AMP Financial Planning Pty Ltd v CGU Insurance Ltd

MOORE J 1 I have had the benefit of reading the reasons for judgment of Emmett J in a draft form. I agree with those reasons and the orders his Honour proposes. I simply wish to add some further observations about s 13 of the Insurance Contracts Act 1984 (Cth) in amplification of what Emmett J has said at [85] and following. 2 Section 13 implies in a contract of insurance a provision requiring each party to the contract to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. The learned primary Judge dealt with the issue of whether there had been a breach of this obligation in the following passage from his reasons (at [75] and [76]): 3.5 Breach of the obligation of utmost good faith It is said that each time CGU "failed to provide indemnity within the time period and after the provision of the information, in respect of each claim contemplated by the Protocol, CGU repudiated liability under the policy in respect of that claim". AMPFP submits that these failures constituted breaches of CGU's implied duty of utmost good faith imposed by s 13 of the Insurance Contracts Act and therefore constituted breaches of the Policies in respect of every settled claim. An allegation of breach of the duty of utmost good faith requires proof of some want of honesty: CIC Insurance Ltd v Barwon Region Water Authority [1939] 1 VR 683 at 699. Fairness would require that any such allegation be put to the CGU witnesses. This did not happen. The substance and effect of their evidence was that they did not regard the Protocol as imposing any obligation of any sort on CGU . This belief was not challenged. 3 In my opinion, breach of the duty arising under s 13 would not always require proof of want of honesty and did not in this case. Before discussing the authority the learned primary Judge cited, it is convenient to refer to an earlier judgment of the Full Court of the Supreme Court of Western Australia in Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97. That matter concerned a claim made by an insured against the insurer who had refused to indemnify him. The insured was an antique dealer who had effected building and contents insurance for his home in which he kept items of value. The home was burgled and items were stolen which the insured claimed were valued at more than $200,000. The policy contained limits on the amounts recoverable in relation to classes of property unless the specific articles of property in any class were identified in a list provided to the insurer. No such list had ever been provided. 4 In the case of Kelly, one ground on which the insured sought to recover was that the insurer had breached its duty of good faith because it knew the insured's house was full of antiques and other expensive items, had accepted an increase in premium in the year of the burglary but had not adequately explained to the insured the consequences of failing to provide a list of items. The trial judge and also the Full Court rejected this argument. The leading judgment was given by Owen J (with whom Kennedy and Steytler JJ agreed). When discussing the contents of the duty to act in good faith, Owen J said at 111: At common law contracts of insurance are described as contracts uberrimae fidei or contracts of good faith. The precise definition of the term good faith depends on the legal context in which it is used. In the context of insurance, Sutton in Insurance Law in Australia says that the phrase "... basically encompasses notions of fairness, reasonableness and community standards of decency and fair dealing." In the New Zealand High Court decision of Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas 60-812 the duty of good faith was described as having the essential element of honesty. His Honour went on to observe: By virtue of s12 of the Act the duty in s13 is an over-riding duty which must not to be limited or restricted in any way. The duty of good faith does not require that the parties make further disclosure after the contract has been entered into. 5 In the case of Kelly, there was evidence that the insurer had told the insured about the limits of the policy and had repeatedly asked for a list. The trial judge found that the insured probably, but without justification, thought that the insurer would not rely on the strict terms of the policy. Owen J noted, however, that the insurer's reliance on the provisions limiting liability for classes of property did not indicate lack of good faith. His Honour concluded at 112: For all of these reasons there was no dishonest, capricious or unreasonable conduct by the respondent. It is not necessary for a party to point to conduct of any particular degree of seriousness in order to establish a breach of the duty. In this case there is nothing that can be sheeted home to the respondent that could be said to offend "the essential element of honesty" that is at the heart of the good faith principle. (emphasis added) I should note that the judgment of the High Court of New Zealand cited in the first quoted passage from the reasons of Owen J, concerned a situation where the insured consumed alcohol shortly before driving and crashing his car. The insured indicated in a claim form that he had drunk no intoxicating liquor but otherwise candidly told an investigating assessor acting for the insurer that he had consumed alcohol. Hardie Boys J of the High Court of New Zealand rejected an argument that the insured had not acted with the utmost good faith because the insured's failure to disclose the consumption of alcohol in the claim form had not involved dishonesty on his part. 6 The authority referred to by the primary Judge in this matter, CIC Insurance v Barwon Region Water Authority (1998) 147 FLR 353, addressed whether the insured's failure to disclose to the insurer certain structures on the property the subject of an "all risks property insurance policy", established a want of utmost good faith. Again, it was a case of non‑disclosure. The insurer contended that the failure to disclose the structures constituted a breach of s 13. The leading judgment was given by Ormiston JA (with whom Phillips and Kenny JJA agreed). His Honour said at 369: …the requirement for good faith in the sense described in ss 12, 13 and 14 has been held to connote an element of honesty, however widely that duty should otherwise be construed … That some lack of honesty had for this purpose to be proved was held to be a requirement of the section by the Western Australian Full Court in Kelly v New Zealand Insurance Co Ltd (1996) 9 ANZ Ins Cas 76,506, in which it was stated that the duty had or required "the essential element of honesty": per Owen J (with whom Kennedy and Steytler JJ concurred) (at 76,519-76,520), being a decision of an intermediate court of appeal on the meaning of a Commonwealth statute. Even if I were to think such a conclusion wrong, it is not appropriate for this Court to reach a different interpretation of the section. His Honour said (at [45]) that even if he was wrong as to the requirement of dishonesty, the trial judge had concluded (a conclusion Ormiston JA appeared to adopt) that there had been no failure to act fairly and reasonably, or contrary to community standards of decency and fair dealing. 7 These authorities establish that in a case when an insurer claims that the insured has breached the duty imposed by s 13 by failing to disclose relevant information, that failure does not constitute a breach of the duty unless there is some dishonesty attending the non‑disclosure. They do not establish, in a case such as the present, that there can be no breach of the statutory duty by an insurer unless the insurer acts in a way that can be said to be dishonest. 8 Indeed, there are cases broadly analogous to the present where it has been decided that there was a breach of the statutory duty when an insurer failed to make a decision promptly about whether it would provide indemnity. In Moss v Sun Alliance Australia Ltd (1990) 6 ANZ Insurance Cases 60-967, a business was destroyed by a fire. The insured claimed under the policy of insurance. A dispute arose with the insurer in relation to the amount payable. The insurer made no payment. Bollen J said at 76,431, after setting out the terms of s 13: The defendant has not paid money which it should have paid. Mr. Swan [counsel for the plaintiff/insured] says that prompt admission of liability to meet a sound claim for indemnity and prompt payment is required of an insurer by virtue of its obligation to act with the utmost good faith towards its insured. I agree. The defendant here, says Mr. Swan, did not so behave. It is therefore in breach of its contract of its obligation to act with the utmost good faith of a term in its contract with the plaintiffs. It delayed for an unreasonably long time in admitting liability and in withholding, even until now payment. . . . The correspondence and cross-examination of the plaintiffs establishes that the reason for delay is the waiting by the defendant for a fire report and later for a police report. The delay was mainly caused by the waiting for a police report. . . . His Honour continued at 76,432: He [counsel for the defendant/insurer] did not submit that the fact that details in full were not received until 30 September 1988 or thereabouts means that it was reasonable for the defendant not to have paid before receipt of that letter. I think that he was right not to have so suggested. The assessors acting for the defendant were on the job on the day after the fire. They had the means of gathering information. The plaintiffs did not know what to expect of the defendant as the weeks and months passed before receipt of the letter saying that indemnity would be met. . . . I think that it is no answer in the face of the long and continuing delay to say that it was reasonably waiting for a police report. I do not think the long wait was reasonable. I have no doubt that the defendant was waiting for that report and that was what prevented it from admitting liability and seeking details and getting about paying. I recognise too, as the plaintiffs agree, that a police officer or police officers in a country town were slow in preparing papers for the coroner. But the assessor could and should, in my opinion, quite quickly have found that the plaintiffs had a true and sound claim for indemnity. 9 The effect of Moss v Sun Alliance Australia Ltd was considered in Gutteridge v Commonwealth of Australia (unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993), where an insurer had declined to make a decision with respect to the applicants' claim for indemnity upon the destruction of their home. Ambrose J stated that to act in good faith certainly required one to act honestly. His Honour noted: While the respondent might not fail to act "in good faith" if it acted honestly although in a blundering or careless fashion, the failure of the respondent to make and communicate within a reasonable time a decision of acceptance or rejection of the applicants' claim for indemnity by reason of negligence or unjustified and unwarrantable suspicion as to the bona fides of the applicants' claims, may constitute a failure on the part of the respondent to act towards the applicants "with the utmost good faith" in dealing with their claim…Acting with "utmost good faith" must involve more than merely acting honestly, otherwise no effect is given to the word "utmost". 10 His Honour noted that if the insurer's failure to communicate a response to the claim in time was motivated by a purpose other than the honest rejection of the applicants' claim then that would certainly involve a failure to act "with the utmost good faith" in dealing with that claim. His Honour cited the above passages from Moss v Sun Alliance Australia Ltd and said the case was authority for the proposition that: failure to make a timely decision to accept or reject an insured's claim for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith as required by s. 13 of the Act, even if the failure results not from an attempt to achieve an ulterior purpose, but results merely from a failure to proceed reasonably promptly when all relevant material is, or ought be, at hand sufficient to enable a decision on the claim to be made and communicated to the insured. 11 In the present case and for the reasons given by Emmett J, the conduct of CGU Insurance Limited could constitute a breach of the statutory duty. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.