Western Australian Bank v Royal Insurance Co [1908] HCA 11;

Western Australian Bank v Royal Insurance Co [1908] HCA 11; - HCA 1908 case summary — Zoe

[37]

Having regard to the conduct of the case at the trial, the first and the principal question for decision is whether at the time of the loss there was a contract of fire insurance between the plaintiff bank, the appellants, and the defendant company, the respondents. The answer to that question depends, (1) on the fact that the renewal premium for the year beginning 10th April 1902 was not duly paid, and remained unpaid at the time of the alleged new contract, so that in law the policy to Taylor and Connolly had before that time ceased to be in force: Bunyon, 5th ed., pp. 174-178; and (2) on two receipts dated respectively 22nd and 27th May 1902. These receipts have already been read. The first of them is undoubtedly in the form appropriate to the inception of a new proposal, provisionally accepted by an agent. That this is so is made more apparent by a comparison of it with the last previous receipt for a premium accepted to renew the original policy from 10th April 1901 to 10th April 1902, which is in the ordinary form of a renewal receipt. The receipt of 22nd May 1902 shows that the premium deposit was accepted "from Taylor and Connolly, and the W.A. Bank as mortgagees," not for "continuance," but for "insurance against fire." In consideration of it, "such" insurance - i.e., that proposed - is held in force for a period not exceeding 14 days from the issue of the receipt, "subject to the terms and conditions of the company's policies," &c., clearly as if it were then first written on one of their usual proposal forms; and "further acceptance of the proposal" is to be notified by the issue of the receipt by the Perth office. This is signed by the respondents' Kalgoorlie agent. This was followed by another receipt given by the local manager at Perth for the premium of £32 10s. on the form adopted by the respondents for the continuance of policies, but describing the policy as "in the name of Western Australian Bank." It was countersigned by the Kalgoorlie agent and dated 27th May 1902. The next year's renewal premium was in the like form. That was the last receipt, for the hotel was burnt down before another premium became due. The documents, namely those mentioned together with the two indorsements on the policy, to which the Chief Justice has referred, constitute, together with the fact of the failure in due payment of the renewal premium due 10th April 1901, the whole of the evidence to support the appellants' contention that a new contract was made between them and the respondents. The two indorsements on the policy were antecedent to the due date of the 1902 renewal, as they were made in November 1901 and February 1902.

[40]

The next question is whether the appellants, as the insured, had an insurable interest. They were equitable mortgagees of the insured premises under their liens and the deposit of securities. Bunyon on Fire Insurance, 5th ed., at p. 42, summarizes insurable interests as "any legal or equitable estate, or right which may be prejudicially affected, or any responsibility which may be brought into operation by a fire." Of the case of a mortgagee, Bowen L.J., says in Castellain v. Preston[11]: - "If he has the legal ownership, he is entitled to insure for the whole value, but even supposing he is not entitled to the legal ownership he is entitled to insure primâ facie for all. If he intends to cover only his mortgage and is only insuring his own interest, he can only in the event of a loss hold the amount to which he has been damnified. If he has intended to cover other persons besides himself, he can hold the surplus for those whom he has intended to cover. But one thing he cannot do, that is, having intended only to cover himself and being a person whose interest is only limited; he cannot hold anything beyond the amount of the loss caused to his own particular interest." And his Lordship points out that the whole matter is regulated by the doctrine of indemnity. As the Chief Justice has pointed out, the debtors owed the appellants more than the amount of the policy at the time of the loss, so that there can be no problem to solve as to the extent of the mortgagees' insurable interest. They can recover at any rate to the amount of the debt due to them when the fire took place, upon proof and within the value insured. A further defence was raised under condition 6 of the policy, which, if there is a new contract such as I have endeavoured to show, is a condition of that contract. It will be observed that it is almost totidem verbis with the condition which was the subject of the decision in Weir v. Northern Counties of England Insurance Co.[12]. The only difference on which counsel placed serious reliance was that in the present case the words "unless and" are inserted, and precede "until" in the last sentence of the condition. Notice, with a statement and account under this condition, was not sent to the insurers until 17th December, a year after the fire, and as we are told, after the buildings had been reinstated. It was argued that the delivery of the statement, and within fifteen days after the happening of the loss, was a condition precedent to the right to recover. I think Weir's Case[13], so far as it goes, ought to be followed by us. It is now more than 28 years old, and so far as I can learn, has not been challenged during that time, although there must have been many opportunities of raising the question in British Courts. The decision has, no doubt, been followed in the transaction of insurance business throughout the interval, and we should do nothing to disturb it now. Moreover I am strongly disposed to think it correct. For very many years the clause existed without the addition of the words beginning "and in default thereof," and in that state it was repeatedly construed as imposing a condition precedent on the right to recover. No doubt its very plain terms justified that interpretation, which it received in the several instances cited in Weir's Case[14]. The distinct inference from the words was that if the fifteen days had elapsed without delivery of the notice, account, &c., on the part of the insured, he could not afterwards be allowed to sustain his claim. But expressum facit cessare tacitum, and in Weir's Case[15], it was held that the added words "have the effect of only deferring the right to payment until the notice and account are given, and thus enlarging the time." The Court thought that the words had been added with the purpose of defining what should be the consequence of failure to comply with the requirements within the time limited. Instead of saying (as tacitly it had said) that in default no action shall be brought or payment made, it says that no claim shall be payable until such notice and account &c. are given. "Besides," added the Court[16], "the words are those of the company's own form, and the maxim applies, fortius contra preferentem." It was held, therefore, that the delivery of the notice, account, &c., within fifteen days was not a condition precedent.

[41]

We have now to inquire what difference is made by the insertion of the words "unless and" before the word "until." I am not disposed to hold that there is any alteration in the sense. The important words are "in default thereof." On failure to deliver the notice, account &c., within the fifteen days, the insured shall have no claim unless he afterwards gives the notice and account and until he gives them. These two things are about equal to one another if we consider their effect after default. It is presupposed that the fifteen days have elapsed without compliance with the requirement. After that time, no claim is to prevail unless and until, &c. Given the end of the fifteen days as the starting point, I doubt whether the addition of "unless" adds to the stringency of the clause. There is, no doubt, an ambiguity, and when we consider also the prior words "at the latest," I do not see how that ambiguity is solved by the application of the ordinary rules of construction. But if that point of intractability is reached we are entitled to apply the maxim verba chartarum fortius accipiuntur contra proferentem: Lindus v. Melrose[17]. Lord St. Leonards, in Anderson v. Fitzgerald[18], said: - "A policy ought to be so framed, that he who runs can read. It ought to be framed with such deliberate care, that no form of expression by which, on the one hand, the party assured can be caught, or by which, on the other, the company can be cheated, shall be found upon the face of it: nothing ought to be wanting in it, the absence of which may lead to such results." And this passage affords the strongest reason for his having said a little earlier, speaking of the policy[19]: - "It is of course prepared by the company, and if therefore there should be any ambiguity in it, must be taken, according to law, more strongly against the person who prepared it." I am therefore content to hold that the clause does not impose a condition precedent as to the fifteen days, and that sufficient notice has been given, there being no other objection taken to it and the accompanying documents.

[57]

The last sentence of the condition is in these words: "and in default of compliance with the terms of this condition or any of them no claim in respect of any such loss or damage shall be payable or sustainable unless and until such notice statement account proofs and explanations and evidence respectively shall have been delivered produced and given as aforesaid and such statutory declaration if required shall have been made." It is the last few words of qualification beginning "unless and until such notice," &c., that create the difficulty. If the qualifying words were omitted, compliance with the requirements in question would be clearly a condition precedent. On the other hand, if the words "unless and" were omitted, there is direct authority for the position that failure to give the notice forth with, or to deliver the particulars and account within the time named, would not deprive the plaintiffs of their right of action, but would suspend it until the condition was in these respects complied with. The qualifying words of the condition in Weir v. The Northern Counties of England Insurance Co.[27] were substantially identical with those of the condition now under consideration, except for the occurrence in the latter of the words "unless and" before "until." The decision in that case has never been questioned, and is quoted as settled law in all the text books on insurance. Lawson J., in delivering the judgment, says[28]: - "Why then are those words added, without which the clause would have had the stringent operation of a condition precedent? Is it not for the purpose of defining what shall be the consequence of failure to comply with the requirements of giving notice and account within the time limited; and instead of saying that in default no action shall be brought or payment made, it says, that no claim shall be payable until such notice and account, etc., are given, thus giving an enlarged time for doing it, provided it is done before the claim is payable? This is the ordinary grammatical construction of the words, and it may well be that those words were added in order to get over in favour of the assured the stringency of the prior words, as interpreted by the cases to which I have referred."

[68]

The Full Court of Western Australia reversed the judgment of Parker C.J. on appeal, on the ground of condition 11 of the policy: - "The insured must give notice to the company of any insurance or insurances made elsewhere on the property hereby insured or on any part hereof the particulars of which must be indorsed on the policy and unless such notice be given and indorsement be made the insured will not be entitled to any benefit under this policy." It appears that in 1903, after the policy, the original insured, Messrs Taylor and Connolly, effected another insurance with another company, and that no notice was given to the defendant company. The position at the time was that Taylor and Connolly had borrowed money from the bank, had lodged the policy with the bank, had given a general lien over this policy and other documents, and had, on 13th of November 1901 by indorsement on the policy, made an equitable assignment to the bank expressly by way of security. The local manager of the defendant company had signed another indorsement stating that the assignment conferred on the bank whatever rights might accrue to Taylor and Connolly under the policy. The Full Court has held that these two indorsements did not pass to the bank the legal title to the policy moneys, and did not make the bank "the insured" within the meaning of condition 11; and if Taylor and Connolly were "the insured" when the second policy was effected, they did not comply with the condition, and they could not, nor could their assigns, recover the policy moneys. I concur with the Full Court in the view that the two indorsements did not of themselves pass the legal title, and did not make the bank "the insured": Buffalo Steam Engine Works v. Sun Mutual Insurance Co.[36]; State Mutual Fire Insurance Co. v. Roberts[37]. I concur with McMillan J. in his view of the case of Ellis v. Insurance Company of North America[38]. There, the interest of the insured was assigned absolutely - not by way of mortgage. The insured ceased thereby to have any insurable interest; and the Court came to the conclusion that the consent of the company could have no meaning unless the intention was to create a new contract on the same terms as the old[39]. But the bank relies on certain subsequent receipts for premiums as showing a new contract between the bank and the company, whereby the bank became "the insured." There is a receipt of the company dated 27th May 1902 as follows: - "Received the undermentioned premium for the continuance of policy No. 7213012 of this company in the name of Western Australian Bank insuring the sum of £650 for twelve months from 10th April 1902 to 10th April 1903." It will be noticed that this premium was received after the due date, and dated back to it. There was a similar receipt given on 21st April 1903 for the year 10th April 1903 to 10th April 1904. The fire occurred on 16th of December 1903. Now, I can give no other meaning to these receipts than that the defendant company insure the bank as they had insured Taylor and Connolly; and on the conditions which appear in the policy. The name of the bank is to be substituted for the names of Taylor and Connolly; but the terms of the contract are to be the same as in the expired policy. This is the substantial effect of the receipt. The bank becomes the contracting party with the company. The bank becomes "the insured." There was no need for a novation in the strict sense. The contract of insurance made with Taylor and Connolly had expired, and the bank was now insured on the same terms. It is true that the premiums for which these receipts were given were paid out of rents which Cross - agent for the defendant company and also for Taylor and Connolly - collected for Taylor and Connolly. It does not appear whether the rents were collected from properties subject to the bank's general lien; nor does the reason appear for the substitution of the bank as the insured. But the payment of the premium was made on behalf of the bank; and the bank has ratified the transaction. It is also true that the statement of claim does not treat the receipts as being fresh contracts with the bank, and speaks of the plaintiff as "renewing" the policy by paying the premiums for April 1902 and April 1903. But the receipts are in evidence; there has been no surprise on the defendants; the case of new contract was fully discussed in Perth before and by the Full Court; and it would be a ridiculous technicality, as well as unjust, to refuse now to give to the receipts their full effect.

[69]

But the defendant company urges that, under condition 11, the bank, even if it is to be treated as the insured, is under a duty to give notice of any insurance effected by anybody, at all events if it knows the particulars. I cannot find any sufficient evidence that the bank knew the particulars of the second policy; and indeed the learned Chief Justice at the trial found expressly that it did not know. But I am prepared also to hold that condition 11 does not apply to policies effected by others than the insured. In the next succeeding conditions, where the parties refer to other insurances, they expressly add the words "whether effected by the insured, or by any other person;" and the fair inference is that condition 11 refers to insurances effected by the insured. No explanation whatever has been suggested of the difference in language in these conditions on the defendants' interpretation. Cases can easily be suggested of extreme injustice should an insured lose his right to policy moneys because of some other person effecting an assurance without his knowledge; and it is laid down that we are to avoid a construction which will produce injustice "if another and more reasonable interpretation is present in the Statute:" Knowlton v. Moore[40]. Mr. Mitchell, indeed, felt the force of this consideration, and suggested a limitation of the section to the case of another policy effected with the knowledge of the insured. But the context does not refer to knowledge, and does not warrant the insertion of any such words of limitation. The condition must, in my opinion, mean either all policies by whomsoever effected, or policies effected by the insured; and, as Jessel M.R. says in North British and Mercantile Insurance Co. v. London, Liverpool, and Globe Insurance Co.[41], it is our duty, if the words admit of a reasonable construction to adopt it, rather than a construction equally admissible but absurd or unlikely. "You must read the condition in a sensible way, and not assume that these great companies intended to entrap their policy-holders and to destroy the value of the contract of indemnity by reason of the accidental contract of somebody else, which had no connection with the subject-matter of the contract, or with the price paid for the insurance."

[73]

It is urged that by force of such a condition the insured must within fifteen days give all the particulars prescribed, or lose all right to the policy moneys - even if he happen to be in England when the fire occurs in Kalgoorlie. If such is the meaning, the subordinate sentence beginning "unless and until," and indeed all the words beginning with "and in default" are unnecessary. The previous words made the policy useless, unenforceable; what more do these words effect? To give effect to all the words of the condition, it seems to me that the claim is not payable or sustainable unless and until the notice, statement, &c., be delivered. The policy is useless only until the notice, statement, &c., have been supplied. No action can be brought until they have been supplied. The position of the words "as aforesaid" certainly tend to show that they relate to the verbs "delivered produced and given," and not merely to the nouns "notice statement," &c. But there is no necessary inference that "as aforesaid" relates to the time prescribed for giving the notice, &c., as well as to the description of and the manner of giving the notice. It is purely a question of construction of the conditions of this particular policy, and I do not place much reliance on any decision under a policy which contains conditions similar but not the same; but the decision and the reasoning in Weir v. Northern Counties of England Insurance Co.[43] are favourable to the view that the notice, statement, &c., may be given after the time specified, but before action. Personally I do not attach much practical importance to the maxim, verba chartarum fortius accipiuntur contra proferentem. I think that contracts ought to be construed in the same way whether they are framed or put in evidence or relied on by one party or the other. In many cases the verb proferentem seems to be treated as if it referred to the drafting or framing of an instrument: Broom's Legal Maxims, 7th ed., pp. 441, &c. I do not know on what grounds. I confess that I am in sympathy with the words of Jessel M.R. in Taylor v. St. Helen's Corporation[44] on the subject of this rule of construction. The maxim is taken from a bundle of maxims collected in Coke Litt., 36_a_; and it is followed by a maxim equally sound, no doubt, and equally valuable: Generalia verba sunt generaliter intelligenda. If the maxim in question means merely that a document written by A. is to be read as outsiders would read it, and not as A. would read it, the doctrine is true, but trite, and not warranted by the words used. Yet if the maxim is applicable as the last resort in construction, it certainly ought to be applied to such a condition as this in a policy, inasmuch as the insurance company frames the language of the conditions in its own way and in its own interest. I am of opinion that the defendants fail as to this defence also.

At a glance

Court

Decision date

Before

Source

Judgment (83 paragraphs)

Western Australian Bank v Royal Insurance Co [1908] HCA 11; (1908) 5 CLR 533 (27 March 1908)

Parties

Cases Cited (1)