind that is not usually included in contracts of insurance that provides similar insurance cover unless, before the contract was entered into the insurer clearly informed the insured in writing of the effect of the provision …”. A fortiori the Court should not readily countenance the implication in a contract of insurance of a provision of which the insured has no notice and which alters or limits to the advantage of the insurer the meaning of the language of the contract.
Mr Naghten gave this evidence in cross-examination about cl 4.1(c):
“… having read 4.1.c again I put it this way: If you had read that at the time would your advice have changed to the effect that Mr Winstanley was someone – I am sorry – that the claim was covered by the policy? A. No. May I say why?
Q.          Yes. A. Because I specifically rejected the driver.
HIS HONOUR: That is enough as far as you’re concerned? A. Yes.
Q.          Regardless of what the policy said? A. Exactly right.
Q.          Have you given a serious answer? A. I have.
Q.          You rejected the driver and that’s good enough? A. The policy wording is a contract that we had – you have indemnity guidelines, selection criteria. If the details are supplied or I become in possession of some knowledge or information that I don’t believe is to the betterment of the company I will act on it.
HIS HONOUR: You might pay attention to the words of the insurance contracts that your company issues, Mr Naghten.”
A little later Mr Naghten said:
“Q.         And in answers you have given previously you have indicated that it was you who in fact made the decision to reject Mr Winstanley’s declaration? A. Yes.
Q.          And in forming the opinion to reject the declaration you paid no reference at all to the terms of this particular policy document? A.   That’s correct.
Q.          Is it therefore your understanding that you had an unequivocal right to reject or accept driver declarations as you saw fit? A. Yes.
Q.          Was it your belief when you rejected Mr Winstanley’s driver declaration or rejected him as acceptable that that meant under the terms of the insurance policy that if the vehicle was driven by him it was not covered by the insurance? A. That’s my understanding, my belief.
Q.          When you made the decision to reject it did you understand that a specific exclusion existed within the policy document that enabled you to reject or accept driver declarations as you saw fit? A. I would have seen it as an alteration of the policy and yes.
Q.          You saw it as a variation to the policy document, did you? A. Yes.”
Later again Mr Naghten said:
“Q.         Prior to your rejecting Mr Winstanley’s driver declaration had you studied the new policy form at all? A. Only in a cursory way.
Q.          Only in a cursory way? A. Yes.
…
Q.          Now, I take it from your previous answers that you were not aware as at 17 November 2000 that the specific exclusion that had existed in the earlier policy document concerning drivers who did not have two years experience had been removed from the exclusions in this particular policy document? A. No I wasn’t.
Q.          You were not aware of that? A. I wasn’t aware of that.
Q.          And if you had been aware that that specific exclusion had been removed would that have changed your decision in any way in relation to your decision to not accept Mr Winstanley’s driver’s declaration? A. No.
Q.          And so your evidence is that you are not aware of an cannot point to any specific exclusion in the policy document that you can rely upon for the purposes of rejecting Mr Winstanley as a driver covered by the policy. Is that correct? A. I can’t do that.
Q.          But, nonetheless, you believe you have that right? A. I do.
Q.          If it was explained to you that under the terms of the policy that drivers without two years experience were in fact covered under the terms of the policy, would that alter your evidence that you give in paragraph 26A of your affidavit that you would have rejected or refused to renew the policy had you been aware that Mr Winstanley had continued to drive the vehicle? A. I still see the new driver as being an alteration to the policy. If the wording didn’t give me the opportunity to reject him mid-term I certainly would not have renewed it beyond the July 2001 date.”
In a case such as the present where Mr Naghten, who described himself as a senior underwriter of QBE, had such a fundamental misunderstanding of the meaning of its policy and was actively misleading brokers and through them members of the public about its terms, I could understand his employer, QBE, disassociating itself from him and informing the Court that Mr Naghten had been counselled or removed from his position. But that is not what has happened. QBE apparently accepts that Mr Naghten’s behaviour to the public was appropriate and seeks, for what I regard as spurious reasons, to justify it by claiming that the policy should be so read. QBE itself had abandoned the policy which excluded drivers of less than two years’ experience in favour of the policy, which it promoted to the public as “Our offer of insurance” and as a new policy document tailored for the heavy haulage market with significant changes and extra benefits. I find it hard to believe that those responsible in QBE for the introduction of a new policy were not aware that it no longer excluded drivers said to have less than two years’ experience. QBE was prepared to stand behind an employee who repudiated and refused to abide by the terms of its insurance contract. In so doing QBE does no credit to itself or the insurance industry.

Perhaps understandably, senior counsel for QBE did not put its construction argument or implied term argument in the forefront of his submissions on appeal. The primary argument was non-disclosure by Hammer when renewing the policy for the period from 31 July 2001 to 31 July 2002. In light of the trial Judge’s finding that OAMPS had never passed on to Mr or Mrs Wilson that QBE had purported not to accept Mr Winstanley as a driver, the non-disclosure claim is made in a context where the insured Hammer, through Mr and Mrs Wilson, had no knowledge, apart from the knowledge that Mr Winstanley was still Hammer’s driver, of the matters which QBE claims Hammer failed to disclose. The argument is almost entirely dependent upon the knowledge of OAMPS being treated as the knowledge of Hammer. QBE relied upon s21 of the Insurance Contracts Act which provides as follows:
“The insured’s duty of disclosure
(1)Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:
(a)the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or
(b)a reasonable person in the circumstances could be expected to know to be a matter so relevant.
(2)The duty of disclosure does not require the disclosure of a matter:
(a)that diminishes the risk;
(b)          that is of common knowledge;
(c)that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know; or
(d)as to which compliance with the duty of disclosure is waived by the insurer.
(3)          Where a person:
(a)          failed to answer; or
(b)gave an obviously incomplete or irrelevant answer to;
a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.”

In Permanent Trustee Australia Ltd v FAI Insurance Company Ltd (In liquidation) (2003) 77 ALJR 1070 the majority of the Court, (McHugh, Kirby and Callinan JJ) said at 1075-6 [30]:
“The first matter to notice about s21(1)(a) is that ‘every matter that is known to the insured’ is qualified by the expression ‘being a matter that the insured knows …’. The word ‘knows’ is a strong word. It means considerably more than ‘believes’ or ‘suspects’ or even ‘strongly suspects’. And the matter, to answer the description that par (a) of the subsection states, must be a matter that is not only ‘relevant to the decision of the insurer whether to accept the risk, and if so, on what terms’, but also one that the insured knows to be such a matter. The alternative for which par (b) of the subsection provides, is also important: if the insured does not ‘know’, the question becomes, whether a ‘reasonable person in the circumstances’ would ‘know [the matter] to be a matter so relevant’. It is also noteworthy, particularly if it should become necessary to deal with the other grounds of appeal, that the knowledge of which the subsection speaks, either actual or constructive, is the knowledge of the insured, and not of any insurance intermediary, a term defined by the Act and clearly embracing an agent of the kind that Sedgwick was. This is at least to suggest that the reference to the insured is intended to be a reference to the insured personally and not to its agent or broker. However, it is not essential to our reasons to determine this point.”
A little later in their judgment, p1077, their Honours emphasised that s21 should be treated as ameliorative and not “used as a charter for avoidance of claims by insurers.”
As Mr Macfarlan rightly pointed out the minority (Gummow and Hayne JJ) said at 1085-6 [86] that the knowledge of relevant employees and agents might be taken into account.
QBE submitted that Hammer knew that Mr Winstanley was driving the vehicle. Through its agent OAMPS, Hammer knew that he was not a driver acceptable to QBE and, so it was argued, again through its agent, knew that QBE at the time of renewal assumed that Mr Winstanley would not be driving the vehicle. Thus it was said Hammer was bound to disclose on the renewal application that in fact Mr Winstanley would be driving the vehicle. The evidence of Mr Naghten was that if this disclosure had been made QBE would have refused to renew the policy for 2001 to 2002.
It was central to the argument that the matter alleged to be known to Hammer was a matter that Hammer knew or a reasonable person in the circumstances could be expected to know was “a matter relevant to the decision of” QBE “whether to accept the risk and, if so, on what terms.”
The description inserted in the policy of the subject matter and its circumstances defines the risks undertaken by the insurers; Shaw v Royce Ltd [1911] 1 Ch 138 at 148. In the present case, the risk covered was the chance of the loss, damage or theft of the vehicle as described in s1 of the policy and the chance of third party liability as described in s2 of the policy. The risk was unaffected by the driving or criminal record, age or experience of the driver except to the extent of the exclusions to which I have referred, none of which applied to Mr Winstanley. If a driver of the age and limited experience of Mr Winstanley was driving the vehicle, at the time of an accident, particular excesses applied.
Any alteration made during the currency of a policy, which affects the subject matter or the circumstances as so described, is an alteration of the risk, since the state of facts contemplated by the insurers no longer exists in its entirety. There is, however, no alteration of the risk where an alteration, though apparently on the face of it an alteration of the risk, is not a real alteration of the risk at all, but such an alteration as, upon the true construction of a policy, might be taken to have been within the contemplation of the parties at the time when they entered into the contract. See Ivamy, General Principles of Insurance Law, 6th ed, at 324 and Sutton, Insurance Law in Australia, 3rd ed, at 359.
In Law Guarantee Trust and Accident Society Ltd v Munich ReinsuranceCo [1912] 1 Ch 138 at 154, in a passage approved by Jordan CJ and Nicholas J in Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1939) 39 SR (NSW) 174 at 200, Warrington J referred to the general principle applicable in all cases of insurance that the obligation of the insurer is confined to the particular risk insured, and that if the risk in respect of which a claim is made against the insurer differs from the risk he has insured, he is not liable to make good that claim. His Lordship said:
“That, of course, is an undoubted principle of the law of insurance, and the only question is whether it applies to the facts in the present case; whether there has been such an alteration of the risk as to relieve the insurer from meeting a claim arising under it.
It is hardly necessary to enlarge upon that principle, but I take it that it involves this. The alteration, if there has been an alteration, must be a real alteration of the risk; if what appears on the face of it to be an alteration of the conditions is only such an alteration as, on the true construction of the contract of insurance, might be taken to have been within the contemplation of the parties at the time they entered into the contract, then, of course, though apparently an alteration, it is no real alteration at all, because the fact that such an alteration might take place was an element in the contract itself.”
Nor is there any alteration of the risk where the alteration does not affect the description of the policy, even though it increases the danger of loss, since the risk as defined in the policy remains the same; see Ivamy at 324.
Thus in Baxendale v Harvey (1859) 4 H & N 445; 157 ER 913 in the course of argument at 449; 915, Pollock CB, in response to a submission that when a steam engine erected on the premises insured and specified in the policy, was, when first erected, used solely for the purpose of hoisting, but its application to the purposes of grinding, together with the erection of additional machinery, increased the risk, said:
“This is a mere increase of danger. It is like the case of a person who has an oven on his premises, and instead of using it for the baking of bread he uses it for some other purpose. If a person who insures his life goes up in a balloon, that does not vitiate his policy.”
At the end of his judgment at 542; 916 the Chief Baron remarked:
“A person who insures may light as many candles as he please in his house, though each additional candle increases the danger of setting the house on fire.”
In my opinion, Hammer having already informed QBE of the name of its driver would not be expected to know, when renewing the policy, that the fact that Mr Winstanley continued to be its driver was a matter relevant to QBE’s decision whether to accept the risk and if so, on what terms.
As Mr Wales SC, who appeared for Hammer, rightly pointed out, quite separately from whether it could be said that Hammer had the knowledge claimed, the policy to be renewed covered vehicles driven by drivers of Mr Winstanley’s age and experience, subject only to excesses under s4 and an exclusion on conditions which did not apply to Mr Winstanley. Thus, Mr Winstanley’s experience was not relevant to the policy to be renewed and was not the subject of any express requirement by QBE to provide such information. In short, it was not a matter which could, or should, be known by the insured to be relevant to the decision of the insurer whether to accept the risk and if so, on what terms, or a matter that a reasonable person in the circumstances could be expected to know to be a matter so relevant.
Hammer had told QBE who the driver was. QBE sought to argue that because it, without any contractual justification whatsoever, “rejected” the driver, it was entitled to be told that, in fact, Mr Winstanley remained the driver. If Hammer had been told that Mr Winstanley had been “rejected” it was entitled under the contract to ignore this repudiation and proceed on the basis, which was correct, that its vehicle when driven by Mr Winstanley was covered. It was also entitled to proceed on the basis, which was correct, that to adapt the language of cl 5.3(a) of the policy, it had told QBE about the change to its regular drivers and that Mr Winstanley was the driver.
To overcome this, QBE, having misled OAMPS into believing that it could “reject” Mr Winstanley, sought to say that knowledge of QBE’s attitude and any understanding in the mind of the broker that flowed therefrom worked to the benefit of the insurer. QBE submitted that its misapprehension about what its policy meant and in particular about whether Mr Winstanley was covered while driving the vehicle required some further disclosure by Hammer that Mr Winstanley was still driving the vehicle at the date of renewal. In fact logically, as Mr Wales pointed out, at base the knowledge of QBE consisted of an unjustified belief that the policy did not cover a vehicle driven by Mr Winstanley and presumably that any renewal would not cover such a vehicle. The truth was that a vehicle driven by Mr Winstanley was covered. QBE wrongly believed it was not. Nothing that Hammer or its agent did caused QBE’s misunderstanding. It was entirely QBE’s error. There was, in my opinion, no duty imposed by s21 of the Insurance Contracts Act or otherwise upon Hammer to make the disclosure claimed. Furthermore, s21(2) provides that the duty of disclosure does not require the disclosure of a matter (c) that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know. Had QBE conducted its business properly and not proceeded upon the basis of a misinterpretation of its own policy to reject Mr Winstanley without any justification, it would have known that Mr Winstanley was Hammer’s driver when asked to renew the policy.
What I have said disposes of grounds 3 to 7 of the notice of appeal. In reaching this conclusion, and with due respect to Palmer J, I should not be taken to agree with all his Honour said about the knowledge to be imputed to Ms Leahey. This leaves only ground 13. In the way I have approached this appeal it matters not whether QBE’s application to amend para 53 of the amended grounds of defence had been allowed.
Orders
The appeal should be dismissed with costs.
SANTOW JA: I agree with Sheller JA.
McCOLL JA: I agree with Sheller JA.

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LAST UPDATED: 09/12/2003

[2003] NSWCA 356

9 December 2003

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