Suncorp General Insurance Limited v Cheihk

LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : DC 2262/97 LOWER COURT JUDICIAL OFFICER : Bowden ADCJ

COUNSEL : A Bridge/M Fordham (Appellant) C Birch (Respondent) SOLICITORS : McCabes (Appellant) Alexanders (Respondent) CATCHWORDS : District Court - car stolen - insurance policy - refusal of insurer to indemnify the insured - whether insured was fraudulent in failing to disclose his poor driving record - insured's duty of disclosure under s 21 Insurance Contracts Act 1984 (Cth) - insurer's duty under s 22 to clearly inform the insured of the nature and effect of the duty of disclosure - onus of proof that insurer so informed the insured of the duty of disclosure ACTS CITED : Insurance Contracts Act 1984 (Cth); s 21;s 22(1); s 28 Abalos v Australian Postal Commission (1988) 171 CLR 167 CASES CITED: Lumley General Insurance Ltd v Delphin (1990) 6 ANZ InsCas 60-986 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (1999) 160 CLR 588 DECISION : Appeal dismissed with costs

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40229/98 DC 2262/97 MEAGHER JA STEIN JA GILES JA Friday, 16 July 1999 SUNCORP GENERAL INSURANCE LIMITED v George Anthony CHEIHK

In January 1996 the respondent insured his motor vehicle with the appellant. The insurance policy was renewed in January 1997 and in February 1997 the respondent's motor vehicle was stolen. The appellant refused to indemnify the respondent for the theft on the basis that the respondent had fraudulently failed to disclose details of his poor driving record. Alternatively, it was argued that the respondent had breached his duty of disclosure under s 21 of the Insurance Contracts Act 1984 (Cth) in failing to disclose that he had been convicted of driving whilst disqualified and had his license cancelled.

Bowden ADCJ found a verdict for the respondent in the sum of $184,246.36. He found the respondent was not guilty of fraudulent non-disclosure. His Honour also found that the appellant had not clearly informed the respondent of the general nature and effect of the respondent's duty of disclosure under s 21. In failing to comply with the requirements of s 22(1) the appellant was precluded from exercising a right in respect of a failure in disclosure under s 21 of the Act. On appeal, it was argued that:

1. His Honour erred in failing to find that the respondent had been guilty of fraudulent non-disclosure with respect to the renewal of the insurance policy; and 2. His Honour erred in failing to find that the appellant did comply with the provisions of s 22(1) of the Insurance Contracts Act 1984 (Cth).

His Honour was not in error in concluding that the respondent was not guilty of fraudulent non-disclosure. Similarly, he was not in error in finding that the appellant did not comply with the requirements of s 22. The burden of proof of proving satisfaction with the requirements of s 22 was on the insurer. ORDERS Appeal dismissed with costs

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40229/98 DC 2262/97 MEAGHER JA STEIN JA GILES JA Friday, 16 July 1999 SUNCORP GENERAL INSURANCE LIMITED v George Anthony CHEIHK JUDGMENT

1 MEAGHER JA: I agree with Stein JA and Giles JA. 2 STEIN JA: 3 This is an appeal from a decision of Bowden ADCJ given on 27 March 1998. His Honour found a verdict for the plaintiff (George Anthony Cheihk) in the sum of $184,246.36. Mr Cheihk had insured his Porsche motor car with the appellant (Suncorp General Insurance Limited). It was stolen on 24 February 1997 and not recovered. Mr Cheihk's claim to be paid the agreed value of $168,000 was refused by the insurer. 4 In its defence, the appellant pleaded that Mr Cheihk had fraudulently failed to disclose certain matters to it. Alternatively, Mr Cheihk had breached his duty of disclosure under s 21 of the Insurance Contracts Act 1984 (Cth) (the Act) in failing to disclose that he had been convicted of driving while disqualified and had had his licence cancelled for 6 months. As a consequence, it was submitted that the appellant was not liable under the policy.

5 On the issue of whether the respondent was guilty of fraudulent non-disclosure his Honour said that: The plaintiff was searchingly cross-examined and I thought came across as essentially a witness of truth. He denied that he had deliberately withheld evidence of [the] conviction and when pressed on this issue stated, with what seemed to me to be compelling openness, "why would I do that, why would I risk not telling someone if that would put my insurance at risk". I am far from satisfied that the plaintiff was guilty of fraudulent non-disclosure by either wilful act or reckless indifference. [Red AB 11 J - P] 6 The conviction referred to by the judge was recorded on 25 July 1996. It was for driving while his licence had been cancelled. The conviction resulted in the respondent being disqualified from driving for a period of 6 months from that date. 7 The appellant had also relied upon the respondent's non-disclosure of his poor driving record. With regard to this his Honour said: The plaintiff's record was pointed to as being something that he must have known an insurer would be interested in but most of those things were in existence prior to the original insurance in 1996 and the representative of the defendant had dismissed them from contention. The disqualification was as a result of the cumulative effect of those matters. As the plaintiff said "what I know now is very different from what I knew then". The first defence fails. [Red AB 11 Q to X] 8 Clearly his Honour was entitled to conclude that there had been no fraudulent non-disclosure by the respondent. He accepted the respondent, after rigorous cross-examination, as essentially a witness of truth. Moreover, Bowden ADCJ directed his attention to both submissions made by the insurer. It cannot reasonably be claimed that his Honour misconceived the appellant's case. Indeed, it is clear that he did not confuse the conviction with the earlier points amassed for traffic infringements which lead to the initial cancellation of his licence. The favourable finding on the respondent's credit was well open to him on the evidence and cannot be said to have transgressed the strictures discussed by the High Court in State Rail Authority v Earthline Constructions Pty Limited (1999) 73 ALJR 306. I would dismiss this aspect of the appeal. 9 As to the second leg of the appellant's case, his Honour found that the non-disclosure by the respondent (which was common ground) did not comply with the requirements of s 22(1) of the Act. The provision requires the insurer to 'clearly inform the insured in writing of the general nature and effect of the duty of disclosure'. Subsection (3) provides that if the insurer has not so complied, then absent fraud, it is not entitled to exercise a right in respect of a failure in disclosure under s 21 of the Act. 10 His Honour found, although expressing doubt, that the respondent probably received from the appellant in early January 1997 a document headed Certificate of Insurance, a Renewal Notice and a form letter from Mr Dobbie. The reverse side of the Certificate of Insurance contained reference to the duty of disclosure. Notwithstanding, his Honour found that the insurer had failed to comply with s 22(1) of the Act. 11 Some of the facts underlying the case are not easy to ascertain with any degree of precision. It is apparent that the respondent insured his Porsche with the appellant in January 1996 for a value of $220,000. As mentioned, on 25 July 1996 he was convicted in the Local Court of driving while his licence was cancelled and received a 6 month disqualification from driving. Sometime in December 1996 he received a letter from the appellant that on renewal the sum insured was to be reduced to $135,000. He hotly contested this making a number of phone calls to the appellant. Eventually an agreed value was reached of $168,000. Thereafter it is difficult to know what documentation was sent by the appellant to the respondent, except those documents produced by Mr Cheihk to the court. The insurer was unable to produce any copies since its computer system did not enable it to do so. 12 We know that Mr Cheihk received an 'Insurance Renewal' shortly after 7 January 1997 seeking payment of a premium of $2,171.25 before 25 January 1997 (Exhibit A). Also, Mr Cheihk produced a 'Certificate of Insurance' issued on 24 February 1997 and received by him sometime thereafter (Exhibit C). The insurer's case was that Mr Cheihk also received, sometime between 3 and 8 January 1997, a Statement of Renewal, a Certificate of Insurance and a Form Letter from Mr Dobbie of the appellant, all enclosed in the same envelope. The Certificate of Insurance referred to the insured's duty of disclosure on its reverse side and the Dobbie form letter referred to the duty of disclosure in its penultimate paragraph. The appellant submits that this was sufficient compliance with s 22(1). It adduced evidence of its computer system in seeking to establish that these documents were, as a matter of business practice, sent to the insured. As I mentioned, his Honour accepted (with reservations) that the documents were probably forwarded although no copies were able to be produced. 13 On his Honour's assumption that they were sent to Mr Cheihk, do the documents comply with the Act? The so-called 'Insurance Renewal', which would have been the most important document to Mr Cheihk, given the dispute over value, contains no reference to the duty of disclosure, nor cross-reference to any part of the 'Certificate of Insurance'. It appears to be almost wholly concerned with payment of the premium and the various means by which this could be effected. The 'Certificate of Insurance', assuming it is in the same form as Exhibit C (received by Mr Cheihk after the event), contains no reference to the duty of disclosure, which appears on its reverse side. Nor is the statement of the duty on the back highlighted in any way so as to direct attention to it. The 'Dobbie' form letter, headed 'Dear Customer', is mainly concerned with explaining an increase in premiums and a change to the age excess cover. Hidden away, and unhighlighted in any fashion, is a sentence which make reference to the duty of disclosure. 14 The requirement under s 22(1) of the Act is for the insurer to 'clearly inform' the insured in writing of the nature and effect of the duty of disclosure. The onus of so proving is on the insurer, Lumley General Insurance Limited v Delphin (1990) 6 ANZ InsCas 60-986 at 76,565. I also accept that 'inform' means to 'make known', see at 76,571. The general nature and effect of the duty of disclosure must be 'clearly' made known to the insured in writing. The adverb 'clearly' is a plain English word and its ordinary meaning would convey the need for some precision in the making known of the relevant duty. 15 Nothing in the Insurance Renewal document assists the insurer. As to the 'Certificate of Insurance', the document is so headed and contains the words 'hold as your record'. No reference is made to disclosure on its face and no reference is made to the material provided on the back. For example, it does not say 'please read the important warning on the back'. Also, the manner of forwarding the documents does not assist the insurer, especially bearing in mind that this was a renewal of an existing policy. As I have said, the instructions for renewal seem to be directed, almost exclusively, to payment of the premium with no reference to the duty of disclosure whatsoever. The Dobbie letter really adds very little to the insurer's case on notice under s 22(1). 16 In my opinion, on the evidence before him, the trial judge was entitled to conclude that the appellant had not complied with s 22(1) and his finding should not be disturbed. 17 Accordingly, it is unnecessary to determine the respondent's notice of contention. I would merely say that a close analysis of the evidence does not convince me that the documents relied on by the insurer were received by the respondent. The cogency of the insurer's evidence on its practice and system was deficient. His Honour's finding in its favour was, so it seems to me, a generous one. The appellant could produce no copies of the documents claimed to be sent to the respondent; the documents produced (addressed to another insured) could not be shown by the appellant's practice to have been sent to the respondent and the evidence of its system was not from anyone qualified to give such evidence. Even its own computer print-out of transactions was equivocal. For example, the transaction noted at BAB191, which indicates a transaction regarding the respondent on 8 January 1997 by Kelli Randall, states 'Statement only printed'. That is, a Renewal Statement and not the Certificate of Insurance. 18 However, I express no positive conclusion on the respondent's contention since it is unnecessary so to do. 19 The appeal should be dismissed with costs. 20 GILES JA: In January 1996 the respondent insured his motor vehicle with the appellant. The insurance was renewed in January 1997. The motor vehicle was stolen in February 1997. The appellant declined to pay the agreed value to the respondent, asserting that he had failed to comply with his duty of disclosure before the contract of insurance brought into existence upon renewal was entered into. 21 By s 21 of the Insurance Contracts Act 1984 ("the Act") the respondent had a duty to disclose to the appellant, before the contract of insurance brought into existence upon renewal was entered into, matters known to him which he knew or a reasonable person could have been expected to know were relevant to the appellant's decision whether to insure the motor vehicle and if so on what terms. If the respondent failed to comply with this duty of disclosure, by s 28 of the Act the appellant could avoid the contract of insurance if the failure was fraudulent, or its liability was reduced to the amount that would place it in a position in which it would have been if the failure had not occurred. But s 22 of the Act obliged the appellant, before the contract of insurance was entered into, to "clearly inform [the respondent] in writing of the general nature and effect of the duty of disclosure", and if it did not do so it could not "exercise a right in respect of a failure to comply with the duty of disclosure unless that failure was fraudulent". 22 The respondent had an abysmal driving record dating from 1987. The matters which the appellant said he should have disclosed were that his licence had been cancelled for six months on 10 April 1996 for accumulation of demerit points, and that he had been convicted on 25 July 1996 of driving on 3 May 1996 whilst his licence was cancelled and disqualified from driving for a further period of six months from that date. He did not disclose either of these matters. It was common ground that the duty of disclosure required that they be disclosed. 23 The applicant said that the failure to comply with the duty of disclosure was fraudulent, and purported to avoid the contract of insurance; it said that, if the failure was not fraudulent, its liability was reduced to nil because it would not have insured the motor vehicle if there had been compliance with the duty of disclosure. It was also common ground that, if there had been disclosure, the appellant would not have insured the motor vehicle. So the issues were -

(a) whether the non-disclosure was fraudulent; if it was, the respondent failed in his claim against the appellant, but if it was not

(b) whether the appellant had informed the respondent of his duty of disclosure in accordance with s 22; if it had, again the respondent failed in his claim against the appellant, but if it had not, the respondent succeeded in his claim against the appellant. 24 Bowden ADCJ was not satisfied that the non-disclosure was fraudulent and was not satisfied that the appellant had informed the respondent of his duty of disclosure in accordance with s 22 of the Act. Accordingly, the respondent succeeded in his claim against the appellant.

Was the non-disclosure fraudulent? 25 His Honour said - "The plaintiff was searchingly cross-examined and I thought came across as essentially a witness of truth. He denied that he had deliberately withheld evidence of conviction and when pressed on this issue stated, with what seemed to me to be compelling openness, 'Why would I do that, why would I risk not telling someone if that would put my insurance at risk'. I am far from satisfied that the plaintiff was guilty of fraudulent non-disclosure by either wilful act or reckless indifference. The plaintiff's record was pointed to as being something that he must have known an insurer would be interested in but most of those things were in existence prior to the original insurance in 1996 and the representative of the defendant had dismissed them from contention. The disqualification was as a result of the cumulative effect of those matters. As the plaintiff said 'What I now know is very different from what I knew then'. The first defence fails." 26 The appellant accepted that it had the task of satisfying his Honour that the non-disclosure was fraudulent, and it recognised that his Honour's finding was credibility-based and protected from appellate intervention by the principles considered in Abalos v Australian Postal Commission (1988) 171 CLR 167 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (1999) 160 CLR 588. It said that the finding was nonetheless infected by error, in that in the second of the paragraphs set out above his Honour had overlooked as something in which the appellant would have been interested the respondent's conviction for driving whilst his licence was cancelled. The "disqualification", it said, was the result of that conviction, not the result of the cumulative effect of the earlier driving defaults. 27 I do not think that there is anything in this point. It should be remembered that the appellant had relied on non-disclosure of the cancellation and the conviction, not of the earlier driving defaults. His Honour was well aware of the conviction, which understandably had been the focus of the cross-examination to which he referred, and from the first of the paragraphs set out above was not satisfied that the failure to disclose the conviction was fraudulent. Consideration of the respondent's record, apparently meaning the earlier driving defaults, was no doubt relevant to whether the particular matters of the cancellation and conviction were fraudulently withheld by the respondent, but there was no direct reliance on failure to disclose them. It was correct in a general sense to say that the disqualification was the result of the cumulative effect of the earlier driving defaults, because they had led to the cancellation and thence to the conviction and disqualification. I do not think it should be concluded that his Honour misapprehended the evidence as to what was not disclosed or the matters on which the appellant relied to persuade him that the non-disclosure was fraudulent.

Did the appellant inform the respondent of his duty of disclosure? 28 To state it more fully, by s 22(1) of the Act - "The insurer shall, before a contract of insurance is entered into, clearly inform the insured in writing of the general nature and effect of the duty of disclosure." 29 The 1996 insurance had been for $220,000. Towards the end of December 1996 or early in January 1997 the respondent received a document from the appellant in which he was told that, on renewal, the insurance would be for $135,000. He disputed the reduced value over the telephone. Eventually there was agreement on renewal insurance for $168,000. 30 What documents the respondent received from the appellant, initially or in the course of or following his telephone conversations, was rather unclear on the evidence. His Honour found, on the probabilities, that the documents included three documents sent together by the appellant to the respondent in early January 1997, being a form letter nominally from Mr Dobbie of the appellant, an Insurance Renewal, and a Certificate of Insurance. The Certificate of Insurance contained on its back a note which, in its terms, sufficiently stated the general nature and effect of the duty of disclosure. Did this satisfy the obligation under s 22 of the Act? 31 In his Honour's view, other documents which the respondent received or might have received in relation to the renewal, and his telephone dealings with the appellant, contributed to the conclusion that provision of the Certificate of Insurance with this note on its back was not clearly informing the respondent of the general nature and effect of the duty of disclosure. In favour of the appellant, I will put those complications aside, and will assume a stark provision of the three documents to the respondent. On the evidence before his Honour, if relevant at all the other documents or dealings could only have detracted from satisfaction of the obligation under s 22 of the Act. 32 The form letter was a one page document. It began with the words, "Enclosed is your motor insurance renewal for the next 12 months." In the following paragraphs it sought to explain and excuse any increase in premium and adjustments in age and other excesses, while extolling other virtues of the appellant's insurance. It then said - "You are reminded that your duty of disclosure applies to this renewal of your insurance. Therefore, please contact SUNCORP if there has been any change to your vehicle (such as accessories fitted or modifications made) or vehicle use, condition or finance or to your status including post code, traffic convictions, criminal convictions, bankruptcy and accidents not resulting in a claim with us in the past year."

The letter closed with information on how to get further information or assistance. 33 The Insurance Renewal was a two page document, on the front and back of the one sheet of paper. The first page was prominently headed "Insurance Renewal", and beneath the heading were the words - "To save you time and effort, simply detach the Payment Section below and return it with your cheque or credit card details in the enclosed pre-paid envelope. To pay by phone, call 13 11 55 and have your credit card and this form ready."

There was then insertion of the respondent's name and address, an exhortation for prompt payment, and particulars of the policy and its type and the premium payable. There was a statement about altering that information by telephoning the appellant or completing the section on the back of the page. At the foot of the first page was a tear-off section for returning with payment or credit card details. On the second page, the back of the sheet of paper, were statements laudatory of the appellant's insurance, further information about how to pay the premium, and provision for the insured to "change my policy" or advise of change to "personal and address details". On neither the front nor the back of the sheet of paper was anything said about the duty of disclosure, and there was no provision for disclosing matters relevant to the decision of the appellant whether to accept the risk, and if so, on what terms. 34 The Certificate of Insurance was also a two page document, on the front and back of the one sheet of paper. Its contents were typed on the first page and as printed material on the second page. 35 On the first page, beneath the name and logo of the appellant were the typed words "CERTIFICATE OF INSURANCE HOLD AS YOUR RECORD". After the name and address of the respondent the body of the first page read (what follows is taken from a later computer print-out reflecting a later date for the commencement of the period of insurance and the agreed insurance of $168,000) - "The current details of this insurance are displayed in this Certificate of Insurance. Any Premium amount outstanding should be paid by the Premium Statement Due Date to ensure continuation of cover. THE INSURED: CLIENT NUMBER C715469C AA CHEIHK, GEORGE ANTHONY PERIOD OF INSURANCE FROM: 24th FEB 1997 TO 25th JAN 1998 MOTOR (Terms and Conditions contained in the SUNCORP PERSONAL MOTOR VEHICLE POLICY wording apply and are subject to the Variations below) YOUR VEHICLE 1993 PORSCHE 911 CARRERA 4 COUPE ADN 68N USE: PRIVATE RATING NO: 1 AGE EXCESS 16-19 yrs $700; 20-21 yrs $500; 22-24 yrs $300 EXCESS $1,000 TYPE OF COVER Comprehensive AGREED VALUE SUM INSURED $168,000

OTHER INTERESTED PARTIES METWAY BANK LIMITED (financier)"

At best for the appellant, there may have been a " … /2" at the foot of the first page indicating that there was something more. 36 On the second page the printed material began with a fairly prominent heading reading "Please read these notices carefully". There followed six paragraphs, the first of which, as I have said, in its terms sufficiently stated the general nature and effect of the duty of disclosure. At the foot of this page, after an invitation to contact the most convenient Suncorp office for all insurance needs, was a description of payment procedures, again referring to the Premium Statement. The Certificate of Insurance, however, did not say anything about the premium payable. That was apparently left for the Insurance Renewal, which must have been what the Certificate of Insurance called the Premium Statement. 37 The burden of proving satisfaction of the obligation under s 22 of the Act is borne by the insurer: Lumley General Insurance Ltd v Delphin (1990) 6 ANZ InsCas 60-986 at 76, 565. If the respondent was clearly informed of the contents of the note on the back of the Certificate of Insurance, the appellant discharged its burden. It should be said that there was no question of a giving of information when the initial contract of insurance was entered into bringing deemed satisfaction of s 22 for the purposes of the renewal pursuant to s 11(10)(a) of the Act, it seems because information had not then been given. 38 The issue is whether what the appellant did, that is, sending the three documents to the respondent, amounted to clearly informing the respondent of the contents of the note on the back of the Certificate of Insurance. The contents of the note had to be made known to the respondent, and had to be made known to him clearly. Clarity was required not only in the contents of the note by which information was conveyed but also by the manner in which the note conveying the information was made known. A note in a document without attention appropriately drawn to it would not suffice, even if the contents of the note were adequate to state the general nature and effect of the duty of disclosure. 39 Here the recipient of the three documents would naturally turn first to the form letter. It would appear to tell him most of what he needed to know, information about premium and excesses and a general reference to the duty of disclosure. It invited attention to the "motor insurance renewal", and that would take the recipient's attention to the Insurance Renewal and what else he needed to know, the premium he had to pay and how to pay it, and to the Certificate of Insurance telling him the details of the insurance he would have if he paid the premium. The Certificate of Insurance was noted as something to be held as his record, that is, as the record of what he would have upon payment of the premium. In none of this was there anything to tell him that on the back of the Certificate of Insurance there was information about something he should do before or at the time of renewal, on which the efficacy of the renewal might turn. To the contrary, it would have appeared that the general reference to the duty of disclosure in the form letter was all the appellant thought he should relevantly be told about, and the Certificate of Insurance as the end result of the renewal was not the place to look for information about something to be done before or at the time of renewal. 40 It will always be a question of fact and degree, but the purpose of s 22 is to ensure that the insured is informed of the significant and important matters of his duty of disclosure and the consequences of failure to comply with the duty of disclosure, so that his insurance cover will not be imperilled by ignorance of those matters. The insured is to be informed clearly. Both the purpose of s 22 and its terms call for insistence on a proper standard of information giving. In the present case I do not think that by provision of the three documents the appellant clearly informed the respondent as required by s 22(1). 41 It is unnecessary to consider the respondent's notice of contention, to the effect that his Honour's finding that the form letter, the Insurance Renewal and the Certificate of Insurance were on the probabilities sent to the respondent was incorrect. 42 In my opinion, the appeal should be dismissed with costs. ____________________________

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