Curwoods Case Note
Judgment date: 18 May 2010. Sagacious Legal Pty Limited v Wesfarmers General Insurance Limited (No 4) [2010] FCA 482. Federal Court of Australia.1
In Brief
- The Federal Court of Australia has jurisdiction to determine a claim under a Motor Vehicle Policy where the case involves rights and liabilities under a contract of insurance that owed their existence to the Insurance Contracts Act 1984 (ICA), being federal legislation.
- The insured made fraudulent misrepresentations by way of non-disclosure of previous license cancellations and/or convictions. It was obvious that such representation would impact the insurer's decision to provide the policy. The insurer was entitled to reduce its liability to nil under s 28(3) ICA.
- If a policy excludes cover in circumstances where a driver's blood alcohol level is over the legal limit within two hours of an incident, and a blood alcohol reading is available to this effect, this exclusion clause will apply because of the reading so found and not necessarily that the driver was affected by alcohol at the time of the incident.
- Section 37 of the Road Transport (Safety and Management) Act 1999 (NSW) provides that a blood alcohol reading of a driver on its own cannot be used to determine that a driver was under the influence of intoxicating liquor, however the results of a certificate can be used as evidence that the person's blood contained a particular level of alcohol.
Background
On 16 January 2008, a Mercedes Benz motor vehicle owned by Sagacious Legal Pty Ltd (plaintiff), and being driven by a nominated driver, left the road whilst travelling above 80 kilometres per hour, hitting two trees and rolling over onto its roof. The car was a write-off and the plaintiff sought the indemnity value of the vehicle in the sum of $173,000, under its insurance policy held with Wesfarmers General Insurance Limited (defendant).
The defendant denied indemnity to the plaintiff on three grounds:
- The plaintiff had breached its duty of disclosure under s 21 of the Insurance Contracts Act 1984 (Cth) (ICA);
- The vehicle was being driven whilst the driver was "under the influence of intoxicating liquor";
- An analysis of the driver's blood taken within two hours of the accident contained a percentage of alcohol that exceeded the legal limit prescribed in the law of New South Wales, such circumstance being excluded by the policy.
Federal Court Decision
Jurisdiction
The plaintiff brought these proceedings in the Federal Court to challenge the insurer's decision to deny indemnity.
The court held that the Federal Court had jurisdiction because the case involved :
- the extent of the insured's disclosure under ICA;
- whether a statement made as to the driving record of a nominated driver was a misrepresentation;
- whether there was a breach of the policy condition relating to driving whilst under the influence of intoxicating liquor; and
- whether the insurer was entitled to avail itself of its rights under ICA by reason of these matters.
The judge held that as the ICA was federal legislation, jurisdiction was conferred on the Federal Court because the case involved the determination of rights and liabilities under a contract of insurance that owed their existence to a federal law, namely the ICA.
Misrepresentation
Rares J stated that by reason of s 21 of the ICA "an insurer has an interest in the individual history and claims records of each person who seeks insurance with that insurer and, in a case like this, of each nominated driver for whom the insured seeks cover".2
Both nominated drivers completed the driver's declaration. In response to the question: "Have you had insurance or driving license declined, cancelled, or special terms imposed?", they answered "Yes", with a handwritten notation of "three years" to the left hand side of the question response. The question itself, however, had no time limitation imposed. The proposal asked the proponent to provide details if her response was "yes". The proponent listed a mid range PCA conviction. There was no mention of an earlier drink driving charge and resulting licence cancellation.
The proponent gave evidence of being advised in a phone conversation with a representative of the underwriting agent, that only disclosure of offences and claims for a three year period need be provided.
The insurer's representative to whom the proponent spoke gave evidence that she would not have told any inquirer that the disclosure in relation to a cancellation or suspension of a license could be given or confined to the last three years as this information was fundamental to the issuing of the policy.
Section 21 of the ICA says that an insured has a duty to disclose to the insurer every matter that in the circumstances a reasonable person knows would be a matter relevant to the decision of the insurer when determining whether to accept the risk of the insured.
Rares J found that the nominated driver had consciously misrepresented her driving record and that as a result of that untrue representation the nominated driver had been accepted under the policy. He held that the insurer would not have accepted the risk of the nominated driver if the proponent had disclosed a 1999 conviction for DUI and cancellation of her driver's license.
Section 26(2) of the ICA says that a statement shall not be taken to be a misrepresentation unless the person who made the statement knew or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk. Rares J held that the reason for the misrepresentation was that the proponent knew that the policy would not extend to her if that information was provided.
The plaintiff argued that the answer to the question in the proposal was obviously incomplete, and therefore the insurer should have been on notice that the answer was not a complete representation and the insurer was deemed to have waived disclosure (s 21(3)(b) ICA). Rares J did not accept that the responses were necessarily and obviously incomplete so as to put the insurer on notice and found that "if (the proponent) had made a true representation or a proper disclosure of (the) conviction and cancellation of her driver's licence, (the insurer) would have rejected ( the ) nominated driver".
The defendant was entitled to reduce its liability to nil under s 28 of the ICA. Had the defendant known of the prior DUI and licence disqualification it would not have accepted the risk.
Exclusion
The policy excluded claims where the vehicle was being driven by a person whilst under the influence of liquor or whose blood percentage of alcohol was in excess of the legal limit prescribed by law as indicated by analysis within 2 hours of the event causing the loss.
Rares J held that:
Therefore a reasonable and definite inference that either of those two criteria had been met was necessary in order for indemnity to be denied on the basis of drink driving.
The judge found that on the evidence he was satisfied that the nominated driver was driving the vehicle whilst under the influence of alcohol and the insurer was entitled to rely on the exclusion.
The judge then considered the exclusion concerning the blood analysis and s 37(2) of the Road Transport (Safety and Management) Act 1999 (NSW). The plaintiff argued that the application of this section prohibited the admissibility of a certificate indicating the blood alcohol reading of the driver.
Section 37(2) of this Act provides that:
Section 37(3) states that nothing in the above section precludes the admission of any other evidence to show a fact referred in the sub section.
Rares J refers to a decision of Territory Insurance Office v Lemmens3, which held that s 37(2) did not prohibit the results of an analysis being admissible to prove that the blood had a particular concentration of alcohol.
Rares J found that s 37 does not make the results of analysis of blood inadmissible for all purposes and that the results are not evidence that the person was under the influence of alcohol or affected in any particular or general way by it, or that he or she was incapable of driving or exercising effective control over the vehicle, but it is evidence that the person's blood contained a particular level of alcohol.
For the purposes of the alcohol related exclusion clauses in the insurance policy, Rares J held that the exclusion in relation to a finding of a blood alcohol level over 0.05 certified by an analyst's certificate operates irrespective of whether the person was in any way affected by alcohol at the time of the accident. The certificate was admissible to prove, and on the evidence did prove, that in respect of the driver a blood analysis taken within 2 hours of the accident showed a percentage of alcohol in excess of the legal limit, and thereby the claim was excluded.
Implications
The decision will alert claimants to the ability to bring proceedings against insurers in the Federal Court which, although always available, has not been commonly undertaken.
If a proposal contains clear questions about the risk and the person responsible for underwriting the risk presents well in giving evidence an insurer may reduce its liability to nil under s 28(3) of the ICA.
A blood alcohol analysis certificate can be admitted into evidence to establish that a person had a particular level of alcohol in the blood, notwithstanding s 37 of the Road Transport (Safety Management) Act 1999.
Further evidence will be required in order to establish that an insured was "under the influence of intoxicating liquor", but evidence can be adduced from other sources such as witnesses present at the scene of the accident or experts.
1. Rares J
2. Advance (NSW) Insurance 166 CLR at 616
3. 1995 (118) FLR 103 at 105
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