Appellant v Respondent

Appellant v Respondent - [2005] VSC 482 - VSC 2005 case summary — Zoe

1 This is an appeal by an insurer against orders made by a Magistrates' Court that the insurer pay an insured the sum of $25,000 pursuant to a motor vehicle policy.

Parties

2 The appellant, Insurance Manufacturers of Australia Pty Ltd ("the insurer") is an insurer and insures motor vehicles at the request of the Royal Automobile Club of Victoria. It was the defendant in the Magistrates' Court proceeding.

3 The respondent, Christopher Heron ("the insured"), was at all relevant times a carpenter and the owner of a 2002 Ford Falcon AU motor vehicle registered number SAK 772 ("the vehicle"). The insured was the plaintiff in the proceeding in the Magistrates' Court.

Magistrates' Court proceeding

4 On 4 August 2004, the insured filed a complaint in the Magistrates' Court at Melbourne. He sought damages from the insurer for the latter's breach of a contract of insurance.

5 The basic facts concerning the claim were not in dispute and can be briefly stated. The insured sought an insurance policy over his vehicle from the RACV which resulted in a policy being issued by the insurer. On the morning of 27 March 2004, at approximately 4.30am, the vehicle rolled over in Coolart Road, Hastings and suffered substantial damage resulting in it being written off ("the incident"). The insured stated that he was the driver at the relevant time. The parties agreed that the market value of the vehicle was $25,000. Later that day, the insured lodged a claim with the insurer seeking indemnity in respect of the damage caused to his vehicle. The claim was investigated and the insurer refused the claim.

6 The insurer filed a defence to the claim on 2 September 2004. It admitted that the plaintiff was the owner of the vehicle, that it was covered by a contract of insurance with it, and that a claim had been made. However, it did not admit that the vehicle was involved in a collision. Further, it denied that the insured suffered any loss or damage. The insurer also raised a number of defences. The insurer alleged that a term of the policy entitled it to refuse to pay a claim if the insured was not truthful and frank in any statement made in a claim or in connection with a claim. It further alleged that the insured was not truthful and frank in statements made in the claim or in connection with it.

7 The particulars of the allegation were extremely general. The particulars alleged that the insured, or alternatively Leon Murphy, made false statements to the insurer regarding the circumstances surrounding the accident, misled the insurer with respect to the said circumstances, and made statements which they knew or ought reasonably to have known or did not care would cause the insurer to be misled regarding the said circumstances. The alleged false statements and misleading conduct were not identified.

8 Further, and in the alternative, the insurer alleged that the insured owed it a duty to act towards it with the utmost good faith and that there had been a breach of that duty. The particulars of the alleged breach of utmost good faith repeated the particulars which were sub-joined to the allegation that the claim was not truthful and frank. Further, and in the alternative, it was pleaded that the insurer could refuse a claim if the incident which resulted in the claim occurred because the person driving the vehicle was under the influence of alcohol. It asserted that either Mr Heron or Leon Murphy was driving the vehicle at the time of the incident whilst under the influence of alcohol.

9 The proceeding came on for hearing before a magistrate on 28 February 2005 and was heard over three days. Application was made by counsel on behalf of the insured to split the case on the basis that the insurer carried the burden of proof. The learned magistrate acceded to the application and the insurer was required to present its case first. It was accepted by the Court after submission by counsel for the insured, that the defence alleged the false statement was a plea of fraudulent claim. The learned magistrate reserved her decision on 11 April 2005 and delivered it on 6 May 2005.

10 The magistrate found as a fact that the insured was driving at the relevant time and not Mr Murphy. The defence that the driver at the time of the incident was under the influence of alcohol, failed. The real contest concerned the alleged failure by the insured to be truthful and frank in relation to statements he made in the claim. The parties and the magistrate proceeded on the basis that a term in the policy booklet was in effect an obligation of good faith imposed on the insured and that s.13 of the Insurance Contracts Act 1984 ("the Act") applied to the contract of insurance. The particulars sub-joined to paragraph 11 of the defence relied upon in relation to the alleged breach of the duty to act towards the insurer with the utmost good faith, asserted that the insured made false statements regarding the circumstances surrounding the incident that caused the damage. The defence was not properly pleaded. It did not identify with any particularity the circumstances relied upon which allegedly constituted a failure by Mr Heron to honour his obligation of utmost good faith as required by s.13 of the Act.

11 As appears from Her Honour's reasons, the contentions put by the insurer at trial constituting the breach of the duty of utmost good faith, were that Mr Heron in his claim withheld information in relation to "(1) Leon Murphy's breath test and; (2) information regarding a telephone call to Rosebud Police Station."[1] In order to understand these contentions, it is necessary to state further facts. It appeared that some hours earlier on the night in question, Mr Leon Murphy had been driving the motor vehicle, and had been apprehended by the police and charged with driving whilst his blood alcohol content exceeded .05%. Some hours after Mr Murphy was apprehended, he rang the insured, informed him of what had happened, and requested that the insured come and collect the car and him. The insured did so and the incident occurred when he was driving back with Mr Murphy, who was the passenger. The second matter concerns a telephone call between Mr Heron and a Senior Constable Young, which occurred on the day of the incident at about 1.00pm. Mr Heron told the senior constable that he was unaware of where his car was.

12 The learned magistrate found that Mr Heron was in breach of the obligation of utmost good faith. She made the following findings:

[13]

21 An allegation of a fraudulent claim is indeed serious and should have been pleaded with sufficient particulars to understand in what way the claim was a fraudulent one. The allegation is based upon s.56 of the Act. It is the magistrate's findings in relation to this defence which are the subject of the appeal. The magistrate said little in respect to this defence and I will set out hereafter what she said. Her Honour stated that she did not find that fraud had been committed by the insured. It was common ground that it was a serious allegation, and that the insurer carried the burden of proof in accordance with the Briginshaw standard of proof.[8]

22 As stated, the defence was inadequate in a number of respects. It did not properly identify the alleged breaches of the duty of utmost good faith, nor did it properly plead the defence of alleged fraud. In my opinion it is essential that the pleadings set out the proper issues, especially where there is a serious allegation such as fraud, and identity them so there is no dispute as to what is in issue between the parties at trial. It is very apparent from what the learned magistrate said that she thought that the defence of a fraudulent claim was a side wind and of little importance. Hence the paucity of the reasons for rejecting the defence. Neither party has sought to appeal the inadequacy of the reasons given by the learned magistrate.

23 The magistrate ordered that the insurer pay damages in the sum of $25,000. She ordered that interest pursuant to s.57 of the Act should run from 6 May 2005 and not earlier, and further ordered that each party should bear their own costs. The reasoning in relation to the orders made with respect to interest and costs is somewhat difficult to accept. The insured was successful in his claim. The magistrate found that the insurer was not acting unreasonably in withholding payment and hence ordered that interest should run from the date of the judgment. She went on to state "for similar reasons I order that each party bear their own costs in these proceedings".

24 The insured did not complete a claim form. In accordance with the modern practice, he was interviewed by an investigator some 13 days after the event, during which he gave a long statement which was recorded, printed and signed by him. He stated categorically that he was the driver at the relevant time. The magistrate took the view that the insured's failure to refer to the fact that Mr Murphy had earlier driven the car whilst under the influence of liquor, and failure to tell the investigator that when he spoke to the police he stated he did not know where his car was, entitled the insurance company to refuse indemnity, but that nevertheless s.54 entitled the insured to recover his loss. From a very early stage, the insurance company investigated the claim and formed a certain view as to the honesty of the insured. The insurer had grave doubts about the insured's statement that he was the driver. As things turned out these doubts were misplaced. Whether or not the insured had in fact disclosed what he should have disclosed, according to the magistrate would not have made any difference. The insurer was extremely suspicious as to who was driving at the relevant time and even if the insured had revealed the matters which the magistrate held he ought to reveal, in my view the same result would have followed; a refusal of indemnity. I must say that I am somewhat surprised by the order made by the magistrate with respect to costs. The insurer failed to establish the defences pleaded by it. The very generality of the particulars of false statements suggests that the insurer was unsure about its defence relating to such false or misleading statements. In fact what was found by the learned magistrate was an omission to disclose relevant information. No appeal has been brought in respect to these findings.

Appeal

25 In accordance with the new procedure, the appeal is instituted by the filing of a notice of appeal.[9] In accordance with the Rules the notice must set out the questions of law and the grounds of appeal.

26 The questions of law were expressed as follows:

[22]

31 It can be seen that the magistrate failed to explain why it was that she found that fraud had not been committed by Mr Heron in making the claim. Neither party has sought to appeal against the inadequacy of the reasons given. The authorities make it clear that a judicial officer in delivering a decision must give sufficient reasons to enable both the parties and an appellate court to ascertain the reasoning upon which the decision was based. See Sun Alliance Insurance Ltd v Massoud.[10]

32 Whilst the magistrate did not explain her reasoning in concluding that the insured had not committed fraud in making his claim, her reasons provide some indication of her reasoning. In my view, taking into account the reference by the magistrate to an authority, and quoting what Dixon J stated in Briginshaw, it seems to me that the reasons why she found that a fraud had not been committed by the insured were because although she had made the findings she did, she was not persuaded that the insured intended to deceive the insurer by his omission and the insurer had failed to establish the defence. Her Honour referred to the Court of Appeal decision of To v Australian Associated Motor Insurers Ltd.[11] I put to counsel on the appeal that one should read the learned magistrate's reasons in that way, namely, that the finding that fraud was not established was because it had not been established by the insured, that the insured intended to deceive the insurer to gain an advantage by omitting to state the matters that the learned magistrate considered were relevant and in breach of his duty of utmost good faith.

33 Earlier in Her Honour's reasons for judgment, when talking about the duty of utmost good faith and s.54 of the Act, and having observed that there was a non-disclosure concerning Mr Murphy and the phone call to the Rosebud Police, the magistrate posed the question whether the non-disclosure and false statements were made with the intention of deceiving the insurer. She then said:

[24]

34 The learned magistrate then went on to consider whether the failure to disclose amounted to a breach of the duty of utmost good faith, and asserted that to prove that there must be dishonesty.

35 Counsel did not demur from my observations as to what I thought was the learned magistrate's reasoning for rejecting the defence of a fraudulent claim.

Question of law

36 By reason of s.109 of the Magistrates' Court Act 1989 a party to a civil proceeding may only appeal to the Supreme Court on a question of law. As a general proposition, a finding of fact made by a magistrate does not involve a question of law. It is emphasised that that is a general proposition which will, of course, depend upon whether there is any evidence to support the finding. The learned magistrate made certain findings of fact, and then had to determine whether or not those findings led to the conclusion that the claim was made fraudulently within the meaning of s.56(1) of the Act. She held that the insured had not committed fraud.

37 The submission put on behalf of the insurer by Mr H. Austin of counsel was that, having made her findings of deliberate and dishonest omissions by the insured to provide relevant information to the insurer, namely, that Mr Murphy had earlier driven the motor vehicle with a blood alcohol reading in excess of .05 and that the following day the insured had told the police that he did not know where his vehicle was, the magistrate was bound to find that the claim was fraudulent within the meaning of s.56(1) of the Act. His submission was that, having made the findings in relation to the breach of the duty of utmost good faith, the magistrate in fulfilling her fact finding role was bound to hold that the claim was a fraudulent one within the meaning of s.56 of the Act.

38 The task that confronted the magistrate, having found that there had been a breach of the duty of utmost good faith although not giving the insurer the right to refuse the claim, was to consider and determine whether the insurer had proven that the claim was a fraudulent one. Her Honour had earlier referred to what Buchanan JA said in the To case. There is no suggestion by counsel for the insurer that the magistrate misdirected herself on a question of law. It follows that the argument is that in her fact finding role the magistrate was in error. To make good this contention, it was necessary for the insurer on this appeal to show that having made the findings Her Honour did concerning utmost good faith, there was no finding open other than that there had been a fraudulent claim. In other words, the magistrate was bound to reach that result because of those findings, and her failure to do so was perverse.

39 In To v Australian Associated Motor Insurers Ltd,[12] the insured made a claim under a motor vehicle policy. Her 15 year old son had driven her vehicle without her consent and damaged it. The insured mistakenly believed that the policy would not cover the damage and when she made the claim she falsely stated that the vehicle had been stolen and damaged. This was obviously a false claim. It was contended on behalf of the insured that although she had falsely stated the circumstances leading to the damage, nevertheless if she had told the truth she would have been entitled to recover in any event. The magistrate at first instance agreed, but it was reversed on appeal by a single judge of this Court and the latter's decision was upheld by the Court of Appeal. On appeal, Buchanan JA wrote the leading judgment. His Honour considered statements made in the cases as to what constituted fraud and considered the mental element required. His Honour said:[13]

[32]

45 The jury found for the plaintiff. Application was then made to the Queen's Bench Division on behalf of the insurer for a new trial and Lord Coleridge CJ and Cave J upheld the judgment in favour of the plaintiff. Lord Coleridge CJ emphasised that it was a question of fact for the jury.

46 The matter went on appeal and the appeal court set aside the verdict and judgment on the ground that the verdict was unsatisfactory because the view of the evidence that the plaintiff knowingly made a false statement in order that the company might act upon it was not properly left to the jury.[16]

47 In considering whether a claim is made fraudulently, the starting point must be the terms of the contract of insurance. In seeking to determine what might be described as the common law meaning of "a fraudulent claim" in the authorities, it is necessary to ascertain whether the particular case was dealing with a clause in a contract of insurance. Sometimes the term of the contract reveals what is meant by, and the effect of, a fraudulent claim. As stated, the policy booklet which constitutes the contract of insurance in the present matter provides very little assistance as to what is meant by a fraudulent claim. No doubt this has come about because of the presence of s.56 of the Act. It follows therefore that in determining what is a fraudulent claim, the principles laid down in the cases must be considered. But in considering the cases, it is necessary to see whether they dealt with a particular clause which provides a definition of a "fraudulent claim".

48 The Act does not contain a definition of the phrase "fraudulent claim". The cases provide examples of fraudulent claims. The classic example of a fraudulent claim is where an insured intentionally misstates a fact with an intention of obtaining payment under a policy to which the insured is not entitled. If an insured makes a claim when no loss has been suffered within the terms of the policy then the claim is a fraudulent one. See Phillips v Chapman[17] where a claim was made for loss arising from a burglary which had not taken place. In Thompson v Hopper[18] the insured suffered a loss but it was not caused by the peril insured against. In that case a vessel was sent to sea in an unfit condition which increased the danger which ultimately led to her loss. See also Fire and All Risks Insurance Company v Powell.[19]

49 Often claims are made which are inflated. Sometimes the insured is not guilty of dishonest conduct. For example, there may be an honest overestimate, or a mistake may be made. It cannot be overlooked in this regard that the value of a loss is often an expression of opinion. In those circumstances the claim may not be fraudulent, but if it is shown that the insured intended to defraud the insurers, then the claim is fraudulent. Intention to defraud may be inferred because the over-estimate is excessive.

50 Fraudulent claims may be made in a variety of ways, but they all have at least three common features. First, by reason of the conduct of the insured or another on his behalf, whether it be act or omission, the insured represents to the insurer a fact or facts, which is or which are false. This may also result because of circumstances over which the insured has some control, where a representation is made which is false and which the insured, knowing the insurer is labouring under a false belief, does nothing to correct it. Secondly, the false fact is relevant to whether the insured will accept or reject the claim. Thirdly, the insured is induced to form a mistaken belief about some aspect of the claim.

51 The defence asserted that the insured or alternatively his friend Mr Murphy made false statements or misled the insurer regarding the circumstances surrounding the accident. The findings made by the learned magistrate were that the insured dishonestly omitted to reveal certain information. The omission to reveal the information did not represent any false fact to the insurer. On the other hand, the dishonest failure to reveal relevant information to a claim may constitute fraud in the circumstances. But whether or not it does will depend upon whether or not it is proven that it was done with an intention to deceive.

52 It is well settled that a false representation may be made intentionally or recklessly not caring whether it be true or false, Lord Herschell in Derry v Peek wrote:[20]

[52]

65 The insurer submits on this appeal, that having made the finding she did on the breach of the obligation of utmost good faith, the learned magistrate was bound to find that it was a fraudulent claim. In other words, no other conclusion was open to Her Honour having made those findings on the primary facts.

66 Although the principle of utmost good faith is invariably linked with a fraudulent claim, nevertheless they are two different concepts. The failure to comply with the duty of utmost good faith does not mean that the claim is fraudulent. In all cases where a fraudulent claim is made, one can readily infer a breach of the obligation of utmost good faith. But it does not follow that a breach of the utmost good faith obligation means that the claim made is fraudulent. It must depend upon all the circumstances.

67 The insured made a claim under the policy. The claim was that he was the driver at the relevant time and his vehicle suffered damage. It is clear that the insured did not make a false statement concerning the identity of the driver or the fact of damage to his vehicle. He did not make any false statement about his state of sobriety or otherwise. He did not complete a claim form but, in accordance with the insurer's practice, was interviewed at length by an investigator and signed a long, detailed statement prepared during the interview. He did not make a false statement in the signed record. He failed, according to the reasons of the learned magistrate, to disclose two pieces of information and the learned magistrate held that he had dishonestly withheld the information. The learned magistrate held that he should have revealed these facts to the insurer and that he was dishonest in failing to do so.

68 In my opinion, the insured did not represent a false fact to the insurer which in any way affected its consideration of the claim. There was no fraudulent misstatement of fact or representation of a false fact by conduct. Applying the principles of law stated by Buchanan JA concerning the mental element, namely, an intention "to create a false belief in the person deceived for the purpose of obtaining money or some other benefit", it was clearly open to the magistrate to conclude that the insurer had failed to prove that intention. Applying what His Honour later said in the judgment:[34] "The dishonest intention required for fraud is at least one to induce a false belief in the insurer for the purpose of obtaining payment or some other benefit under the policy", it was clearly open to the magistrate to come to the conclusion that there was no dishonest intention to induce a false belief in the insurer. Further, it is clear from Her Honour's reference to the New Zealand case that the breach of the obligation of utmost good faith does not necessarily involve an intention to deceive. In my opinion the learned magistrate had this in mind when reaching her decision that the insurer had not proven that the insured made a fraudulent claim.

69 The insurer fails because in my opinion it was open to the learned magistrate to conclude as a question of fact that although there had been an omission to reveal two pieces of information, the omission did not constitute a fraudulent claim.

70 It is not to the point on this appeal whether this Court would have come to the same conclusion. However, as the learned magistrate's reasons were sparse to say the least, it is appropriate to briefly state my views.

71 The insurer had a heavy burden in this case to establish that by an omission to state certain matters, the insured had misrepresented a fact of substance to the claim. The omission to reveal these facts did not represent any false statement to the insurer.

72 As Buchanan JA said in the To case, "The dishonest intention required for fraud is at least one to induce a false belief in the insurer for the purpose of obtaining payment or some other benefit under the policy". Fraud which relates to the claim made with that intent will disentitle the claimant.

73 The claim throughout was that the insured was driving the vehicle when it suffered the damage. The insurer put that question in issue. But the insured did not represent anything to the contrary. The omissions to state the information which the magistrate said should have been revealed, did not induce a false belief in the insurer in relation to any relevant matter for its consideration. It did not accept he was driving. It did not accept his version of the circumstances of the incident. It had a suspicion that Mr Murphy had been driving and that he had been consuming alcohol earlier in the night. The omission to reveal the information, even done deliberately, did not create any false belief in the insurer which in any way improved the insured's prospects in respect of the claim. The claim was not made fraudulently. Further, the insured did not, even though he deliberately withheld the information, do so with an intention of obtaining payment or some other benefit under the policy.

74 In my opinion, the finding of fact made by the magistrate was open to her on the evidence. Further, in my opinion, the learned magistrate's conclusion was correct. The appeal fails.

75 Subject to any submissions by counsel, I propose to make the following orders:

At a glance

Court

Decision date

Before

Source

Judgment (54 paragraphs)

Parties

Cases Cited (2)