Hanna v Australian Casualty & Life Ltd

Nadi Hanna (Plaintiff) PARTIES : Australian Casulty & Life Limited (Defendant) JUDGMENT OF : Master Harrison

Mr J Stephenson (Plaintiff) COUNSEL : Mr H Stowe (Defendant) Pasquale Vartuli of Cropper Parkhill (Plaintiff) SOLICITORS : Andrew Harpur of Blake Dawson Waldron (Defendant) CATCHWORDS : Separate determination - disability - insurance policy - non-disclosure LEGISLATION CITED : Supreme Court Rules - Part 31 r 2 Insurance Contracts Act 1984 (Cth) - ss 21, 29(3) Tepko Pty Ltd v Water Board [2001] HCA 19; 75 ALJR 775 CASES CITED : Nominal Defendant v Niko Cencic [2001] NSWCA 69 Australian National Industries Ltd v Spedley Securities (in liq) (1992) 26 NSWLR 411 DECISION : (1) The notice of motion filed 3 June 2002 is dismissed; (2) The plaintiff is to pay the defendant's costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20378/2001 - NADI HANNA v AUSTRALIAN CASUALTY & LIFE LIMITED

JUDGMENT (Separate determination; disability Insurance policy; non-disclosure) 1 MASTER: By notice of motion filed 3 June 2002 the plaintiff seeks an order pursuant to Part 31 r 2 of the Supreme Court Rules (SCR) on whether the plaintiff is entitled to relief sought in paragraph 10(ii)(b) of the amended statement of claim, namely the question of whether the defendant has wrongly purported to avoid the policy, be determined separately from and prior to, the other questions raised in the proceedings. The defendant opposes this order. 2 Part 31 Rule 2(a) provides: "That the Court make orders for (a) the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings." 3 In Tepko Pty Ltd v Water Board [2001] HCA 19; 75 ALJR 775, Callan and Kirby JJ made comments in relation to the use of severing issues to be determined by the court. At 168 to 172 their Honours stated: "The appeal should be allowed. However, we should not leave this case without making four comments. Both Mason P and Fitzgerald JA were critical of the course of limiting the issues to be tried that the primary judge adopted. In Perre v Apand Pty Ltd attention was drawn to difficulties that can be caused when that course is adopted. In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap.

The second and related comment is this. A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests.

Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question.

The fourth of our comments is related to evidence compiled, committed to writing and filed in advance of the hearing. Parties frequently, either together or separately, compile "books of documents". Although most of these have the potential to be admitted in evidence, often they are defective in form. Many of them are often irrelevant, or their significance is either not recognized or adverted to during the hearing. Their status, as in the case of the letter written by Mr Rhodes, can be ambiguous. Discrimination and economy should be exercised by those who prepare cases in which documentary evidence is likely to be extensive and important. Those who conduct such cases should ensure that what is actually in evidence, and its relevance and significance, are clearly identified." 4 In a recent Court of Appeal decision in the Nominal Defendant v Niko Cencic [2001] NSWCA 69, Meagher J expressed a similar view when he said that great caution should be exercised when separating an issue for determination. 5 The defendant issued a policy of insurance (the policy) to the plaintiff which commenced on or about 15 August 1997. The plaintiff was, pursuant to the terms and conditions of the policy, entitled to the payment of benefits in the event that he became totally disabled or partially disabled as those terms are defined in the policy. The plaintiff claims that he was entitled to payments pursuant to the policy for the period between 17 November 1998 and 2 March 1999 on the basis that he was totally disabled within the meaning of the policy, and that he has been entitled to payments pursuant to the policy from 2 March 1999 to date on the basis that he has been partially disabled. 6 By letter dated 25 February 1999 from the defendant to the plaintiff, the defendant avoided the policy pursuant to s 29(3) of the Insurance Contracts Act 1984 (Cth). The plaintiff did not, in the insurance application signed on 17 June 1987 or the Revised Policy Acceptance Terms signed on 12 August 1997, disclose the fact that he had on 11 June 1997 been served with, firstly, a summons pursuant to s 29A(2) of the Crimes Act 1914 (Cth) which set out 79 charges that the plaintiff, with intent, defrauded the Health Insurance Commission by a false pretence in relation to the prescription of various drugs; and secondly, a summons issued pursuant to s 29D of the Crimes Act which set out 8 counts that the plaintiff defrauded the Health Insurance Commission in relation to the Medicare benefits claimed in relation to health screening. On 9 June 1999 charges were dismissed in the local court. These facts are common ground - see Notice of Admission filed 21 June 2002. The issues are defined. Aside from the plaintiff, witnesses would not be required to give evidence at both hearings. 7 The defendant says that pursuant to s 21 of the Insurance Contracts Act 1984 (Cth), the plaintiff should have disclosed that he had been served with the summonses. 8 Section 21 provides: "The insured's duty of disclosure

(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant. (2) the duty of disclosure does not require the disclosure of a matter:

(c) that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or

(d) as to which compliance with the duty of disclosure is waived by the insurer. (3) Where a person:

(b) gave an obviously incomplete or irrelevant answer to;

a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter." 9 The defendant has purported to avoid the policy pursuant to s 29(3) of the Insurance Contracts Act 1984. To avoid a policy under s 29(3) the defendant has to establish that 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 (s 29(1)). The plaintiff has admitted that his state of mind at the time that he entered into the policy with the defendant, was such that he did not consider that the fact that he had been served with summonses was relevant to the decision of the defendant insurer whether to accept the risk and if so, on what terms. 10 Each case depends on its circumstances. These proceedings involve two distinct questions. The first question is whether the defendant was entitled to avoid an insurance policy for non-disclosure (the non-disclosure issue). The second question raised by the proceeding is the plaintiff's entitlement under the policy assuming that the defendant was not entitled to avoid the insurance policy for non-disclosure (the disability issue). The second issue will only arise in the event that the plaintiff is successful on the first question. Any determination on the first issue may give rise to an appeal. It is not known whether the parties would attempt to settle the disability issue should the preliminary determination on the non-disclosure issue favour the plaintiff. 11 The plaintiff pursuant to another insurance policy with QBE is legally funded for the non-disclosure issue. The letter from QBE to the plaintiff's solicitor dated 23 May 2002 states: "Any action taken in respect to indemnity under the policy would relate to a separate issue and accordingly would be the subject of another claim once reinstatement of the policy was determined. It would then follow that the policy conditions would need to be addressed in the usual manner. In particular Policy Condition 10.2 which relates to the merits of the case. We note your comments regarding the defendant insurer's position regarding "partial disability" in the insurance contract." 12 Although a little ambiguous, it seems to suggest that should the non-disclosure issue be determined in favour of the plaintiff, upon receipt of a further claim, it would consider whether to indemnify the plaintiff in relation to funding the disability issue. 13 The plaintiff's solicitor deposes that if the Court does not make the order for a separate determination of the question of whether the defendant was entitled to avoid the insurance policy for non-disclosure, it is unlikely that the plaintiff would have the resources to fund this litigation. According to the solicitor if the plaintiff is successful he is more likely to receive funding for the disability issue. The plaintiff's actual financial state has not been put into evidence. 14 The parties estimate that the determination of the non-disclosure issue will take between one to two days and that the determination of the second question will involve approximately two hearing days. While the parties costs will be decreased if the non-disclosure issue finally determines the case, it does not matter whether the estimate is one day or three, it will obtain the same hearing date. The matter will not get an earlier hearing date because of the shorter time estimate. 15 The defendant requires discovery and interrogatories in relation to both the avoidance and disability issues and says that, if the trial is severed, discovery and interrogatories will be required twice. That may be so but the inquiries will be directed to the two different issues. The defendant has already obtained medical reports and expended those funds. The plaintiff, at this stage, has obtained treating doctors' reports but has not obtained medico-legal reports in relation to disability. I do not regard these to be significant factors. 16 The more important issue in this case is that of the credit of the plaintiff. The observations of the plaintiff's demeanour and the evidence he gives at trial will be critical both in relation to the non-disclosure issue and the disability issue. The plaintiff's claims for total and partial disability are based on stress. For medical practitioners to make a diagnosis of stress they will be reliant on the history that the plaintiff (also a medical practitioner) gives them of his symptoms and disabilities. Any forensic advantage that the defendant may gain during the non-disclosure issue may be lost if the trial is severed because a different judge be required to hear it - see Australian National Industries Ltd v Spedley Securities (in liq) (1992) 26 NSWLR 411. While I appreciate that the plaintiff may be financially disadvantaged in funding this litigation, it is my view that overall where the plaintiff's credit is largely in issue, the trial should not be severed. 17 The orders I make are:

(1) The notice of motion filed 3 June 2002 is dismissed.

(2) The plaintiff is to pay the defendant's costs. **********

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