AYOUB AND ANOR v LOMBARD INSURANCE CO (AUST) LTD SUPREME COURT OF NEW SOUTH WALES COMMERCIAL LAW DIVISION MAHONEY, MEAGHER and CRIPPS JJA 7 October 1992, 14 December 1992 [1992] NSWCA 19 ARSON, INSURANCE CONTRACTS, NON-DISCLOSURE, INSURANCE CONTRACTS ACT, 1984 (CTH). FACTS: Appellants seek indemnification for their respondent insurers, who claim that fire at appellants' shop was started by them. Respondent also says that they were released from their obligation to pay because of appellants' non-disclosure of fact that another insurer had declined to insure shop. Trial judge finds for respondent on both points. HELD:(per curiam) (i) The fact that another insurer had previously declined the appellants wish is a fact that the insured either actually knew to be relevant or could reasonably be expected to know to be relevant. This reduced the liability of the insurer to nil. (ii) The trial judge, on the strength of the evidence, found that the appellants had deliberately set the fire. He was justified in coming to such a conclusion on the facts which cannot be reversed. ORDERS: (1) Appeal dismissed with costs. Mayne Nickless Ltd v Pegler (1974) 1 NSWLR 229 Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (NSW Court of Appeal, 13 February 1989, unreported) Deaves v CML Fire and General Insurance Co (1978-1979) 143 CLR 24 Russell v NRMA Insurance Ltd (NSW Court of Appeal, 1 June 1990, unreported) Insurance Contracts Act, 1984 (Cth). Mahoney JA It is accepted that the fire which destroyed the plaintiffs' premises was not accidental. That is clear from the matters to which Meagher JA has referred in his judgment. The essential issue has been whether it should be inferred that it was the plaintiffs who had caused the fire. The case against them was, in substance, that the fire had started a comparatively short time after they had left the premises, that there was a way or ways in which they could have caused it to start after approximately such an interval, that no-one else was shown to have a reason for starting the fire and, because there was no forced entry, secure door locks and appropriate surrounding lighting, it should not be concluded that a vandal or such person caused the fire. The plaintiffs contended that it had not been shown they had a pressing or indeed any need for the proceeds of the insurance and that there was no motive shown for what was alleged against them. I confess to unease in general with evidence directed to proof of arson by the process of exclusion of others as the cause of it. And I am conscious of the burden which lies upon a party who seeks to prove such action. However, each case is to be determined upon the evidence before the court and by reference, inter alia, to the suggestions which the parties felt able to make as to who other than the plaintiffs may have caused the fire. Those suggestions were made from the Bar table, there was no appropriate proof in evidence of a likelihood of the 2 UNREPORTED JUDGMENTS intervention by another or others. The trial judge and my brethren are satisfied that the conclusion against the plaintiffs should be drawn. In the end I do not dissent from that conclusion. I agree with the orders proposed by Meagher JA. Meagher JA This is an appeal from Rogers CJ Comm D by the plaintiffs, who on 16September 1986 as the tenants of a shop at 2 Flinders Street, Darlinghurst suffered a fire which destroyed or severely damaged their shop and its contents. They sought to be indemnified by the respondents, their insurers, who declined to pay on the ground that the fire had been deliberately started by the plaintiffs. The trial judge found for the insurers in this respect. As an independent ground he found that the insurers were released from any obligation to pay by reason of the plaintiffs' non-disclosure of the fact that another insurer had declined to insure their shop. This appeal seeks to challenge his Honour's findings on both points. Although in my view no successful attack can be mounted against either of his Honour's conclusions, it may be convenient to deal with the latter first. The plaintiffs had a policy with Jardine Underwriting Pty Ltd which expired on 15 August 1986. For some reason which the evidence does not disclose they did not renew that policy. Instead, their broker, a Mr Terry, sought insurance elsewhere. On the version of the facts accepted by his Honour, Mr Terry approached a Mr Field of National and General Insurance Limited, who declined to issue a policy unless a survey was carried out. A Mr Carney, on Mr Field's instructions, carried out a survey, found the premises greasy and dirty and advised that the risk of insuring the premises was unacceptable. His advice was accepted, and Mr Field told Mr Terry that his company would refuse to insure the premises. Mr Terry then negotiated with Mr Rock, a senior clerk in the respondent's underwriting department, for the issue of a cover note for the period from 15 August to 15 October 1986. Mr Terry did not inform Mr Rock of the refusal of National and General Insurance Limited to insure the premises. The respondent insurers then issued a cover note in respect of the premises for the period 15 August to 15 October 1986. Under the law as it stood before the Insurance Contracts Act 1984, an insurer could rescind a contract of insurance if the insured failed to disclose a material fact. What constituted materiality in this regard was not whether disclosure would in fact have affected the mind of the individual insurer, but whether the fact not disclosed would reasonably have affected the mind of a prudent insurer: Mayne Nickless Ltd v Pegler (1974) 1 NSWLR 228 at 239; Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (NSW Court of Appeal, 13 February 1989, unreported). After the Act, according to s21 of the Act, an insured " has a duty to disclose...... before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that - [1] (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; [2] or [3] (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant." Whatever view one takes, the non-disclosure is fatal to the appellants. Under the old law, it would obviously be "material" and justify rescission by the insurer; under the new law, the fact that another insurer had previously declined their risk URJ AYOUB AND ANOR v LOMBARD INSURANCE CO (AUST) LTD (Meagher JA) 3 is a fact that the insured either actually knew to be relevant or could reasonably be expected to know to be relevant. In the present context, Mr Terry's state of mind must be attributed to the insured. This being so, the respondent was entitled under s28 to reduce the liability of the insurer to nil (and in this context it was not argued that any premium had been paid in consideration of the cover note). The appellant argued that his Honour's findings as to what view a prudent insurer would take and what matters a reasonable person would regard as relevant to the risk, were not the subject of any evidence, and indeed that such finding could not be made unless they were the subject of expert evidence. But the High Court has suggested the opposite: Deaves vy CML Fire and General Insurance Co (1978 - 1979) 143 CLR 24 at 48. One might add that it would be surprising if the Court needed any assistance to reach such blindingly obvious conclusions. If this is correct, it disposes of the appeal. But I am also inclined to think that his Honour was correct in coming to his conclusion that Mr and Mrs Ayoub were responsible for the destruction of their premises. On their account, of course they were not, but his Honour disbelieved them. That is a conclusion we cannot reverse even if we were minded to, but even a casual reading of the transcript of their evidence would dispel any temptation to do so. His Honour, on the strength of the expert evidence, found that (a) the fire was not accidentally started, (b) that the fire was not a gas fire, (c) that it was started by accelerants which were either or both kerosene or petrol and (d) those accelerants probably came into contact with both or either the kebab machine or the chicken rotisserie. Traces of accelerants were found on the property shortly after the fire. All these matters were established by the respondent's expert witness. The appellants had an expert witness sitting in Court listening to the respondent's expert, but they did not call him to give evidence. Once it is established that the fire was deliberately lit, the question becomes whether the culprit was the appellants or some other person. The appellants, who had the opportunity to light the fire, also had a motive to do so; they badly wanted the money, and had been trying hard to dispose of the premises. There was no hint that some enemy, or the landlord, or a casual pyromaniac, could be blamed: in this respect the facts are significantly different from those in Russell v NRMA Insurance Ltd (NSW Court of Appeal, | June 1990, unreported). There was no evidence that the premises were broken into, and the circumstantial evidence would suggest that it was unlikely to have occurred: [4] (a) the premises were on the corner of two major thoroughfares; [5] (b) the sole means of access was through the front-doors; [6] (c) the doors were locked with Good locks; [7] (d) the only set of keys to the doors was held by the appellants; [8] (e) the area was well lit; and [9] (f) an employee of a business diagonally opposite, [10] Mr Schonberger, who had an unrestricted viewing of the premises, saw nothing suspicious happen between the time when the appellants locked up the premises for the night, (about 2.00am) and the time when the fire started, (about 2.30am). The appellant's expert gave evidence which his Honour accepted that if the appellants had spread the accelerants before leaving the premises at 2.00am, it was consistent with a fire starting 30-40 minutes later. To add to the suspicious circumstances, the appellants were seen leaving the premises carrying a box. Their explanation that it contained cigarettes was rejected by his Honour, and 4 UNREPORTED JUDGMENTS would be very difficult to accept however one viewed their evidence. His Honour was, I think, justified in drawing the inference that the box had been used to carry accelerants into the premises. For these reasons, I am of the view that the appeal should be dismissed with 5 costs. Cripps JA I agree with the reasons of Meagher JA and the orders he proposes. Appeal dismissed with costs. 10 Counsel for the appellant: JE Maconachie QC/P Neil Solicitors for the appellant: Cohen Ajaka Walter Counsel for the respondent: NC Hutley/JS Gleeson 15 Solicitors for the respondent: Phillips Fox