Phillips v NZI Insurance

COUNSEL : Mr J Smith (Plaintiff) Mr A McInerney (Defendant) SOLICITORS : J P O'Neill (Plaintiff) Phillips Fox (Defendant) CATCHWORDS : Contract; construction; whether contract of comprehensive insurance ambiguous; whether contra proferentem rule should be applied ACTS CITED : Local Courts (Civil Claims) Act 1970 MGICA Ltd v United City Merchants (Australia) Ltd. (1986) 45 ANZ Ins Cases 60-729 Maye v Colonial Mutual Life Assurance Society (1924) 35 CLR 14 Maye; Re an Arbitration, O'Brien & South British Insurance Co Ltd [1938] NZLR 582 CASES CITED : Woolfall & Rimmer v Moyle [1942] 1 KB 66 C.E. Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 Wilson v Harvey Trinder (NSW) Pty Ltd [1973] 2 NSWLR 870 AF & G Robinson v Evans Bros Pty Ltd [1969] VR 885 DECISION : Summons dismissed

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11336/99 - MICHAEL PHILLIPS v NZI INSURANCE AUSTRALIA LIMITED

1 HER HONOUR: This is an appeal brought pursuant to s 69 of the Local Courts (Civil Claims) Act 1970 in accordance with Pt 51B of the Supreme Court Rules. The plaintiff commenced proceedings by Statement of Claim in the Local Court at Bankstown seeking indemnity, pursuant to the provisions of a contract of comprehensive insurance, for damage to his vehicle caused by a collision on 9 December 1997. 2 On 7 May 1999 the Magistrate gave judgment for the defendant. 3 The plaintiff's grounds of appeal contend that the Magistrate erred in law in the following respects: (i) he failed to construe the contract as a whole; (ii) he failed to construe the contract by reference to the contra proferentem rule of construction; (iii) there was no evidence to support his finding that the driver of the motor vehicle was not the spouse of the plaintiff. 4 Only grounds (i) and (ii) were pressed in submissions on the hearing of the appeal. 5 The plaintiff and the defendant entered into a contract of insurance in respect of the plaintiff's motor vehicle registered number UBT 509. The contract was formed by the defendant's acceptance of a proposal form duly completed by the plaintiff on 19th April 1997 together with the payment of the premium which was received by the defendant on 22nd April 1997. There is no issue but that the contract is contained in two documents; the policy and the Schedule thereto (annexures "A" & "C" to the statement of Mr Gomez dated 1 February 1999). 6 The policy was still on foot on 9 December 1997. On that date the vehicle, UBT 509, was involved in a collision and was assessed to be a total loss. At the time of the collision the vehicle was being driven by Ms Michele Scholes, a person aged under 25 years. 7 The plaintiff made a claim for indemnity under the policy. The claim form stated that Ms Scholes was the driver of the vehicle. She was described as being the plaintiff's "de facto". Her stated purpose for using the motor vehicle at the time of the collision was that she was "going shopping". 8 The defendant contended that its contract with the plaintiff did not expose it to liability in circumstances where the vehicle was being driven by a person under the age of 25 years. It refused to pay the plaintiff's claim. 9 The policy, a standard form printed booklet titled "Policy Comprehensive Motor Vehicle Insurance", is divided into eight 'plain English' sections. The first two sections contain introductory material. Under the heading "Our Agreement" the following appears: We use information you give us to decide upon your premium and in return for this premium, we will give you the protection described in this Policy, ….. In this Policy we show you (1) the extent of the cover and explain (2) what is not covered in the clearest way possible. The first is always subject to the second. Our agreement is made up of this Policy document and the current Schedule , which contains the specific insurance details for you . 10 Other relevant portions of the policy relied upon by the plaintiff are as set out below: A2 Drivers of your Car Your Current Schedule shows the drivers which you selected for cover. This means your Policy operates while these persons are driving WITH YOUR PERMISSION .

Who is covered One of the following groups as shown on your current Schedule:- · Any driver · Drivers aged 25 and over · Drivers aged 25 and over plus named drivers

A3 Use of your Car Your Current Schedule shows the use of your car which you selected for cover. This means your Policy operates while your car is used for the purposes shown WITH YOUR PERMISSION . What is covered One of the following groups as shown on your current Schedule:- · Home Use - which means social, domestic and pleasure, but not travel to and from work. · Private Use - which means social, domestic and pleasure, plus travel to and from work, plus personal use by you or your spouse for your occupation(s). · Business Use - which means Private plus business use by other people eg. employees. · Farm Business - which means business use as shown above, but only for your business as a Primary Producer. E4 Excess The excess is a 'first amount' which must be paid towards a claim for each separate accident or event. How Much is the Excess? (a) The ' Basic Excess ' shown on your current Schedule applies to every claim. To this amount is added the following if applicable:-

'Convertible/Open Cars' The 'extra' amount below recognises higher risk for certain vehicle types, without charging a higher premium . · $500 if your car has a convertible roof or open top, but only if the claim includes loss or damage to the roof material or anything inside the car. However, this does not apply in the event of collision with another vehicle. (b) The ' Additional Excess ' shown on your current Schedule applies only when your car is driven by a person under 25 years of age, licensed less than 2 years in Australia or undergoing tuition. However, this does not apply in the event of window damage only, fire, theft or storm damage. 'Young & Inexperienced Drivers The total excess applicable to a claim is the sum of the Basic Excess and the Additional Excess."

11 The Schedule to the policy provided, inter alia: BASIC EXCESS: applicable each and every claim $350 ADDITIONAL EXCESSES: Aged 21 but under 25 years $400 Aged under 21 or licensed less than 24 months or used for tuition $500

1 YEARS NO CLAIM BONUS ALLOWED DRIVERS COVERED: CATEGORY B - DRIVERS AGED 25 AND OVER USE COVERED: PRIVATE USE ONLY

12 Both the policy and the Schedule were prepared by the defendant. The plaintiff submits that when the contract is read as a whole it is plain that there is an ambiguity. Clause A2, when read in conjunction with the Schedule, provides that the policy only covers drivers aged 25 years and over who are driving the vehicle with the permission of the insured. However, the Schedule also includes details of the additional excess to be paid in respect of drivers aged under 25 years. This is capable of suggesting that cover extends to drivers aged under 25 years subject to the payment of the additional excess. On the plaintiff's behalf it was submitted: "No sensible construction of the contract would require the plaintiff to pay an additional excess and let the defendant deny liability. To construe the contract in this way would make the provisions relating to excess inapplicable and should be avoided".

13 The Magistrate reviewed each of the sections of the policy upon which the plaintiff relies together with the terms of the Schedule. He concluded that there was no ambiguity. His Worship had regard to the terms of the "private use" option set out in Part A3 of the policy which was the cover selected by the insured. The "private use" option includes "personal use by you or your spouse for your occupation(s)." The magistrate considered that, in the event that the insured's spouse was aged under 25 years, she would be covered under the policy in relation to her use of the subject vehicle (with the permission of the insured) in connection with her occupation. In such an instance the insured would be required to pay the additional excess in the event of a claim. Read in this way the inclusion of the detail as to the amount of the additional excess does not give rise to uncertainty when read in conjunction with the statement that the policy covers "category B - drivers aged 25 and over". 14 The plaintiff submits that the Magistrate's finding in this regard merely highlights a further ambiguity in the parties' contract. On the face of it, so the plaintiff submits, the selection of a policy category B "drivers aged 25 and over" is inconsistent with cover extending to a spouse aged less than 25 years within the terms of the private use option in clause A3. The plaintiff complains: "Accordingly, his Worship found another example of an ambiguity and, instead of recognising that, and construing the driver clause contra proferentem in relation to other drivers under 25, limited his construction of the additional excess clause to the situation where a spouse under the age of 25 was driving." 15 The plaintiff referred me to the decision of the court in MGICA Ltd v United City Merchants (Australia) Ltd (1986) 4 ANZ Ins Cases 60-729 as authority for the proposition (1) that the policy, like any written contract, must be read as a whole, (2) that it being a contract of insurance proffered by the insurer it should be construed contra proferentem.

16 The contra proferentem rule of construction was explained by Isaacs ACJ in Maye v Colonial Mutual Life Assurance Society (1924) 35 CLR 14 at 22: "If by reason of its own language in relation to the matter, or by reason of the context or of conflicting or differing provisions elsewhere, a term when fairly read is doubtful or ambiguous and reasonably susceptible of two constructions, that construction should be adopted which is the more favourable to the assured, because that is of the two the more reasonable in the circumstances."

17 I note that in MGICA Kirby P (as he then was, at 74,350) described the contra proferentem rule of construction as a rule of last resort and a principle for construction to remove ambiguities only when other more rational approaches fail. The principle was of assistance in the resolution of the issues raised by the terms of the contract in that case. Professor Sutton in his text Insurance Law in Australia, 2nd Ed., LBC, observes at para 9.64: "The principle has been described as a rule of last resort but it has been applied over and over again to the situation where an ambiguity has been found to exist in a provision formulated by an insurer for his own protection". The principle recognises that it is the insurer who prepares the contract and who ought to make its meaning clear by the use of unambiguous language. The insured ought not to mislead into the belief that he or she is covered for a risk if this is not the case. Ambiguities ought be resolved by adopting the construction most favourable to the insured; Maye; Re an Arbitration, O'Brien & South British Insurance Co. Ltd [1938] NZLR 582 at 591; Woolfall & Rimmer v Moyle [1942] 1 KB 66. 18 The starting point is a consideration of the terms of the contract. If no reasonable interpretation of it gives rise to ambiguity plainly no question of a construction contra proferentem arises; C.E Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 548. In this regard the Court must not set out to look for ambiguity in order to work presumptions against the insurer; Wilson v Harvey Trinder (NSW) Pty Ltd [1973] 2 NSWLR 870 at 878. In A.F. & G. Robinson v Evans Bros. Pty. Ltd. [1969] VR 885 at 895 Starke J observed: "The maxim is to be applied and the words of the policy, being the words of the insurers, are to be construed, in the sense in which a prudent and reasonable assured would understand them. The principle, however, ought to be applied only for the purpose of removing a doubt, not for creating a doubt or magnifying an ambiguity where the circumstances of the case raise no difficulty".

19 The policy, in section A2, clearly provides that only one of the three types of cover, (a) any driver, (b) drivers aged 25 and over and (c) drivers aged 25 and over plus named drivers, may be selected by the insured. The Schedule records the category of drivers selected. In this case the Schedule states that the drivers covered are drivers aged 25 and over. 20 The circumstance that in section E2 of the policy under the heading "How Much is the Excess?" there appears the statement "The 'additional excess' shown on your current Schedule applies only when your car is driven by a person under 25 years of age, licensed less than two years in Australia or undergoing tuition" does not seem to me to introduce ambiguity with respect to policies in which the restricted 'drivers 25 and over' option is selected. 21 Paragraph (a) of section E2, after referring to the 'basic excess', which is described as applying to every claim, goes on to state, "To this amount is added the following if applicable". Thereafter appears reference to the excess which applies in respect of convertible/open cars. The policy contains 'speak-easy panels' which are described as providing extra information or short summaries for the insured but which do not form part of the policy (the 'speak easy' panels are represented by the shaded portions of section E2 of the policy set out in paragraph 10 above). The 'speak easy panel' which provides additional information concerning the excess payable in relation to convertible/open cars states "the 'extra' amount below recognises higher risk for certain vehicle types, without charging a higher premium". Paragraph (b) which gives details of the additional excess is also accompanied by a 'speak easy panel'. That panel does not include the words "without charging a higher premium". 22 The policy booklet contains information with respect to each of the three types of cover offered by the defendant. I do not consider that a reasonable reading of a contract comprising the policy and a Schedule identifying the drivers covered as "category B - drivers 25 and over" would suggest, by reference to the terms of section E2, that on payment of the additional excess the policy would extend cover in respect of drivers aged under 25 years. 23 The plaintiff relies on the inclusion of the details as to the excess payable in respect of drivers aged under 25 on the Schedule. This document was prepared by the defendant in response to the plaintiff's proposal. There is no issue but that the plaintiff's proposal was for the restricted "drivers 25 years and over" category. However, the plaintiff contends that the inclusion of the details as to additional excess in the personalised Schedule must be taken to introduce ambiguity into the contract. 24 Having regard to the terms of section A2 together with the selection of 'category B - drivers aged over 25' on the Schedule I do not consider that the inclusion of details of the additional excess gives rise to uncertainty such that the Court should construe the parties' contract as one extending cover to any driver aged under 25 years (driving with the insured's permission) on payment of the additional excess. I do not consider when fairly read the contract is susceptible of such an interpretation. 25 The defendant submits that the provision in the Schedule as to the additional excess payable in relation to drivers aged under 25 years applies in the event that the insured's vehicle was driven with his permission by his spouse (she being aged under 25 years) in connection with her occupation. This was the construction the Magistrate adopted. I do not consider that he erred in so doing or that his reasoning involved the exposure of a further ambiguity in the contract. 26 The Summons is dismissed. **********

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