Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd

Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd - [1974] HCA 3 - HCA 1974 case summary — Zoe

[21]

Is then each such occurrence (whether it be the deformation itself or the birth with deformities) an occurrence "of a series" attributable to one source? The word "series" does, I think, normally carry with it the notion of a sequence with some connexion between the items in the sequence. Here whatever connexion there is between the occurrences is to be found in what constitutes the further requirement, viz., that they are attributable to one source. The problem is do they form a series? Prima facie I think not. It is probably true that no two of the relevant occurrences happened at the one time so that it may be taken for granted that they occurred one after another, but I do not regard that as itself sufficient to constitute them occurrences in a series, see Attorney-General v. Cohen [1] . The numbers 1, 2 and 3 are a series of numbers because they are in a particular order, but I would not regard the numbers 7, 16 and 100 as a series of numbers because they are in no discernible order. It seems to me that order is the characteristic of a series and there is no order in the occurrences here under consideration. The difficulty with the phrase here is to attribute any particular meaning to it, other than the unlikely one, that it merely excludes occurrences happening at the one time. This is so because the element of connexion between occurrences which could perhaps constitute them a series does not depend upon the word "series" itself, that is, that they are attributable to one source. This is dealt with expressly. To reject the construction that the phrase "occurrences in a series" means no more than any number of occurrences not happening at the one time does, it must be conceded, leave the words "in a series" with problematical positive significance. Nevertheless because I am not satisfied that the occurrences with which we are here concerned are occurrences in a series simply because they happened one after the other, I find myself unable to agree with the first declaration made by Helsham J. Had the object of the insurer been simply to limit its liability to £50,000 ($100,000), except in the event of contemporaneous occurrences attributable to one source and giving rise to claims against the insured, it could have done so very much more simply than by the words which have been used. See the discussion in Welford, Accident Insurance 2nd ed. (1932), pp. 447-448, of the methods of limiting liability.

[36]

This view of the effect of the condition is supported by a consideration of the consequences that would flow from a construction of the words of its first part that placed no qualification upon their generality, for in the event of an ambiguity in the instrument it is proper to give it a construction that would avoid irrational consequences that it is unlikely that the parties intended. The words of the first part of the condition, literally interpreted, would forbid an insured to pay the amount of a judgment obtained against him upon a claim unless he obtained the written consent of the insurer to the payment. Although the plaintiff's cause of action against the insured would merge in the judgment once it was obtained, the payment of the amount of the judgment would remain a payment "in connection with any accident or claim" within the ordinary meaning of those words. But even if in some way it were possible as a matter of construction to avoid this result, the words of the first part of the condition, unless understood as ceasing to have effect once an insurer had elected to take no part in the conduct of the defence of a claim, would operate so as most seriously to hamper an insured in the defence of a claim which the insurer had left him to conduct. In the ordinary course of legal proceedings it will often be prudent, and will sometimes be necessary, for a party to make an admission, offer, promise or payment in connexion with the claim upon which the proceedings are based. A defendant, acting reasonably, may make admissions in his pleadings or in response to a notice to admit, and may be obliged to make admissions in response to interrogatories or to questions put in cross-examination. Not infrequently a defendant will regard it as wise to pay moneys into court or to make a payment in settlement of a claim which he has been advised is unanswerable. Sometimes circumstances may call for a party to make an offer or promise as to the future conduct of the litigation. It would seem quite unlikely that the parties to the policy intended condition 2 (a) to have so unreasonable an operation as, for example, to prevent the insured from making an admission in answer to an interrogatory without first obtaining the written consent of the insurer. No doubt the principle that the insurer could not refuse his consent arbitrarily and in complete disregard of the interests of the insured would to some extent mitigate the inconvenience of the condition, but the insured would remain in the position that he would be required from time to time to seek the consent of the insurer to the taking of quite ordinary steps in the action, with damaging consequences if the insurer procrastinated in giving his decision on a request for consent. However, the only possible justification for placing upon the words of the first part of the condition any construction that would render them inapplicable to admissions, offers, promises or payments made in the course of legal proceedings is, in my opinion, that the first part of the condition is in aid of, and ancillary to, the right given to the insurer by the second part; the only indication in the policy that the first part of condition 2 (a) has not a completely general operation is to be found in the second part of the condition. In other words, the condition will apply to an admission, offer, promise or payment made in the course of legal proceedings unless the first part of the condition is understood as having no operation once the insurer has elected to allow the insured to conduct the defence of a claim. This circumstance supports the view that the two parts of the condition are not independent and distinct.

[38]

No admission, promise or payment shall be made by the insured without the written consent of the Company, which shall be entitled, if it so desires, to take over and conduct in the name of the insured the defence and settlement of any claim, or to prosecute in his name for its own benefit any claim or indemnity for damages or otherwise against any third party, and shall have full discretion in the conduct of any proceedings or in the settlement of any claim, and the insured shall give all information and assistance as the Company may require, failing which, benefit under this policy will be forfeited. In that case the insurer having wrongfully repudiated liability under the policy, the insured, without the consent of the insurer, settled an action brought against him by a third party. It was held by Hanna J., and on appeal by the Supreme Court, that the above condition afforded no answer to an action brought by the insured against the insurer on the policy. The decision was rested on two grounds, one of which, that the insurer had repudiated liability under the policy, has no relevance to the present case. However, the majority of the Court also held, as a matter of construction, that the condition was inapplicable where the insurer had refused to take any part in defending the action. The trial judge, Hanna J., said [1] : Finally, what is the effect of condition 2? It is concerned, in my opinion, with the taking over by the Insurance Company of the proceedings on behalf of the insured, and its intendment is that nothing is to be done by the insured to prejudice the main right of the insurer, so that, if the Insurance Company has to contest the case, the insured is not to make any "admission, promise, or payment without the written consent of the Company". I cannot accept the arguments contra, for this condition is quite inconsistent with the circumstances under which the insured has to defend his own action. In the Supreme Court, Murnaghan J., with whose reasons Kennedy C.J. expressed agreement [2] , said [3] : In my opinion the meaning of the condition is that the insured must not do anything which will prejudice the Insurance Company in conducting the defence of the action, if the Company desires to take over the defence. In my opinion the clause has no application to a case such as the present where the Insurance Company has refused to take any part in defending the action, and it does not debar the insured from settling the case when it has come into Court for final determination. That decision is, of course, not binding upon this Court, but the remarks there made by the learned judges as to the effect of a condition which so far as material is indistinguishable from condition 2 (a) accord with my own views on the question. In my opinion the object of the first part of condition 2 (a) is to prevent the insured from doing anything that would prejudice the insurer in the conduct of the defence or settlement of a claim, or, in other words, is intended to protect the right given to the insurer by the second part of the condition. On the proper construction of the condition, where the insurer elects not to avail himself of that right, and repeatedly refuses to take any part in the conduct of the defence or settlement of a claim, the prohibition contained in the first part of the condition ceases to be applicable. With great respect to those who take a different view, I have therefore concluded that the second declaration was wrongly made and to that extent I would allow the appeal. 1. [1936] I.R. 596. 2. [1936] I.R., at p. 601. 3. [1936] I.R., at p. 608. 4. [1936] I.R., at p. 619. Stephen J.

[73]

The facts of the present claims are, as yet, largely conjectural; it was this that gave rise to the need, felt by Helsham J., to proceed upon the basis of certain assumptions. Even those assumptions fall short of supplying the necessary factual basis in the very special facts of this case. If this were a vehicle indemnity policy the occurrence would be the collision as a result of which the third party victim suffered his injuries. I find elusive the equivalent of a collision in the present case. Is it the ingestion of the drug by the pregnant woman, the accumulation within her body of harmful constituents of the drug, the taking effect of these constituents upon the foetus, the subsequent malformed development of the foetus within the womb, the birth of the malformed infant or some combination of two or more of these events? Merely to state these possible factors as I have may be to reveal a lack of understanding of the operation of the drug and its effects; that would not be surprising in view of the absence of evidence on the topic. These difficulties are, of course, not unexpected when, before the facts are known, it is sought to determine how a written instrument may operate in relation to those as yet undetermined facts. The difficulties can, I think, in this instance, be avoided, if not overcome. Whatever may prove ultimately to be the relevant "occurrences" in these cases they will, I think, because of the nature of the assumptions made by Helsham J., be found all to be attributable to the one "source or original cause". Whether that be a quite remote one, such as the distribution of a drug containing a dangerous ingredient, or some more proximate one (and this will, of course, depend upon the prior identification of what is the relevant occurrence), it will, I think, necessarily prove to be the same cause in the case of each injured infant. No other outcome appears possible, given the assumptions which are to be made. Thus whatever the "occurrences" may prove to be, the proviso will apply if they be occurrences "of a series".

[90]

This, then, is the insured's dilemma in the present case. It is by no means an uncommon one and variations of it have been the subject of many decided cases in the United States. Ever since the leading case of St. Louis Dressed Beef and Provision Co. v. Maryland Casualty Co. [1] in which Holmes J. delivered the judgment of the Court, it has been well established that where an insurer wrongfully denies liability to indemnify and fails to defend the action brought against the insured the latter may make a reasonable settlement of that action and then recover against the insurer - later cases appear in the annotation in American Law Reports, vol. 142 (1943), p. 812 and its supplements. A like view was taken by the Appellate Division of the Alberta Supreme Court in Chamberlain v. North American Accident Insurance Co. [1] ; the judgments in the Appellate Division refer to both English and American authority for the proposition that the insurer's repudiation of liability to indemnify prevents it from relying, by way of defence to the insured's action against it, upon the insured's prudent settlement of the third party's claim against him. In Stevenson v. Reliance Petroleum Ltd. [1] , a decision of the Supreme Court of Canada, only one member of the Court, Locke J., found it necessary, because of the view he took on other aspects of the case, to consider the effect of the insured's conduct in agreeing to consent judgments in settlement of certain of those claims despite the insurer's specific warning that to do so would contravene the conditions of the policy prohibiting settlement by the assured. He treated the insurer's failure to investigate the claims, to conduct the defence and to pay resultant judgments as breaches of the contract of insurance: these breaches he described as amounting to waiver of its right to insist upon compliance by the insured with the relevant conditions of the policy and relied for that purpose on the authorities upon which the judgments in Chamberlain's Case [1] were founded.

[99]

with the taking over by the Insurance Company of the proceedings on behalf of the insured, and its intendment is that nothing is to be done by the insured to prejudice the main right of the insurer, so that, if the Insurance Company has to contest the case, the insured is not to make any "admission promise, or payment without the written consent of the Company". I cannot accept the arguments contra, for this condition is quite inconsistent with the circumstances under which the insured has to defend his own action. [1] However the judgment goes on to describe the insurer, which had not only refused to take over the defence of an action but had also specifically denied any liability to indemnify, as being "debarred from relying on such a condition as a condition precedent" and the decision must, I think, be understood in the light of the breach of contract on the insurer's part in denying liability to indemnify. On appeal to the Supreme Court of the Irish Free State Kennedy C.J. and FitzGibbon and Murnaghan JJ. delivered separate judgments; each affirmed this aspect of the decision of Hanna J. Murnaghan J. said [1] : In my opinion the meaning of the condition is that the insured must not do anything which will prejudice the Insurance Company in conducting the defence of the action, if the Company desires to take over the defence. In my opinion the clause has no application to a case such as the present where the Insurance Company has refused to take any part in defending the action, and it does not debar the insured from settling the case when it has come into Court for final determination. His Honour drew no distinction between a wrongful refusal to indemnify, which is what in fact occurred, and an election not to exercise its right to take over the insured's defence, nor was it, in the circumstances, necessary for him to do so. The Chief Justice [1] , adopted these views of Murnaghan J.; FitzGibbon J. on the other hand relied upon what he regarded as the insurer's waiver, by its conduct in declining liability to indemnify, of its right to be consulted in the settlement of any claim. It was, he thought, the clearest case of waiver by conduct. This case cannot, in my view, provide any authority in a case where the insurer is not in breach of contract. 1. [1936] I.R. 596. 2. [1936] I.R., at p. 601. 3. [1936] I.R., at p. 619. 4. [1936] I.R., at p. 608.

At a glance

Court

Decision date

Before

Source

Judgment (118 paragraphs)

Parties

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