Dawes Underwriting Australia Pty Ltd v Roth

LEGISLATION CITED: Insurance Contracts Act 1984 (Cth)

Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 CASES CITED: Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 Plasteel Windows Australia Pty Ltd v C E Heath Underwriting Agencies Pty Ltd (1988-9) 5 ANZ Insurance Cases 60-926 Von Braun v Australia Associated Motor Insurers Ltd [1998] ACTSC 122; (1998) 135 ACTR 1

PARTIES: Dawes Underwriting Australia Pty Ltd (Appellant) Benjamin Roth (Respondent)

COUNSEL: G Carolan (Appellant) A J McInerney (Respondent)

SOLICITORS: Gells Lawyers (Appellant) Carneys Lawyers (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40199/08 DC 634/07

HODGSON JA MACFARLAN JA YOUNG JA

THURSDAY 9 JULY 2009 DAWES UNDERWRITING AUSTRALIA PTY LTD v ROTH Judgment 1 HOGDSON JA: I agree with Macfarlan JA. 2 MACFARLAN JA: This is an appeal from a decision of McLoughlin DCJ of 4 April 2008.

Nature of Case and Conclusions 3 In this case, a motor vehicle insurer denied liability to indemnify an insured in relation to damage to his motor vehicle upon the grounds, first, of fraud by the insured and, secondly and in the alternative, non-fraudulent non disclosure or misrepresentation of material facts. 4 I have concluded that no basis has been established for disturbing the primary judge's finding that the insured, although acting carelessly in providing information to the insurer as to his driving and claims record, did not act fraudulently ([48-51] below). 5 I have also concluded that the insurer's alternative defence fails because there is no basis for interfering with the primary judge's credibility-based finding that accurate disclosure by the insured of his driving and claims record would not have made any relevant difference to the terms of the insurance offered by the insurer ([52-58] below).

Factual Circumstances 6 In June 2006, the respondent ("Mr Roth") purchased a 2004 Ferrari F360 motor vehicle for the amount of $350,000. On 13 June 2006 he telephoned the appellant company ("Dawes") to arrange insurance for the vehicle. Dawes offers insurance for a range of high performance, prestige, vintage and classic motor vehicles. At the relevant time Dawes issued motor vehicle insurance policies in its capacity as an agent under an authority given by certain underwriters at Lloyd's in London. It was not contended that Dawes was not liable to Mr Roth because it acted only as agent for disclosed principals. 7 Mr Roth spoke to Mr Garnett who was the Chief Executive Officer of Dawes. Both gave evidence but neither appeared to have any significant recollection of the content of the conversation. Mr Garnett's evidence of the conversation was given by reference to his usual practice and to the notes made by him on a script which set out standard questions and which made provision for information about proposed insurance to be inserted. 8 The following presently relevant information was found to have been provided by Mr Roth in the conversation: In answer to a question as to whether in the last five years he had had any accidents or claims "regardless of who was at fault", Mr Roth at first disclosed that he had had two claims for damage to his car whilst it was parked. In the course of the conversation, he corrected this to one claim. In answer to a question as to whether in the last five years he had had any traffic fines, Mr Roth disclosed that he had had "a ticket for using [his] phone and a speeding fine for being less than 15 kilometres over the limit". In answer to a question as to whether he had ever lost his licence, Mr Roth disclosed that he had done so, "about 8 years ago when [he] was on [his] P's". 9 During the conversation Mr Garnett quoted a premium of $8,090.87 for insuring the vehicle, with an excess of $10,000, increasing to $15,000 when the vehicle was being used for the purpose of commuting to or from work, or whilst at work. He asked Mr Roth whether he wanted to go ahead with the policy and Mr Roth said words to the effect: "Yes. Please organise for the paperwork to be issued". 10 Mr Garnett's notes referred to a "start date" for the insurance of 13 June 2006. It appears that this was changed to 21 June 2006 as a result of a subsequent communication. The details of that communication and the reasons for it did not appear from the evidence. 11 Shortly after the communication(s), Mr Roth received by email from Dawes a "New Policy Memorandum of Insurance". The Memorandum which is in evidence refers to a "start date" of 21 June 2006 and suggests by its terms that there had been an earlier form of Memorandum provided to Mr Roth which referred to the original "start date" of 13 June 2006. The Memorandum which is in evidence included the following statement: "To ensure cover continues, we must receive the fully completed and signed Proposal form, payment of the premium and written proof of your entitlement to any No Claim Bonus, before the expiry of the interim cover. Payment required within fourteen days". 12 The reference to "interim cover" reflected an affirmative answer recorded in Mr Garnett's notes of the 13 June conversation to a question as to whether a "cover note" was required. It is clear that by that conversation Dawes had committed itself to interim cover of the vehicle, that is, to a contract of insurance of the type defined in s 11(2) of the Insurance Contracts Act 1984 (Cth). That section defines "an interim contract of insurance" as "a contract of insurance that is intended by the insurer: (a) to provide temporary insurance cover; and (b) to be replaced or superseded by another contract of insurance; whether or not the contract is evidenced by a document of the kind usually known as a cover note". 13 Shortly thereafter Dawes sent to Mr Roth the following documents: Motor Vehicle Insurance Proposal. Dawes Motor Underwriting Group Financial Services Guide. Dawes Motor Underwriting Product Disclosure Statement. Dawes Motor Underwriting Group Motor Vehicle Insurance Policy. 14 Mr Roth completed the Proposal Form and returned it to Dawes on 29 June 2006. Dawes returned it to him on 10 July 2006 with a request that he provide details of where and how the vehicle was parked during the day. Mr Roth returned the Proposal in its final form to Dawes on 14 July 2006. 15 The following presently relevant information was provided in the Proposal Form: Mr Roth was aged 27. In answer to a question as to whether in the last 10 years he had had a driver's licence refused, cancelled, suspended or special conditions imposed, or had been disqualified from driving, he responded in the negative. In answer to a question as to whether in the last 5 years he had had any motor vehicle accident or loss or made a claim under a motor vehicle insurance policy "regardless of who was at fault", he answered in the affirmative. He disclosed an accident in January 2006 when a third party reversed into his vehicle whilst he was parked. He said with respect to that accident that the third party had paid the repair cost. He also answered in the affirmative a question as to whether in the last 5 years he had had any fine and/or any other motoring offence, conviction, prosecution or infringement (other than parking). He disclosed a fine for use of his mobile phone whilst driving in November 2003 16 Mr Garnett was overseas when the Proposal Form was returned to Dawes. Sometime after his return to the office on 16 July 2006, he applied his signature to it to indicate his acceptance of it. This reflected his usual practice. In accordance with the Memorandum of Insurance (see [11] above), a cheque for the premium appears to have been sent by Mr Roth to Dawes with the completed Proposal. There is no evidence of the date upon which it was banked but common sense suggests that that would be unlikely to have occurred prior to Mr Garnett's acceptance of the Proposal. There is no basis for concluding otherwise. In these circumstances, it should in my view be concluded that the final contract of insurance was concluded by the banking of Mr Roth's premium cheque after Mr Garnett, on behalf of Dawes, had accepted the terms of the Proposal for insurance submitted by Mr Roth. This is likely to have occurred soon after 16 July. 17 On 10 September 2006 Mr Roth was driving the vehicle when it was involved in a collision in which it was extensively damaged. He submitted a Claim Form to Dawes. By the Claim Form he supplied the following presently relevant information: In answer to a question whether he had ever lost his licence, he said it had been "suspended about 5 years ago". In answer to a question as to whether he had ever had any traffic offences, fines or infringements, he said that he had had "a couple of speeding fines and one fine for using a phone whilst driving in [the] last 10 year[s]". In answer to a question as to whether he had ever had any prior accidents and/or claims he said he had had "one at fault claim a few years ago and two not-at-fault claims about 8 years ago & 1 year ago". 18 Through its solicitors, Dawes indicated an intent to avoid the policy upon the basis of non-disclosure in the Proposal Form of material information as to Mr Roth's driving record. 19 Mr Roth then commenced the present proceedings in the District Court seeking recovery of the cost of repair of the vehicle. In its Amended Defence, Dawes alleged that answers given by Mr Roth in the Insurance Proposal as to his driving record and claims were incorrect. It said that this constituted a breach of Mr Roth's duty of disclosure and that as Dawes would not have issued the policy of insurance had the matters been disclosed, it was "entitled to reduce its liability in respect of the claim to $nil". It pleaded in the alternative that the failure to disclose these matters was fraudulent or that the answers Mr Roth gave constituted a misrepresentation which was made fraudulently, as result of which Dawes was entitled to avoid the contract of insurance. It should be noted that the defences of non disclosure and misrepresentation related only to the terms of the Proposal Form and not to the terms of the conversation of 12 June. 20 The true position as to Mr Roth's driving record during the preceding 10 years was as follows: (a) On 14 January 1997, whilst on his Provisional licence, he was fined for exceeding the speed limit by more than 30 but less than 45 kmh. This led to the cancellation of his Provisional licence on 3 June 1997.

(b) In March 1998 he was fined for disobeying traffic lights.

(c) On 30 April 2000 he was fined for exceeding the speed limit by not more than 15 kmh.

(d) On 10 June 2002 he was fined for exceeding the speed limit by more than 45 kmh. He incurred double demerit points and his licence was suspended in consequence on 8 August 2002.

(e) On 28 November 2003 he was fined for exceeding the speed limit by more than 15 but less than 30 kmh.

(f) In January 2004 he was fined for using his mobile phone whilst driving. This led to suspension of his licence commencing on 3 August 2004. 21 The evidence revealed that Mr Roth had made claims on other motor vehicle insurers on the following dates arising from the circumstances described:

(a) On 30 May 2002, malicious damage was caused to his vehicle by a break in.

(b) On 5 June 2002, Mr Roth was driving his vehicle when it ran into the back of another vehicle.

(c) On 13 November 2004, damage was caused to Mr Roth's vehicle whilst it was parked.

(d) On 27 May 2005, damage was caused to Mr Roth's vehicle whilst it was parked.

(e) On 18 January 2006, damage was caused to Mr Roth's vehicle when another vehicle reversed into it. 22 The claims referred to in (a) to (e) of [21] should each have been referred to in answer to questions asked in the conversation of 13 June, notwithstanding that four of them apparently related to incidents in which Mr Roth was not at fault. His disclosure was only of one claim ([8] above). 23 Two of the fines and the two licence suspensions referred to in [20] (a) and (d) - (f) also should also have been referred to in answer to the questions asked in that conversation. The two fines were disclosed but one was described as less serious than it was. Only one licence suspension was disclosed. 24 In his Proposal Form (see [15] above) Mr Roth erroneously did not refer to either licence suspension, referred to only one of the five claims and referred to only one of two fines incurred in the relevant period.

Underwriting Guidelines 25 Mr Garnett identified Underwriting Guidelines of Dawes which were operative at the relevant time. 26 Under the heading "Vehicles Insured", the following appeared in those guidelines: "5. Drivers with poor traffic records or loss of license may be insured under the second chance scheme. Second chance rates may only be applied when writing the risk. We are not able to use the Second Chance rates to re-underwrite a risk after a claim". 27 The matters listed under the heading "Declined Risks" included the following: "6. Any driver who has lost a license or had a 4 point speeding fines [sic] or drive under the influence in the last 5 years. See Second Chance Scheme for pre-claim underwriting. 7. Any Insured or nominated driver who has had 2 or more at fault claims in the last 3 years. 8. Any Insured or Named driver who has had 3 or more accidents, incidents or claims from … any cause in the last 3 years. … 14. Drivers aged 25-30 without 3 years accident free motoring, 3 years no claim bonus (exclusively in their name) and 3 years serious traffic fine free motoring. Serious is any speeding fine 30 kmh or more over the limit or offence which resulted in a court appearance". 28 Mr Roth had had his licence suspended once within the previous 5 years, had had 3 claims in the last 3 years, albeit apparently "not at fault" claims (see [21] above), and was a driver aged between 25 and 30 who had not had 3 years of accident free motoring. 29 Under the heading "Premium Loadings", the Guidelines said that loadings applied to "vehicles/drivers, which constitute a higher risk than our base risk". Reference was then made to a rate chart and to specific factors including "Drivers 25 to 30". 30 Under the heading "Application", the following appeared: "These Guidelines are to be used as the ABSOLUTE minimum standard to which we Underwrite. Our survival relies on the application of common sense rather than blindly following these guidelines. We need to balance all factors when underwriting. Whilst many risks may technically be acceptable you will find that a combination of factors may render the risk Uninsurable from our perspective. For example two next-door neighbours may be exactly the same except one's car (whilst identical in make and model) is modified. The modified car is at much greater risk and is consequently either not to be insured or rated as modified". 31 The "Second Chance Scheme" referred to in these Underwriting Guidelines (see [26] above) was evidenced by a document headed "ANOTHER CHANCE" which said that "the following rate loadings are for use where a quote indicates an inferior driving record". Various factors requiring a rate loading were then listed. These included "loss of license (points)", "loss of license (speed)" and "accumulated offences".

The Underwriting Evidence 32 In his affidavit, Mr Garnett said the following as to Mr Roth's driving record: "38. If the plaintiff had disclosed the fact that he had been issued with an infringement notice for exceeding the speed limit by more than 45 kmh and had lost 12 points off his licence as a consequence or that his licence had been suspended as a consequence of the loss of demerit points, I would not have approved the issue of the plaintiff's policy, on any terms, as he would not have met Dawes' underwriting requirements set out in the Underwriting Guidelines. Whilst it could be argued I could have then rated the risk in the Second (Another) Chance Scheme the combination of age, vehicle and offence/penalty removed that as an option". 33 In relation to the claims listed in [21] above, Mr Garnett said the following in his affidavit: "42. Other than the damage to the vehicle while parked on 18 January 2006, none of the other claims were disclosed by the plaintiff when seeking a quotation nor in his completed proposal form supplied to Dawes. Had these additional claims been disclosed, the plaintiff would not have been offered insurance on any terms (and quite apart from and independent of those matters to which I have deposed in paragraphs 37 and 38 of this Affidavit) as the existence of three or more accidents, incidents or claims from any cause in the three years prior to the application would contravene the company's underwriting guidelines. Had the accidents, incidents or claims been disclosed at the time the plaintiff sought cover, he would not [have] met the underwriting guidelines for the Second Chance Scheme and would not have been offered a policy on behalf of those underwriters." 34 Mr Roth relied upon an affidavit sworn by Mr Raymond Woodlands, an expert underwriter. Various objections were taken to the affidavit but in large measure it was admitted. On appeal Dawes did not challenge the primary judge's decision to admit Mr Woodlands' evidence. 35 Mr Woodlands' affidavit included the following: "14. I am of the view that whilst the plaintiff would not have been eligible, for insurance cover with Dawes, under 'The Guidelines' he would have been eligible under the 'Another Chance Guidelines' notwithstanding his age, the vehicle type and his driving and claims history. The 'Another Chance Guidelines' state that they are for those with inferior driving records and provide for additional loadings for specified offences and frequency of offences. Further, the 'Another Chance Guidelines' provide no limit to the number of offences to be taken into account when determining the premium to be charged. … 16. I am of the opinion that taking into account the plaintiff's driving and claims history, age and vehicle type he would have been an insurable risk for Dawes subject to the 'Another Chance Guideline' loadings which would have resulted in a higher premium. … 20. In order to reach the above opinion I had to assume the meaning of the term inferior driving record, as set out in Second Chance. I was of the view that a literal approach was the best place to start. Inferior Driving Record means exactly that, a bad driving record. This can include traffic offences; however, it can also include traffic incidents such as accidents and other driving related events that would indicate one has a substandard driving history." 36 Mr Woodlands then referred to the five previous insurance claims described in [21] above: "29. In my opinion the not at fault incidents (a) (c) (d) and (e) are of little or no materiality given their minor nature and as they were outside of the control of the plaintiff. Moreover, the fact that Dawes placed an excess of $10,000 increasing to $15,000 when the vehicle is used for commuting would in fact cancel out the risk of such future incidents, effectively reducing the materiality to nil. 30. Incident (b) is of materiality as it reflects on the plaintiff's ability as a driver. Nevertheless, the high excess somewhat reduces the materiality of this incident. 31. In my opinion if all of these incidents were disclosed to Dawes the plaintiff would have been granted insurance, especially given the high excess Dawes had imposed. This is further evidenced by Dawes offering the plaintiff a full 60% no claim bonus. This indicated to me that Dawes felt the materiality of the disclosed incidents was negligible." 37 In cross-examination, Mr Garnett accepted that adherence to the Guidelines was a matter of discretion. He gave the following evidence with reference to the proposition in [38] of his affidavit (see [32] above) that Mr Roth would not have been given insurance under the Second Chance Scheme if full disclosure had been made: "Q. And that evidence is wrong, isn't it? A. No. You asked me would his age knock him out; would a Ferrari knock him out; would his record necessarily knock him out. No. Combine the three, yes. Q. Where, in the underwriting guidelines, or the second chance scheme, does that combination knock him out? A. It's not written in the guidelines. It is common prudent business practice. Q. Something which you think is a good idea now, is it? A. No, not at all. I have not changed my position the last fifteen years of insuring cars. Q. There's nothing in guidelines which knock him out, or the second chance scheme, does there? A. It doesn't have to be." 38 His evidence concerning paragraphs [7] and [8] of the Underwriting Guidelines, dealing with previous claims' history (see [27] above), included the following: "Q. And point 8, there's a distinction drawn between three or more accidents, incidents or claims, many of - sorry, from or any cause in the last three years. What's the thinking behind point 7 compared to point 8 of the underwriting guidelines? A. You find a lot of people have quite a few third party at fault claims and invariably it's the way they drive that causes it. I mean, it's in our interests as an insurer to insure people that don't have claims because whether you can recover the claim costs off a third party, it still costs you money. Q. But you're more concerned, are you not, about at fault claims? A. Of course. Q. Than not at fault claims? A. Of course. Q. And in your experience as an underwriter, there would be many examples, would there not, of people who've had multiple not at fault claims and you've granted them insurance, correct? A. No. No, claims is one of those things, you walk away from people that have claims, you don't want to know them. So, no, the answer's a flat "No". Q. Irrespective of whether they were at fault or not? A. Correct."

The Primary Judge's Decision 39 For reasons which are not entirely clear the primary judge appears to have held that the contract of insurance which was operative at the date of the accident was concluded before 21 June 2006. It followed in his view that Dawes did not comply with its obligation under s 22 of the Insurance Contracts Act to inform Mr Roth of his duty of disclosure prior to the conclusion of that contract because it only did so subsequently (by means of the sending to him of the documents, including the Proposal Form, referred to in [13] above). In my view the correct position as to the conclusion of an interim and then a final contract of insurance is however as I have described in paragraphs [12] and [16]. Apart from its disconformity with the communications which occurred and which I have described, the primary judge's view is one which I consider is most unlikely to have reflected the intentions of the parties, as it would mean that the submission of the Proposal Form by the insured was quite otiose, that not having occurred until after the contract of insurance was concluded. In fact, it will be the almost invariable position when insurance is sought to be arranged that the insured's Proposal Form will be considered by the insurer in deciding whether or not to accept the insurance which is proposed. 40 Nevertheless, in reaching his final conclusions, the primary judge did not appear to place any reliance upon any failure by Dawes to advise Mr Roth of his duty of disclosure. This was appropriate because the conduct of Mr Roth, of which Dawes complained, constituted a misrepresentation as well as non-disclosure. The provision to Dawes of the inaccurate answers that were provided in the Proposal Form (and in the conversation of 13 June) constituted a misrepresentation as to Mr Roth's driving and claims experience. Under the Insurance Contracts Act the insurer's rights to rely upon a misrepresentation are not affected by any failure to inform the insured of a duty of disclosure (compare s 22(3) which prevents an insurer, who has not informed the insured of that insured's duty of disclosure, from exercising any right in respect of a failure to comply with the duty of disclosure unless that failure was fraudulent). 41 The primary judge rejected Dawes' defence to the proceedings upon the bases that Mr Roth's conduct was not fraudulent and that Dawes would have insured him, upon relevantly the same terms and conditions, even if accurate answers had been given by Mr Roth to the questions asked of him (no point was taken by Dawes on appeal that a higher premium would have been charged). These findings were relevant to s 28 Insurance Contracts Act which is in the following terms: " 28 General insurance

(1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into: (a) failed to comply with the duty of disclosure; or (b) made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made." 42 As to the question of whether Mr Roth acted fraudulently, the primary judge said: "There is no doubt the plaintiff was reckless. However, in my view when one looks at the answers given in the conversation with Mr Garnett the discrepancies between that and that which was put in the proposal form, the failure by the insurer to act on those quite significant discrepancies, then the collation of a reasonable history of claims and traffic records contained within the claim form suggest there is no intention of fraud. The answers given by Mr Roth were given hurriedly without as much thought as he should have given. But I am not satisfied that the defendant has established the degree of recklessness required to satisfy fraud under s 28 of the Insurance Contacts Act " (page 17). 43 His Honour had earlier referred to authorities in the field of insurance indicating that misrepresentations are fraudulent, inter alia, if made recklessly, without caring whether they be true or false (see Plasteel Windows Australia Pty Ltd v C E Heath Underwriting Agencies Pty Ltd (1988-9) 5 ANZ Insurance Cases 60-926 at 75,971 per Cole J; Von Braun v Australian Associated Motor Insurers Ltd [1998] ACTSC 122; (1998) 135 ACTR 1 at [83-87]). His Honour thought that the fact that there were differences between what Mr Roth disclosed orally and in his Proposal Form (compare [8] and [15] above), pointed towards "a lack of care rather than fraudulent behaviour" (at page 14). His Honour expected that there would have been "some consistency" between the answers given orally and in the Proposal if Mr Roth had been acting fraudulently (page 14). 44 A fair view of what his Honour said on the topic of fraud indicates that he correctly appreciated that for Mr Roth to be found guilty of fraud there would have had to be a finding to the effect that Mr Roth had "no honest belief in the truth of the representation" (Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 at 578). His Honour took the view that this was not Mr Roth's state of mind. Rather, he found Mr Roth to have been careless. 45 On the question of whether the policy would have been issued on relevantly identical terms and conditions if there had been no misrepresentation, the primary judge said the following: "I must say that I was not impressed by Mr Garnett as a witness as he seemed to be, in hindsight, attempting to support the proposition that he would exercise his discretion in relation to a claims history adversely notwithstanding whether there was any fault of the insured or not more so than a reliance upon driving record. It is also clear that the granting of insurance was a matter of discretion and Mr Garnett was confident of him granting the insurances which he did in the telephone conversation between he and the plaintiff and he exercising that discretion subsequent to that telephone conversation." (at pages 12-13) … "The failure by the defendant to investigate the discrepancies between the oral statement and the written proposal, when ultimately received, and the immediate response by Mr Garnett in issuing the policy on the phone discussion takes me to the conclusion that Mr Garnett was far more interested in obtaining the premium than he was in rigorous review of information provided by the plaintiff and or the risk. I also think that an ordinary person would have difficulty in accepting the number of claim forms would be of major relevance to an insurer even when they do not involve fault on behalf of the driver or owner and a no claim bonus of sixty per cent has been allowed and accepted and an excess of 10,000 to $15,000 set in relation to this policy. I make reference to these matters in finding that there was no reliance placed by the defendant on the matters set forth in the proposal and the reliance which was based for the purpose of the policy or issuing of the policy and of premium calculation with the matters which had been conveyed by the plaintiff to the defendant in oral discussion between he and Mr Garnett. Whilst there may well be a duty to disclose far more than that disclosed by the plaintiff, it is not contained in the statute as the defendant has not complied with s 22 of the Act. I also find, as I have indicated, that Mr Garnett's evidence was self-serving, given in retrospect to justify his legal position, and a proper review of his contemporaneous actions are required to determine that which he would have done if proper disclosure had been made." (at page 18) … "It follows from what I have said that in my view the insurer has not satisfied the court that it complied with s 22. I am also not satisfied on the evidence of Mr Garnett that on full disclosure having been made he would not still have accepted the policy. I make that comment bearing in mind the contemporaneous reactions to Mr Garnett and his staff in relation to that which the plaintiff initially told him, the discrepancies that became obvious when the proposal form was returned and whilst it is conceded in the plaintiff's evidence that through the expert called, Mr Woodland, that the plaintiff would not be entitled to a policy under the guidelines, I accept the plaintiff would be entitled to a policy under the second chance guidelines." (at page 21)

Consideration of Primary Judgment 46 As I have made clear in [39] and [40] above, I do not regard the question of whether, prior to the conclusion of the contract, Dawes informed Mr Roth of his duty of disclosure to be of significance in relation to the outcome of this appeal as the answers Mr Roth gave in his Proposal Form amounted to a misrepresentation. It is therefore unnecessary for me to say any more about that question or to add to what I have said in paras [12] and [16] as to the time and manner in which interim and final contracts of insurance were concluded. 47 That leaves for consideration the questions, first, of fraud and, secondly, of whether the supply of correct information by Mr Roth would have made any difference to Dawes' attitude in the sense contemplated by s 28(1) of the Insurance Contracts Act (see [41] above). 48 Dawes' submissions on appeal as to fraud had two limbs. One was that the primary judge had misunderstood the concept of recklessness and had imposed an impossibly high hurdle for the insurer to surmount. For the reasons I have given in [42-44] above I do not consider that his Honour misunderstood the test to be applied. It is true that the test represents a "high hurdle" but that is of the nature of an allegation of fraud which involves a mental element not required in the case of carelessness or negligence. 49 The other limb to the submission was that the primary judge's finding was "glaringly improbable" (Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [29]). This submission recognised that the primary judge's finding that Mr Roth was careless but not fraudulent was founded in large measure upon his assessment of Mr Roth's credibility. Dawes' contention was to the effect that Mr Roth's explanation for his incorrect answers in the Proposal Form defied common sense and could not rationally have been accepted. What was proffered as the best illustration of this was the following evidence given by Mr Roth in cross-examination: "Q. Well, you read the question at question 2 under 'driver history', 'had a driver's licence refused, suspended or special conditions imposed or been disqualified from driving' and you specifically ticked the "No" box, didn't you? A. Yes, I did. Q. And in order to tick the "No" box you had to have read the question? A. Yeah, I misread the question. Q. Well, you read the question, didn't you? A. I did read the question briefly. Q. Yes and what is it about the question "Had a driver's licence cancelled or suspended" that you didn't understand? A. I misread the time period. Q. "Have you or any of the named drivers in the last ten years", what time period did you think it referred to? A. Like I said, I didn't give it careful consideration. I thought it was referring to the shorter time period than ten years. Q. Right. Five years? A. Yeah, I thought it said five years. Q. Your licence had been suspended four years previously, hadn't it? A. Yeah, I was under the impression it was considerably longer than that, or at least, certainly at least five years but more so five or six years. Q. Could I suggest to you, sir, that you answered the question deliberately knowing that had you answered them correctly you wouldn't have been given insurance? A. That's not correct. Q. Could I suggest to you you answered them in the way that you did on this proposal knowing full well that other insurers had refused to insure you because of your driving record and your claims history? A. That's incorrect." 50 In my view it was open to the primary judge to accept evidence such as this as a rational explanation for the incorrect answers given and as indicating carelessness, but not fraud, on Mr Roth's part. 51 Accordingly, I do not consider that the challenge to the primary judge's finding on fraud is well founded. 52 Likewise, I consider that the challenge to the primary judge's finding (see [45] above) that Dawes would not have acted differently if correct answers had been given, fails. Put shortly, the onus was on Dawes as the insurer to prove that it would have acted differently in the hypothetical circumstances, it called Mr Garnett to attempt to discharge that burden of proof and, following extensive cross-examination, Mr Garnett's evidence was not accepted. 53 The onus of proof under s 28 is upon the insurer because the insurer needs to show that it has a remedy made available to it by s 28. To succeed in a defence based upon s 28, the insurer must, in the absence of fraud, show that its liability would have been less if the misrepresentation (or failure to disclose) had not occurred (subsection 3). 54 As was the case in relation to the issue of fraud, the primary judge's decision was based to a significant extent upon the credibility, of a witness, in this instance, Mr Garnett. The primary judge expressed adverse views as to Mr Garnett's credibility. He said that he was "not impressed by Mr Garnett as a witness as he seemed to be, in hindsight", attempting to support Dawes' case "whether there was any fault of the insured or not more so than a reliance upon driving record" (see [45] above) and that Mr Garnett's evidence was "self serving, given in retrospect to justify his legal position" (see [45] above). 55 His Honour attached some significance to the fact that Mr Garnett and his staff did not see as important, discrepancies between the answers Mr Roth gave in the telephone conversation and those which he gave in the Proposal. The first discrepancy was that when asked in the telephone conversation whether he had ever lost his licence Mr Roth had said that such an event had occurred "about eight years ago" (see [8] above) whereas he did not mention that matter in his Proposal Form. The relevant Proposal question was however limited to the last ten years and, as Mr Garnett pointed out in cross-examination, after the telephone conversation Mr Roth may have thought about the incident and concluded that it was further in the past. The second discrepancy comprised the disclosure in the telephone conversation of a fine for exceeding the speed limit by less than 15 kilometres an hour which was not disclosed in the Proposal. Again, as Mr Garnett pointed out in cross examination, the insurer might reasonably have thought that this discrepancy could be explained by some further checking having been done by Mr Roth. Nevertheless, in my view the primary judge was entitled to take this matter into account. Whilst the insurer might reasonably have speculated that there were possible explanations for the discrepancies, it was open to the primary judge to consider that the absence of enquiry by the insurer as to whether there were in fact explanations tended to indicate that the insurer was not paying much regard to the disclosures. I do not therefore consider that the primary judge's regard to the discrepancies vitiated his rejection of Mr Garnett's evidence (see [32] and [45] above) that proper disclosure by Mr Roth of his driving record would have led to rejection of the proposed insurance rather than simply the charging of a greater premium by the making of adjustments under the "Second Chance Scheme" (see [31] above). 56 Another aspect of Mr Garnett's evidence (see [33] above) was that Mr Roth fell within clause [8] of the "Declined Risks" section of the Underwriting Guidelines (see [27] above) because he had had three or more claims "from any cause in the last three years" and that the proposed insurance would have been declined on that basis if full information had been supplied. The list of claims in [21] above reveals that Mr Roth had had three claims in the previous three years, but that none appear to have been his fault. In two cases his parked vehicle was run into and, in the third, another vehicle reversed into his. Mr Garnett contended in evidence that these three "not at fault" claims would, if known to him, have caused him to reject Mr Roth's Proposal for Insurance. 57 The primary judge took the view that Mr Garnett was "far more interested in obtaining the premium than he was in rigorous review of information provided by the plaintiff and/or the risk" (page 18). He also said the following: "I also think that an ordinary person would have difficulty in accepting the number of claim forms would be of major relevance to an insurer even when they do not involve fault on behalf of the driver or owner and a no claim bonus of sixty per cent has been allowed and accepted and an excess of 10,000 to $15,000 set in relation to this policy." (at page 18) 58 This was a view which I consider that it was open to the primary judge to reach. It was not inconsistent with common sense or rational thinking for his Honour, in circumstances where after lengthy cross-examination he had generally formed an adverse view of Mr Garnett's evidence, to reject Mr Garnett's evidence that the existence of three previous claims in relation to accidents in which Mr Roth had not been at fault would have caused the proposed insurance to be declined. Particularly was this so when Mr Garnett gave evidence that acceptance or rejection of insurance was a matter for his discretion notwithstanding the terms of the Underwriting Guidelines and when Mr Woodlands gave evidence (the admissibility of which was not challenged on appeal) that "not at fault" incidents such as these would be of "little or no materiality given their minor nature and as they were outside the control of the plaintiff".

Orders 59 For the reasons I have given, I propose that the appeal be dismissed with costs. 60 YOUNG JA: I agree with Macfarlan JA. **********

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