New South Wales District Court CITATION: Anthony John Gardener v GIO General Limited [2009] NSWDC 20 HEARING DATE(S): 16/02/2009, 19/02/2009 JUDGMENT DATE: 26 February 2009 JURISDICTION: Civil JUDGMENT OF: Sidis DCJ 1. Verdict and judgment for the plaintiff in the sum of $93,174.78, comprising the insured value of the car of $70,000 and interest to the date of judgment in the sum of $23,174.78. 2. The defendant is to pay the plaintiff's costs of the proceedings. DECISION: 3. The exhibits are returned. 4. My reasons are published NOTE: Order 2 in its current form is suspended. The matter is stood over on the issue of costs to 9:30 AM on 05/03/2009 CATCHWORDS: Insurance – Alleged breach of duty of disclosure and misrepresentation on insurance of BMW – Underwriting Guidelines – Whether, if informed the insurer would have offered insurance – Whether insurer discharged onus of proof PARTIES: Anthony John Gardener (Plaintiff) GIO General Limited (Defendant) FILE NUMBER(S): 235/07 COUNSEL: Mr. Cummings (Plaintiff) Mr. Sleight (Defendant) SOLICITORS: Bilbie Dan (Plaintiff) Hicksons (Defendant) JUDGMENT 1 The plaintiff, Anthony Gardener, believed he had a bargain when he bought a 1997 BMW 740IL automatic sedan for $50,000 in June 2005. It was the model BMW that he particularly wanted, having been impressed by its style and comfort when a passenger in a 7 series model on a prior occasion. 2 The bargain involved was that he purchased a 740IL model that was in mint condition and was specced up to the level of a 750IL model. By this phrase it was meant that the car was fitted with many of the features that were available as standard factory fitted extras that were not available, except at additional cost, for the 740IL model. 3 The plaintiff believed that with these extra features the car was worth $70,000. With this value in mind he sought insurance on an agreed value basis. He inquired of two other insurance companies before approaching GIO General Limited, the defendant, on 1 July 2005. 4 There was conflict in the evidence concerning the information provided by the plaintiff by telephone to the defendant's sales consultant, Ms Sherman, before the defendant issued a certificate of insurance for the car with an agreed value of $70,000. 5 The certificate of insurance was issued on 2 July 2005 and posted to the plaintiff. The certificate described the car as a 750IL model BMW. It was received by his partner, Tarynn Smith, and filed by her without reference to the plaintiff. Ms Smith explained that the plaintiff was a self employed business man who, at the time of this transaction, worked long hours and travelled regularly. Ms Smith ran their household and managed their two children as well as undertaking office work for the plaintiff. She established a practice of collecting and opening their mail and sorting it into those documents that required the plaintiff's attention and those to which she attended. In accordance with this practice, the certificate of insurance was filed and not referred to the plaintiff. Ms Smith was not challenged on this evidence in cross examination. I therefore accept that the plaintiff was never made aware of the manner in which the certificate described the car. 6 The plaintiff delivered the car to his mechanic on 9 September 2005 for minor repair. He left it in the street outside the mechanic's premises as requested. On 12 September 2005 the plaintiff travelled to China, returning on 21 September 2005. On his return he discovered that the car had been stolen. It was never recovered. 7 His claim on the policy was rejected on 28 June 2006 after the defendant undertook an investigation of the circumstances of the loss. The claim was rejected on the grounds of breach by the plaintiff of his duty of disclosure to the defendant and misrepresentation by: 1 describing the car as a 750IL model rather than a 740IL; and 2 failing to disclose that the car was fitted with numerous non-standard accessories, including electrical accessories. 8 In rejecting the claim the defendant asserted that, had it been fully informed, it would have refused to provide the insurance sought because the car was fitted with electrical accessories valued at more than $3,000. It was on the same basis that the plaintiff's claim was defended. 9 The claim involved two issues: 1 Whether the information provided by the plaintiff at the time the insurance transaction took place involved a breach of the plaintiff's duty of disclosure or misrepresentation. 2 Whether, if fully informed, the defendant would have agreed to provide the insurance cover sought by the plaintiff. 10 The defendant accepted that it bore the onus of proof in respect of both issues. Non-disclosure/Misrepresentation 11 A finding in favour of the defendant on this issue depended on my preferring the evidence of Ms Sherman to that of the plaintiff concerning the information he supplied before the certificate of insurance was issued. 12 It was agreed that Ms Sherman asked the plaintiff a series of questions prompted by computer screens generated by the defendant's Cogen computer program. 13 Effectively Ms Sherman's evidence was that the plaintiff told her that the car was a 1997 750IL automatic sedan and that no modifications or accessories were added to it. 14 The plaintiff said that he described the car to Ms Sherman as a BMW 740IL that was specced up to a 750IL. In response to the question about modifications he replied: As I have said the vehicle is specced to the level of a 750IL. It has everything (sic) option you can think of on it, it even has a t.v. As far as I am aware all the features on it are factory options and there are no after market modifications on it. Because it's in such good condition with every factory option on it, that's why I want an agreed value. 15 The plaintiff was not certain whether he gave Ms Sherman specific examples of factory fitted options. He said he was not asked about electrical accessories. 16 I decided that I preferred the evidence of the plaintiff to that of Ms Sherman for a number of reasons. 17 The plaintiff was a qualified motor mechanic who owned 20 – 30 cars at various times prior to the purchase of this car. This was his first BMW. He responded to questions asked of him in cross examination in an open and forthright manner. He agreed that he was aware that the model of the car was important to the determination of the agreed value at which the insurer would provide cover. He agreed that he was asked whether the car had modifications. He did not remember if he was asked about accessories but did not deny that this might have occurred. 18 The plaintiff agreed that he did not provide to Ms Sherman a list of the extras and modifications that were referred to in a statement the plaintiff provided to an investigator engaged by the defendant. This statement was not in evidence. 19 The defendant placed much reliance on the plaintiff's agreement in cross examination that he replied in the negative when asked by Ms Sherman if there were modifications or accessories on the car. This reliance was misplaced in the light of other evidence of the plaintiff that he did not remember if he was asked about accessories and that, had he been asked to list them, he would have done so. Further, he explained that he understood the term modification to relate to after market modifications. The plaintiff said he believed that all of the features in the car were fitted before it left the BMW factory for delivery to the original purchaser. There was no evidence that Ms Sherman explained to him that the question related to modifications fitted at the factory at an extra cost at the time of the original purchase of the vehicle. 20 The plaintiff rejected the proposition that he misrepresented the model of the car in order to inflate the value at which the defendant agreed to insure it. There appeared to be no advantage to the plaintiff in misrepresenting this vital piece of information. He was relatively young but he already had extensive experience in the insurance of his many motor vehicles. The defendant asked for and was given the plaintiff's approval to undertake a reference check concerning his prior insurance history. There was no evidence that he had any prior insurance problems, such as rejection of claims or cancellation of policies. 21 Any perceived advantage in misrepresenting the model of the car would quickly evaporate as soon as a claim was made and the proper description of the vehicle became known to the defendant. I do not accept that a person of the plaintiff's experience would attempt to mislead an insurer in such a transparent manner. 22 Ms Sherman stated that she had an independent memory of her conversation with the plaintiff at the time the insurance of his car was arranged. This was because she received very few calls concerning BMW vehicles. I do not accept this part of her evidence. Ms Sherman said that, as a sales consultant, she dealt with, on average, 16 telephone calls per day for the purpose of arranging insurance. She was unable to recall the terms of any other telephone call with a customer of the defendant on 1 July 2005 or on the days immediately preceding or following that date. 23 Ms Sherman said that she was first asked to recall her discussions with the plaintiff some 13 months later, in August 2006, when she provided a statement, marked Exhibit B. She agreed that her memory of her conversation with the plaintiff would have been more accurate at that date. This statement, however, created a clear impression that Ms Sherman obtained the information contained in it, not by reference to any independent recollection, but by viewing the questions and answers appearing on the several screens provided by the Cogen system. 24 Ms Sherman maintained that the plaintiff told her that the car was a 750IL model. This evidence is also rejected. Ms Sherman agreed that prior to the plaintiff's inquiry she had never heard of a 740IL or 750IL model BMW. She agreed that she did not know the difference between them. I consider it highly probable that, having heard the plaintiff's description of his car as a 740IL specced up to a 750IL and, not knowing the difference, she inadvertently recorded the car as a 750IL model. 25 Having made this error, Ms Sherman was provided with a screen that indicated a value for a 1997 750IL BMW sedan of $65,800. She was authorised to agree to the plaintiff's suggested value of $70,000 because this figure was not more than 15% greater than that provided by the Cogen system. 26 Ms Sherman was also provided with a Risk Extras screen listing the factory fitted extras and modifications for a BMW 1997 750IL sedan. She added nothing further to this screen because the plaintiff informed her that there were no extras or modifications to the vehicle. 27 In the statement made in August 2006, Ms Sherman stated that the plaintiff did not offer any other extras when the Extras question was read. The significance of this evidence was: 1 It indicated that Ms Sherman used the term extras rather than accessories and supported the plaintiff's evidence that he did not recall being asked to provide information concerning accessories. 2 It indicated that the Risk Extras screen provided a list of factory fitted extras that were standard for a 750IL vehicle and supported the plaintiff's understanding that the terms modification, extra and accessory did not refer to factory fitted options. 28 As already noted, Ms Sherman did not offer the plaintiff a definition of these terms. Issue 1 - Findings 29 I find that the plaintiff described his car as a 1997 740IL specced up to a 750IL and that through a lack of appreciation of the distinction between these models of BMW vehicles, Ms Sherman inadvertently entered the car into the Cogen system as a 750IL model. 30 I find that this misdescription of the car was not the result of misrepresentation or breach of duty of disclosure on the part of the plaintiff. The defendant's likely response if fully informed 31 Evidence on the issue of whether the defendant would have insured the plaintiff's car if fully informed was provided by Ms Reed, who was an underwriter employed by the defendant at the time the plaintiff purchased his insurance. 32 Ms Reed relied on a list of extras and modifications set out in paragraph 4(j) of her statement, Exhibit 2, to support her contention that, had Ms Sherman been advised that the car was fitted with these items, the Cogen system would have refused to proceed with the issue of the policy. Further, she stated that on the basis of the defendant's underwriting guidelines in force at 1 July 2005, if Ms Sherman had asked her to consider whether the risk should be accepted by the defendant although not meeting the underwriting criteria, she would have directed Ms Sherman to decline the application for insurance. This was because, in Ms Reed's opinion, the extras and modifications listed were non-standard electrical accessories. 33 The defendant did not provide the court with a copy of the Risk Extras screen that applied in July 2005 to a 1997 740IL sedan and that, presumably, listed the factory fitted extras that were standard to that model BMW. The plaintiff attached to his affidavit as Annexure P a list provided by BMW that indicated that, of the items noted in Ms Reed's statement, only the electric rear seat was fitted to the his car at extra cost. The cost involved was $3,200. There was also evidence that the Hi-Fi sound system had 16 rather than the standard 14 speakers but, in the absence of evidence of the additional cost or value, if any, of the two additional speakers, this extra has been ignored. 34 The underwriting guidelines provided for automatic decline of cover if a vehicle was fitted with non-standard electrical accessories to a value exceeding $3,000. 35 There were significant problems for the defendant in this part of its defence. 36 Annexure P indicated that the cost of installing of the electric rear seat was $3,200. There was no evidence of the value of the accessory in July 2005, some seven years after its installation. Ms Reed stated that the figure involved was the cost of replacing the item if it were damaged or stolen. There was no evidence of what this figure would have been in July 2005. It was therefore not established that the value of the electric rear seat exceeded $3,000. 37 This was not a case where the defendant would absolutely refuse to countenance accepting the risk of replacement of an electric rear seat. In fact, the evidence was that the defendant was prepared to do so in the case of a 750IL model BMW where the electric rear seat was a standard accessory. 38 The purpose in referring a proposal to an underwriter was to decide whether, notwithstanding the failure to meet underwriting criteria, the defendant would have offered insurance to the plaintiff. Ms Reed's evidence was that exceptions were made. Among the factors she considered in deciding whether an exception should be made were the extent to which the insured had placed insurance with the defendant in the past, whether there was a good business case upon which to offer the insurance and whether the excess provided for should be increased. 39 Ms Reed's opinion that she would have declined insurance did not refer to the fact that the plaintiff in July 2005 was a current client of the defendant. Further, it was based upon her understanding that a significant number of electrical accessories fitted to the car were non-standard. She did not express an opinion on what the likely outcome would have been if the only non-standard extra was an electric rear seat fitted at the factory seven years earlier at a cost of $3,200. Issue 2 - Findings 40 I find that the defendant has not discharged the onus of proving that it would not have insured the plaintiff's car had it been informed that the vehicle was a 1997 740IL automatic sedan and that it was fitted with a non-standard electrical accessory that cost $3,200 at the time of original purchase. 41 For these reasons the defence failed. ORDERS 42 Verdict and judgment for the plaintiff in the sum of $93,174.78, comprising the insured value of the car of $70,000 and interest to the date of judgment in the sum of $23,174.78. 43 The defendant is to pay the plaintiff's costs of the proceedings. 44 The exhibits are returned. 45 My reasons are published. NOTE: Order 2 in its current form is suspended. The matter is stood over on the issue of costs to 9:30AM on 05/03/2009 ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.