Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003] QCA 182

SUPREME COURT OF QUEENSLAND

CITATION: Schaffer v Royal & Sun Alliance Life Assurance Aust Ltd [2003] QCA 182

PARTIES: WENDY LEE SCHAFFER (plaintiff/respondent) v ROYAL & SUN ALLIANCE LIFE ASSURANCE AUSTRALIA LIMITED ACN 008 413 545 (defendant/appellant)

FILE NOS: Appeal No 5205 of 2002 DC No 4239 of 2000

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: District Court at Brisbane

DELIVERED ON: 9 May 2003

DELIVERED AT: Brisbane

HEARING DATE: 14 February 2003

JUDGES: Davies and McPherson JJA and Cullinane J Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDER: 1.Appeal dismissed 2.Appellant to pay respondent's costs to be assessed

CATCHWORDS: INSURANCE - GENERAL - POLICIES OF INSURANCE - MISREPRESENTATION AND NON-DISCLOSURE - OTHER MATTERS - where respondent made untrue statements in answer to questions in her proposal for life insurance - whether untrue statements were statements a reasonable person could be expected to know would be relevant to the decision of the insurer and therefore not misrepresentations by virtue of s 26(2) Insurance Contracts Act 1984 (Cth) / INSURANCE - GENERAL - POLICIES OF INSURANCE - MISREPRESENTATION AND NON-DISCLOSURE - STATUTORY REMEDIES - where s 29(3) Insurance Contracts Act 1984 (Cth) gives right of avoidance where "the insurer would not have been prepared to enter into a contract…on any terms" - where appellant would not have entered into a contract of insurance on the date contract entered into had misrepresentations not been made but would have deferred decision - whether sufficient for insurer to avoid the contract under s 29(3) / EVIDENCE - BURDEN OF PROOF, PRESUMPTIONS, AND WEIGHT AND SUFFICIENCY OF EVIDENCE - GENERALLY - ONUS OF PROOF - OTHER MATTERS - where s 29(3) Insurance Contracts Act 1984 (Cth) confers conditional right on insurer to avoid contract - where proof of fulfilment of condition is peculiarly within the knowledge of the insurer - whether insurer bore onus of proof - whether onus discharged / Insurance Contracts Act 1984 (Cth) s 21, s 26(1), s 26(2), s 28, s 29(1)(c), s 29(3) / Barclay Holdings (Australia) Pty Ltd v British National Insurance Co Ltd (1987) 8 NSWLR 514, considered / McNeill v O'Kane [2002] QSC 144, SC No 519 of 2001, 27 May 2002, followed / Mayne Nickless Ltd v Pegler [1974] 1 NSWLR 228, considered / Midaz Pty Ltd v Peters McCarthy Insurance Brokers Pty Ltd [1999] 1 QdR 279, followed / Mutual Life Insurances Co of New York v Ontario Metal Products Co Ltd [1925] AC 344, considered / Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501, considered / Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679, considered / Plasteel Windows Australia Pty Ltd v CE Heath Underwriting Agencies Pty Ltd (1990) 19 NSWLR 400, considered / Summerton & Ors v SGIC Life Limited (1999) 10 ANZ Insurance Cases ¶90 - 102, distinguished / Tyndall Life Insurance Co Ltd v Chisholm (2000) 11 ANZ Insurance Cases ¶90 - 104, cited

COUNSEL: H B Fraser QC, with D K Grigg, for the appellant / R M Stenson, with P Hay, for respondent

SOLICITORS: Hillhouse Burrough McKeown for the appellant / Neumann & Turnour for the respondent

DAVIES JA:

The facts and issues

1. This is an appeal against declarations made and judgment given in the District Court on 10 May 2002. The declarations were:

"1.The Defendant's purported decisions on 30 August and 18 September 2000 were void and of no effect.

2.The Plaintiff is entitled to a total and permanent disablement benefit pursuant to the policy of insurance dated 8 September 1998 with the Defendant."

The judgment was that:

"The Defendant pay the Plaintiff the sum of $106,090 as monies due and owing and interest at the rate of 9 per centum from 30 August 1998."

2. The monies which the learned trial judge held to be due and owing were pursuant to a policy of insurance taken out by the respondent with the appellant. It was common ground that the contract of insurance was entered into on 3 September 1998¹ but the policy was dated and issued on 8 September 1998. The policy was described as a "Recovery Insurance Policy" which, as the learned trial judge correctly described it, relevantly gave benefits to the respondent in the event that she should become totally and permanently disabled from performing her own occupation² which in this case was that of a credit officer. It was common ground that the policy was a contract of life insurance within the meaning of the Insurance Contracts Act 1984 (Cth) ("the Act").³

3. The respondent resigned from her employment on 1 July 1999 alleging that she could no longer perform her duties as a credit officer due to breathlessness caused by stress. On 7 January 2000 she made a claim under the policy that, in terms of the policy, she was totally and permanently disabled. The appellant advised the respondent that it did not consider her to be totally and permanently disabled but that it would review her claim upon receipt of specialist medical evidence. However on 30 August 2000 it advised the respondent that it avoided the policy under s 29(3) of the Act on the ground of material non-disclosure arising from statements in the proposal. By letter dated 18 September 2000 the appellant added mis-statements in the proposal to the grounds of its avoidance of the policy. The decisions evidenced by the letters of 30 August 2000 and 18 September 2000 are the subject of the declaration made in par 1 of his Honour's declarations.

4. At trial, the issues between the parties were, in substance, whether the respondent was totally and permanently disabled from performing her occupation of credit officer; whether there was a breach of the duty of disclosure under s 21 of the Act; whether there were misrepresentations not excluded by s 26; and whether the appellant had established a right to avoid under s 29. However in this Court the only issues were those under s 26 and s 29; in particular, it was no longer contended that there was any relevant failure to disclose within the meaning of s 21.

5. The appellant put in issue two conclusions reached by the learned trial judge, either of which would have led to the declarations and judgment which he made. The first of these was that all of the statements which the respondent made in her proposal for the insurance, which might otherwise be misrepresentations, should not be taken to be misrepresentations for the reasons mentioned in s 26(2) of the Act. And the second was that, in any event, the requirement for avoidance of the contract under s 29(3), that the appellant "would not have been prepared to enter into a contract of life insurance with the [respondent] on any terms if the … misrepresentation had not been made", was not satisfied. Before turning to those questions it is necessary to say something about the facts upon which those questions arise and about another question which was litigated at the trial but which his Honour did not find it necessary to decide.

"12.Other than those conditions stated in question 11 on page A4:

(a)Have you had any symptoms, sickness, injury, taken any prescribed medication, or consulted a doctor, chiropractor or other health professional in the last 12 months?

… "

To that question she answered "No". Had she answered "Yes" she would have been required to provide further specific information under the following headings: "Sickness, Injury or Test", "Date Symptoms Commenced", "Date of Last Symptoms", "Date of Last Treatment", "Details Including Treatment, Results and Time Off Work" and "Full Name and Address of Doctor or Hospital".

8. Her answers to the two further questions in paragraph 7 and the quoted question in paragraph 12 were untrue. The date of the respondent's last consultation with Dr Joseph was not June 1997 but December 1997. She did not consult him, on that occasion, for a routine check up but because she was having difficulty breathing. This was plainly a "symptom" within the meaning of the quoted question in paragraph 12. And Dr Joseph prescribed Bricanyl, an asthmatic medication which opens the airways. All of this was, of course, in the 12 months immediately preceding the proposal.

Section 26

9. Section 26 relevantly provides:

"(1)Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that the person held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation.

(2)A statement that was made by a person in connection with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.

… "

10. In Plasteel Windows Australia Pty Ltd v CE Heath Underwriting Agencies Pty Ltd⁴ all members of the New South Wales Court of Appeal agreed that the onus of proof under s 26(2) lay on the insurer. However there was a difference of opinion, in this respect, under s 26(1). Samuels JA,⁵ with whom Meagher JA agreed,⁶ was of opinion that the onus of proving the application of s 26(1) lay upon the insured. Clarke JA,⁷ on the other hand, proceeded on the basis upon which, he said, both parties had proceeded, that the onus of proof under both subsections lay upon the insurer. That difference of opinion did not matter in the result in that case. Nor do I think it necessary to resolve that difference in this case.

11. Section 26, and also s 21 and s 29, other sections relevant to this appeal, must be construed having regard to the "evident intention of the legislature":

"… to replace the antecedent common law regulating non-disclosure, misrepresentations and incorrect statements by insured persons before entry into a contract with the provision of Part IV. To that extent Part IV is a statutory code which replaces the common law. Accordingly, the circumstances in which it is legitimate to resort to the antecedent common law for the purpose of interpreting the statute are extremely limited."⁸

12. Section 26 and s 29 are both in Part IV. So is s 21(1) which is in the following terms:

"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."

13. As already mentioned, the learned trial judge found that there was no relevant non-disclosure, within the meaning of s 21, and the appellant has not contested that finding in this Court. However, because the appellant's argument upon the construction of s 26 relied, to some extent, on its relationship with s 21 it will be necessary later to say something about that relationship.

14. The learned trial judge does not appear to have found it necessary to reach any conclusion on the question whether s 26(1) applied in the circumstances of this case. That is, presumably, because he held that the prima facie presumption that a statement "not be taken to be a misrepresentation" was not excluded under s 26(2). However, it is plain that, even if that conclusion is wrong, the appellant will not succeed if any statement, which would otherwise be a misrepresentation, is excluded from being taken to be one by s 26(1) or is not relevantly operative under s 29(3). It is therefore necessary also to consider how those sections apply to any such statement.

Some further facts relevant to the application of s 26

15. Some further facts are relevant to the questions whether s 26(1) or s 26(2) apply. At a consultation with Dr Joseph in February 1993 about an unconnected matter the respondent complained, apparently for the first time, about "air hunger", that is, breathlessness which was periodic, occurring, she thought, premenstrually. The doctor ordered a full blood count for anaemia and checked her blood pressure, heart and pulse. All were normal. As he did not then have time for any further assessment, he asked her to return which she did in July 1993.

16. On this occasion she said that her periodic breathlessness was not strictly premenstrual but was not aggravated by exercise. A respiratory test was done the result of which showed that she was better than normal for someone of her age and height. An echo cardiogram was performed to check the function of the heart. A halter monitor was installed on a 24 hour basis to assess the rhythm of the heart. Neither detected any abnormality. A histamine challenge, a test to diagnose asthma, also revealed no abnormality. Examination and all tests having been "unremarkable", Dr Joseph could find no cause of her breathlessness.

17. For that reason, it seems, Dr Joseph referred her as a public patient at Princess Alexandra Hospital where she saw a physician, Dr Coghlan in September 1993. She complained to Dr Coghlan of periods of breathlessness lasting a few days. She thought that in recent times the episodes had been more persistent. A full examination was performed including ECG, respiratory function test, blood pressure and a histamine challenge test. The doctor was unable to detect any significant problems. She told the respondent she could find nothing wrong with her. The doctor saw her sometime later when she seemed a bit better.

18. Dr Joseph saw the respondent for unrelated matters in 1994, 1995, 1996 and March and June 1997 when there was apparently no complaint of breathlessness. He next saw her in relation to this condition in December 1997. She then described it as progressively more annoying over the past one and a half to two weeks. She said that it was unrelated to exertion but was better at night. Again Dr Joseph performed a number of tests for respiratory function (which he described as very, very good), heart, iron storage, blood count, and thyroid, all of which were normal. Again he was unable to find any physical cause for her symptoms.

19. He prescribed Bricanyl, an asthmatic medication to open the airways, not because he thought she had an asthmatic condition (indeed he thought the contrary) but merely because the respondent had said that the Ventolin which she had taken for her respiratory function test had, she felt, improved her. In fact she took the Bricanyl only for a short time because it had no relevant effect and, she thought, caused headaches and nausea. She did not see a doctor again in relation to this condition before 3 September 1998.

20. By this time the respondent said that she was satisfied that her periodic breathlessness was not a medical condition or a symptom of a medical condition. She thought rather that it was the result of an allergy to something in the air, like hay fever, perhaps on a seasonal basis. At this stage it was occurring sporadically, once every few months, but she thought, in all, probably half a dozen times over four years. It lasted for a few days and then it went away. She thought that she had been given "a clean bill of health".

"Given the intermittent nature of the symptoms and the normality of all tests, I find, that for a lay person, given there were no sinister findings, she was justified in thinking that she had "a clean bill of health" albeit she suffered from breathlessness from time to time. I am satisfied that Dr Joseph did not use those words. He said that he was unable to diagnose any condition."⁹

"That even though the plaintiff had not been told that she had a 'clean bill of health', it was reasonable for her to believe, given the sporadic nature of her breathlessness, that she was generally in good health."¹⁰

22. Dr Joseph next saw the respondent on 30 October 1998 in relation to another matter. However he inquired about her shortness of breath and the respondent told him that it was still occurring. He was again unable to find any cause and referred her to Dr McEvoy, a respiratory physician who saw her in November 1998 and again later. It was he who first realised that her symptoms were psychogenic, brought on by stress. It is no longer disputed that these symptoms worsened with time, eventually totally disabling her from performing her occupation.

The application of s 26(1)

23. Turning first to the application of s 26(1), it may be accepted for present purposes, as the learned trial judge, in effect, found that, at the time of her proposal, the respondent believed that she was generally in good health and had been given "a clean bill of health". Her untrue statements that she was fully fit, had no symptoms and had not taken any prescribed medication may have been based on that belief; the last two of these being, in effect, statements that she had no symptoms of a medical condition and had not taken any prescribed medication for any medical reason.

24. Moreover his Honour's finding that "it was reasonable for her to believe, given the sporadic nature of her breathlessness, that she was generally in good health"¹¹ may also be taken to be a finding that a reasonable person in the respondent's circumstances would have believed that she was fully fit, had no symptoms of a medical condition and had not taken any prescribed medication for any medical reason. For reasons which appear later, it is unnecessary to reach any final conclusion upon whether that finding is justified.

25. However it is difficult to see how her untrue statements that she had last consulted a doctor in June 1997, or that it had been for a routine check up only, could have been based on that belief. At least these statements were therefore not excluded from being misrepresentations by s 26(1). So at least these statements pass through the filter, so to speak, of s 26(1) to require consideration under s 26(2).

The application of s 26(2)

26. Turning then to s 26(2), Mr Fraser QC, for the appellant, submitted that a statement may be relevant to the decision of the insurer whether to accept the risk and, if so, on what terms, and a reasonable person in the circumstances of an insured could be expected to have known that it was so relevant, whether it is true or not. It is correct, in my opinion, as Samuels JA said in Plasteel Windows,¹² that subsection (2) makes no assumption about the truth or falsity of any statement. So the relevant part of that subsection may be read as "a reasonable person in the circumstances could be expected to have known that the statement (whether true or false) would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms".

27. I would therefore accept Mr Fraser QC's submission. The truth or falsity of such a statement does not affect its relevance to the decision whether to accept the risk or to the decision upon the terms on which the risk should be accepted. A statement may be relevant to either such decision whether it is true or false. The falsity of such a statement may affect only whether, if the truth had been known, the risk would have been rejected or would have been accepted only on different terms. That is a matter with which s 29 deals and which it will be necessary to consider later.

28. In my opinion, in a policy of this kind, an insured's statements as to when she last consulted a doctor and as to the reason for that consultation are statements which a reasonable person in the circumstances of an insured could be expected to know would be relevant to the decisions of the insurer whether to accept the risk and, if so, on what terms. They were statements which, plainly enough to a reasonable insured, would, when taken together, be such as might induce the insurer to accept the proposal without qualification and without further inquiry. It follows that s 26(2) does not have the effect that either of those statements shall not be taken to be a misrepresentation.¹³

The relationship between s 21 and s 26

29. Unless excluded from being so by s 26, these statements were misrepresentations because each was untrue. And neither was excluded from being "taken to be" a misrepresentation by either s 26(1) or s 26(2). The relationship between s 21(1), on the one hand and, on the other, s 26(1) and s 26(2) may therefore be stated as follows.

30. Section 21 applies where the insured has failed to disclose to the insurer a matter known to her which, relevantly, a reasonable person in the circumstances of the insured could be expected to know was relevant to the decision of the insurer whether to accept the risk and, if so, on what terms. It does not matter for this purpose whether the non-disclosure occurred in the course of answering a question in the proposal or whether, for some other reason or in some other circumstances, it was a matter which a reasonable person in the circumstances of the insured could be expected to have known was relevant to those decisions. The section is framed as a positive duty of the insured.

31. By contrast s 26(1) is framed in terms of excluding, from the category of what would otherwise be misrepresentations, statements made in specified circumstances; and s 26(2) is framed in terms of excluding from that category statements unless made in certain circumstances. The inference in each case is that, unless so excluded, statements which would otherwise be misrepresentations will be misrepresentations for the purpose of the Act.

32. On this construction of these sections, the only possible point of overlap between s 21 and s 26 would occur in the case where, whether or not the insurer has inquired about a matter, the insured has made a statement about that matter which was false because it was misleadingly incomplete. In such a case there may be a failure to disclose a matter which the insured had a duty to disclose under s 21 and the statement may also be a misrepresentation not excluded from being one by s 26.¹⁴

33. However, except in this possible area of overlap, the application to the same facts of s 21(1), on the one hand, and, on the other, of s 26(2) may yield different results, as the present case may illustrate. On the factual findings made by his Honour,¹⁵ a conclusion was open that the respondent's breathlessness was not a matter that a reasonable person in the circumstances of the respondent could be expected to know to be a matter relevant to the decision of the appellant whether to accept the risk and, if so, on what terms. Consequently its non-disclosure, and non-disclosure of the fact that the respondent saw Dr Joseph for it in December 1997 were not breaches of s 21. That is a conclusion which was not sought to be disturbed on appeal. On the other hand the statements (whether true or false) that she last saw a doctor in June 1997 and that that was for an annual routine check up, not for any medical reason, were statements which, when taken together, as I have just explained, a reasonable person in the circumstances of the respondent could be expected to have known would have been relevant to the decision of the appellant whether to accept the risk and, if so, on what terms.

Section 29

34. There having been misrepresentations made by the respondent in connection with the proposed contract, not excluded by s 26, the question then arises whether the appellant was entitled to avoid the contract as it purported to do. That depends on the application of s 29 to which I now turn. It provides:

"(1)This section applies where the person who became the insured under a contract of life insurance upon the contract being entered into:

…

(b)made a misrepresentation to the insurer before the contract was entered into;

but does not apply where:

(c)the insurer would have entered into the contract even if the insured … had not made the misrepresentation before the contract was entered into;

…

(2)If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3)If the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms if … the misrepresentation had not been made, the insurer may, within 3 years after the contract was entered into, avoid the contract.

(4)If the insurer has not avoided the contract, whether under subsection (2) or (3) or otherwise, the insurer may, by notice in writing given to the insured before the expiration of 3 years after the contract was entered into, vary the contract by substituting for the sum insured (including any bonuses) a sum that is not less than the sum ascertained in accordance with the formula

SP

Q

where:

S is the number of dollars that is equal to the sum insured (including any bonuses);

P is the number of dollars that is equal to the premium that has, or to the sum of the premiums that have, become payable under the contract; and

Q is the number of dollars that is equal to the premium, or to the sum of the premiums, that the insurer would have been likely to have charged if the duty of disclosure had been complied with or the misrepresentation had not been made.

(5)In the application of subsection (4) in relation to a contract that provides for periodic payments, the sum insured means each such payment (including any bonuses).

(6)A variation of a contract under subsection (4) has effect from the time when the contract was entered into."

35. Mr Fraser QC's submissions with respect to s 29 were as follows. First he submitted that the evidence established, and indeed he submitted that it was common ground, that the appellant would not have entered into a contract of insurance on any terms on 3 September 1998 if these misrepresentations had not been made. And secondly he submitted, as a matter of law, that that was sufficient to enable the respondent to avoid the contract as it did; that is, that the question under s 29(3) is whether, if either of these misrepresentations had not been made, the appellant would have been prepared to enter into a contract of insurance with the respondent on any terms on 3 September 1998. It would be irrelevant, on this construction that the appellant would have been prepared to enter into a contract, even on the same terms as this one, at some time shortly after 3 September 1998, because, for example, it would have taken a little longer than that for the appellant to fully investigate the true facts if they had been disclosed in the proposal of 26 August 1998.

36. Having decided that there was no relevant non-disclosure in terms of s 21 and that the statements in the proposal, already referred to, should not be taken to be misrepresentations by reason of s 26, the learned trial judge did not need to consider s 29. However his Honour rightly thought it appropriate to make findings of fact relevant to and express an opinion on the application of that section in case this Court was of a different view on the application of s 26.

37. At the trial both parties appeared to assume that the exclusion of the section in s 29(1)(c) when "the insurer would have entered into the contract" and the inclusion (of a right of avoidance) in s 29(3) when "the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms" posed, in effect, the same test; that is, whether the insurer would have entered into the contract. In doing so, they failed to advert to the difference between "the contract" in the former provision and "a contract … on any terms" in the latter or to the difference between "would have entered" in the former and "would not have been prepared to enter" in the latter. Consequently the contention which Mr Fraser QC now makes, that the hypothetical contract, which the latter provision plainly envisages, must be one made on or before the date on which the contract was in fact made, in this case 3 September 1998, was not made at trial.

38. It is unsurprising, therefore, that his Honour did not advert to any such contention or to the difference in wording between s 29(1)(c) and s 29(3). His Honour then concluded, after reviewing the evidence of Messrs Angus and Willison, insurance underwriters called by the appellant, that the appellant failed to prove that it would not have entered into the contract or been prepared to enter into a contract on any terms, within the meaning of those provisions respectively, but on the assumption that the question under each was much the same, as the parties had assumed.

It would be inconsistent with that scheme that an insurer could escape liability entirely for an innocent misrepresentation merely because, if the insurer had known the true facts, it would not have entered into a contract on the date on which the contract was actually made but would have deferred the decision to do so, even though the possibility would have remained on that date that it would enter into a contract, on some terms or other, on the basis of the true facts. If that were so, an insurer's right to avoid for innocent misrepresentation would appear to be wider than its right to do so for fraudulent misrepresentation.

47. Neither counsel contended that there was any binding authority on this question and I was unable to find any. Indeed the only reported decision which appears to touch on this question is the decision of Doyle CJ, sitting as a trial judge in the Supreme Court of South Australia, in Summerton & Ors v SGIC Life Limited.²¹

48. That case concerned, primarily, the meaning and application of s 21 of the Act. As to the application of s 29, his Honour found that the contract was entered into not before 30 May 1995 but probably on 2 June 1995; and on 24 May 1995, the insured was told by her doctor that a tumour of her kidney was probably cancerous. It is plain that from 24 May the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with. On that basis, it was unnecessary to consider whether the absence of preparedness to enter into a contract, of which s 29(3) speaks, meant only absence of preparedness to enter into a contract on 30 May or 2 June.

49. However his Honour went on to consider the possibility that, contrary to the finding which he had made as to the date on which the contract was entered into, the contract was in fact entered into on 24 May 1995 as the insured contended. On that assumption his Honour said:

"I also find that as of 24 May, if the knowledge that Mrs Vidic had on 22 May [of blood in a bowel motion and a significant left abdominal swelling] had been disclosed to SGIC, SGIC at that time would not have been prepared to enter into a contract of life insurance with Mrs Vidic on any terms, because, as Ms Holding said, it would have deferred a decision if it had known of those matters."²²

50. If his Honour was there saying that, on the assumption that the contract was entered into on 24 May, SGIC would not have been prepared to enter into a contract of life insurance with Mrs Vidic on any terms if the duty of disclosure had been complied with, within the meaning of s 29(3), because, if that duty had been complied with, it would not have entered into a contract that day but would have deferred its decision on that question, I would with great respect, disagree. The right of avoidance in that case arose, and could have arisen only because SGIC would eventually have declined the offer; that is, it would not have accepted it on any terms.

51. For those reasons, in my opinion, Mr Fraser QC's contention as to the construction of s 29(3) fails. It remains to consider whether, on the construction of that subsection which I would adopt, the insurer's right to avoid the contract arose. Before turning to the evidence on that question I should add that, in my opinion, the onus of proving that the appellant would not have been prepared to enter into a contract of life insurance with the respondent on any terms if the misrepresentation had not been made was upon the appellant. There are several reasons why that is so.

52. In the first place, s 29(3) confers a conditional right upon the insurer, the condition being expressed as a condition precedent.²³ The appellant in its defence alleged that that condition had been fulfilled.²⁴ Secondly, proof of the fulfilment of the condition involved proof of matters peculiarly within the knowledge of the appellant.²⁵ And thirdly, though there is no authority directly in point, this Court in Midaz Pty Ltd v Peters McCarthy Insurance Brokers Pty Ltd²⁶ and Holmes J in McNeill v O'Kane²⁷ accepted that the onus was upon the insurer to prove what it would have done, for the purpose of s 28(3), if a misrepresentation had not been made. In my opinion that question is sufficiently analogous to that under s 29(3) to make those views persuasive on that question and I would follow them.

The evidence relevant to the application of s 29

53. Two witnesses gave evidence on this question. One was Mr Angus a freelance insurance underwriter who underwrote the policy for the appellant. The other was Mr Willison an underwriter employed by the appellant.

54. In his affidavit Mr Angus swore that he would not have approved the issuing of the policy on 3 September 1998 if the proposal had revealed that the respondent had intermittently suffered from difficulty breathing and breathlessness since 1993 or that she had seen Dr Joseph about breathlessness in 1997 and he had not identified the cause of the breathlessness. He said that in such a case he would have written a note to the New Business Department of the appellant that he wanted her general practitioner Dr Joseph to fill out a PMAR which he described as a type of medical report. In fact the initials PMAR stand for Private Medical Attendant Report, according to the appellant's underwriting guide which was an exhibit in the trial. According to that guide, in the case of neuralgia the cause of which is unknown but which has been fully investigated, the appellant, upon receipt of a satisfactory Private Medical Attendant Report would, or at least may, it seems, have insured at a rate which reflected the findings in that report.

55. Mr Angus, in his oral evidence, was questioned further about this in the following passage:

" … if you had been aware of breathlessness and that she had been to a doctor on three occasions over those 12 years and you inquired of the doctor, namely Dr Joseph, who gave you the reply that there were - there were no physical problems and the report was - the reports obtained from specialists were clear as far as the - any physical problems were concerned, what would your next step have been? -- I - I think the question mentioned also that the - the most recent attack was in 1997. That right?

MS HAY: Yes, that's correct? -- A lot depends on exactly how the doctor writes the words he uses and we usually hope that they make some comment about their opinion as to what causes breathlessness, but if we'd received a report saying there was some episodes of breathlessness, they'd been investigated, no cause found, and if the doctor had added some comment about, you know, it didn't seem significant, well I would've accepted it but - so a lot depends on just what the doctor's summing up of the - his opinion of the whole results were.

…

And what if the doctor didn't state that he wasn't concerned about it but simply said that he couldn't find any significant cause? -- Probably in the scenario you painted I think there were - you mentioned two spread over several years and the last one was something more than 12 months prior to the application. Probably would have accepted it, I - I think."

56. In fact the premiss on which these questions were based were false as appears from what I have said earlier. At the time of her proposal, the respondent said, her periodic breathlessness was occurring sporadically about half a dozen times over about four years, lasting for a few days and then going away. This false premiss appears to have been corrected, in part, during the course of Mr Angus' re-examination by counsel for the appellant.

57. This passage then followed in re-examination:

"So the hypothesis is you go about sending a request to a doctor to give you more information and the information you get back is of a history of the type I've just gone through with you and that the last event was the December and you were considering it in early September? -- Well, as - I think you've been talking about - a lot depends on exactly how Dr Joseph would have worded it and looking at his notes here, the way he's described it in his notes, there's enough to make us sort of wonder what was behind it all and in fact he mentions here, when you talk about the pulse rate, ectopics quite frequent - that's additional heartbeats. Occasional ectopics are not of a worry but I mean if it's quite frequent we'd have been asking, you know.

Just dealing with the breathlessness, if you'd said --- ? -- I'm just looking at his notes and what he would have written in his report. It's not exactly what is in his notes, but from his notes and then the way, you know, finds can't breathe properly, feels not getting enough air and something else - a similar sort of comment - progressively more annoying over past week and - it - it's fairly vague, but it's obviously not any physical cause and it would be of concern to us and whether we'd have just refused the disability cover or referred it to our doctor and asked him, 'what do you make of this?' I don't know that it's a - sort of none answered question, no obvious cause and as I said, the doctor could have worded it in such a way as make it sound pretty innocent or he could have written detailed comments and makes us wonder whether it's a - psychological as opposed to physical cause.

Well, can you do more than speculate upon what you would have done? -- If he'd written a fairly word for word copy of what is in his notes, I can't see us accepting the disability risk on that comment. It's just too vague and too worrying as to what's causing this breathlessness worse in the daytime, not at night. It's not a normal pattern."

58. As I think appears self-evident, Mr Angus' evidence was directed to the question whether, had the full facts been disclosed, he would have underwritten this policy to come into effect on 3 September 1998. That was also the question to which Mr Willison's evidence was directed.

59. Mr Willison was a disability and life senior underwriter for the appellant. In his affidavit he referred to the underwriting guide and then, in respect of this proposal said that on the evidence which he now had before him of Dr Joseph's medical notes, he would have recommended that the appellant write to the agent who placed the business advising that they were deferring cover until a PMAR had been filled out by the treating GP, namely Dr Joseph.

60. In his oral evidence he was taken to the underwriting guide and he agreed that the following was a relevant guide at the time:

"A medical examination may also be required in some situations where insufficient medical history is gained from the PMAR or the client has not consulted a doctor in the last 12 months or the client suffers from a specific additional medical condition. For sums insured greater than $2M please contact the underwriter."

61. Mr Willison was then referred to the provisions of the guide relating to neuralgia where a cause is unknown but has been fully investigated and said:

"The situation there is that if a client had a condition for which - had been fully investigated by the client's general practitioner, had been referred to specialists, all indications - all investigations proved to be normal, then the - we may be able to offer cover but it has been fully investigated and ---

MS HAY: And the cause remains unknown? -- The cause remains unknown but we have established that every investigation - every investigation has been done. It is still possible, though it says there that we would - a suggested rating - that is not a definite assessment there.

So you might charge more premium? -- We may offer ordinary rates or a loading. These were a guideline to our agents and this was not a guideline necessarily to the underwriter."

62. Later in his cross-examination Mr Willison referred to notes made with respect to his investigation of the claim made under the policy. Those notes were read to him and the following exchange then occurred:

"Mr Willison, I suggest to you that that entry is correct, isn't it? At this stage 'he' that is yourself, doesn't feel there is sufficient information to enable them, being underwriting, to determine how it would have been treated, that is the information from the general practitioners and so on, how it would have been treated at the time of proposal? -- That is correct. That is what it implies, yes.

Right. And that is correct isn't it? That was your view at that time. You were unsure? -- As I say, this of course - these notes are from the claims assessor and are not my notes.

But you remember --- ? -- Not specifically.

…

… Alright Mr Willison, so based on those notes, and as at that time, that is the 11th of May 2000, having reviewed the notes of Dr Joseph, you couldn't say whether or not the proposal would have been accepted at that time? -- That's what the notes indicate. That is correct."

63. In re-examination the following exchange occurred:

"It was suggested to you that a cause of neuralgia that was unknown or fully investigated as I understand the suggestion still meant that if accepted it would constitute Royal and Sun exposing themselves to an unknown risk? -- Yes.

Is that so, if it's been fully investigated? -- If it's been fully investigated we would assume that it's perhaps a generic - a hereditary thing. I have seen cases where people have had abnormal blood tests through their entire life and have been fully investigated, no cause found, an the underwriter has accepted the case. Accepted it on the basis that it was one of those abnormalities that the client has and will continue to have.

64. Mr Willison was then taken by the appellant's counsel to that part of the underwriting guide relating to stress and he said:

"Well, stress there, within two years obviously a report within two years. It's suggested that a report - and again these are not - these guidelines were put out to give the agent some indication as to what action would be taken on a proposal that they submitted that the client had indicated they suffered from stress. It is not the definitive underwriting guide for underwriters and it's suggested there that stress within two years a report would be obtained and/or a medical exam. The rating could be ordinary rates or even down to a decline."

The application of s 29

65. The effect of the evidence of Mr Angus and Mr Willison may be summarized as follows. If the respondent had disclosed the true facts in lieu of the fact misrepresented in her proposal the appellant would have sought a Private Medical Attendant Report from Dr Joseph. But neither was prepared to speculate as to what the appellant would have done had Dr Joseph provided the appellant with his full medical notes and Dr Coghlan's report and had said that neither could find any cause of the respondent's breathlessness; or, more generally, to express an opinion on whether the appellant would eventually have declined the proposal. There was simply no evidence on this question. One possibility plainly was that the appellant would still have insured the respondent either at the same or a higher premium. Even if further investigation had shown that the respondent's symptoms were stress related (this was not diagnosed until after the policy had issued) it is possible, it seems, on the evidence of Mr Willison and the underwriting guide, that the appellant may still have entered into a contract of insurance on the same or some other terms.

66. I would therefore agree with the trial judge's conclusion that, in effect, the appellant failed to discharge the burden of proof upon it of showing that it would not have been prepared to enter into a contract with the respondent on any terms if the misrepresentations had not been made.

Conclusion

67. No question arose at the trial or in this appeal under s 29(4). In particular it was not contended by the appellant, in the alternative, that if it had not avoided the contract it was entitled to vary it and no notice in writing was given under that subsection. Accordingly the only question before the Court was and is whether the appellant was entitled to avoid the contract as it purported to do under s 29(3). The appellant having failed on that question, the respondent was entitled to the judgment which was given. I would therefore dismiss the appeal.

Orders

1. Dismiss the appeal.

2. Order that the appellant pay the respondent's costs to be assessed.

3. McPHERSON JA: I have read and agree with the reasons of Davies JA on this appeal. Because, however, the result may be at odds with the decision of Doyle CJ in Summerton v SGIC Life Limited (1999) 10 ANZ Insurance Cases 90-102, at 86, 129, I will state my own reasons on what I regard as the critical point. For brevity, my remarks will be confined to the plaintiff’s alleged failure to comply with the duty of disclosure before she entered into the contract of life insurance.

4. In Australia the question is now governed by the provisions of the Insurance Contracts Act 1984 (Cth) and in particular by s 29; but it is helpful to begin by seeing what the law was in Australia before the Act. In Mayne Nickless Ltd v Peglar [1974] 1 NSWLR 228, 239, Samuels J held that, before entering into a contract of insurance, a proponent was bound to disclose to the insurer every fact that was material; and:

“… a fact is material if it would reasonably have affected the mind of a prudent insurer in determining whether he will accept the insurance and if so at what premium and on what conditions.”

The word “reasonably”, his Honour added, was necessary “to maintain control over the evidence of possibly absurdly stringent insurance practice”.

70. The test adopted by Samuels J was indorsed by the Privy Council on the appeal from New South Wales in Marene Knitting Mills Pty Ltd v Greater Pacific General Insurance Ltd [1976] 2 Lloyd’s Rep 631, 642; 11 ALR 167, 172, and it was later applied by the Court of Appeal in Barclay Holdings (Australia) Pty Ltd v British National Insurance Co Ltd (1987) 8 NSWLR 514. As a member of that Court, Kirby P (at 517) said he would read the test propounded by Samuels J as requiring that the effect on the mind of the insurer be:

“… something more than the effect produced by information which the insurer would have been generally interested to have. If though interested to have it, such information would not, in the end, have determined for a reasonably prudent insurer the acceptance or rejection of insurance, the setting of the premium, or the attachment of conditions, there is no such effect on the mind as requires disclosure by the insured. The information, although of interest, is not material”.

71. In holding that the test in Mayne Nickless Ltd v Pegler was, by virtue of the decision of the Privy Council in 1976, binding on the Court of Appeal, Glass JA contrasted it with the approach adopted by Kerr LJ in Container Transport International Inc v Oceans Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd’s Rep 476, 492, (which has since been overruled in England) that it was enough that the undisclosed circumstance would have influenced or had an impact on the mind of the insurer. The difference between the two views, Glass JA explained (8 NSWLR 514, 523), was whether the relevance of the hypothetical facts, assuming they had been disclosed, “is judged at the moment the underwriter is deciding whether or not to accept the risk or at the moment when he undertakes an investigation of the risk”. His Honour considered that it was the first of these views that was binding on the Court. He went on to say (8 NSWLR 514, 525):

“If circumstances are only material when they bear upon the underwriter’s decision whether to accept or not to accept the risk and not when they merely suggest that there be a delay for further inquiry the circumstances must be revealed by the proponent with sufficient detail to enable the underwriting determination to be made.”

From this it appears that, before the Act, the question in the present case would have been determined according to whether or not, assuming the necessary disclosure to have been made when it should have been, the insurer would have rejected the proposal outright, and not merely deferred it pending further investigation of the risk that might in turn have led to rejection of the proposal or to an increase in the premium or the addition of further terms or conditions.

72. It was in this state of the law that the Act came into force. Its object was reform the law of insurance, which as it then stood was said by Kirby P to have been fraught with potential for injustice (8 NSWLR 514-520). The Act adopted the basic framework of the general law but it made some substantial changes that were designed to improve the legal position of the insured. Section 21(1) takes the general law as its starting point by imposing on the insured a duty before entering into a contract of insurance to disclose to the insurer “every matter” that is known to the insured. Despite the initial breadth of this opening statement, it is, as s 21(1) makes clear, not every known matter that must be disclosed; but only matter that is “relevant to the decision of the insurer whether to accept the risk and, if so, on what terms”. To that extent, s 21(1) in substance confirms the test of materiality adopted by Samuels J in Mayne Nickless Ltd v Pegler and by the Court of Appeal in Barclays Holdings v British National Insurance Co. Now, however, the insured is under a duty to disclose a matter only if the insured knows it to be relevant in that statutory sense: see s 21(a); or if a reasonable person in the circumstances could be expected to know it to be so: s 21(1)(b).

73. Remedies for misrepresentation and for failure to comply with the duty of disclosure are conferred in Division 3 of Part IV of the Act. Section 28 is directed to general insurance and s 29 specifically to life insurance. The provisions of s 28(2) and s 29(2) are at one in conferring a right or option on an insurer if the non-disclosure, or failure to comply with the duty to disclose, is fraudulent. But there is a difference in the scope or area of application of those two provisions. In the case of general insurance, the provisions of s 28, and consequentially of s 28(2), do not apply where the insurer would, regardless of disclosure, have entered into the contract for the same premium and on the same terms and conditions: s 28(1). In that event, the insurer has no right under s 28(2) to avoid for non-disclosure, whether fraudulent or not, although the insurer may nevertheless have a right to reduce its liability in accordance with s 28(3).

74. The reference in s 28(1) to entering into the contract, “for the same premium and on the same terms and conditions” seems clearly enough to reflect the criterion of materiality adopted by Samuels J in Mayne Nickless Ltd v Pegler, although materiality, or what is described as “matter relevant”, is now delineated in s 21(1)(a). The inference to be drawn from s 28 is that, in the case of a contract of general insurance, the insurer has a right of avoidance for fraudulent non-disclosure, but only if, assuming disclosure had taken place, the insured would either not have entered into the contract at all or would have done so for a different premium or on other terms and conditions. This corresponds to the law on the subject of general insurance as understood before the Act. The difference is that s 28 contains no right of avoidance for non-disclosure that is not fraudulent.

“(3) … the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms….”

77. The shift in language from “would have entered into the contract” in s 29(1)(c) to “would not have been prepared to enter into a contract” in s 29(3) cannot have been accidental. The difference must have some interpretative significance. Both provisions speak of “the insurer”, which can only mean the particular insurer in question, i.e. the defendant insurer in this case. The idiosyncrasies of the particular insurer are now controlled by the provisions of s 21(1)(b) concerning what a reasonable person could be expected to know it was relevant to disclose. In that way, it performs much the same function as the word “reasonably” in the formulation by Samuels JA in Mayne Nickless Ltd v Pegler referred to above.

78. The question posed by s 29(3) is whether, if the relevant matter had been disclosed, the defendant insurer would have been prepared to enter into a contract with the plaintiff insurer on any terms. If the answer is No, the right of the avoidance conferred by s 29(3) is exercisable; otherwise it is not. The emphasis “on any terms” stands in marked contrast to the expression used in s 28(1) in the case of general insurance, which is “would have entered into the contract for the same premium and on the same terms and conditions.” What is implicit in the language of s 29(3) is that it is only if the insured would not have been prepared to enter into a contract of insurance at all (whether for the same or a different premium, or on the same or different terms or conditions) that the right to avoid for non-disclosure is available. In other words, the insurer must in order to avoid establish that, if s 21(1) had been complied with, the insurer would not have been prepared to enter into any contract of life insurance with the insured, but instead would have declined the risk altogether.

79. On the limited footing on which I am approaching the matter, s 29(3) is the crucial provision. For this purpose, it is assumed that there was a failure by the plaintiff to comply with her duty to disclose a matter relevant to the defendant insurer’s decision to accept the risk on some terms, but that her non-disclosure of that matter was not fraudulent. From what has been said it follows that, in order to entitle the defendant to avoid the contract of life insurance under s 29(3), it is not enough for it to prove that, had the requisite disclosure been made, it might have entered into a contract of life insurance with the plaintiff; or even that it would have done so, but for a different premium or on different terms or conditions. On the contrary, it must be in a position to show that it would not have been prepared to enter into any life insurance contract with her at all.

80. In that regard, it is not, I consider, sufficient for the defendant to establish only that, had the requisite disclosure been made, it would have made further inquiries to determine whether or not to accept the risk either at all or at a different premium or on different terms. Proving that its decision whether or not to accept the risk would have been deferred is not to demonstrate that in the end it would not have entered into any contract of life insurance with the insured. That is, I conceive, the significance of the phrase “in the end” in the passage quoted earlier from the judgment of Kirby P in to the effect that the additional information, although of interest to the insurer, is not material unless it determines for the insurer the acceptance or rejection of the insurance. His Honour added a reference to the setting of the premium or the attachment of conditions; but in the case of life insurance s 29 effectively excludes those two matters from consideration in determining whether the right to avoid under s 29(3) is exercisable. What must be shown is that there would have been no contract, not merely a different one. A similar conclusion is implicit in the passage from the reasons for judgment of Glass JA in referred to earlier. It is also implicit in the extract from [1925] AC 344, 351-352, mentioned with approval in the dissenting speech of Lord Lloyd in [1995] AC 501, 564. As was recognised there, it was not enough under the general law to show that, if disclosure had in fact been made, the only difference would have been “delay and delay alone.”

Footnotes

1. Amended Statement of Claim par 5; Amended Defence par 4. ↩

2. Policy, cl 19.1; Policy Schedule. ↩

3. Policy cl 1; Insurance Contracts Act 1984 (Cth), s 11(1); Life Insurance Act 1995 (Cth) s 9, s 9A; Amended Statement of Claim par 6(a) and (b); Amended Defence par 5. ↩

4. (1990) 19 NSWLR 400. ↩

5. At 407. ↩

6. At 416. ↩

7. At 414 - 415. ↩

8. Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606 at 615. ↩

9. At [21]. ↩

10. At [73]. ↩

11. See [21]. ↩

12. Fn 4 at 408. ↩

13. The same may also be said of statements that, upon the last consultation, the insured was fully fit and that she had no symptoms and had taken no prescribed medication. ↩