Renewal rebuff
Policy renewal can be a tricky business, particularly if one side wants to change the terms of cover, as a recent case from the NSW Supreme Court illustrates.Bede Polding College was a school operated by the Roman Catholic Church. From 1997 onwards, the College arranged for the supply of security services at the school. These services included alarm monitoring and response by “an entity”, which for the purposes of the case, was Western District Security. On 11 October 2003, two youths broke into the College in the early hours of the morning. This break-in registered on WDS’s alarm monitoring system. It continued to register for another 2 hours. During that time, the youths set fire to one of the buildings. The fire smouldered for about 90 minutes; but WDS did not respond to the alarm. The result was damage to the College in the order of $2.5 million.
The defendants in the action were Lloyds syndicates. By the time of the hearing, it was clear that WDS had ceased to operate. The College therefore sought to take direct action against the insurers under the provisions of the NSW Law Reform (Miscellaneous Provisions) Act 1946. The insurers defended the application on the grounds that the relevant policy contained an exclusion clause that would preclude indemnity under the policy.
WDS had renewed its insurance through its broker for the year commencing 5 July 2003. The real issue was what wording applied to the renewed policy; the Lloyds Broadform Policy Wording or the SRS Security Services Wording (SRS wording). The crucial significance was that the SRS wording, contained an exclusion specifying that liability was not covered:
“Arising directly or indirectly out of the failure of the insured to respond to an alarm, perform their function correctly nor to fulfil any warranty or representation made, represented or suggested by the insured”.
The insurers pointed to the schedule to the 2003-04 policy, which stated that it was to be on “SRS Security Services wording”, and that wording contained the relevant exclusion. The College argued that the Lloyds wording was applicable and it contained no relevant exclusion effectively because the policy had been renewed on the same basis as the 2002-03 policy, which did not contain the exclusion.
Justice Grove in the NSW Supreme Court examined the history of dealings between the insurers and WDS, and the process for renewing the policy in 2003. It was noted that the 2002-03 policy did not contain the exclusion, and that WDS has disclosed that some 51% of its business related to monitoring or responding to alarms.
Around June 2003, the insurers’ representative sent a notice “advising a preparedness to consider renewal of that policy upon receipt of certain details”. Among those was “completion of the attached questionnaire/proposal”. The document was completed and returned on 27 June 2003. The questionnaire sought information about the percentage turnover derived from “monitoring or responding to alarms”, which WDS put at 60%.
The notice made no reference to any intention by the insurers to substitute SRS wording for Lloyds wording, nor to add to the policy an exclusion of liability for claims arising out of monitoring or responding to alarms. That was reinforced on 7 July 2003, when the insurers’ representative, in response to a query about premiums, stated “With reference to changes agree $11,000 +++ on expiring wording plus excluding liability of contractors subcontractors.”
A cover note was issued on 17 July 2003 for the period 5 July to 19 August 2003. The cover note provided for “cover and terms are as per our quotation”. On 26 August, the final policy “renewal” was issued, which then included the relevant exclusion clause.
Justice Grove found that it was arguable that, no later than 17 July 2003, there was a contract to renew the cover in same terms as the expiring policy. While there was no doubt that an insurer could introduce different terms on renewal, that did not enable those terms to be imposed subsequent to reaching an agreement to renew.
As a result, the College’s application was granted.
Bede Polding College v Limit (No 3) Ltd [2008] NSWSC 887
Fine print cruels tyre claim
When insurance is arranged outside traditional relationships, it can be fraught with danger; as a Sydney company discovered to its cost.
In early 2005, Logic Group Tyres was looking for sites to store some of its stocks of tyres. They located a facility known as “Storage King Cheltenham” operated by Mirabell Point Pty Ltd, the second respondent. Logic entered into arrangements with Mirabell which eventually saw them using 4 of the units at the facility for storing tyres.
As part of the arrangements for the storage, Mirabell offered Logic the opportunity to take out insurance in respect of the units with the first respondent, Tokio Marine. Mirabell provided product disclosure statements in relation to the insurance. The statements noted that cover was not provided for (among other things) “tyres in bulk”. The relevant forms were completed by Logic and certificates of insurance were issued. The policy provided by Tokio excluded cover for “tyres in bulk”.
In March 2006, a quantity of tyres was stolen from one of the units used by Logic. Their claim on the policy was declined by Tokio, relying on the exclusion clause.
Logic sued both Tokio and Mirabell, arguing that Mirabell was an agent of Tokio in relation to arranging the insurance. It submitted that Tokio offered its insurance products for sale through Mirabell and was therefore bound by misrepresentations allegedly made by Mirabell as to the terms and content of those insurance products, in particular, coverage for tyres in bulk.
In the Federal Court, Justice Tamberlin noted that the self-storage agreement urged Logic to take out insurance cover. It is clearly pointed out that the goods were stored at the “sole risk” of Logic, and that “Storage King Cheltenham” would not be liable for the loss of any goods stored on its premises.
That position was reinforced by the product disclosure statements which stated that Logic could arrange insurance cover or choose to bear the risk itself. By signing those statements, Logic agreed that it had read and understood the document and its terms. The PDS also acknowledges that “Storage King Cheltenham” was not acting as an agent of the insurer, was not the insurer, and did not provide any recommendation or opinion in relation to insurance benefits. The PDS also expressly excluded cover liability in relation to tyres in bulk.
In these circumstances, it was clear that the exclusion clause is sufficiently wide to exclude any liability of Tokio as insurer in respect of the theft of the tyres.
The contention that Mirabell had made false representations about cover for tyres in bulk (and had thereby negated the operation of the exclusion clauses) was not established on the evidence. In any event, the relevant documents were signed on behalf of Logic, and those documents included all of the disclaimers outlined above. In addition, the failure of Logic to call crucial witnesses who could have given evidence about any alleged lack of knowledge of the exclusion clause, or of some misrepresentation that the exclusion clause could not apply, counted heavily against it.
Accordingly, Justice Tamberlin found that Logic had not proven that Mirabell was the agent of Tokio. In addition, there was no evidence of actions by Mirabell that might result in Tokio bearing any liability arising out of either of the alleged misrepresentations. As a result, the policy did not respond to the claim.
Logic Group Tyres Pty Ltd v Tokio Marine and Nichido Fire Insurance Co Ltd & Anor. [2008] FCA 1297
Reasonable prospects clarified
The power of courts to award costs against solicitors personally is still exercised comparatively rarely, although its incidence has increased. Now the NSW Court of Appeal has provided some clear guidance on when that power can be exercised.
On 7 March 2003, Mr Fox was injured whilst working on a concrete pumping truck during renovations at the Hilton Hotel in Sydney. He commenced proceedings for negligence in relation to his injuries and was largely successful. After commencing proceedings, a third party, Mr Still, was joined into the action. While Mr Still was involved in the concrete pumping operation at the time of the accident, there was some uncertainty whether he was working for one of the named defendants or for a sub-contractor, Toro Constructions Pty Ltd. On the advice of his counsel and solicitors Haydon Fowler Corbett Jessop (HFCJ), Mr Fox joined Toro as a defendant into the proceedings.
At trial however, Mr Fox sought to discontinue the proceedings against Toro. Leave to discontinue proceedings against Toro was granted with an order that Mr Fox pay Toro’s costs. Leave to apply to vary the costs order was given at the same time.
Pursuant to that leave, Toro sought an order that HFCJ, as Mr Fox’s solicitors, personally pay its costs of the proceedings on an indemnity basis from 29 March 2006. That application was granted and HFCJ applied to the NSW Court of Appeal to set aside the costs order.
The case turned on two key issues: whether HFCJ held a reasonable belief that the claim against Toro had reasonable prospects of success; and whether the trial judge erred in ordering them to pay Toro’s costs personally.
The Court of Appeal noted that there was undoubtedly power to award costs against a law practice if they did not reasonably believe on the basis of provable facts and a reasonably arguable view of the law that the claim had reasonable prospects of success.
In this case however, there was uncertainty as to any role Toro may have had. Mr Fox did not know of Toro’s involvement or any relationship between Toro and Mr Still. Against that background, HFCJ had carried out investigations, including obtaining access to records created by the other defendants. Some of those records indicated that Toro was indeed the subcontractor carrying out the concreting work. They also tried several times to contact Mr Still. They had retained counsel in the matter, informed counsel of developments and sought advice before joining Toro.
On that basis, the Court concluded that HFCJ had available material providing a proper basis for alleging that Toro was involved; and that belief was reasonable. The proceedings could not therefore be said to have been commenced “without reasonable prospects of success”. It therefore followed that the costs order against HFCJ was overturned.
Fowler, Corbett and Jessop trading as Haydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 17
“Difficulty” does not make a case “hopeless”
The decision in Fowler had its sequel in another failed personal injury case, in which the relevant application was coincidentally heard the same day that the judgment in Fowler was handed down.
Mr Stavros Koutzoumis was the plaintiff in litigation against Jody Aldag for damages for negligence in a “slip and fall” case involving a set of stairs built by Aldag. After a four-day trial, judgment was entered in favour of Aldag. Koutzoumis was ordered to pay the applicant’s costs, including some costs on an indemnity basis. Aldag then sought an order that Koutzoumis’s solicitor, Spiro Eistis indemnify Koutzoumis for the whole of the costs payable – in other words, that the solicitor pay the costs personally.
Judge Gibson in the District Court identified three questions to be determined: was Koutzoumis’s case hopeless on the facts; did Eistis fail to obtain evidence on crucial issues; and was Koutzoumis’s case hopeless on the law.
On the first point, it was noted that the claim failed primarily because the trial judge did not accept Koutzoumis’s evidence. That then affected the rest of the case. Looking at the available evidence, Judge Gibson concluded that Mr Eistis had prepared the case in a methodical fashion. There was sufficient evidence to have a reasonable belief in the prospects of the case. The quality of the witnesses, and whether their evidence would be accepted by the court, was not such as to require him to cease acting or to seek instructions to discontinue the case.
Secondly, the arguments advanced by Aldag on the sufficiency of the evidence were found to be attempts to hold Mr Eistis to a standard of “perfection”, which was not the test. While ideally Mr Eistis would have obtained some other evidence (such as a rainfall report for the day in question), his failure to do so did not amount to a failure to obtain vital evidence.
Finally, Judge Gibson found that, while Koutzoumis did not have an “easy case” on liability, that did not mean that the matter was “hopeless” on the law. Mr Eistis’ evidence that he had given careful consideration to liability matters was accepted.
As a result, Aldag’s application was dismissed. The case also contains some interesting comments on whether applications of this sort should be discouraged as promoting “satellite litigation” of matters already decided by the courts.
Aldag v Eistis [2008] NSWDC 157
Substance over form
Although the instances of insurers becoming insolvent is thankfully rare, when it does happen, it can have devastating consequences.
On 15 December 2002, Luke Quintano was shot in the head at Skelseys, a nightclub operated by B W Rose Pty Limited (BWR). In January 2002, BWR had instructed its brokers, Prestige Insurance Brokers to place public liability insurance, which was done with International Unity Insurance Co Limited, an insurance company incorporated in the Solomon Islands.
Mr Quintano instituted proceedings in April 2004, claiming damages for personal injuries. International Unity was wound up by order of the Federal Court of Australia on 2 June 2004. Being practically uninsured as a result, BWR claimed indemnity or contribution from Prestige, alleging that it had negligently placed the insurance with an unregistered overseas insurer and failed to advise BWR of the associated risks.
Prestige in turn claimed indemnity from its professional indemnity insurers (who were Lloyds syndicates) who declined indemnity on the grounds that the claim by BWR was one “arising from” either “the insolvency of any insurer or reinsurer” or a breach of duty to “advise on the suitability (…including financial standing) of any insurer reinsurer”, and therefore fell within exclusion clauses in the policy.
A the trial in July 2008, the proceedings against Prestige were discontinued, meaning it would not incur any legal liability in relation to BWR’s claim. Prestige had however incurred substantial legal costs and persisted with its claim for indemnity from its insurers in relation to those costs.
The only live issues then related to the application of the two exclusion clauses.
Prestige submitted that as BWR’s claim against it did not allege, refer to, or demonstrate any connection with, the insolvency, the claim could not be said to “arise from” the insolvency of International Unity.
Justice Brereton noted that the words “arising from” required some causal connection between the claim and the specified matter, but that would be satisfied by a less proximate relationship than that required by the phrase “caused by”. The requirement that a claim “arise from” a matter would be satisfied, if it “originates in, springs from, or has its foundation in, that matter”.
Although BWR’s claim against Prestige did not explicitly refer to insolvency, it alleged that the public liability policy had ceased to indemnify BWR and that Prestige had negligently placed the insurance with an unregistered overseas insurer and failed to advise BWR of the associated risks. Justice Brereton found that “the craftiness or clumsiness of the claimant’s pleading” was not determinative of the issue; and indeed, both parties accepted that whether the claim fell within the exclusion depended on the facts that give rise to the claim, and not its formulation by the claimant.
The damage that was being asserted by BWR was that it was left without an indemnity of value; and the reason for that was because International Unity was insolvent. In substance, BWR’s claim was attributable to International Unity’s insolvency.
It therefore followed that BWR’s claim against Prestige “originated in, sprang from, or had its foundation in”, the insolvency of International Unity. Accordingly, the claim was one that “arose from” the insolvency of an insurer, and the exclusion clause applied to exclude cover.
On the issue of whether the “failure to advise” exclusion operated, Justice Brereton concluded that, where a policy excludes cover for claims arising from a specified matter, what was intended was that the insurer were not to be at risk in respect of claims that relied on proof of the specified matter as an underlying fact. It was not necessary that the matter objectively exist; it was sufficient that its existence was asserted, either expressly or implicitly, by the claim.
In this case, the claim included an allegation of breach of the relevant duty. The exclusion clause was therefore engaged; and was not dependant on the existence, as an objective fact, of the alleged breach.
In the result, Prestige’s claim against the insurers failed.
Quintano v B W Rose Pty Ltd [2008] NSWSC 793
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