On 18 May 2010, the Federal Court of Australia gave consideration to the question of an insured’s duty of disclosure pursuant to section 21 of the Insurance Contracts Act 1984 (Cth) (Act) and an insurer’s exclusion of liability from indemnifying the insured for the value of a written off car where the insured was “under the influence of intoxicating liquor”.
Factual background
Lana O’Shanassy was driving home in a Mercedes Benz E55 motor vehicle in the Southern Highlands of New South Wales on 16 January 2008 at 7:00pm. The car driven was owned by Sagacious Legal Pty Limited (Sagacious), the incorporated legal practice of Mrs O’Shanassy’s husband. She had been drinking alcohol. The vehicle was so extensively damaged that it was written off. Sagacious made a claim for $173,000 on Wesfarmers General Insurance Limited (then Lumley General Insurance Limited) (insurer). Notably, Mrs O’Shanassy had been convicted twice before in 1999 and 2002 for driving within excess of the prescribed concentration of alcohol in her blood and had been disqualified from holding her driver’s licence for 18 months and 12 months respectively.
The insurer refused indemnity in early December 2008 on the following 3 bases:
1. The insurer was not made aware of the cancellation or suspension of Mrs O’Shanassy’s driver’s licence in 1999 or of her conviction that led to this. The insurer thereby alleged that Sagacious had made a misrepresentation in connection with obtaining the insurance for the car or breached its duty of disclosure under section 21 of the Insurance Contracts Act 1984 (Cth) (Act);
2. Mrs O’Shanassy was driving the car “under the influence of intoxicating liquor”; and
3. an analysis of Mrs O’Shanassy’s blood taken within 2 hours of the accident contained a percentage of alcohol that exceeded the legal limit prescribed in the law of New South Wales.
Misrepresentation and breach of duty of disclosure
The insurer’s underwriting agency was required to decline any driver as a risk where the driver had more than one conviction for a “driving under the influence” offence or had had his or her licence suspended or cancelled more than once. On 28 April 2003, in a declaration form for the purposes of renewal of the policy in relation to another Mercedes Benz ML55, Sagacious failed to disclose details of Mrs O’Shanassy’s earlier driving offence and subsequent driver’s licence cancellation on a driver’s declaration form in response to question “B” which asked the nominated driver whether they had had their “insurance or driving licence declined, cancelled, or special terms imposed”. Mrs O’Shanassy alleged that she had been informed by the relevant underwriter that she need only disclose such matters falling within a prior 3 year period. In fact, the period was unlimited and therefore, she was required to advise of all offences. The 3 year closed period was applicable under another heading limited to “DATE TYPE OF OFFENCE” only. Preferring the evidence of the relevant underwriter to that of Mrs O’Shanassy, his Honour was not satisfied that Mr and MrsO’Shanassy held a belief that the answer given to question B was all that the insurer required and was not satisfied that a “reasonable person in the circumstances would not have held that belief for the purposes of section 26 (1)” of the Act. Furthermore, his Honour held that they knew, or a reasonable person in their position could be expected to have known, that this omitted information would have been relevant to the decision of the insurer to accept the risk of her being a nominated driver for the purposes of section 26(2) of the Act.
His Honour rejected the contention that the insurer was deemed to have waived compliance with a duty of disclosure in accordance with s21(3) of the Act when it received the driver’s declaration on 29 April 2003 as the answer to the question was not “obviously incomplete or irrelevant”.
On 27 May 2003, Mrs O’Shanassy’s husband completed a further proposal form for insuring a Range Rover in the name of another of his company, Fukura Pty Limited. A further proposal for Sagacious was completed in 2004 in relation to the subject vehicle. In both cases, Mr O’Shanassy failed to disclose the earlier offence in 1999.
In all 3 cases, Justice Rares held that had disclosure been made, the insurer “would have known of those matters and rejected Sagacious’ inclusion of her as a nominated driver in the 2004 proposal and the subsequent renewals of its Policy. It is entitled to reduce its liability to nil under section 28(3) of the Insurance Contracts Act”.
Policy Exclusions – Under the Influence of Intoxicating Liquor/In Excess of the Legal Limit
A policy was issued to Sagacious in 2004 and renewed in 2005, 2006 and 2007. Sagacious had not corrected any of the misrepresentations and breaches of duty prior to the 2007 renewal. The policy provided that there were several general exceptions which, relevantly, were as follows:-
“Loss, damage, liability and/or compensation for damage caused whilst the Insured vehicle or any motor vehicle covered by your Contract of Insurance is being driven by or is in the charge of any person under the influence of intoxicating liquor or of any drug.”
“Loss, damage, liability and/or compensation for damage caused whilst the Insured Vehicle or any motor vehicle covered by your Contract of Insurance is being driven by or is in the charge of any person in whose blood the percentage of alcohol is in excess of the legal limit as prescribed by the law in the relevant State or Territory as indicated by analysis of the person’s breath or blood taken within 2 hours of the occurrence of the event giving rise to such loss, damage or liability”.
Whilst there was no dispute that immediately prior to the subject accident, Mrs O’Shanassy had consumed alcohol, significant issues arose as to exactly when and how quickly the alcohol was consumed and how much had been consumed.
Evidence was given by independent witnesses that there were “two empty VB ‘stubbie’ bottles of beer” lying beside the car which had dislodged from it during the accident. A paramedic gave evidence of smelling alcohol at the scene and of Mrs O’Shanassy being “rude and unco-operative”.
At Bowral Hospital, a sample of Mrs O’Shanassy’s blood was taken immediately as was required pursuant to Section 20(2) of the Road Transport (Safety and Traffic Management) Act 1999. A notation of “ETOH++” was made by the attending doctor together with a scale indicating the amount of alcohol smelt on Mrs O’Shanassy’s breath while conversing with her as being “significant”.
Justice Rares rejected a report tendered by Sagacious suggesting that the plaintiff was “clearly disassociated and was suffering from both depersonalisation and derealisation state” as the report did not take into account the plaintiff’s significant pre-accident psychiatric illness.
His Honour “was comfortably satisfied that Mrs O’Shanassy had been drinking fairly constantly over at least the two hours before the accident and that her evidence of only rapidly consuming alcohol just before it was false”.
His Honour then turned to the question of whether Mrs O’Shanassy was “driving under the influence”. Having regard to various factors including the apparent smell of alcohol at the scene of the accident, the plaintiff’s erratic behaviour at the scene of the accident and the alcohol consumed prior to the accident, he was “satisfied that her balance of mind was significantly impaired by the effect of intoxicating liquor at the time of the accident”.
His Honour turned to Section 37(2) of the Road Transport (Safety and Traffic Management) Act 1999, which provides as follows:
“For the purposes of any contract of insurance, the results of any analysis of blood or urine … are not admissible as evidence of the fact that a person was at any time under the influence of or in any way affected by intoxicating liquor or other drug or incapable of driving or of exercising effective control over a vehicle or horse”.
In so doing, his Honour made reference to the decision of NRMA v McCarney (1992) 16 MVR 34 wherein the Court of Appeal of New South Wales held that section 4E(13) of the Traffic Act 1909 (NSW), the predecessor of section 37(2) had:
“The plain meaning … that where an issue is litigated under a contract of insurance as to whether a person is driving under the influence of intoxicating liquor, the court cannot receive evidence that the person has undergone a breath test or submitted to a breath analysis or receive evidence of the results of any such tests or analysis”.
Reference was made to the dissenting judgment of Handley JA wherein he indicated that the relevant section did not provide that the result of the breath analysis was inadmissible to prove the facts at the time of the analysis and the result. Rather, Handley JA found “that the results did not prove, without other evidence, that the person was under the influence of intoxicating liquor”.
Rejecting the insured’s argument that he was bound by the decision, his Honour held that section 37 did not make the results of the analysis of Mrs O’Shanassy’s blood taken at Bowral Hospital inadmissible as evidence of her blood alcohol level at the time that the sample was taken. Such evidence was not however evidence that the person was under the influence of alcohol. The certificate was evidence of the fact that on 16 January 2008 at 20:45pm, that is within two hours of the accident, Mrs O’Shanassy’s blood contained a concentration of alcohol of not less than 0.124grammes of alcohol in 100 millimetres of blood.
His Honour held that the insured’s blood alcohol reading exceeded the prescribed legal limit and accordingly, the relevant policy exclusion applied. He also noted that the analysis was suggestive that Mrs O’Shanassy was driving under the influence whilst noting various limitations in relation to proving what effect any particular blood alcohol level would have on an individual.
Implications
The case is favourable for insurers and especially relevant for motor and boating insurers seeking to exclude liability for indemnity for alcohol related incidents where the effect of alcohol consumption upon an insured’s capacity to handle a vehicle or boat is unascertainable. Consideration could be given to including an “in excess of the legal limit” exclusion clause similar to that utilised by the insurer in this case.
For further information, please do not hesitate to contact a member of our Insurance team:
Dean Newell | Partner
T 61 2 8233 9717
Thomas Waugh | Associate
T 61 2 8233 9612
