Suncorp General Insurance Ltd v I M Engineering Pty Limited
[1999] NSWSC 1008
•6 October 1999
CITATION: Suncorp General Insurance Ltd v I M Engineering Pty Limited [1999] NSWSC 1008 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S): 10079/99; 10080/99 HEARING DATE(S): 29/09/99 JUDGMENT DATE:
6 October 1999PARTIES :
Suncorp General Insurance Ltd (App - 10079/99: Resp - 10080/99)
I M Engineering Pty Limited (Resp - 10079/99: App - 10080/99)JUDGMENT OF: Kirby J
LOWER COURT JURISDICTION: Local Court LOWER COURT FILE NUMBER(S) : 579 of 1997 LOWER COURT JUDICIAL OFFICER: Magistrate M F Morahan
COUNSEL : R Cheney (Suncorp)
R D Marshall (I M Engineering)SOLICITORS: Connery & Partners (Suncorp)
Patey & Murphy (I M Engineering)CATCHWORDS: Appeal from decision of Local Court, Newcastle; Stated Case; Public Liability & Product Liability Insurance; Non-disclosure of prior claims ACTS CITED: Insurance Contracts Act, 1984 - s21(2)(c), 21(3), s28(2), s28(3)
Evidence Act, 1995 - Pt 3.2 Div 2CASES CITED: Lynch v Zurich Australia Insurance Ltd (unreported, C of A (NSW), 10/11/98)
Temiha v Sadebarth (unreported, C of A (NSW), 13/05/97)
C R Ogden & Co P/L v Reliance Fire Sprinkler Co Ltd [1973] 2 NSWLR 7
Schnitzenbaumer v District Court of NSW & Ors (unreported, C of A (NSW), 15/07/98)DECISION: Refer para 78
THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISIONKIRBY J
Wednesday 6 October 1999
10079/99 - SUNCORP GENERAL INSURANCE LTD v I M ENGINEERING PTY LIMITED
10080/99 - I M ENGINEERING PTY LIMITED v SUNCORP GENERAL INSURANCE LTD
1 HIS HONOUR: On 9 September 1998, Mr Morahan, Local Court Magistrate at Newcastle, heard a claim by I M Engineering Pty Limited (“I M Engineering”) against its public risk insurer, Suncorp Insurance Ltd (“Suncorp Insurance”). He made certain orders. Both parties seek to challenge those orders by way of Stated Case.
JUDGMENT
The Provision of a Quotation
2 I M Engineering carried on business at Kooragang Island, near Newcastle. It was part of a group of companies. The other companies in the group included I M Cranes Pty Limited, and Newcastle Woodchipping Pty Limited.
3 The Group retained brokers, the AIBA Group, to obtain public risk insurance on its behalf. The person within the AIBA Group responsible for obtaining insurance was Mr John McMahon.
4 Mr McMahon solicited quotations from a number of insurers. On 30 January 1996 he sent a fax to Suncorp Insurance. It included the following:5 The fax was accompanied by a typewritten document which included the following:
“As discussed slip for above Zurich quoting $5700 + S/D. Please advise soonest.”
6 Indemnity was sought, amongst other things, for the insured’s legal liability to pay compensation in respect of the following:
“ BUSINESS: Principally CRANE HIRE, DEMOLITION AND WOODCHIPPING and all other activities incidental thereto.”
7 Under the heading “Other Underwriting Information”, the brokers included these words:
“Damage to Property (which expression includes loss of property) arising out of or in connection with the Insured’s Business and Products.”
8 Mr Covel, an underwriter with Suncorp Insurance, received the request. Before responding, he required further information. He therefore telephoned Mr McMahon. He made a contemporaneous note of their conversation. The note included the following:
“CLAIMS - NIL KNOWN”
“No longer involved in crane hire or demolition in the past ? 5 years.
…
Claims ‘nil known’ at least 5 yrs.”
9 Mr Covel also made a note that the insured was involved in manufacturing sheet metal, “i.e. hopper, conveyers”.
10 On 1 February 1996, the broker provided further information by fax, including the following:11 The file copy of Mr McMahon’s fax of 1 February 1996 held by Suncorp Insurance, included the words “13 yrs no claims” in the handwriting of Mr Covel. Mr Covel explained that the annotations on the document, including the reference to thirteen years, were made during a further telephone discussion with Mr McMahon. Mr McMahon denied having suggested to Mr Covel that I M Engineering had a history of not having made claims over a thirteen year period. When cross examined, Mr Covel said this: (Exhibit A, p15)
“Confirming nil claims last five years - no demolition.”
“Q. No, Mr McMahon never told you there were 13 years with no claims. He told you there were five, didn’t he?
A. The written confirmation says five years.
Q. No, you don’t remember him saying there’s 13 years of no claims?
A. I don’t remember him saying it in that conversation, no. I don’t remember the conversation word for word.”12 Mr Covel gave evidence that the further information provided by the broker on 1 February 1996 enabled him to reduce the amount which he would otherwise have offered for the public liability component by $1,800.
13 On 1 February 1996, Suncorp Insurance quoted $4,550 in respect of I M Engineering, and $1,100 in respect of Newcastle Woodchip. The brokers accepted the offer the same day. Mr Covel later completed a file note (6.2.96), which included the following:14 The memorandum concluded with these words:
“(i) Despite the Insured’s occupation shown as including ‘crane hire’ and ‘demolition’, John advised that the crane hire related to internal arrangements only, whilst the Insured has not been involved with any demolition work for at least the past five (5) years, nor do they intend on becoming involved in demolition work in the future.
….
(iv) The location does not have any surrounding third party property exposes, as the Insured property is located on a corner block with the nearest third party being at least 20 metres away from their location.”
“Zurich have quoted $1,200 for the wood chipping operation and $4,500 for the engineering operations.
AIBA only have to slightly beat the deal to retain the account.
We would prefer at least $5,000 Gross for the engineering and $1,750 for the wood chipping operation. However, we were prepared to reduce our terms to $4,500 and $1,100 respectively, provided we won both accounts.”
15 On 22 February 1996, I M Engineering completed two proposal forms, one in respect of the public liability insurance, and the other in respect of product liability insurance. The forms contained the usual declarations that the answers and information were “true and correct in all respects”.
16 In the public liability insurance proposal the business was described in these words:17 In the companion form, dealing with products liability, the following answers were provided in respect of the products manufactured:
“Engineering Fabrication”18 The public liability proposal specifically required the proposer to provide full details of past claims. It said this:
“(f) Describe briefly any Quality Control or Testing programs in place.
BHP Test Paint - Welds.”
19 The question was accompanied by two boxes, one for “yes” and the other for “no”. I M Engineering ticked the “yes” box opposite question (d)(ii), signifying that there had been claims. The form, naturally, required an elaboration. The following appears in the form:
“(d) Has anyone comprising the Insured either alone or jointly with others ever:
(i) been refused any type of insurance, or had special terms imposed?
(ii) claimed for any insurance whatsoever?”
“If ‘Yes’ to Questions (d) or (e) state full details.
‘Motor vehicle claims.’”
20 The form also required the proposer to identify the previous insurer. “C E Heath” was identified.
21 The insurer did not seek further information. Nor, one gathers, did it approach C E Heath. The policy was issued. When issued, curiously, it described the business of I M Engineering in these terms:22 I M Engineering had in fact made a number of claims. The claims were each characterised as arising “in respect of paint overspray incidents”. One gathers that airborne spray paint was carried to adjacent premises, causing damage, principally to parked cars. Mr Covel identified the previous claims as follows:
“Principally Crane Hire, Demolition and Woodchipping and all other activities incidental thereto.”
The Claims History
23 The “1993 incident” involved nine cars. Proceedings were commenced in the Local Court. The broker, Mr McMahon, gave the following evidence in relation to that claim:
“i. on 25 July 1988 - Norwich.
ii. on 19 December 1988 - Norwich.
iii. on 1 June 1990 - Norwich.
iv. on 12 January 1993 - CE Heath (‘the 1993 incident’).
v. in February 1996 - HIH Winterthur (‘the 1996 incident’).”
“I understand there was an overspray incident what your client vehemently denied and there was dubious circumstances surrounding their liability for that particular incident and that the matter apparently was taken to, I believe, an arbitration tribunal and was subsequently lost, on what grounds I don’t know. the client then, believing he was not liable, although judgment was made against him, apparently went to the then underwriter, HIH to seek reimbursement of the costs involved.”
24 HIH Winterthur, however, declined to indemnify I M Engineering in respect of the judgment, on the basis of late notification.
25 After Mr McMahon solicited the quotation from Suncorp Insurance (on 1 February 1996), and before the proposal (on 22 February 1996), I M Engineering was made aware of a further claim. The claim was made by BHP. It was said to have arisen out of a spraying incident on 16 January 1996. The claim was notified by letter dated 7 February 1996.
The Claim Against Suncorp Insurance
26 In the week commencing 2 September 1996, a further incident occurred. Hammersley Chemicals (Aust) Pty Limited asserted that paint, originating from I M Engineering, was carried to its premises, causing damage. Proceedings were instituted in the Local Court. Suncorp Insurance declined to indemnify I M Engineering. The company, therefore, defended itself. The matter was first taken to arbitration, and then the Court. The proceedings were ultimately settled for $21,000, with each party to pay its own costs. There was no suggestion that that was not a proper sum.
27 I M Engineering, thereafter, commenced the proceedings which came before Mr Morahan to recover from Suncorp Insurance its outlay, namely, $21,000, together with costs totalling $8,054.28 Mr Covel, the underwriter at Suncorp Insurance who wrote the policy, provided a statement. He also gave evidence. The statement, under the heading “Non-disclosure”, identified a number of matters. They included the claims made by I M Engineering upon various insurers between 1988 and 1996, and the following:
Evidence from the Underwriter
29 Mr Covel, upon the basis of such non-disclosures, provided the following opinion:
“(ix) IM Engineering Pty Ltd’s brochure indicates that its occupation is of a much larger scale, and involves a wider scope of engineering services than had been disclosed to Suncorp. The brochure indicates that the services include industrial maintenance and shutdown work, steel fabrication and erection, mechanical installation, labour hire, asbestos removal, sandblasting and painting, roof cladding and sheeting, crane hire and civil works. This indicates a much higher off premises component to the risk than the 10 percent figure quoted by the broker. This together with a subsequent increase in Completed Operations/Products Liability exposure, creates a much more hazardous exposure than the one contemplated at inception.
(x) IM Engineering Pty Ltd’s activities include outdoor spray painting operations. This part of the Insured’s business was known (sic semble unknown) to the broker …”
“13. Had IM Engineering Pty Ltd disclosed, prior to inception of the risk, all, or any one, of the matters referred to in paragraph 12 hereof, I can say, based on my experience with Suncorp and my understanding of its underwriting policy, that, because the nature of the risk is not such as comprises a core business risk for Suncorp:
(i) Suncorp would have declined to quote on the risk; or
(ii) if it had quoted on the risk, would have quoted on terms that were so expensive as to have rendered the quote uncompetitive, particularly having regard to the quote by Zurich referred to in paragraph 8(I) herein; or
(iii) applied an exclusion for spray painting claims in the following terms:
‘We will not be liable for claims arising directly or indirectly out of or caused by, through, or in connection with spray painting outside an approved dedicated spray painting enclosure.’ ”
30 There is in that opinion an element of hyperbole. Some of the separate paragraphs said not to have been disclosed, would hardly have been likely, by themselves, to have caused Suncorp Insurance to have declined to quote on the risk. The brochure, moreover, was arguably irrelevant. There was no indication as to when it was produced. It is plain from the conversations between Mr Covel and the broker that the insured’s business had undergone change. The risk was constituted by the insured’s present business, and its likely business during the currency of the policy.
31 Mr Covel does not, in paragraph 13, define what he means by an “uncompetitive rate”, except by reference to the Zurich quotation. Unfortunately, when cross examined, he was not asked to elaborate. Nor was he asked to identify the underwriting policy of Suncorp Insurance. No document was produced which had currency within that insurance company, designed to guide underwriters when assessing risks.
32 Mr McMahon, the broker from AIBA Group, was called as a witness on behalf of I M Engineering. He had some underwriting experience, although not as much as Mr Covel. His statement included the following paragraphs, which were objected to:
“11. I disagree with the conclusions contained in paragraph 13 of Mr Covel’s statement and say that Suncorp would have accepted the risk even if it had been fully informed of IME’s claims history for the past 5 years. The practice in the insurance industry is for an insurer to only require prior claims history for up to 3 and possibly 5 years at the most. It is only in exception circumstances that an insurer would require details of the claims history beyond a period of 5 years. I am not aware of any circumstances that would make the present case exceptional.
13 I say that had Suncorp or any other prudent insurer been aware in detail of the Company’s claims records then at most it would have accepted the risk with perhaps an increased excess. In relation, however, to Suncorp at the particular time I am aware that Suncorp was keen to obtain business at that time and do not consider that Suncorp would have proceeded differently even with full information of the Company’s claims record in terms of both acceptance of the risk the premium charged and the excess applied.”
33 These paragraphs, wrongly I believe, were rejected by the Local Court Magistrate. What a prudent insurer may have done may be relevant to a determination of what Suncorp Insurance was likely to have done had proper disclosure been made (cf s28(3) Insurance Contracts Act, 1984: Lynch v Zurich Australia Insurance Ltd (unreported, C of A (NSW), 10 November 1998, per Giles JA). However, no issue is raised by I M Engineering in its Stated Case concerning the rejection of that evidence.
34 There was evidence, however, that Suncorp Insurance was actively seeking new business. Mr McMahon gave evidence that he had been approached by a representative of that insurer, Mr Oakman, who said this:35 Mr Covel, when cross examined, acknowledged that in early 1996 Suncorp Insurance was trying to expand its business. He said this:
“We are keen to expand our business in New South Wales and would look favourably on any insurance proposals. We would welcome an opportunity to quote on any new insurance business.”
36 Mr Covel knew that the business of I M Engineering involved the fabrication of steel hoppers and conveyers. He expected that they would be painted. In re-examination he was asked the following:
“Q. In New South Wales and that there’d been a Road Show amongst other promotions to try and drum up business?
A. We had been actively marketing, yes.”
37 The products liability proposal, as set out above, specifically referred to painting.
“Q. Is there any reason for you to think that hoppers would be painted other than indoors?
A. They sometimes can be also painted outdoors but you expect some sort of draping or some sort of protection to prevent the overspray from occurring.”
38 The Local Court Magistrate, having heard the evidence, delivered an extempore judgment. Referring to Mr Covel’s statement, he said this:
The Magistrate’s Determination
39 Mr Morahan, having referred to some of the evidence, including the company’s eagerness to write new business, gave judgement in these terms:
“Paragraph 12 of Mr Covel’s statement sets out the matters he says were not disclosed to the insurer when assessing the risk and at paragraph 13 he states the position the insurer would have adopted if full disclosure had been made. This last paragraph is of course, a matter of conjecture. All insurers say such things when faced with a claim they do not wish to meet.”
40 It is implicit in the short judgment of the learned Magistrate that he found non-disclosure by I M Engineering. The Stated Case, prepared on behalf of Suncorp Insurance, purported to identify the findings of fact made by Mr Morahan. It said this:
“Mr Marshall, counsel for the insured, submits that s21(iii) of the Act refers to the proposal form only which is, as I said earlier, contains the notation in relation to prior claims which was not followed up by the insurer.
Mr Cheney also submits that there is no independent evidence from an expert witness for the insured as to the effect of non disclosure. The Court must accept the insurer’s case and dismiss the third party action. I do not agree.
On the evidence I am satisfied that Suncorp was determined to get new business, including the defendant’s, and in all likelihood would have simply adjusted the premium (or) excess to do so. The fact that the insurer ignored the reference in the proposal form for past claims, and adopted the interpretation it did is some confirmation of this. I do not accept that the insured can seek to rely solely on the fax sent by Mr McMahon to Mr Covel, and selectively ignore the contents of the proposal form.
It seems to me that fault can be found on both sides in relation to the contract of insurance. That being so am I to apply s28(3) of the Act and reduce the liability of the insurer in respect of the claim to the amount that would place it in a position which it would have been if the failure had not occurred, or the misrepresentation had not been made. The only figures available to the Court are those that have been quoted by the other insurer, HIH.
It is my view that the insurer is not entitled to avoid the contract, but its liability should be reduced in accordance with s28(3) of the Act. I propose to do this by adding the premium on excess quoted by HIH, thus making a total of $13,000 and, ignoring the stamp duty, subtract the premium of $4,450 paid to Suncorp which leaves a balance of $8,459. I ignore the excess of $500.
Subtracting this from the settlement figure, judgment on the settlement figure of $21,000, judgment will be entered in favour of the defendant against the third party in the sum of $12,500.
I was proposing to order that each party pay their own costs …”
The Contentions of Suncorp Insurance
41 Nine separate matters were then set out. They included (para 1) the five claims made by I M Engineering between 1988 and February 1996. They also included the following:
“9. That prior to the contract of insurance being made, the Defendant did not disclose to the Third Party the following matters, being matters material to the Third Party’s assessment of the risk (‘the non-disclosure’)…..”
“(2) In respect of the 1993 incident, the Defendant was in 1993 the recipient of claims by 9 employees of the plaintiff in these proceedings arising from allegations that the Defendant had, in January 1993, caused paint overspray damage to vehicles owned by those 9 employees;
(3) One employee, a Ms Johnson, commenced Local Court proceedings No 26017 of 1993 (‘the Johnson claim’);
(4) The Defendant denied liability in the Johnson claim;
(5) The Defendant was found liable in the Johnson claim in arbitration proceedings;
(6) The Defendant made a claim upon its then insurer in respect of the Johnson claim, Heath Insurance, but was denied indemnity on the ground of late notification;
(7) In respect of the 1996 incident, the Defendant was the recipient of a claim in about February 1996 by Port Waratah Coal Services Limited’s (‘PWCS’) arising out of an allegation that the Defendant caused paint overspray damage to PCWS company vehicles and private vehicles (more than 32 in number) (‘the PWCS claim’);
(8) The Defendant’s activities include outdoor spray painting operations.”
42 No such findings appear in his Worship’s reasons. The outdoor spray painting operation were, arguably, matters implicit in the material disclosed (cf s21(2)(c)). Mr Covel would have expected outdoor painting.
43 The draft Stated Case, including paragraph 9, was served upon the solicitors for I M Engineering. It was signed by the learned Magistrate, apparently without amendment, and without argument. In my view, the only material non-disclosure was the claims history. No doubt some of the other material would have emerged had the claims been separately identified. I notice that, when counsel for the insurer opened the case, he said this:44 Even in respect of the disclosure of past claims, some of the older claims were, arguably, immaterial. Mr Covel gave the following evidence: (T.12)
“We say that the insured defendant failed to disclose its prior claim’s history to us and had we known about that we wouldn’t have undertaken the policy.”
45 Suncorp Insurance, in substance, identified three errors.
“Q. Sir, it’s unusual from your day to day carrying out of your job that your client goes back past 5 years, (doesn’t) it?
A. Normally being prudent from an underwriter’s perspective to ask for five years’ claim experience.
Q. Sometimes it’s three, isn’t it?
A. Brokers, as they are, they normally minimise things they’re required to do but a prudent underwriter would request five years.”46 I will deal with each matter in turn.
* First, that the Magistrate had erred in law in failing to accept the opinion of Mr Covel, which was described as “unchallenged”. Alternatively, the basis upon which the Magistrate rejected such evidence (“all insurers say such things when faced with a claim they do not wish to meet.”) was either unfounded, or betrayed bias on his part.* Secondly, that Mr McMahon’s evidence that the “company (HIH Winterthur) was fully aware of IME’s then claims history”, was inadmissible. It was hearsay. It was objected to, and ought to have been rejected.
* Thirdly, that his Worship was in error in using the premium charged by HIH Winterthur as the basis for determining what Suncorp Insurance would have done had proper disclosure been made (s28(3)).
The Opinion of Mr Covel
47 Mr Covel’s evidence was not “unchallenged”. He was cross examined about the eagerness of his employers to write new business, and his knowledge of the risk. He was not, however, specifically challenged in respect of his opinion (para 13).
48 Nonetheless, the Court was not obliged to accept that opinion. In Temiha v Sadebarth (unreported, C of A (NSW), 13 May 1997) Powell JA (with whom Beazley and Stein JJA agreed) expressed the principle in these terms:49 What reasons did his Worship provide for not accepting Mr Covel’s opinion? Three reasons emerge from the judgment, although they are scattered throughout.
“Although some of the older cases (see, for example, David v Hardy ((1827) 6 B & C 225, 231; 108 ER 436, 348 per Abbott CJ); Richards v Jager ([1909] VLR 140, 147 per Madden CJ); Swinburne v David Syme & Co ([1909] VLR 550, 565 per Madden CJ) seem to proceed upon the basis that, as a general rule, where a witness is unimpeached in his general character and his evidence is probable and uncontradicted by evidence on the other side that evidence should be accepted, more recent authority makes it clear that there is no rule of law that a Court or judge must accept evidence because it is all the one way (see, for example, McPhee v S Bennett Ltd ((1935) 52 WN 8) and that while the absence of cross-examination enables a tribunal of fact to regard the relevant evidence with a greater degree of assurance than might otherwise have been the case, it does not require the acceptance of that evidence (see, for example Douglas v Tiernan ((1931) 32 SR 149, 153 per Harvey J); Taylor v Ellis ([1956] VLR 457; Cole v Commonwealth of Australia ((1961) 62 SR 700); Bulstrode v Trimble ([1970] VR 840); Poricanin v Australian Consolidated Industries Ltd ([1979] 2 NSWLR 419); Allied Pastoral Holdings Pty Ltd v Commission of Taxation ([1983] 1 NSWLR 1); Paric v John Holland Constructions Pty Ltd ([1984] 2 NSWLR 505), although where such evidence is rejected the reasons for its being rejected should be stated, in default of which it might be held that there had been a mistrial (see, for example, Holman v Holman ((1964) 81 WN (Pt 1) 374); Torrealba v District Court of New South Wales ((1996) 40 NSWLR 327)).”
50 Here, weighing up the risks (paint overspray), the relevant claims history (probably no more than five years), the fact that such history was unfortunate, although hardly catastrophic, as well as the eagerness of the insurer for new business, his Worship reached the opinion already set out, namely:
* First, his Worship observed, accurately, that, in the nature of things, the opinion provided by Mr Covel was given with the wisdom of hindsight. It is a matter of “conjecture” as to what the insurer would have done had full disclosure been made.* Secondly, his Worship plainly gave some weight to the aggressive marketing of Suncorp Insurance. It was anxious to quote on new business. Adjustments could be made to the price, as well as the excess, as his Worship’s ultimate order demonstrates.
* Thirdly, his Worship referred to “all insurers” saying things along the lines of Mr Covel’s opinion. That is a somewhat sweeping statement. No doubt his Worship may have chosen some other expression were he writing a reserved judgment. However, his Worship was really saying no more than that the insurer, having rejected the claim, for reasons which appeared to it sufficient, will, of course, seek to defend that decision, just as Mr Covel had defended his rejection of I M Engineering’s claim. What must be examined is not so much the expression of opinion, although that is important, but the reasons for that opinion.
51 There is no basis, in my view, to apprehend bias against insurers generally, or Suncorp Insurance, in particular. There was no error of law. I would therefore reject the first ground.
“On the evidence I am satisfied that Suncorp was determined to get new business, including the defendant’s, and in all likelihood would have simply adjusted the premium (or) excess to do so.”
52 Moving to the second ground identified by Suncorp Insurance, Mr McMahon, the broker called by I M Engineering, provided a statement. The statement included the following:
The Wrongful Admission of Evidence
53 Objection was taken to the statement in italics on the basis that it was hearsay. His Worship ruled as follows: (Exhibit A, p21)
“At the time of asking Suncorp to quote on the insurance in question, renewal of IME’s insurance was available through the then insurer HIH Winterthur. That company was fully aware of IME’s then claims history. Terms were also offered by Zurich Insurance through another broker in relation to the same cover.” (emphasis added)
54 The statement by Mr McMahon was plainly a statement of his belief. He and Mr Covel had negotiated the insurance contract. However, their role in the proceedings extended beyond their involvement as witnesses to what had taken place. Each provided opinion evidence. Mr Covel, for instance, on the same issue, said this: (Exhibit A, p13)
“I am prepared to allow that. It’s something you can clarify in cross examination if need be ……”
“Q. You’ve now inspected the broker’s files and you’d be reasonably satisfied that HIH Winterthur were content to continue the policy although it was a higher rate - a higher premium and higher excess?
A. That’s correct, yes.”
55 The statement by Mr McMahon did not set out the basis of his belief. However, HIH Winterthur had been the insurer for some time. It was the insurer at the time of the incident on 13 January 1996, which was part of the undisclosed claims history. HIH Winterthur was, therefore, the party to whom I M Engineering would look for indemnity in respect of that claim. It is reasonable to suppose that HIH Winterthur was aware of that claim. Further, the normal excess on a public risk insurance policy for an industrial enterprise was said to be $200 or $500. HIH Winterthur had fixed an excess of $5,000. That sum rather suggests that HIH Winterthur was well aware of the claims history.
56 These matters were not explored with Mr McMahon. In the light of his Worship’s ruling (permitting the evidence), they should have been. The evidence, although hearsay, may well have come within the exceptions in Pt 3.2 Div 2 of the Evidence Act, 1995. Had it emerged that Mr McMahon had no proper basis for his statement, counsel could have renewed his objection.
57 I do not believe, in the circumstances, that there is substance in the second ground.
The Use of the HIH Winterthur Quotation
58 Suncorp Insurance asserted non-disclosure by I M Engineering. The Court appears to have accepted that assertion. It was not suggested, however, that I M Engineering had been guilty of fraud, or fraudulent misrepresentation (cf s28(2) Insurance Contracts Act, 1984). His Worship determined, in these circumstances, that the insurer was not entitled to avoid the contract. He, therefore, confronted the issue raised by s28(3). He used the quotation by HIH Winterthur in an effort to place Suncorp Insurance in the position it would have been had there been full disclosure.
59 The objection by Suncorp Insurance substantially rests upon the suggested inadmissibility of Mr McMahon’s opinion, which is the subject of the second ground, which I have dealt with.
60 In my view, there was evidence before the Magistrate. It was reasonable for him to use the quotation of HIH Winterthur as a basis for the calculation which he then made under s28(3).
61 There is, therefore, no substance in the third complaint against the Magistrate’s judgment.
62 Accordingly, from the viewpoint of Suncorp Insurance, there was no error in his Worship’s judgment. Their appeal should be dismissed.
63 I now turn to the complaints of I M Engineering in the separate Stated Case lodged on its behalf.64 The complaints against the Court’s findings made on behalf of I M Engineering were, in substance, as follows:
The Complaints of I M Engineering
65 It is convenient to deal with the first and second issues together. If the first ground fails, the issue in respect of the second ground does not arise. In other words, if there was no error by the Court in respect of waiver, then it was appropriate to address the issues arising under s28(3). I will deal at the same time with the third issue, relating to costs.
* First, that the Court was in error in not finding that the insurer had waived compliance with the duty of disclosure. The waiver was said to arise under s21(3) of the Insurance Contracts Act, 1984, through the insurer having failed to follow up certain answers by the insured, which were obviously incomplete.* Secondly, in circumstances of waiver, there was no need for the Court to undertake the calculation which would otherwise be required under s28(3) of the Insurance Contracts Act, 1984. The amount claimed by I M Engineering, therefore, should not have been discounted.
* Thirdly, and in any event, that I M Engineering succeeded in its claim, although not for the full amount. It should, therefore, have been awarded costs.
* Fourthly, that there was an error of law in awarding only $4,000 of the costs which had been incurred in defending the action brought by Hammersley Chemical (Aust) Pty Limited, rather than the full amount paid ($8,052).
Was there a Waiver?
66 A number of representations had been made to the underwriter that no claims had been made for at least five years by I M Engineering under its public risk insurance. However, the proposal form, when completed, stated that there had been previous claims. In answer to the requirement that the insured “supply full details”, the company said: “Motor vehicle claims”.
67 Section 21 of the Insurance Contracts Act, 1984, deals with an insured’s duty of disclosure. The Act makes the following provision:68 Reversing the Common Law position (cf C R Ogden and Co Pty Ltd v Reliance Fire Sprinkler Co Ltd ([1973] 2 NSWLR 7) per MacFarlan J), s21(3) identifies certain circumstances in which there will be a waiver. It makes the following provision:
“21(2) The duty of disclosure does not require the disclosure of a matter:
(d) as to which compliance with the duty of disclosure is waived by the insurer.”
“21(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.”
69 Here the answer “motor vehicle claims” was provided in the proposal form. Should it be characterised as an “obviously incomplete or irrelevant answer”, such that the insurer must pursue it, or be taken to have waived the requirements of full disclosure for past claims?
70 The argument is finely balanced. The claims which were not fully disclosed could, in one sense, be described as “motor vehicle claims”. They involved, in each case, damage to motor vehicles caused through airborne spray painting from the the adjacent premises of I M Engineering. Moreover, the answer was provided in the context of a public risk proposal. They were “motor vehicle claims” said to arise “out of, or in connection with, the Insured’s Business or Products”. The insurer, on the other hand, asserted that the words “motor vehicle claims” suggested an altogether different type of claim, such that it was not put on inquiry.
71 His Worship (by inference) determined that there had been no waiver. I do not believe that an error of law is manifest in such a determination. I would therefore dismiss the first ground. The second falls as a consequence.
72 On the issue of costs, his Worship, with respect, adroitly balanced the justice of each party’s position. He determined as follows:
* First, that there had been material non-disclosure (of the claims history).* Secondly, (by inference) that there had not been waiver.
* Thirdly, that the insurer was, by reason of the non-disclosure, disadvantaged. Nonetheless, it was eager for business and would have written the business, but upon a different basis. His Worship selected as an appropriate measure of the adjusted premium, for the purposes of s28(3), the premium demanded by the insurer which Suncorp Insurance was replacing (namely HIH Winterthur).
* Fourthly, that, with respect to the action, each party had succeeded in part, and failed in part. Each should pay its own costs.
73 On the issue of costs, clearly the Magistrate had a broad discretion. An appellate Court should not interfere with a costs order in the absence of “material and significant mistake” (per Priestley JA (with whom Mason P and Sheller JA agreed) in Schnitzenbaumer v District Court of New South Wales & Ors (unreported, C of A (NSW), 15 July 1998)).
74 I do not believe that it can be said there was error in respect of the costs order made by his Worship.75 Dealing with the final complaint of I M Engineering, his Worship said this:
The Apportionment of Legal Costs
76 Given the findings made in the principal claim by I M Engineering, and given the broad discretion on such issues, such a finding does not, in my view, involve an error of law.
“… in relation to the action between the plaintiff and the defendant because the third party is the insurer of the defendant, it’s my view that it is appropriate to make an order because the third party was in a position to indemnify the defendant.
The rounded off figure is a figure of $8,000. I appreciate that disbursements may well be extra in relation to that, however I think that is an appropriate fee and I propose to direct that the third party pay the defendant’s costs in relation to the plaintiff and defendant action of $4,000 being half of the rounded off figure of $8,000, which is roughly in accordance with the apportionment that I have made in relation to the third party action and I formally allow twenty eight days for payment.”
77 I therefore make the following orders:
Order
1. I dismiss the appeal by way of Stated Case by Suncorp Insurance Limited (matter number 10079/99).2. I dismiss the appeal by way of Stated Case by I M Engineering Pty Limited (matter number 10080/99).
3. I hold that the Determination by the Local Court Magistrate was not erroneous in point of law.
4. There is no order of costs in respect of either Stated Case.
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