Western Australian Bank v Royal Insurance Co [1908] HCA 11; (1908) 5 CLR 533 (27 March 1908)

The Western Australian Bank Plaintiffs, Appellants; and The Royal Insurance Co. Defendants, Respondents.

This action in its original form was an action by the appellants claiming to be assignees of a policy of fire insurance effected in April 1899 by H. W. Taylor and P. Connolly with the respondents. During the progress of the case, however, it became apparent that the real nature of the plaintiffs' claim, if any, was in respect of a contract of insurance between themselves and the defendants, the terms of which were to be found by reference to Taylor and Connolly's policy. No formal amendment of the pleadings was asked for, but the case was contested, and evidence was adduced, upon this footing.

Various defences were set up. The defendants denied the plaintiffs' right to sue as assignees of the policy, and denied that any fresh contract had been established. They also denied the existence of any insurable interest in the plaintiffs at the time of the loss. They also alleged failure to comply with two conditions of the policy, viz., condition 6, relating to notice and proof of loss, and condition 11, requiring the insured to give notice to the defendants of "any insurance made elsewhere on the property."

The facts of the case, except on one point, appear to be free from doubt. The policy, which was for £650 upon a building at Kalgoorlie, was effected by Taylor and Connolly, the insured, on 10th April 1899, and was to continue in force till 10th April 1900, and so from year to year so long as the annual premium was paid. In 1901 the plaintiffs were Taylor and Connolly's bankers. On 1st February and 23rd August in that year they executed in favour of the plaintiffs two instruments called "general liens," by which they charged to the extent of their indebtedness, inter alia, all fire policies and all property real and personal evidenced by any documents which had been or might be deposited with the plaintiffs by them, or which belonging to them might come into the custody of the plaintiffs. On 13th November 1901 Taylor and Connolly executed a memorandum (indorsed upon the policy of April 1889) in the following terms:—

The policy had apparently been previously deposited with the plaintiffs. On 25th February 1902 the defendants by their agent executed a memorandum (also indorsed on the policy) as follows:—

At this time the premium for the year ending 10th April 1902 had been duly paid. The plaintiffs' claim as assignees was founded upon these two documents. The Supreme Court were of opinion that they did not operate to confer on the bank a right to sue in their own name, and this view was not contested before us.

The renewal premium due on 10th April 1902 was not paid, and the policy, according to its terms, thereupon expired. On 22nd May 1902 the defendants' agent at Kalgoorlie signed a document in the following form:—

It is to be noted that this document is not in the form used for a receipt for a premium upon an existing policy, but is a form apt for a receipt given by an agent for money paid upon a proposal to effect a new insurance, which proposal may or may not be accepted by the principal—which, indeed, was in law the real nature of the transaction. This provisional receipt was followed on 27th May 1902 by another in these words:—

The plaintiffs contend that the effect of these documents was to create a new contract of insurance between them and the defendants upon the terms of the original policy so far as applicable. The Supreme Court rejected this argument on the ground, as I understand them, that this was not the intention of the parties. There was no evidence beyond the documents themselves to show the intention of the parties. Such evidence, indeed, if given, could only be used to show that the documents were not intended to have a contractual effect at all—not to qualify the nature of the contract, if any, disclosed by them.

In my opinion these receipts, properly construed, establish a new contract between the plaintiffs and the defendants upon which the former are entitled to sue in their own name. It was contended before us that from this point of view the receipt of May 1902 ought under the Western Australian Stamp Act to have been stamped as a policy. Probably this is so, but, if the point had been taken before the trial Judge, he could under the Act have allowed it to be stamped then and there, and it is too late now to raise such an objection.

I turn to the other defences, as to which we have not the advantage of knowing the view of the learned Judges of the Full Court.

The objection that the plaintiffs had no insurable interest cannot be sustained. There is, I think, no doubt that under English law a mortgagee has an insurable interest in the mortgaged property, whether the mortgage is legal or equitable. (See per Bowen L.J. in Castellain v. Preston[1]).

Difficult questions, not solved by any English decision, may arise with respect to the extent of his insurable interest, whether it is co-extensive with the value of the property or only with the amount due on the mortgage at the date of the loss, or even a less sum. It is sufficient to say that they do not arise in the present case, since the debtors, Taylor and Connolly, were indebted to the plaintiffs at the time of the fire in a sum exceeding the amount of the policy.

I will deal next with the defence raised under condition 11, which is as follows:—"The insured must give notice to the company of any insurance or insurances made elsewhere on the property hereby insured or on any part thereof the particulars of which must be indorsed on the policy and unless such notice be given and indorsement be made the insured will not be entitled to any benefit under this policy."

It appears that on 18th June 1903 Taylor and Connolly effected a policy in their own name upon the same property with the Commercial Union Assurance Company for £300, and that no notice of this policy was given by the bank to the defendants, nor were the particulars of it indorsed on the policy of April 1899. The defendants contend that this was a breach of the condition, the plaintiffs that the condition does not apply to such a case. On the one hand, it is said that the words "the property hereby insured" mean the building; on the other, that they refer to the interest insured. No doubt, under the contract between Taylor and Connolly and the defendants evidenced by the policy alone they have the former meaning. But it does not follow that in the new contract between the plaintiffs and the defendants evidenced by the receipts they have the same meaning. It may be, indeed, that as between plaintiffs and defendants they would have that meaning in other parts of the policy, and that this may be one of the rare cases in which the same words have different meanings in different parts of the same instrument. But, having regard to the subject matter of the insurance, that is, the bank's interest as mortgagees, I am disposed to think that the words "the property hereby insured" were intended to refer to that interest, and not to the interest of the mortgagors, or to the property regarded as a physical object. If, however, they have the latter meaning, I think that the condition refers only to insurances effected by the insured, and not to insurances effected by other persons.

It is open to argument whether condition 11 applies at all to insurances effected after the date of the principal policy, but I express no opinion on this point.

In this regard I will cite a very cogent argument contained in the judgment of Chancellor Walworth of New York in the case of Ætna Fire Insurance Co. v. Tyler[2] when a similar condition as to prior insurances was under consideration. "No one can suppose for a moment that these underwriters intended to be so unreasonable as to require a person insuring with them, under the penalty of a forfeiture of his policy, to give notice of every insurance which any former owner of the property might have made thereon, although he had no interest in that insurance, and the rights of the company could not in any way be affected thereby; that if there was any such insurance, even in those cases where the fact was notified to the underwriters, the person insured with them should only recover a part of his loss from them, although he had no interest in and could not be benefited by the other insurance. To suppose the underwriters intended that such a construction should be given to this part of the policy, would be to suppose that they intended to entrap those who insured with them. The plain and obvious meaning of the whole clause is, that if the assured has any other policy or insurance upon the property, by assignment or otherwise, by which the interest intended to be insured is already either wholly or partially protected, he shall disclose that fact and have it indorsed on the policy, or the insurance shall be void; and the same where he shall make any subsequent insurance; also, that in case of any such prior or subsequent insurance, although it is notified to the company and indorsed on the policy, the under-writers in the two policies shall contribute rateably to his loss, so that in no event he can recover more than the amount of his actual loss."

The case of Foster v. Equitable Mutual Fire Insurance Co.[3] is to the same effect.

I pass now to the defence raised under condition 6, which so far as material is as follows:—"On the happening of any loss or damage by fire to any of the property insured by this policy the insured must forthwith give notice in writing thereof to the company or its agents and within fifteen days at the latest deliver to the company or its agents at his own expense as particular a statement and account as may be reasonably practicable of the property ... and in support of such statement and account shall produce and give all such invoices vouchers proofs and explanations and other evidence as may be reasonably required by or on behalf of the company ... and in default of compliance with the terms of this condition or any of them no claim in respect of any such loss or damage shall be payable or sustainable unless and until such notice statement account proofs and explanations and evidence respectively shall have been delivered produced and given as aforesaid and such statutory declaration if required shall have been made."

It appears that when the loss occurred Taylor and Connolly's solicitor, who was also the plaintiffs' solicitor, endeavoured to comply with this condition by giving notice of the loss, nominally on behalf of Taylor and Connolly. It appears also that the defendants thereupon repudiated all liability either to Taylor and Connolly or to the plaintiffs. But it does not appear whether this repudiation took place within fifteen days from the loss or not.

The defendants contend that the obligation to deliver the statement within fifteen days at the latest is absolute, or, if not absolute, that there is no evidence of waiver of it by them. The plaintiffs contend that the concluding words of the condition beginning with "unless and until" preclude this construction, which, they say, would give no effect to the latter words.

There is no doubt that, in order to give an intelligent and consistent construction to the condition, it is necessary either to reject the words "at the latest" or else to read the word "until" as not applying (except for fifteen days) to the words "statement and account" which immediately follow it. In the case of Weir v. Northern Counties of England Insurance Co.[4] a condition substantially the same as that now in question, except that the word "unless" was not used, was held to require only that the statement and account should be made before action, and that the words "at the latest" must be rejected. Parker C.J., who tried the present case, followed this decision. In the case of Grau v. Colonial Insurance Co. of New Zealand[5], in which Weir's Case[6] was not cited, the Supreme Court of Queensland arrived at a contrary conclusion on a similar condition. The Full Court of Western Australia expressed no opinion on this point.

The text writers who have written since Weir's Case[7] was decided have referred to it as establishing that such a condition when the word "until" alone is used merely suspends the right of action, so that the failure to render the statement and account within the prescribed time is not fatal.

At the trial, as already said, the actual facts relating to the claim made on behalf of Taylor and Connolly were not fully gone into, and I cannot help thinking that the rights of the parties so far as they depended on this condition were not really considered.

If I felt compelled to adopt the construction contended for by the respondents I should be disposed to think that the case ought to be remitted, on proper terms, for further investigation on this point. But I understand that my learned brothers are all of the opinion that the effect of condition 6 is merely to suspend the right of action. I confess to entertaining some doubt, but I am disposed to take the same view for reasons which I will state very briefly. The sentence beginning "and in default" does not come into operation at all until there has been a failure to comply with the preceding provisions of the condition. In the absence of this sentence the failure would be an absolute bar, and the object of the sentence is to make the bar qualified and not absolute. The words "unless and until" are often used together as words of futurity, and might reasonably be so interpreted by an insurer. The doctrine verba chartarum fortius accipiuntur contra proferentem, although seldom to be resorted to, rests on a solid foundation of justice. If one party to a transaction uses, verbally or in writing, language reasonably susceptible of two constructions, the party to whom they are used may fairly say that he understood them in the sense most favourable to his contention: Ireland v. Livingston[8] (a case of principal and agent).

So far, therefore, from dissenting from the conclusion of my brethren on this point, I am prepared to assent to it.

In my judgment the respondents have failed to establish any of the defences set up, and the appellants are entitled to succeed.

Having regard to the conduct of the case at the trial, the first and the principal question for decision is whether at the time of the loss there was a contract of fire insurance between the plaintiff bank, the appellants, and the defendant company, the respondents. The answer to that question depends, (1) on the fact that the renewal premium for the year beginning 10th April 1902 was not duly paid, and remained unpaid at the time of the alleged new contract, so that in law the policy to Taylor and Connolly had before that time ceased to be in force: Bunyon, 5th ed., pp. 174-178; and (2) on two receipts dated respectively 22nd and 27th May 1902. These receipts have already been read. The first of them is undoubtedly in the form appropriate to the inception of a new proposal, provisionally accepted by an agent. That this is so is made more apparent by a comparison of it with the last previous receipt for a premium accepted to renew the original policy from 10th April 1901 to 10th April 1902, which is in the ordinary form of a renewal receipt. The receipt of 22nd May 1902 shows that the premium deposit was accepted "from Taylor and Connolly, and the W.A. Bank as mortgagees," not for "continuance," but for "insurance against fire." In consideration of it, "such" insurance—i.e., that proposed—is held in force for a period not exceeding 14 days from the issue of the receipt, "subject to the terms and conditions of the company's policies," &c., clearly as if it were then first written on one of their usual proposal forms; and "further acceptance of the proposal" is to be notified by the issue of the receipt by the Perth office. This is signed by the respondents' Kalgoorlie agent. This was followed by another receipt given by the local manager at Perth for the premium of £32 10s. on the form adopted by the respondents for the continuance of policies, but describing the policy as "in the name of Western Australian Bank." It was countersigned by the Kalgoorlie agent and dated 27th May 1902. The next year's renewal premium was in the like form. That was the last receipt, for the hotel was burnt down before another premium became due. The documents, namely those mentioned together with the two indorsements on the policy, to which the Chief Justice has referred, constitute, together with the fact of the failure in due payment of the renewal premium due 10th April 1901, the whole of the evidence to support the appellants' contention that a new contract was made between them and the respondents. The two indorsements on the policy were antecedent to the due date of the 1902 renewal, as they were made in November 1901 and February 1902.

I think there was sufficient evidence to establish a new contract with the appellants in substitution for or in succession to that which the respondents had granted to Taylor and Connolly: Thompson v. Adams[9]. It was argued that the fact that the premiums of May 1902 and April 1903 were paid by Taylor and Connolly, like any other mortgagors, was some evidence that they continued to be the insured. To my mind it is quite immaterial who it was that actually paid them. They were received by the respondents as consideration for an "insurance" (not to call it a contract) which they acknowledged to be in the name of the bank.

It is not necessary to rely on the case of Ellis v. The Insurance Co. of North America[10], though it might be strongly argued that that case and the present one rest on the same principle. Here, at any rate, the central fact that the original policy had lapsed gave the bank, the assignees under it, sufficient reason to propose to substitute a new contract; and that lapse together with the terms of the receipts in my judgment afford material supporting the inference that a contract, in substitution for the assigned policy and embodying the same terms, was concluded, and that this was the intention both of the appellants and the respondents. I think, therefore, that the plaintiffs were entitled to sue in their own name, being the insured.

The next question is whether the appellants, as the insured, had an insurable interest. They were equitable mortgagees of the insured premises under their liens and the deposit of securities. Bunyon on Fire Insurance, 5th ed., at p. 42, summarizes insurable interests as "any legal or equitable estate, or right which may be prejudicially affected, or any responsibility which may be brought into operation by a fire." Of the case of a mortgagee, Bowen L.J., says in Castellain v. Preston[11]:—"If he has the legal ownership, he is entitled to insure for the whole value, but even supposing he is not entitled to the legal ownership he is entitled to insure primâ facie for all. If he intends to cover only his mortgage and is only insuring his own interest, he can only in the event of a loss hold the amount to which he has been damnified. If he has intended to cover other persons besides himself, he can hold the surplus for those whom he has intended to cover. But one thing he cannot do, that is, having intended only to cover himself and being a person whose interest is only limited; he cannot hold anything beyond the amount of the loss caused to his own particular interest." And his Lordship points out that the whole matter is regulated by the doctrine of indemnity. As the Chief Justice has pointed out, the debtors owed the appellants more than the amount of the policy at the time of the loss, so that there can be no problem to solve as to the extent of the mortgagees' insurable interest. They can recover at any rate to the amount of the debt due to them when the fire took place, upon proof and within the value insured. A further defence was raised under condition 6 of the policy, which, if there is a new contract such as I have endeavoured to show, is a condition of that contract. It will be observed that it is almost totidem verbis with the condition which was the subject of the decision in Weir v. Northern Counties of England Insurance Co.[12]. The only difference on which counsel placed serious reliance was that in the present case the words "unless and" are inserted, and precede "until" in the last sentence of the condition. Notice, with a statement and account under this condition, was not sent to the insurers until 17th December, a year after the fire, and as we are told, after the buildings had been reinstated. It was argued that the delivery of the statement, and within fifteen days after the happening of the loss, was a condition precedent to the right to recover. I think Weir's Case[13], so far as it goes, ought to be followed by us. It is now more than 28 years old, and so far as I can learn, has not been challenged during that time, although there must have been many opportunities of raising the question in British Courts. The decision has, no doubt, been followed in the transaction of insurance business throughout the interval, and we should do nothing to disturb it now. Moreover I am strongly disposed to think it correct. For very many years the clause existed without the addition of the words beginning "and in default thereof," and in that state it was repeatedly construed as imposing a condition precedent on the right to recover. No doubt its very plain terms justified that interpretation, which it received in the several instances cited in Weir's Case[14]. The distinct inference from the words was that if the fifteen days had elapsed without delivery of the notice, account, &c., on the part of the insured, he could not afterwards be allowed to sustain his claim. But expressum facit cessare tacitum, and in Weir's Case[15], it was held that the added words "have the effect of only deferring the right to payment until the notice and account are given, and thus enlarging the time." The Court thought that the words had been added with the purpose of defining what should be the consequence of failure to comply with the requirements within the time limited. Instead of saying (as tacitly it had said) that in default no action shall be brought or payment made, it says that no claim shall be payable until such notice and account &c. are given. "Besides," added the Court[16], "the words are those of the company's own form, and the maxim applies, fortius contra preferentem." It was held, therefore, that the delivery of the notice, account, &c., within fifteen days was not a condition precedent.

We have now to inquire what difference is made by the insertion of the words "unless and" before the word "until." I am not disposed to hold that there is any alteration in the sense. The important words are "in default thereof." On failure to deliver the notice, account &c., within the fifteen days, the insured shall have no claim unless he afterwards gives the notice and account and until he gives them. These two things are about equal to one another if we consider their effect after default. It is presupposed that the fifteen days have elapsed without compliance with the requirement. After that time, no claim is to prevail unless and until, &c. Given the end of the fifteen days as the starting point, I doubt whether the addition of "unless" adds to the stringency of the clause. There is, no doubt, an ambiguity, and when we consider also the prior words "at the latest," I do not see how that ambiguity is solved by the application of the ordinary rules of construction. But if that point of intractability is reached we are entitled to apply the maxim verba chartarum fortius accipiuntur contra proferentem: Lindus v. Melrose[17]. Lord St. Leonards, in Anderson v. Fitzgerald[18], said:—"A policy ought to be so framed, that he who runs can read. It ought to be framed with such deliberate care, that no form of expression by which, on the one hand, the party assured can be caught, or by which, on the other, the company can be cheated, shall be found upon the face of it: nothing ought to be wanting in it, the absence of which may lead to such results." And this passage affords the strongest reason for his having said a little earlier, speaking of the policy[19]:—"It is of course prepared by the company, and if therefore there should be any ambiguity in it, must be taken, according to law, more strongly against the person who prepared it." I am therefore content to hold that the clause does not impose a condition precedent as to the fifteen days, and that sufficient notice has been given, there being no other objection taken to it and the accompanying documents.

The remaining question is that raised under condition 11, exacting notice of insurances made "elsewhere" on the property insured, and any such insurance must also be indorsed on the policy.

It is not disputed that the appellants have never given the respondents notice of a certain other policy granted to Taylor and Connolly by the Commercial Union Company for £300 on the same building that their old policy covered, with £50 on furniture. It is equally clear that the original policy bears no indorsement of it. In clause 11, as applied to the new contract, I think the interest (or "property") meant is not such an interest as is the subject of Taylor and Connolly's second policy. The parties have treated the bank's mortgage interest as "the property insured," and it is quite capable of that meaning in its relation to the receipts, from which and from the expiration of the original policy I have held that a new contract of insurance is deducible. It is only the interest of the appellants that can be the subject of that insurance, and although that may be described as property, it remains only the kind of interest which they as mortgagees can insure, and that is not the kind of interest or "property" which Taylor and Connolly have insured. There has been no other insurance of the appellants' interest or of any part of it.

Further, I have grave doubts whether the words "made elsewhere" are so comprehensive as to include insurances of which "the insured" have no knowledge. But it is not necessary to give an actual opinion on that point. As to condition 11, therefore, the respondent company fails as it does on the other questions. On the whole case I think Parker C.J. was right in his judgment at the trial. That judgment should be restored and the appeal be allowed.

The Supreme Court of Western Australia disposed of this case on one only of the various grounds that were argued before us. They came to the conclusion that Taylor and Connolly remained "the insured" within the meaning of the policy, thereby reversing the finding of Parker C.J. on that question. If they were right in that conclusion it would follow that there had been a breach of the 11th condition of the policy which would prevent the plaintiffs from succeeding in the action. But that, in my opinion, was not the right conclusion to draw from the evidence and documents.

The transaction between Taylor and Connolly, the bank, and the insurance company, may be regarded in either of two ways. Either there was an assignment to the bank by consent of the insurance company of Taylor's and Connolly's rights to any moneys which might become payable under the policy, Taylor and Connolly remaining the contracting parties with the insurance company, or there was an arrangement by which a new contract between the bank and the insurance company was entered into by which the bank became the contracting party under the policy instead of Taylor and Connolly. The arrangement between these three parties was in all its essentials reduced into writing.

It is to be found in the receipts given by the insurance company and the memorandum indorsed on the policy in pursuance of clause 5, and the relation of the parties depends really upon the proper interpretation to be put on these writings.

The policy, it will be noted, covered fire risks for a year from the 10th April in one year to 10th April in the following year; and on its renewal in each year it was open to the parties to continue it in any form they thought fit. There might be, I think, good ground for interpreting the assignment of Taylor and Connolly of 13th November 1901 and the respondents' assent of 25th February following, taken together, as amounting merely to an assignment, with the assent of the insurance company, of Taylor's and Connolly's right to receive the policy moneys in the event of their becoming due. The insurance under that agreement expired in April 1902. The renewal took place on the 22nd May 1902, over a month afterwards; and it will be noted that the receipt given by the insurance company's local agent at Kalgoorlie acknowledges payment of the premium by Taylor and Connolly and the bank as mortgagees as on an original proposal for insurance which would begin at the date of the receipt. That document gave an interim cover for fourteen days only.

A receipt was issued by the Perth office of the insurance company in pursuance of the interim cover, and was countersigned on 27th May 1902 by their agent at Kalgoorlie, and the latter document it seems to me must be taken to embody the terms of the contract as finally agreed to. The policy was renewed in precisely similar terms in the following year, the receipt of the Perth office being countersigned at Kalgoorlie on 21st April 1903. It was that insurance which was current when the fire occurred.

According to the interim receipt of 22nd May 1902 the premium had been paid by Taylor and Connolly and the Western Australian Bank as mortgagees. The Perth office's receipt, countersigned on 27th May, embodying the terms of the 12 months' insurance, declares that the premium was received for the continuance of the old policy from 10th April 1902 to 10th April 1903, in the name of the Western Australian Bank. The plain inference to be drawn from these documents, in my opinion, is that the premium was paid by the original policy holders and the bank jointly as the consideration for the making of a new contract by which the insurance company were to hold the Western Australian Bank assured under the terms and conditions of the old policy. In other words, the agreement was that there was to be a new contract under which the person insured was to be the Western Australian Bank instead of Taylor and Connolly. The Western Australian Bank having become the "insured," it follows that the insurance effected by Taylor and Connolly with the Commercial Union Assurance Company was not made by "the insured" within the meaning of the 11th condition. The ground, therefore, upon which the Supreme Court decided against the claim of the appellant bank must fail. But the respondents further contend that, even if the bank are to be taken to be "the insured" within the meaning of the 11th condition, the appellants were bound under that condition to give notice to the insurance company of the second policy although it was effected by Taylor and Connolly.

There are two answers to that objection. In the first place, the condition does not require a notice where the second insurance has been effected by a person other than "the insured." Having regard to the terms of the 12th and 13th conditions, which must be read with the 11th, the latter does not, in my opinion, put the insured under an obligation to notify insurance on the property effected by other parties. If the second insurance were effected by some other person by direction of the insured or for his benefit, or with the knowledge of the insured and in his interest, different considerations would of course arise.

In connection with this aspect of the matter a question of fact was raised as to whether the appellant bank had any knowledge of the second insurance. There was no evidence before the Judge at the trial of any such knowledge. The Supreme Court had before it some additional evidence from which, perhaps, an inference of knowledge on the part of the bank might have been drawn, but it became unnecessary from the course the case took before that tribunal that any conclusion upon that question should be arrived at. So also the bank's knowledge of the second insurance becomes immaterial in view of the second answer to this ground of objection, namely, that the second insurance was not on the same property within the meaning of the condition.

The condition provides that the insured must give notice to the company of any insurance or insurances made elsewhere on "the property hereby insured," and the material question to be determined is whether the second insurance effected by Taylor and Connolly was an insurance "on the property insured." Taking the words in their literal sense no doubt it was an insurance "on the property hereby insured" because the insurance covered the risk of fire on the same building. But the question is in what sense have the words been used in this condition. They must be interpreted in view of the context, and the nature and effect of the contract of insurance. Some observations of Sir George Jessel M.R. in construing a somewhat similar condition in the North British and Mercantile Insurance Co. v. London, Liverpool, and Globe Insurance Co.[20] are worthy of consideration:—

"The word property," he says, "as used in several of the conditions, means, not the actual chattel, but the interest of the assured therein. What is the meaning of the words covering the same property in the 9th condition? They cannot mean the actual chattel. The most absurd consequences would follow if you read those words in that sense. I am satisfied that this condition was put in to apply to cases where it is the same property that is the subject-matter of the insurance, and the interests are the same. It never could have been meant to apply, for example, to the cases of a tenant for life and remainderman, or a first mortgagee and second mortgagee, both insuring the same goods."

Mortgagor and mortgagee may each have an insurable interest in the same building, just as a remainderman, a tenant for life, or a tenant for years, may have. Each may take out a separate and independent insurance on his own interest. In each case the "property insured" is the particular interest of the insured in the building covered by the policy, and, on settlement in the event of fire, none of them could receive for his benefit more than the amount of loss sustained by him in respect of his interest. In America similar words in similar clauses have been for many years interpreted on the same principle as that enunciated by Sir George Jessel. A number of cases in which the meaning of a condition similarly worded was discussed are referred to in the second volume of Hare and Wallace's American Leading Cases, and in a passage at page 899 the result of them appears to be correctly summarized as follows:—"A subsequent will not avoid a prior insurance, unless the parties are the same, nor when the interest covered by the policy is different. Nichols v. Fayette Insurance Co.11 Allen 63.; Cox v. Phœnix Insurance Co.252 Maine 355.; Tyler v. The Ætna Insurance Co.316 Wend. 385.; Mutual Insurance Co. v. Hall42 Comstock 35.. Hence a mortgagee may enforce an insurance effected for his benefit, notwithstanding a subsequent insurance of the premises by the mortgagor. Foster v. Equitable Insurance Co.52 Gray 216.; Woodbury Bank v. The Charter Oak Insurance Co.631 Conn. 517.; and a policy obtained on the freight of the vessel by the consignee, will not preclude the consignor from enforcing a prior policy containing a warranty that there is no other insurance." Applying these principles to the words of this policy, I am of opinion that the second insurance was not "on the property insured" within the meaning of the 11th condition, and that it was not necessary, therefore, for the appellant bank to give notice of it to the respondent company.

It was also contended that the appellant bank have not complied with the 6th condition of the policy, and, therefore, cannot recover. For the purposes of my decision I assume that they did not give notice of the fire "forthwith," and that they did not deliver particulars of their claim within fifteen days, although the questions of facts as to this and the alleged waiver of the condition do not seem to have been really inquired into. It follows that, if compliance with these requirements is a condition precedent to their right to sue, they cannot succeed in the action. The contest between the parties is as to the proper interpretation of the condition. A condition to that effect, though not always in that form, is to be found in practically all fire policies, and, if it were not for the qualifying words of the last three lines, it would come within the class of conditions which have been always interpreted by the Courts as conditions precedent.

The last sentence of the condition is in these words: "and in default of compliance with the terms of this condition or any of them no claim in respect of any such loss or damage shall be payable or sustainable unless and until such notice statement account proofs and explanations and evidence respectively shall have been delivered produced and given as aforesaid and such statutory declaration if required shall have been made." It is the last few words of qualification beginning "unless and until such notice," &c., that create the difficulty. If the qualifying words were omitted, compliance with the requirements in question would be clearly a condition precedent. On the other hand, if the words "unless and" were omitted, there is direct authority for the position that failure to give the notice forth with, or to deliver the particulars and account within the time named, would not deprive the plaintiffs of their right of action, but would suspend it until the condition was in these respects complied with. The qualifying words of the condition in Weir v. The Northern Counties of England Insurance Co.[27] were substantially identical with those of the condition now under consideration, except for the occurrence in the latter of the words "unless and" before "until." The decision in that case has never been questioned, and is quoted as settled law in all the text books on insurance. Lawson J., in delivering the judgment, says[28]:—"Why then are those words added, without which the clause would have had the stringent operation of a condition precedent? Is it not for the purpose of defining what shall be the consequence of failure to comply with the requirements of giving notice and account within the time limited; and instead of saying that in default no action shall be brought or payment made, it says, that no claim shall be payable until such notice and account, etc., are given, thus giving an enlarged time for doing it, provided it is done before the claim is payable? This is the ordinary grammatical construction of the words, and it may well be that those words were added in order to get over in favour of the assured the stringency of the prior words, as interpreted by the cases to which I have referred."

That argument is unanswerable in reference to the condition with which the learned Judge was then dealing, and the same line of reasoning seems to me to be applicable to the condition now under consideration, notwithstanding the words "unless and."

I was at first impressed by Mr. Mitchell's argument that these words made it necessary to construe the qualifying sentence distributively, "unless" being taken in connection with the direction to give notice of the fire forthwith, and to deliver the particulars of loss; "until" being taken as applying to the proofs, explanations, and evidence, which are to be furnished on request. But when the whole clause is examined it will appear that, if that is the meaning of the condition, the qualifying words are surplusage, because without them the different consequences set forth would follow the neglect to comply with the different requirements of the condition respectively.

On the other hand, it is clear that the full meaning cannot be given to the expressions "forthwith" and "within fifteen days at the latest" if the requirements as to notice of the fire and delivery of particulars of loss within fifteen days are not conditions precedent. Indeed, the only way a substantial meaning of any kind can be given to the condition as a whole is to treat its terms as being requirements which the assured undertakes to comply with, the consequence of failure to comply being, not loss, but postponement of the right of action until they have been complied with.

It cannot, however, be denied that such a construction fails to give effect to every word of the condition. It is in fact impossible to find any construction which will give full effect to every word. The case is just one of those in which, by reason of the obscurity of the language used by the parties, a fair adjustment can be made only by the application of the principle of construction embodied in the maxim Verba chartarum fortius accipiuntur contra proferentem which was adopted by Lawson J. in Weir v. The Northern Counties of England Insurance Co.[29].

We were referred to some observations of Sir George Jessel M.R., in which he appears to have expressed a doubt as to whether the maxim could be considered as having any force at the present day. But it is now too firmly established as a rule of interpretation to be seriously questioned, and it has since those observations been judicially recognized and applied in Burton & Co. v. English & Co.[30], by Brett M.R. In the interpretation of insurance policies the maxim has been frequently used in cases where the application of the ordinary rules of interpretation have failed to elucidate the meaning of some obscurely worded condition. In Notman v. The Anchor Assurance Co.[31] the terms of a memorandum indorsed on the back of a life policy giving the assured leave to reside abroad were under discussion. In delivering judgment Cockburn C.J. said[32]:—"Nothing could be more easy than to express that in plain terms in the instrument itself: the permission might be granted for a residence from a given day to another given day. They have not, however, done so here: the permission is given simply for a twelve months' residence at Belize, without specifying any period from which that residence is to date. This instrument being the language of the company, must, if there be any ambiguity in it, be taken most strongly against them."

In Fitton v. The Accidental Death Insurance Co.[33], Willes J. applied the same principle, although he did not refer to it in express terms. He says:—"It is extremely important with reference to insurance, that there should be a tendency rather to hold for the assured than for the company, where any ambiguity arises upon the face of the policy."

In Braunstein v. Accidental Death Insurance Co.[34], the meaning of a condition in an accident policy was under consideration. Blackburn J. in delivering judgment said[35]:—"I quite admit that parties may make what they please a condition precedent, but it must be shewn that they so intended. Here the stipulation is the language of one party, the Company, and verba fortius accipiuntur contra proferentem. No doubt they might have stipulated that no money should be payable under a policy unless the directors obtained any evidence they chose to ask for, but it would require very distinct language, and much stronger than any used here, to show that the parties so intended."

It is abundantly clear from these instances that, in dealing with obscure conditions in policies where, notwithstanding the application of all ordinary rules of interpretation, the meaning of the condition still remains doubtful, the Courts have adopted the governing rule of resolving the doubt by holding against the insurance company, which sought to gain advantage from the condition.

The question of construction may, therefore, be narrowed down to this. The insurance company's interpretation does not give any substantial effect to the qualifying words of the condition. The bank's interpretation, although not giving full effect to the earlier words of the condition, gives some substantial effect to every part of it. Without applying the maxim which I have been discussing, I should have felt bound to follow the latter interpretation. But applying the maxim, as it has been applied in the cases I have cited, I have no doubt that the condition must be construed against the insurance company which prepared the condition, and now puts it forward as a defence against a claim made under the policy. I am, therefore, of opinion that the condition does not make compliance with the requirements in question a condition precedent, and that on that ground of objection also the respondents must fail.

On the whole case, therefore, the objections against the judgment of the learned Chief Justice in the Court below are untenable. In my opinion his judgment was right and the judgment of the Supreme Court of West Australia setting it aside must be reversed, and the appeal upheld.

The Full Court of Western Australia reversed the judgment of Parker C.J. on appeal, on the ground of condition 11 of the policy:—"The insured must give notice to the company of any insurance or insurances made elsewhere on the property hereby insured or on any part hereof the particulars of which must be indorsed on the policy and unless such notice be given and indorsement be made the insured will not be entitled to any benefit under this policy." It appears that in 1903, after the policy, the original insured, Messrs Taylor and Connolly, effected another insurance with another company, and that no notice was given to the defendant company. The position at the time was that Taylor and Connolly had borrowed money from the bank, had lodged the policy with the bank, had given a general lien over this policy and other documents, and had, on 13th of November 1901 by indorsement on the policy, made an equitable assignment to the bank expressly by way of security. The local manager of the defendant company had signed another indorsement stating that the assignment conferred on the bank whatever rights might accrue to Taylor and Connolly under the policy. The Full Court has held that these two indorsements did not pass to the bank the legal title to the policy moneys, and did not make the bank "the insured" within the meaning of condition 11; and if Taylor and Connolly were "the insured" when the second policy was effected, they did not comply with the condition, and they could not, nor could their assigns, recover the policy moneys. I concur with the Full Court in the view that the two indorsements did not of themselves pass the legal title, and did not make the bank "the insured": Buffalo Steam Engine Works v. Sun Mutual Insurance Co.[36]; State Mutual Fire Insurance Co. v. Roberts[37]. I concur with McMillan J. in his view of the case of Ellis v. Insurance Company of North America[38]. There, the interest of the insured was assigned absolutely—not by way of mortgage. The insured ceased thereby to have any insurable interest; and the Court came to the conclusion that the consent of the company could have no meaning unless the intention was to create a new contract on the same terms as the old[39]. But the bank relies on certain subsequent receipts for premiums as showing a new contract between the bank and the company, whereby the bank became "the insured." There is a receipt of the company dated 27th May 1902 as follows:—"Received the undermentioned premium for the continuance of policy No. 7213012 of this company in the name of Western Australian Bank insuring the sum of £650 for twelve months from 10th April 1902 to 10th April 1903." It will be noticed that this premium was received after the due date, and dated back to it. There was a similar receipt given on 21st April 1903 for the year 10th April 1903 to 10th April 1904. The fire occurred on 16th of December 1903. Now, I can give no other meaning to these receipts than that the defendant company insure the bank as they had insured Taylor and Connolly; and on the conditions which appear in the policy. The name of the bank is to be substituted for the names of Taylor and Connolly; but the terms of the contract are to be the same as in the expired policy. This is the substantial effect of the receipt. The bank becomes the contracting party with the company. The bank becomes "the insured." There was no need for a novation in the strict sense. The contract of insurance made with Taylor and Connolly had expired, and the bank was now insured on the same terms. It is true that the premiums for which these receipts were given were paid out of rents which Cross—agent for the defendant company and also for Taylor and Connolly—collected for Taylor and Connolly. It does not appear whether the rents were collected from properties subject to the bank's general lien; nor does the reason appear for the substitution of the bank as the insured. But the payment of the premium was made on behalf of the bank; and the bank has ratified the transaction. It is also true that the statement of claim does not treat the receipts as being fresh contracts with the bank, and speaks of the plaintiff as "renewing" the policy by paying the premiums for April 1902 and April 1903. But the receipts are in evidence; there has been no surprise on the defendants; the case of new contract was fully discussed in Perth before and by the Full Court; and it would be a ridiculous technicality, as well as unjust, to refuse now to give to the receipts their full effect.

But the defendant company urges that, under condition 11, the bank, even if it is to be treated as the insured, is under a duty to give notice of any insurance effected by anybody, at all events if it knows the particulars. I cannot find any sufficient evidence that the bank knew the particulars of the second policy; and indeed the learned Chief Justice at the trial found expressly that it did not know. But I am prepared also to hold that condition 11 does not apply to policies effected by others than the insured. In the next succeeding conditions, where the parties refer to other insurances, they expressly add the words "whether effected by the insured, or by any other person;" and the fair inference is that condition 11 refers to insurances effected by the insured. No explanation whatever has been suggested of the difference in language in these conditions on the defendants' interpretation. Cases can easily be suggested of extreme injustice should an insured lose his right to policy moneys because of some other person effecting an assurance without his knowledge; and it is laid down that we are to avoid a construction which will produce injustice "if another and more reasonable interpretation is present in the Statute:" Knowlton v. Moore[40]. Mr. Mitchell, indeed, felt the force of this consideration, and suggested a limitation of the section to the case of another policy effected with the knowledge of the insured. But the context does not refer to knowledge, and does not warrant the insertion of any such words of limitation. The condition must, in my opinion, mean either all policies by whomsoever effected, or policies effected by the insured; and, as Jessel M.R. says in North British and Mercantile Insurance Co. v. London, Liverpool, and Globe Insurance Co.[41], it is our duty, if the words admit of a reasonable construction to adopt it, rather than a construction equally admissible but absurd or unlikely. "You must read the condition in a sensible way, and not assume that these great companies intended to entrap their policy-holders and to destroy the value of the contract of indemnity by reason of the accidental contract of somebody else, which had no connection with the subject-matter of the contract, or with the price paid for the insurance."

As to condition 11, I think I ought to say that I do not rely for my judgment on the view that "the property insured" means the interest of the mortgagee in the property, and that the second insurance effected by Taylor and Connolly was therefore not within the terms of the condition. The words of Jessel M.R. just quoted were directed to a peculiar policy in which it was clear that in several of the other conditions the word "property" meant, not the actual chattel, but the interest of the assured therein; and he came to the conclusion that this same meaning was carried on into condition 9. But in this policy, contract and conditions, there is not to be found any instance of such a meaning. The "property" is always the iron building—"The Tasmanian Hotel"; and, so far as I can find, there is no place in the policy or conditions in which the word is used as referring to a mere interest (see policy and conditions 1, 2, 3, 5, 6, 8, 9, 10). In short, the meaning of the word "property" in the London and Liverpool policy is not a guide to the meaning in this policy. Of course, each policy has to be construed according to its own language. As for the new contract made with the bank, the word "property" is not used in the final official receipt—the document that binds the parties; but, as it provides for the "continuance" of the former policy, it must be read as applying to the same property.

There appeared to be a formidable objection to the bank's claim in paragraph 11 of the defence—that the bank had not forthwith after the fire given notice thereof to the defendant company, or within 15 days delivered to the company a statement and account, as prescribed by condition 6. The evidence is not very distinct as to notice, but there is no doubt that the statement and account were not given within 15 days after the fire. Condition 6 is very long, and in parts very obscure. But, for the present purpose, it is sufficient to say that it prescribes notice "forthwith," and a statement and account within 15 days, showing the property destroyed, the value, the loss, the interest of the insured, &c.; and the insured is to give such proofs, explanations and evidence as may be required, and, if required, a statutory declaration as to truth. If condition 6 had stopped here, there is little doubt that the delivery of the statement and account within the 15 days would be a condition precedent to the right to recover: Roper v. Lendon[42]. But the words which follow state the consequences of failure to comply with the course prescribed:—

It is urged that by force of such a condition the insured must within fifteen days give all the particulars prescribed, or lose all right to the policy moneys—even if he happen to be in England when the fire occurs in Kalgoorlie. If such is the meaning, the subordinate sentence beginning "unless and until," and indeed all the words beginning with "and in default" are unnecessary. The previous words made the policy useless, unenforceable; what more do these words effect? To give effect to all the words of the condition, it seems to me that the claim is not payable or sustainable unless and until the notice, statement, &c., be delivered. The policy is useless only until the notice, statement, &c., have been supplied. No action can be brought until they have been supplied. The position of the words "as aforesaid" certainly tend to show that they relate to the verbs "delivered produced and given," and not merely to the nouns "notice statement," &c. But there is no necessary inference that "as aforesaid" relates to the time prescribed for giving the notice, &c., as well as to the description of and the manner of giving the notice. It is purely a question of construction of the conditions of this particular policy, and I do not place much reliance on any decision under a policy which contains conditions similar but not the same; but the decision and the reasoning in Weir v. Northern Counties of England Insurance Co.[43] are favourable to the view that the notice, statement, &c., may be given after the time specified, but before action. Personally I do not attach much practical importance to the maxim, verba chartarum fortius accipiuntur contra proferentem. I think that contracts ought to be construed in the same way whether they are framed or put in evidence or relied on by one party or the other. In many cases the verb proferentem seems to be treated as if it referred to the drafting or framing of an instrument: Broom's Legal Maxims, 7th ed., pp. 441, &c. I do not know on what grounds. I confess that I am in sympathy with the words of Jessel M.R. in Taylor v. St. Helen's Corporation[44] on the subject of this rule of construction. The maxim is taken from a bundle of maxims collected in Coke Litt., 36a; and it is followed by a maxim equally sound, no doubt, and equally valuable: Generalia verba sunt generaliter intelligenda. If the maxim in question means merely that a document written by A. is to be read as outsiders would read it, and not as A. would read it, the doctrine is true, but trite, and not warranted by the words used. Yet if the maxim is applicable as the last resort in construction, it certainly ought to be applied to such a condition as this in a policy, inasmuch as the insurance company frames the language of the conditions in its own way and in its own interest. I am of opinion that the defendants fail as to this defence also.

A further defence might possibly have been raised under condition 3—that the bank was not the legal owner of the land and buildings—that it held only a general lien; and that it did not expressly describe its position. But this defence has not been raised by the pleadings or urged by the company at the bar; and I pronounce no opinion with regard thereto. On these grounds I concur in the judgment.

Appeal allowed. Order appealed from discharged. Respondents to pay costs of appeal.

[1] 11 Q.B.D., 380, at p. 398.

[2] 16 Wendell, 385; 30 Amer. Dec., 90, at p. 97.

[3] 2 Gray (Mass.), 216.

[4] 4 L.R. Ir., 689.

[5] 2 Q.L.J., 53.

[6] 4 L.R. Ir., 689.

[7] 4 L.R. Ir., 689.

[8] L.R. 5 H.L., 395.

[9] 23 Q.B.D., 361.

[10] 32 Fed. Rep., 646.

[11] 11 Q.B.D., 380, at p. 398.

[12] 4 L.R. Ir., 689.

[13] 4 L.R. Ir., 689.

[14] 4 L.R. Ir., 689, at pp. 691, 692.

[15] 4 L.R. Ir., 689, at p. 692.

[16] 4 L.R. Ir., 689, at p. 693.

[17] 3 H. & N., 177, at p. 182.

[18] [1853] EngR 872; 4 H.L.C., 484, at p. 510.

[19] [1853] EngR 872; 4 H.L.C., 484, at p. 507.

[20] 5 Ch. D., 569, at p. 577.

[21] 1 Allen 63.

[22] 52 Maine 355.

[23] 16 Wend. 385.

[24] 2 Comstock 35.

[25] 2 Gray 216.

[26] 31 Conn. 517.

[27] 4 L.R. Ir., 689.

[28] 4 L.R. Ir., 689, at p. 692.

[29] 4 L.R. Ir., 689.

[30] 12 Q.B.D., 218, at p. 220.

[31] 4 C.B.N.S., 476.

[32] 4 C.B.N.S., 476, at p. 481.

[33] [1864] EngR 591; 17 C.B.N.S., 122, at p. 134.

[34] 1 B. & S., 782.

[35] 1 B. & S., 782, at p. 799.

[36] 17 N.Y., 401.

[37] 31 Pa., 438.

[38] 32 Fed. Rep., 646.

[39] See 17 N.Y., 401, at p. 407.

[40] 178 U.S., 41 at p. 77.

[41] 5 Ch. D., 569, at p. 577.

[42] 1 El. & E., 825.

[43] 4 L.R. Ir., 689.

[44] 6 Ch. D., 264.

High Court of Australia

Western Australian Bank v Royal Insurance Co [1908] HCA 11; (1908) 5 CLR 533 (27 March 1908)

HIGH COURT OF AUSTRALIA