Dr Gregory Moore v The National Mutual Life Association of Australasia Limited

The proposal for insurance 3In late 1993, Dr Moore took up a position as a psychiatry registrar at Launceston General Hospital. He was aged 46 at the time. He had graduated from the University of Tasmania in December 1973 with the degrees of Bachelor of Medicine and Bachelor of Surgery. Following his graduation he had had a varied career, which I describe in more detail below. 4Shortly after Dr Moore took up his position at Launceston General Hospital, his general practitioner, Dr Smith, suggested that he take out income protection insurance. Dr Smith suggested that Dr Moore approach Australian Casualty & Life, which is what Dr Moore did. The person Dr Moore spoke to said that someone would be in contact with him. Subsequently, Mr Peter Lowe, who was based in Melbourne, called Dr Moore and arranged to meet with him. There is no dispute between the parties that Mr Lowe was acting as Australian Casualty & Life's agent in arranging the insurance. There is a dispute between Dr Moore and Mr Lowe about whether they met once or twice and whether they met at Dr Moore's home in Launceston or at a consulting room at Launceston General Hospital. Nothing turns on the resolution of those disputes. 5At the meeting between Dr Moore and Mr Lowe - or, on Mr Lowe's version of events, their second meeting - Mr Lowe took with him an insurance application form for a policy with Australian Casualty & Life. Part of the form was completed by Mr Lowe in Dr Moore's presence. However, section 10 of the form headed "medical history" was completed by Dr Moore and the form was signed in a number of places by him. 6Section 4 of the form described the cover sought by Dr Moore. Relevantly, he sought sickness benefits to the age of 65 in the amount of $5,000.00 per month together with $3,000.00 per month for "office overhead/new business expenses." 7Section 5 of the form sought information about Dr Moore's occupation. The completed form described Dr Moore's "principal occupation" as "psychiatrist". In answer to question B in section 5, the form stated that Dr Moore had been in that occupation for "21 years" and that his current business had been in operation for "3 years". Question D identified the name and address of Dr Moore's employer as "Dr GF Moore c/- Launceston Hosp Consulting Rooms". It appears that the words "Dr GF Moore c/-" were added after Mr Lowe had written the words "Launceston Hosp Consulting Rooms", since the latter words occupy a box and the former words have been written above the box and, in the case of the abbreviation "c/-" to the immediate left of the box. Question I asked two questions. One was "Are you self employed?" The other was "How many people do you employ?" Next to the first question were two boxes, one marked "yes" and one marked "no". Next to the second question was a box to be completed. It appears that originally the "no" box was ticked in response to the first question (concerning whether Dr Moore was self employed). However that tick was crossed out and the yes box was ticked. Dr Moore initialled the crossing out. In the box next to the question asking how many people were employed by Dr Moore, the figure "1" was inserted. 8Section 6 of the form dealt with details of Dr Moore's earnings. Question A asked: What were your earnings from your principal occupation (net of business expenses but before tax) over the last 12 months? Question B asked: What were your earnings (net of business expenses but before tax) in the full financial year prior to that period? The answer "$90,000.00" was given to both questions. Question C asked what were Dr Moore's current monthly expenses. The answer given to that question was "$3,000.00". 9Section 9 asked for Dr Moore's height and weight. The answers given were "5' 10 1/2 " and "15 ST" respectively. 10Section 10, which as I have said was completed by Dr Moore, asked a series of questions in relation to Dr Moore's medical history. Relevantly, the questions were: Have you EVER had, or been told you had, or received advice or treatment for: ... (C) mental or nervous disorder (eg stress, depression) fainting, epilepsy, paralysis, brain disorder? ... (N) drug or alcohol dependency? ... In answer to each of those questions Dr Moore ticked the box marked "No". 11Section 12 of the form (which was to be completed only if Office Overhead/Business Expenses Cover was required) sought further information about Dr Moore's business expenses and details of any employees. Question (v) of that part of the form asked "Date the business was purchased/started". In response, Mr Lowe wrote "PERTH 1983 LAUNCESTON 1993". Mr Lowe said in evidence that he thought that the reference to Launceston 1993 was a mistake and that he meant to write "1990". In section 12 of the form, Mr Lowe wrote in amounts for Dr Moore's monthly business expenses, which totalled $3,000. That amount included $1,600 for a receptionist. 12In connection with his application for insurance, Dr Moore also completed a personal statement. Question A3) asked "have you used, or injected yourself with any drug not prescribed by a doctor?" Dr Moore answered that question by ticking the box marked "No". 13Section C of the personal statement relevantly asked the following questions: Have you EVER had, or been told you had, or received advice or treatment for: ... c) mental or nervous disorder, (eg: stress, depression) fainting epilepsy, paralysis, brain disorder? ... n) drug or alcohol dependency? Dr Moore answered both those questions by ticking the relevant box marked "no". 14Section 15 of the application form contained a general declaration. That declaration stated in part that all the answers given by Dr Moore in the application and in the personal statement were true and that he was "not aware of any other circumstances which might affect the risk of an Insurance on my life". The declaration went on to provide (in bold) "If any answer is not in my handwriting, I declare that it has been correctly written down at my dictation." 15Dr Moore was also examined by Dr J M Sands, who completed a form relating to Dr Moore's medical condition. That form records Dr Moore's weight as 105 kilograms. For reasons that I will explain shortly, that fact took on some significance during the course of the hearing. 16After considering the insurance application and personal statement Australian Casualty & Life, on or about 14 December 1993, issued Dr Moore with an income protection policy. The underwriter who considered Dr Moore's application and approved it was Mrs Vanessa Huijsen (ne Atkis). Mrs Huijsen gave evidence in the case.

The policy 17Clause 2.1 of the policy relevantly provides: (a) In the event of Your Total Disability, a Total Disability Benefit will be paid monthly in arrears, accruing from the date of the expiration of the Waiting Period. (b) ... (c) The Total Disability Benefit will be equal to the Monthly Benefit, as varied in accordance with this Policy. (d) Subject to paragraph (e) below [which is not relevant in this case], the Total Disability Benefit will continue to be payable until the earlier of: (i) the expiry of the Maximum Benefit Period; and (ii) the date You are no longer Totally Disabled. 18Clause 2.2 of the policy provides for the payment of a Partial Disability Benefit in the event of Partial Disability. The Partial Disability Benefit is calculated as (A-B)/A X C, where A is the insured's average monthly income earned in the 12 months immediately prior to the date of commencement of Total Disability due to the insured's personal exertion or activities from any source, B is the actual income earned during the month of Partial Disability and C is the Monthly benefit. 19"Total Disability" is defined in cl 1.15 to mean: (a) Your continuous inability to perform each and every duty of Your occupation as a result of an Injury or Sickness; (b) You are under the regular care and attendance of a Doctor for such Injury or Sickness; and (c) You are not engaged in any occupation; For the purposes of this definition, the words "inability to perform each and every duty of Your occupation" in paragraph (a) above means that You are unable to perform at least one of the duties of Your occupation necessary to producing Your Income". 20"Partial Disability is defined in cl 1.7 to mean: [I]mmediately following a period of Total Disability and because of the Injury or Sickness which directly caused the Total Disability, You: (a) are under the regular care and attendance of a Doctor; (b) are able to perform one or more duties of Your occupation but are unable to perform all duties of Your occupation on a full time basis; and (c) are earning Income from Your occupation or another occupation at a monthly rate of less than 75% of Your Pre-Disability Income. 21"Sickness" is defined in cl 1.13 to mean "sickness or disease suffered by You which manifests itself while this Policy is in force". The Monthly Benefit was described in the policy schedule as $5,000.00 per month for sickness and as $3,000.00 per month in respect of business expenses. The Waiting Period was defined in the policy schedule to be 30 days. The Maximum Benefit Period in respect of sickness was defined in the policy schedule to mean "to age 65". The words "PROF. INCOME REPLACEMENT REGISTERED MEDICAL PRACTIONERS OF TASMANIA" were also typed in an untitled box in the policy schedule. 22There is no question that Dr Moore suffers "Total Disability" within the meaning of the policy if he is not able to perform one or more of the duties of his occupation and he is not engaged in any occupation. That is made plain by words at the end of the definition of "Total Disability". See also Mercantile Mutual Insurance (Australia) Pty Ltd v Selikas [2000] NSWCA 331. In addition, National Mutual accepts that the effect of the policy is that, if Dr Moore engages in work for a period of time, but is unable to perform one or more of the duties of his occupation as a result of a sickness that caused the Total Disability, then Dr Moore must give credit for the income he earns in accordance with the policy but is otherwise entitled to continue to receive a Total Disability Benefit. He does not lose the right to claim a Total Disability Benefit because, for a time, he has only suffered from a Partial Disability. National Mutual also accepts that the policy does not require Dr Moore to seek employment in some other occupation. It simply requires Dr Moore to give credit for income earned in another occupation if he chooses to engage in one. Dr Moore only loses his benefit if he ceases to suffer from the sickness which caused his Total Disability in the first place (or if he earns more than 75 percent of his previous income in another occupation). 23Clause 6.3(b) of the policy provided: Proof [of an entitlement to a benefit] must be established by such reports, written declarations or by other means as We may reasonably require. Clause 6.5 provided: At Our own expense, We shall have the right to arrange for You to be examined by a doctor when and so often as We may reasonably require for the duration of a claim.

The claim 24In late 1994, Dr Moore started to develop what he described as a "major depressive illness". He took leave without pay from his job with Launceston General Hospital, although he continued to do some work as a locum at a local general practice. He consulted Dr Ross Kirkman, a specialist psychiatrist in Launceston, and started taking antidepressant medication. He formally resigned from his position at Launceston General Hospital on 28 March 1995 and, on 3 May 1995, he lodged a claim with Australian Casualty & Life. Dr Moore's depressive illness was compounded by the fact that, shortly after he started to take antidepressants, he began to experience frequent rectal haemorrhaging associated with abdominal pain. Following extensive investigations, that complaint was diagnosed as being caused by angiodysplasia of the colon. The treatment for that condition caused severe complications that led to partial or complete bowel obstructions and cholecystitis, which subsequently necessitated the removal of Dr Moore's gall bladder. That in turn led to further complications including, for a time, severe and uncontrollable diarrhoea. In addition, in or about October 1996, Dr Moore suffered a stroke which caused him for a time to engage in behaviour which was completely out of character. 25On 5 October 1999, Australian Casualty & Life gave notice that it intended to cease paying benefits. However, it reconsidered its position following submissions from Dr Moore in which Dr Moore pointed out that the Medical Council of Tasmania had declined to renew his registration, with the result that he was incapable of carrying on the occupation of a medical practitioner. 26On 19 November 2002, Australian Casualty & Life again gave notice by letter that it intended to cease paying Dr Moore any benefits. The letter said by way of explanation that Dr Smith "certifies you as fit to return to full time work as of 26 October 2002 and he acknowledges that you have been pain free since 11 October 2002". The letter goes on to explain that, since Dr Moore was no longer unable to perform each and every duty of his occupation as a result of injury or sickness he no longer met the definition of Total Disability "and therefore no further benefits are payable". However, as "a gesture of good faith" Australian Casualty & Life enclosed a cheque for $30,570, representing 6 months of Dr Moore's monthly benefits. The letter from Australian Casualty & Life is unsatisfactory in a number of respects. First, there does not appear to be any report from Dr Smith in which Dr Smith certified that Dr Moore was fit to return to full time work. The letter relied on from Dr Smith, dated 15 October 2002, certainly states that Dr Moore had been pain free from 11 October 2002, but it says nothing about Dr Moore's fitness to return to work other than that the "[f]uture prognosis must be guarded, but at this early stage it is looking promising". Second, the letter seems to be written on the misunderstanding that Dr Moore only suffered from Total Disability if he could perform none of the tasks of his occupation. National Mutual rightly no longer takes that position. Third, the letter from Australian Casualty & Life says nothing about Dr Moore's entitlement to a Partial Disability Benefit. In any event, Australian Casualty & Life has not paid Dr Moore any benefits since 2002. Dr Moore commenced these proceedings in 2008 seeking to recover damages calculated by reference to the benefits he would be entitled to under the policy until he reaches the age of 65. On 15 October 2009, Turks, the solicitors for National Mutual, gave notice that National Mutual avoided the policy for fraudulent misrepresentation and non-disclosure. As I have said, National Mutual then sought leave to amend its defence in these proceedings and to file a cross-claim alleging fraudulent misrepresentation and non-disclosure. That leave was given by Einstein J on 5 February 2010.

Personal history of Dr Moore 27Before dealing with the defences raised by National Mutual, it is necessary to say something more about Dr Moore's personal history. 28Dr Moore was married in his fourth year of medical school. At about that time, he was injured in a sporting accident which required him to have a nasal operation. He was given pethidine in connection with that operation and there is some evidence (from Dr Hampshire, an expert psychiatrist called by Dr Moore) that Dr Moore continued to take that drug for non-medical purposes for a short time after his operation. 29After graduating in 1972, Dr Moore worked as an intern at Balmain Hospital in 1973 and as a Registrar in psychiatry at Sydney Hospital in 1974. He and his wife then joined the Royal Australian Army. Soon afterwards, they separated and his wife was discharged. Dr Moore then commenced a de facto relationship. Following his divorce from his first wife, he and his de facto wife were married. 30In the latter part of 1975, while stationed in the Kapooka Military Hospital, Dr Moore started injecting himself with pethidine, which he obtained either from army supplies or by making out false prescriptions, which he presented to local chemists. It is unclear precisely over what period of time Dr Moore self-administered pethidine or the precise quantity he took during that period of time. The amount, however, was substantial. His activities were discovered during routine checks of the army's store. Initially, Dr Moore denied any wrongdoing on his part. However, prompted by his wife, he saw a psychiatrist and later confessed. 31According to a report dated 9 March 1976, which was prepared by Major Owens in connection with an investigation into Dr Moore's activities, Dr Moore "admitted that he was unable to control his problem of abuse of [pethidine] and injected himself with a quarter to a third of the drugs received". In a statement prepared by Dr Moore at the time, Dr Moore said that his memory of his experience of pethidine in connection with his nasal operation "played a significant part in my voluntarily administering this and other associated drugs to myself in the latter half of 1975". He said that "why I should have done this to this day remains a mystery". Dr Moore also said that he had attempted to cease the habit of taking pethidine without assistance in the hope that he would be able to replace the missing army supplies. He said, however, that his attempts were unsuccessful. 32On 8 April 1976, Dr Moore was convicted of 6 charges relating to his use of pethidine at a general court martial. He was also found guilty by the North Sydney Court of Petty Sessions of an offence of making false representations in connection with the presentation of prescriptions to local chemists and was released on a bond. No conviction was recorded. Following his court martial, Dr Moore was assigned to the staff of Brigadier James in Melbourne. Brigadier James wrote to the Medical Council of Tasmania on 29 October 1976 in response to a request by the Council. In that letter, Brigadier James said: Early this year I was involved in investigating the circumstances concerning an admission by Captain Moore that he had self administered pethidine during the latter part of 1975. In brief, I established that Capitan Moore took some 85 ampoules of pethidine from Army stocks and began self-administration of the drug. This action was carried out in private, but later his wife became aware of it. He then, with the help of his wife and advice of a local psychiatrist, was able to wean himself off the drug, and has not taken any since September 1975. The episode of self-administration covered a period of perhaps six weeks. Brigadier James concluded: Captain Moore has been a medical officer on my staff since April this year and has worked under direct supervision of my medical staff and myself. He's proving to be a competent medical staff officer and I am convinced that he is completely rehabilitated from the point of view of drug administration. 33Following his discharge from the Army in 1977, Dr Moore worked as a general practitioner first in Melbourne and then in Zeehan, Tasmania. In late 1979, Dr Moore again started using pethidine and a similar drug, Omnopon. For how long Dr Moore used the drugs is not clear from the evidence. It appears that he was caught and charged with a number of offences relating to his drug use on 31 January 1980. He admitted himself immediately to the John Edis Hospital, where he remained until 29 February 1980. Dr Moore says that he admitted himself to hospital in order to obtain leniency from the court. The charges were heard on 26 June 1980. Dr Moore pleaded guilty. Each complaint against him was discharged conditionally upon him entering into a bond to be of good behaviour for a period of two years. On 3 September 1981, Dr Moore's name was removed at his request from the medical register in Victoria, due to an "inability to practice due to his drug dependency", and subsequently from the medical register in Tasmania. At about this time, he separated from his second wife. 34From 1980 to 1982, Dr Moore worked as a lecturer in anatomy at the University of Tasmania and then from January 1983 to January 1984 as a registrar in histopathology at Flinders Medical Centre in Adelaide. He met his third wife there, who was also a medical practitioner. 35In March 1983 Dr Moore's registration was reinstated, at his request, on the condition that he was prohibited from possessing or prescribing schedule 8 drugs - that is, drugs of addiction, including pethidine. 36At some time after March 1983, Dr Moore moved overseas for a period time. It is not clear from the evidence for how long he was away, precisely what he did and whether he made one trip or two. However, there is evidence that he lived in London for a time and worked in the hospitality industry while he was there. 37Dr Moore returned to Australia in June 1984. He worked for a time as a general practitioner. However, in August 1984 he relinquished some of his renewed prescribing rights due to his dissatisfaction with the practice of medicine and, in late 1984, he took up a non-clinical position with the Department of Veterans' Affairs in Hobart. Despite that, in December 1984, Dr Moore contemplated a return to medical practice, and he requested that his prescribing rights once again be reinstated. That request was granted in June 1985. 38In about August 1985, while working full time for the Department of Veterans' Affairs, Dr Moore began some weekend work at an after hours medical service in Hobart. Once again, he started using pethidine, which he obtained from a doctor's bag supply. The authorities soon discovered that he was doing so and, on 14 October 1985, Hobart police attempted to interview him at his workplace, only to find that Dr Moore had already left the state. Shortly before leaving, on 9 October 1985, Dr Moore wrote to the Minister for Health in Tasmania. In that letter he said that he wished to surrender his rights to prescribe schedule 4 and schedule 8 drugs. 1In his letter, Dr Moore pointed out that Dr Ian Martin, a specialist psychiatrist, had said to him that his basic problem was that "I like the stuff [that is, pethidine]". The letter went on: To my horror I have found the Dr Martin's contention is correct. Placed in a clinical environment (and, as mentioned without any concomitant personal problems) I experienced a rekindling of the most powerful yearning for narcotics imaginable: I virtually found myself salivating at the thought. Such an experience had been totally absent for the five years that I had been away from clinical medicine. ... The critical factor is to ensure that never ever again have I anything to do with clinical medicine. 39Dr Moore was charged with a number of offences in connection with his use of pethidine in late 1985. He pleaded guilty to those offences on 5 May 1986. A conviction was recorded and the court imposed a sentence of four months imprisonment, which was wholly suspended on condition that Dr Moore be of good behaviour for three years. 40During 1986, Dr Moore's name was removed from the register of medical practitioners in Tasmania, as well as Victoria, South Australia and New South Wales. Dr Moore then wrote a lengthy letter to the Medical Council of Tasmania in which he sought to explain his conduct and requested again to be restored to the Medical Register. In that letter, he said that he had been forced to live apart from his third wife, who had remained in Adelaide while he moved to Tasmania to obtain work. He went on to say: This, coupled with the stress of separation from my wife, which had become progressively more difficult to cope with, saw me slip insidiously into a depressive illness which, in retrospect was much more serious than I had realised, and played a significant role in what was to follow. The letter went on: Being, as I now recognise, seriously depressed by virtue of the long separation by my wife, plus a midlife career crisis, the return to clinical work further deepened my depression. And later: I was not able to overcome the overpowering urge to seek relief from my problems by the self administration of pethidine. And later still: The self administration of pethidine occurred in the depths of a brief but severe psychiatric illness... Dr Moore requested that his registration be conditional on his prescribing rights being permanently revoked and on condition that he not be involved in clinical medicine, as his "inability to handle the prescription pad is a permanent fact". It appears that Dr Moore's submission was accepted and his suspension from the medical registers of Tasmania, New South Wales and Victoria were conditionally revoked, although there is a question whether that revocation was effective. 41Dr Moore says that many of the statements in the letters to the Minister and to the Medical Council were not true. He denied that he suffered from an addiction to pethidine or that he suffered from a psychiatric illness before 1995. He says that he wrote what he did because that is what his audience expected him to say. 42Following his convictions in 1986, Dr Moore held or claims to have held a number of non-clinical positions around the country. He moved to Perth and worked as a resident counsellor with the Australian Institute of Sport between 1986 and 1987. He was at one stage enrolled in the Faculty of Education at the University of Western Australia, and says he was also a senior tutor in Anatomy at the Faculty of Science at that institution. He claims to have worked as the manager of a Drug and Alcohol Crisis and Rehabilitation Centre in Perth, with the Jesus People Welfare Services in 1987. He worked with the Red Cross Blood Transfusion Service in 1988. In 1990, he moved to Queensland and became Master of Capricornia College in the University of Central Queensland until March 1993, when he applied for the position of psychiatry registrar at Launceston General Hospital. Although Dr Moore undoubtedly held a number of the positions he said he did, it is difficult to be confident about precisely what positions he did hold. On his own admission, a number of resums that he prepared contained false information about the jobs that he had held. 43In connection with his application for the position of psychiatry registrar, Dr Moore reapplied for registration in Tasmania. He was held to be medically fit to practice, and registration was granted subject to a condition that he not possess nor prescribe schedule 8 drugs and that he not practise in clinical medicine except with the approval of the Medical Council of Tasmania. A request by Dr Moore that these restrictions be varied was denied, but the Council indicated that it was prepared to consider a variation to the restrictions after 12 months. 44As I have said, Dr Moore developed symptoms of depression and anxiety in late 1994. He also started using pethidine again at that time. I have already described the events that immediately followed, including his claim under the policy. 45I should add, however, that, in May 1996, Dr Moore applied to be a civilian medical officer with the army in Bonegilla, Victoria. At that time, he was unregistered to practice in Victoria. Nonetheless, he worked in that position briefly in July. His time in that position was punctuated by a number of incidents, including requesting pethidine from the Emergency Department at Albury Base Hospital and allegations that he had stolen the qualifications of a neurologist. In my opinion, this attempt to return to work was a symptom of his illness rather than evidence of a recovery. 46Dr Moore then remained out of work for an extended time, living off his income protection insurance until it ceased in November 2002. He then obtained Centrelink benefits. Originally, he received Newstart benefits but subsequently he received a disability pension, which he continues to receive. He completed his Bachelor of Nursing in 2003. He came top of that course. His Centrelink benefits ceased for periods of time while he was employed, although those periods of employment were not extensive. ln 2004, he commenced a casual teaching role at the University of Tasmania, and was employed by the university for different periods until 2006. In December 2004, Dr Moore also applied to the Department of Health and Human Services for the position of a mental health registered nurse . He worked in that position (full time) from March 2005 to June 2005. He completed a Masters Degree in Counselling Studies in August 2005. In May 2010, he was briefly employed in the Customer Care group of a travel insurer as a registered nurse. 47From 2003 onwards, Dr Moore suffered from a number of different physical, neurological and psychological complaints. These included abdominal pain and bowel problems, recurring lower back pain, cycles of depression and anxiety and mental confusion and distorted perception, among other things. He was treated by numerous medical practitioners over that period of time and was admitted to hospital on a number of occasions. He was prescribed pethidine as part of a pain management regime in late 2004 until April 2005. Some of Dr Moore's complaints are likely to have had an organic basis. However, as Dr Hilton Francis observed, it is likely that many of them did not, and that his complaints were part of an elaborate attempt (sometimes successful) to obtain pethidine. As Dr Francis observed in a letter dated 6 July 2005 to Dr Smith: I am not as convinced [about] how genuine he is with his complaints. I have no doubt he has pain. I have equally no doubt that he is addicted to narcotic analgesia and certainly has a need for pethidine. ... His behaviour was fairly classical of a narcotic abuser turning up late at night at the end of the day.

Has Dr Moore suffered from total or partial incapacity since 2002? 48National Mutual puts its case in relation to this issue in two ways. First, it says that Dr Moore did not suffer from a "sickness" within the meaning of the policy at the time he made his claim (or any time later) because the sickness which resulted in his Total Disability (as defined in the policy) first manifested itself before the policy was taken out. Second, National Mutual submitted that Dr Moore had, by November 2002, sufficiently recovered from the sickness that had resulted in his Total Disability so as no longer to be suffering from Total Disability. 49The first way in which National Mutual puts its case depends on reading into the definition of "Sickness" the word "first" before the word "manifests" so that the definition reads "sickness or disease suffered by You which first manifests itself while this Policy is in force". Mr Cavanagh, who appeared for National Mutual, submitted that the clear purpose of the policy was to provide cover to the insured against sickness (or injury) that occurred after the policy was taken out, not sickness (or injury) that occurred before the policy was taken out. Consistently with that purpose, the parties must have intended by "manifests" to mean "first manifests". I do not accept that submission. The purpose of the policy was to provide Dr Moore with cover in the event that he suffered Total Disability during the policy period. It does not follow from that that the Total Disability had to arise from a sickness that had not previously manifested itself. There is no reason to suppose that the parties only intended that Dr Moore would be covered against Total Disability arising from a sickness that first manifested itself during the period of cover. What the insurer did was to ask questions in the application form about pre-existing illnesses to determine whether, notwithstanding any illnesses disclosed by Dr Moore, it was prepared to provide cover and, if so, on what terms. On National Mutual's case, there was no need to ask any questions in the proposal form since Total Disability arising from any disclosed illness would be excluded in any event. That cannot be right. 50A preliminary question in relation to the second way in which National Mutual puts its case is what Dr Moore's occupation was for the purposes of determining whether he has been continuously unable to perform each and every duty of that occupation. The application form described Dr Moore's "principal occupation" as "psychiatrist". However, it is clear that Dr Moore has never carried on that occupation. The parties appear to have proceeded on the basis that Dr Moore's occupation for the purpose of the policy was that of a medical practitioner. Having regard to the terms of the policy schedule and the nature of the activities actually undertaken by Dr Moore, that seems to me to be appropriate. 51In my opinion, Dr Moore has not at any time since 2002 been able to perform all of the duties of a medical practitioner. I think that that is so as a consequence of a combination of his addiction to pethidine and the fact that he suffers from stress and depression. There is no doubt that he suffered from those conditions in March 1995 when he resigned his position as a psychiatry registrar at Launceston General Hospital and that those conditions prevented him from continuing to work as a medical practitioner at that time. That conclusion is consistent with Dr Moore's medical history and, in particular, the fact that his return to clinical practice on a number of previous occasions brought about episodes of stress or depression which were accompanied by self-administration of pethidine. In 2003, Dr Moore undertook further studies to become a nurse. He did very well in those studies and, for a period of time, worked as a nurse. But that does not mean that he was able to perform all of the duties of a medical practitioner. On the contrary, the fact that he could not retain the jobs that he obtained supports the conclusion that, when placed in a work environment, the symptoms of his stress re-emerged. 52The conclusion that Dr Moore continued to be unable to perform all of the duties of a medical practitioner was supported by evidence given by Dr Lethlean and Dr Hampshire. Dr Lethlean is a consultant neurologist who examined Dr Moore on 1 October 2009. He recorded that Dr Moore suffered from depression and anxiety and concluded that "Dr Moore has been unable to perform any of the duties of his occupation (as a medical officer) which is necessary to produce an income from 14 November 2002 and continues to be so at this date 1 October 2009". Dr Hampshire, who was cross-examined, expressed the view that Dr Moore suffered from unipolar depression or possibly recurrent adjustment disorders with depressed mood together with an episodic substance abuse disorder involving pethidine dating back to the 1970s. Dr Hampshire said in cross-examination that the illness which prevented Dr Moore from returning to work as a medical practitioner was substance abuse disorder which he thought was a disorder that Dr Moore had suffered from episodically since the 1970s. However, his report also observed that Dr Moore suffered from "severe and recurrent depressions, and anxiety/panic" and that "[t]his man's psychological problems are chronic and won't go away". 53Mr Cavanagh submitted that I should not accept the evidence that Dr Moore was unable to perform all of the duties of a medical practitioner. He made two principal submissions in support of that proposition. First, he relied on evidence concerning Dr Moore's employment history particularly as described in a number of resums Dr Moore submitted to potential employers. Second, he submitted that I should discount Dr Lethlean's evidence because it was based on an incorrect history taken from Dr Moore. 54As to the resums, in my opinion a substantial amount of the information contained in them that was relied on by Mr Cavanagh was false. There are considerable inconsistencies between Dr Moore's various resums. For example, in his application for restoration of registration to the Medical Council of Tasmania in April 1993, he claims to have been a Medical Officer for the WA Drug and Alcohol Authority in 1988, where he was given supervised schedule 8 prescribing rights. However, his application in May 1993 for the position of civilian medical officer with the army does not mention that posting. Nor do subsequent resums. 55Dr Moore's later resums contain several claims that he said in evidence were fictitious. For example, his 2004 application to be a registered psychiatric nurse contains references to his running a "private counselling/psychotherapy practice" full time from 1998 to 2000, then part time from 2001 to 2002 and then again in 2003. Dr Moore first tried to explain these claims as a poor choice of terminology: "it is not practice in this counselling psychotherapy in the sense of selling my professional skills to paying clients...it was preliminary work done ...I earned no money" When he was cross-examined on the same entries when the hearing resumed on 20 April 2011, he frankly admitted that the relevant entries on his resums were fabrications. The 2004 job application also contains other statements that are patently false, including a description of army service in Vietnam, where he claims to have been in combat. 56Similarly, in his application to work as a registered nurse with a travel insurer in 2010, Dr Moore claims to have been running a private counselling practice in Manly from January 2009 to February 2010, a period in which he spent seven weeks in the Currumbin Clinic in Queensland due to poor health. In that application, he also claims he worked as a registered nurse in a remote area health centre in WA from 2006 to 2009, and as a registered nurse in Paris in 2005. Under cross-examination, Dr Moore admitted that these, and other statements in this application, were not correct but were "fabrications". 57I accept that Dr Moore's evidence must be treated with a great deal of scepticism. It contained inconsistencies and, for reasons I will refer to shortly, there are other respects in which I am not prepared to accept it. However, in my opinion, Dr Moore was being truthful when he said that his resums contained fabrications. A number of claims in them are inherently implausible and are inconsistent with other evidence. That makes it difficult to determine precisely what work Dr Moore did do. However, I do not think that the resums provide evidence that Dr Moore was capable at any time of returning to work as a medical practitioner. 58I accept that little weight can be placed on Dr Lethlean's report. The history described in the report is brief. There are clearly significant gaps in it. For example, Dr Lethlean says nothing about the fact that Dr Moore took pethidine intermittently over a lengthy period of time. Nor does Dr Lethlean refer to the fact that Dr Moore had come top of his nursing course. Dr Lethlean did refer to a report prepared by Dr Hampshire and other psychiatric reports but it is not possible to tell from his report what matters referred to in those reports he relied on in forming his conclusion. But that still leaves Dr Hampshire's evidence. Dr Hampshire took an extensive history from Dr Moore and also read numerous other medical reports concerning him. The history Dr Hampshire records in his report was incomplete and inaccurate in some respects. Again, for example, Dr Hampshire does not specifically refer to Dr Moore's achievements in his nursing course. However, in my opinion, the respects in which the history recorded by Dr Hampshire was incomplete or inaccurate were minor and they were matters about which he could have been cross-examined if National Mutual considered them to be significant. The conclusion reached by Dr Hampshire that Dr Moore was unable to return to work as a medical practitioner is consistent with the facts. In particular, as I have said, Dr Moore had a history of returning to clinical work only to end up taking pethidine and exhibiting signs of stress and depression that made it impossible to continue in his then current position. It seems that those incidents grew more severe as Dr Moore got older - which is also consistent with Dr Hampshire's conclusion. It is also likely, as Dr Hampshire points out, that a number of Dr Moore's symptoms after 1995 were exaggerated by Dr Moore in an attempt to persuade various medical practitioners to prescribe pethidine for him. As I have said, some of those attempts succeeded. All that is consistent with an underlying condition that "won't go away" and means that Dr Moore has not been in a position to return to medical practice since 2002.

Misrepresentation and non-disclosure 59Section 29 of the Insurance Contracts Act 1984 relevantly provides: (1) This section applies where the person who became the insured under a contract of life 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: (c)the insurer would have entered into the contract 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; or (d)... (2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3) If the insurer would not have been prepared to enter into a contract of like insurance with the insured on any terms if the duty of disclosure had been complied with or the misrepresentation had not been made, the insurer may, within 3 years after the contract was entered into, avoid the contract. A "contract of life insurance" is defined in s 11(3) of the Act to include a continuous disability insurance contract. The contract in this case is clearly a contract of that type: see s 11(5). 60National Mutual pleads in its further amended commercial list response and in its cross-claim that Dr Moore was guilty of both misrepresentation and non-disclosure. The more detailed pleading is contained in the cross-claim. In that pleading, National Mutual pleads a large number of matters which were not disclosed to it at the time the policy was taken out. It alleges that the same matters made a number of answers given in response to questions asked in the application form and personal statement false. The matters relied on by National Mutual can be divided into 4 categories. First, National Mutual says that Dr Moore represented that he was a self employed psychiatrist who had been in practice for 21 years whereas in fact he was a psychiatry registrar employed by the Launceston General Hospital. Second, National Mutual says that Dr Moore represented that his income prior to taking out the policy was $90,000 per annum whereas, according to National Mutual in its cross-claim, it was $71,502 before tax in the year ending 30 June 1993. In fact, the evidence suggests that it was approximately $52,000 for that period. Third, National Mutual says that Dr Moore represented that he never had, nor been told he had nor received advice or treatment for a mental or nervous disorder (including stress or depression) whereas in fact he had. Fourth, National Mutual says that Dr Moore represented that he had not used or injected himself with any drug not prescribed by a doctor and that he never had, nor been told he had nor received advice or treatment for drug dependency whereas in fact he had. Having regard to the way the case was put, the non-disclosure case adds nothing to the misrepresentation case. For that reason, it is unnecessary to deal with it further in this judgment. 61The case in relation to misrepresentation raises several issues:

• Was Dr Moore guilty of misrepresentation?
• If so, would Australian Casualty & Life still have issued the policy on the terms that it did if the misrepresentations had not been made?
• If not, were the misrepresentations fraudulent?
• If so, has Australian Casualty & Life elected to affirm the contract or did it waive its rights?
• If not, is National Mutual entitled to recover the amounts paid to Dr Moore?

Was Dr Moore guilty of misrepresentation? 62Dr Moore accepts that the statements in the application form concerning his occupation and his income were false. However, he says that that part of the form was completed by Mr Lowe and it was Mr Lowe who devised the answers that were given. On the other hand, Dr Moore does not accept that the answers in the application form and personal statement respecting his mental health and use of drugs were misrepresentations. He says that he did not suffer from stress or depression and that he did not have a drug dependency prior to taking out the policy. In addition, he maintained that it was not a misrepresentation to say that he had not used or injected himself with a drug not prescribed by a doctor because the drugs he took were self-prescribed and he was a doctor. 63In my opinion Dr Moore was guilty of each of the misrepresentations relied on by National Mutual. 64I doubt that it is any answer for Dr Moore to say that Mr Lowe completed the application form when Dr Moore signed the form and, in particular, acknowledged that any answers not in his handwriting had been correctly written down at his dictation. By signing the application form, Dr Moore adopted the answers it contained: see Jenner v National Mutual Life Association of Australasia Ltd (1986) 4 ANZ Ins Cas 60-685 at 74,068 per King CJ (with whom Mohr and Jacobs JJ agreed). 65In any event, I do not accept Dr Moore's account of the meeting with Mr Lowe. Leaving aside the error identified by Mr Lowe concerning the year in which Dr Moore's psychiatry practice started in Launceston, I accept Mr Lowe's evidence that he accurately recorded information given to him by Dr Moore. Mr Lowe must have obtained some of the information in the application form from Dr Moore. He had no other source for it. It is highly implausible that Mr Lowe would have made up the answers given in the application form concerning Dr Moore's profession and income or that he would have advised Dr Moore to give the answers that were given. He had no reason to do so. On the other hand, much of what Dr Moore said about the meeting was implausible and he had good reasons for giving false answers in the proposal form. On Dr Moore's account of the meeting, Mr Lowe suggested that he provide false answers concerning Dr Moore's profession and the answers given in relation to Dr Moore's income were "figments of [Mr Lowe's] imagination". Dr Moore sought to explain his conduct in going along with what Mr Lowe did by saying that he did not appreciate that Australian Casualty & Life would rely on the answers in the application form in determining whether to provide cover. He also pointed to the fact that Mr Lowe wrote down Dr Moore's weight and height in imperial measurements rather than metric ones (the only ones Dr Moore said he used) and that he wrote Dr Moore's weight down incorrectly as evidence that Mr Lowe simply manufactured information contained in the proposal form. I do not accept that evidence. Dr Moore is obviously an intelligent person. He must have realised that he was being asked to complete the application form in order for the insurer to consider his application for insurance. His explanation for going along with what he said Mr Lowe proposed is highly implausible. In addition, I find it implausible that a medical practitioner would not be used to dealing with weight and height in both imperial and metric measurements. Moreover, it is clear from the report of Dr Sands that the application form did record Dr Moore's weight correctly. Again, that information could only have come from Dr Moore. Dr Moore must also have appreciated that, if he wanted cover of $5,000 per month, he would need to provide information concerning his income which justified cover at that level. The likelihood is that he understood that the insurer would only provide cover up to a proportion of his disclosed income. He therefore had good reasons for providing false information to the insurer. Dr Moore provided other information in the application form which, as I will explain shortly, was false. The fact that he was willing to do so reinforces the conclusions I have reached about the information concerning Dr Moore's profession and income. 66As I have said, Dr Moore seeks to justify the answers he gave concerning his mental health and his drug use on the basis that they were true. Again, I do not accept that contention. In my opinion, the letters that Dr Moore wrote to the Tasmanian Minister for Health and to the Medical Council of Tasmania demonstrate that he suffered from depression and stress and an addiction to pethidine and that, at some level at least, he appreciated that that was the fact. His explanation that those letters were full of lies is not plausible. Moreover, it is clear that Dr Moore had been told that he suffered from those conditions and had received advice and treatment for them. Consequently, even if he believed that he did not suffer from the conditions, the answers given in the application form were still false. There is nothing to suggest that Dr Moore did not appreciate that at the time he signed the application form. Although Dr Moore had a history of depression and anxiety associated with an addiction to pethidine, there is no evidence to suggest that his mental faculties were impaired by those conditions at the time he signed that form. Dr Moore's explanation for the answer he gave to the question in his personal statement concerning the injection of a drug not prescribed by a doctor is equally unsatisfactory. I do not see how it could be said that drugs obtained by theft or by completing false prescriptions could be said to be drugs "prescribed by a doctor" or how Dr Moore could honestly believe that to be the case.

Would Australian Casualty & Life have issued the policy on the terms that it did if it had known the true facts? 67In my opinion, the answer to this question is that it would not have. 68As to Dr Moore's profession, Mrs Huijsen gave oral evidence in chief that, if Dr Moore had described his profession as a psychiatry registrar rather than as a psychiatrist, it is likely that he would have been charged a higher premium. Mr Rayment, who appeared for Dr Moore, took objection to that evidence. In response, Mr Cavanagh said, in effect, that National Mutual would not be submitting that it was entitled to avoid the policy because it would have charged a higher premium. In those circumstances, the statement in the application form that Dr Moore's profession was that of a psychiatrist can be put to one side. It is not alleged that Dr Moore was guilty of misrepresentation in relation to his monthly expenses except to the extent that those representations formed part of the representation concerning his profession. Consequently, those representations also can be put to one side. 69Mrs Huijsen said in her affidavit evidence that, if Dr Moore had disclosed his correct income, she may still have been prepared to provide cover but only for 75 percent of the amount disclosed. That evidence was challenged in cross-examination. Essentially, it was put to Mrs Huijsen that she would only have been interested in Dr Moore's income from his current occupation since that was the income sought to be protected. In response, Mrs Huijsen said that it depended on the wording of the policy. In fact, it is clear from the policy that the Total Disability Benefit did not depend on Dr Moore's actual income at all. Rather, it was a monthly amount fixed by the policy (subject to a possible increase by what was described in the policy as an "Indexation Factor"). As I have indicated earlier in this judgment, the Partial Disability Benefit did depend on pre-Total Disability income. Nothing, however, turns on that. The important point is that the policy provided for the payment of a fixed amount in the event that Dr Moore suffered from a Total Disability. That amount was fixed by reference to the income disclosed in the application form. That income may have only been a rough proxy for Dr Moore's actual income, although the likelihood is that it would have been a reasonable proxy if the true position had been that Dr Moore had practised as a psychiatrist in private practice for the previous 21 years. However, rough or not, it provided the basis for determining the maximum cover that the Australian Casualty & Life would provide. In particular, Mrs Huijsen's evidence is that she would not have agreed to provide cover for an amount greater than 75 percent of that amount. I accept that evidence. It follows that Australian Casualty & Life would not have entered into the policy on the terms that it did if Dr Moore had disclosed that he earned $71,502 before tax in the year ending 30 June 1993 (which is what was pleaded) or approximately $52,000 (which was the fact). 70Mrs Huijsen's evidence is that she would have declined cover if she had known of Dr Moore's history of depression and use of pethidine. Although, for obvious reasons, Mrs Huijsen in her affidavit evidence dealt separately with the evidence concerning Dr Moore's depression and with the evidence of Dr Moore's administration of pethidine, there is a degree of unreality in doing so. The position was that Dr Moore had an intermittent history of depression and pethidine abuse associated in each case with clinical practice, with the consequence that he was unable to continue in clinical practice, for a time at least. In my opinion, it is obvious that an insurer providing income protection cover would want to know those facts and I think that it is equally obvious that an insurer knowing those facts would decline cover where the profession in respect of which cover was to be provided was one that involved clinical practice. Mrs Huijsen gave evidence that she would have declined cover if she had known of various elements that comprised Dr Moore's history of depression and pethidine abuse. That evidence was not seriously challenged. It strikes me as plausible; and it certainly strikes me as plausible when those various elements are combined. It follows that I accept that Australian Casualty & Life would have declined cover if Dr Moore had answered the questions in the application form and personal statement concerning mental illness and drug use truthfully.

Were Dr Moore's misrepresentations fraudulent? 71A representation is fraudulent if it was made with the intention of being acted on and was either known by the representee to be false at the time it was made or was made not caring whether it was true or false: Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676 at 680 per Griffith CJ; Muggleston V National Mutual Life Assn of Australasia Ltd [2004] NSWSC 913 at [46] per Bergin J. 72Once again, the representation concerning Dr Moore's profession can be put aside. It follows from what I have already said that the balance of the representations made by Dr Moore were made fraudulently. I have already found that Dr Moore knew that Australian Casualty & Life would rely on the answers he gave in the application form and personal statement and that the answers given in those documents were given by Dr Moore. Dr Moore knew that his income in the two periods identified in questions A and B of section 6 of the application form was not $90,000. I have also found that he knew that he suffered from depression and an addiction to pethidine and that, even if that is not correct, that he knew that he had been told that he suffered from those conditions and had received advice and treatment for them. It follows that the answers he gave to questions (c) and (n) of section 10 of the application form and of section C of the personal statement together with question A3) of the personal statement amounted to fraudulent misrepresentations.

Did Australian Casualty & Life elect to affirm the contract?

Principles relating to affirmation 73Affirmation involves three elements. First, there must be an unequivocal election between inconsistent rights. Second, that election must be communicated to the person against whom the rights are exercisable. Third, the election must be made with knowledge of the relevant facts. The doctrine of affirmation or election is separate from the doctrine of estoppel. Estoppels take various forms but one common form involves a representation of fact on the faith of which the representee acts to his or her detriment: for discussion, see The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 at 409ff per Mason CJ; at 422ff per Brennan J and at 443ff per Deane J. Depending on their nature, estoppels also have various consequences. One common consequence is that the representor will be prevented from asserting a state of affairs which is inconsistent with the one represented: The Commonwealth v Verwayen at 409ff per Mason CJ. Consequently, the doctrines of affirmation and election often produce the same consequences and there is often an overlap in the factual circumstances that give rise to them. For that reason, they are often confused or not clearly distinguished. The position is further confused by the fact that frequently, where an election is made or an estoppel arises, it is said that the person who has made the election or against whom the estoppel operates has "waived" his or her rights. There is, however, no separate doctrine of waiver. Rather "waiver" is a general term used to describe various legal principles: for discussion, see Agricultural & Rural Finance Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at 583ff per Gummow, Hayne and Kiefel JJ. In the current context at least, an allegation of waiver adds nothing to an allegation of election or estoppel. 74An election between a right to avoid or to terminate a contract or to affirm it does not have to be made immediately. An insurer has a reasonable time from the time that it discovers the true facts to make an election: see Athlone Pty Ltd v General Accident Fire & Life Assurance Corp (1985) 3 ANZ Ins Cas 60-648 at 78,992 per Foster J. It must continue to comply with its obligations under the contract in the meantime: N Legh-Jones et al, MacGillivray on Insurance Law , 11 th ed, (2008) Sweet & Maxwell at [17-090] citing McCormick v National Motor & Accident Ins Union (1934) 49 Lloyd's Rep 361; Glencore International v Alpina Insurance [2003] EWHC 2792; [2004] 1 All ER (Comm) 766 at [308]. As Moore-Bick J explained in the latter case: Alpina was entitled to a reasonable opportunity to assess what was on any view a large and complex claim and to investigate the background to it, but it does not follow that it was entitled to suspend further performance of the contract while it did so. Once an insurer is in possession of information that may justify his avoiding the policy he will undoubtedly be wise to reserve his position clearly in order not to give the insured grounds for saying that he has affirmed it and he does not repudiate the policy by taking that course even though by doing so he may cast doubt on its validity. ... [B]ut unless the contract otherwise provides, neither party is entitled to withhold performance while he decides what course to take and a party who announces his intention of doing so runs the risk of repudiating the contract. 75An election only occurs where the insurer makes a choice between inconsistent rights: Agricultural & Rural Finance Ltd v Gardiner at 588 per Gummow, Hayne and Kiefel JJ. What underlies the doctrine is that a party should not be able to have its cake and eat it too. It should be required to make a choice and, having made a choice, to be bound by it. As Jordan CJ explained in Larratt v Bankers and Traders Insurance Co Ltd (1941) 41 SR (NSW) 215 at 226: As a general rule, an existing legal right is not destroyed by mere waiver, in the sense of an express or implied intimation that the person in whom the right was vested does not intend to enforce it ... Thus, if a party to a contract becomes entitled to avoid it by reason of a breach by the other party of an essential promise, the fact that, with knowledge of the facts which give rise to the right to avoid, he says or does something which recognises the continued existence of the contract does not necessarily amount to a binding waiver of his right to avoid ... This effect is, however, produced if his act is of an unequivocal nature affecting the other party, and one which he would not be entitled to do if the contract were not subsisting, or one which leads the other party to do or abstain from doing something on the footing that the contract is still subsisting. ... If the act has not this character, it does not deprive him of his right to avoid ... Although Jordan CJ also refers in this passage to conduct which leads the other party to do or to abstain from doing something, I do not interpret his Honour as saying that that provides an alternative basis for an election. Rather, the point his Honour was making was that detrimental reliance provides an alternative basis - that is, estoppel - for destroying an existing legal right. 76The communication of an election can be by words or conduct. There is a question whether what must be communicated is simply the choice or whether, in addition, the person making the election must communicate (by words or conduct) that the choice is an informed one. In Insurance Corporation of the Channel Islands v The Royal Hotel Ltd [1998] Lloyd's Rep IR 151 at 162, Mance J observed that there was dicta that "may be said to point towards" the former approach including comments by Herring CJ in Coastal Estates Pty Ltd v Melevende [1965] VR 433 at 436. The comments of Herring CJ to which Mance J was referring were these: The first thing to consider is the nature of the conduct of the plaintiff that is relied upon. It is conduct no doubt that could have properly been put forward as evidence that the plaintiff had resolved to affirm, if he had known that he had a right of election. But of course in the present case his conduct has to be looked at on the basis that he did not have any such knowledge. And so looked at it would not appear conduct of such an unequivocal character as to preclude the plaintiff from exercising his right to rescind. By paying the instalments and interest payable under the contract and the rates that the contract required him to pay, the plaintiff was doing nothing inconsistent with disaffirmance. He was doing no more than fulfilling his own obligations under the contract. He was not seeking to exercise rights under the contract adverse to the defendant as vendor, nor was he seeking to gain advantages for himself. He did not do anything that unequivocally involved an affirmance of the contract, as is the case where a landlord for example with a right to forfeit a lease accepts rent from his tenant. This course the landlord can only justify on the basis that the lease is still on foot. 77I find it difficult to read into this passage anything about the nature of the communication required for an election. Rather, the point that was being made by Herring CJ goes to nature of the conduct that amounted to an election, not to the communication of the choice arising from that conduct. In any event, Mance J preferred the latter approach (at 162): In principle, it seems to me that the latter approach is correct in the context of affirmation. The communication itself or the circumstances must demonstrate objectively or unequivocally that the party affirming is making an informed choice. Why that should be so, however, is not entirely clear. If a person with knowledge of the facts makes an unequivocal election in the sense that the person asserts a right that is inconsistent with an alternative course of action available to the person and that assertion is communicated - by, for example, insistence on the right - why is that not sufficient? What seems to me to be important is the fact that the choice is an informed one and that the choice is made and communicated, not the communication of the fact that the choice is an informed one. 78The choice must be made with knowledge. Despite occasional suggestions to the contrary (see, for example, Calder Batavia Sea and Fire Insurance Co Ltd [1932] SASR 46 at 55 per Napier J), constructive knowledge is not generally sufficient for this purpose: Insurance Corporation of the Channel Islands at 161-2 per Mance J. I say "generally" because, as Mance J points out in Insurance Corporation of the Channel Islands (at 162) "knowledge" is not always easily defined and difficult problems can arise where a person deliberately decides not to investigate facts which, if investigated, would establish the true position. 79There is a question whether the knowledge must extend to knowledge of the right to elect. The position in England appears to be that it must: Peyman v Lanjani [1985] 1 Ch 457. However, differing views on the question have been expressed in Australia and the High Court in Sargent v ASL Developments Ltd (1974) 131 CLR 634 left the position open where the right to elect was a right to elect to avoid a contract for fraudulent misrepresentation. In that case, the court concluded that knowledge of the right to elect was not necessary where the right, in respect of which the election arose, was a right under the contract, since the parties are presumed to know their contractual rights: Sargent v ASL Developments Ltd at 642ff per Stephen J (with whom McTiernan ACJ agreed) and at 656ff per Mason J. For reasons which will become apparent, it is not necessary to resolve the question in this case. 80It is not clear precisely how much information the person making the choice must have in order for the choice to be an informed one. In Insurance Corporation of the Channel Islands at 161 Mance J said: Provided that the party knows sufficient of the facts to know that he has [the right to avoid], it is unnecessary that he should know all aspects or incidents of those facts. Some judges, however, have interpreted this requirement strictly. For example, in Spriggs v Wessington Court School [2005] Lloyd's Rep IR 474 at [76]-[78] Burnton J took the view that, even if an insurer had affirmed a liability policy after it had learnt that the insured had failed to disclose 4 complaints of sexual abuse by staff at the insured's school, the subsequent discovery that a further 23 former pupils had also made similar complaints would have entitled the insurer to avoid the policy. 81In my opinion, in order to give rise to a binding election, a person faced with a choice between inconsistent rights must know all the facts that a reasonable person in that position would consider relevant to the choice to be made. I do not see why a person should be bound by a choice that was made in ignorance of facts that a reasonable person would consider to be relevant. 82Two questions arise in this case. The first is whether Australian Casualty & Life made an election to affirm the contract. The second is whether, if it did, that election was made with knowledge of all the relevant facts.

Did Australian Casualty & Life make an election? 83In my opinion, Australian Casualty & Life did elect to affirm the contract. I do not think that the mere fact that Australian Casualty & Life made payments under the contract was sufficient to amount to an election. By making the payments, Australian Casualty & Life was not making a choice between inconsistent rights. To use the words of Herring CJ quoted above, it was doing no more than fulfilling its own contractual obligations. However, Dr Moore gave evidence, which was not disputed, that Australian Casualty & Life sent him monthly claims forms which it required to be completed by his treating doctor. In addition, Dr Moore gives evidence of at least one occasion in 1996 on which Australian Casualty & Life required him to submit to a medical examination by Dr Sharman. An insurer is entitled to take reasonable steps to investigate a claim without making an election to affirm the contract. However, that investigation cannot continue indefinitely. Australian Casualty & Life's decision to make payments under the policy and to require Dr Moore to submit claims forms which were completed by his treating doctor up until 2002 and to undertake a medical examination by Dr Sharman can only be explained as a decision to affirm the contract and to exercise its rights under cls 6.3 and 6.5.

Did Australian Casualty & Life make an election with knowledge of all relevant facts? 84Mr Rayment's submissions in relation to Australian Casualty & Life's knowledge has two principal limbs. First, he submitted that, at the time that Dr Moore made his claim, Australian Casualty & Life had a right under s 29(3) of the Insurance Contracts Act to avoid the policy for innocent misrepresentation. It did not lose that right until 3 years after the policy was taken out. Consequently, it was not necessary for Dr Moore to prove that Australian Casualty & Life had knowledge that Dr Moore's misrepresentations (assuming they existed) were fraudulent. It was sufficient if it knew that they were innocent. If it affirmed the contract in the light of that knowledge, it was bound by that affirmation even if it subsequently discovered that the misrepresentations were fraudulent. Second, Mr Rayment submitted that the facts disclosed to Australian Casualty & Life, together with the inferences that should be drawn from the fact that Australian Casualty & Life did not call any of the persons responsible for handling Dr Moore's claim in accordance with the principles in Jones v Dunkel (1959) 101 CLR 298, were sufficient to establish that Australian Casualty & Life had knowledge of all the relevant facts. 85I do not accept the first limb of Mr Rayment's submission. In my opinion, a reasonable insurer in the position of Australian Casualty & Life would want to know whether misrepresentations made by Dr Moore were made fraudulently or not, even if the misrepresentations were discovered within the 3 year period so that the insurer was able to exercise a right of avoidance under s 29(3) of the Insurance Contracts Act . An insurer may be prepared to overlook an innocent misrepresentation but may not be prepared to do so if the misrepresentation was fraudulent. In those circumstances, it should know the position before being required to make a choice. 86Mr Rayment relies on a number of documents to establish Australian Casualty & Life's knowledge. The first is Dr Moore's preliminary claim form dated 1 May 1995. In that form, Dr Moore described his occupation and duties as "registrar in psychiatry" and his employer as the Launceston General Hospital. 87Second, Mr Rayment relies on a report dated 4 December 1995 from Dr Hyde to Dr Kirkman, a copy of which was provided to Australian Casualty & Life. In that report Dr Hyde says: He [that is, Dr Moore] described, from the age of 15, of experiencing auditory and visual hallucinations which were external and, between '75 and '85 he found these were reduced with the use of Pethidine. ... He presents with a complex history of depressive symptoms together with perceptual difficulties and intermittent problems with substances. ... 88Third, Mr Rayment relies on a report dated 15 October 1996 from Dr Hyde addressed to the claims consultant of Australian Casualty & Life. The report repeats what Dr Hyde said to Dr Kirkman and goes on to say: When I last saw him on 6 August 1996 he had returned from another stay in Victoria, on doing so he had been placed on a Methadone maintenance programme and he described considerable improvement with reduction of symptoms of depression and anxiety. ... He had however been taking increasing quantities of the Benzodiazepine Clonazepam and he believed he had developed a dependence on this medication. My management at the time I was seeing him involved a combination of medication and counselling, his behaviour at times was erratic, he separated from his wife and at one time was charged by the Police for obtaining narcotics by deception. ... It appears that this report was read by Ms Vicki Skinner, Manager, Rehabilitation Services. In a note dated 25 October 1996, which was attached to Dr Moore's claims file, Ms Skinner records: Dr Hyde gives a history of the insured using pethidine between 1975 and 1985 to assist with auditory and visual hallucinations which were external. He has had episodic abuse of narcotics and benzodiazepines and is now taking Methadone. He has also been charged by the Police for obtaining narcotics by deception. I would recommend careful assessment of this file considering the policy does not give and [sic] prior history as above. 89Fourth, Mr Rayment relies on a number of file notes in the Claims Management Schedule kept by Australian Casualty and Life which were created in 1998 and which make reference to Dr Moore's drug dependency and mental illness. For example, a note dated 29 July 1998 records: I have grave doubts about [the insured] being able to return to medicine, given his history of mental illness, drug dependency and self prescription of narcotics. 90Fifth, Mr Rayment, relies on correspondence between Mr Nick Gianoudis, who was from the Special Investigations Unit of Australian Casualty & Life, and Dr Hyde. On 14 April 1998, Mr Gianoudis wrote to Dr Hyde to ask him whether the information he provided in his report dated 15 October 1996 was based on self reporting information from the insured or other medical reports. Dr Hyde replied on 28 April 1998 that it was the latter. It appears that no further action was taken by Mr Gianoudis following that response. 91Mr Rayment submits that this material, taken together with the fact that none of the authors or recipients of the documents at Australian Casualty & Life were called to give evidence, demonstrate that Australian Casualty knew that Dr Moore had a history of pethidine abuse and depression. He also submits that Australian Casualty & Life knew that Dr Moore was not a psychiatrist and consequently must have appreciated that he had misrepresented his income. Lastly, he submits that it must have been obvious that, if Dr Moore was guilty of making misrepresentations, those misrepresentations were fraudulent. 92I do not accept that these matters establish that Australian Casualty & Life had knowledge of all the relevant facts. In my opinion, little can be inferred in this case from the fact that no one from Australian Casualty & Life's claims department was called to give evidence. As the Court of Appeal has most recently pointed out in Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331 at [634], Jones v Dunkel does not require the court to draw an adverse inference against a party who fails to call a witness: The first matter [raised at the trial concerning the drawing of inferences] was the familiar, although often misunderstood, Jones v Dunkel reasoning from a party's unexplained failure to call a witness the party would be expected to call. The fact-finding tribunal may infer that the evidence of the absent witness would not assist the case of that party, or it may draw with greater confidence an inference unfavourable to that party. There is no compulsion to reason in either way. The reasoning cannot make up for absence of proof: before there can be greater confidence in an inference unfavourable to a party, the inference must already be available on the evidence. Conversely, if the party's case is otherwise proved, the inference that the absent witness would not assist the party's case does not detract from the proof. Particularly having regard to the lapse of time, in my opinion, all that can be inferred from the failure to call anyone from Australian Casualty & Life's claims department is that they would have been unable to provide any more information than is contained in the documents concerning Dr Moore's claim which are relied on by Mr Rayment. 93I do not think that the documents relied on by Mr Rayment establish that Australian Casualty & Life knew all the relevant facts concerning Dr Moore's depression and pethidine addiction. Clearly, it was not necessary for Australian Casualty & Life to know all the facts that I have described above. However, I do think it was necessary for Australian Casualty & Life to know sufficient facts from which it could be appreciated that Dr Moore had a long history of depression and anxiety as well as pethidine abuse associated with clinical practice. The information provided to Australian Casualty & Life certainly indicated that Dr Moore had a history of pethidine use and that, at some point, that use developed into an addiction. In particular, it appears from Ms Skinner's file note that Australian Casualty & Life was aware that Dr Moore had a history of using pethidine between 1975 and 1985. Ms Skinner thought Dr Moore took the pethidine to control hallucinations. However, the evidence does not support the conclusion that Dr Moore suffered from hallucinations. The evidence from Dr Hampshire was to the effect that Dr Moore's history was inconsistent with his claim that he suffered from hallucinations. Dr Moore's claim that he suffered from hallucinations that were controlled by pethidine is more likely to be one example of Dr Moore's many attempts to obtain access to pethidine. Importantly, though, there is no evidence to suggest that Australian Casualty & Life knew the period over which Dr Moore had been addicted to pethidine and the circumstances in which that addiction manifested itself. Similarly, Australian Casualty & Life knew that Dr Moore had a "complex history of depressive symptoms" but it did not know over what period of time and in what circumstances those symptoms manifested themselves. Given the information Australian Casualty & Life had, it would have been natural for it to have made further enquiries to find out the true facts. Ms Skinner appreciated that further enquiries were warranted. However, there is no evidence that Australian Casualty & Life undertook those enquiries beyond writing to Dr Hyde; and there is no evidence that its decision not to do so was deliberate. 94Nor do I think that Australian Casualty & Life knew that Dr Moore had misrepresented his income. It might have been put on enquiry about that matter when it was told that Dr Moore was a psychiatry registrar and not a self-employed psychiatrist. However, there is no evidence that it made those enquiries. The fact that it was put on enquiry is not sufficient. 95It follows that Australian Casualty & Life did not affirm the contract with knowledge of the relevant facts. Consequently, National Mutual was entitled to avoid the policy when it found out the relevant facts.

Did Australian Casualty & Life waive its rights? 96Dr Moore also pleads that Australian Casualty & Life "waived" its rights under the contract. It is not clear whether that pleading is intended to raise a separate defence to the one of affirmation. As I explained earlier, if it is, that separate defence could only be one based on an estoppel. Certainly, in support of the defence of waiver, Mr Rayment submitted that Dr Moore acted to his detriment by not applying to Centrelink to obtain unemployment or sickness benefits and by paying income tax on the amounts he received under the policy. 97However, in my opinion, there is no basis for finding an estoppel in this case. That is because Dr Moore does not plead the representations said to have been made by Australian Casualty & Life on which he relied. It has sometimes been suggested that, if an insurer does nothing after it becomes aware of a right to avoid, that may amount to a representation to the insured that the insurer does not intend to act on its strict legal rights: see, eg, Simner v New India Assurance Co Ltd [1995] LRLR 240 at 260 per Judge Diamond; Callaghan and Hedges v Thompson [2000] Lloyd's Rep IR 125 at 132 per Steel J (a case which appears to confuse election and estoppel). But no representation of that type was pleaded by Dr Moore. Nor can the point simply be regarded as a pleading point, at least in the context of this case. In considering a case based on estoppel, it would be important to understand precisely what representation is alleged to have been made by Australian Casualty & Life's conduct because that will be relevant to matters such as the nature of the estoppel relied on, the question of reliance and the relief that should be granted. For example, is the representation relied on a representation that, on the facts known to Australian Casualty & Life at the time the representation is said to be made, it would not insist on its strict legal rights or is the representation broader than that? Similarly, is the representation a representation that Australian Casualty & Life would not insist on its strict legal rights for so long as it continued to make payments or is the representation a representation that it would never in the future insist on its strict legal rights? The answers to these questions are important because they assist in characterising the representation as one of fact or as a promise about the future. They are also important in determining whether the representation was made. For example, it is one thing in the context of this case to say that Australian Casualty & Life represented that it would continue to make payments under the policy on the basis of the facts that it knew. It is another thing to say that it represented that it would continue to make payments under the policy whatever it found out. If the former representation was made, it is difficult to see why National Mutual should be prevented from departing from the representation on the basis that it has discovered new facts. In my opinion, these points are sufficient to demonstrate that Dr Moore cannot rely on some separate doctrine of estoppel.

Must Dr Moore refund the amounts paid to him? 98The general principle is that money paid under a contract that has been avoided for misrepresentation is recoverable: Newbigging v Adam (1886) 34 Ch D 582. 99However, in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the High Court, following the decision of the House of Lords in Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, recognised that a defence of change of position was available to all restitutionary claims, including a claim to recover money paid under a contract that had been avoided (at 384ff). The High Court did not define the precise scope of the defence, preferring to leave it to develop on a case-by-case basis. However, the court accepted that, in order for the defence to be available, there must be a detrimental action made on the "faith of the receipt" so as to make the requirement of restitution inequitable: David Securities at 385. Merely spending the receipt on "ordinary living expenses" will not normally satisfy that requirement: David Securities (1992) at 386; Lipkin Gorman [1991] at 579-580. As James J explained in Corporate Management Services (Aust) Pty Ltd v Abi-Arraj [2000] NSWSC 361 at [19] the reason is that "the defence will only lie where the defendant has "changed his position", that it has acted differently on the faith of the payment from the plaintiff." In addition, the defence is not available where the recipient has acted in bad faith or is a wrongdoer. As Lord Goff said in Lipkin Gorman at 580: It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. 100There is a question whether a missed opportunity for gain is a detriment for the purpose of the defence: for discussion, see C Mitchell, 'Change of Position: The Developing Law' [2005] Lloyd's Maritime and Commercial Law Quarterly 169 at 176. In Australia, however, that question seems to have been resolved in favour of the view that it can be. For example, in Gertsch v Atsas [1999] NSWSC 898, Foster AJ found that the defendant had changed her position by forsaking an opportunity to earn income and instead taking up a university education: at [98]. Similarly, in Palmer v Blue Circle Southern Cement [1999] NSWSC 697 Bell J held that the plaintiff had changed his position by giving up an opportunity to obtain social security entitlements. In that case, a truck driver had received weekly workers' compensation payments on the basis that he was partially incapacitated. Subsequently, the Compensation Court held that the employer had no liability to make those payments over the preceding two year period. The employer then sought to recover the amount of those payments. The evidence indicated that, following termination of the payments, the worker was paid an invalid pension and that, had he not received the workers' compensation payments, he would have been entitled to receive either sickness benefits or an invalid pension. The worker argued that the failure to apply for a pension was a relevant change of position. Bell J accepted that it was. In her Honour's view the failure to claim social security benefits in reliance on the workers' compensation payments was a sufficient change of position "within the broad statement of principle enunciated in David Securities " (at [36]). 101Normally, the remedy granted by the court is a pro tanto one. The recipient of the payment is only relieved of the obligation to return it to the extent that it would be unjust to require the recipient to do so. As the High Court explained in David Securities (at 385): If we accept the principle that payments made under a mistake of law should be prima facie recoverable, in the same way as payments made under a mistake of fact, a defence of change of position is necessary to ensure that enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust. Similarly, in Lipkin Gorman at 579, Lord Goff said: [W]here an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. In that case, a partner in a firm of solicitors stole money from the firm's trust account and used it to place bets at a club. The House of Lords held that the contracts under which the bets were placed were void under the Gaming Act 1845 (UK) and that, consequently, the club was liable to return the bets the subject of those contracts. However, their Lordships also took the view that the club was entitled to a defence that it had changed its position by paying out on winning bets. Their Lordships did not examine each bet separately. Rather, they took the view that the solicitors were entitled to recover the total amount of the bets placed but had to bring to account the winnings paid by the club. 102The standard case of a pro tanto defence is one where the recipient disburses part only of the funds received. However, that approach has been extended to at least some cases where the change of position arises from a foregone opportunity. In those cases, the courts have, in effect, permitted the payer to recover the payment in question but permitted the recipient to bring to account the value of the foregone opportunity. So, for example, in Gertsch v Atsas [1999] NSWSC 898, the defendant had received a legacy of $100,000 under a forged will. She used a substantial part of that legacy to repay a mortgage and, instead of working, chose to attend a university course. Foster AJ held that, had she not received the legacy, should would have worked and paid off all but $10,000 of the mortgage. In those circumstances, his Honour held that the beneficiary was entitled to a defence of change of position in relation to the amount that she would have earned and used to pay off the mortgage had she not received the legacy. The estate was only entitled to recover the balance of $10,000 plus interest on that amount from the time that the administrator had demanded that the money be returned. On the other hand, in Palmer v Blue Circle Southern Cement [1999] NSWSC 697, Bell J took the view that there was no evidence to suggest that the workers' compensation payments received by the worker were greater than the social security payments he would have received but for receipt of the earlier payments. In those circumstances, the question of pro tanto restitution did not arise. 103One other point to observe in this context is that the requirement that the defence should only operate where it is "unjust" to require the recipient to return the money does not give the court some broad discretion in determining whether to permit recovery of the payment in question: Scottish Equitable plc v Derby [2001] 3 All ER 818. The injustice must arise from the receipt and the change that that receipt causes. Nonetheless, in considering the question of injustice, it is necessary to have regard to all the circumstances of the payment and the conduct it gives rise to: see Lipkin Gorman at 580 per Lord Goff. 104In applying these principles to the current case, it is important to bear in mind a number of factors. First, as a result of Dr Moore's Total Disability, he became unable to work as a medical practitioner and to earn an income from doing so. The purpose of the insurance he took out was to replace that income in part and, as a result, to permit Dr Moore to continue to pay living expenses at a level approaching his expenses before suffering from the disability covered by the policy. This is not a case where Dr Moore simply received a sum of money and chose to use it to meet ordinary living expenses which, but for the payment, would have been met in some other way. Second, the likelihood is that Dr Moore paid income tax on the amounts he received from Australian Casualty & Life but there is no evidence of the amount of that tax. Third, the evidence is that Dr Moore would have applied for Centrelink payments if he had not been in receipt of benefits from Australian Casualty & Life. There is no reason to suppose that he would not have received those benefits had he applied for them, at least during the extensive periods when he was not working. Again, there is no evidence before the court on the amounts that Dr Moore could have expected to receive from Centrelink if he had not received payments under the policy, although they would certainly be less than the amount he did receive. Fourth, having regard to Dr Moore's conduct after 2002, it is possible that, if he had not received payments under the policy, he would have attempted to obtain some form of employment, although not as a medical practitioner. Whether he would have been successful, for how long the employment would have lasted and what amount he might have earnt is purely a matter of speculation. Fifth, there can be little doubt that, if Dr Moore had not received payments from Australian Casualty & Life then he would have been forced to make further adjustments to his life and living expenses, as he was required to do once those payments ceased. Sixth, it is clear that Dr Moore would not be entitled to recover past Centrelink benefits now. Finally, I do not think that it could be said that Dr Moore knew that Australian Casualty & Life was entitled to a return of the money or that he was a wrongdoer. National Mutual only became entitled to a return of the money when it elected to avoid the policy; and Dr Moore did not know that would happen. The fact that Dr Moore was guilty of fraudulent misrepresentation does not make him a wrongdoer in relation to the receipt of the payments. There is no suggestion, for example, that he misled Australian Casualty & Life in relation to the payment of his claim. 105Taking these matters into account, I do not think that this case can be analysed simply as one where Dr Moore changed his position by foregoing the opportunity to receive Centrelink payments and possibly the opportunity to earn some income from other jobs. He also changed his position by using the money to pay living expenses which it is likely he would not have incurred, but for the payments. Although generally, as I have said, the payment of living expenses is not regarded as a relevant change of position, I do not think that principle applies where the payments are made for the purpose of enabling the recipient to meet those expenses and the recipient would have taken other steps to meet living expenses or to reduce them if those payments had not been made. In those particular circumstances, I think that the recipient has changed his or her position on the faith of the payments and that it would be unjust to require the recipient to refund the amount of those payments in those circumstances. It follows that Dr Moore has changed his position in a way that would make it unjust to require Dr Moore to repay any of the amounts paid to him.

Costs and Orders 106In my opinion, Dr Moore should pay the costs of the proceedings. Although he has been successful in resisting National Mutual's claim for a return of the money paid to him, that success only arises from an amendment the court permitted at the very end of the case allowing Dr Moore to raise the defence of change of position. The time taken up in dealing with that defence was small in the overall context of the case. Having regard to those matters, I think justice would best be served by an order for costs in National Mutual's favour. 107The orders of the court are: (1)The amended summons be dismissed. (2)The cross claim be dismissed. (3)The plaintiff pay the defendant's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 May 2011