Zollo v National Australia Bank Limited and National Australia Financial Management Limited (No. 2) No. SCGRG 93/1026 Judgment No. 6060 Number of Pages 8 Insurance

[1997] SASC 6060

IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA

DOYLE CJ, PRIOR AND NYLAND JJ

Insurance - general - claims generally - appellant an insurer - respondent succeeded in establishing an obligation to indemnify in terms of insurer's standard policy relating to permanent total disablement - appeal relating to entitlement under the policy - respondent a master builder - suffered injury in 1990 - unable to perform any heavy work - respondent obliged under policy to establish inability to carry out each and all normal duties - supervisory and managerial role a significant part of normal duties - entitlement not made out. Insurance Contracts Act 1984 (Commonwealth) ss35 and 54(1); Insurance Contracts Regulations regs17, 18(c) and 20, referred to. Zollo v National Australia Bank Ltd & Anor (Unreported, 20 December 1996) Judgment No.5940); Australia Casualty Co Ltd v Federico (1986) 160 CLR 513; Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Insurance Cases 77, 531, applied. QBE Insurance Ltd v Jande (1995) 8 ANZ Insurance Cases 61-270; R v Fairclough (Unreported, Court of Criminal Appeal, 12 September 1996, Judgment No.5806), distinguished.

ADELAIDE, 8 October 1996 (hearing), 21 March 1997 (decision)

#DATE 21:3:1997

#ADD 1:4:1997

Appellants National Australia Bank Ltd and National Australia Financial Management Ltd:

Counsel: Mr D Clayton QC with Mr N Swan

Solicitors: Finlaysons

Respondent Alessandro Zollo:

Counsel: Mr N Morcombe QC with Mr J Cudmore

Solicitors: Floreani Coates & Co

On appeal from Bollen J: Zollo v National Australia Bank & Anor (No 2)

Appeal allowed.

DOYLE CJ

1. This is an appeal against a judgment given by a judge of this Court. In a judgment already given in this appeal, with which the other members of the Court agreed, I came to the following conclusion:
"For those reasons, it is my opinion that the only relief to which Mr Zollo is entitled is under a contract of insurance with the third defendant, obliging it to indemnify him against liability on his instalment loan, the overdraft and the bill facility, in respect of permanent total disablement as defined in the policy which is part of exhibit D28. I wish to hear further from the parties on the question whether the facts establish that Mr Zollo is entitled to recover.
The first defendant is entitled to judgment in its favour on the claim against it."

2. In that judgment, Zollo v National Australia Bank Ltd & Anor (unreported, 20 December 1996, Judgment No.5940) I set out the history of the matter. I do not propose to repeat it. The Court has now received further submissions on the issue raised by my earlier judgment.

3. I will refer to the plaintiff (respondent) as "Zollo", to the third defendant (appellant) as "the insurer" and to the first defendant (appellant) which acted as agent for the insurer, as "the bank".

4. In a nutshell, Zollo has succeeded in establishing that the insurer is obliged to indemnify Zollo in respect of three loan facilities. But the obligation to indemnify is to be found in the terms of the insurer's standard policy, not in the oral agreement that was pleaded by Zollo in his Statement of Claim and found by the trial judge.

5. My conclusion set out above raises issues on which the trial judge did not have to and did not make findings. My conclusion also establishes a basis for liability quite different from that for which Zollo contended at trial. The fact that the parties did not focus upon these issues at trial flows from the fact that Zollo's case at trial was a different one. Neither party has suggested that the matter be remitted to the trial judge for further hearing or to make further findings. These and other proceedings between Zollo and the bank have had a long and complex history. It seems to me better, despite all the difficulties, to try to bring the matter to a conclusion now.

Notice

6. The first issue that arises is a submission by the insurer that Zollo did not comply with condition 5 of the insurer's usual terms. That condition relates to the giving of written notice of the claim, the provision of certain particulars and the proof of certain matters.

7. The evidence of Zollo at trial (T150-157) was to the effect that he gave oral notice of his claim to the bank which, as I have already noted, acted as agent for the insurer. The bank denied that he had any insurance cover and it appears to have been in the process of terminating its business relationship with Zollo. In those circumstances it is not surprising that Zollo might have been deterred from submitting a formal claim. The trial judge accepted evidence from Zollo that "He went into see the Bank not long after the accident and was told that he had no insurance." (Judgment p20).

8. By s54(1) of the Insurance Contracts Act, 1984 (Commonwealth) the insurer may not refuse to pay the claim, by reason of the failure of the insured to give notice, but the liability of the insurer is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced by the failure to give notice.

9. The insurer raised this issue in its defence: para 18(f). However, although no findings were made upon the point by the trial judge, I cannot see any basis for a finding of prejudice under the circumstances. There seems to have been no lack of medical evidence about the condition of Zollo, and although I am not as well placed as the trial judge, it does not seem to me that it has been shown that medical examinations at an earlier time would have assisted the insurer's case. In addition, having regard to the fact that at the time of the oral claim the existence of any insurance was being denied, it seems to me very doubtful that the insurer would have arranged medical examinations.

10. Accordingly, in my opinion the lack of proper notice under the policy is not an obstacle to the claim, nor are any grounds shown for a reduction in the amount of the insurer's liability.

Permanent Total Disability

11. Under the policy the sum insured is payable if the insured "shall suffer an Event". The relevant event is "permanent total disablement". That is defined as follows:

"Permanent total disablement means the total inability of the Insured as a result of the insured:
(a) sustaining accidental injury; or
(b) contracting sickness or disease,from carrying out all of the normal duties of his or her usual occupation for a period of at least six (6) consecutive months and the Company being of the opinion that the Insured is unlikely ever to be able to follow his or her usual occupation or any gainful occupation for which the Insured is fitted by training, knowledge or experience."

12. The trial judge found that Zollo suffered an accidental injury on 4 June 1990. I refer in particular to his judgment at p20. The trial judge went on to make findings about the nature and effect of the injury. These findings were made after hearing evidence from Zollo, from other witnesses who gave evidence about his condition before and after the injury, and from medical practitioners. The findings of the trial judge are based upon the acceptance of the evidence of certain witnesses and the rejection or non-acceptance of the evidence of other witnesses.

13. Although not spelt out in terms, it appears from the reasons for judgment (pp21-27) that the trial judge accepted that before June 1990 Zollo was able to and did perform heavy work as a master builder, and did so despite an earlier injury. Despite the submissions of the insurer, I can see no basis upon which that finding should be overturned.

14. The trial judge found (p28) that as a result of the injury sustained in June 1990 "the plaintiff cannot do heavy work." He made it clear that he accepted the evidence of Zollo. He said:
"He was a 'hands on' master builder. He worked as one of a team in heavy work. His capacity to do varying types of heavy work kept down expenses in the business. He cannot do those things now. It is the injury of 1990 that caused this inability."

15. In view of his findings the trial judge did not have to consider whether Zollo could perform what he described as "the managerial and supervisory work of a master builder." What he found was that there was (Judgment p28):
"Inability to work at normal occupation in the normal way and do normal tasks of a master builder in that work..."

16. I am not prepared to reject those findings. They were open to be made on the evidence, and in making them the trial judge took advantage of the fact that he heard and saw the witnesses.

17. I now turn to the terms of the policy.

18. I bear in mind the proposition stated in McGillivray & Parkington on Insurance Law (8th ed, Sweet & Maxwell 1988) para 1806:
"These clauses must receive a reasonable construction in relation to their object. If the insurance is limited to accidents wholly disabling the insured from following his usual business or occupation, full effect must be given to the word 'usual'."

19. As the trial judge said, Zollo worked as a "hands on" master builder. He was one of the team who did the actual building work, including transporting materials to the site and handling materials. But it is equally clear that Zollo was the prime mover in the company and in the partnership through which he conducted building activities. In that capacity he performed what can be called managerial and supervisory functions. It is clear that he handled a lot of the business and other arrangements which were part and parcel of his building business. He retained workers and subcontractors. He supervised their work. He planned and implemented building projects, including to a significant degree the construction of "spec homes". On the other hand, it has to be remembered that his command of English was limited, although sufficient for his purposes, but that he was particularly limited in relation to writing and reading in English: (T60). The effect of his evidence is that after the accident he could manage light tasks, but only for a short time. He also gave evidence that he had been unable, despite significant efforts, to obtain other employment.

20. On the judge's findings it is clear that Zollo cannot carry out a substantial part of the normal duties of his usual occupation. On the findings he is unable to carry out all of the manual labour which he previously carried out. In short, he can no longer work as a "hands on" master builder. However, although the judge made no finding upon the matter, I can see no reason to conclude from his findings, and no real basis in the evidence, for concluding that Zollo is unable to perform the managerial and supervisory work which he previously performed.

21. Is it sufficient for him to show that he cannot, in a practical sense, conduct the business of a "hands on" master builder as before, or is it necessary for him to show that he cannot carry out each and every aspect of what were his normal duties, including the managerial and supervisory aspects?

22. In QBE Insurance Ltd v Jande (1995) 8 ANZ Insurance Cases 61-270 the Court of Appeal of New South Wales held, under a similar definition of "temporary total disablement" that the insured person had to establish that the insured was unable to do any part of the insured's business. The policy in question, however, was a policy which provided cover in respect of both total disablement and partial disablement. The policy used similar definitions in respect of each term, except that the definition of "total disablement" referred to the insured being unable to carry out "all the normal duties" of the usual occupation, whereas the definition of "partial disablement" referred to inability to carry out "the normal duties". There was good reason, in that context, to conclude that total disablement required proof of inability to carry out all or any of the normal duties. If that were not so, most cases of partial disablement would also be cases of total disablement.

23. The policy in question in this case does not include any provision in respect of partial disablement. That is a significant distinction. Nor has the insurer taken the precaution of referring to "each and every duty" of the insured's occupation: cf R v Fairclough (unreported, Court of Criminal Appeal, 12 September 1996, Judgment No.S5806). There is considerable force in the submission that the construction contended for by the insurer would limit the cover provided by the policy to a very narrow range of circumstances. As Gibbs CJ said in Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520:
"...a court may depart from the strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction..."

24. He went on to refer to a trend to adopt a liberal interpretation in favour of the insured if the natural meaning of the words so permits.

25. In my opinion, taking the clause in its context and doing my best to relate its construction to the object of the clause, it would be going too far to conclude that an inability to perform any one of the normal duties of the usual occupation entitled an insured person to payment under this clause. That approach is not consistent with the notion of "total disablement", with the reference to the sort of opinion that the company is to form and with the usual understanding of insurance in respect of, as this was "Permanent Total Disability."

26. In the end, with some hesitation, I have come to the conclusion that the words are to be given the construction for which the insurer contends. The use of the word "all" is significant in this context. And, as I have already said, I am unable to accept as correct the view that it is sufficient that some of the normal duties cannot be performed.

27. I conclude that Zollo has to show that he is in fact unable to carry out each and all of the normal duties of his usual occupation. I would apply that requirement practically.

28. The effect of the evidence, as I understand it, is that while labouring work as a builder was an important part of what he did, what I have referred to as the managerial and supervisory aspects of his work were not insignificant. He was the one who conceived and implemented building projects, he was the one who got them designed, got the necessary approvals, arranged the finance, entered into the necessary contracts, hired the necessary workers and so on.

29. It seems to me that that work was a significant part of his normal duties. There is no finding by the judge that Zollo could not perform that work, and on the evidence I am not prepared to make that finding, notwithstanding the difficulties which Zollo has. I have given careful consideration to his limited command of English, and his limited ability to read and write in English, and to the restrictions upon him which would flow from his back injury. But despite all that I cannot conclude that he is unable to carry out the managerial and supervisory work of the type described by me.

30. If I thought that these other aspects of his work were merely a minor incident of "hands on" work as a master builder, I would be content to disregard them. But I cannot regard them as a minor aspect of the work of someone who was essentially, as I would have to conclude to find in favour of Zollo, a person working on site as a working builder.

31. It follows, in my opinion, that Zollo has not established that he satisfies the first part of the definition of "permanent total disablement."

Opinion of Insurer

32. At the trial the insurer called as a witness a Mr Renny, who was the head of insurance services for the insurer and its chief underwriter (T448).

33. In its defence the insurer did not plead that it had formed an opinion under the policy and that that opinion meant that Zollo was not entitled to recover. Its pleadings said nothing about the forming of an opinion. That, however, is understandable in the context of the case. The case was not presented as a claim under the standard policy. I mention again that the insurer did plead the lack of notice and did plead that it had been prejudiced in determining whether Zollo was entitled to compensation under the terms of the policy.

34. Mr Renny was asked to express an opinion about the opinion that he would have formed, under the terms of the policy, had he considered the matter when he first got notice of the claim. His evidence was that the insurer first had notice of the claim when the proceedings came to its attention (T458-459). Counsel for Zollo objected to the expressing of that opinion, but the trial judge allowed it to be given.

35. In the circumstances of the case it seems to me that the insurer was entitled to lead evidence of the opinion that it would have formed had it considered the matter at the institution of the proceedings. I repeat that the claim being made by Zollo in the proceedings was not a claim under the terms of the insurer's usual policy, D28. But if such a claim is to be advanced as a fallback position, as it now is as a result of the findings on appeal, it must surely be open to the insurer to form and express an opinion under the policy. There was no reason for it to do so unless and until it was on notice that a claim under the policy was being made. Even at the trial it was not, as I understand things, clear that such a claim was being made, and no doubt the evidence was led as a desirable precaution. In my opinion the evidence of Mr Renny was admissible, because in my opinion it was permissible for the insurer to give evidence of the opinion that it would hold, were the events before the Court to be taken to be a claim under the insurer's policy.

36. In opposition to this, in submissions before us Zollo argues that the contract of insurance is a prescribed contract for the purposes of s35 of the Insurance Contracts Act. Relying upon the provisions of that section Zollo argues that the event upon which the claim is based is a prescribed event, and that therefore the insurer may not refuse to pay the claim.

37. I agree that the contract in question appears to be a prescribed contract: see the Insurance Contracts Regulations Regulation 17. I also agree that the claim in the present case appears to be based upon an event which is a prescribed event: see Regulation 18(c). I mention in passing that none of these matters were pleaded or apparently raised at trial.

38. But the consequence of that under s35 is not that the insurer may not rely upon the relevant clause, but that the insurer "may not refuse to pay an amount equal to the minimum amount in relation to the claim". The determination of the minimum amount is dealt with by Regulation 20.

39. A case along these lines was not presented by Zollo at trial. The minimum amount is, under Regulation 20, "an amount equal to the amount of income lost by the insured person by reason of the disablement." No findings were made on that matter and it is not from a practical point of view possible for this Court on appeal to make the necessary findings.

40. It appears to me that Zollo must be taken as not having advanced a case based on reliance upon s35 of the Insurance Contracts Act, and so in this case its effect is to be disregarded. I do not think that there is any other course that this Court can follow. I have considered whether the case should be referred back to the trial judge for further hearing and for findings to be made. That, however, would involve a substantial rehearing. There is a point beyond which the parties cannot be allowed to recast their cases, and I consider that that point has been reached in this matter.

41. It is for those reasons that I have come to the conclusion that, as I have already indicated, the matter should proceed on the basis that no claim is made under s35.

42. Counsel for Zollo has also relied upon the failure of the insured to plead the fact that an opinion was not formed or that an opinion adverse to Zollo's claim was formed. In all the circumstances of the case I do not consider that that is an answer. It may be that in considering the claim on the basis upon which it is now considered, the Court is granting an indulgence to Zollo, for the claim now being considered is not the claim presented by Zollo at trial. Having regard to the pleadings before the judge, I do not consider that the insurer can be criticised for failing to plead the issue of the opinion. And, as I have already said, Mr Renny was called to give evidence at trial, which raised the issue of the insurer's opinion. He was allowed to give that evidence at trial. For what it is worth, I add that it is an implied obligation of the insurer to form an opinion once aware that a claim is being made under the policy: Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Insurance Cases 77,531 at 77,536. The effect of Mr Renny's evidence was that the insurer was not aware that a claim was made until the proceedings came to its attention, and in that context it seems to me that it was entitled to express an opinion once that matter came to its attention.

43. The opinion which Mr Renny gave was, under the circumstances, a hypothetical one, but it seems to me that as a matter of substance it should be treated as the actual opinion of the insurer. That is the way in which his evidence was given. Having regard to the position that he occupied, it is appropriate to treat his opinion as that of the insurer. He was asked what decision he would have made, had he had to make a decision, when he first heard of the proceedings. He said (T459):
"A. Looking at all the medical evidence that we've got on hand, the claimant, under the definition, is not totally and permanently disabled for which he can be employed in an occupation which he has training, knowledge and experience. The medical evidence suggests that in one particular case that Mr Zollo is no more than 25 percent disabled in regards to his back, and it varies to about five percent disability that Mr Zollo has. Under those conditions, and looking at the definition as it is clearly stated, Mr Zollo is not totally and permanently disabled, in which case the claim would be declined."

44. A little later he said that he was of the opinion that Mr Zollo's disability was "a temporary disability" (T460). Then he was asked what assumption he had made about Mr Zollo's occupation. He said (T461):
"A. The assumption that I made is Mr Zollo is involved in the building industry, he has wide experience in that area, he has worked in regards to building, he has worked in the industry supervising, he has owned hardware shops, retail shops, so he's been involved in a variety of duties in regards to that particular industry.
Q. Have you made an assumption as to the type of work that Mr Zollo would have been able to do during the period from the first of those periods that I directed your attention to, that is, say the end of the year 1990.
A. I have, Mr Zollo is capable of running his hardware stores, Mr Zollo's experience allows him to act as a project manager in a building situation, providing his expertise that he has gained in the industry over the years and, basically, you know, that covers a fair range from being a full contractor to - from the start of the building to the end of it, and that covers a wide range of activities that he could be involved in."

45. This opinion was not challenged in cross-examination.

46. I respectfully adopt the view expressed by McLelland J in Edwards (supra) at 77,536 that under the terms of a clause such as that in question "the insurer is obliged to act reasonably in considering and determining" the relevant matter. I also agree with the following portion of his judgment which appears on the same page:
"To say that an insurer must act reasonably in forming or declining to form an opinion is not to say that a Court can substitute its own view for that of the insurer. As North J pointed out in Doyle at 529, 'reasonable persons may reasonably take different views'. Unless the view taken by the insurer can be shown to have been unreasonable on the material then before the insurer, the decision of the insurer cannot be successfully attacked on this ground."

47. The opinion expressed by Mr Renny gives rise to some difficult issues. It may be that he erred (it does not follow that his view is unreasonable) in relation to the extent and permanent nature of the physical disability from which Mr Zollo suffered. However, even if that part of his opinion can be disregarded, I am not able to say that his opinion about Zollo's ability to follow "any gainful occupation for which the insured is fitted by training, knowledge or experience", is unreasonable. As I understand the evidence in the case, Mr Zollo probably could conduct a hardware business connected with the building trade or work in a supervisory capacity in the building trade.

48. It follows, in my opinion, that Mr Renny's opinion is a further obstacle to the success of the claim by Zollo.

49. For the reasons that I have given, Mr Zollo is not entitled to claim under the terms of the insurer's usual policy, because he cannot establish that the defined event, the permanent total disablement, has occurred.

50. It is unfortunate that it should have been necessary to resolve these issues upon appeal, but as I have already remarked Zollo did not present at trial a case based upon the insurer's usual terms, but upon an oral contract. And in my earlier judgment in this appeal I have already explained why, in my opinion, that claim cannot succeed.

51. It follows that in my opinion the appeal should be allowed, the judgment dated 21 December 1995 in favour of the plaintiff against the first and third defendants should be set aside, and for that judgment should be substituted a judgment in favour of the first and third defendants against the plaintiff.

52. It would seem to follow from that that the first and third defendants should recover from the plaintiff the costs of the trial and the costs of the appeal, but I wish to hear the parties upon the question of costs and any incidental orders.

PRIOR J

53. I agree.

NYLAND J

54. For the reasons expressed by the Chief Justice I agree that the appeal should be allowed, and that the judgment dated 21 December 1995 in favour of the plaintiff against the first and third defendants should be set aside, and for that judgment should be substituted a judgment in favour of the first and third defendants against the plaintiff.