CIC Insurance Ltd v Barwon Region Water Authority [1998] VSCA 77

CIC Insurance Ltd v Barwon Region Water Authority [1998] VSCA 77 - VSCA 1998 case summary — Zoe

[41]

Although the "schedules of declared values" were said by the appellant to be important for a number of purposes including both the co-insurance clauses and the adjustment of premium clause, it is by no means clear how they operated in practice and what documents were seen to be the relevant declarations. Indeed the figure for "all property" appearing as such in the "Declared Values" in the Schedule to the policy by which all property insured was valued "in accordance with the Basis of Settlement" at $97,963,000 was not consistent with a "schedule" as at 1 August 1993 and, for reasons which are not clear, seems to have been an arbitrary figure chosen by the parties at the time cover was granted. There was very little material in evidence relating to the negotiation of the original policy other than the document which was tendered headed "Schedule of Property Values as at 1/8/93". It is a relatively detailed list of properties spreading over some four and a quarter pages, but the nature of the items or their addresses or locations of many of the items are not given. A number are described in the most general way such as "water pumping stations" ("anywhere in Board's district") valued at $3,090,000, "estimated pipes on site" valued at $3,000,000, "bores ground water" valued at $1,751,000, "fences anywhere in Board area" valued at $741,000, "water storage tanks" ("anywhere in Board area") valued at $1,000,000, "103 sewerage pump stations" and "3 ejector stations" ("anywhere in Board district") together valued at $11,700,000, "flow metering stations" valued at $56,000 ("plant"), "mobile change/tool sheds" ("anywhere in Australia") valued at $184,000 ("plant"), "telemetry equipment at various sites" valued at $861,000 ("plant"), "records at various locations" valued at $4,600,000 ("plant"), "tools of trade and personal property of employees" valued at $7,100 ("plant"), "various computer equipment" valued as "plant" at $4,000,000 and "Atco huts at various locations" valued at $51,200. The rest were somewhat more specific, at least as to location, but the above list shows how wide cover was intended to be and how difficult it would have been to identify every item comprehended by the "all property" clause. However the Schedule did not contain any reference to the three structures here in question or to any water or sewerage pipes placed in the ground.

[46]

The insurer's counter-claim, however, covered a much wider scope in that it became aware for the first time as a result of these claims of the existence of a large number of pipes laid in land throughout the area under the control of the Authority. After its reconstruction under the name of the Authority the respondent became responsible for water supply and sewerage for an area in and around Geelong and the Bellarine Peninsula of about 8,100 sq. kms. Subject to the argument about the application of the exception relating to "land" and the improvements thereon, it should have been obvious to both insured and insurer that the Authority either owned or had under its control many kilometres of both water and sewerage pipes, being the network of piping for which it had primary responsibility. But like so many things which are obvious, that did not occur to either party until after the Authority's claim had been brought, perhaps because both took the same view of the meaning of the exclusion relating to "land". It is not clear how many kilometres are in question but the value placed on them for present purposes has been $247,000,000 for water mains and $219,000,000 for sewerage pipes, together with $1,000,000 for the three structures which led to this dispute. The counter-claim based on a rate of .0735% was said to amount to $340,024 per annum which, together with stamp duty and fire service levy, brought the counter-claim in all to $1,452,072. The evidence given at the trial was not entirely satisfactory as to what premiums the appellant would have been entitled to be paid. An expert witness, Warren Gray, merely said that the premium "would probably" have been struck at a rate of between one-half to two-thirds of the premium rate of .07325%, leading to a figure for additional premiums of somewhere between $726,036 and $968,048. That statement was confirmed by a former employee of the appellant, but in cross-examination it appeared that he knew nothing of the detail of the calculation.

[49]

Both at trial and in the course of argument on this appeal it has been seen as necessary to say something generally as to the construction of the policy before dealing with the specific questions of construction raised, in particular for the purpose of dealing with the insurer's argument as to want of good faith. No direct claim is founded on any breach of the policy's terms but the appellant relied on "breach" of the terms relating to declaration of values (and the respondent's failure to do so accurately) to show the Authority's want of good faith. Once again the Court has to construe a convoluted all risks property insurance policy, with only one additional head of liability, namely, related consequential losses: cf. the policy considered in Switzerland Insurance Aust. Ltd. v. Dundean Distributors Pty. Ltd. (C.A. February 1998, unreported). As I have already noted, the form of the policy, or at least that manifestation of it which has been provided to the Court, is one bound to lead to difficulties of construction. Much of the 51 page document is wasted by the failure to incorporate the endorsements into the policy itself. Traditionally, of course, many similar policies had attached to them slips and other endorsements which varied the language of a standard printed policy. However, at that time it was ordinarily possible to read the whole of the policy, although printed in very small type, on four or eight pages so that the endorsements could (relatively) easily be related to the principal provisions. In the present case this has been not possible in that the endorsements appear as a cascade of new and varied provisions at the end of the policy. One may have hoped, optimistically, that, with the advent of the computer, policies such as the present, which are merely typed or printed for the particular purpose and for the particular insured, and which are not required to follow a printed form, might be arranged so as to delete the irrelevant and superseded parts and to substitute in the correct position the matters added or varied by way of endorsement. These difficulties are contributed to by an almost complete lack of numbering of the clauses, except in the conditions and the two lists of exclusions, so that to determine the effect of the relevant endorsement one must look in the correct order for the earlier heading which most closely approximates to the heading appearing in the endorsement. To these difficulties may be added the use of the term "Declared Values" for what seem to be two different purposes in the policy.

[50]

However, I should first briefly summarise the scope and effect of the policy for the purposes of the present proceedings for reasons already mentioned. Although called an "industrial special risks" policy, the extent of cover granted is primarily against loss of or damage to the insured's property together with related consequential losses. One needs to distinguish a number of general provisions from a series of specific provisions relating to the two types of cover, section 1 making provision for "material loss or damage" and section 2 for "consequential loss". The single page opening clause which grants cover in the most general terms also recites the various sections, conditions, endorsements, etc. which make up the policy. The reader is sent immediately to other provisions in that, after stating the consideration by reference to the premium in the Schedule, the insurer agrees, subject to the terms etc. of the policy, "to indemnify the insured ... against loss arising from any insured events ...". The latter words are only given meaning in each of the two sections. The only other matter of substance on this first page is a proviso which limits the liability to the insurer "at any one situation" to that which is stated in the Schedule. However, as appears from the immediately following Schedule, the word "situation" is non-specific in that it is stated to cover "anywhere in Australia" where effectively the insured holds property or carries on its activities. Likewise the "limit(s) of liability" in the Schedule is of little consequence for the purposes of the present dispute in that for the year in question the limit of liability for "any one loss or series of losses arising out of any one event at any one situation" was $22 million. As stated above, the Schedule is in effect a definitions clause, providing definitions of such matters as "the Insured", the "Period of Insurance", "the Premium" and the "Deductibles", which in effect for present purposes provided for an excess of $5,000 to be borne by the insured. The Schedule is also the place where the expression "Declared Values" first appears but only, as is there stated, "in accordance with the Basis of Settlement", whatever that precisely means. Provisions for the "Basis of Settlement" appear in both Sections of the policy.

[65]

That the respondent Authority was bound to act towards the appellant with the "utmost good faith" cannot be doubted: so much is now provided expressly by s.13 of the Act, and cf. ss.12 and 14. The respondent's failure to make full declarations so as to include the Queen's Park Bridge pipeline, and the other two structures if covered by the policy, was said by the appellant to establish a want of utmost good faith on the part of the respondent. The appellant argued that, inasmuch as there had been such a breach of the duty imposed on the respondent by s.13, the respondent could not rely upon that "provision" of the policy whereby the appellant promised to indemnify the respondent with respect to "all real and personal property of every kind and description" belonging to it or for which it was responsible. Although, from time to time, counsel on behalf of the appellant appeared to place heavy reliance on what were alleged to be the inadequate declarations made by the appellant under the policy as though those inadequacies might in themselves be treated as a breach of good faith, s.14(1) of the Act would appear to cast any such breach in terms of a party's "reliance ... on a provision of the contract". The form of that section required the argument to be put in this way: that the Authority's reliance upon that provision in the policy which gave a wide promise of indemnity in respect of "all property etc." constituted in all the circumstances a failure by the Authority "to act with the utmost good faith". Thereby, so it was said, s.14(1) of the Act denied the Authority the right to "rely on the provision" providing indemnity of that kind. It was the unenforceability of the relevant provision, as proscribed by s.14(1), which was the basis of the appellant's argument in this Court, whatever be the precise consequences of subs.(2) of s.14. From the viewpoint of the insured subs.(1) appears to concentrate on the making of the claim, and reliance for that purpose on one or more provisions of the policy, so that ordinarily a failure to make full disclosure in the annual declarations or otherwise would not be a breach of that duty in itself but could only be part of the circumstances which, so it may be argued, would make it a breach of good faith for the Authority now to rely upon that provision which gave indemnity with respect to "all ... property etc.". The essential question under ss.13 and 14 therefore is whether in all the circumstances the making of the claim constituted a failure by the respondent to act with the utmost good faith. The appellant insurer contended that it was.

[66]

Unfortunately, therefore, the argument appeared to proceed upon an assumption that non-disclosure could be relied upon in itself for the purpose of establishing a breach of duty under s.13. Thus it was argued that the breach of duty consisted in not disclosing ownership etc. of the three structures and by not including those matters in the returns at the start and finish of each period, in circumstances where no specific declarations relating to those structures had been made. To my way of thinking, in formulating the breach in that way, the appellant appeared to be seeking to go beyond the requirements for full disclosure contained in the Act and in particular in Part IV of the Act. Section 12, being the first of the statutory provisions dealing with the duty of utmost good faith, expressly says that Part II "does not have the effect of imposing on an insured, in relation to the disclosure of a matter to the insurer, a duty other than the duty of disclosure". On their face the words are curiously expressed but the reference to "duty of disclosure" is confined by the definition in s.11(1) of the Act to the duty referred to in s.21 of the Act, namely the first and principal section contained in Part IV relating to the duty of disclosure. The obligation to disclose imposed by that part of the Act is extensive but carefully worked out so as to have regard to the respective rights and obligations of insurer and insured. Section 12 is merely intended to ensure that ss.12, 13 and 14 do not place a higher duty on an insured than is otherwise required under Part IV. It does not, however, follow that failure to make proper disclosure may not be seen for certain purposes, at least, as a breach of the duty of utmost good faith, even if that might have the effect of providing an alternative remedy for a failure to make disclosure to those remedies which appear in Part IV. Although it may be argued that these are but two sides of the same coin leading to remedies which are not mutually exclusive, it is not necessary to resolve these matters.

[92]

Even assuming that the appellant could show that the learned judge was wrong in his findings as to the operation of exclusion 8, it faced grave difficulties in establishing its counter-claim. Either it had to assert, as it did on the face of its pleading, that there was a right to recover the additional premiums over the three year period as a debt or it had to rely on some breach by the respondent insured of its duty to the appellant insurer which would entitle it to recover damages to be calculated by reference to the lost premiums. No clause of the policy was specifically relied upon to establish the entitlement to the premiums. The failure to allege any such entitlement is not surprising for there were but two provisions in each of the policies which were relevant to the payment of premiums. The first was the specific "premium" quantified in the schedule which was stated in the covering clause to be the consideration for the giving of cover to indemnify the insured. In the original policy for the year commencing 1 August 1993 the total premium was $112,016.22 and in the subsequent years one might have expected to find the premium in either the renewal confirmation or the renewal certificate. For various reasons the renewal confirmation showed only a premium rate for the year in question, but that rate was said in evidence not to be the real rate which in fact was .0735%. The only other provision relating to premiums was the Adjustment of Premium clause which has been set out above in para.11. That clause, as stated above, was intended to deal with the difficulties inherent in an "all property" policy and in particular in the case of a policy where it is desired that items acquired during the insurance year should also be covered. The declarations of value at the beginning and end of each year were thereby intended to enable the "provisional premium" to be adjusted by making an adjustment based on 50% of the difference between the two declared values, so far as the cover presently under consideration is concerned. The provision was also subject to "any abnormal fluctuation in values" where the further premium is "to be agreed between the parties".

At a glance

Court

Decision date

Before

Source

Judgment (102 paragraphs)

Parties

Legislation Cited (2)