Eric Y Twerd and Associates Pty Limited v Qbe Insurance Limited [1987] ACTSC 50 (17 July 1987)

SUPREME COURT OF THE ACT

ERIC Y. TWERD AND ASSOCIATES PTY LIMITED v. QBE INSURANCE LIMITED
S.C. No. 556 of 1986
Insurance

COURT

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

CATCHWORDS

Insurance - Dispute as to extent of cover - non-disclosure - Whether material.

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

HEARING

CANBERRA
17:7:1987

ORDER

There be judgment for the plaintiff for damages to be assessed.

DECISION

The plaintiff claims damages from the defendant alleging breach by it of a contract of insurance made between the parties. It is not in dispute that, before the fire which gave rise to a claim under the policy, the defendant issued to the plaintiff what it called an "Office Umbrella Policy" numbered 57375747 (the policy). The policy was tendered and became Exhibit "A". It was contained within a cover. The front sheet of the cover bore the name of the defendant and its place of incorporation, a logo beneath which there appeared the initials "QBE" and the title "Office Protection Plan". Within was a document headed "Office Umbrella Policy Schedule" addressed to the plaintiff but showing the name of the insured as "Eric Y Twerd & Associates Pty Ltd". It showed the risk insured as that of an insurance agent, its situation as 99 London Circuit Canberra City and the initial period of insurance as from 15 January 1983 to 15 January 1984. It then set out the following:-
"Sum Insured AS PER ATTACHED $12000

$500000"

Next there followed the amount of the premium, stamp duty and the total of those two amounts and the date and place of issue - 5/4/83 at the Canberra Branch. The policy was signed on behalf of the defendant.

2. A copy of the next document within the folder, which was headed "The Office Umbrella Schedule of Insurance", is annexed to these reasons and marked with the letter "A". In that document the amount of the sums insured and the ticks were in what appears to be ballpoint ink.

3. In due course the application for the policy which had been signed by Mr Twerd was tendered and became Exhibit 2. The application sought insurance under the policies numbered 1, 2, 3 and 7. The amounts of the premiums noted on the application form as payable in respect of the policies in question together with the stamp duty payable in respect of each totalled $278.63. I am satisfied, therefore, that the policy when initially issued insured against loss or damage of the contents of the office in an amount of $10,000, against loss or damage to records and documents in an amount of $2,000 and in respect of loss of income and additional expenditure in a sum of $40,000.

4. But the plaintiff alleged that in June 1983, on the advice of Mr Desmond whom it alleged was a duly appointed representative of the defendant, it increased the coverage pursuant to the policy. The defendant did not admit that there had been such an increase and led evidence in an attempt to show that it depended upon certain payments to be made by the plaintiff and these had not been made. Counsel for the plaintiff objected to that evidence on the basis that there was nothing in the pleadings to support it. Thereupon I gave leave to the defendant to amend its defence in that regard but on the following morning, through its counsel, it elected not to do so and proceeded to deal with the allegation on the material then before me. That material satisfies me that the defendant, through Mr Desmond, whom I find to have been duly authorised in that behalf, increased the amount of the cover under the policy so that loss or damage to contents was insured against up to an amount of $30,000 while loss of profits was insured against up to an amount of $60,000.

5. On or about 10 July 1983 the plaintiff's premises were damaged by fire and it made a claim for loss and damages pursuant to the policy which the defendant refused to accept. In its defence it says that by letter dated 11 August 1983 it avoided the policy on the basis of non-disclosure of material facts. It alleged that the plaintiff did not either before or at the time of the negotiations for the insurance effected by the policy disclose to the defendant all the material facts relating to it of which it knew or ought to have known. Particulars of the material facts, the non-disclosure of which was relied upon, were given. In the particulars set out in the amended defence, the name of the director who actually failed to make the disclosure was shown as "Varaslow Eric Twerd". Giving evidence, Mr Twerd gave his name as Eric Yaroslav Twerd. I am satisfied that the same person is meant in each case.

6. Particulars of the material facts were given as follows:-

"(a) After June 1981 VARASLOW ERIC TWERD a
Director and Shareholder of the
(plaintiff) had a fire claim with
Mercantile Mutual Insurance Limited to
the order of $2,500.00.

(b) The said VARASLOW ERIC TWERD had
criminal convictions in the Australian
Capital Territory and the States of New
South Wales and Queensland as follows:

IN THE COURT DATE

Queanbeyan CC 4/6/52 Stealing

Queanbeyan CC 6/1/54 Break enter & steal

Ashfield CC 15/8/55 Evade rail fare

Queanbeyan CC 22/11/55 Break enter & steal

Queanbeyan CC 22/6/57 Shoot firearm in street

Canberra PS 6/2/59 Illegal use of motor vehicle

Brisbane 9/6/59 Stealing with actual violence

Brisbane 9/6/59 Break and enter dwelling
house with intend

H M Prison Brisbane 25/7/62 Breach of Prison regulations

H M Prison Brisbane 20/9/66 Breach of Prison regulations

Canberra PS 20/10/67 Illegal use of motor vehicle

Canberra PS 22/4/76 Unlicensed guns"

7. The defendant also alleged that the application for the policy submitted by Mr Twerd to the defendant and signed by him on behalf of the plaintiff included the following question:-

"10. During the last 5 years have you or any
business in which you held or hold a
financial interest had a loss of the
type for which you now wish to insure?"

The question was answered "No".

8. The defendant alleges that the answer was false as Mr Twerd, the principal shareholder and director of the plaintiff, had had the loss in respect of which the claim against Mercantile Mutual Insurance Company Limited of the order of $2,500.00 was made.

9. I will deal with the allegedly false answer first.

10. I am satisfied that the form of application for the policy did contain a question in the form set out above and that it was answered "No".

11. The evidence established to my satisfaction that in 1976 Mrs Gena Vera Twerd, then the wife of Mr Twerd but now divorced from him, owned for practical purposes the contents of their house at 89 McCrossan Crescent, Latham. No doubt some of Mr Twerd's personal possessions were in the house and in that limited sense he might have been said to have had an interest in the contents of the house. I am satisfied, however, that it was only in that limited sense and no more.

12. There was a considerable dispute at the hearing as to whether a policy in respect of the contents of that house had been issued by Mercantile Mutual Insurance Company Limited to Mrs Twerd or to Mr and Mrs Twerd jointly.

13. During the course of his evidence counsel for the plaintiff sought to tender through him a photocopy document which was marked for identification "H". He described that document as an instant pack policy. He said:-

"You have three copies, the original, the top
part, handwritten, of course, would go to
Mercantile Mutual. The second would go to
the insurance broker and the third would go
to the client or to the mortgage, whoever
the case may be, if it was a building. The
reason why I have that document is because
that was put on my account, it was sent to me
to be delivered to my former wife, and it was
in the Court for my files."

14. He identified all the handwriting on the document, except the signature which was that of his former wife, as his. Near the bottom appeared the following - "Y E Twerd 17051". That represented his account number with Mercantile Mutual. He explained the presence of his name and account number as follows:-

"Because all the insurance that was paid on
the house of my wife and contents, or any
other insurance, we had the car insurance,
was taken out of my commission account. It
was not paid. In other words, we did not pay
any money, it was taken out of my commission
account. It was not paid. No, we did not
pay any money. It was taken out of my
commission account."

15. Tender of the photocopy document was objected to on the ground that it was a copy and there was no satisfactory explanation of the absence of the original. The evidence given by Mr McNeil, Regional Manager of Mercantile Mutual Insurance Company Limited since December 1984, satisfied me that on the balance of probabilities the original proposal of which MFI "H" was a copy had been destroyed under instructions from Mr McNeil seeking to create more space for storage of records in the Canberra branch of his company.

16. I am satisfied, therefore, to accept the document marked for identification "H" as an exhibit in the proceedings and from that I am satisfied that the policy on the contents of the house at 89 McCrossan Crescent, Latham was in the name of Gena Vera Twerd. This conclusion is supported by Exhibit "J", an account for the premium payable to renew Merc Pack Policy No. 12 MP 001741-4 covering contents for $21,000 at 89 McCrossan Street, Latham, A.C.T. The account is addressed to Mrs Twerd.

17. I have taken into account the document, Exhibit 3, a renewal notice in respect of policy No. 12 MP 001741-4 said to have expired on 6 December 1981 but I am satisfied in all the circumstances that Mr Twerd's version of what happened is correct, that the policy was issued in the name of his wife only and that because of his dealings with Mercantile Mutual Insurance Company Limited somehow confusion arose and as a result the records indicated incorrectly that the policy in question was in the name of husband and wife.

18. I accepted Mr Twerd's evidence that he lodged a claim form on behalf of his wife in respect of the damage which occurred on or about 28 July 1981 and I find that in due course a cheque was made payable to him and his wife by Mercantile Mutual Insurance Company Limited in satisfaction of the claim. I find, however, that he made the claim in his capacity as broker and that his wife received the full proceeds of the cheque in settlement of the claim, he receiving nothing on that account.

19. I have noted the circumstance whereby he appears to have indicated in his claim made in respect of the damage the subject of this action that he had made a claim on his own account in respect of the fire which took place on or about 28 July 1981 but I do not think this vitiates the findings I have made above.

20. I think these findings are sufficient to dispose of the defence under paragraph 4(a) and 5 of the amended defence. I should say, however, that I do not doubt that had he really had an interest in the contents of the house which were damaged in the fire on 28 July 1981 a claim by him in respect of that interest ought to have been disclosed. The application form in respect of the policy was in a form likely to direct the attention of the proponent to claims by the business for whose benefit the proposal for insurance was being made but I am satisfied that had Mr Twerd himself had a claim in respect of the fire on or about 28 July 1981 it should have been disclosed to the defendant.

21. Before departing from this question I should note that exhibit "H" shows the policy number as 17MP0017413 and not 17MP001741-4, the policy number that appears on Exhibit "J" and on Exhibit 3. However, it is not suggested that there were two policies covering the contents at 89 McCrossan Crescent, Latham, each in the sum of $21,000 and it seems to me to be most unlikely but that the different numbers represent simply an error.

22. I turn to the defence relating to non-disclosure of Mr Twerd's criminal record.

23. I am satisfied that he had a criminal record and that it is set out fairly accurately in the amended defence. There are, however, some errors in that pleading.

24. On the first five occasions on which Mr Twerd came before the Court he was dealt with summarily in either the Queanbeyan Children's Court or the Ashfield Children's Court under the Child Welfare Act 1939-1956. Findings of guilt but not convictions would have been recorded against him. The charge of shooting a firearm in the street was dealt with on 22 May 1957, not 22 June 1957. He was not dealt with on 6 February 1959 for illegal use of a motor vehicle. It was not until 20 October 1967 that he was dealt with for that offence which was committed on 30 December 1958. The defence does not disclose that on 9 June 1959 he was dealt with not just on one charge of stealing with actual violence but on two and not with one charge of breaking and entering a dwelling house with intent but on 11 counts. On the charge of stealing with actual violence he was sentenced to four years imprisonment with hard labour on the first count and four years imprisonment with hard labour on the second count, the sentences to be cumulative. On each of the charges of breaking and entering a dwelling house with intent he was sentenced to two years imprisonment to be served cumulatively with the sentences imposed for stealing with actual violence. On 17 July 1959 his application for leave to appeal against the convictions on 9 June 1959 resulted in the quashing of the sentence of imprisonment of four years hard labour on the first count and the substitution of a sentence of imprisonment for six years hard labour for it and quashing of the sentence of four years imposed in respect of the second count and the substitution therefor of a sentence of eight years, the sentences to be served concurrently. The sentences for housebreaking were not disturbed but were to be served concurrently with the sentences for stealing with actual violence. The breaches of prison regulations could not have been very serious. For the first he was sentenced to two days in solitary confinement and for the second to seven days imprisonment to be served cumulatively with the sentences earlier imposed. I think they may be ignored as, too, may the offence in 1976 relating to unlicensed guns.

25. Except, therefore, for the breaches of prison regulations and the charge dealt with in 1976 relating to possession of unlicensed guns, all Mr Twerd's convictions or findings of guilt were in respect of offences committed before he reached his 19th birthday. He was born on 6 October 1940.

26. I am satisfied that Mr Twerd did not disclose the convictions or findings of guilt recorded against him to the defendant or to anyone on its behalf.

27. I accept that the test of materiality is that laid down by Samuels J. (as he then was) in Mayne Nickless Ltd v. Pegler (1974) 1 NSWLR 228, at p 239 when he said:-

"Accordingly, I do not think that it is
generally open to examine what the insurer
would in fact have done had he had the
information not disclosed. The question is
whether that information would have been
relevant to the exercise of the insurer's
option to accept or reject the insurance
proposed.

It seems to me that the test of materiality
is this: 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."

See also Marene Knitting Mills Pty Ltd v. Greater Pacific General Insurance Ltd (1971) 2 L1 LR 631 at p 638 and Carowners Mutual Insurance Co Ltd v. Buckley (1986) 81 FLR 424 at pp 430-1.

28. Jeffrey Charles Ford, a very experienced insurance executive, gave as his opinion that a prudent underwriter, as at January 1983, having regard to the criminal record of Mr Twerd would have regarded those matters as material in determining whether to accept or reject the risk of the type proposed. That evidence was not, in my opinion, qualified in any way in cross-examination.

29. I refer to Schoolman v. Hall (1951) 1 Lloyd's Rep 139, Regina Fur Co. v. Bossom (1957) 2 Lloyd's Rep 466 and Roselodge Ltd v. Castle (1966) 2 Lloyd's Rep 113. These cases I take as authority for the proposition that a proponent should disclose a record of serious offences of dishonesty where the dishonesty of which he or one whose activities might be relevant was guilty is of particular relevance to the risk in respect of which the insurance is sought.

30. Counsel for the plaintiff submitted that the phrase "a prudent insurer" used by Samuels J. in his judgment in Mayne Nickless Ltd v. Pegler (supra) meant the insurer concerned, that to which the proposal was made. I am unable so to construe his Honour's words. In my opinion he intended the phrase to refer to any prudent insurer to whom a proposal for insurance of the kind in question might be made.

31. In Barclay Holdings (Australia) Pty. Limited v. British National Insurance Company Limited (an unreported judgment of the Court of Appeal in New South Wales delivered on 3 April 1987) Kirby P. said:-

"I would read the test in Pegler to require
that the effect on the mind of the insurer,
to which Samuels J. was referring, should be
something more than the effect produced by
information which the insurer would have been
generally interested to have. If, though
interested to have it, such information would
not, in the end, have determined for a
reasonably prudent insurer the acceptance or
rejection of insurance, the setting of the
premium or the attachment of conditions,
there is not such effect on the mind as
requires disclosure by the insured. The
information, although of interest, is not
material. As such it is not information
which must be disclosed by the insured."

32. I refer also to Cramp v. Government Insurance office of New South Wales (an unreported decision of the Supreme Court of New South Wales, Clarke J. (as he then was), delivered on 17 August 1984). His Honour said:-

"I must, however, bear in mind that the
question of materiality is essentially a
question of fact and that I am not bound, as
the Defendant submitted, to act in accordance
with the expert evidence."

Later he said:-

"In particular it is open to me to reject the
evidence of the expert witnesses and still
determine the question of materiality."

33. I am reminded of the old shepherd's saying in Act III, Scene III of Shakespeare's "The Winter's Tale" where he said:-

"I would there were no age between ten and
three-and-twenty, or that youth would sleep
out the rest; for there is nothing in the
between but getting wenches with child,
wronging the ancientry, stealing, fighting."

34. It seems to me that offences committed so long ago, although serious, should not now be taken into account as material by a prudent insurer in assessing the risk of an insurance proposed to him by the plaintiff.

35. Immediately after the passage from his judgment in Mayne Nickless Ltd v. Pegler quoted above, Samuels J. said, at p 239:-

"The word 'reasonably' is necessary to
maintain control over the evidence of
possibly absurdly stringent insurance
practice: see Regina Fur Co. Ltd. v. Bossom
(supra). 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:"

36. If the defendant's contention as to the materiality of Mr Twerd's convictions for serious offences, and of course they were serious, were to succeed, there would, in my opinion, be too stringent a test, perhaps not absurdly stringent, but too stringent nevertheless. The twenty four years which elapsed between the commission of the last serious offence before Mr Twerd was nineteen and the proposal in question is, I think, too long to allow the defence of materiality to succeed. This is particularly so when no questions concerning criminal offences were asked of the proponent plaintiff.

37. There will accordingly be judgment for the plaintiff for damages to be assessed.