Deaves v CML Fire & General Insurance Co Ltd

Deaves v CML Fire & General Insurance Co Ltd - [1979] HCA 12 - HCA 1979 case summary — Zoe

[14]

The policy did not contain any provision warranting the truth of the answers contained in the proposal or declaring that the proposal should be the basis of the contract. Condition 1 of the C.M.L. policy was in the following terms: This Policy shall be voidable in the event of misrepresentation, misdescription or non-disclosure in any material particular. Condition 3 of the C.M.L. policy was in exactly the same terms as condition 3 of the S.G.I.O. policy except that the word "Company" appeared in lieu of the word "Office". Condition 10, in so far as it related to contribution, was also in the same terms as condition 10 of the S.G.I.O. policy, again with the substitution of "Company" for "Office". The C.M.L. policy did not mention the interest of the mortgagees - indeed Mr. Deaves did not tell the representative of C.M.L. that the property was mortgaged. No written notice was given to S.G.I.O. of the fact that the insurance with C.M.L. had been taken out. However, some time after the proposal for insurance with C.M.L. had been completed, Mr. Deaves went to the office of S.G.I.O. and informed an employee of that office that he wished to cancel his policies with S.G.I.O. He had, in addition to the policy already mentioned, two other policies with which we are not concerned. Mr. Deaves was given some forms to sign and he signed them. The form which he signed in respect of the relevant policy is dated 31st May 1974 and omitting formal parts it reads: "Please Cancel above Policy any refund to above address." He later received from S.G.I.O. a refund in respect of the premiums paid on the two other policies, but he received no refund in respect of the premium paid on the relevant policy. When he enquired from S.G.I.O. he was told that "they had to get permission from Percy Willis for it to be cancelled". Mr. Deaves did not inform Mr. or Mrs. Willis of his intention to cancel the S.G.I.O. policy or of his attempt to do so. It seems that S.G.I.O. intended to write to Mr. Willis, and indeed may have done so, although Mr. Willis received no letter from them. Mr. Deaves did not receive any notification that the S.G.I.O. policy had been cancelled. It appears that S.G.I.O. took no further steps to effect its termination before 4th August 1974. Mr. Deaves did not notify C.M.L. that the S.G.I.O. policy remained on foot. On 4th August 1974 the service station was destroyed by fire.

[15]

Claims were made on both insurers under the two policies but both refused to pay. Thereupon two actions were commenced. Action No. 506 of 1976 was begun on 2nd March 1976 by Mr. and Mrs. Willis and Mr. and Mrs. Deaves as plaintiffs against S.G.I.O. claiming indemnity under the S.G.I.O. policy. In that action S.G.I.O. pleaded that it was not liable to indemnify the plaintiffs for two reasons, (1) that the plaintiffs had failed to give notice in writing to S.G.I.O. of the C.M.L. policy; and (2) that Mr. and Mrs. Deaves had on 31st May 1974 terminated the S.G.I.O. policy. C.M.L. was brought into this action as a third party. Action No. 929 of 1976 - the proceeding in which this appeal arises - was commenced on 14th April 1976. In that action Mr. and Mrs. Deaves claimed indemnity under the C.M.L. policy and C.M.L. defended the action on a number of grounds which it will be necessary to consider. The two actions were ordered to be tried together. On 18th May 1977 Andrews J. gave judgment in both actions. He held that the proposal formed the basis of the contract with C.M.L., notwithstanding that there was no recital to that effect in the policy, that the answer to the question relating to other insurances was untrue and that the appellants had not proved that the representative of C.M.L. was other than their agent for the purpose of filling in answers to questions in the proposal form. He held that the result of not furnishing a true answer to the question in the proposal was to avoid the C.M.L. policy. He further held that the S.G.I.O. policy had not been cancelled. In these circumstances condition 3 of the S.G.I.O. policy did not apply (since no policy had been effected with C.M.L. within the meaning of that condition) but condition 3 of the C.M.L. policy provided an additional reason for giving judgment for C.M.L. It should be added that the learned trial judge found that Mr. Deaves was quite honest as a witness, and made no attempt to deceive anybody. In accordance with these findings, he gave judgment for C.M.L. in action No. 929. In action No. 506 he held S.G.I.O. bound to indemnify the plaintiffs and found in favour of C.M.L. in the third party proceedings. He assessed the amount of the plaintiffs' loss as follows:

[28]

In marine insurance it is a statutory rule that an express warranty must be stated in the policy or incorporated into it by words of reference appearing in the policy itself, and this is only fair to the assured who would perhaps otherwise forget, if not possessing a copy of the proposal form, what he had warranted in it. This does not now appear, however, to be the general rule in non-marine insurance, where it is sufficient for an insurer to obtain the signature of the applicant to a declaration saying that, "This proposal is to serve as the basis of the contract," whereupon the warranty is an effective term of the contract of insurance even if not expressly mentioned in the policy when that is issued. The learned authors go on to say that it is not clear what the rationale for this practice is. The decision of this Court in Australian Provincial Assurance Association Ltd v. Producers and Citizens Co-operative Assurance Co. of Australia Ltd. [4] would appear to establish that a policy of non-marine insurance cannot be regarded as having incorporated a declaration in a proposal, simply because the insured has signed the declaration; see also Kazacos v. Fire and All Risks Insurance Co. Ltd. [5] . We were not referred to any provision of the policy, or other circumstances of the case, that might have supported the conclusion that the declaration was incorporated in the policy in the present case. The question whether there was a failure to disclose the existence of the S.G.I.O. insurance depends on whether the knowledge of the representative who discussed the matter with Mr. Deaves can be imputed to C.M.L., and it appears to me that in the circumstances to which I have referred it was the duty of the representative to place at the disposal of C.M.L. the knowledge that came to him as a result of the conversation. It is true that Mr. Deaves did not disclose the existence of the mortgage, but the authorities suggest that persons seeking insurance are not bound, in the absence of a specific question, to disclose that the property is subject to mortgage (see MacGillivray and Parkington, op. cit., par. 783) and no evidence was led in the present case to suggest that Mr. Deaves was questioned on the point. However, for the reasons which will appear, it is unnecessary for me to express a final conclusion on any of these matters. 1. (1932) 48 C.L.R. 341. 2. (1970) 92 W.N. (N.S.W.) 397, at pp. 400-401.

[31]

Condition 3 on the other hand does not prohibit double insurance, or exempt the insurer from liability if double insurance exists, but requires the insured to disclose in writing any other insurance and requires particulars thereof to be stated in or indorsed on the policy by the insurer, and avoids liability unless those things are done. The effect of such a condition was considered in Steadfast Insurance Co. Ltd. v. F. & B. Trading Co. Pty. Ltd. [9] . In that case, during the term of a policy of fire insurance which contained a condition identical with condition 3, a cover note was issued by another insurer (Queensland Insurance) with respect to the same risk. The cover note was expressed to be "subject to the terms and conditions of this company's policy", and the policies issued by Queensland Insurance also contained a condition in the same terms as condition 3. No notice in writing was given to either insurer. The property was destroyed by fire and it was held that the insured had not lost the benefit of the first policy. The reasons for this conclusion were as follows. First, it was held, an insurance is "effected" within the meaning of a clause such as condition 3 only when what has been done attaches risk of loss to another insurer; in other words, if the contract with the other insurer contains a condition whose effect, in the circumstances, is that that insurer is at no time liable to indemnify the insured, the making of that contract is not the effecting of an insurance within the meaning of condition 3 [10] . Secondly, the effect of condition 3 was that because the claimants did not give Queensland Insurance notice of the earlier policy, Queensland Insurance was at no time under a liability to indemnify the claimants, so that the obtaining of the cover note did not constitute the effecting of an insurance covering the property issued under the earlier policy. Condition 3 was therefore no answer to the claim under the first policy [11] . It was submitted on behalf of the appellant that the fact that a cover note only was issued in that case distinguished it from the present case. The fact that a cover note was issued raised an additional question, viz., whether the cover note was subject to condition 3, or at least to that part of the condition which required written notice to be given, but once that question had been answered in the affirmative the fact that the second contract was in the form of a cover note was immaterial. The case is direct authority for the proposition that in the present case, unless the S.G.I.O. policy had been cancelled, the failure to give notice in writing of that insurance to C.M.L., and to state or indorse the particulars in or on the C.M.L. policy, entailed the consequence, subject to any question of waiver, that C.M.L. did not become liable under its policy - the condition on which its liability depended would not have been fulfilled in those circumstances. On this view, condition 10, providing for contribution, is to be reconciled with condition 3 by regarding the former condition as applying to other insurances of which notice has been given, and particulars of which have been stated in or indorsed on the policy. It further follows of course that condition 3 of the S.G.I.O. policy provided no answer to a claim on that policy, since no insurance had subsequently been effected.

[36]

It is true that the policy was not one of joint insurance so far as the "joint owners" on the one hand and the mortgagees on the other were concerned. Of course Mr. and Mrs. Deaves had a joint interest, and so did Mr. and Mrs. Willis, but the interests as between Mr. and Mrs. Deaves and Mr. and Mrs. Willis were diverse, and this meant that the policy was a composite one, insuring the two sets of parties in respect of their respective interests: General Accident Fire and Life Assurance Corporation Ltd v. Midland Bank Ltd. [16] . It may be assumed, without deciding, that for certain purposes, e.g., payment of the indemnity, the word "insured" in the policy should be regarded as meaning the insured "for their respective rights and interests", although those words do not appear in the policy. In my opinion it does not follow that some of the insured may terminate the policy so far as it affects their respective rights and interests without the consent of the other insured. On termination the insurer is entitled, under condition 5, to retain the customary short period rate for the time the policy has been in force. There is nothing in the policy to indicate the values of the respective interests of the mortgagees and the owners, and there are therefore no means of determining how much of the premium should be attributed to one group of interested parties and how much to the other. The amount to be refunded to Mr. and Mrs. Deaves, if they cancelled the policy so far as it concerned their interest, was therefore not susceptible of calculation by the insurer. Further, although the policy is a composite one, all four insured are parties to it; the policy may embody two insurances, but it constitutes one contract. It would be contrary to principle to allow one insured to withdraw from a contract of insurance, thus leaving the insurer bound to indemnify another insured only - a liability the insurer might not have been prepared to assume, if it had been proposed in the first place. In my opinion a termination under condition 5 can only be effected at the request of all the insured or at the option of the insurer. In the present case Mr. and Mrs. Willis never did consent to the termination - indeed they were unaware that it was proposed. S.G.I.O. made it clear that the consent of Mr. and Mrs. Willis was necessary before the termination could be effected, and neither terminated the policy, nor did anything that could reasonably have been understood as amounting to its termination.

[38]

"A waiver must be an intentional act with knowledge" First, "some distinct act ought to be done to constitute a waiver" ; next, it must be "intentional", that is, such as either expressly or by imputation of law indicates intention to treat the matter as if the condition did not exist or as if the forfeiture or breach of condition had not occurred; and, lastly, it must be "with knowledge", an essential supported by many authorities It is no doubt correct, speaking generally, to say that "The making or acknowledgement of the contract with knowledge of other insurance would be a waiver of the breach": MacGillivray and Parkington, op. cit., par. 1997. If the knowledge of the agent is imputed to C.M.L., that company knew, at the time the proposal was made and the premium was paid, that another insurance was subsisting. If a cover note was issued on 30th April 1974, there might then have been a waiver of the requirement contained in condition 3 that notice in writing should be given of the earlier insurance. In those circumstances the insurer would have intended to waive compliance with the condition, on the understanding that the earlier policy would be terminated. However, Mr. Deaves did not inform C.M.L. that the S.G.I.O. policy had not been terminated. There is no evidence from which it is possible to infer that when the policy was issued C.M.L. knew or had means of knowledge that Mr. Deaves had failed to carry out his expressed intention to cancel the S.G.I.O. policy, and that that policy was still subsisting. If there was a cover note, which created a binding insurance, it was of course superseded by the policy which, however, was not issued with knowledge of the continued existence of the S.G.I.O. insurance. It is not possible to infer that by issuing the policy C.M.L. indicated an intention to treat the matter as if it were not a condition of its liability that particulars of any other insurance should be stated in or endorsed on the policy, before the occurrence of the loss or damage. It would not be right in my opinion to conclude that there had been a waiver by C.M.L. when the policy was issued or at any time thereafter. 1. (1920) 28 C.L.R. 305, at p. 326.

[82]

Another, and quite different, approach to condition 3, which would also provide an effective answer to the respondent's reliance upon it, may be suggested by the judgment of Lord Denning M.R. in Lickiss v. Milestone Motor Policies at Lloyds [39] . His Lordship was there concerned with the breach of a condition requiring an insured motorist, during the currency of the policy, to give full particulars in writing of certain specified information as soon as possible after the happening of specified events. His Lordship held that, where an insurer already possessed all that information, it could not take advantage of the insured's failure to provide it. He enunciated two positions; that where insurers already had actual knowledge, derived from sources other than the insured, of a relevant fact "it would be a futile thing to require" (the insured) "himself to give them the self-same information. The law never compels a person to do that which is useless and unnecessary" [40] : that a policy condition requiring the giving of written notice was there to ensure adequate advance notice to the insurers and if the insurers in fact obtain such notice from another source "so that they are not prejudiced at all by the failure of the insured himself to tell them, then they cannot rely on the condition to defeat the claim" [41] . His Lordship also relied upon waiver. Danckwerts L.J. agreed "entirely" with Lord Denning's judgment but Salmon L.J., while agreeing in the result because of the waiver point, said that but for it he would have felt obliged to regard the case as one of breach of an absolute obligation which was a condition precedent to the insurers' liability to pay. MacGillivray and Parkington, in par. 644, describes the first of these propositions as "at variance with the established rule of strict and exact compliance with warranties", explaining it as applicable to conditions requiring the insured to perform some duty during the currency of the policy. In the only subsequent case in which these propositions appear to have been referred to, Farrell v. Federated Employers Insurance Association Ltd., Megaw L.J. [42] is most guarded in his reference to them. They do not appear to find support in the Australian authorities and in the present state of the law should not, I think, be applied to a condition such as the present condition 3.

[124]

The answer to the question whether or not there has been a material misrepresentation or non-disclosure cannot be given simply by determining whether or not the words "Not applicable" were a correct statement. The fact of non-disclosure and the materiality of the representation or non-disclosure must be determined from the proposal and from any other circumstances of which the insurer has notice. First, the proposal. The statement "N/A", meaning "Not applicable", is ambiguous. It may mean "not applicable because there is no such other insurance" or it may mean "The request is not applicable in the circumstances". The paragraph and the answer must be construed in the light of the circumstances known to the insured and the insurer. In my opinion there was in this case sufficient in the evidence to enable an inference to be drawn that the insurer had sent its agent to obtain a proposal for fresh insurance because the insured was not satisfied with his present insurer. In the light of that circumstance the statement "Not applicable" should be construed as a statement that the paragraph was not applicable in the circumstances of the case. And that was a correct answer. That the insurer did so send its representative can be inferred from the transmitted request and from the arrival of the C.M.L. man in response to the request. It would not be an inference which would necessarily be drawn but it gains significantly in strength from the complete absence of any evidence from the respondent insurer in rebuttal. See Jones v. Dunkel [66] . The respondent in its case called neither the man who visited Mr. Deaves and filled in the proposal nor anyone from its office to rebut the inference that it knew that the purpose of the visit to Mr. Deaves was in order to provide insurance in place of the S.G.I.O. insurance; and it could hardly be contemplated that the latter insurance would be cancelled before the new insurance was effected. This is not a case where the knowledge was only with the man from C.M.L. when he called and when he filled in the proposal. It is knowledge which can be inferred that a person or persons in authority at C.M.L. had when it directed its man to call on Mr. Deaves. This knowledge, which ought to be inferred in the absence of any evidence from the insurer that it had no such knowledge, is significant both upon the construction of the ambiguous answer in the proposal and on the primary question itself, namely, whether there was in fact a material representation or non-disclosure. There is no material non-disclosure of a fact when the insurer already has notice of that fact. Halsbury's Laws of England, 4th ed., vol. 25, par. 370 and the cases cited under note 10 to that paragraph.

At a glance

Court

Decision date

Before

Source

Judgment (162 paragraphs)

Parties

Cited By (3)