Frewin v Emmdale Sports Club & Anor

The insurance policy 7 Lester Collis Hoy (aff 18 March 2004) deposed that he was employed by GIO from approximately 1976 until approximately the end of 1989. He was employed by GIO as a commercial consultant, working from Dubbo and reporting to the Orange office, as that was the head office for the Western Region of GIO in New South Wales at the time. During his employment as a commercial consultant with GIO, he was responsible for selling policies to commercial entities. 8 In early 1989, Mr Elliott, the then honorary treasurer of the Association approached Mr Hoy with regard to the Association's need for public liability insurance. Mr Hoy recalls that they discussed GIO providing the Association with a public liability policy. Mr Hoy deposed that his usual practice when discussing insurance requirements was to discuss details such as the business of the proposed insured, whether GIO would agree to accept that type of business, what type and level of cover was being sought, what GIO products were available that might meet their need, what relevant exclusions would be applied to the policy and any desirable extensions in cover and likely premiums [aff 18 March 2004, paras 5 & 6]. However in cross-examination, Mr Hoy was unable to recall the specific conversations he asserts he had with Mr Elliott. 9 On 4 April 1989 Mr Hoy forwarded to Mr Elliott a quotation for a legal liability policy. Mr Hoy does not recall the content of any discussions he had with Mr Elliott. He deposed that he would have followed his usual practice and informed Mr Elliott that the participants would be excluded from cover under the policy. However, in cross-examination Mr Hoy conceded he could not specifically recall informing Mr Elliott that the participants would be excluded from coverage under the policy. 10 On 4 April 1989, Mr Hoy wrote to Mr Elliott, providing a quote for the Association's public liability stating "Note: Participants are excluded from cover granted under this policy". On 26 June 1989, Mr Elliott wrote to Mr Hoy, referring to recent communications and attached a cheque in the amount of $525.65 paying the premium quoted for $5 million 'Legal Liability including stand risk and goods sold' and. This letter further stated: "Our Club each year holds an annual charity gymkhana and race day, together with a campdraft day. We reserve the right to hold other charity or sports days as the committee may authorise. … Total cover for all activities is required from 1/7/89." 11 Similarly, the small business proposal policy document annexed to the letter referred to the activities involved as being the "running of annual gymkhana and race day. Also a campdraft and any other function approved by the committee". 12 The policy was then raised on GIO's database at Orange, and allocated policy number SB1130131 [aff 18 March 2004, paras 7, 8, 9 & 14]. On 1 September 1989, the Association was insured by GIO Australia Limited under a small business insurance policy number SB113013. Section 6 of the Policy Document covers special exclusions. Under the heading "Endorsements applicable to Specified Business" it states, "Will only apply where so indicated in The Schedule or in other documentation issued by the GIO". Under clause 13 of that section it states: "13 SHOWGROUNDS and SPORTING EVENT ORGANISERS Section 6 does not cover claims - a) by or on behalf of any participant in any contest or event organised by the Insured; b) arising directly or indirectly out of or caused by or in connection with firearms, missiles of any kind, explosives or combustibles." 13 There was no endorsement on the schedule to the effect that participants were not covered. So in "other documentation", namely the letter dated 4 April 1989, reference was made to participants being excluded from cover granted under the policy. Mr Hoy could not recall whether he had any conversation with Mr Elliott after the letter of 4 April 1989. However, Mr Elliott's next letter namely that of 26 June 1989 refers to "recent communications". This letter preceded the actual policy but it may be that there were further conversations between the letter dated 4 April 1989 and the letter of 26 June 1989. The policy does not include the exclusion. While there is an ambiguity between the earlier letter and the schedule in the policy, the policy itself refers to exclusions applying where they are indicated not just in the schedule but "in other documentation issued by the GIO". 14 On 1 June 1993 the plaintiff's former solicitors, Tilbury and Company wrote to the insurer asking whether it was prepared to accept liability in relation to the plaintiff's claim. On 15 June 1993, the insurer replied that their client effected public liability insurance to cover incidents that may have involved the general public, but that the correspondence (letter 4 April 1989 referred to earlier) showed that 'participants' activities were excluded. It advised that they were not in a position to neither indemnify the first defendant nor accept liability in respect of the claim. This letter also referred to the fact that the insurer had made a most thorough investigation and it did not appear that there was any negligence, inadvertent or otherwise arising out of the incident.

The law 15 Part 8 r 8(1)(b) of the SCR, relied upon by the plaintiff in the amended notice of motion, is not the appropriate vehicle for joining the insurer. 16 The appropriate section is s 6(4) of the Law Reform (Miscellaneous Provisions) Act which provides: "…no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken." 17 It was submitted by the plaintiff that in order for the court to grant leave to join the insurer, it needs to be satisfied that there is a serious question to be tried. The defendant submitted that the court needs to be satisfied on the balance of probabilities there is a case for indemnity. Both parties referred to Kinzett v McCourt (1999) 46 NSWLR 32 at 47; Izzard v Universal Insurance Co Ltd [1937] AC 773 at 779-780; Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399; Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Insurance Cases 61-515; [2001] NSWCA 193 and McMillan v Mannix & Anor (1993) 7 ANZ Insurance Cases 61-194. 18 In Bailey McHugh & Gummow JJ at 448 stated that: "This provision is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases. What the sentence does suggest is that, if there is an entitlement to disclaim, there may be no moneys which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s 6(1) can operate. The phrase in s 6(4) is 'the insurer is entitled under the terms of the contract of insurance to disclaim liability'. A clear example of such entitlement would be a disclaimer under the general law right to rescind for non-disclosure. Another instance would be the exercise of the right to avoid the contract of insurance given the insurer in certain cases of non-disclosure and misrepresentation by s 28 of the Insurance Contracts Act 1984 (Cth). However, the terms of s 6(4) of the Law Reform Act are apt to include more than avoidance by reason of some vitiating factor in the formation of the contract of insurance. For example, in McMillan v Mannix, a provision of the policy of insurance required the co-operation of the insured in the event of a claim; such co-operation was a condition precedent to liability and breach of it was a basis for disclaiming liability. It was true that the relevant event, failure to co-operate in the event of a claim, occurred only after, in the terms of s 6(1), 'the happening of the event giving rise to the claim for damages or compensation'. Nevertheless, the entitlement to disclaim liability was conferred by the contract as it stood at the earlier date, albeit the entitlement became exercisable only after the happening of a later event. In McMillan v Mannix, the New South Wales Court of Appeal, by majority, held, correctly in our view, that there were no insurance moneys which were or might become payable in the sense of s 6(1) of the Law Reform Act." 19 It is not alleged that there was a non-disclosure or misrepresentation by the Club. 20 Mason P in Fishwives summarised Bailey in this way: "…did the prescription exclusively cover any and if so which field? What is the meaning of ' entitled under the terms of the contract of insurance'? What circumstances are encompassed by the second condition in the proscription which speaks of ' proceedings … necessary to establish that the insurer … entitled to disclaim' having been taken?

… It is sufficient to observe that their Honours read the prescription as mandatory where it applies, but as not precluding the power to refuse leave in other cases. 'Other cases' include cases where there is an issue (at the leave stage) as to the insurer's entitlement to disclaim for non-disclosure, misrepresentation or pursuant to contractual entitlement. The reason why the prescription appears to cover no field exclusively lies in s6(1)'s express recognition that no charge will attach unless and until insurance moneys become payable in respect of the insurer's liability.

… The words I have emphasised form the basis for my conclusion that the passage as a whole shows that, in a proper case, leave may be refused in a proper case even though the insurer has not itself taken ' proceedings … necessary to establish that the insurer is so entitled to disclaim' .

I do not accept the appellant's submission that the judge was bound to grant leave if there was an arguable case on the non-disclosure issue. I can readily accept that leave may be given where the Court is satisfied that there is an arguable point on the insurer's indemnity issue. It is now established that the grant of leave to proceed against an insurer does not foreclose the insurer's right to litigate issues going to its liability to indemnify the insured in the substantive proceedings. Dixon's Case shows the insurer lives to fight another day. But it does not follow, in my view, that a court that is positively satisfied of the insurer's entitlement to disclaim, after issue has been joined on that matter as between the plaintiff and the insurer, must exercise the discretion in favour of the grant of leave. The court is ' seized of the discretion to grant leave' ( National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1996) 138 ALR 409 at 418 per Lindgren J), but it is not driven to exercise the discretion in a particular way." 21 It still comes down to the issue of whether under the terms of the contract the insurer was entitled to disclaim liability. It is at least arguable that the insurer is not entitled to disclaim liability because there is an inconsistency between the policy and the earlier correspondence and "recent communications". The policy itself refers to the exclusion applying where they are indicated not just in the schedule but in other documentation issued by the GIO. 22 After judgment was reserved the plaintiff made the supplementary submission in writing in relation to s 14 of the Insurance Contracts Act 1984 (Cth) and ambiguity. 23 Both parties referred to passages from Insurance Law in Australia 3rd ed, Sutton LBC para 9.88 at 769 where the learned authors state: "If there is no ambiguity in the policy, but an inconsistency exists between the wording of the policy and that in the proposal or other earlier document, the policy, in the absence of evidence to the contrary, is to be regarded as expressing the true intention of the parties: Izzard v Universal Insurance Co Ltd [1937] AC 773 at 6779-780."

and "A contract must be read as a whole, and where a policy incorporates by reference other documents, all must be read and construed together in order to arrive at the true contract. If the terms ascertained from the whole of the documents are unambiguous in themselves and independently consistent with each other, effect must be given to each according to its verbal tenor, as severally construed." 24 In Codelfa Construction Pty Limited v State Rail Authority (1982) 149 CLR 337. In Codelfa [at paragraph 22] the High Court stated: "The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract, if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract where is has a plain meaning." 25 Stephen J continued at paragraph 24: "Consequently, when the issue is which of two or more possible meanings is to be given to a contractual provision we look not at the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting." 26 The plaintiff submitted that as an ambiguity exists between the letter dated 4 April 1999 and the policy as issued, the policy, being the latter document in time, must be construed as expressing the true intention of the parties. There is also a gap in the evidence because "recent communications" took place between the letters dated 4 April 1989 and 26 June 1989. 27 According to the plaintiff, as in the imposition of a duty of disclosure upon an insured, reliance upon an exclusion contained in a further document imposes a clear duty of informing the insured. 28 The plaintiff also referred to Suncorp General Insurance Ltd v Cheihk (1999) 10 ANZ Ins Cas 61-442 at 75-018 [paragraph 38] where Giles JA (with whom Meagher JA agreed) stated: "Clarity was required not only in the contents of the note by which information was conveyed but also by the manner in which the conveying of the information was made known. A note in a document without attention being properly drawn to it would not suffice, even if the contents of the note were adequate to state the general nature and effect of the duty of disclosure." 29 It is my view that the plaintiff has an arguable case in respect of the issue of ambiguity.

Breach of good faith 30 As to the alleged breaches of the duty of good faith, the plaintiff relies upon the statutory scheme as enunciated in Part II of the Insurance Contracts Act entitled 'The duty of the utmost good faith'. Section 13 of that part of the Insurance Contracts Act states: "13 A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith." 31 The plaintiff relied on s 14 of the Insurance Contracts Act which provides: "(1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) Subsection (1) does not limit the operation of section 13. (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise." 32 The plaintiff submitted that the insurer carries the onus of compliance with the duty of utmost good faith, which it alleges has not been discharged. The insurer submitted that the defendant seems to proceed on the assumption that the letter dated 4 April 1999 was not a sufficient notification of the exclusion to Emmdale and that the statement of the exclusion was made in writing, before entry into the contract of insurance even if the exclusion could be characterised as an "unusual term" at the time when the premium was quoted, and Emmdale accepted the terms quoted and paid the premium calculated on the basis of the cover offered including the exclusion - s 37 Insurance Contracts Act. At the time that Mr Elliott approached Mr Hoy, the commercial consultant for GIO, Mr Hoy would have specialised knowledge of different types of insurance policies. It is my view that recommending and giving a policy of insurance for a gymkhana, which did not cover participants, is next to useless. As I stated previously, after Mr Hoy wrote the letter that referred to the exclusion of participants there were "further communications". It may be that there was further communication concerning the exclusion. It may be that the insurer should have done more to draw to the attention of the committee the exclusion of the persons it would have most wanted to cover by insurance, namely the participants in the gymkhana. It is my view that the plaintiff has an arguable case that the insurer is not entitled to disclaim liability on the basis of good faith. In the exercise of my discretion it is my view that the insurer should be joined as a defendant pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act.

Admission 33 Part 18 r 3 of the SCR provides: "3 Judgment on admissions (1) Where admissions are made by a party, whether by his pleading or otherwise, the Court may, on the application of any other party, give any judgment or make any order to which the applicant is entitled on the admissions. (2) The Court may exercise its powers under subrule (1) notwithstanding that other questions in the proceedings have not been determined." 34 The insurer also submitted that the pleading in "the Second Count" [paras 12-18] in the ASC and FASC (Exs 1 & 2) amounted to an admission that there was no appropriate public insurance in force on the day that the plaintiff received his injuries. In Singleton v John Fairfax & Sons (1982) 2 NSWLR 38 at 51 Hunt J (as he then was) stated: "My own conclusion therefore is that pleadings should not be placed in any special category which automatically precludes their use by way of admission in every case unless they are sworn. In my opinion, pleadings should be treated in the same way as any other form of admission. Whether or not the filing of a pleading may be used by way of admission of the truth of any fact it alleges should depend upon whether (to use the words of Wigmore , at p 49) they are seen to have been 'not intended to be taken as sincere or absolute assertions.' As with any other form of informal admission, the party against whom the pleading is tendered should be able to lead evidence which explains or contradicts the effect of the admission which it made." 35 Where the alleged admission is not explicitly on pleadings, the plaintiff must prove both the fact and the terms of the admission with certainty - see Kelly v Mawson (1981) 1 NSWLR 184 at 186F & 197F and Wagstaff v Fitzpatrick (1922) 39 WN (NSW) 137 at 138, Street CJ). The exercise of jurisdiction may be refused as a matter of discretion especially where not all the relevant circumstances, such as the whole of the arrangement between the parties or the entitlement to a judgment, are admitted or where it is apparent that the true facts are otherwise or the facts admitted are related to facts in dispute on a claim yet to be determined - Termijtelen v Van Arkel (1974) 1 NSWLR 525 at 527A, 529D, 530F, 531A, 532C & 534F. 36 As the plaintiff's counsel informed the court that the second count is abandoned, I attach little weight to this, particularly as in 1999 it was the insurer who advised the plaintiff's solicitor that it refused to indemnify the first defendant. In the exercise of my discretion, particularly as the admission came about because of the advice of the insurer, it my view that "the second count" should not be treated as an admission. 37 Leave is granted to join the insurer as a defendant. The "second count" does not constitute an admission that there was no public insurance policy in force on the day of the accident.

38 Originally I proposed to follow the usual rule and make an order that the insurer pay the plaintiff's costs without hearing from the parties on costs. However as the motion sought an order that the costs be cost in the cause. As this order is also appropriate, I make the order that costs be costs in the cause.

(1) The insurer GIO General Limited be joined as a defendant.

(2) The "second count" does not constitute an admission that there was no public insurance policy in force on the day of the accident.

(3) Costs of the motion be costs in the cause. **********

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