Royal & Sun Alliance Life Assurance v Schaffer

[2004] HCATrans 247

[2004] HCATrans 247

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B39 of 2003

B e t w e e n -

ROYAL & SUN ALLIANCE LIFE ASSURANCE AUSTRALIA LIMITED

Applicant

and

WENDY LEE SCHAFFER

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 23 JUNE 2004, AT 2.24 PM

Copyright in the High Court of Australia

MR. H.B. FRASER, QC:   May it please the Court, I appear with MR B.T. PORTER for the applicant.  (instructed by Hillhouse Burrough McKeown)

MR P.A. KEANE, QC:   If the Court please, I appear with my learned friend, MS P.J. HAY, for the respondent.  (instructed by Neumann & Turnour)

GUMMOW J:   Yes, Mr Fraser.

MR FRASER: In our submission, the proposed appeal in this matter would raise a question of the proper construction of section 29(3) of the Insurance Contracts Act and, in particular, we would submit that the Court of Appeal erred in rejecting our submission to it that it was sufficient for the insurer to prove that at the time when the contract was made, and having regard only to material which would have been available to the insurer at that time, had the misrepresentation not been made, that the insurer would not have been prepared to contract in any terms.

Now, I appreciate that a factual issue was raised about this, and I will come to that. But can I first just elaborate very briefly on the point, because it is necessary in order to explain why I am going to some facts to do so. The point which we seek to make is that the significance of the timing issue does not concern mere delay itself, but it concerns the identification of the circumstances against which the hypothetical decision of the insurer under section 29(3) is to be judged. So the difficulty is, we respectfully submit, that although we did make that submission below, their Honours in the court below did not maintain it in mind, but had regard also ‑ ‑ ‑

GUMMOW J:   Explain to me how this section 29(3) point works, Mr Fraser.

MR FRASER: Well, your Honour, it was necessary for my client to prove under section 29(3) that it would not have been prepared to enter into a contract of insurance on any terms had the misrepresentations not been made to it.

HAYNE J:   So step one is to identify the misrepresentation and identify what would have been told to the insurer, is it not?

MR FRASER:   Yes it is.

HAYNE J:   And here it would have been that, “I, the applicant, have consulted other doctors for other reasons”.

MR FRASER:   The particular misrepresentation was along those lines, perhaps a little more precisely.  It was that, “The last time I saw my doctor was in June 1997”, whereas the truth was it was in December 1997, but perhaps more importantly, “I was diagnosed as fully fit”, whereas the truth was that on the basis of the symptoms then existing in December 1997, the doctors had expressed that they were unable to make a diagnosis.

HAYNE J:   Well, she had presented complaining of shortness of breath, had she not?

MR FRASER:   Yes.  I think it was – air hunger was another way of describing it, yes, breathlessness or air hunger.  The evidence, which I do not think this is controversial, is that that can be a symptom of a variety of different significant illnesses.  It could be a symptom of stress, which could be significant or not, or it could be a symptom of something of a physical kind or something more serious.  So they were the facts.

That was a long time before the proposal though; that was December 1997.  So at the time of the proposal, the contract of insurance, the additional facts were that she had continued to suffer from the breathlessness – her stressors at work had perhaps increased a little, and so on.  So the information that would have been available, against which the hypothetical contract would have been made if it were made ‑ ‑ ‑

HAYNE J:   Well, do you extend that beyond absent misrepresentation when you say information that would have been available?

MR FRASER:   Yes I do a little, your Honour, in this sense.  One of the points that is made against us in the judgments really is that mere delay, it is said, is not enough.  Now, if the mere delay consisted of examining the hypothetical proposal which did not contain the misrepresentation, and then obtaining from perhaps the treating doctor the history of what had occurred up to the date of the proposal, that might be additional information of the kind I think your Honour Justice Hayne is asking me about.  But what we complain about here in short is the taking into account of post‑contract events and information which would not on any view have been available to the insurer because events simply had not occurred.

HAYNE J:   But did your evidence at trial go beyond demonstrating that had you known the truth you would have made inquiries further?

MR FRASER:   Yes, your Honour.  Our evidence, which is ‑ ‑ ‑

HAYNE J:   What was the height to which it rose?

MR FRASER:   Your Honour, we have summarised that we do not think there is any contention about it in paragraphs of our outline, starting at page 102 of the record.  Can I summarise it before – so I can answer your Honour’s question with a quick answer first.  It went to this event, that had all that material that then existed been in the possession of the insurer, the insurer would not have been prepared to contract, but would have invited further information thereafter.  But there was, in fact, no further information that could have been obtained that already existed at the date of the contract.  So it would have been necessary for any contract to have been made, if there was one, later than the date of the contract and on the basis of post‑contract information.  Can I show your Honour what I mean by that.

We summarise it at page 102 of the record.  There was Mr Angus’ evidence on affidavit, and he was the relevant decision maker.  He is the person who, in fact, made the decision.  He gave evidence that had he known the information, which was the only information available, namely the:

history of intermittent breathlessness and the result of the 1997 consultation with Dr Joseph prior to the contract –

namely that the doctor could not diagnose her –

he would not have accepted the risk because ‑ ‑ ‑

HAYNE J:   But go on.

MR FRASER:  

he could not underwrite an unknown risk.

HAYNE J:   But go on.  He says not, “I would have refused it and told her, ‘Go away, I won’t deal with you’.  I would’ve asked for a private medical attendant’s report”.

MR FRASER:   Quite, and that is our point, your Honour, because this is where, we respectfully submit, the confusion has crept in, as it were.

GUMMOW J:   Well, how does that fit in with the terms of the statute?

MR FRASER:   Because, your Honour ‑ ‑ ‑

GUMMOW J:   Just looking at the subsection, how do you reread the text?

MR FRASER:   Well, your Honour, because at that time and on the basis of the information that would have been available, he would not have been prepared to enter into a contract on any terms because had he ‑ ‑ ‑

GUMMOW J:   It does not say “because”, does it?

MR FRASER:   No, your Honour, sorry I am trying to explain why I make that proposition factually, but in answer to your Honour’s question his evidence was that he would not have accepted the risk; it was an unknown risk.  But the information which is put against us – the point that is put against us is that he would have said – and this is characterised as a deferral – he would have said, “Obtain for me a thing called a private medical attendant’s report.”  Now, it was not just to seek information as to what the position was at that date.  As we mention here, and we think this is common ground, it would have included a request for further information, namely a new post-contract diagnosis from the doctor, one that the doctor had not made, because this person had been undiagnosed – and the doctor said, “I couldn’t diagnose it.”  He then said, as we have set out, if stress had been diagnosed he would have sought further information.

Now, this is relied upon again, but the difficulty is, with respect, that stress was not, in fact, diagnosed until some months after the date of entry into the actual policy.  So what is being used to say that what was done was, as it is described, a deferral rather than, again, as it is described a rejection, is to refer to information that could not have been obtained by the insurer at the time of the contract.  Can I take your Honour a little bit more to some of the evidence to show your Honours about this.

Going to the primary judge’s judgment - at page 12 of the record it starts, at the bottom - there is a reference to the history, and then on page – sorry, I should go back a bit.  On page 9 of the record, I should say, in paragraph[13], there is a reference to Dr Joseph at the bottom of paragraph [13], he was “unable to diagnose a cause”.  Then in paragraph [14] there is a reference to the earlier visits to Dr Coghlan, who was a physician, who also could not diagnose a cause.  It was intended to return to that doctor but the plaintiff did not do so.

Then there is a reference to the various consultations with Dr Joseph, and the most important one is quoted – the notes of Dr Joseph are quoted on page 10 of the record.  Your Honours have read a fair summary of this in the reasons.  What is clear, and it is picked up again in paragraph [16], is that there was no diagnosis made.  Then there are further discussions about the fact that no physical cause could be found, and in fact Justice Davies summarises what happened after that entry, that is December 1997 down to the date of proposal and that is at page 75 of the record, and this, I think, is accepted as accurate.

His Honour at page 75 was actually dealing with a different section, but the facts are relevant.  His Honour went through from paragraph [15], these additional facts, summarised the position in paragraphs [18] and [19], pointing out that after the last visit to the doctor the respondent did not go to the doctor again before the proposal.

Over the page, page 76, the position is clear that the respondent/plaintiff herself had a different view as to what was causing the problems, but she still suffered from them sporadically, and then there is a quote at paragraph [21] of the intermittent nature of the symptoms and a clear finding that Dr Joseph had said “he was unable, to diagnose any condition”.

GUMMOW J:   Now, what do you say about what was said, for example, by Justice McPherson at paragraph [80] on page 90 of the record as to the construction of this section?  If you get leave it is going to be on some question of construction, I would imagine.

MR FRASER:   Yes, your Honour.  The point we make about it is that we accept that if what his Honour is referring to are inquiries to ascertain information which was then available, that is to say at the date of the hypothetical contract, we would accept that mere delay for that purpose could not really get us there.

HAYNE J:   Now, that may reveal what is, I suspect, a difficulty in your argument.  If you go to 29(1)(c) the question is whether “the insurer would have entered into the contract”.

MR FRASER:   Yes.

HAYNE J:   When you go to 29(3) the test to be applied is, “If the insurer would not have been prepared to enter into a contract”, in effect, any contract.

MR FRASER:   Yes.

HAYNE J:   Not the contract that was made, not a contract at a particular date, and the temporal element is, I think, something that is looming large in your argument, but you must demonstrate “would not have been prepared to enter into any contract on any terms”.

MR FRASER:   I accept that, of course, and, your Honour, we ‑ ‑ ‑

HAYNE J:   Then how do you build in this temporal element about when you would have known various things?

MR FRASER: In this way, your Honour. What section 23 does not express is, what is the body of information that is hypothetically to be taken into account by the insurer in making that hypothetical decision? So section 29(3) certainly uses those clear words, but it does not state what is the hypothetical body of information that the court is to treat the insurer as having had regard to in making the decision whether it was prepared to enter into a contract on any terms and our proposition is that it can only include the information that would have been available to the insurer had the misrepresentations not been made, because if one goes beyond that – and the temporal element comes in here – that if one goes beyond the date of the contract, one is then not looking at insurance of the risk that was, in fact, assessed or the risk that would have been assessed. One is looking at insurance of a different risk because – to take a simple example, the diagnosis of stress. That had not occurred at diagnosis as at the date of the hypothetical contract. It occurred some three months after. Three months afterwards the plaintiff’s stressors had increased presumably, the stress had developed to a point where it was diagnosed.

So if one were to read those words “prepare to enter into a contract” as allowing reference to events like that, which is how we submit it has been done below, one is reading them as allowing a hypothetical exercise about a different contract of insurance; one which insures against a different set of risks, with an older person, with a different symptomatology and with diagnoses that have not occurred prior to the contract.

Now, your Honours, there was no question about Mr Angus’ evidence.  I have taken your Honour firstly to one part of it, at paragraph 14 of our outline.  He was provided with information which would have been available.  We submit in response to a suggestion of opportunistic underwriting that it is hardly surprising that on the basis of the information that was, in fact, available and would have been made available had the misrepresentations not been made, that an underwriter would not have been able to underwrite the risk on any terms.  It is true that he went on to refer to the possibility of stress being diagnosed, and perhaps this is one reason why the matter went off the rails but, in our submission, that cannot be taken into account.

Mr Willison – we summarise his evidence starting at paragraph 15. He did not make the decision, and because the section 29(3) refers to the decision of a particular insurer rather than to the common law position about prudent insurers, perhaps it is hard to see why his evidence is very relevant, but to the extent that it is relevant, he made it plain that had the true position been disclosed he would not have been prepared to recommend entry into the policy on any terms, and he also said he would have recommended writing to the agent to seek some further information.

Now, your Honour, there was a reason given by the trial judge for not accepting Mr Angus’ evidence, and we have dealt with that in paragraph 16 of our written submissions.  It was a suggestion of an internal inconsistency in his evidence, and the Court of Appeal accepted our submission that there was no such inconsistency in his evidence, because the trial judge had misconstrued something that Mr Angus had said as amounting to resiling from evidence.  We have given your Honours the reference to the record about that.  There was, in fact, nothing that otherwise was put forward as justifying rejection of his evidence.

In paragraph 17 we again quote some evidence given by Mr Angus which, in our submission, was hardly surprising sort of evidence.  In other words, taking into account everything that could have been disclosed, the insurer would not have been prepared to insure.  It is only if one can take into account, as it were, post-contract information in the sense that it is information that did not exist, that one can justify the decision.  Your Honours, I was going to say Justice McPherson analysed the common law position.

GUMMOW J:   Yes, we see that.

MR FRASER:   And we make just two remarks, if I can.  One is that it is perhaps not directly relevant to analyse the common law position in view of the limited use that can be made of it for a Code.  Secondly, when one actually looks at those cases, all of those cases his Honour referred to, they were all concerned with cases where the information which would have come to the attention of the insurer was information which existed at the time the proposal for insurance was made.  The references in them to delay are references only to the insurer getting a bit of the information and having to investigate it and then giving the whole of the information.  I see that my time is up, your Honours.

GUMMOW J:   We do not need to call on you, Mr Keane.

We are of the view that there are insufficient prospects of success in any appeal in this matter.  Accordingly, special leave is refused with costs.

AT 2.45 PM THE MATTER WAS CONCLUDED