Local Court New South Wales Medium Neutral Citation: Maria Gonzales & Keith Barrett v The Hollard Insurance Company Pty Ltd [2016] NSWLC 9 Hearing dates: 20 May 2016 Date of orders: 01 June 2016 Decision date: 01 June 2016 Jurisdiction: Civil Before: Assessor Olischlager - Small Claims Division Decision: Verdict for the plaintiffs. Judgment for the plaintiffs in the sum of $2,789.38 together with court costs of $95.00 payable within 28 days. Catchwords: INSURANCE – Insurance Contracts Act 1984 – duty of disclosure – meaning of "own" – whether insurable interest exists Legislation Cited: Insurance Contracts Act 1984 (Cth) Cases Cited: Bank of New South Wales v The North British and Mercantile Insurance Company (1882) 3 NSWLR 60 British Traders' Insurance Co Ltd v Monson [1964] HCA 24; (1964) 111 CLR 86 Condogianis v Guardian Assurance Co [1919] VLR 1 Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337 McCann v Switzerland Insurance Australia Ltd [2000] NCA 65; (2000) CLR 579 Minucoe v London & Liverpool & Globe Insurance Co Ltd [1925] HCA 33; (1925) 36 CLR 513 Prepaid Services Pty Ltd & Ors v Atradius Credit Insurance NV [2013] NSWCA 252 Stealth Enterprises Pty Ltd t/as Gentlemans Club v Calliden Insurance Ltd [2015] NSWSC 1270 Stock v Inglis (1884) 12 QBD 564 Texts Cited: Colinvaux's Law of Insurance (9th Edition, Sweet & Maxwell, 2010) Category: Principal judgment Parties: Maria Gonzales (first plaintiff) Keith Barrett (second plaintiff) The Hollard Insurance Company Pty Ltd (defendant) Representation: Counsel: Plaintiffs in person Mr Ton (for the defendant) File Number(s): 2015/00315001 Publication restriction: Nil Judgment 1. Mr Barrett is the registered proprietor of a property at Watkin Street Newtown. He lives at this address with his de facto spouse Maria Gonzales. Ms Gonzales' name does not appear on the register maintained by the Land and Property Information Service NSW. 2. In January 2014 Mr Barrett asked Ms Gonzales to arrange home and contents insurance for the property. On 12 January 2014 Ms Gonzales made an online application for an insurance policy through a website maintained by The Hollard Insurance Company which trades as Australian Senior Insurance Agency. The website allows a person to apply for and obtain an insurance policy online through an automated process. The online process required Ms Gonzales to answer a number of questions. Based on the responses given the website determines whether to offer policy of insurance to the user. 3. Ms Gonzales completed the online questionnaire. Under the section titled "Tell us about your home and contents" the completed questionnaire contains the following question and response provided by Ms Gonzales: Do you own the home and live in it with only your immediate family? Yes. 1. The section titled "Tell us about your insurance history" contains the following information: In the last 5 years, have you or anyone who will be a named insured on this policy had any home and/or contents claims on this or any other property? No. 1. The completed questionnaire also includes the following: Do you have an interested party that needs to be noted on the policy? No. 1. Based on the completed questionnaire The Hollard Insurance Company offered a home and contents insurance policy. Ms Gonzales accepted that offer and paid the premium. A certificate of insurance was issued by the insurer on 12 January 2014. 2. On 14 November 2014 Ms Gonzales lodged a claim under the policy for storm damage that occurred on 14 October 2014. Rainwater had leaked into the lounge room from the roof damaging an area of ceiling and the adjoining wall. The loss assessor's report describes the policyholder as a house-sitter. The insurer did not proceed with the claim and on 20 February 2015 the insurer issued a letter informing Ms Gonzales that the policy was cancelled due to Ms Gonzales breaching her obligation of disclosure. The letter informs Ms Gonzales that the insurer was exercising its right to cancel the contract pursuant to section 60(1)(b) of the Insurance Contracts Act 1984. 3. Ms Gonzales and Mr Barrett subsequently commenced these proceedings seeking to recover the sum of $5,632 being the cost of repairing the damage to the property. Ms Gonzales seeks indemnification from The Hollard Insurance Company under the home and contents policy. 4. The Hollard Insurance Company denies liability in relation to the claim. The insurer states that Ms Gonzales breached her duty of disclosure when taking out the policy of insurance. In particular, the insurer asserts that Ms Gonzales was in breach of her duty of disclosure by misrepresenting that she was the owner of the property when she was not. The insurer asserts that in reliance of that breach it terminated the insurance policy on 20 February 2015. 5. In relation to the claim brought by Mr Barrett, the insurer states that Mr Barrett was not a party to the contract of insurance and therefore has no standing to sue. 6. The claim involves consideration of a number of provisions of the Insurance Contracts Act 1984 (Cth). In particular the insurer relies on the obligations upon an insured to deal with the insurer with the utmost good faith in section 13 of the Act. By sections 21 and 21A of the Act the duty to disclose matters relevant to the policy of insurance exists prior to the entry into the policy of insurance and includes the answering of questions which might form the basis of an insurance contract. 7. The potential consequences of failing to comply with the duty of disclosure or making a misrepresentation are outlined in section 28 of the Act in the following terms: (1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into: (a) failed to comply with the duty of disclosure; or (b) made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into. (2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made. 1. The Hollard Insurance Company asserts that Ms Gonzales was in breach of her duty of disclosure by misrepresenting that she was the owner of the property in her online questionnaire. Mr Deane, a Technical Specialist Clams Team Leader with the insurer, states that had Ms Gonzales correctly responded to the question "Do you own the home and live in it with your immediate family?" by selecting the option "no" then a drop down menu would have appeared on the screen providing a number of alternatives to identify her interest in the property. By selecting "no" to the question Ms Gonzales would have been prevented from proceeding to beyond the screen and she would have been prompted to apply only for a policy covering home contents. 2. During the course of submissions at the hearing it was apparent that there was some confusion as to whether the insurer was asserting that a fraudulent misrepresentation by Ms Gonzales. This confusion is understandable given the email from Mr Harte, Technical Team Leader, dated 23 February 2015 to the plaintiffs which refers to the cover being "voided". That term is consistent with the language contained in section 28(2) of the Act relating to a fraudulent failure to disclose or a fraudulent misrepresentation. Further the defence by the insurer makes express reference to reliance upon section 28(2), yet makes no reference to section 28(3) of the Act. 3. Mr Deane also gives evidence to suggest that the misrepresentation was knowingly made. Mr Deane gives evidence that Mr Barrett was also liaising with Woolworths Insurance in January 2014 regarding the cancellation of a 2013 policy and at that time there was an alleged failure by Mr Barrett to disclose a history of claims in relation to that earlier policy. The inference being that by Ms Gonzales making the application the plaintiffs' intended to avoid disclosing the history of earlier claims made by Mr Barrett that may have been relevant to an assessment of the risk. 4. The insurer did not press the right to avoid the insurance contract by reason of fraudulent misrepresentation or fraudulent non-disclosure. No doubt the insurer recognizes the substantial evidentiary burden of proving fraud on the part of Ms Gonzales. In Prepaid Services Pty Ltd & Ors v Atradius Credit Insurance NV [2013] NSWCA 252 the Court of Appeal when dealing with allegations of fraudulent misrepresentations under section 28(2) applied the principles referred to in Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337 that in order to establish fraud there must be proof that a false representation is made either knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. 5. The evidence is certainly not sufficient to establish fraudulent misrepresentation or fraudulent non-disclosure on the part of Ms Gonzales. 6. The insurer instead relies on section 28(3) of the Insurance Contract Act to avoid liability on the claim. Despite the inadequacies of the pleadings I am satisfied that the parties were able to adequately respond to this issue. 7. The insurer asserts that if Ms Gonzales did not make the misrepresentation regarding ownership of the property, the insurer would not have offered a policy of insurance covering the home. The website would have prevented such a policy being offered and in those circumstances the insurers liability should be reduced to nil in respect of a claim relating to damage to the property. 8. The insurer relies on the decision in Stealth Enterprises Pty Ltd (t/as Gentlemans Club) v Calliden Insurance Ltd [2015] NSWSC 1270 as illustrative of the effect of section 28(3) of the Act. In that case premises used as a brothel were damaged by fire. The Court was satisfied that the insurer would not have insured the premises if it was disclosed that business registration had lapsed. While fraud had not been established Schmidt J (at [258]) was satisfied that had the lapsed registration been disclosed it was of such significance to the risk that Calliden would not have extended cover. Schmidt J concluded at [259]: There was no issue that under s 28(3), in an appropriate case, an insurer can reduce its liability under a policy to nil. I am satisfied, for the reasons given, that this is such a case. 1. Ms Gonzales disputes that she breached her obligation of disclosure or that she made a misrepresentation.to the insurer. She states that the question posed by the website was confusing. She states: …if I clicked "yes" my answer would be partly incorrect because I don't own the house, if I clicked "no" my answer would also be partly incorrect because I do live in the house with only my family. In the end I answered "yes" because I felt this was the more correct answer. 1. For the reasons that follow I am not satisfied that the insurer is entitled to rely on section 28(3) of the Act to reduce its liability in respect of the claim to nil. 2. Firstly, I am not satisfied that Ms Gonzales made a misrepresentation or breached her duty of disclosure when she responded by saying yes to the question "Do you own the home and live in it with only your immediate family?" 3. The website questionnaire does not provide any definition of the term "owner' or "own". While the insurer has taken a restrictive interpretation of term as being limited to the legal owner or registered proprietor of the property there is nothing on the website which requires such a restrictive interpretation. 4. In Minucoe v London & Liverpool & Globe Insurance Co Ltd [1925] HCA 33; (1925) 36 CLR 513 the High Court dealt with an appeal where the plaintiff had insured stock in trade and plant equipment which had been destroyed by fire. In the policy the plaintiff was described as the owner of the goods. After the plaintiff entered into the policy, the plaintiff transferred the goods by way of a bill of exchange to secure the repayment of a loan. The question before the High Court was whether the plaintiff ceased to the owner of the property within the meaning of the policy by reason of the bill of exchange. The High Court held that the plaintiff remained the "owner". Knox CJ said: The word "owner" is not a word of inflexible meaning; its meaning in any given document must be ascertained by reference to the context. It is true that the legal property in the chattels insured passed to the grantee of the bill of sale by force of that instrument, but the right to possession of all those chattels and the right to dispose of some of them in the ordinary course of business remained in the appellant until default in the performance of his obligations under the bill of sale. 1. In Condogianis v Guardian Assurance Co [1919] VLR 1 Hodges J similarly took a liberal approach to the definition of "owner" in a policy of insurance. In that case the insured property would not pass to the insured until full payment had been made on the purchase price. Notwithstanding this, the insured had represented to the insurer that he was the "owner' of the property. Isaacs J dismissed the contention by the insurer that this was a misrepresentation as the insured was not the legal owner of the property stating: I think the law with reference to that is correctly stated in Welford and Otter Barry on the Law of Insurance, p.165. It says, in dealing with the interest of assured in the property:- 'It is not, as a general rule, necessary for the assured to describe the nature or extent of his interest in the property insured. If therefore he describes himself as its owner, the validity of the policy is not affected if this description, though not strictly correct, substantially defines his relation to the property. 1. Ms Gonzales resides in the property at Watkin Street Newtown. As the de facto partner of Mr Barrett living in the property she has possession and control over the property jointly with Mr Barrett. While her interest in the property, in a legal sense, is neither legal nor equitable, she had an insurable interest in the property. 2. In relation to the approach to be taken to identify whether an insurable interest exists, Brett MR in Stock v Inglis (1884) 12 QBD 564 at p 571 gave the following guidance: In my opinion it is the duty of a court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as possible, a technical objection, and one which has no real merit, certainly not as between the assured and the insurer. Of course we must not assume facts which do not exist, nor stretch the law beyond its proper limits, but we ought, I think, to consider the question with a mind, if the facts and the law will allow it, to find in favour of an insurable interest. 1. In Bank of New South Wales v The North British and Mercantile Insurance Company (1882) 3 NSWLR 60 at 76 an insurable interest has been defined as "to be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction". 2. The authors of Colinvaux's Law of Insurance (9th Edition, Sweet & Maxwell, 2010) state as follows (at 4-013): [I]t might be said that an insurable interest exists if: the assured has legal or equitable title to the subject matter; or if the assured is in possession of the subject matter; or if the assured is not in possession of the subject matter but may be either responsible for, or suffer loss in the event of, any damage to the subject matter. 1. Ms Gonzales is not a boarder or tenant at the property. She occupies the property and has possession. As a de facto partner of Mr Barrett she has possible rights under the Property (Relationships) Act 1984 for adjustment of property. It is the place where she lives and she would be prejudiced if it was destroyed. From a lay person's perspective, it would be unsurprising if she was asked in those circumstances, "Is this your home", that she would respond "yes". From a legal perspective, she had an insurable interest in the property. 2. The insurer asked a double barrelled question which puts two propositions to a layperson. The question joins two separate concepts of ownership and occupation. The question uses the term "home" instead of "house". The distinction being that a house is merely a building, and a home is a place where people live. There is no doubt that Ms Gonzales considers the house in Watkins Street to be her home. 3. The insurer prepared the questionnaire. In McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Kirby J stated the principles relevant to interpreting contracts of insurance (at [74], footnotes omitted): 4. Notwithstanding the primary duty of courts to give meaning to the words in an insurance policy, it has been recognised that, in cases of ambiguity, a "liberal approach" will generally be adopted in the construction of insurance contracts. There are several reasons for this approach. They go back to very old legal authority. In the past, they were commonly summed up in the maxim verba chartarum fortius accipiuntur contra proferentem. Courts now generally regard the contra proferentem rule (as it is called) as one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae. Nevertheless, dictionaries, facts and logic alone will sometimes not provide an answer to the contest before the court. In those cases: "it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering". 1. In my view the question posed by the insurer was reasonably capable of being construed with a wider meaning to include persons, such as Ms Gonzales, who were not the legal owner of the property. 2. Accordingly, there was no misrepresentation or failure to disclose by Ms Gonzales. 3. The defence of the insurer under section 28(3) of the Act also fails for a second reason. Section 28(3) requires the Court in inquire as to the position of the insurer if the relevant misrepresentation had not been made. Assuming, for the purpose only of argument, that Ms Gonzales had answered the question "Do you own the home and live in it with only your immediate family?" with the response "No". The insurer states that this would have prevented Ms Gonzales from proceeding further through the online application and she would not have been offered a policy of insurance on the home. While that might be so, the insurer's evidence does not address the possibility of what would have happened if Ms Gonzales had then elected to contact the insurer by telephone to obtain insurance. In my view, it would not be unreasonable for a person unable to obtain assistance online to revert to alternative options for service. Ms Gonzales had an insurable interest and may have been offered insurance if she had spoken to a customer service officer. The insurer does not give evidence as to whether guidelines adopted by customer service officers operate with greater flexibility in regards to determining offers of insurance. In those circumstances, the Court cannot be satisfied that the insurer would not have offered insurance and that therefore the claim should be reduced to nil. 4. The insurer put forward an alternative argument that the policy is a contract of indemnity and that Ms Gonzales is not a legal owner and therefore not under liability for the loss. However, while Ms Gonzales might be said to have only a limited interest in the property there is nothing that prevents a person with an insurable interest entering into a contract whereby the interests of other persons in the same property are also protected provided that was the intention at the time of entering into the contract. This exception was acknowledged in British Traders' Insurance Co Ltd v Monson [1964] HCA 24 at [7]. 5. In the present case I am satisfied that Ms Gonzales intended to cover her interest in the property and that of her de facto spouse Mr Barrett. The evidence provided by Mr Barrett is that he requested Ms Gonzales to arrange for the insurance policy. As a de facto couple they both benefited from the property. I accept that she intended to apply for the insurance policy to cover both herself and Mr Barrett. I note that Ms Gonzales did not identify Mr Barrett when asked the question "Do you have an interested party that needs to be noted on the policy?"; however, the language used by the insurer does not require disclosure of another interested party. 6. In any event, section 20 of the Insurance Contracts Act provides that an insurer under a contract of insurance is not relieved of liability under the contract by reason only that the names of the persons who may benefit under the contract are not specified in the policy. 7. A claim is also brought by Mr Barrett as the second plaintiff. Mr Barrett relies on section 48 of the Insurance Contracts Act. That section provides: (1) Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract. 1. The insurer disputes that Mr Barrett is able to bring a claim as he is not a party to the contract of insurance. That proposition is correct; however, section 48 of the Act confers a right to non-party beneficiaries. In Zurich Australian Insurance Ltd v Metals and Minerals Insurance Pty Ltd (2009) 240 CLR 391; [2009] HCA 50 French CJ, Gummow and Crennan JJ said (at [24], footnotes omitted): Section 48 confers a statutory right of recovery upon a non-party referred to or specified in a general contract of insurance as a person insured or to whom cover extends. It does so directly. Its enactment predated the extension, by the decision of this court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd, of common law rights of recovery for non-party insured persons under an insurance policy. Section 48 does not deem such a person to be a party to the insurance contract thus attracting the rights conferred on a party. It does not purport to confer contractual or equitable rights upon such a person. There is therefore no basis in s 48 for assimilating the position of a non-party insured to that of a person who has "entered into" a contract of insurance within the meaning of s 45(1). 1. The policy contains a definitions section. The term "you, your" means: The policy holder or policy holders named on the Certificate of Insurance; The policy holder's spouse (legal or de facto); A person living at the insured address who lives with, and is a family member of, the policy holder or the policy holder's spouse. 1. Under Insured Events the policy states "You are covered for loss or damage to your home or contents (as applicable) as caused by … Storm, rainwater and flood". 2. Mr Barrett is Ms Gonzales's de facto spouse. The insurance policy covers him as a non-party. Pursuant to section 48 of the Act he is entitled to recover his loss. 3. Finally, the insurer disputes the quantum of the claim for damages by the plaintiffs. The report by the insurance loss assessor identifies the damage to the house as water staining to the ceiling and one wall in the lounge room. The loss assessor expresses the opinion that the damage was caused by recent storm activity. The loss assessor expresses the opinion that the repairs may be carried out at a cost to the insurer of $2,789.38. The plaintiffs claim an amount of $5,632.00 based on two quotes: $1,892.00 from Kizic Painters Pty Ltd and a quote of $3,740.00 from Damian's Plastering & Painting. No invoices have been provided by the plaintiffs to show that these contractors have carried out the work. Given that it appears that the work has not been carried out I am satisfied that the cost to the insurer to make good the property represents the proper assessment of the indemnity under the contract of insurance. 4. The Court will enter a verdict and judgment in favour of both plaintiffs. Judgment for the plaintiffs in the sum of $2,789.38 together with court costs of $95.00 payable within 28 days. Assessor Olischlager Small Claims Division 1 June 2016 ********** 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. Decision last updated: 13 July 2016