Suncorp Metway Insurance Limited v Mason Place Pty Ltd
[2011] QDC 209
•16 September 2011
DISTRICT COURT OF QUEENSLAND
CITATION:
Suncorp Metway Insurance Limited v Mason Place Pty Ltd & Anor [2011] QDC 209
PARTIES:
SUNCORP METWAY INSURANCE LIMITED
ACN 004 915 100
(Plaintiff)v
MASON PLACE PTY LTD ACN 001 689 505
(Defendant)and
TRANSPORT & GENERAL PTY LTD ACN 062 852 475
(Third Party)FILE NO:
D513 of 2008
DIVISION:
Civil
PROCEEDING:
Claim
ORIGINATING COURT:
District Court of Queensland, Brisbane
DELIVERED ON:
16 September 2011
DELIVERED AT:
Brisbane
HEARING DATE:
18, 19 August 2011
JUDGE:
Robin QC DCJ
ORDER:
Judgement for plaintiff on claim and for defendant against third party
CATCHWORDS:
Insurance Contracts Act 1984 (Cth) s 11, s 13, s 14, s 37, s 71
Uniform Civil Procedure Rules r 166
Insurance – insurance brokers – claim by insurer against defendant insured for part of the difference between the “maximum premium” and the “minimum (‘deposit’) premium” already paid for comprehensive cover for a fleet of transport vehicles – defendant’s third party notice and statement of claim seeking indemnity or contribution from its insurance brokers based on their failure to explain sufficiently the implications of the policy endorsement regarding “burning cost” premium adjustment – third party’s pleading insufficient to permit raising for the first time in closing addresses whether defendant’s loss/damages equated to the plaintiff’s claim
COUNSEL:
Mr Hampson for Plaintiff
Mr Blaxland for Defendant
Mr Rashleigh for Third PartySOLICITORS:
Corrs Chamber Westgarth for Plaintiff
Eric Muir for Defendant
Astills Lawyers for Third Party
The plaintiff insurer sues its insured for additional premium amounts payable under a policy offering comprehensive cover for a fleet of heavy transport (and some other) vehicles operated by the defendant insured. There are third party proceedings against the defendant’s insurance broker asserting breach of statutory duty and negligence. They represent the only difficulty in a long relationship between the two companies and their principals, Mr George Woodward and Mr Michael Stephenson whose business relationship and social relationship (said to be centred on an interest in horse racing) go back many years before relevant events in 2004 and 2005 and apparently continue to this day. It is regrettable that this dispute between two men whose respect for each other is obvious should have to be determined by the court. It is convenient to personalise the defendant and the third party as “Mr Woodward” and “Mr Stephenson”. No-one else played any role except for Mr Baker, who was at the time of relevant 2004 events a co-director with Mr Stephenson. He says he had one or two telephone conversations with Mr Woodward around 8 or 9 March 2004 regarding the insurance, standing in while Mr Stephenson was away. Mr Woodward denies ever having had any contact with Mr Baker; his story is that everything relevant to obtaining insurance occurred in face to face contacts with Mr Stephenson where Mason Place was based - at relevant times in the Port Macquarie area. The third party’s Mr Simpson was charged with managing the defendant’s claims under its policies. As will be seen, it was the claims experience (which it seems could have been handled differently) that gave rise to the plaintiff’s entitlements. There is no evidence at all about any advice that may or may not have been given by Mr Simpson about the implications of claims under the policy.
Mr Woodward’s fleet comprises many vehicles with a combined value in excess of $3 million then and now. He was always anxious to obtain the most inexpensive insurance cover. It seems that the claims history was making things difficult. The insurance came up for renewal in March of each year. Some weeks before, Mr Stephenson would get things moving, updating details of the vehicles to be insured, claims history and other relevant details for presentation to prospective insurers which would be asked to give quotes.
The plaintiff, which had not previously provided insurance for Mr Woodward, became the insurer from 12 March 2004 under a policy arranged by Mr Stephenson (with Mr Woodward’s agreement). The policy (CDC09581E) contained a “Premium Adjustment Endorsement – Burning Cost”. The original policy was for a period of insurance from 4.00 pm on 12 March 2004 for a year. A renewal occurred on terms essentially the same (with exceptions, such as an increased limit on claims involving dangerous goods, the removal of “excess” arrangements for certain small vehicles and adjustment by a day or so as to the precise dates of “premium adjustment periods of insurance” of which there were five). Some special recognition for trailers owned by some of Mr Woodward’s larger customers was added in the second year. The declared asset value increased but the premium remained the same.
A feature of the policy in each year was that a minimum annual premium was identified (and corresponded with the “deposit premium”), also a maximum premium, each of them subject to associated pro rata costs for fire service levy, GST and stamp duty. The maximum premium for the first year was $398,500, for the second year, $385,000 – against the larger declared asset value. This probably reflects limited claims being made in the first year. The advantage for the insured is clear: much lower premium and associated costs. The disadvantage is that if claims exceeded a modest amount harsh increases in premium would become payable according to calculations after the relevant adjustment period (one for each three months, a fifth for the whole year). An “adjustment factor” of 100/70, unfavourable to the insured applied (subject to the cap of the maximum premium), so that according to a document Mr Stephenson said was posted to Mr Woodward (and which Mr Woodward denied ever seeing) the additional amounts of annual premium payable far exceeded the additional annual claims being paid:
“Burning Cost Scale
Annual Claims Annual Premium Extra Premium
Paid
0 – 112,000 $160,000 (Minimum) Nil
125,000 $176,714 $16,714
150,000 $208,857 $48,857
175,000 $224,999 $64,999
200,000 $257,142 $97,142
225,000 $289,285 $129,285
250,000 $321,428 $161,428
275,000 $353,571 $193,571
297,500 & over $398,500 (Maximum) $238,500Burning Cost adjustment is calculated quarterly and the extra premium is limited to a maximum of $72000 + GST and St/Duty for the 1st, 2nd & 3rd quarters, balance will be the final adjustment.”[1]
[1]This is an extract from and enclosure in Exhibit 16, a letter of the Third Party addressed to the defendant dated 5 March 2004.
While no additional premium payments were required in respect of the first year of the policy, claims paid in the following year were greater (exceeding $286,000 paid by the plaintiff according to the contents of exhibit 1, a Notice to Admit Facts) and the insurer finds itself in court as plaintiff attempting to recover them, as Mr Woodward (more correctly its insured defendant) refuses to pay. Since the proceeding started, there has been a certain amount of co-operation such that the quantum of the plaintiff’s claim has been agreed with the defendant to be $66,097.42, exclusive of interest. On the face of it this represents a considerable concession by the plaintiff to the apparent advantage of the defendant (and if it be liable, the third party, too).
Liability remains in dispute. Although the further amended defence includes complaints against the plaintiff such as failure to pursue all claims against third parties, the defence run was that the plaintiff whose agent the third party was pleaded to be in relevant respects failed in its obligations of disclosure under ss 13 and 14 (the “utmost good faith” provisions) and, more pertinently, s 37 of the Insurance Contracts Act 1984 (Cth). s 37 was said to preclude the plaintiff’s reliance on the “burning cost adjustment clause”. Little was said about ss 13 and 14 and the gravamen of the complaint is found in s 37. It provides:
“37 Notification of unusual terms
An insurer may not rely on a provision included in a contract of insurance (not being a prescribed contract) of a kind that is not usually included in contracts of insurance that provide similar insurance cover unless, before the contract was entered into the insurer clearly informed the insured in writing of the effect of the provision (whether by providing the insured with a document containing the provisions, or the relevant provisions, of the proposed contract or otherwise).”
The plaintiff has a full answer to the defence in s 71:
“71 Agency
(1)A provision of this Act (other than subsection 58(2)) for or with respect to the giving of a notice, a statement, any other document or any information to an insured before a contract of insurance is entered into does not apply where the contract was arranged by an insurance broker, not being an insurance broker acting under a binder, as agent of the insured.
(2)Where:
(a) a person who is not an insurance intermediary acted as agent of an insured in arranging a contract of insurance; and
(b) the insurer gave that person a notice, a statement, any other document or any information as mentioned in this Act;
the insurer shall be deemed to have given the notice, statement, other document or information to the insured.
(3) An insurance intermediary, other than an insurance broker who is not acting under a binder, shall, in relation to the giving of a notice, a statement, any other document or any information that, by this Act, is required or permitted to be given, be deemed to be the agent of the insurer and not of the insured.”
The argument that the third party was an agent of the plaintiff is hopeless. It was a broker. It had no authority whatever to bind the plaintiff to provide insurance cover. The plaintiff would provide quotes if the broker requested them and probably provide cover should the broker’s client accept a quote, but decided for itself whether to do so. The third party/Mr Stephenson was always the agent of the insured. On the assumption that a broker such as the third party can in some circumstances be an insurer’s agent (perhaps for a limited purpose, such as providing information for s 37 purposes), there is no basis for finding that this occurred here. Mr Hampson (for the plaintiff) set out in his written outline of argument a description of the role of broker from Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 234:
“A prospective assured typically engaged a broker to seek the most appropriate cover at the best rate from a desirable insurer. Once a policy had been secured, the broker debited the assured for the amount of the gross premium, although it was entirely at the broker’s discretion to determine what credit terms, if any, were to be extended to the assured with respect to payment of that premium. The insurer then debited the broker for the amount of the net premium (gross premium less broker’s commission), usually allowing the broker credit which bore no necessary correspondence with that extended by the broker to the assured. Often an insurer did not require payment from the broker for several months after payment had been received from the assured, and it was accepted practice that the broker could enjoy the use of those funds in the interim. Renewal notices were sent to the broker rather than the assured and the cycle then recommenced. It is clear from these facts that, subject to the cases mentioned below in which insurers have made claims against policy-holders following default by the broker, an insurer generally had no direct contact with an assured. All dealings were done through the broker, but this is really no more than one would expect in a situation in which an agent is engaged for the very purpose of acting as an intermediary.”
I agree with Mr Hampson that there is nothing in the Act to support the defence contention that the third party was somehow his client’s agent “for the purposes of the plaintiff fulfilling its duties of disclosure”. The special case of a “binder” (defined in s 11(1)) is not encountered here. Mr Stephenson did have readily available (although he said he saw no occasion to use them, rather than his own explanations) guidelines produced by the plaintiff for purposes of explaining the particular clause generating this litigation.
As to whether s 37 might apply at all, if a broker had not been involved, the test is whether the “provision … [is] of a kind that is not usually included in contracts of insurance that provide similar insurance cover”.
In my opinion the present clause is of an unusual kind and would have been particularly so in 2004 and 2005. While Mr Stephenson depicted the “burning cost” clause as fairly common, I would prefer the evidence of the plaintiff’s underwriter witness, Mr Lewis, who is now employed by someone else. Attempting to be extremely careful, he seemed to experience some difficulty in giving a simple and also accurate description of how such clauses work. See the transcript at 1-25 ff. I would venture to say that the common understanding of an annual insurance premium is that it is paid in the appropriate amount (whether by instalments or not) to cover the insured’s premium obligations for the entire year. I was not referred to any case law about escalating premiums and came across none in the reading I have done for purposes of preparing these reasons about the obligations of insurance brokers. Mr Lewis said:
“From a motor fleet point of view … it’s not one of the more common ones when I look at … the make-up of the book of insurance we look after. … I wouldn’t call it an everyday clause.
[Asked to comment on the suggestion it was an unusual clause] I wouldn’t say it’s unusual either because … those that … have history or access or have been working with motor fleets over time would understand, or wouldn’t ….. find a burning cost format out there unusual. So if you talk to people that know motor fleet insurance or anything like that, if you said “a burning cost”, most would probably understand what you are talking about.”
Mr Lewis said that if challenged, he could point to a few current policies with such a clause from his files but “they’re not as numerous other policies out there.”
He gave an example at p 26:
“If the policy was, from a conventional point of view, $50,000, the burning cost deposit might be a bit less with the maximum a bit more. Deposit might be $40,000 and the maximum at, say $70,000, and that’s how it works in terms of trade-offs with that burning cost.”
(Here the potential increase from $160,000 to nearly $400,000 is more dramatic.)
He agreed that burning clauses require a reasonably specialist insurance qualification to understand them properly, first of all to know about them, and then secondly to understand them and that “if you don’t understand them and know about them you can get seriously burnt”. Outside the limited classes of cognoscenti, the burning cost premium endorsement in a comprehensive vehicle policy is unusual, and would come within s 37.
Mr Stephenson, I am satisfied, was relied on totally by Mr Woodward in insurance matters, and would take what he believed to be Mr Stephenson’s advice in them, rather than make his own judgments. I am satisfied from the men’s long history together that this was clear to Mr Stephenson and that the accepted mode of communications between them so far as arranging insurance cover was concerned was in direct spoken contacts. Mr Woodward is doubtless a successful, skilled and competent business man when it comes to operating a transport fleet. In insurance matters, particularly in relation to arranging insurance cover (the evidence doesn’t permit any assessment of the extent to which the same might have been true in dealings relating to claims which went through the other contact he identified (Mr Simpson) in the third party company), he depended entirely on Mr Stephenson, in face-to-face interaction, recourse was not going to be had to documents. I do not think Mr Stephenson would or reasonably could have placed any reliance on Mr Woodward’s even reading, let alone understanding sufficiently policy documents or written explanations of them in the absence of guidance by someone present physically or on the telephone. The circumstances were such that I think it was incumbent on Mr Stephenson to ensure that Mr Woodward not only had information about but understood the implications of the cover he identified and advised be arranged with the plaintiff.
Although the view is expressed in Australian and New Zealand Insurance Reporter (CCH) at 9-980 (p 16, 374) that it may be inferred by virtue of s 71(1) of the Act that a broker ought to advise a client of the various matters in respect of which the insurer would otherwise have to provide written information “since the legislature has specifically provided that it need not do so if the insured is represented by a broker”, I reject the defendant’s assertion pleaded in the third party statement of claim that s 37 imposes obligations on a broker.[2] The third party’s obligations as a broker come from the common law which may imply contractual terms or impose liabilities in tort. There is no obligation on a broker’s client to inspect documents such as certificates of insurance (here exhibit 5 (2005-06) and exhibit 10 (2004-05) assuming that they were sent, even accompanied by advice to read and consider them for their appropriateness. If this course was taken, which I think represents the likelihood, it did not occur until months after cover was arranged and then in ways which would have not reliably brought the certificates containing the endorsements to Mr Woodward’s attention. In Newsome v Bennie S Cohen & Son (Qld) [1941] St R Qd 270, Philp J said at 274 that “even if the certificate of insurance, which indicated that the insurance effected by the defendant company excluded war risks, had been sent to the plaintiff, I agree on the cases which have been cited by Mr Fahey that there was no obligation on the plaintiff to look at the document. He was entitled to rely on the care and skill of his agent, the defendant company”.
[2]Nor am I prepared to adopt the view that s 71 imposes statutory obligations on a broker, as suggested in Walmsley, Abadee and Zipser, Professional Liability in Australia [8.240]:
“By s 71 of the Insurance Contracts Act 1984 (Cth) a broker, being the agent of the insured, must disclose to the client a range of matters that the insurer would otherwise have to disclose. That is because the insurer is relieved of its obligation to inform the insured (or intending insured) itself since the insured is receiving independent expert professional advice.
The broker is generally expected to advise the client, not only of the client’s duty to disclose, but also the essential features of the proposed contract of insurance and their effect, including whether they derogate from standard terms; and the advice must be provided in the context of the type of insurance involved and the particular circumstances of the case: see Rocco Pezzano Pty Ltd v Unity Insurance Brokers Pty Ltd (1995) 8 ANZ Insurance Cases 61-288. It has been argued that the interpretation of the broker’s statutory obligation, as the insured’s agent, stretches the broker’s obligations beyond existing obligations under common law: see Sutton, Insurance Law in Australia (3rd ed, LBC Information Services, 1999), para [5.121].”
- although the provisions may serve to inform the broker’s duties under the general law.
A statement of a broker’s situation in respect of a claim framed in the tort of negligence was given by Kirby P in Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSW LR at 541 at 555-56:
“It is unnecessary here to explore all of the bases for the insured’s claim against the broker and the answers offered to them. I shall pass over the claims based in contract and on the Trade Practices Act (Cth) for in my view the insured is entitled to recover against the broker in the claim framed in the tort of negligence.
The principles of law applicable to this head of claim are not in doubt:
1. The duty in law of a broker who is engaged to secure insurance on behalf of a client is “having undertaken to obtain insurance [to] exercise proper care and skill in carrying out the assured’s instructions”: see Fanhaven Pty Ltd v Bain v Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57 at 62; applying Colinveaux’s The Law of Insurance, 3rd ed (1970) at 226; see also, L Shaddock & Associates Pty Ltd v Parramatta City Council(1981) 150 CLR 225. The duty is owed by contract but also in tort: cf Kelly & Ball (at 217f); see Brickhill & Cooke [1984] 3 NSWLR 396 at 401 and Punjab National Bank v De Boinville English Court of Appeal, 4 June 1991, unreported);
2. The foregoing duty does not extend to expounding the law to the insured. But it does extend to pointing out legal pitfalls which might arise in the course of effecting a valid insurance cover and in securing cover for the risk necessary to the insured’s disclosed or ascertained needs: see Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (Court of Appeal, 2 October 1990, unreported);
3. To decide what reasonably careful insurance broker would have done in particular circumstances, it is normally necessary that expert evidence be given upon the basis of which the court may reach its conclusion. Thus in Fanhaven, Mr Frank Hoffman, an expert insurance broker with a “lifetime of experience” gave evidence of proper broker practice (see at 63);
4. However, where the default of the broker relied upon by the insured is so rudimentary and obvious, expert evidence of broker practice will not be necessary. The rudimentary failure of a broker to take a step which was obviously necessary and prudent will entitle the court to reach its own conclusion of negligence. This was the case in Geoffrey W Hill & Associates;
5. It is especially important that an insurance broker should go through with the insured the list of exceptions in the policy secured. This should be done in order to afford the insured, who may fall within an exception, the opportunity to request deletion of the exception upon payment of a higher premium or cover with another insurer: McNealy v Pennine Insurance Co Ltd [1978] 2 Lloyd’s Rep 18 at 20; and
6. The insured must prove that it is a breach by the broker of its duty of care to be insured which caused the loss complained of. Usually this involves proof that the insurance policy obtained by the broker does not cover the risks that have occurred and that proper care and skill would have ensured that a policy was obtained which did cover those risks: cf Gokora Pty Ltd v Montgomery Jordan and Stevenson Pty Ltd (1986) 8 ATPR 40-722 at 47,911.”
A useful aspect of Fanhaven in the reasons for judgment of Reynolds JA at 64 (Moffitt P agreeing) is the endorsement of the trial judge’s statement that:
“The critical matter is whether, in the circumstances of the present case, the second defendant owed the plaintiff a duty to inform it of its obligation to disclose to the proposed insurer all material facts in such terms as to bring home to the plaintiff its obligation to divulge matters such as those later relied upon by the insurer as a ground for avoiding the policies.”
A similar idea is expressed in Elilade Pty Ltd v Nonpareil Pty Ltd [2002] FCA 909 at [105]:
“Nonpareil’s duty was to take reasonable care to ensure Eliade understood the types of insurance cover available to it, and the cost of such insurance, so it could give informed instructions about what insurance cover it wanted. One way of Nonpareil presenting that information would have been by Mr Cielens specifically raising those matters. Another would have been by Mr Cielens on 10 July 1996 pointing out the exclusions in the policy in a little detail.”
For an explanation of the higher duty which a broker owes a client when compared with the duty of an insurance agent, reference can usefully be made to Caldwell v J A Neilson Investments Pty Ltd (2007) 69 NSWLR 120.
Cases in which brokers have been held liable to their clients typically relate to failure to ensure that adequate disclosure is made to the insurer or to failure to inform the insured of possible future actions that might lead to the insurer being able to deny liability for a loss. Kirby P’s second principle reflects the language of Hutley JA in Fanhaven at 65. I think there is a similar obligation to “bring home” to a client the circumstances in and extent to which premiums may escalate in a retrospective way, particularly where the escalation is so dramatic as in what turned out (hardly unforeseeably) to be the level of claims in 2005-06. It is all very well for Mr Stephenson and Mr Baker to say in general terms that they explained things to Mr Woodward. Challenged to re-enact his presentation, which might have been along the lines:
“Look, if your claims are double the cap of $112,000, your premium will just about double. Your claims can’t exceed your premium payments until they are around $400,000 (before fire services levy, stamp duty and GST). In that range, for every dollar of a claim paid to you, you will have to pay Suncorp $1.40…”,
Mr Stephenson was unable to come up with anything. He took refuge in documents. The earlier one, a Transport and General Pty Ltd letter on multi-coloured letterhead dated 5 March 2004 enclosed a seven page “quotation presentation”; Exhibit 16 looks like an original and bears an original signature. The fourth page, a Claims Summary showing a five year average of $226,015 and a three year average of $273,677 (with roughly equivalent average costs per claim in the low $70,000s) has endorsed at the bottom in original black ink “GEORGE THIS MAY HELP YOU” and on the following page, sidelined in blue, what is quoted in paragraph [4] above. Those circumstances give rise to the thought that this is the original, never sent. Mr Rashleigh, counsel for the third party, in addresses offered to recall Mr Stephenson to give evidence that the way the third party kept its files was to retain what amounted to facsimiles of letters sent out. I accept from Mr Stephenson that no documents addressed to Mr Woodward were ever returned by Australia Post. The letter foreshadows contact the next week by Mr Baker, which that gentleman said occurred. Mr Baker is no longer with the third party.
The Baker allegations came as something of a surprise. The third party pleadings in original and amended form are full of assertions about what Mr Woodward and Mr Stephenson did, there being no hint that any other person was involved, although one cannot know what is meant by “the third party says that it explained the nature and effect of the Clause to the defendant orally” in paragraph 4C(d) of the amended defence of the third party.
Mr Rashleigh was taken to task for not putting to Mr Woodward in cross-examination what it seemed Mr Stephenson was about to assert in his evidence-in-chief he had said to Mr Woodward about the contentious clause and with some justification. The only opportunity Mr Woodward was arguably given to comment about explanations that might have come from Mr Stephenson is at the transcript 1-70 in this exchange:
“See, what happened in March 2005, on the 2nd March 2005 Mr Stephenson came and saw you, presented this document to you and explained that document to you, didn’t he? - - he did not.”
The point was not revisited, in marked contrast to Mr Rashleigh’s persistence in seeking an admission that there had been a conversation with Mr Baker on 10 March 2004. There were six attempts at this at pp 59-61. Whatever contacts there might have been, I am satisfied that Mr Woodward had no idea in 2004 that he had a “burning cost premium policy” with the features described above, which would certainly have been unusual and novel to him. I accept his denial in that regard at p 59. Any contact there might have been with Mr Baker was ineffective to make the situation clear. The history of relationships was such that Mr Woodward would reasonably expect any important information to be communicated to him personally by Mr Stephenson. There was occasion later on, it seems, when Mr Stephenson attended to get Mr Woodward’s signature on documents for separate transactions which provided financing (through Mr Stephenson’s offices) so that premium costs could be spread out over the year from the point of view of payments the defendant had to find. The evidence does not suggest that Mr Woodward’s ignorance was dispelled on that occasion.
Exhibits 12 and 13 are the offers to borrow addressed to Centrepoint Finance signed by Mr Woodward on 2 March 2005 and 16 March 2004 respectively. The amounts borrowed exceed the premiums and associated costs payable to the plaintiff, the excess explicable in terms of circumstances such as additional premiums that might be payable by reason of addition of new vehicles to the fleet and the fees which the third party charged the defendant for its services as broker. Such fees were a benefit over and above commissions paid by insurers. Mr Woodward’s signature appears on other documents, such as the proposal form addressed to the plaintiff for the original cover it extended dated 16 March 2004 (four days after the previous cover with Transcorp expired). That document was filled out by Mr Stephenson. None of this material, however carefully read, would alert Mr Woodward to the pitfalls of burning cost premium adjustment, awareness of which would have to be based on reading policy documents (the endorsements in particular) or something like the explanatory material which Mr Stephenson says was provided.
The combination of 2004 material and 2005 material is potentially helpful to the third party from the point of view of showing that its duty of explanation to the client of the cover suggested was carried out. The proceeding depends on the renewal policy. It may be accepted that awareness gained by Mr Woodward in respect of the original policy by March 2005 is to be attributed to him in respect of the renewal. A similar situation faced the court in McGregor v The National Mutual Life Association of Australasia Limited [2006] QSC 379 in which Byrne J said at [23] that “if the plaintiff had read the first policy before purchasing the second, arguably, that might defeat one of the plaintiff’s alternative contentions: that s 37 of the Insurance Contracts Act 1984 precludes reliance on the deeming provision”. His Honour went on to say at [26] that “in view of the admission in the surrejoinder, the plaintiff’s unwillingness when testifying to accept that the first policy reached him before Christmas 1993 is a factor to be considered in assessing his reliability”. Mr McGregor succeeded in his claim to lifetime benefits based on disability attributable to an “accident” within the meaning of the relevant policy, “despite the caution with which [his] testimony needs to be approached”. Mr Woodward’s unwillingness to concede that he or his company received the communications sent to it by letters dated 28 May 2004 (exhibit 17) and 20 June 2005 (exhibit 26) enclosing the polices “for your records” (although he conceded that the “certificates” were on his files) is a circumstance dictating caution in accepting his evidence, particularly his denials of ever seeing the third party’s pre-contract explanations of the burning cost premium arrangements. I think that such letters would have been sent and it is odd that they do not appear in the defendant’s “files”, such as they are. It is not possible to find that Australia Post delivered any letters, or that any letters whose receipt was not admitted were collected from the relevant post office box. I do not know whether material went astray in the moving of the defendant’s office from Port Macquarie to Brisbane around the relevant time in 2005.
The 2004 letter is:
“Mason Place Pty Ltd
PO Box 843
Port MacQuarie NSW 2444Dear George
RE: MOTOR VEHICLE FLEET INSURANCE POLICY NO: CED09581E
Please find Underwriter’s Policy Document attached for your records.
We ask that you check the Policy Document carefully to ensure that it conforms with all your requirements. If there is anything you don’t understand or the document contains any errors or omissions please contact us immediately.
We remind you that you must ensure you have complied with your Duty of Disclosure as detailed on your invoice. If Non-disclosure occurs it may result in a claim being reduced or declined by the Insurer. If you are not sure about anything, please let us know.
We thank you for your instructions, and look forward to being of service to you in respect of your future Insurance requirements.”
In my opinion, such a document is insufficient, assuming it was duly received, to place an onus on Mr Woodward to inform himself with the consequence of relieving Mr Stephenson from the heavy obligation which the third party had as a broker in the circumstances of the extent of reliance on it being so obvious to ensure that relevant matters were “brought home” to the client. The court confidently finds that they were not.
Exhibit 25 is a document which Mr Stephenson says he used to explain the burning cost premium to Mr Woodward when the two men met on 2 March 2005. It states the following:
“PREMIUM OPTION 2 UPFRONT DISCOUNT – BURNING COST
Adjustment 100/70 – RATE OF 1.428
ADJUSTED – QUARTERLY
MINIMUM/DEPOSIT PREMIUM PAYABLE - $189,398.00 including ALL CHARGES & GST
MAXIMUM PREMIUM PAYABLE - $422,874.37 including ALL CHARGES & GST
DISCOUNT SCALE
CLAIMSPREMIUM PAYABLE
+ CHARGES
+ GST
0 TO $112,000 - $160,000
- Minimum/Deposit$125,000 - $178,500
$150,000 - $214,200
$175,000 - $250,000
$200,000 - $285,600
$250,000 - $357,000
$253,800 & OVER - $362,500 MaximumBEST RESULT - $189,398.00 Including All Charges + GST
WORST RESULT - $422,874.37 Including All Charges + GST
NOTE – POLICY ADJUSTED – QUARTERLY
ADJUSTMENT – 45 DAYS AFTER DUE DATE”
Affixed to it, as tendered (and confirmed by Mr Stephenson in his evidence as representing the state of the third party’s files) is a yellow “Post-It” sticker reading:
“This document given to client on presentation of invoices along with other covers.
2/3/05”
above Mr Stephenson’s initials, which he appears to use as his signature.
The keeping of such material bespeaks an awareness by the third party of the importance of generating and keeping them for its own records. What strikes me as odd is that advantage would not be taken of the opportunity in face to face contacts of getting Mr Woodward, who in my opinion would willingly have signed whatever documents Mr Stephenson asked him to sign, to sign an acknowledgement on such documents of having seen (and perhaps understood) them. Mr Woodward ought to have been given a copy to keep for his own records and future reference. Mr Stephenson did not assert that this had occurred. Even if there had been an explanation in terms of exhibit 25 (which I am not prepared to find occurred) it is plain that it went over Mr Woodward’s head.
Apropos exhibit 25, which Mr Woodward denied he had ever seen, there was important evidence at transcript 1-70:
“See, what happened in March 2005, on the 2nd of March 2005 Mr Stephenson came and saw you, presented this document to you and explained that document to you, didn’t he? - - He did not.
He didn’t. All right? - - If that would have been explained to me that 1.4 – just so your Honour knows, that 1.4 means that I pay for the – that I’ve been explained to since, that I’ve paid for the repairs and a premium on top of that. I’ve got me own workshop and everything. I wouldn’t be darned – I wouldn’t be putting in a claim – claiming for things and having a policy like that. You’d have to be – you’d have to have stones in your head to do it.
Well, not, if you’re getting a significant discount at the beginning?-- There’s not a certificate.
Significant discount at the beginning. You heard what – you were in here when Mr Lewis said, look, if it was a premium of 160,000 then a flat rate premium would be about 300 to 320,000 for the same thing. You heard that, didn’t you?-- Yeah, and I take that every day there was -----.
That’s a significant discount, isn’t it, on the premium?-- It’s – it’s a discount, yes.
And you took the punt on it, didn’t you? - - I did not.”
I accept Mr Woodward’s evidence. The explanation of his reference to a workshop is that he (or his son) had a workshop where work could be and was done on the fleet. I take Mr Woodward’s long answer to mean that, had he understood that, for a range of amounts (which would have been the ones most likely to be reflected in the defendant’s experience) what the plaintiff (already protected by excesses for young drivers and the like) would demand in additional premiums would far outstrip what it paid out in claims, more work would have been done in-house and not included in the claims submitted.
It is not necessary to go so far here as did Lord Denning in Griffiths v Evans [1953] 2 All ER 1364 at 1369, a case concerning a solicitor which the authors of the CCH Australia and New Zealand Insurance Reporter consider applicable to other professionals such as brokers – (see 9-920, p 16, 221) and prefer the client’s evidence to that of the broker, or give more weight to the client’s evidence, on the basis that the client is ignorant and the broker is learned in relation to the transaction, although I think that was the situation here. Each case depends on its own circumstances, as we are reminded by Sutton, Insurance Law in Australia (3rd) 5-11 where reference is made to the helpful decision in Marvin Manufacturers (Aust) Pty Ltd v Chamber of Manufacturers Insurance Ltd (1992) 7 ANZ Ins Cas 61-122 at 71, 611-77, 612. Vincent J said:
“The result of the findings at which I have arrived is that neither of the contracts of insurance provided any protection to the Plaintiff for the damage suffered on 27 June 1990 and 12 August 1990 to the contracts works at Coode Road, Footscray.
The next question, therefore, to be considered is whether the Plaintiff has established that responsibility for that state of affairs can be properly laid at the door of the third named defendant. In the written submissions which were made on behalf of the third named defendant, my attention was drawn to a number of authorities in which issues of negligence involving brokers were considered. Obviously, as the Full Court pointed out in Veljkovic v Vrybergen and C.M.L. Fire & General Insurance Company Limited (1985) 3 ANZ Insurance cases 60-613; (1985) VR 419, when assessing the conduct of a broker who arranges insurance on behalf of a client, it is necessary to look at the matter in the light cast by its own particular circumstances. Accordingly, setting to one side the important statements of principle concerned in some of the authorities referred to, only limited assistance will be derived when dealing with a specific case from the decisions made in relation to other factual situations.
Broadly speaking, the limits of the duty imposed upon a broker are directly dependent upon the nature of the relationship which exists between the broker and its client, including the terms of the contract between them. Within its area of responsibility, the broker must exercise reasonable care and skill in the performance of its duties. Unless there exists a real reason for doing so, a broker cannot be regarded as burdened with a general duty to ensure that its client is impervious to loss or risk of loss through the absence of insurance, nor would it necessarily be obligated to explain in detail the effect of each term of a contract of insurance. In other words, the duty of a broker has to be viewed in a sensible and practical way, bearing in mind, that the broker acts on instructions, does not purport to provide legal advice, and that in commercial insurance transactions clients may often be experienced business persons or corporations with well developed capacities to identify and act in their own interests.
In the present case, the evidence discloses that when the subject of contracts works insurance was first raised by the Plaintiff with the third named defendant in March 1989, it was mentioned against the background of the very recent acquisition by Marvin of Burton Industries. The initial inquiry must have made it clear to Mr Gallivan that the Plaintiff had no experience with this type of insurance and, indeed, that it was for that very reason that advice and assistance were sought. Neither at that time, nor at any stage thereafter when obtaining instructions with respect to the arranging of appropriate insurance cover for contract works did the third named defendant draw the attention of the Plaintiff to a number of important matters. No mention of the distinction between coverage of a “cut off” or “run off” kind was ever made. The possible significance of the amount specified as the maximum amount for a single contract was not discussed in a way which was likely to alert those connected with the Plaintiff to the real problems which could arise and thereby enable them to provide adequate and appropriate instructions. I consider that it is very doubtful that Mr. Gallivan or Mr. Lynch possessed more than a general impression of the terms of the contracts works policies issued by either of the insurers and there is no suggestion in the evidence that anything was done by the third named defendant to ascertain with any degree of precision the benefits or limitations of the proposals which were presented to the Plaintiff when securing instructions. As I remarked during the course of the hearing. I find it surprising that Mr Gallivan and Mr Lynch were prepared at the meeting of 18 May 1990 to recommend the adoption of the C.I.C. proposal without apparently having read the policy or endorsements and without checking the extent of the existing cover.
It must be remembered that a general review of the Plaintiff’s insurance situation was being conducted and that the proposal for a change to the contracts works cover emanated from the third named defendant. That circumstance creates for the important distinction between the situation which has arisen in the present case and those that arose before the Courts in the cases upon which reliance has been placed by the third named defendant.
In the circumstances I am satisfied that the third named defendant breached the duty of care which it owed to the Plaintiff. By reason of that failure, the Plaintiff found itself without any insurance coverage when damage was sustained to contract works under construction.
For the reasons which I have outlined I do not consider that it would be appropriate to make a finding of contributory negligence against the Plaintiff. With respect to the argument that the Plaintiff failed to provide clear or adequate instructions to that defendant, in my view it is not to the point, that relevant information was not provided when as it would appear clear was the case, it was neither sought nor was its relevance drawn to the Plaintiff’s attention by the party which had been engaged to act on its behalf and upon the skill and judgment of which, it must have been appreciated, the Plaintiff was relying.”
Mr Rashleigh in his able closing submissions raised some points that deserve comment. First was that there is no evidence of reliance by Mr Woodward on Mr Stephenson’s advice. I am not sure whether a close analysis of the transcript would support Mr Rashleigh’s proposition; the general tenor of Mr Woodward’s evidence was that he relied completely on Mr Stephenson. It is an easy step to infer that he did so in taking out cover with the plaintiff. Mr Rashleigh kept away from this issue in his cross-examination. I do not think he is entitled to succeed upon it as if by default. In similar vein, there were suggestions that the defendant’s attractiveness to insurers was such that there was not much available, by way of alternatives, to the plaintiff. This was not explored in evidence in a way to assist the third party’s position, although material was tendered (such as exhibit 23) indicating unwillingness in some insurer quarters to take on the defendant.
Breach of duty by a broker (which I find has occurred here by failure to explain adequately the implications of the burning cost premium endorsement) does not necessarily mean that the broker has to pay damages. Thus, in Elilade Pty Ltd v Nonpareil Pty Ltd & CIC Insurance Limited [2002] FCA 909, the court found that, even if properly advised, the plaintiff would not have taken the wider, more expensive cover that should have been recommended. Mr Woodward would not have allowed the defendant to operate uninsured and nothing indicates that it would be regarded as uninsurable. We know that when the defendant determined not to renew a second time with the plaintiff, replacement insurance was found elsewhere, as it has been every year since, apparently. Exhibit 15 is material generated by the third party in March 2010 in respect of corresponding cover quite recently.
As to quantum of damages, the defendant must show a causative link between what it says its loss is and the third party’s breach of duty. That is identified by it as corresponding with the plaintiff’s claim. The Privy Council in Eagle Star Insurance Co Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR 165 at 174–75 took a rather robust attitude to the issue of the client’s damages against the broker, declining to send it off for trial to ascertain whether it was something less than the $1 million which the insurer at first instance had been adjudged liable to pay in respect of a stallion (non-disclosure of aspects of the horse’s history was held to justify the insurer’s refusing to pay).
While Mr Rashleigh is right that there may have been no evidence about damages, the state of pleadings is such that damages are not an issue which the third party should be allowed to ventilate now. This follows from r 166(4) and (5) which provide that:
“(4)A party’s denial or non-admission of an allegation of fact must be accompanied by a direct explanation for the party’s belief that the allegation is untrue or cannot be admitted.
(4)If a party’s denial or non-admission of an allegation does not comply with sub-rule (4), the party is taken to have admitted the allegation.”
By sub-rule (1) an allegation of fact by a party in a pleading is taken to be admitted by an opposite party required to plead unless it is denied or stated to be not admitted.
The amended third party statement of claim in paragraph 14 pleads that:
“The Defendant says that it has suffered damages arising from the conduct of the Third Party hereinbefore pleaded.
Damages
The damages suffered by the Defendant are the Plaintiff’s claim.”
Following which is the claim for relief:
“The Defendant claims from the Third Party an indemnity against or contribution in respect of the claim made by the Plaintiff.”
The amended defence of the third party pleads in a specific way to paragraphs 1 to 12 inclusive of the amended third party statement of claim but there is nothing about the two paragraphs set out or the preceding paragraph 13 which simply alleges the plaintiff’s making its claim against the defendant for the burning cost premium adjustment together with interest and costs (“the claim”). The third party’s pleading says only:
“(9)The third party does not plead to the prayer for relief.
(10)Save as aforesaid the third party does not admit any allegation expressed in or implied by the Third Party Statement of Claim upon the basis as if each such allegation was expressly set out in this document and expressed to be not admitted upon grounds that comply with the Uniform Civil Procedure Rules 1999.”
This is not the “direct explanation” required by the rule. The evidence shows in my opinion that the third party which not only advised, arranged and paid for the insurance but also managed all claims and has great expertise in insurance matters would have no basis to contend it was unable to admit in this respect.
In my opinion that state of pleading is insufficient to raise issues about the damages claim being inappropriate and the defendant is caught by r 166(5), therefore not entitled to raise for the first time in closing address issues about damages like those raised in Eagle Star or Elilade v Nonpareil. Such an outcome is consistent with the way in which the proceeding was conducted. An observer of the trial would have heard nothing whatever said about loss or damages beyond Mr Hampson’s announcement at the outset that quantum was admitted. Although the agreement as to quantum was between the plaintiff and defendant only, in the circumstances, I think it was incumbent on the third party to signal that it wished to canvass damages before the evidence closed. Accepting that, for the defendant to obtain more appropriate cover, additional premiums may have been payable to the plaintiff under a different form of policy or to another insurer, there is no suggestion from the third party or any other quarter as to how any adjustment might be quantified. I am not troubled by any thought that the third party is unjustly dealt with if fixed with the sum agreed by the other parties, which is the one the plaintiff sued for. It falls far short of what the plaintiff might have been entitled to on strict application of the policy endorsement. This may well be the result of concessions the defendant (perhaps with the third party’s assistance) was able to win from the plaintiff by reference to a matter or matters involving it and the Woodward workshop, apparently operated by Transport Engineering & Trucking Services Pty Ltd. See exhibit 27 and exhibit 14 in this regard.
It is convenient to refer to the plaintiff’s summary of advantages and disadvantages of burning cost premium arrangements as appearing in exhibit 9:
“When to Apply Burning Cost
Burning Cost format may not be quoted on new business unless approved by a Motor Underwriter with an authority Level 6 or higher (but within the Underwriters appropriate Discretionary Authority Levels)
Generally the Burning Cost method of quoting is reserved for:-
·Very large fleets
·Fleets with a very poor loss ratio where we are required to provide terms because of client relations or whole of account considerations
·Fleets that have performed very well and because of competitive pressures we have provided Burning Cost terms to retain same.
Advantages of Burning Cost
a. Lower “buy in” (deposit) premium means a more affordable starting price and reduced “up front” stamp duty and fire service levies for the client.
b. Although a form of “self-insurance” the policy still falls within the Knock for Knock Agreement.
c. The Maximum Premium is higher than other policy formats so Suncorp has greater protection if the insured has a poor claims year.
Disadvantages of Burning Cost
a. insured can’t budget for claims between Deposit and Maximum Premium, and this may sometimes translate into problems collecting Burning Cost extra premiums if the client “Burns” and becomes subject to paying the maximum premium.
b. reduced investment income for Suncorp
c. increased administration costs for Suncorp
d. reduced written premium for Suncorp if the insured has a good year
e. no incentive for client to renew after a good year ie. No CED protection.
f. Because of Minimum Premium, there is less premium pool after a good year to pay for the inevitable bad year (Unless Minimum and Deposit Premiums are the same)
g. Sometimes encourages insured to not submit claims, after they have exceeded their Minimum Premium, unless the claims accumulate to an amount in excess of the Maximum Premium. In this way, they avoid the Adjustment Factor loading, IBNR Factor loading and Stamp Duty if their claim cost falls between the Minimum and Maximum Premiums. Such late lodged claims (if the Maximum Premium is exceeded) cannot be rejected.”
This is written from the insurer’s point of view for the most part, but clearly enough indicates warnings of the kind that in my view ought to have been given by Mr Stephenson as an expert broker being paid appropriately for expert advice.
Reflection upon the issues in the course of preparing these reasons led to the realisation that the third party’s performance as broker may come under question so far as submission of claims is concerned. It seems a real possibility that by managing claims for 2005-06 differently, the defendant’s exposure to having to pay more than the minimum premium may have been avoided or limited – for example by excluding some work from claims or deferring claims. The court was told everything went through Mr Simpson, who (one would think) would keep track of the premium implications. It is a matter of speculation whether he knew, had been told or understood the implications. If he did not understand them, it is little wonder that Mr Woodward was in the same situation.
I had considered holding the defendant, in effect, guilty of contributory negligence in this situation, along the lines of Marash v Lockhart & Ritchie Ltd (1979) 95 DLR (3rd) 647, referred to in Australian and New Zealand Insurance Reporter 9-933 at p 16,283. I proceed on the basis that it is open to the court to do that, while accepting that it is not beyond argument. While the court, in my view, has relevant jurisdiction, on the merits it is not appropriate to “split” the loss in this way.
It follows from the foregoing that there ought to be judgment for the plaintiff against the defendant for the amount of the claim, also for interest as claimed under the Supreme Court Act 1995 and costs to be assessed on the standard basis if not agreed. There ought to be judgment against the third party in favour of the defendant for the amount of that judgment and for costs of the third party proceedings to be assessed on the standard basis if not agreed. I am disinclined to order the third party to indemnify the defendant in respect of costs payable to the plaintiff. In my view, the defendant ought to have accepted the inevitable and acknowledged the justice of the plaintiff’s claim against it. The parties will be offered the opportunity to make submissions for different orders than those foreshadowed if so advised.
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