GIO Australia Ltd v P Ward Civil Engineering Pty Limited & Anor

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11935/99 GIO AUSTRALIA LTD v P WARD CIVIL ENGINEERING PTY LTD AND ANOR Judgment

HER HONOUR : 1 This appeal comes before the court by way of case stated by a Magistrate in the Local Court following his decision on 9 April 1997, to order that GIO Australia Limited (the present appellant, to whom I will refer as "GIO") be joined as a party to proceedings between P Ward Civil Engineering Pty Ltd (to whom I will refer as "Ward") and Cassandra Schmitzer (to whom I will refer as "Schmitzer"). The question posed in the stated case is whether the decision to join GIO as a party was erroneous in law. The issue concerns the application of s 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946. S 6 (1) is in the following terms: "6. (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability."

The facts 2 In March 1993 Mark Maddison was the registered owner of a Ford Falcon motor vehicle in relation to which he held a policy of insurance issued by GIO. Pursuant to the policy GIO was obliged to indemnify him in relation to certain defined events. The first such event is identified in the policy as "Defined Event A" and relates to legal liability incurred for loss of or damage to property (other than the insured vehicle) occurring as a result of the use of the vehicle. The indemnity so afforded extended to legal liability incurred by any person besides Maddison who, at the time of incurring the liability, was in charge of the vehicle with Maddison's express or implied consent. "Defined Event B" is of no present relevance. "Defined Event C" relates to loss of or damage to Maddison's own vehicle. 3 The policy specifically excluded indemnity for liability incurred by a person who at the time the liability was incurred was not licensed to drive. The exclusion was itself subject to a qualification and did not apply to loss or damage to the insured vehicle, or to legal liability incurred by Maddison when the vehicle was being driven by an unlicensed driver unless Maddison knew or should reasonably have known that the driver was unlicensed. 4 On 1 March 1993 Maddison's vehicle was being driven by Schmitzer with Maddison's authority. Schmitzer held no licence to drive. The vehicle collided with and caused damage to a vehicle owned by Ward in circumstances that made Schmitzer liable for that damage. Maddison's vehicle was also damaged in the collision. The damage to Maddison's vehicle came within the policy provisions as Defined Event C. He made a claim on the policy and GIO met the claim. 5 Ward commenced proceedings against Schmitzer, claiming reimbursement for the costs of repairing the damage to its vehicle. Schmitzer did not defend the claim and default judgment was entered against her. She too made a claim on the policy, relying on the extended cover provided in relation to Defined Event A to persons other than the policy holder. GIO declined to indemnify her on the basis that she was an unlicensed driver and therefore came within the exclusion referred to above. It may here be mentioned that the claims made by Maddison and Schmitzer were made jointly in a single claim form. 6 It is to be observed that the qualification on the exclusion has no present relevance or application. It applies to loss of or damage to the insured vehicle (that is, Maddison's Ford Falcon) or to the incurring of a legal liability by the policy holder (that is Maddison). It does not prevent application of the exclusion in relation to liability incurred by unlicensed drivers. The exclusion has the effect that an unlicensed driver, even one who has the authority of the owner of the vehicle to drive it, is not entitled to indemnity under the policy. The qualification is intended to protect the position of a policy holder who in good faith authorises the use of the insured motor vehicle by a person who is, without the actual or constructive knowledge of the policy holder, unlicensed; it is not designed or intended to afford cover to an unlicensed driver; indeed it is designed and intended to do precisely the opposite, that is to maintain the exclusion in relation to unlicensed drivers, whilst deflecting its impact on an innocent policy holder. 7 The Magistrate held, inter alia:

(i) that an insurance fund was created by the granting of indemnity under the policy [I take this to mean that the fund was created by the issue of the policy, and not by the granting of indemnity to Maddison in respect of the claim he made for damage to his vehicle];

(ii) that the use of the vehicle by Schmitzer whilst unlicensed amounted to a fundamental breach of a term or condition of the policy such as to entitle GIO to decline indemnity.

The Magistrate also reached a number of other conclusions. He held that Schmitzer was a person to whom the insurance cover provided by the policy extended pursuant to s 48 of the Insurance Contracts Act 1984. S 48 is in the following terms: 48 Entitlement of named persons to claim (1) Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract. (2) Subject to the contract, a person who has such a right: (a) has, in relation to the person's claim, the same obligations to the insurer as the person would have if he were the insured; and

(b) may discharge the insured's obligations in relation to the loss. (3) The insurer has the same defences to an action under this section as the insurer would have in an action by the insured. 8 The Magistrate then held that by signing the claim form Schmitzer and Maddison had jointly claimed on the insurance fund created by the policy. His next conclusion should be set out in the words that appear in the Grounds for Determination in the stated case. e. By agreeing to indemnify Mark William Maddison under the Policy of Insurance subsequent to becoming aware that Cassandra Schmitzer was an unlicensed driver and thereby entitled to avoid the claim due to a breach of a policy condition, GIO is liable to meet the claim pursuant to Section 48 of the Insurance Contracts Act 1984 and it follows, also by Section 6(1) of the Law Reform (Miscellaneous Provisions) Act. 1. That pursuant to Section 48(1) of the Insurance Contracts Act 1984 (Cth) Schmitzer was a party to the contract of Insurance in existence between GIO Australia Limited and Mark William Maddison on 1 March 1993. 2. In order for GIO Australia Limited to avoid Section 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946, indemnity would have had to be declined to both Mark William Maddison and Cassandra Schmitzer. 3. That the entering of default judgment against Cassandra Schmitzer in favour of P Ward Civil Engineering P/L was an 'event giving rise to a claim for damages or compensation pursuant to Section 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946. 9 The appellant's contentions, as set out in the stated case, are:

1. That Cassandra Schmitzer was not a party to the contract of insurance in existence between GIO Australia Limited and Mark William Maddison as at 1 March 1993 pursuant to Section 48(1) of the Insurance Contracts Act 1984.

2. That Cassandra Schmitzer was not a party to the said contract of insurance between GIO Australia Limited and Mark William Maddison pursuant to Section 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946.

3. That the granting of indemnity by GIO Australia Limited to Mark William Maddison created a charge pursuant to Section 3(3) of the Law Reform (Miscellaneous Provisions) Act 1946. 10 As to the first of these, I think it is correct that Schmitzer was a person to whom s 48 refers. In appropriate circumstances s 48 would permit her to recover from GIO. However the recovery to which she would be entitled is recovery "in accordance with the contract" (ie the contract of insurance.) By the clear terms of the policy, as I have outlined them, while the cover provided by the policy did apply to Schmitzer, that cover was expressly excluded by reason of her unlicensed status at the time of the collision. S 48 does not purport to create an extension of the terms of the contract of insurance, other than to provide standing to claim to a person to whom the policy expressly applies but who is not, in terms, a party to the policy. Nor should sub s (3) be overlooked. GIO remained entitled to the benefit of any defence it had available to it, including the defence arising from the exclusion. S 48, as I have indicated, does not alter any legal obligation or entitlement under the policy other than that of standing of certain persons not expressly named. 11 As to the appellant's second contention, I incline to the view that Schmitzer is not "a person who has entered into a contract of insurance" within the meaning of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946. She is a person who was entitled, in appropriate circumstances, to the benefit of the contract of insurance entered into by Maddison, but she is not herself such a person. It does not seem to me that s 48 of Insurance Contracts Act alters that position; as I have already observed, s 48 would give her standing to recover under policy but her right to recover is in accordance with the terms of the policy only. The terms of the policy are not overridden by s 48. They specifically exclude recovery by Schmitzer. It is therefore not to the point whether Schmitzer is a person to whom s 6(1) applies. It is, again, important to observe one clause in that subsection - the words "by which he is indemnified against liability to pay any damages or compensation". Whether or not Schmitzer should properly be regarded as a person who had entered into a contract of insurance, she was not, on the proper construction of the policy, indemnified against the liability she had incurred to pay damages or compensation to Ward. 12 The conclusion of the Magistrate that: "the entering of default judgment against Cassandra Schmitzer in favour of P Ward Civil Engineering Pty Ltd was an event giving rise to a claim for damages or compensation pursuant to s 6(1) of the Law Reform (Miscellaneous Provisions Act 1946 "

cannot be sustained. That is because the entering of default judgment, or the determination that she was liable to Ward for the damage did not bring her within to the terms of the policy. 13 The Magistrate appears to have taken the view that, having accepted the claim made by Maddison, and perhaps because Maddison and Schmitzer made their claims in a document signed jointly, GIO was not entitled to distinguish between the two. He seems to have taken the view that GIO's obligation was either to meet both claims in full, or decline both claims. This in my view is plainly wrong. GIO's obligation to meet the claims depended upon the terms of the policy; the terms of the policy excluded the claim by Schmitzer. The terms of the policy may or may not have excluded Maddison, depending upon whether he knew or should reasonably have known that Schmitzer was unlicensed. It is possible that GIO could also have declined indemnity to Maddison but it was not obliged to take advantage of the exclusion provision in this regard. The fact that GIO possibly waived a right in relation to Maddison did not oblige it to waive its right in relation to Schmitzer. GIO was entitled to approach the two claims individually, notwithstanding that they were made on a single claim form. To conclude otherwise was an error of law by the Magistrate. 14 Schmitzer is not entitled to indemnity under the policy. Accordingly, joinder of GIO as a party to the proceedings against her by Ward is a futility. The Magistrate's decision was erroneous in law. 15 The question posed in the stated case is answered accordingly.

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