Secure Funding Pty Ltd v Insurance Australia Limited

REASONS FOR JUDGMENT 1 This is an application seeking indemnity under a policy of insurance underwritten by the Respondent ('IAL'), which noted the interest of the Applicant ('Secure Funding') as mortgagee in the insured property. 2 On 1 October 2010, I ordered that: · The application be dismissed with costs. · The time for any appeal be extended to seven days after the delivery of reasons by the Court. 3 I now provide my reasons for dismissing the application. 4 The parties agreed upon certain facts (for the purposes of the proceeding only) as follows: 1 At all material times, Paul Colin Philp ('Philp') was the sole registered proprietor of a property (land and building) located at 32 Thomas Street, North Rothbury, New South Wales ('the Property'). 2 On 2 December 2004, Alison Parker ('Parker') and Philp obtained insurance from IAL in respect of, inter alia, damage to the Property caused by fire ('the Policy'). 3 On 21 April 2005, Secure Funding entered into a written loan agreement with Philp and Parker pursuant to which Secure Funding agreed to advance $220,000 to Philp and Parker ('the Loan Agreement'). 4 A mortgage was granted by Philp to Secure Funding over the Property as security for all Philp and Parker's liabilities under the Loan Agreement (the Mortgage). The Mortgage is in writing and is constituted by a mortgage and a memorandum of common provisions (no AA658220). 5 The terms of the Mortgage required Philp to: 5.1 Effect and maintain insurance cover in respect of the Property; and 5.2 Ensure that Secure Funding was entitled to the benefit of the Policy to the extent of its interest as mortgagee by noting Secure Funding's interest in the Policy. 6 On 15 April 2005, IAL and Parker and Philp agreed to note, in the Policy, Secure Funding's interest in the Property as a credit provider / first mortgagee / Interested Party. Those notations were variously recoded in the 2004-2005 Certificate of Insurance Amendment document and the Certificate of Currency document dated 15 April 2005. 7 On 2 December 2005, IAL and Parker and Philp agreed to renew the Policy for a further 12 months ('Renewed Policy'). 8 The Renewed Policy is in writing and is constituted by a 2005-2006 Certificate of Insurance Renewal and a Product Disclosure Statement and Policy Booklet. 9 Parker and Philp maintained the Renewed Policy at all material times. At all material times, the Renewed Policy noted: 9.1 the "insured" as Parker and Philp; 9.2 the "Credit providers 1st Mortgagee" / "Interested Party" as including Secure Funding; 9.3 the "Home Insured" / "Situation of Risk" / "Interest Insured" as 32 Thomas Street, North Rothbury NSW 2335; and 9.4 the "Sum Insured" for "Buildings" as $309,000. 10 At all material times, the Renewed Policy contained the following terms: 10.1 "If your home or contents suffer loss or damage caused by fire, [IAL] will under buildings insurance rebuild or repair that part of your home that was damaged." 10.2 "[IAL] will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone: · Who lives in your home, or; · Who has entered your home or site with your consent, or the consent of a person who lives in your home. If you are a landlord this includes your tenants." 10.3 "Your home is the home insured identified on your current Certificate of Insurance. If you are a landlord your rental property is identified as the home insured on your current certificate of insurance." 11 On or about 23 April 2006, Philp, with the intention of causing damage, deliberately set fire to the Property, as a result of which, the Property was extensively damaged. 12 The facts alleged in paragraph 11 herein occurred at a time when Philp was a person who had entered the Property with the consent of Parker, being a person who lived at the Property. 13 In February 2007, Secure Funding first became aware that the Property had been damaged by fire. 14 On or about 18 March 2008, Secure Funding made a claim under the Renewed Policy for the loss it had suffered as a result of the damage to the Property caused by the fire ('the Claim'). 15 On or about 28 July 2008, IAL refused the Claim. 5 In the course of the parties' submissions a number of issues arose, but the determinative issue was the scope of the contractual bargain between the parties and the operation of the contractual terms. It is to this issue I turn. 6 The material facts of special importance in determining this issue are as follows: (1) On 2 December 2005, Philp and Parker entered into the Policy in relation to the Property. (2) Secure Funding was the first registered mortgage over the Property. (3) The Policy was stated to be between IAL and "the insured", listed as Parker and Philp. The Policy listed Secure Funding (along with National Australia Bank Limited) as "credit providers 1st Mortgagee/Interested Party". (4) The Product Disclosure Statement ('PDS') to the Policy stated that the insurance policy would cover loss or damage to the insured home or contents caused by fire, but contained a clause which stated: However, we will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone (i) who lives in your home, or (ii) who has entered your home or site with your consent, or the consent of a person who lives in your home. (5) The PDS defined "You" as follows: "You" means the person or persons named as the insured on your current Certificate of Insurance. If more than one person is named as the insured, we will treat a statement, act, omission or claim by any one of those people as a statement act, omission or claim by all those people. (6) The PDS defined "Your Home" as follows: "Your home" is the home insured identified on your current Certificate of Insurance. If you are a landlord your rental property is identified as the home insured on your current certificate of insurance. (7) On or about 23 April 2006, Philp, with the intention of causing damage, deliberately set fire to the Property as a result of which the Property was extensively damaged. (8) This occurred at a time when Philp was a person who had entered the Property with the consent of Parker, being a person who lived at the Property. (9) In February 2007, Secure Funding first became aware that the Property had been damaged by fire. On or about 18 March 2008, Secure Funding made a claim under the Insurance Contract for the loss it had suffered as a result of the damage to the Property caused by the Fire. IAL refused the claim on the basis of the clause referred to in (4) above. 7 IAL accepted that, as outlined by Secure Funding in its submissions, two first instance decisions, VL Credits v Switzerland General Insurance Co Ltd [1990] VR 938 and Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170, contain comments which, at a high level of superficiality, may be thought to lend support to the contentions made by Secure Funding. 8 I turn to these two decisions relied upon by Secure Funding. However, it is critical to pay close attention to the terms of the parties' bargain to identify the scope of that bargain. It is in this context any authority must be considered. 9 In Barroora Pty Ltd (1992) 26 NSWLR 170, the Court did not set out the relevant determinative clause. The authority is of little assistance without knowing the extent of the contractual bargain between insured and the insurer. Condition 7 (the relevant clause) in VL Credits [1990] VR 938 was set out. Secure Funding submitted that Condition 7 in VL Credits [1990] VR 938 was "in substance identical" to the clause relied upon by IAL in this proceeding and referred to above. 10 Condition 7 in VL Credits [1990] VR 938 was in the following terms: If any claim be in any respect fraudulent or if any fraudulent means or devices be used by the insured or anyone acting on the insured's behalf to obtain any benefit under this policy or if any destruction or damage be occasioned by the wilful act or connivance of the insured, the company without prejudice to any other right it might have under this contract, is entitled to refuse to pay the claim. 11 The trial judge in VL Credits [1990] VR 938 (Tadgell J) said (at p 947) that: (a) the claim referred to in Condition 7 was a claim made by a co-insured (the mortgagee in that case was a co-insured) for indemnity in respect of his loss by reference to his insurable interest; and (b) "the insured" in Condition 7 referred to the particular claimant. 12 His Honour said: … I should be unwilling, in the absence of language requiring it, to interpret condition 7 as visiting the consequences of fraud upon a party who has neither been fraudulent himself nor made himself vicariously liable for the conduct of anyone who had. [emphasis added] 13 However, the relevant clause in this proceeding is not focussed upon the claim or claimant, and defines the risk undertaken by the insurer. The present exclusion clause expressly states that it will operate if the relevant person "entered your home or site with your consent, or the consent of a person who lives in your home". The relevant person does not have to be the claimant himself or someone acting on his behalf, as was the case in Condition 7 in VL Credits [1990] VR 938. The present exclusion relied upon by IAL is not dependent upon whether the claimant is the named insured or Secure Funding. 14 The focus must always be on the precise terms of the contract. The precise terms of the relevant clause are set out above, but restated to take account of the agreed facts and the claim made by Secure Funding under the Policy, can be stated as follows: However, [IAL] will NOT cover loss or damage as a result of fire started with the intention of causing damage by [Secure Funding] or someone - who lives in [the home insured on the Certificate of Insurance], or - who has entered [the home insured on the Certificate of Insurance], or site with [Secure Funding's] consent, or the consent of [Parker]. 15 In the present case it is agreed Philp, with the intention of causing damage, deliberately set fire to the Property as a result of which the Property was extensively damaged and that he was a person who had entered the Property with the consent of Parker, being a person who lived at the Property. This would mean the Policy did not cover the event that caused the damage. 16 To avoid this conclusion, Secure Funding sought to rely upon the purpose or commercial object of the Policy. It was said that the cover was to protect a financier, and not to disentitle it where arson or illegal action was undertaken by the "insured" as defined. 17 It was also submitted at the hearing, as part of Secure Funding's argument that the exclusion clause did not apply, that the financier was not specifically mentioned unlike the position of a landlord and tenant. 18 The actual format of the relevant clause in the Policy is significant and is as follows: Fire We will under contents insurance however If your home or contents suffer loss or damage caused by fire Ø Replace or repair your damaged contents Ø we will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone We will under buildings insurance o who lives in your home, or Ø Rebuild or repair that part of your home that was damaged o who has entered your home or site with your consent, or the consent of a person who lives in your home if you are a landlord this means your tenants Ø we will NOT cover loss or damage as a result of scorching or melting o where there was no flame, or o your home/contents did not catch fire Ø we will NOT cover loss or damage to any heat or fire-resistant item if it self combusts Ø we will NOT cover loss or damage caused by bushfire for the first 48 hours of this Policy, unless o risk passed to you as purchaser of your home immediately before you took out this Policy, or o you signed a lease contract for your home immediately before you took out this Policy, or o your Policy commenced immediately after another Policy covering the same risk expired, without a break in cover.