Steadfast Insurance Co Ltd v F and B Trading Co Pty Ltd

[1971] HCA 68

HIGH COURT OF AUSTRALIA

Barwick C.J., Menzies, Owen, Walsh and Gibbs JJ.

STEADFAST INSURANCE CO. LTD. v. F. &B. TRADING CO. PTY. LTD.

(1971) 125 CLR 578

9 December 1971

Insurance

Insurance—Fire insurance—Forfeiture—Condition that notice be given of other insurance—Cover note issued by another company—Cover note subject to similar condition—Failure to give notice to either insurer.

Decisions

December 9.
The following written judgments were delivered: -
BARWICK C.J. In this appeal I have had the advantage of reading the reasons for judgment prepared by my brother Walsh. I agree with his conclusion that the appeal should be dismissed and with the reasons which he gives for taking that course. I do not desire to add anything on my own behalf. (at p580)

MENZIES J. This is an appeal by the appellant - which I shall call "Steadfast" - from an order of the Court of Appeal of the Supreme Court of New South Wales (1970) 91 WN (NSW) 878 answering, in favour of the respondents - which I shall call "the claimants" - certain questions asked by an arbitrator whose award was in the form of a case stated. The effect of the answers was to deny Steadfast's claim that, by obtaining a cover note from the Queensland Insurance Co. Ltd. - which I shall call "Queensland Insurance" - over the same fire risk as that covered by a policy issued to the claimants by Steadfast, the claimants' right and benefit under that policy had been forfeited. (at p581)

2. The policy, which had been renewed as from 30th August 1966, covered property which was destroyed by fire on 3rd October 1966. Steadfast's policy contained this clause:

"3. The Insured shall give notice in writing to the Company of any Insurance or Insurances already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such Insurance or Insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefit under this Policy shall be forfeited." (at p581)

3. On 16th September 1966, the claimants obtained from Queensland Insurance a cover note in relation to the property covered by the policy stating "We hereby hold you covered against loss or damage by fire subject to the terms and conditions of this Company's Policy until 4 o'clock p.m. on 15/11/66". (at p581)

4. The claimants did not give Queensland Insurance notice of its existing policy with Steadfast. (at p581)

5. The policy of Queensland Insurance contained a clause corresponding with cl. 3 of Steadfast's policy. (at p581)

6. The problem is whether, for the purposes of the forfeiture clause in Steadfast's policy, there was an insurance effected by the cover note obtained on behalf of the claimants from Queensland Insurance in the circumstances already stated. (at p581)

7. In considering this problem it is necessary to have regard to a well established rule that a term of an insurance policy, providing for forfeiture of benefits, is to be construed strictly against the insurer. (at p581)

8. Furthermore, it is now well established that an insurance is effected, for the purposes of a forfeiture clause such as cl. 3 of Steadfast's policy, only when what has been done attaches risk of loss to another insurer. For this it is necessary only to refer to the decision of the Privy Council in Equitable Fire and Accident Office Ltd. v. The Ching Wo Hong (1907) AC 96 and Home Insurance Co. of New York v. Gavel (1927) 3 DLR 929 In the former case the Privy Council decided that it is only when there is a second contract of insurance imposing liability upon an insurer that there is any obligation upon the insured under an earlier policy containing a clause prohibiting additional insurance without consent, to notify the first insurer and to obtain the requisite statement or endorsement of particulars of the second insurance upon the first policy. It was also decided that the making of a conditional policy of insurance was not a matter requiring either notification or the making of a statement or the endorsement of particulars on the first policy. It was a condition of liability under the second policy that the premium should have been paid. The premium had not been paid, so the Privy Council held that there was no effective insurance. Lord Davey said:

"The question, therefore, is whether, the premium not having been paid either wholly or partially, the policy executed by the Western Assurance Company ever became effective . . ." (1907) AC, at p 99

Later his Lordship said:

"Their Lordships are of opinion that the 11th condition qualifies and restricts the engagement of the company and converts what would otherwise be an absolute engagement into a conditional one, and that the words 'having paid' to the company are common form words or words of style for expressing the consideration for the company's engagement which would become accurate when that engagement became effective." (1907) AC, at p 100

The same sort of problem arose in Gavel's Case (1927) 3 DLR 929 There it was decided that a condition in an insurance policy against subsequent insurance without consent is not violated by a subsequent abortive policy whereby the risk never attached. In that case the second policy was abortive because the policy contained a provision that the insurer "is not liable for loss if there is any prior insurance with any other insurer". For the Court, Mignault J. said:

"The condition of the appellant's policy does not contemplate a subsequent contract of insurance in fact, but a subsequent insurance which is effective. That is precisely what the Northern Co.'s contract never was." (1927) 3 DLR, at p 931

These authorities establish, therefore, that if the cover note, given by Queensland Insurance, did not operate as an effective insurance attaching risk to that company, cl. 3 of the Steadfast policy would afford that company no answer to the claimants. Furthermore, the Canadian case is authority for the proposition that, if the claimants had obtained from Queensland Insurance a policy, rather than a cover note, that policy would not, in the circumstances, have effected an insurance, provided that the words "all benefit under this policy shall be forfeited" have the same effect as the words "is not liable for loss". (at p583)

9. Here it is convenient to deal with the last-mentioned problem, viz. the effect to be given to the words "all benefit under this policy shall be forfeited". Literally they relate merely to the forfeiture of existing benefits, but I do not think that they should be so confined. They appear in a clause requiring notice of existing insurances and in such a case they are directed, I have no doubt, to preventing any risk from attaching. In this context they mean that, in the circumstances stated, the company is not liable for the loss upon the happening of the risk. (at p583)

10. Was there then an insurance attaching risk to Queensland Insurance effected by the giving and taking of the cover note? (at p583)

11. The purpose of a cover note is to effect insurance in advance of the issue of a policy. In ordinary circumstances a person who obtains a cover note is thereupon insured, so that an insurance has been effected. Here, however, it is said that there was a circumstance which prevented the cover note from operating as an insurance. That circumstance is that Queensland Insurance was not notified of the policy which the claimants had with Steadfast. There is no doubt that the policy constituted an insurance "already effected" covering the property, and so, according to the policy of Queensland Insurance, the claimants would be bound to give notice in writing, and, unless such notice had been given and the particulars stated or endorsed upon the Queensland Insurance policy before the occasion of loss, all benefits thereunder would be forfeited in the sense which I have attributed to the word "forfeited". The claimants say that, in the circumstances here, no insurance was effected with Queensland Insurance and so there was no breach of cl. 3 of the Steadfast policy to work a forfeiture of the claimants' benefits thereunder. The problem, therefore, is simply whether there is a sufficient incorporation of the forfeiture clause, in the policy of Queensland Insurance, into the cover note that was given, to prevent an insurance being effected by the cover note in the circumstances already stated. (at p583)

12. The effect of the words in the cover note "subject to the terms and conditions of the company's policy" is, I think, a matter of real difficulty. Rarely, of course, would the person effecting an insurance by means of a cover note be aware of the terms of the insurer's policy. Then there must, I would think, always be some clauses in an insurance company's policy that would be inappropriate in a cover note, the giving of which is intended to effect insurance immediately. Furthermore, the difference between a cover note and a policy is recognized in the cover note and, having regard to its terms, there is some difficulty in reading the word "policy" in the forfeiture clause as meaning a cover note, or in treating a cover note as subject to provisions which can be carried out only when there is a policy. Nevertheless, to give effect to the words expressly included in the cover note, it is, I think, necessary to import into the cover note, inter alia, so much of the forfeiture clause in the policy as it is appropriate to import, and, it seems to me, the requirement to give notice of insurance already effected is appropriate. Such a provision is not foreign to the character of a cover note. To give the words in the cover note "subject to the terms and conditions of this company's policy" efficacy in relating to the forfeiture clause in the policy, I would read them as importing the requirement, as a condition of liability, that notice of any existing insurance is to be given before, or when, the cover note is given, or, subsequently, before the occurrence of loss if the company should, upon receiving such later notice, elect to treat itself as bound by the cover note. It may be that it is possible to incorporate more of the forfeiture clause from the policy, but to take in as much as I have indicated is sufficient for present purposes. (at p584)

13. Accordingly, I have come to the conclusion that, because the claimants did not give Queensland Insurance notice of their policy with Steadfast, Queensland Insurance did not become liable under the cover note and therefore the obtaining of the cover note did not constitute the effecting of an insurance covering the property insured under the policy. This means that cl. 3 of the Steadfast policy did not afford it an answer to the claim made by the claimants. (at p584)

14. I therefore agree with the judgment of the Court of Appeal and would dismiss this appeal. (at p584)

OWEN J. I have had the advantage of reading the judgment of my brother Walsh. I agree with it and am of the opinion that the appeal should be dismissed. (at p584)

WALSH J. This is an appeal from an order of the Supreme Court of New South Wales (Court of Appeal Division) (1970) 91 WN (NSW) 878 by which it gave answers to three questions submitted for its decision by an arbitrator. The appeal is as of right. An objection to its competency was previously overruled (1970) 44 ALJR 514n (at p584)

2. The arbitrator heard a claim by the respondents under a policy of insurance issued by the appellant and he made an award in the form of a special case. The policy insured the respondents against loss by destruction or damage by fire of certain goods and within the period of the policy property covered by it was damaged by fire. The questions which were stated by the award for the decision of the Supreme Court related to the construction and the effect in the events which happened of two conditions in the policy. One of these conditions was in the following terms:

"3. The Insured shall give notice in writing to the Company of any Insurance or Insurances already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such Insurance or Insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefit under this Policy shall be forfeited."

The other condition (condition 10), so far as its effect need here be stated, limited the liability of the appellant to a proportion of the loss sustained, if at the time of its occurrence there should be any other subsisting insurance or insurances, whether effected by the insured or by any other person or persons, covering any of the property. (at p585)

3. The facts which gave rise to the dispute were that after the appellant's policy had been issued and had been renewed and before loss had occurred, a cover note was obtained in respect of the property from another company, the Queensland Insurance Co. Ltd. (Queensland). It was expressed to hold the respondents "covered against loss or damage by fire subject to the terms and conditions of this Company's Policy" until a specified day. The loss in respect of which the respondents made their claim against the appellant occurred during the period to which the cover note referred. No notice in writing of the cover note was given to the appellant before the occurrence of the fire nor were particulars of it endorsed on the respondent's policy with the appellant. The "terms and conditions of this Company's Policy", mentioned in the cover note, included conditions identical in substance with the terms of condition 3 and condition 10 in the appellant's policy. No notice of that policy was given before the occurrence of the fire to Queensland nor were particulars of such policy endorsed by Queensland on the cover note. (at p585)

4. The appellant disputes liability on the ground that condition 3 of its policy was not observed and that in consequence all benefit under the policy was forfeited. That was the contention to which the first question submitted to the Supreme Court was directed. The respondents assert, and the Supreme Court has held, that in the circumstances there was not a forfeiture of the respondents' right to benefit under the policy. The reason for that conclusion was that because of the failure of the respondents to give notice at any relevant time to Queensland of the existence of the policy issued by the appellant, Queensland was not at any time liable to indemnify the respondents against damages to the goods by fire and the cover note, it was held, was not, within the meaning of condition 3 of the appellant's policy, an "insurance" subsequently "effected". (at p586)

5. There has been some discussion in this Court of the question whether the condition in the standard policy of Queensland corresponding with condition 3 of the appellant's policy was a condition to which the contract evidenced by the cover note was subject. It does not appear from the judgments given in the Court of Appeal that that question was raised there by the appellant. But, in any event, I am of opinion that it does not affect the result of this appeal. If it be thought that there is some difficulty in treating the contract as being subject to that part of condition 3 which requires that particulars of another insurance be stated in or endorsed on the policy, I think that it is clear that it was subject at least to the stipulation that the insured should give notice in writing of any insurance already effected, and no such notice was given. The cover note states expressly that the cover given by it is subject to the terms and conditions of the company's policy. The general rule applicable to such a contract is that the conditions of the company's usual policy are binding on the insured, whether he has seen them or become acquainted with them or not: see MacGillivray on Insurance Law, 5th ed. (1961), vol. 1, par. 640; Nicholson v. Southern Star Fire Insurance Co. Ltd. (1927) 28 SR (NSW) 124, at pp 128-129, and cf. Citizens Insurance Co. of Canada v. Parsons (1881) 7 App Cas 96, at pp 124-126 There have been some decisions that certain conditions of a company's policy not communicated to the insured and not known to him were inapplicable to insurances under cover notes or interim receipts: see MacGillivray on Insurance Law, par. 641. But in my opinion a conclusion is not warranted that the cover note issued by Queensland was not subject to the requirement of giving notice of any previous insurance. (at p586)

6. For the respondents it is not disputed that there was a contract with Queensland. It is not submitted that the condition which was not fulfilled was a condition precedent to the formation of any contract. But it is submitted that, within the meaning of the condition, there was not an "insurance" with that company. It is submitted that an insurance was not "effected". (at p587)

7. It cannot be disputed that an insurance was effected with the appellant. Its policy was in force for a considerable time before the cover note was obtained and during that period there was a promise by the appellant to indemnify the respondents, which would have taken effect upon the occurrence of damage by fire, unaffected by anything contained in condition 3. (at p587)

8. It is clear, in my opinion, that the mere fact that in a policy there are conditions upon breach of which the company may be able to escape liability does not mean that no insurance has been effected. But the nature and the operation of the condition which is not fulfilled must be considered in determining whether an insurance covering the property has been effected. If there is a condition expressed in such terms that it operates upon the facts which exist at the time that the contract is made and upon the facts which continue to exist up to the time that a loss occurs in such a way that the company is at no point of time liable to indemnify the insured, then, in my opinion, the making of a contract containing such a condition does not constitute the effecting of an insurance within the meaning of condition 3. In relation to the contract with Queensland, the condition incorporated by reference into the cover note was a condition of the kind which I have just described. It is true that there was a contract between Queensland and the respondents and, in my opinion, it was a contract which might have become operative as a contract of indemnity. I do not construe the condition as meaning that if notice of the existing insurance was not given before the issue of the cover note, no benefit could ever be received. I think that if notice had been given after its issue and before any loss Queensland may have become liable. I say that it may have become liable rather than that it would have become liable, because I think the better view of the effect of the condition is that upon receiving notice of the prior insurance Queensland would have been entitled to elect whether or not to accept the risk. But that is a point which I do not think it is necessary to decide. If it be assumed that upon notice being subsequently given before loss, there would have been a fulfilment of the obligation to give notice and if it be assumed, also, that the requirement that the particulars be stated in or endorsed on the policy was inoperative because it could not be applied to a cover note, the consequence of those assumptions is that Queensland made a contract by which it might have become bound to indemnify the respondents against loss. But nevertheless it is true that it did not become at any time so bound. In these circumstances I think the right conclusion is that there was not an insurance effected with that company, of which by condition 3 of the appellant's policy the respondents were obliged to give notice to the appellant. (at p588)

9. In the Supreme Court Herron C.J. and Manning J.A. expressed their view of the relevant words of condition 3 by saying that they must be read "as referring to an effective insurance, not to a conditional contract of insurance" (1970) 91 WN, at p 881 It is clear from what their Honours stated earlier in their reasons that by "a conditional contract of insurance" they did not mean any contract of insurance which contains any conditions the non-observance of which may preclude recovery under the policy, but they meant a contract which contains a condition precedent to the policy becoming effective as a policy of indemnity. I agree with respect with the statement made by their Honours, understood in that sense. (at p588)

10. It has been submitted for the appellant that the judgments in the Supreme Court were founded upon an erroneous application of the decision in Equitable Fire and Accident Office Ltd. v. The Ching Wo Hong (1907) AC 96, and of the reference therein by Lord Davey (1907) AC, at p 99 to a policy becoming "effective". The policy the obtaining of which was there held not to amount to the effecting of an insurance had in it a condition providing that the insurance "will not be in force until . . . the premium . . . is actually paid . . . "It is true that there is a distinction between that language and the language of the condition now under consideration. Nevertheless I am of opinion that their Honours in the Supreme Court were not in error in thinking that the opinion of their Lordships in that case supported the claim of the respondents. That opinion established that when the question is whether an insurance has been effected within the meaning of such a clause as condition 3, it is not enough to show that a policy has been executed and issued. You must look at the policy and at the facts and you must decide whether the policy "ever became effective" and this must be decided in the same way as if an action had been brought on that policy (1907) AC, at pp 99-100 In dealing with a similar but not identical clause, in Home Insurance Co. of New York v. Gavel (1927) 3 DLR 929, the Supreme Court of Canada held (1927) 3 DLR, at p 931 that in consequence of the decision of the Privy Council in the case to which I have just referred, the earlier cases in the Canadian courts deciding that a "de facto second insurance" amounted to the effecting of an insurance could no longer be considered as binding and that the condition did not contemplate "a subsequent contract of insurance in fact, but a subsequent insurance which is effective". If the policy "never attached" (1927) 3 DLR, at p 930 the right conclusion in the opinion of their Honours was that an insurance was not effected. In my opinion the same conclusion should be reached in this case. (at p589)

11. It was argued for the appellant that the words "all benefit under this policy shall be forfeited" indicate that under a contract containing condition 3 there must be before loss an existing benefit to which a forfeiture may apply. It is true that read literally the language assumes that there is an existing benefit. But, in my opinion, this does not require a conclusion that there is an insurance which has been effected. I have said already that, in my opinion, there was a contract under which Queensland might have become bound to indemnify the respondents against a loss. No doubt the rights which the respondents had under that contract could be described as a benefit. But despite the concluding words of the condition, there was at no time an existing right, being a right to receive indemnity upon the occurrence of damage by fire, which could be "forfeited" by a failure to give notice or by any other act or omission of the respondents. The condition considered in its entirety had the effect (by reason of the previous insurance of which notice was not given) that Queensland was not at any time under a liability existing at that time to indemnify the respondents if loss should occur. (at p589)

12. For those reasons I am of opinion that the answer given by the Supreme Court to the first question was correct. There is no challenge now to the correctness of its answer to the second question, which asked whether the appellant waived its right to rely on condition 3. The third question asked whether on the facts admitted or found by the arbitrator it was open to him to find that the appellant was liable to pay more than one-half of the amount of the loss. This question could receive a negative answer only if it were held that there was at the time of the damage some other subsisting insurance or insurances effected by the insured or by any other person or persons, by reason of which condition 10 would limit the appellant's liability to the payment of a proportion of the damage. Since, in my opinion, there was not an insurance which had been effected with Queensland, and as it has never been claimed that there was any other relevant insurance of the property, the liability of the appellant is not limited by condition 10 and the question must be answered "Yes". That is the answer which the Supreme Court gave. (at p590)

13. I am of opinion that the appeal should be dismissed. (at p590)

GIBBS J. I agree that this appeal should be dismissed for the reasons prepared by my brother Walsh which I have had the advantage of reading and to which I have nothing to add. (at p590)

Orders

Appeal dismissed with costs.