NRMA INSURANCE LTD v COLLIER and ANOR SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CLARKE, MEAGHER and SHELLER JJA 14 March, 11 June 1996, 6 September 1996 [1996] NSWCA 403 Insurance — alleged arson — meaning of insurance policy — alleged failure of trial judge to give reasons — Notice of Motion to admit fresh evidence FACTS: This was an appeal brought by the appellant, an insurer, following a decision of Leslie AJ. The relevant policy of insurance was one against damage to a property, that property being extensively damaged by fire in May 1993. At the time of the fire, the property was subject to a mortgage. Indemnity was denied by the appellant on the suspicion that the respondents had deliberately destroyed their own house. The trial judge found in favour of the first respondents. The appellant has appealed on the basis that: the trial judge should have upheld the allegations of fraud; that his Honour's findings on quantum were unjustifiable; that his Honour failed to give reasons for judgment; and that his Honour failed to properly deal with the cross-claims. HELD: By Meagher JA, Clarke, Sheller JJA agreeing: 1) The facts that: a) the respondents were impecunious and, thus, had a motive for burning the insured property; b) the property was insured for a greater amount than its true value and; c) the respondents had an opportunity to fire the property; do not carry overwhelming weight in insurance litigation. 2) The trial judge's view that the subject insurance policy was an 'agreed value' policy was incorrect. The policy should, instead, have been construed as a 'replacement policy'. As such, his Honour's conclusions on quantum were incorrect. 3) It was open to the trial judge to conclude that one witness is more credible than another without giving extensive reasons for such a conclusion. 4) The cross-claim by the insurer against the mortgagee of the subject property to the effect that the insurer owed the mortgagee no money should be dismissed because the mortgagee's interest was notified on the policy and the mortgagee had not recovered all moneys loaned through mortgagee sale. 5) Despite the finding by the appeal judges that the mortgagee was owed money by the insurer, the cross-claim claiming such money should be dismissed because no attempt to quantify the sum owed was pleaded. 6) The cross-claim by the insurer against the insured claiming indemnity for any amount payable to the mortgagee should be dismissed because no attempt was made by the mortgagee to quantify any moneys owed to him. 7) The cross-claim by the insured against the mortgagee for damages for burning the subject property should be dismissed because relevant evidence was not led at the time such evidence was obtained but some time after the appeal was heard. ORDERS: 1. Appeal Allowed 2. Order and judgment of Leslie AJ be set aside. 3. In lieu thereof, order that the appellants pay to the first respondents, the sum of $50,000 together with interest at the rate of 13% per annum from 15th July, 1992. 4. Order the first respondents to pay the appellants costs of the appeal but to have a certificate in respect thereof under the Suitors' Fund Act. 2 UNREPORTED JUDGMENTS 5. Order that in respect of the first, second, third and fourth cross-actions, there be a judgment in each case for the cross-defendant. 6. The Notices of Motion of 21st March, 1996, 26th March, 1996, and 3rd June, 1996, should be dismissed with costs. 7. Liberty to apply in 7 days if there is any error in the calculation of any of the figures in O1 to OS. Clarke JA I agree with the orders proposed by Meagher JA substantially for the reasons given by his Honour and supplemented by Sheller JA. Meagher JA This is an appeal by an insurer against a judgment given in favour of its insured by Leslie AJ on 28 February 1995. The policy of insurance was one against the loss of, or damage to, a house, the house being one owned by the respondents, Mr and Mrs Collier, in Camden Town. It was severely damaged by fire at about 1.10am on 9 May 1993. Mr and Mrs Collier sought indemnity from the appellant, who declined it on the basis of the Colliers' fraud. The appellant alleged that the Colliers were, or one of them was, guilty of arson. At the time of the fire, Mr and Mrs Collier were living in rented premises at Bellevue Hill. At the time of the fire, the home was the subject of a mortgage to the second respondent, one Sengos, who had originally (26 June 1962) lent $30,000 on the security of the house; the mortgage was, on several occasions, varied, by, inter alia, increasing the amount of the principal lent. At the date of the fire, the principal debt was $56,000. At the date of the fire, the Colliers were in some considerable financial distress. As Ihave said, his Honour found in favour of the first respondents, Mr and Mrs Collier. His Honour gave judgment in their favour in the sum of $219,724. The appellant attacks this decision on four grounds: first, that his Honour should have found the issue of fraud in favour of the appellant; secondly, that his Honour's findings on the quantum of the Collier's loss are unjustifiable; thirdly, that his Honour failed to state his reasons; and fourthly, that his Honour was incorrect in his orders on the various cross-claims. The plaintiff submitted that the Colliers had a motive to burn the house. They were subject to acute financial pressures. At the time of the fire, both plaintiffs were, and had been for many years, unemployed. They had tried to sell the house on many occasions in order to repay the mortgagee, who was suing them for amounts owed to him under the mortgage. They had been served with a notice under s57(2)(b) of the Real Property Act, 1900. They also had the opportunity: the house was vacant and they were the only persons with ready access to the house. Moreover, the house was over-insured: the market-value of the house and land was about $110,000, whereas, it was insured for $231,000. Thus, it was submitted by counsel for the appellant with perhaps more enthusiasm than objectivity, the only possible inference which could reasonably be drawn was that one or other of the Colliers, or perhaps both in unison, deliberately set the house on fire. This is a submission which must be rejected. In the first place, as this Court has often held, motive and opportunity, either together or in isolation, are not factors of overwhelming weight in this class of litigation. In the second place, the fact that the premises were overinsured cannot be attributed to, or at least not solely to, the Colliers; the evidence makes it plain that this resulted largely from the efforts of the appellant. Nor did the appellant call an expert locksmith to testify as to the ease with which the doors could be URJ NRMA INSURANCE LTD v COLLIER and ANOR (Meagher JA) 3 unlocked. But in the third place and most importantly, his Honour believed the evidence of Mr Collier, who denied arson and whose version of what happened on the night in question is inconsistent with either him or his wife setting the premises on fire. There is, in my view, more to be said for the appellant's attack on the quantum of damages found by his Honour. His Honour's findings on this matter should be set out in full. His Honour said: "Before the parents could find useful employment and while they were struggling to find money to pay their mortgage, the family home was fired. This is one more case on the subject of It was then sold by the money lender for $55,000. "As the value of the land was $40,000, the fire damaged house was only worth $15,000. The loss ratio was 55,000/70,000 of 1//14, in terms of market values. "However, before the home was mortgaged, the money lender insisted that the parents insure the house against loss, including loss by fire. 'Taking with them the moneylender's requirements in writing, the parents went to an insurer's office where they made a proposal for the insurance of the house for a replacement value of $73,000, the parents estimate of the cost of replacement of the house, and produced the moneylender's requirement. "The proposal was made on the insurer's form which required the parents to estimate the area of the house. This the parents did in good faith and to the best of their ability. The estimate of area was overstated. 'Instead of writing a replacement policy for the value proposed by the parents, for a relatively modest premium, the insurer insisted upon an indemnity policy for an insured value of $231,000, at a much higher premium. The higher value was apparently calculated by the insurer by reference to the parents' estimate of area and the insurer's estimate of building costs. "The very great difference in values was not discussed with the parents by the insurer who apparently chose instead to charge the higher premium." Earlier, his Honour had said: "At all material times the market value of the house and the land on which it stood was $110,000. The value of the house was $70,000 and the value of the land was $40,000." His Honour's figures, as distinct from the use to which he put them, were not in dispute. His Honour, taking his fraction of 11/14 (which, by a typographical error, is represented in the judgment as 1//14), applied it to the figure of $231,000, so as to reach the sum of $181,500. That sum, together with interest from 15 July 1993, gives the figure of $219,724 which his Honour found was owing by the appellant to the first respondents. To recapitulate the agreed figures: before the fire, the house and land together were worth $110,000, but after the fire only $55,000; the land only was at all stages worth $40,000; the house only before the fire was worth $70,000, after the fire $15,000. His Honour arrived at the fraction 11/14 as a "loss ratio" which was the equivalent of 55,000 divided by 70,000. I am unable to understand this reasoning. If one were to calculate the damages in this fractional manner, the numerator and the denominator should contain the same components. A fraction would be to some extent useful if it showed a comparison between the pre- and post- fire values of the house alone, or between the pre- and post-fire values of the house-and-land. But the "loss ratio" chosen by his Honour does neither. It shows the post-fire value of the house-and-land (ie $55,000) as a proportion of the pre-fire value of the house alone (ie $70,000). 4 UNREPORTED JUDGMENTS However, the calculation of any such ratio is of no value unless it can be applied to the sum of $231,000. This is the figure used by the appellant's agents in their form to describe the sum insured. But, in my view, they did not use the figure in such a way as to constitute the relevant policy an "agreed value" policy. The policy is supposed to be expressed in "plain English". If the attempt to reduce documents to "plain English" is going to end in having to wrestle with documents like the policy in the present case, the sooner the attempt is abandoned the better. The fact is that one must spend an hour or two trying to make it yield up its secret. In the contract of insurance "indemnity value" is defined as follows: "indemnity value is the replacement value of your home less a reasonable allowance for depreciation based on the age and condition of your home." "Replacement value" is defined as: "replacement value is the amount of money it would cost to totally rebuild (sic) your house and all the home improvements on the site." "Sum insured" is defined as: "sum insured is the amount of insurance cover you have purchased for your home. It is the amount shown on your current schedule" In the present case the sum insured is set out in the schedule as $231,000. Under a heading "Choosing a Replacement Policy or an Indemnity Policy" and a sub-heading "your sum insured" appears the following "Under a replacement policy you insure your home for its replacement value. The replacement value is the amount it would cost to totally rebuild (sic) your house and all the home improvements on the site. "Under an indemnity policy you insure your home for its indemnity value. The indemnity value is the replacement value - less depreciation. This means you work out how much it would cost to totally rebuild (sic) your home and then you apply depreciation to this figure based on the age and condition of your home." Under the same heading but a sub-heading "Repairing the damage" appears the following: "Under a replacement policy we will return your home to its former state as best we can. Where possible we will match building materials and such. "Under an indemnity policy we may apply depreciation to your home before we repair any damage. Any depreciation we apply will be based on the age and condition of your home." Under the heading "Rebuilding or Repairing your home" and the sub-heading "if you have a replacement policy" the following is stated: "Tf we agree to pay a claim, a replacement policy means we will pay the cost of rebuilding or repairing any part of your home that suffers loss or damage. It will be rebuilt or repaired so that - as far as possible - it is returned to its former state. Where possible we will match building materials and such." "Under a replacement policy we will pay the smaller of: * the reasonable cost of rebuilding your home, or * the reasonable cost of repairing your home "Please remember that we will pay only the costs which you actually incur." Under the same heading and under the sub-heading "if you have an indemnity policy" there is the following: "If we agree to pay a claim, an indemnity policy means we may apply depreciation before we make any payment. Any depreciation we apply will be based on the age and condition of your home. "We reserve the right to decide whether we will: URJ NRMA INSURANCE LTD v COLLIER and ANOR (Meagher JA) 5 * rebuild or repair your home * pay you the reasonable amount it would cost to rebuild or repair your home, * pay you the sum insured. "Please remember, under this section of the policy the most we will pay is the sum insured. "For more information on rebuilding or repairing your home please see the section Building fees and related expenses" on page 15." This last quotation has two noteworthy factors: first, it does not state on what principles the right to chose between the three alternatives is to be exercised, or what (if any) rights the insured has in the matter. The second is that it is one of the few parts of the policy to use the expression "the sum insured". Also of relevance is a paragraph on over-insurance, which says: "Whether you have an indemnity or a replacement policy, it is important that you do not over-insure your home. Where possible we will match building materials and such but we will not upgrade your home if you have over-insured." The policy is, as I say, not easy to interpret. Apparently "plain English" means confused thought and split infinitives. But, despite the confusion, and notwithstanding the occasional use of the expression "sum insured", I cannot see how any fair construction of the policy could result in the conclusion that it was n "agreed value" policy. It seems to assume that there are only two forms of policy: an "indemnity" policy and a "replacement" policy. It is generally framed as if they are the only two relevant kinds of policy. Neither is consistent with the idea of an "agreed value" policy. Nor, in my opinion, does the fact that the insurer, goaded by the insured's misrepresentations, incorrectly wrote $231,000 as the "sum insured" convert the policy into an "agreed value" policy; nor does the further fact that the premiums were calculated on that false figure. After the appeal was heard a Notice of Motion was brought by Mr and Mrs Collier seeking leave to amend the Statement of Claim so as to allege that the policy was an "agreed value" policy. In view of what I have said, this Notice of Motion should be dismissed with costs. Since his Honour's conclusions on quantum are based on, in effect, treating the policy as if it were an "agreed value" policy, his Honour's ultimate orders cannot stand. During the course of argument there was some discussion as to whether, if one reached this conclusion, we would be obliged to remit the matter to the Common Law Division for the recalculation of damages. I do not see why we should. We have before us all the relevant findings of fact. Under the policy the insurer had three options: (a) to rebuild or repair: (2) to pay the reasonable cost of rebuilding or repairing; or (3) to pay the sum insured. The first option is no longer feasible; the third option has been rejected by the insurer (whose choice it is). That leaves the second option. In order to calculate the figure owing to the plaintiffs one must first determine whether the policy is a "replacement" policy or an "indemnity" policy within the meaning of the contract. This is not an easy task. No inference can be drawn from the amount of the premium paid because the policy says: "Your premium is based on the amount you insure your home for. If, for example, the sum insured is $100,000, the premium will be the same whether you take out a Replacement policy or an Indemnity policy" However, the renewal notices refer to a "replacement" policy, and I think the Court should adopt this view, particularly as it is more advantageous to the plaintiffs. If this be correct, then, the unchallenged evidence of Mr Falls was that it would cost about $50,000 to repair the home. There should, therefore, be no discount for depreciation. 6 UNREPORTED JUDGMENTS The third main complaint of the appellant insurer may be disposed of more summarily. It alleges that his Honour failed to give reasons, a ritual complaint, frequently made but rarely with substance. His Honour's reason for coming to all essential conclusions was that he believed the male plaintiff. His Honour said so. It is all his Honour need have said on the matter. He was certainly under no obligation to state how exactly that finding of credibility could be reconciled with every sentence of evidence contained in the transcript. The fourth complaint was that the cross-claims had not been properly disposed of. I think there is substance in this. There were four cross-claims. The first cross-claim was by the insurer against Mr Sengos, the moneylender mortgagee, asserting that it was not obliged to make any payments to him, and claiming a declaration to that effect. The second cross-claim is the converse of the first, a claim by Mr Sengos for substantial moneys by way of indemnity from the insurer. Mr Sengos's interest was notified on the policy. The principal of the loan was $56,000. There must have been something owing by way of interest. The sale of the property by the mortgagee yielded $55,000, an amount close enough to the principal of the mortgage debt. Mr Sengos could not have recovered more than the mortgage debt, after making due allowance for the proceeds of the sale. Yet he did not prove what amount was owing to him. In these circumstances both of the first two cross-appeals should be dismissed with costs: the first because some small (but unquantified) amount must have been owing, the second primarily because, no attempt to quantify it was made. The third cross-claim was by the insurer against Mr and Mrs Collier claiming indemnity from them for any amounts it was compelled to pay to Mr Sengos. In the circumstances that must also be dismissed with costs. The fourth cross-claim was one by Mr and Mrs Collier against Mr Sengos, claiming from him damages for burning down the house. His Honour held: "It is possible that any of the parties to the mortgage fired the house insured. It is not probable that any of them did so." I cannot understand why this finding did not result in an order dismissing the fourth cross-claim with costs; yet his Honour made no such order. We must therefore now do so. This matter, however, is complicated by a further issue. Some time after the appeal was heard, the Court was presented with another Notice of Motion seeking to lead additional evidence which would have been particularly relevant to the fourth cross-claim. That evidence was to the effect that Mr Sengos, the mortgagee (the second respondent and fourth cross- respondent) had said to a Mr Pestano that he, Mr Sengos, had fired the Collier's house. Mr Pestano later furnished a statement to that effect to the police. Neither Mr nor Mrs Collier saw this statement until after 1 March 1995, his Honour having delivered his judgement on 28 February 1995: Mrs Collier gave evidence by affidavit that she discussed the matter with Mr Pestano "early in February", and the fourth cross-claim did not come into existence until 15 February. She having gone to great pains to avoid telling the Court when she first heard of Mr Pestano's allegation, but only when she first saw his statement to the police, has not, in my view, any right to bring fresh evidence. In any event, the fourth cross-action is curiously worded so that no ruling is sought against Mr Sengos unless the Colliers fail as against the NRMA. This they did not do. It follows, therefore, that on no possible view should the fresh evidence be admitted. I can only add that the attempt to have it admitted should have been made before the hearing of the appeal, not after it. The orders, therefore, which I propose to be made are as follows: URJ NRMA INSURANCE LTD v COLLIER and ANOR (Sheller JA) 7 1. Appeal allowed. 2. Orders and judgment of Leslie AJ be set aside. 3. In lieu thereof order that the appellants pay to the first respondents the sum of $50,000 together with interest at the rate of 13% per annum from 15 July 1992. 4. Order the first respondents to pay the appellant's costs of the appeal but to have a certificate in respect thereof under the Suitors' Fund Act. 5. Order that in respect of the first, second, third and fourth cross-actions, there be a judgment in each case for the cross-defendant. 6. The Notices of Motion of 21 March 1996, 26 March 1996 and 3 June 1996 should be dismissed with costs. 7. Liberty to apply in 7 days if there is any error in the calculation of any of the figures in O1 to OS. On the appellant's own argument, the appellant should repay to the Colliers any excessive premiums paid by them to the extent that they were calculated on the basis that the house-and-land had a value of $231,000. However, on the pleadings, we cannot make an order to this effect. Sheller JA I have had the benefit of reading the judgment of Meagher JA and agree with the orders his Honour proposes substantially for the reasons given. Despite the differences in language and cover of the policy the appellant issued to the first respondents from the older forms of fire policy, there has been no change to what was described by Kitto, Taylor and Menzies JJ in British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 at 92-3 as the common understanding of businessmen and lawyers that the nature of such policies controls the obligation "implying conclusively that its statement of the amount which the insurer promises to pay merely fixes the maximum amount which in any event he may have to pay, and having as its sole purpose, and therefore imposing as its only obligation, the indemnification of the insured, up to the amount of the insurance, against loss from the accepted risk". Their Honours pointed out that the effect of agreement as to the value of the subject matter, in the case of a valued policy, upon the assessment of the amount payable to the insured is "not that the process is to be directed to anything other than the indemnification of the insured, but only that the assessment of his loss must proceed on the basis of the agreed valuation of the property". I can find nothing in this policy to support the view that the insurer and the insured agreed that the value of the property insured was $231,000 in this sense. 1. Appeal allowed. 2. Orders and judgment of Leslie AJ be set aside. 3. In lieu thereof order that the appellants pay to the first respondents the sum of $50,000 together with interest at the rate of 13% per annum from 15 July 1992. 4. Order the first respondents to pay the appellant's costs of the appeal but to have a certificate in respect thereof under the Suitors' Fund Act. 5. Order that in respect of the first, second, third and fourth cross-actions, there be a judgment in each case for the cross-defendant. 6. The Notices of Motion of 21 March 1996, 26 March 1996 and 3 June 1996 should be dismissed with costs. 7. Liberty to apply in 7 days if there is any error in the calculation of any of the figures in O1 to OS. 8 UNREPORTED JUDGMENTS Representation: Counsel for the appellant: RW Seton Solicitors for the appellant: Abbott Tout Counsel for the first respondent: MM Hilbery Solicitors for the first respondent: Self 10 Counsel for the second respondent: RA Campbell Solicitors for the second respondent: Holmes and Bevan