Car Owners' Mutual Insurance Co Limited v Colin Ronald Buckley [1986] ACTSC 2 (6 February 1986)

SUPREME COURT OF THE ACT

CAR OWNERS' MUTUAL INSURANCE CO. LIMITED v. COLIN RONALD BUCKLEY
S.C. No. 702 of 1984
Insurance

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Kelly J.(1)

CATCHWORDS

Insurance - Cover Note - Whether exclusion in appellant insurer's policy incorporated in contract by reference in cover note - Whether insurer estopped in circumstances from alleging existence of particular exclusion - Whether failure to disclose how long respondent licensed material.

Craine v. Colonial Mutual Fire Insurance Co. Ltd. [1920] HCA 64; (1920) 28 CLR 305.

Maclaine v. Gatty (1921) 1 AC 376.

Nicholson v. Southern Star Fire Insurance Co. Ltd. 28 SR (N.S.W.) 124.

Johnson v. Guardian Assurance Co. Ltd. 31 SR (N.S.W.) 386.

Australasian Temperance & General Mutual Life Assurance Society Ltd. v. Johnson (1933) NZLR 408.

General Accident, Fire and Life, Assurance Corporation, Ltd. v. Shuttleworth (1938) 60 LlL Rep. 301.

Fung Kai Sun v. Chang Fui Hing (1951) AC 489.

Babatsikos v. Car Owners' Mutual Insurance Co. Ltd. (1970) VR 297.

Steadfast Insurance Co. Ltd. v. F.& B. Trading Co. Pty. Ltd. [1971] HCA 68; (1971) 125 CLR 578.

Mayne Nickless Ltd. v. Pegler (1974) 1 NSWLR 228.

Marene Knitting Mills Pty. Ltd. v. Greater Pacific General Insurance Ltd. (1976) 2 LlL Rep 631.

HEARING

CANBERRA
6:2:1986

ORDER

The appeal be dismissed.

The appellant pay the respondent's costs of and incidental to the appeal.

DECISION

This is an appeal from a judgment given by Mr J.J. O'Neill, Special Magistrate, in the Court of Petty Sessions. Colin Ronald Buckley (the respondent) had sued Car Owners' Mutual Insurance Company Limited (the appellant) seeking to be indemnified in respect of the cost of repair of damage occasioned his motor vehicle said to have been insured with the appellant against the relevant risk. The learned Special Magistrate found that the respondent was so insured and accordingly gave judgment for the respondent in an amount which has not been in issue either in this Court or in the Court of Petty Sessions.

2. The facts of the matter are not now in dispute.

3. The respondent was born on 9 August 1955 and first became licensed to drive on 20 April 1983. On Monday, 2 May 1983, he rang a representative of the appellant, a man whose name he did not learn, and said that he had a vehicle which he wished to insure. He was asked his age, which he gave, and whether his current licence was a learner's permit or probationary and "maybe" whether it was provisional. He answered those questions correctly in the negative. He was not asked for how long he had been licensed. Other questions concerning the proposed insurance and to which I will return later were put to him and he was given a quotation. In fact he did not own the vehicle concerned when he made the telephone call but was negotiating for its purchase. Subsequently he completed the purchase and again telephoned the appellant when he spoke to a woman. He told her that he had telephoned previously and wished to take out insurance with the appellant, that he was picking up the car in question that day (3 May 1983) and would like a cover note to cover him if possible. He was asked the same questions as he had been asked the day before and was then advised that he would be held covered.

4. On 6 May 1983 the respondent, not having received the cover note, again telephoned the office of the appellant when he spoke, as it would appear, with the man with whom he had spoken on 2 May 1983. He asked for a proposal form and was told that although it was thought that one had been sent him another would be.

5. A cover note in respect of the vehicle arrived at the respondent's home by post on 9 May 1983 but he did not open the envelope containing it until the following morning. In the meantime, very early on the morning of Tuesday, 10 May 1983, he was involved in an accident in which severe damage was caused to the vehicle the subject of the cover note. The respondent had not been made aware at any time of the conditions of the usual motor vehicle insurance policy issued by the appellant nor had his attention been directed to the terms of the cover note. So far as is relevant to the questions I am considering those terms were as follows:-

"Date of issue: 3/5/1983 at Canberra

You (the respondent) . . . are . . . hereby held
covered, subject to the printed terms and
conditions of this Company's Motor Vehicle
Policy for Fourteen (14) days from the date
shown above to the extent of the market value
pending acceptance of the Sum Insured stated
on proposal.

. . .

No cover is given while the motor vehicle is
being driven by any person:

(a) under 25 years of age;

(b) licensed by Learner's Permit,
Provisional Licence or Probationary
Licence;

(c) who has had a Motor Drivers Licence
cancelled or suspended;

(d) who has been refused insurance by any
company."

6. The printed terms and conditions of the appellant's usual motor vehicle policy included the following:-

"It is further agreed and declared that this
policy does not cover loss, damage and/or
liability for damage caused whilst the Motor
Vehicle is driven by or is in the charge of a
person -

(i) under the age of 25 years; or

(ii) on a Learners' (sic) Permit; or

(iii) on a Provisional/Probationary licence;
or

(iv) who has not continuously held a valid
Motor Vehicle drivers licence for a
period of three years preceding the
occurrence of the event giving rise to
such loss, damage and/or liability."

7. A number of things occurred thereafter and evidence of these was given before the learned Special Magistrate. They seem, however, to add nothing to the facts upon which this appeal is to be determined.

8. The appellant contends that the facts raise two questions which ought to be determined in its favour. The first is whether the terms of the contract made between the parties included the exclusion of "loss, damage and/or liability for damage caused whilst the Motor Vehicle (was) being driven by or is in the charge of a person . . . who (had) not continuously held a valid Motor Vehicle Drivers Licence for a period of 3 years preceding the occurrence of the event giving rise to such loss, damage and/or liability."

9. The second question is whether the respondent, by failing to disclose the length of the period during which he had been licensed to drive, had been guilty of such a material non-disclosure as would have justified the appellant in refusing to indemnify him.

10. Counsel for the respondent submitted that the questions should be answered in the negative. He further contended that the appellant is estopped from asserting that the exclusion in question is included in the contract made between the parties.

11. During the course of his cross-examination of the respondent before the learned Special Magistrate counsel for the appellant asked a series of questions which, with their answers, I set out:-

"You were asked your address? --- Yes.

You were asked the make and model of the
vehicle? --- Yes.

You were asked the number of cylinders the
vehicle had? --- Yes.

You were asked the market value of the
vehicle? --- No. I cannot recall that but I
may have been asked that. I cannot exactly
remember that, I am sorry.

Were you asked how much you were buying the
vehicle for? --- I think it would be the
former rather than the latter. I think he
asked me the market value.

Were you asked whether the vehicle was on
hire purchase or lease? --- Yes.

You were asked for the use of the vehicle.
That is, whether it was private or business
or the carriage of goods? --- Yes.

You were asked your age? --- Yes.

You were asked the age of intended drivers.
That is, who would be driving the vehicle? ---
Yes.

You were asked, 'Will any person under the
age of 25 or over the age of 65 or licensed
less than five years drive the vehicle?' ---
No.

You were told that the policy does not cover
drivers under the age of 25 years or licensed
for less than five years? --- No.

You were asked your driving experience? ---
No.

You were asked whether you had any accidents
or claims in the past 10 years? --- No.

You were asked if you had ever had a licence
suspended or cancelled? --- Yes.

You were asked if you had ever been reported
or convicted for any traffic offence other
than parking or whether there was any charge
pending? --- No.

You were asked if you had a current or
previous insurance? --- Yes.

. . . --- No, I had been asked whether I was
previously refused for insurance. That was
the question.

And weren't you asked about whether you had a
no-claim bonus entitlement? --- Yes, I was."

In giving judgment the learned Special Magistrate said:

"What I am asked to decide in favour of the
defendant . . . is that the cover note was a
meaningless document because the plaintiff
could never, at any relevant time, have been
covered by a policy issued pursuant to it.
The plaintiff of course contends the cover
note cannot be regarded so and that as it
makes particular reference to four
exclusions, the one in question here must be
regarded as not applicable at least pending a
final decision by the defendant never to
accept a proposal. . . . I have already held
that the plaintiff was not asked the question
as to how long he had been licensed and it
remains to consider the materiality of that
question in relation only to the issue of the
cover note. In this connection it is
important to note that the cover note
contains an emphatic statement (that) no
cover is given while the vehicle is being
driven by any person under the four
disabilities therein set out.

It is (reasonable) to conclude that the
company did not consider the three year
licence to be material in relation to a cover
note. If there is to be a contract
constituted by the cover note, and I am
satisfied that was the intention of the
parties, it cannot be a contract that was
also intended to be (void) ab initio. I
think, therefore, that I must give effect to
it as constituting a cover subject only to
the four exclusions mentioned in it."

12. As Samuels J (as he then was) said in Mayne Nickless Ltd v. Pegler (1974) 1 NSWLR 228 at p 233, a cover note is plainly a contract of insurance. See also General Accident, Fire and Life, Assurance Corporation, Ltd. v. Shuttleworth (1938) 60 L1L Rep 301 at p 308.

13. It is usual for a cover note to be subject to the applicable terms and conditions of the insurer's standard form of policy covering the relevant risk. Nicholson v. Southern Star Fire Insurance Co. Ltd. 28 SR (NSW) 124 at p 128; Mayne Nickless Ltd. v. Pegler (supra) at p 234.

14. I think it beyond doubt that the inclusion in the cover note of the words "subject to the printed terms and conditions of this Company's Motor Vehicle Policy" had the effect, prima facie, of incorporating those words into the contract of insurance made by the cover note and in particular of incorporating the exclusion clause set out at length above. It follows that, prima facie, the first question posed on behalf of the appellant should be answered "yes". The exclusion condition being thus referred to expressly, it would normally be the case that the appellant would not have to prove that it was brought to the notice of the respondent or even that he had an opportunity of making himself acquainted with it.

"The general rule applicable to such a
contract is that the conditions of the
company's usual policy are binding on the
insured, whether he has seen them or become
acquainted with them or not: see MacGillivray
on Insurance Law, 5th ed. (1961), vol.1,
par.640 (see now MacGillivray & Parkington on
Insurance Law, 7th ed. (1981), par.284);
Nicholson v. Southern Star Fire Insurance
Co. Ltd. (supra), and cf. Citizens Insurance
Co. of Canada v. Parsons (1881) 7 AppCas 96,
at pp 124-126."

Steadfast Insurance Co. Ltd. v. F & B. Trading Co. Pty. Ltd. [1971] HCA 68; (1971) 125 CLR 578 at p 586, per Walsh J, with whom Barwick CJ and Owen and Gibbs JJ concurred.

15. In any event, in this case, but for the alleged estoppel, I do not think it would lie in the mouth of the respondent to say that he did not have notice that the cover note incorporated the exclusion clause in question. The cover note had been posted on 6 May 1983, a Friday, and delivered, obviously in the ordinary course of post, on the following Monday. On the evidence it was clearly the respondent's decision which led to his failure to open the envelope containing the cover note and so to acquaint himself with the fact that the contract evidenced by the cover note included the terms and conditions of the appellant's usual form of motor vehicle policy. The prima facie incorporation of the exclusion clause in the contract of insurance entered into would normally decide the appeal in favour of the appellant. See Nicholson v. Southern Star Fire Insurance Co. Ltd. (supra); Johnson v. Guardian Assurance Co. Ltd. 31 SR (NSW) 386 and Mayne Nickless Ltd. v. Pegler (supra). However, the question of estoppel raised by the respondent falls to be determined.

16. I set out two statements of high authority on estoppel.

"Where A has by his words or conduct
justified B in believing that a certain state
of facts exists, and B has acted upon such
belief to his prejudice, A is not permitted
to affirm against B that a different state of
facts existed at the same time."

Maclaine v. Gatty (1921) 1 AC 376 at p 386 per Lord Birkenhead L.C.

17. In Craine v. Colonial Mutual Fire Insurance Co. Ltd. [1920] HCA 64; (1920) 28 CLR 305, Isaacs J, delivering the judgment of the High Court, said at p 327:-

"First of all, the law of estoppel looks
chiefly at the situation of the person
relying on the estoppel; next, as a
consequence of the first, the knowledge of
the person sought to be estopped is
immaterial; thirdly, as a further
consequence, it is not essential that the
person sought to be estopped should have
acted with any intention to deceive;
fourthly, conduct, short of positive acts, is
sufficient. (In Sarat Chunder Dey v. Gopal
Chunder Laha (LR 19 IA 203 at p 215))
Lord Shand (speaking for Lord Watson, Lord
Morris and Sir Richard Couch) said:- 'The law
of this country gives no countenance to the
doctrine that in order to create estoppel the
person whose acts or declarations induced
another to act in a particular way must have
been under no mistake himself, or must have
acted with an intention to mislead or
deceive. What the law . . . mainly regard(s)
is the position of the person who was induced
to act; and the principle on which the law
. . . rest(s) is, that it would be most
inequitable and unjust to him that if
another, by a representation made, or by
conduct amounting to a representation, has
induced him to act as he would not otherwise
have done, the person who made the
representation should be allowed to deny or
repudiate the effect of his former statement,
to the loss and injury of the person who
acted on it.'"

In Spencer Bower and Turner on Estoppel by Representation, 3rd ed. (1977) at para.111, it is said:-

". . . a representee is deemed to have altered
his position, not only when he has adopted a
positive course of action which he would not
have adopted but for his belief in the truth
of the representation, but also when he has
abstained from taking measures for his
protection, security or advantage which he
had in contemplation, and which, but for the
representation, he would have taken;"

Fung Kai Sun v. Chang Fui Hing (1951) AC 489 and Australasian Temperance & General Mutual Life Assurance Society Ltd. v. Johnson (1933) NZLR 408 are cited in support and, in my respectful opinion, amply support the proposition.

18. The learned Special Magistrate found and, as indicated above, it is not now in dispute that nobody acting on behalf of the appellant asked the respondent for how long he had been licensed. Had the question been put to him, the disclosure that he had been licensed for less than three years must have led immediately to his being informed that the appellant refused to enter into contracts of insurance in respect of motor vehicles with persons who had been licensed for less than three years. But it was not put to him although a number of questions, set out above, concerning the proposal were. Upon being informed that he was not within a class of motorists whom the appellant was willing to insure in respect of the relevant risk, the respondent would, no doubt, have sought insurance elsewhere. That the respondent intended to drive his newly purchased motor vehicle himself appears plainly, I think, from the fact that he told the woman to whom he spoke on 3 May 1983 that he was picking up the car in question that day and would like a cover note to cover him. To judge by the questions put to him by them, it also seems beyond doubt that in any event the appellant's employees expected the respondent to be the driver of the car which he was going to buy.

19. By their failure to ask him for how long he had been licensed the appellant's employees gave the respondent justification to believe that it was prepared to enter into a contract of insurance with him as the owner and driver of the vehicle in question. Being justified in that belief he is to be deemed to have altered his position to his detriment when he did not seek other insurance or another cover note. That the appellant would not have entered into such a contract is immaterial. What is material is the situation of the respondent. Certainly it cannot be suggested that the appellant's employees acted with any intention to deceive but their failure to ask the vital question constituted, in my opinion, a sufficient representation by silence.

20. In my opinion, therefore, the appellant is estopped from alleging that the relevant part of the exclusion clause, insofar as it relates to the respondent himself, formed part of the contract made between the parties. This is so, I think, even though the appellant would have been entitled to refuse to indemnify the respondent, had the vehicle been driven by someone else not licensed for three years. The distinction lies in the fact that the failure to ask the vital question went to the very core of the formation of the contract between the parties.

21. Even had the cover note been read by the respondent immediately he received it, nothing in it would have been enough to put him on notice that he fell within a class to whom the indemnity granted did not apply. The accident happened the very night he received the note. Even if he had read it before the accident he could not reasonably have been expected to have ascertained the other "printed terms and conditions of the (appellant's) Motor Vehicle Policy" before the accident.

22. Reference to the cover note shows that it specifically excluded indemnity in respect of drivers under the age of 25 years and those "licensed by Learner's Permit, Provisional Licence or Probationary Licence". It also excluded indemnity in respect of those who had a motor driver's licence cancelled or suspended or who had been refused insurance by any company. These exclusions matched questions asked of the respondent by the appellant's employees and would, I think, have readily misled him into believing that they were the only exclusions applicable to him personally.

23. The last matter to be determined is whether the appellant is entitled to avoid ab initio the contract made between the parties for the failure by the respondent to disclose as material that he had not been licensed for three years.

24. Samuels J in Mayne Nickless v. Pegler (supra) at p 239 formulated the test of materiality as follows:-

"A fact is material if it would have
reasonably affected the mind of a prudent
insurer in determining whether he will accept
the insurance, and if so, at what premium and
on what conditions."

He went on to say,

"The word 'reasonably' is necessary to
maintain control over the evidence of
possibly absurdly stringent insurance
practice: see Regina Fur Co. Ltd. v. Bossom
((1958) 2 L1Rep 425). It achieves the
purpose of the 'reasonable assured' test, but
fixes the area of judgment where it properly
belongs - that is, with the insurer. In any
case, it is clear that the evidence of
insurers stands in no position of special
privilege: (Johnson v. Guardian Assurance
Co. Ltd. (supra); Babatsikos v. Car Owners'
Mutual Insurance Co. Ltd. (1970) VR 297 and
Kazacos v. Fire & All Risks Insurance Co.
Ltd. (1970) 92 WN (NSW) 397)."

25. Yeldham J adopted that test in Marene Knitting Mills Pty. Ltd. v. Greater Pacific General Insurance Ltd. (1976) 2 L1LRep 631 and the Privy Council, at p 642, considered the test to be "substantially in accordance with that which has been applied in many previous cases", their Lordships being satisfied that it was the appropriate test in the case. The applicable law as to evidence of materiality is concisely set out in the headnote to Babatsikos v. Car Owners' Mutual Insurance Co. Ltd. (1970) VR 297, a decision of Pape J. The relevant passage from the headnote reads:-

"The burden of proving materiality is on the
defendant.

Evidence of those skilled in insurance
business is admissible on the question of
materiality, and whilst the defendant may
give evidence of his own practice in relation
to the acceptance of the risk in question, in
cases of novelty or doubt this latter
evidence can rarely assist in determining the
question whether the fact in issue would have
been material to a prudent insurer. Although
a defendant is not bound to call evidence to
establish materiality but may rely upon
convincing the tribunal of the fact thereof,
if no evidence of the practice of insurers
generally is called and if the tribunal is
unable itself to determine whether the matter
is material, the burden of proof will not be
discharged."

26. The appellant called no evidence as to the practice of insurers and by its counsel merely submitted that the fact not disclosed was material in the relevant sense. I was not satisfied on the balance of probabilities that this was so, being very much in doubt as to whether it was and therefore unable to determine that the undisclosed fact was material. I gained some, not decisive, support for this conclusion from Babatsikos's Case. There the materiality which was in question was much the same as that in this case.

27. I find, therefore, that the respondent did not fail to disclose a material fact.

28. The appeal must therefore be dismissed and the judgment of the learned Special Magistrate affirmed.