Double defeat
Regular readers will recall that in our June 2007 issue, we looked at the first instance decision in Collyear v CGU Insurance concerning the principle of double insurance. Now that case has had its sequel in the NSW Court of Appeal.
Briefly, the facts were that Emibarb Pty Limited had operated a restaurant in Wollongong, which was destroyed by fire. The restaurant was leased, and the lease terms required that, in the event of damage to the premises, Emibarb was to reinstate them. Emibarb was insured under an industrial special risks policy underwritten by a consortium of Lloyds’ underwriters known as the Euclidian Syndicate (Mr Collyear was their representative for the purposes of the action), which extended to cover any liability Emibarb had to the landlord. Euclidian agreed to indemnify Emibarb and paid out substantial amounts to reinstate the destroyed premises. Euclidian then claimed that the landlord was also indemnified under an industrial special risks policy with CGU; and sought contribution from CGU on the basis of double insurance.
The trial judge held that double insurance did not apply, and as a result, Euclidian’s claim failed. The syndicate appealed to the Court of Appeal.
The Court of Appeal unanimously dismissed the appeal. Delivering separate but concurring judgments, Justices Hodgson and Handley both relied on the well known formulation of the test for double insurance set out in the leading case of Albion Insurance v Government Insurance Office of NSW as follows:
“… each policy must insure the same person against the very loss that in the event he has sustained, or the very liability that in the event he has incurred
In this case, although both the Euclidian and the CGU policies provided some form of cover to the landlord, the Euclidian policy also provided cover to Emibarb for its liability to reinstate the premises. Since the payments made by Euclidian were in discharge of that liability, they could not be said to be made in relation to the landlord’s interest in the property; even though the landlord had benefited from the payments.
As a result, there was no double insurance and the appeal was dismissed.
Collyear v CGU Insurance Ltd [2008] NSWCA 92
False affidavit not “fraud”
In January 2002, Mr and Mrs Douralis contracted with a registered builder, Harold Simpson, to undertake what appear to have been quite extensive renovations to their residence. Mr Simpson, like all builders in Victoria, was required to hold insurance covering domestic building work, which extended indemnity to building owners. He had a policy with Allianz for this compulsory insurance.
Before a building permit could be issued and work commenced, he was required to furnish Mr and Mrs Douralis with a certificate that he had the requisite insurance. Work commenced before the certificate was provided – Mr Simpson was unable to give the certificate because his van, with the certificate in it, was stolen. By the time a replacement certificate was obtained, the works were well underway.
The works progressed to completion, but a dispute arose between Mr and Mrs Douralis and Mr Simpson about the quality of the work. Mr and Mrs Douralis applied to Allianz for indemnity, but it refused to pay. They then started proceedings in the County Court, during which they applied for summary judgment. In the affidavit supporting that application, they falsely stated the date on which they had received the certificate in an effort to frustrate Allianz’s attempts to resist their claim and so that it appeared that they had the certificate from the beginning of the project – which they did not due to the theft of Mr Simpson’s van.
The trial judge found that Mr and Mrs Douralis would have been entitled to indemnity under the Allianz policy; but went on to find that the false statements in the affidavit meant that under the s.56 of the Insurance Contracts Act, Allianz was under no obligation to pay the claim. It was found that the false statements affected the whole of the claim, and not a discrete part of it, so that relief was unavailable under s.56(2) of the Act. Mr and Mrs Douralis appealed against the finding on the s.56 issue. Allianz cross-appealed against the primary finding that the policy would have covered Mr and Mrs Douralis but for the false statements.
In a unanimous judgment, the Court of Appeal found that the false statements were made in relation to an alternative claim to the contract claim. They were not directed to claims made under the policy. Therefore, they were not made under the contract of insurance, so that s.56 did not apply. In any case, the court was prepared to find that the false statements related to an “insignificant” part of any claim made under the policy, and so that s.56(2) would apply to provide relief.
More fundamentally however, all three members of the court concluded that s.56 did not apply to representations made in evidence during proceedings following rejection of a claim. They noted that false evidence by a plaintiff in other areas of law did not vitiate a claim against a defendant; nor should it in insurance cases. While false evidence was to be strongly discouraged, the appropriate way of handling it is via perjury proceedings; not denying an otherwise sound claim.
Interestingly then, if Mr and Mrs Douralis had made the false statement about the certificate before their claim had been rejected, they would have had to rely on s.56 of the Act to provide them with relief against the consequences of that. Once the claim had been rejected however, the false statements formed part of the court process, not the insurance claim, and therefore were to be dealt with as such.
The Court of Appeal also dismissed Allianz’s arguments concerning the primary indemnity issues (which related to the identity of the insured). Accordingly, the Douralis’ appeal was allowed and the matter remitted for further consideration of their losses.
Allianz Australia Insurance Ltd v Douralis [2008] VSCA 72
Not a sound investment
Between May and September 2000, a financial planning firm, Tasman Investment Management Limited, advised some of its clients about a potential investment involving a nursing home facility in the Blue Mountains region of NSW, known as the Queen Victoria Project. The plaintiff, John Tosich, was one of those who invested on the recommendation of Tasman’s managing director, Colin Warne. For a variety of reasons, the project was a failure. Mr Tosich sued Tasman and Mr Warne for his loss. Tasman had, through its broker Aon Risk Services, entered into a policy with American Home Assurance Company (AIG) described as an “Investment Managers Insurance Policy”. When Tasman claimed on the policy, AIG rejected the claim. Tasman and Mr Warne then cross-claimed in the proceedings against firstly AIG claiming indemnity in relation to claims arising out of the failure of the Queen Victoria Project; and secondly (if its claim against AIG failed) Aon for failing to properly arrange the cover.
Having found that Tasman and Mr Warne were liable to Mr Tosich, Justice Gyles in the Federal Court went on to consider the insurance issues.
The policy‘s insuring clause covered Tasman and its employees for any wrongful act for which the insured was legally responsible “by reason of rendering or failing to render Investment Advisory Services”. The issue of substance was whether Tasman’s recommendation to enter into the investment constituted “Investment Advisory Services”. That term was defined in the policy to mean:
“those financial, economic or investment advisory services regarding investments in Securities and/or rendering investment management services including in connection with interests in the Fund of the Insured Entity furnished pursuant to a written contract and permitted by law or regulation and which services the Insured is duly authorised and/or licensed and/or approved to carry out where required by law or regulation to be so authorised and/or licensed and/or approved, rendered by an Insured at any time whether before, on or after the inception date of this policy, pursuant to an agreement as long as such service is rendered to a customer or client of the Insured Entity.”
Justice Gyles noted that the definition was rather convoluted; but there was a crucial requirement that meant Tasman’s claim fell outside that definition. Although Tasman were retained by Mr Tosich and provided him with written reports from time to time, they had no “written contract” with him. That meant that even if Tasman’s recommendation to enter into the investment was otherwise within the meaning of “Investment Advisory Services”, the absence of a written contract clearly took it outside that definition.
In addition, Justice Gyles agreed with AIG’s contention that the term “Securities” in the definition was restricted to securities of the “insured entity”. That meant that the recommendation to invest in another project outside of Tasman’s securities fell outside the scope of the policy. To compound matters, the AIG policy contained an exclusion for claims “arising out of, or attributable to” a wrongful act occurring before October 2000. Since the relevant “wrongful acts” concerning Mr Tosich occurred, at the latest, by September 2000, the claim was in any event excluded.
Tosich v Tasman Investment Management Ltd [2008] FCA 377
Ownership shuffle
When Ms Davis and her husband bought a lakefront property in 2002, they got rather less than they bargained for; a situation that ultimately benefited their insurer.
Ms Davis and her husband purchased a property known as Campbell Park on the shores of Lake Albert. Adjoining the property was a jetty which allowed access to the lake, and there was a pump on the jetty. The new owners “assumed” that the jetty and pump were theirs. In fact, the jetty was on Crown land and the previous owner had a licence from the Crown for it. The licence however was not transferred with the property.
After signing the contract, insurance on Campbell Park was obtained through CGU. The policy stated:
“We will cover your domestic buildings and domestic contents shown on your schedule, for the events listed below. There must be damage or loss from one of these events to the domestic buildings or domestic contents for you to make a claim…”
The property covered by the policy was described in the following terms:
“The property set out on your Schedule is insured if it is destroyed, lost or damaged. It is insured only if you own or are liable for the property.”
Clearly concerned about the situation with the jetty, Ms Davis and her husband made inquiries with CGU and were assured that the jetty was covered.
In January 2003, the jetty was dismantled by a person claiming to be the “owner” of it. A claim was made to CGU for the damage to the jetty. When CGU declined the claim, Ms Davis and her husband sued.
In the District Court, Judge Burley noted that the property in question either had to be “owned” by the insured or they had to be “liable” for it. Counsel for the Davis’ argued that the term “owned” should not be considered in the legal sense, but rather in the “insurance sense”. Judge Burley rejected that notion, saying that the terms of the policy were clear and had to be given their ordinary meaning.
On the evidence, while Ms Davis and her husband may have thought that they “owned” the jetty when they bought the property, that was in fact never the case. In addition, they could not be considered to be “liable” for it in the sense of having some kind of bailment over it.
So far as the assurances from CGU that the jetty and pump were “covered” were concerned, Judge Burley found that the assurances had been given. That fact however did not mean
that CGU had agreed that Ms Davis and her husband were the “owners” of the jetty and pump; or that they had agreed to cover them irrespective of whether ownership of them as required by the policy could be established.
Davis & Anor v CGU Insurance Ltd & Anor [2008] SADC 69
Shifting sands
In a comparatively rare outcome, an insurer has successfully relied on the “all reasonable precautions” clause in a liability policy.
The matter arose out of a development at Darling Point. The development was being carried out by Prynew Pty Ltd on land at 44 Mona Rd, and involved extensive excavations for an underground car park. Mr Tsu, another defendant in the matter, was the “controlling mind” of Prynew; while Piling Contractors (Qld) Pty Ltd was the company contracted to carry out the excavations. In July 2001, after excavation work had commenced, damage was sustained to a house at 46 Mona Rd. The owners of the house alleged that the damage was due to negligence or breach of duty by Prynew in allowing sand to escape from a breach in the retaining wall. The matter was referred to an expert referee, who decided that the damage was indeed due to lack of care on the part of Prynew.
In the report to the court, the referee concluded that Mr Tsu was aware that the sandy subsurface soil at 44 Mona Rd constituted a danger and that expert reports obtained indicated a need for considerable caution. The referee found that excavation had to stop when problems with the excavation were detected around 23 July; but it continued nonetheless. Mr Tsu must have known about the further excavation as he attended the site regularly. Accordingly, it was concluded that the excavation continued with Mr Tsu’s consent and under his active control.
While Mr Tsu had taken some precautions, the steps he took were not recommended by any engineer and were appropriate only as a “stop gap” measure. The referee found that Mr Tsu had “courted danger” and was “reckless” because he failed to take known precautions in a situation of known risk; took action that increased the risk and failed to comply with the development consent.
QBE argued that those matters constituted a breach of the “all reasonable precautions” clause in its policy with Prynew, enabling it to decline the claim.
Associate Justice Macready noted the well-known cases on “all reasonable precautions” clauses; and in particular the principle that mere negligence on the part of the insured was insufficient to activate the clause, because that was precisely what the policy was intended to cover. However, if the insured could be shown to have deliberately courted a known danger or acted with reckless disregard of such a danger, then the clause would be engaged.
In this case, Mr Tsu recognised the danger posed by the sandy sub-soil; but he then not only failed to take steps to avert it but also took action known to increase the risk. As a result, Associate Justice Macready agreed with the referee’s conclusion that he was courting danger.
Associate Justice Macready noted that the duty to take care imposed by the “all reasonable precautions” condition was the personal duty of the insured as distinct from that of its employees; because one purpose of the insurance was to cover the situation where employees do not fulfil their duty. Where the insured is a company, in order for the clause to operate, the relevant knowledge would need to be that of its board of directors or at least the person who was “the repository of its authority for the daily running of it”. It was clear on the evidence that Mr Tsu was the person who was the “repository of authority” for the daily running of Prynew; and as such, his knowledge and actions operated to render the company in breach of the “all reasonable precautions” clause.
Piling Contractors (Qld) Pty Ltd v Prynew Pty Ltd [2008] NSWSC 118
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