Lal v Sovereign Assurance Company Limited
[2013] NZHC 2660
•14 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-007125 [2013] NZHC 2660
BETWEEN SHEILA LAL Plaintiff
ANDSOVEREIGN ASSURANCE C OMPANY LIMITED
First Defendant
ANDTIME VISION FINANCIAL SERVICES LIMITED AND JAGDEO SINGH Second Defendants
Hearing: 7 October 2013
Appearances: P R Rzepecky for the Applicant/Second Defendants
H Fulton for the Respondent/Plaintiff
Judgment: 14 October 2013
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
14.10.13 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
S LAL v SOVEREIGN ASSURANCE COMPANY LIMITED & ORS [2013] NZHC 2660 [14 October 2013]
[1] This proceeding was set down for hearing before me on 7 October 2013 in relation to two matters:
(a) To deal with the second defendants’ strike out/summary judgment application; and
(b) To hear the plaintiff’s applicant for joinder of the insurer Lumley pursuant to ss 9 and 9A of the Law Reform Act 1936.
[2] By 4:00pm it was clear there would be insufficient time to hear the joinder application. Accordingly it was adjourned in the expectation I would have fixture time available this year to hear it.
[3] I am now advised that there is no hearing time before me this year. In the circumstances the Registry has arranged for the joinder application to be heard before Associate Judge Abbott on 29 October 2013.
[4] I am mindful that in my consideration of the documents upon both applications, and because it appeared to be the view of counsel that a judgment upon the strike out/summary judgment application might go some way to assist with a determination of the joinder application, that I am providing this judgment at this time i.e. hopefully early enough for counsel to consider their options before the hearing on 29 October 2013.
[5] I propose providing a detailed background of pleadings and the issues they identify. I will then review the relevant affidavit evidence before outlining the case of the respective parties.
[6] I will then identify my reasons in support of my conclusion that the second defendants are entitled to summary judgment.
Background
[7] The plaintiff (Mrs Lal) is the executrix of the estate of Kanti Lal (Mr Lal)
who died on 15 March 2008. Probate of Mr Lal’s Will has been granted to Mrs Lal.
[8] The first defendant (Sovereign) is an insurance company.
[9] The second defendants are insurance brokers. The second-named second defendant (Mr J Singh) is the director of the first-named second defendant (Time Vision).
[10] On 15 June 1992 Mr Lal obtained life insurance in the sum of $200,275. On
28 December 1997 Mr Lal obtained further life insurance in the sum of $150,000.
[11] On 5 June 2001 Sovereign provided life cover to Mr Lal by policy number
418326-01 in the sum of $500,000 indexed for annual increases to a maximum of
$750,000. In this case as previously Mr Uday Singh and Windsor Financial Services
Ltd (Windsor) provided brokerage services to Mr Lal on behalf of Sovereign.
[12] The premium payable was increased by a loading of 100 per cent imposed by the first defendant on account of:
(a) Arthritis relevant to any benefit payable for permanent disability as to
50 per cent.
(b) Historic excessive alcohol intake as to 50 per cent.
[13] That policy of insurance was cancelled on 2 February 2004 and was replaced on that date by a policy of insurance provided by the Sovereign to Mr Lal for life cover by policy number 418326-02 in the sum of $1,850,000 indexed for annual increase.
[14] The premiums payable in respect of the policy were increased by 100 per cent as a loading imposed by Sovereign for those same reasons that applied to the policy replaced.
[15] It is pleaded that the insurance was effected on behalf of Sovereign by Mr
Uday Singh/Windsor who prepared the submission of a proposal during December
2003 and January 2004.
[16] Mr Uday Singh became very unwell in 2007. He had discussions with his brother Mr J Singh regarding the sale of the client base of Windsor to his brother’s insurance brokerage business, Time Vision. A sale and purchase was agreed and documented. Mr Uday Singh died on 8 November 2007.
[17] Mrs Lal pleads that the sum assured increased annually by the CPI and by related factors together with premium increases. It is pleaded that as at 15 March
2008 the extent of insurance cover was $2,116,263.
[18] Sovereign paid out and then cancelled the two policies purchased in 1992 and
1997. In respect of the policy purchased on 2 February 2004 Sovereign paid out on or about 10 March 2010 the sum of $915,443 on account of the sum assured. The payout sum was calculated upon the amount that would have been due on the June
2001 policy. Sovereign declined liability for payment of the balance claimed of
$1,200,820 plus interest.
[19] On 15 September 2008 Sovereign notified Mrs Lal that it declined liability for payment of the balance on the grounds that Mr Lal had not disclosed information concerning his imbibitions of alcohol beverages.
[20] In this proceeding Mrs Lal pleads that Mr Lal did disclose and inform Sovereign through Mr Uday Singh/Windsor of Mr Lal’s consumption of alcohol as was noted in connection with the policy taken out on 5 June 2001 and, it is pleaded, in connection with the replacement policy taken out on 2 February 2004. Therefore it is claimed Sovereign for itself or through its said agents or representatives had knowledge of facts and circumstances material to and substantially correct as to the risk insured on the life of Mr Lal.
[21] As against the second defendants it is claimed Mr Lal arranged for the 2001 and 2004 policies to be procured from Sovereign by Mr Uday Singh and Windsor; that from about November 2007 Mr Uday Singh and Windsor assigned and transferred all that business, rights and liabilities to Time Vision and its director Mr J Singh, the brother of Mr Uday Singh.
[22] Mrs Lal pleads that Mr Uday Singh and Windsor, together with Time Vision were under duties of care at the time they arranged the insurance to ensure Sovereign was not entitled to avoid such policies by reason of mistake, non disclosure, misrepresentation or other vitiating cause. Further that skill and care was required to collect and disclose to Sovereign all information relevant to its interest and risk to ensure that the insurance policies remained effective and enforceable.
[23] Mrs Lal pleads that Mr Uday Singh and Windsor and Time Vision breached those duties.
[24] It has been pleaded that no administrator has been appointed to the estate of Mr Uday Singh who died on 8 November 2007. Also Windsor was struck off the Register of Companies on 23 July 2008.
[25] In its defence Sovereign pleads:
(a) Mr Uday Singh was not its agent or representative but was Mrs Lal’s agent or representative in respect of policy 418326-02 issued on 2
February 2004. Also that policy was a new contract with different levels and types of cover.
(b) There was no change to the existing premium loading of 100 per cent that had applied to policy number 418326-01. The premium amount increased, however, because of the increased sum insured.
(c) It was entitled to limit the policy payout to the extent it did by exercising the discretion available to it under clause 6 of the policy to alter the terms of the policy, effective from the ‘risk commencement date’, because of misrepresentations and/or non disclosure of material facts about Mr Lal’s health when the policy was applied for.
(d) Failure to disclose included:
(i) Mr Lal had visited his doctor on 9 June 2003 and 5 August
2003 for excess alcohol ingestion.
(ii) Mr Lal had been directed to undertake blood tests on 9 June
2003 and on 28 August 2003.
(iii) Mr Lal was admitted to hospital on 13 December 2003 with hematemesis (vomiting blood) and was discharged on 18
December 2003 with the principle diagnosis being acute alcoholic gastritis.
(e) It admits there was disclosure regarding Mr Lal’s consumption of alcohol when the 2001 policy was applied for, but denies there was disclosure of Mr Lal’s escalating alcohol related health issues when the 2004 policy was applied for.
[26] By way of affirmative defence Sovereign pleads that there was a duty to disclose facts which were material to Sovereign’s obligations as the policy in question required; that such non disclosure was material and was substantially incorrect and therefore Sovereign was within its rights to alter the policy terms effective from the risk commencement date and in this case was within its rights to alter the terms of the policy by reducing the level of cover to the level that had been applied under the 2001 policy had it been in force at the time of the claim.
[27] Therefore Sovereign says it has no further liability to Mrs Lal or Mr Lal’s estate.
[28] By their statement of defence the second defendants acknowledge that the business of Windsor was purchased by Time Vision but say only the client base was purchased. They further say they have never been the agent of Sovereign.
[29] The second defendants say that Mrs Lal only appointed Time Vision to act as her insurance and financial advisor on 17 June 2009 following the death of Mr Lal.
[30] They deny any liability to Mrs Lal. They say that had Mr Lal disclosed material facts regarding the extent of his alcoholism and related illness and his
hospitalisation in December 2003 then he would have been denied any extra life cover; that in the circumstances he has suffered no loss.
[31] The second defendants plead that if Mrs Lal is entitled to claim against them in respect of the actions of Windsor and Mr Uday Singh then, the claim is time barred under s 4(1) of the Limitation Act 1950, and is therefore unenforceable.
[32] Prior to filing the statement of claim Mrs Lal applied for leave to join Lumley General Insurance (NZ) Limited (Lumley) as a party, and to appoint as well an administrator ad litem of the estate of Mr Uday Singh. The application for joinder was made because Lumley was the indemnifier of Windsor and Mr Uday Singh by a policy of insurance in force at the time of the event giving rise to this claim, namely in the months of December 2003 and January 2004. Mrs Lal claims a charge on all insurance money that is or may become payable by Lumley in respect of the liability alleged by her against Windsor.
[33] Lumley have filed notice of opposition to the application for joinder, on grounds:
Its professional indemnity policy covered claims made against Windsor during the period of the cover and it provided that no claim could be made out after the expiry of the Period of Insurance specified in the Schedule. Lumley says the last policy period was from 1 June 2007 to 1 June 2008 and Windsor has not notified it of any claim by Mrs Lal.
[34] Lumley says Mrs Lal cannot succeed against Lumley pursuant to s 9 of the
Law Reform Act.
The summary judgment/strike out application
[35] On 8 February 2013 the second defendants filed a strike out/summary judgment application upon grounds inter alia:
Summary Judgment
The policy in question was arranged solely by Mr Uday Singh and Windsor; When Time Vision purchased the client base of Windsor in 2007 the second
defendants never assumed any liabilities of Windsor or Mr Uday Singh, and
were never involved in arranging Mr Lal’s life insurance and therefore did not owe any duty of care.
Strike out
The cause of action is time barred under the Limitation Act 1950.
[36] In opposition to the summary judgment/strike out application Mrs Lal pleads:
(a) The policies of insurance in June 2001 and February 2004 were provided by Sovereign.
(b) Those policies were brokered by Mr Uday Singh through Windsor.
(c) Windsor’s business was assigned, assumed or transferred to the second defendants in November 2007.
(d) The second defendants contacted Mr and Mrs Lal to advise they had assumed the brokerage agency and would continue those services in substitution for Windsor.
(e) Thereby the second defendants assumed and adopted the benefits and responsibilities of brokerage including those pleaded against them in the statement of claim.
(f) Because they did not perform or discharge any of those duties prior to the death of Mr Lal they thereby breached their duties of care.
(g) She denies that the purchase of Windsor comprised only “the client base” without the liabilities of Windsor actual or contingent.
(h) The second defendants have not provided documents disclosing the nature of Windsor’s business assumed or transferred, or any documents relating to the consent of the first defendant to a sale or transfer of brokerage, nor an analysis of the purchase price.
(i) She seeks discovery which should include but not be limited to initial disclosure under r 8.4.
[37] Concerning the strike out application Mrs Lal pleads the cause of action against the second defendants arose upon Mr Lal’s death and Sovereign’s failure to pay the sum assured. Further or in the alternative the second defendants as broker to her and Mr Lal were under duties of care to ensure the life of Mr Lal was effectively insured.
[38] Mrs Lal’s claim against Sovereign concerns whether or not Mr Lal disclosed the 2003 health issues to Mr Uday Singh/Windsor and whether if he did Mr Uday Singh/Windsor failed to disclose this to Sovereign; whether Mr Uday Singh/Windsor acted as Sovereign’s agent pursuant to s 10 of the Insurance Law Reform Act 1977; and whether Sovereign was entitled to rely upon the alleged non disclosure when it increased the sum insured under the February 2004 policy.
[39] The claim against the second defendants proceeds on the basis that the claim against Sovereign fails. The claim against the second defendant is all about breaches of duty of care by Mr Uday Singh/Windsor and if there were those breaches whether Time Vision assumed any liability for those when it purchased the Windsor book of insurance business.
[40] The claim against the second defendants is also about whether they assumed liability independent of any conduct of Mr Uday Singh/Windsor.
[41] The second defendants’ position is that:
(a) To the extent Mrs Lal relies upon the allegations of fault by Mr Uday
Singh/Windsor:
(i) any claim is time barred;
(ii) the second defendants did not assume any liability to Mr Lal on assignment of the Windsor book of insurance business in
2007;
(b) In any event the alleged facts do not support a claim against the second defendants as they did not arrange the life insurance policy for Mr Lal, and had no knowledge or otherwise of the circumstances now relied upon by Sovereign to deny cover.
Mrs Lal’s evidence of Mr Uday Singh’s knowledge of Mr Lal’s 2003 health issues
[42] Mrs Lal deposes that she informed Mr Uday Singh she wanted to make changes to the 2001 policy. She informed him that Mr Lal was drinking, not earning and she could not pay the premiums that had been loaded on account of Mr Lal’s alcohol problem. She said Mr Uday Singh told her to “leave it to him”; that he then proceeded to prepare a proposal that he had Mr Lal and her sign before he completed the papers. She said Mr Uday Singh knew that during this process of his handling the proposal that Mr Lal was in hospital for reasons caused or at least contributed to by his alcohol intake.
Mrs Lal’s evidence concerning the transfer of Windsor’s business to Time Vision
[43] Mrs Lal attaches a copy of agreement between Sovereign and Mr Uday Singh/Windsor. It is headed ‘Associate Advisory Agreement’. This is to be compared with the agreement with Time Vision which was described as a ‘Financial Advisor Agreement’. The difference is that an Associate Agreement is concluded with a party that is connected to/associated with the more senior Financial Advisor appointment.
[44] Mrs Lal deposes she did not know about the true relationship between Windsor and Time Vision. She expects that to be provided by further discovery in due course.
[45] Regarding the agreement for sale and purchase of Windsor to Time Vision she notes that the description of business includes “insurance portfolio with renewals”. She challenges Time Vision’s claims that the transaction was limited to its acquisition of “client base only”.
[46] Mrs Lal refers also to the letters of Mr Uday Singh dated 8 October 2007 and
Mr J Singh dated 13 November 2007, concerning the transfer.
[47] Mr Uday Singh’s letter to clients noted:
This is to confirm that with effect from 5 October 2007 the agency arrangement for Windsor has now been transferred to Time Vision Financial Services Limited and all commission payable to Windsor may now be credited to Time Vision Financial Services Limited.
[48] Mr J Singh’s letter dated 13 November 2007 noted:
It is with extreme sadness that we advise the passing away of my brother Uday Singh on 8th November 2007 after a period of continued ill health. A decision was therefore made prior to his death to merge the operations of Windsor Financial Services within the portfolio of Time Vision, so we can continue to offer you our beyond expectation service that you have received in the past.
...
Over the next month or so we will be doing a complete review of your portfolio and will get in touch with you to discuss all aspects of this very important part of your planning. Please bear with us and allow us some time to familiarise ourselves with all the Windsor client files in the interim, but do not hesitate to contact us in the meantime if you have any specific queries.
[49] It is Mr Fulton’s submission that the importance of this evidence is that the transfer involved more than merely a “client base”; that with the transfer of benefits it is reasonable to infer there was also a transfer of corresponding burdens, and from this it could be reasonably inferred the transfer was of a brokerage business, rather than a mere part of it.
The plaintiff ’s case in opposition
[50] Mrs Lal’s case is that Sovereign’s broker, Windsor, through Mr Uday Singh, was given details of Mr Lal’s updated medical situation, or at least as much can be inferred because Mr Lal was in hospital at the time the February 2004 policy was being prepared. Therefore if there was any non disclosure that was the fault of Sovereign’s broker. Besides, s 4 of the Insurance Law Reform Act 1977 prevents life policies being avoided by misstatements made in any proposal unless they:
(a) Were substantially incorrect; (b) Were material; and
(c) Were fraudulent if made more than three years before the death of the insured.
[51] Mr Fulton submits that the responsibility for proof that those elements justified Sovereign’s cancellation of the policy lies with Sovereign and ought to be a matter of evidence in due course.
[52] Mr Fulton also submits that Sovereign did not avoid the contract of insurance ab initio or at all because it paid it in part by exercising its rights to alter the terms of the policy. Therefore he says the policy remained in force and for some purposes not directly related to the misrepresentation, the policy could have been effective to provide indemnity. In the circumstances it cannot be said, counsel submits, that Mrs Lal suffered damage or loss from the date of inception. Mr Fulton rejects the proposition on behalf of the second defendants that there was immediate loss.
[53] Mr Fulton’s submission is that this position is supported by Australian case authority and was followed in New Zealand in the case of Gilbert v Shanahan1.
[54] That case concerned the signing of a guarantee of lease obligations related to rent and other lease covenants.
[55] The Court’s consideration of a limitation defence focussed on when the cause of action arose i.e. whether it arose when the guarantee was signed or when the lease payments fell in arrears. The Court concluded that the guarantee liabilities were assumed when the guarantee was signed and therefore actual loss occurred immediately upon the signing of the guarantee and not at a later date when the rental fell into arrears.
[56] In the course of the Court of Appeal’s judgment there was discussion about the Wardley2 case and reference to whether for limitation purposes the incurring of a contingent liability represents loss or damage before the contingency is fulfilled. The Wardley case endorsed the view that no actual damage is caused until the contingency is fulfilled and the loss becomes actual and until that happens the loss is prospective and may never be incurred.
[57] The Court of Appeal in Gilbert v Shanahan preferred the Australian approach to the English approach regarding these matters. That notwithstanding the Court of Appeal noted:
The terms of the guarantee which Mr Gilbert signed have been set out earlier. While described as an indemnity and guarantee, its effect as between Mr Gilbert and Mr Ngan was to render Mr Gilbert liable under the lease as a principal debtor/cavenantor... Had Mr Gilbert’s obligations been those of a guarantor simpliciter, the liability assumed would have been contingent... In that situation, Mr Gilbert’s liability being contingent would not have amounted to actual loss or damage for limitation purposes.
[58] The Court held that Mr Gilbert’s obligations were not those of a guarantor simpliciter but were those of a principal debtor/covenantor and incurred a present liability for rent, albeit that liability was dischargeable in the future on the days when rent fell due under the lease. The Court considered there was no contingency in those present obligations.
[59] Mr Fulton submits Mr Lal’s life policy was not void or voidable from the beginning. He says any loss to Mrs Lal arose at the earliest upon Sovereign disclaiming liability under the policy when it did in 2009. It follows submits Mr Fulton that no question of a time bar arises in connection with Mrs Lal’s claim.
[60] Mr Fulton submits further that in this case the possibility that an insurer may dispute liability to pay or even succeed in its defence is described as a contingency and is subject to proof. Also, Mrs Lal did not know and had no reason to suspect the policy could be avoided or that cover was at risk because to all appearances the policy was effective and in full force throughout.
[61] Mr Fulton’s submission is that there is the principle that for limitation purposes a cause of action does not accrue where the plaintiff does not know and could not with reasonable diligence have known that damage had occurred which it is said in this case was caused by Sovereign. Mr Fulton submits that the essential elements of the claim of a cause of action are deferred until discovery of that element relied upon to avoid the contract. In his submission limitation factors in tort cases are not limited to building defects or personal injury or abuse and that the application of principles to building defect cases is the same as for the circumstances in this case.
[62] At the core of claims against the brokers, first Mr Uday Singh/Windsor and secondly Mr J Singh/Time Vision is a pleading that the brokers had duties of care to ensure the insurance policies remained effective and in force by Mrs Lal against Sovereign.
[63] Of course, in summary judgment cases, the Court assumes a plaintiff will be able to prove the existence of a duty unless there is sufficient and clear evidence available to show it is incapable of proof. Often a Court will defer from drawing too many inferences from evidence only available in affidavit form.
[64] This case concerns claims of a breach of duty owed by Mr J Singh/Time Vision; that they became liable as transferees of the business including as assignees of brokerage agreements.
[65] The pleading claims that as transferees or assignees from Windsor, Mr J Singh/Time Vision assumed the benefits and burdens of the business and in their failure to provide a continuing service as Mrs Lal’s insurance broker from November
2007; that pursuant to the Contractual Remedies Act 1979 s 11 they assumed liability as transferee; and liability was assumed as principal of Windsor under the Sovereign advisory agreements whereby Windsor was an associate of Time Vision.
[66] Mr Fulton submits the agreement for sale and purchase referring as it does to
‘business’ meaning “insurance portfolio and renewals”, is of limited assistance. This notwithstanding he relies upon the reference in the agreement to “Assets” as
including “licences and benefits owned or used... in respect of the business including, inter alia:
(a) Rights under contracts relating to supply which remained to be performed;
(b) Rights under any licence agreement or equipment to lease which remained to be formed.
(c) All intellectual property rights and interests owned. (d) The goodwill of the business.
[67] Mr Fulton also notes that a further relevant term of the agreement was one noting that the sale “is one of a going concern and accordingly GST is zero rated”.
[68] Mr Fulton submits that all of this suggests there are bilateral obligations which provide not only for a transfer of benefits but also of burdens. He submits it is unrealistic to say that it is a benefits only agreement. Noting that the general rule is that an assignee [Time Vision] is required to accept the obligations as well as the benefits then Time Vision assumed responsibility for the brokerage actions of Mr Uday Singh and Windsor and in particular concerning the actions of those parties in connection with the arrangement of the February 2004 policy.
[69] Referring to the evidence of Mrs Lal and a copy of the Associate Agreement that she produced, Mr Fulton submits there is reliable evidence which connected Windsor as an associate throughout to Time Vision as an authorised broker agent to Sovereign. Mr Fulton submits to the extent that this might be challenged on behalf of Mr J Singh/Time Vision then the Court has a dispute about whether Windsor was a sub-agent and therefore whether Time Vision was liable for Windsor’s actions. Therefore he says this is a matter which ought to be left for trial.
Considerations
[70] In dealing with claims based on limitation defences upon strike out/summary judgment applications the Court must be convinced that a plaintiff’s claim is clearly time barred and that if the claim continued it would cause prejudice and delay and would otherwise amount to an abuse of process3.
[71] The Court’s discretion to strike out or award summary judgment is to be used sparingly and in the clearest of cases only.
[72] Pleaded facts are assumed to be true and the Court will not attempt to resolve genuinely disputed issues of fact. Affidavit evidence can be relied upon when facts are not in dispute or are not capable of being disputed.
[73] In this application the second defendants must show a single cause of action in negligence against them cannot succeed. They must have a clear answer to this allegation in the nature of a “king hit”.
[74] As against Sovereign the claim raises issues about whether or not there was disclosure of Mr Lal’s 2003 health problems to Mr Uday Singh/Windsor; whether by them there was a failure to disclose this to Sovereign; whether they were acting as Sovereign’s agent; and whether Sovereign can rely upon the alleged non disclosure of these details when it issued a policy in February 2004 containing a significantly increased insured sum.
[75] The case against Mr J Singh/Time Vision proceeds only if the claim against Sovereign fails. In that connection the issues are about whether Mr Uday Singh/Windsor breached their duty of care to Mr Lal and if they did whether Time Vision assumed any liability for that breach when it purchased Windsor’s book of insurance business. In that connection an issue arises regarding whether Mrs Lal’s
claim for the breach is time barred.
3 Murray v Morel & Co Ltd [2007] 3 NZLR 721 SC.
[76] Also consideration needs to be given to whether the second defendants otherwise independent of any conduct of Mr Uday Singh/Windsor, owed Mrs Lal a duty of care in respect of the policy. It is Mr J Singh/Time Vision’s position that to the extent Mrs Lal relies upon allegations of default by Mr Uday Singh and Windsor, the claim is time barred and that they did not assume any liability to Mr Lal on the assignment of the Windsor book of insurance business in 2007. Also they say they did not arrange the life insurance policy for Mr Lal and had no knowledge or otherwise of the circumstances now relied upon by Sovereign to deny cover.
The insurance policy
[77] It provides:
If you or a life assured has:
• Failed to disclose all material information to us...; or
•Made a statement on the faith of which the policy was issued... that was, in terms of the insurance Law Reform Act 1977:
- material, and
- substantially incorrect...
Sovereign may, at our complete discretion either:
•Avoid from inception your entire policy (this means the policy is deemed never to have existed), or
•Avoid from inception any individual benefits provided by your policy (this means the individual benefits are deemed never to have existed); or
•Alter the terms upon which cover is provided under your policy. If we choose to alter the terms of your policy we may do so effective from the risk commencement date.
[78] Before Mr Uday Singh died in 2007 he sold his insurance book of business to his brother at Time Vision. A formal agreement was signed. It refers to the business as “insurance portfolio and renewals”. It noted that Time Vision was “purchasing client base only”.
[79] The purchase price was $356,562.90. Of that sum $285,250.32 [four fifths] was to be paid on settlement and $71,312.58 [one fifth] two years later upon Time Vision “being satisfied that the renewal commissions are in accordance with the schedule attached, and adjustments were to be made accordingly based on any variations”.
[80] The schedule indicated that the purchase price had been calculated solely by reference to commission receivable on premiums paid. That is, no other consideration was given for the calculation of the purchase price payable.
[81] As earlier referred to Mr J Singh then wrote a letter in standard form to Windsor’s clients including the Lals. The clear evidence is that apart from that letter the only contact that Mr J Singh had with Mr Lal was when they ‘bumped into each other’ on the street outside Mr Singh’s office; that in discussion Mr Lal agreed to telephone Mr Singh to arrange for a meeting, but Mr Singh never heard from him. Indeed Mr Lal died shortly after.
[82] Upon Mr Lal’s death Sovereign refused to pay out the entire amount for reasons noted earlier in this judgment. Relying on those reasons Sovereign elected to avoid the policy but did agree to pay out the sum of $915,443 with interest which was the amount available under the terms of the earlier policy, not affected by any non disclosure issues.
Limitation defence
[83] The Court is to approach the matter as if the allegations against Mr Uday Singh/Windsor are proved. The evidence concerns Mr Uday Singh’s actions between December 2003 and January 2004. Mr Rzepecky on behalf of the second defendants submits the conduct in question was complete on the inception of the policy on 2 February 2004.
[84] This proceeding, as earlier noted, commenced on 28 November 2012. The second defendants position is that any claim relying on the conduct of Mr Uday Singh and Windsor at the time of the inception of the policy is, using Mr Rzepecky’s
words, “well and truly time barred”; that the cause of action accrued when Sovereign accepted Mr Lal’s proposal because all of the facts necessary to establish the plaintiff’s cause of action were completed that time.
[85] Mr Rzepecky submits, and this Court accepts that Mr Lal suffered actual and quantifiable loss at the inception of the policy because at that time he effectively had a contract which was unenforceable, as it was voidable by Sovereign on the happening of a claim.
[86] Mr Fulton submitted for an approach that because there was no immediate loss the right of claim related to contingent liabilities and therefore until Sovereign’s decision to avoid the policy that became the point in time when the cause of action arose. He made reference to the Australian approach as in the case of Wardley in support of a general submission that principles of discoverability were arguably available beyond those cases for which exception had been provided by the Limitation Act.
[87] This Court does not accept that assessment to the extent that it appears clear that exceptions providing access to discoverability principles have been identified by amendment to the Limitation Act, and those do not assist Mrs Lal in this case.
[88] Moreover it is this Court’s view that by its very wording, draconian though it may seem, it is clear Mr Lal suffered actual and quantifiable loss at the inception of the policy; that he effectively had a contract which was unenforceable, as it was voidable by Sovereign on the happening of a claim.
[89] Of persuasion to this viewpoint the Court is assisted by two authorities referred to it by Mr Rzepecky.
[90] In Islander Trucking Ltd (in liq) v Hogg Robinson and Gardiner Mountain (Marine) Ltd and Or4 the Court considered a claim by a carrier which had relied on an insurance broker to arrange marine transit insurance. The carrier faced claims from its customers for negligent carriage and made claims against its liabilities
underwriters. The underwriters denied cover, alleging non disclosure and misrepresentation of material facts. Ultimately the carrier sued its insurance broker. This occurred some nine years after inception of the policy.
[91] The Court held that the cause of action accrued at the inception of the policy which the carrier had instructed the broker to arrange, because at that time the insured had entered into an insurance contract which was of less value than he had instructed the broker to obtain.
[92] As Mr Rzepecky noted this was perhaps a polite way of saying that the insurance policy that the insured had paid good money for was worthless from the very beginning.
[93] The second case is the decision of the Supreme Court in Davys Burton v Thom5. That case was about a matrimonial property agreement prepared by a firm of solicitors for their client Mr Thom who was married to a United States resident. The agreement was signed by the wife before a notary public in America who was not prepared to provide certification of having explained the meaning and affect of the agreement to the wife.
[94] The agreement provided that the matrimonial home was to remain the property of the client notwithstanding that the parties may have lived in it as their matrimonial home.
[95] The Family Court held that the agreement was invalid. The client took action against the firm of solicitors who applied to strike out the claim on the basis it was time barred the cause of action arose when the agreement was improperly executed.
[96] The Supreme Court held that the time when the client had suffered actual and quantifiable loss was when he obtained a damaged asset, an agreement that was not legally enforceable, even though the extent of the resultant damage would not become clear until later. Any contingencies affected only the valuation of the loss and not whether a loss was suffered.
[97] The Supreme Court referred to the Iron Trade6 and Knapp7 cases among others in noting there were cases where the plaintiff, through the negligence of the defendant, did not obtain the rights he should have obtained or had imposed on him liabilities or obligations that should not have been imposed.
[98] The Court stated:
In Knapp and in Iron Trade Mutual Insurance where the negligence of the plaintiffs’ insurance brokers led to policies being voidable, the plaintiffs were held to have suffered immediate damage on entering into the policies because they did not get the protection they should have had, even though the eventual uninsured losses and the avoidance of the policies were wholly contingent at the time the insurance agreements were made and might never have eventuated. In all these cases, immediate quantifiable damage arose even though further damage arising from the flawed transactions remained contingent. Such further contingencies “only [go] to quantum... and [do] not affect the fact that [the] damages were suffered on [the date of the breach of duty]... because [the plaintiff] did not get what she should have got.
Whether a duty of care was owed by the second defendants
[99] Mrs Lal relies upon the transfer of Windsor’s business to Time Vision. Mr J Singh was involved only as an officer of the company and clearly had none of those responsibilities attributed to him by this proceeding.
[100] Mrs Lal also suggests that the second defendants had an independent duty to
Mr Lal once the transfer from Windsor had been effected.
[101] This Court accepts neither proposition. The second defendants were not involved in arranging the policy. They had no reason to believe the policy was unenforceable.
[102] The claim relates to non-payment by Sovereign under its policy. Therefore any pleading of an allegation of duty owed to Mr Lal must relate to that policy. Clearly the second defendants had no connection with any duty owed to Mr Lal four years earlier when the policy was put in place. Neither is that duty transferred when
Windsor sold its client base to Time Vision.
6 [1990] 1 All ER 808.
7 [1998] PNLR 172 (CA).
[103] The two companies were clearly separate entities. Mr J Singh claims and the clear evidence supports his claim that he knew nothing of Mr Lal’s health issues nor, was aware of any reason to immediately address these unknown concerns when he sent his standard letter of behalf of Time Vision to the former clients of Windsor.
[104] Also it appears that Mr Lal was in hospital in December and died just two and a half months later.
[105] The situation is akin to that dealt with in the Midland Bank Trust case.8 A partner in a firm of solicitors drew up a formal agreement between father and son containing an option to purchase the freehold reversion of a farm. The lawyer failed to register the option as an estate contract under the Land Charges Act 1925. When more than six years later the father transferred the farm to his wife, the son attempted to exercise his option. He found out for the first time that the option had never been registered. A claim for specific performance against the wife was unsuccessful. The son then sued the solicitors firm for breach of their professional duties. The solicitors’ position was that their failure to register the option was a breach of contract only and any action against them was barred by the Limitation Act 1950.
[106] The Court agreed and said the solicitors were no liable under a general retainer since the extent of a solicitor’s duties to his client depended on the terms and limits of his retainer. Therefore when six years plus later the solicitors had been consulted about the exercise of the option, the Court held they were not under a duty to consider at the same time its registration and enforceability. Therefore nothing had occurred within the limitation period to impose on the solicitors a fresh duty of care to the son.
[107] In other respects the Court found the firm of solicitors liable to the son.
[108] This Court accepts there is no basis upon which Mrs Lal can establish that the second defendants owed Mr Lal any duty of care in relation to the procurement of
and enforceability of the policy.
8 Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1978] 3 All ER 571.
[109] Nor does the Court accept that the second defendants assumed the liabilities of Windsor when Time Vision purchased its book of business. As noted by McKenzie J, there must be clear words establishing that, objectively, this was the intention of the parties.9
[110] The agreement said it was for the sale and purchase of client base only. It was clear that the price was calculated by reference to the total of commission payments received in the preceding year, and payment was structured to allow for the fact that up to 20 per cent of those premiums may not be paid in the year following the sale. So the sale was indeed of the right to represent various insurers and in return to receive payment of commission on renewal of premiums and for new policies.
[111] There was no explicit transfer of Windsor’s existing contingent and unforeseen liabilities. Ownership of the two companies remained separate. There is nothing in the claims of an association between the two companies which affects the nature of their transfer arrangement.
[112] But, even if that conclusion is wrong any claim by Mrs Lal is still precluded by the Limitation Act time bar.
Conclusions
[113] For Mrs Lal it is submitted that this case is a proper case for the Court to consider that the cause of action arose when Sovereign refused to payout on the policy entered into more than six years previously. The reason is that until Sovereign made that decision Mrs Lal had no reason to know that the extent of insurance cover was affected by factors that Sovereign was not aware of when the policy was entered into.
[114] Mr Fulton submits this is an appropriate case for the Limitation Act time to run from that date when Sovereign discovered the non disclosure of health issues.
9 Kimber Properties v Palmerston North City Council (2004) CIV 2004-454-390, Palmerston North
Registry, 25/11/2004.
[115] The Court disagrees.
[116] In The Law of Torts in New Zealand, 6th Edition10 the author notes the period of limitation for an action in tort runs from the date on which the cause of action accrues.
However in certain recent decisions where the complaint is of building defects or where the damage is by way of physical or mental injury, the court’s have developed rules which require that the plaintiff knows or ought to know of the facts necessary to establish their cause of action... But the personal injury cases hold that the damage and its cause should be discoverable before a cause of action can accrue, raising the question whether such a principle might be of wider or general application. For a time the answer was uncertain. In some cases it was thought that the doctrine of reasonable discoverability had potential application in any case where the plaintiff did not know and could not with reasonable diligence have known of the essential elements of the claim. But others affirmed the orthodox rule, holding that ordinarily time ran from when the damage happened. Then in Murray v Morel & Co Limited the Supreme Court held that the latter was the correct approach, and that the cases applying a discoverability rule stood on their own and should not be taken as harbingers of any fundamental change.
...
Blanchard, McGuire and Henry JJ all accepted that there was no general doctrine of reasonable discoverability in New Zealand law.
...
Yet the key objection articulated by the majority – the lack of any longstop – is real and compelling and this in the end had to prevail. However, for the future, both a discoverability principle and a longstop bar are provided for in the Limitation Act 2010.
[117] How is it, one may ask, that an insurance policy can be void from its beginning if its voidability is subject to an insurer’s ability some years later to say that the information given to it by the insured was misleading.
[118] The answer is that what the insured bought by his policy was always subject to the insurer’s right to expect complete disclosure and that is why in this case the
policy was voidable from its inception. Mr and Mrs Lal never got what they
10 Brookers Limited, 2013, para 25.5.06, page 1297.
bargained for, indeed they got much less and from the policy’s inception the Lals suffered a significant loss. That is when the cause of action arose and whatever happened after that was concerned only with the quantification of the extent of the loss.
[119] No cause of action pleaded or pleadable against the second defendants can succeed.
Judgment
[120] Summary judgment is entered in favour of the second defendants upon its application.
[121] Costs are reserved for determination upon application.
Associate Judge Christiansen
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