Johnson v American Home Assurance Co

Johnson v American Home Assurance Co - [1998] HCA 14 - HCA 1998 case summary — Zoe

[33]

Notwithstanding the primary rule, there has long been recognised that a liberal approach should be adopted in giving meaning to words in the special field of insurance contracts and insurance documentation [22] . In part, this approach to problems of construction may have derived from an attempt by courts to balance the scales ordinarily unequal as between the insurer and the insured, at least in sickness and accident policies. In part, it may have arisen from points taken by insurers which seemed unmeritorious in particular cases [23] . In part, it doubtless derived from a recognition of the standard forms used in most insurance documentation and the control which insurers generally have over such forms, at least in the case of consumer insurance. Recognition of these characteristics of insurance contracts has led to two principles, often invoked. The first is that a fair and reasonable construction should be adopted which would take into account the variety of persons entering an insurance contract and the entitlement of such persons to know the bargain which they have secured [24] . The second may be traced to a bundle of maxims collected in Co Litt 36a [25] one of which is the maxim verba chartarum fortius accipiuntur contra proferentem. Insurance policies, containing words that are intractably ambiguous [26] , will be construed so as strongly to favour the resolution of the ambiguity in a way advantageous to the insured. This maxim, like many others commonly expressed in earlier times, is now not so much in favour. Courts today accept the duty to endeavour to find the meaning, even of ambiguous expressions, from the language and logic of the document rather than by resort to maxims and other rules of thumb. Even a century ago, the utility of the maxim contra proferentem was doubted in Taylor v Corporation of St Helens [27] . So also in decisions given in the early years of this Court [28] . Nevertheless, even then the principle was accepted as applicable "as the last resort in construction" so far as it required that "a document written by A is to be read as outsiders would read it, and not as A would read it" [29] . More recently, it has been accepted that the contra proferentem principle may still be useful where each of the competing constructions is strongly supported by argumentation and where dictionaries and logic alone cannot readily carry the day for either party [30] . Then, it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering.

[35]

Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 527. 2. See, eg, Marine Insurance Act Cth, Sch 2. 3. Legal & General Insurance v Eather (1986) 6 NSWLR 390 at 394, 405. 4. cf Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339; Sweetwater Progressive Mutual Life & Accident Association v Allison (1929) 22 SW (2d) 1107 at 1111. 5. cf Sneck v Travellers' Insurance Co (1895) 34 NYS 545 at 547. 6. John Hancock Mutual Life Insurance Co v Schroder (1938) 180 So 327 at 330. 7. cf John Hancock Mutual Life Insurance Co v Schroder (1938) 180 So 327 at 330. 8. cf Legal & General Insurance v Eather (1986) 6 NSWLR 390 at 394. 9. Legal & General Insurance v Eather was such a case. There, the meaning of the phrase "all reasonable precautions to avoid or minimise injury, loss or damage" was taken as determined by earlier decisions such as Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231; Fraser v B N Furman (Productions) Ltd, Miller Smith & Partners (A Firm) Third Party [1967] 1 WLR 898; [1967] 3 All ER 57. 10. Sneck v Travellers' Insurance Co (1895) 34 NYS 545; MacGillivray & Parkington on Insurance Law, 8th ed (1988), pp 816-817; Lord v American Mutual Accident Association (1894) 61 NW 293. 11. Life & Casualty Insurance Co of Tennessee v Peacock (1929) 124 So 229 at 231. 12. MacGillivray & Parkington on Insurance Law, 8th ed (1988), pp 816-817. 13. cf John Hancock Mutual Life Insurance Co v Schroder (1938) 180 So 327 at 330; Citizens' Mutual Life Association v Kennedy (1933) 57 SW (2d) 265 at 267; Life & Casualty Insurance Co of Tennessee v Peacock (1929) 124 So 229 at 231. 14. This Court did so in Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 531. 15. Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520-521, per Gibbs CJ, citing Sutton, Insurance Law in Australia and New Zealand (1980), p 294, par 8.45; Halsbury's Laws of England, 4th ed, vol 25, par 594 n 1; cf Mount Albert City Council v New Zealand Municipalities Co-operative Insurance Co Ltd [1983] NZLR 190 at 193. 16. An instance is Bradbury v London Guarantee & Accident Co Ltd (1927) 40 CLR 127 where a widow answered a question in a proposal "Have you or husband ever had a fire?" in the negative. The Court held that "husband" there meant a husband then living, a construction denied for the insurer. 17. Anderson v Fitzgerald (1853) 4 HLC 484 at 510, cited Barton J in Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 559; cf Condogianis v Guardian Assurance Co Ltd (1921) 29 CLR 341. 18. See Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 574. 19. Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 559. 20. (1877) 6 Ch D 264 at 270-271, per Jessel MR. 21. See, eg, Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 574, per Higgins J. 22. Western Australian Bank (1908) 5 CLR 533 at 574. 23. Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520; see also Legal & General Insurance v Eather (1986) 6 NSWLR 390 at 394. 24. cf Life & Casualty Insurance Co of Tennessee v Peacock (1929) 124 So 229 at 231. 25. cf Life & Casualty Insurance Co of Tennessee v Peacock (1929) 124 So 229 at 231; Sneck v Travellers' Insurance Co (1895) 34 NYS 545 at 549; Theorell v Supreme Court of Honor (1904) 115 Ill App 313 at 318; John Hancock Mutual Life Insurance Co v Schroder (1938) 180 So 327 at 331; Lord v American Mutual Accident Association (1894) 61 NW 293.

[45]

This view of the meaning and purpose of the Schedule of injuries is reinforced if regard is had to the universal character of the words used and of the fact that such words have commonly been found in sickness and accident insurance policies for a very long time. It must be assumed that such words, whether of this insurer's policy or of similar policies written elsewhere, were intended to operate in the variety of environments including those beyond Australia. There would be many places in the world where particular aids, external to the anatomy, would not be available. Prostheses of various kinds and even seemingly simple orthotics, and radical or complex surgery (such as micro-surgery) might not be accessible to the insured person, including within a year of the date of the occurrence of the injury. Availability would depend upon where that person was injured or normally resided. The words of the policy would remain the same. It cannot be supposed that those words would have different consequences depending upon the degree of sophistication or technological facilities that happened to exist in the location of the particular insured. The policy is concerned, relevantly, with an anatomical injury not the availability of palliatives external to the anatomy. This view of the policy is not inconsistent with the definition of "permanent" as meaning "lasting twelve calendar months and at the expiry of that period being beyond hope of improvement". The "hope of improvement" referred to, in the context of a policy written by reference to particular parts of the anatomy, is autogenous improvement of the kind commonly occurring in the response of the human body to injury, perhaps aided by universally available medication or surgery. If "improvement" were intended to refer to improvement by exceptional surgical intervention or use of external objects (prostheses, orthotics, crutches, walking sticks etc) it might reasonably have been expected that this would have been made clear on the face of the policy. Yet upon such matters, the policy is silent. It has thereby left only the anatomical part specified as the reference point by which "loss of use" is to be measured.

[46]

This approach to the language of the policy appears to be consistent with several decisions in the United States of America where analogous questions have been considered by the courts in insurance cases and beyond. Thus in Lord v American Mutual Accident Association [37] , the insured recovered upon a policy expressed in terms of "loss of one hand" where the hand was so injured as to be useless for its usual purposes. No one suggested that the possible insertion of a hook would disqualify the insured from recovery for the anatomical damage, that being the purpose of the policy. In Life & Casualty Insurance Co of Tennessee v Peacock [38] , the policy afforded cover for loss of both feet by severance. One foot of the insured and the toes of the other were severed. She could not walk barefoot without falling over. However, if she wore a shoe with a spring or brace insert, she was restored to some locomotive functions. The Supreme Court of Alabama held that it was open to the jury to find that the policy responded to the loss. The Court determined that "the word "loss" should be construed to mean the destruction of the usefulness of that member, or the entire member, for the purpose to which, in its normal condition, it is susceptible to application" [39] . Another decision on facts similar to the present case is John Hancock Mutual Life Insurance Co v Schroder [40] . It is also a decision of the Supreme Court of Alabama. There, the policy provided indemnity for "entire and irrecoverable loss of use of both feet". The insured was seriously injured. He was able to walk only with the aid of two canes. Standing and walking was painful. He could not balance without support. Alike with this case, the insured's physician testified that he would be "better off if both feet were amputated" [41] . The Court held that it was open to the jury to find that there had been "entire loss of use" of both feet. It rejected the submission of the insurer that the trial judge should have instructed the jury that, if the insured was able to walk with the aid of canes, he had not suffered the "entire loss of use" of both feet. This is, in effect, the construction of the policy for which the insurer has argued here. Despite the acceptance by the insurer, correctly in my view, that "permanent total loss of use" does not necessitate severance, the insurer is effectively arguing for that result. So long as the limb in question is not severed, it would necessarily have some "use", if only by passive manipulation or for a measure of balance or as adjunct to external objects or for aesthetic purposes. Once it is conceded that, without an express provision in the policy, severance is not required, the kind of "loss of use" referred to in the policy must mean loss of unassisted use of the limb in question, ie without supplementation by external objects [42] .

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Judgment (70 paragraphs)

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Cases Cited (5)