Abstract

Indemnity Costs Order against Litigation Funder

What is involved in the driving of the vehicle

When can an Agent engage an insurance broker to act for the principal

Circumstances in which a Contractor's cover is extended to a sub-contractor

An insurer's entitlement to contribution for expenses in defending the common insured

Is an agent's knowledge vested in the insured for the purpose of disclosure?

The elements of and differences beween election, waiver and estoppel

Election requires a choice between inconsistent rights

Article

Indemnity Costs Order against Litigation Funder

On an application by litigation funder for funding commission the applicant was ordered to pay indemnity costs as an untenable application was persisted with: Banksia Securities Ltd v Insurance House Pty Ltd (Costs) [2020] VSC 234.

Limitation of Cover to the Driving of the Insured Vehicle

Just as it is not suffcient to meet a limitation on the insured cover that it relate to the insured business activity for the harm to occur merely at the site of the business, so too in respect of Motor Vehicle cover’s requirement that it be caused directly by the driving of the insured vehicle, it is not enough that it was merely incidentally involved. So, an injury caused by the failure of a jack used to lift the vehicle to repair a defect that has arisen in the course of its journey is not a direct result of the driving of it. There must be a causal connection between the harm and some feature of the driving of the vehicle. A consequence of the driving of the vehicle. using the vehicle, even by driving, is not equivalent to the driving of it. The full range of possible causes is limited to its driving or its running out of control, and further to its being direct and not something wider. The driving of a vehicle, in at least its core meaning in this context, is the activity of the driver, who manages and directs its movement by operating the controls by preparing to start, starting, accelerating, braking, steering, giving appropriate signals, operating the horn and lights, stopping and turning the engine off. After the vehicle has stopped and the engine turned off, the driver’s conduct in checking for defects with a view to improving its performance before it is set in motion again is not driving. That is its operation while it is in the control of a driver in the course of putting it into, keeping it in, or bringing its motion to a conclusion, or if the motion is uncontrolled. It is not always easy to draw a line: Insurance Commission of Western Australia v Container Handlers Pty Ltd (2004) 218 CLR 89.

This may be varied according to the requirements of special uses of a particular type of vehicle.  If a bus driver, whose operation of it as a bus requires him to stop at a bus stop to allow passengers to alight, stops in darkness short of the bus stop in rough ground which is not visible to alighting passengers, and on alighting one is injured in a fall because of the rough ground,the driver’s negligence in stopping the bus in the dangerous place will iin those circumstances will occur in the course of his driving it. It is part of the driving of a bus qua bus to stop it at a suitably safe place for its passengers to alight: Zengin v Insurance Commission of Western Australia [2020] VSC 237.

Extension of Cover to Sub-Contractor

In QBE Insurance Australia Limited v Allianz Australia Insurance Limited [2020] FCA 589, an insurer of a subcontractor claimed contribution from the insurer of the head contractor on the ground that its cover extended to the subcontractor also; and further claimed that its entitlement to contribution would extend to the costs incurred by it in its defence of the proceedings against the insured subcontractor. The head contract required the head contractor to take out insurance for, inter alia, sub-contractors when engaged in work under the contract in respect of liabilities to third parties. The sub-contract also required the head contractor to take out such a policy covering the sub-contractor.

The head contractor had taken out the relevant policy which promised to indemnify it as the Named Insured, and promised indemnify ‘the Insured’ against relevant liability. “The Insured” was defined relevantly to mean the Named Insured and all sub-contractors to those entities (including their sub-contractors), but only whilst acting in the scope of their duties as sub-contractors in relation to the Insured Contract and only to the extent this insurance (or part of it) is required for such interest under the Insured Contract. “Insured Contract” was relevantly defined to mean the contract or agreement entered into by the Named Insured which gives rise to the Contract Works and includes any sub-contract or sub-agreement in connection with the contract or agreement, which was of a specified form. It was found that the sub-contractor was covered by the resondent’s policy.

Contribution as to Defence Costs

 

There was also a Defence Costs provision for “all charges, expenses and legal costs incurred by Us and/or by the Insured with Our prior written consent in the investigation, reporting, settlement or defence of any claim for compensation in respect of which the Insured are entitled to indemnity under this Policy or if sustained would be so entitled.”

The respondent submitted that the applicant conducted the defence with its own lawyers at its own expense so that the insured suffered no loss in that respect and no indemnification of it by its insurer, the applicant which could support a claim for contribution. This was contrary to the doctrine, which applies when each insurer insures against the same risk: when there is a co-ordinate liability, and it is not necessary for the policies’ terms to be the same or of the same kind. The nature of the risk is determined by the words of both policies expressing the indemnity rather than by their practical effect: Albion Insurance Co Limited v Government Insurance Office of New South Wales [1969] HCA 55; 121 CLR 342; Government Insurance Office of New South Wales v QBE Insurance Ltd (1985) 2 NSWLR 543 at 544 and HIH Casualty & General Insurance Limited (In Liquidation) v Insurance Australia Limited [2005] VSC 342; (2006) 14 ANZ Ins Cas 61-685 and on appeal – Insurance Australia Limited v HIH Casualty & General Insurance Limited (In Liquidation) [2007] VSCA 223; 18 VR 528. In a principle which engages natural justice, there should not be defeated by too technical an approach: HIH Claims Support Limited v Insurance Australia Limited [2011] HCA 31; 244 CLR 72 at 88 [39] (Gummow A-CJ, Hayne, Crennan and Kiefel JJ) citing Mahoney v McManus [1981] HCA 54; 180 CLR 370 at 378 (Gibbs CJ). The question is whether the obligation to respond to the risk can be characterised as of the same nature and to the same extent: HIH Claims 244 CLR at 88 [39]. If it is the situation that the insured is to receive but one satisfaction,  all the insurances are regarded as truly one insurance: Sickness and Accident Assurance Association Ltd. v. General Accident Assurance Corporation Ltd (1892)19 Rettie 977. Commercial and General Insurance Company Limited v Government Insurance Office of New South Wales [1973] HCA 51; 129 CLR 374 or Government Insurance Office of New South Wales v Crowley [1975] 2 NSWLR 78 are not in conflict with this. Vero Insurance Limited v QBE Insurance (Australia) Limited [2011] NSWSC 593; 16 ANZ Ins Cas 61-912 disapproved.

The character of the risk of an insurer’s directly paying defence costs and of an insurer’s indemnifying an insured which has paid its own defence costs is the same, that is,  the costs of defence: QBE Insurance Australia Limited v Allianz Australia Insurance Limited [2020] FCA 589. Contribution is based on natural justice and equity to prevent unjust enrichment. Indemnification of the insured does not require that it must first pay out expenses in legal defence. The question can be approached in different ways in different policies:  Australasian Correctional Services Pty Limited v AIG Australia Limited [2018] FCA 2043.

 

Non-Disclosure - Knowledge

In Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588, the buildings insured under a composite policy had defective soffits and eaves, which was known to the insured, and  this was the ground on which the insurer purported to rely on material non-disclosure and allegeded innocent misrepresentation to refuse to indemnify the insured for extensive damage to the buildings.  It was found that a reasonable person would understand the terms of the policy and in the circumstances could be expected to know that the defects were matters relevant to the insurer’s decision whether to accept the public liability risk, and on what terms; but that such a person, knowing what the insured actually knew, could not be expected to know that the defects were matters relevant to the insurer’s decision whether to accept the risk and on what terms in connection with the property damage risk. The difference between intrinsic and extrinsic circumstances was discussed in CGU Insurance Ltd v Porthouse [2008] HCA 30; 235 CLR 103 at 118 [52]–[53].

The focus is on a reasonable person’s state of mind, not on the insured’s state of mind: GIO General Ltd v Wallace [2001] NSWCA 299; 11 ANZ Insurance Cases 61-506 at 75,866 [23]; CGU Insurance Ltd v Porthouse 235 CLR at 118 [52,]; Stealth [2017] NSWCA 71; 19 ANZ Insurance Cases 62-131 at [39], and there is a factor of degree. The circumstances may include the absence of relevant proposal questions, and that a broker and experienced underwriter were involved. But a standard of reasonableness is intended in setting the proper balance of knowledge between insured and insurer: Delor Vue Apartments

As the result of the finding of innocent non-disclosure within the meaning of  s 21 of the Insurance Contracts  Act, it was necessary to assess whether the insurer had lost any rights under the Act through election, waiver, estoppel or by an asserted breach of the duty of the utmost good faith as required by s 13 of the Act. Election, waiver and estoppel overlap. The issue was whether it would have accepted the risk if it had known of the problem. It was found that on the evidence, in the circumstances the insurer would have been entitled to reduce its liability to nil under s 28(3) of the Act, subject to this issue. But s 28(3) does not require an entire or a precise conformance between the reason why the reasonable person could be expected to know of the matter’s relevance and the reasons that might move a particular insurer to a particular view about whether to grant cover, had disclosure been made: Ibid.

However, the insurer was bound to deal with the claim in accordance with the terms of the policy rather than by reference to s 28(3) because it had clearly represented and in effect promised the insured that it would do so, reflecting its decision taken with full knowledge of all the facts known to the insured and known to the insurer in its underwriting decision.

The insurer bears the onus of proof under but the evidential burden depends on the state of the evidence and which party is in the appropriate position. The quality of the evidence led by the insurer must be assessed for its persuasiveness, and the insured is entitled to rely upon inherent and objective weaknesses of its rolled up assertion: Watts v Rake [1960] HCA 58; 108 CLR 158, Purkess v Crittenden [1965] HCA 34; 114 CLR 164 at 168, Strong v Woolworths Ltd [2012] HCA 5; 246 CLR 182 at 201–202 [53] and Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2014] NSWCA 440; (2015) 18 ANZ Insurance Cases 62-047 at 76,122 [53]–[55]. Renewal of the policy for six months would not beindicative if the problems were known and the subject of the relevant claim was being adjusted under the earlier policy.

It was also found to have breached utmost good faith. It had represented that cover was confirmed and promised to adjust the claim on policy terms. It later resiled from this on a take-it-or-leave-it offer basis which put the insured in a critical position. There should have been recourse to some dispute resolution pursuant to policy terms, but having in effect promised to pay the claim on policy terms.

On the issue as to whether the knowledge of an agent is knowledge of the insured for the purpose of requiring material  disclosure, in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (In Liq) [2003] HCA 25; 214 CLR 514 there was a difference of opinion, obiter, between McHugh, Kirby and Callinan JJ at 531 [30], and Gummow and Hayne JJ at 548 [86]–[87] (which was preferred in Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588).

For the purpose of s 21(1)(b) of the Act, the reasonable person must know that the relevant fact is relevant to the decision of the insurer whether to accept the risk, and if so, on what terms: it is not enough merely to suspect or even strongly suspect or believe it: Permanent Trustee 214 CLR at 531 [30], applied in Marketform Managing Agency Ltd v Amashaw Pty Ltd [2018] NSWCA 70; 97 NSWLR 306 at 314 [28] and Stealth Enterprises Pty Ltd (t/a The Gentlemen’s Club) v Calliden Insurance Ltd [2017] NSWCA 71; 19 ANZ Insurance Cases 62-131.  The relevance to the insurer must be more than interest to know the fact which may be taken into account, though ultimately not affecting the decision: Barclay Holdings (Australia) Pty Ltd v British National Insurance Co Ltd (1987) 8 NSWLR 514 at 517–519; Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003] QCA 182; 12 ANZ Insurance Cases 90-116 at 86,308 [72]; Sutton on Insurance Law (4th ed, 2015) at [7.50] and [7.220.

Election

On the issue of election, the context in this case was concerned the insurer’s rights on an innocent breach of the duty of disclosure which provided it with an entitlement to avail itself of the remedy provided for by s 28(3) of the Act, which does not create a right to be exercised or activated in some way, a feature which is conceptually different from the operation of the law of contract. It not an election made in respect of a party’s rights on knowing of the other party’s breach of a fundamental condition of a contract, which would give the party a right to accept the breach or repudiation, thereby terminate the contract, and claim damages, or to waive the breach by electing to affirm the contract, an immanent choice. As the mutually exclusive alternative rights are inconsistent with each other, the law will hold the party to its elected choice: Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850; Sargent v ASL Developments Ltd [1974] 131 CLR 634 at 641; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993]  182 CLR 26 at 41; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd [1994] NSWCA 365; 8 ANZ Insurance Cases 61-235. Election is sometimes treated as cognate with waiver and estoppel: Commonwealth v Verwayen [1990]  170 CLR 394 at 421, and waiver is sometimes synonymous with election or estoppel: Agricultural and Rural Finance 238 CLR at 587 [51], but their relationship is beset with difficulties: Sargent 131 CLR at 655; Agricultural and Rural Finance 238 CLR at 583–600 [40]–[93], and they have different purposes and operations.

Election disallows inconsistency of contractual or remedial behaviour, estoppel prevents injustice from detrimental reliance on a stated position, and waiver enforces unilateral abandonment of rights: Verwayen 170 CLR at 423 (Brennan J). And so, the doctrine prevents an insurer from adopting inconsistent positions under the same policy in respect of a claim. It may avoid the policy or reject the claim for breach of condition it must make its election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim.

The statutory remedy for innocent non-disclosure provides that the liability of the insured is reduced to the amount it specifies according to the circcumstances, which is a state of affairs, a legal conclusion, and it places the insurer in a position which is different from a duty to comply with the terms of the policy. Instead, it may approach the claim by reference to an hypothesis under a body of substantive rights which it can raise in defence or answer to the contractual claim for indemnity. Public policy does not prevent an insurer which has a right to the remedy from declining to invoke it. If it unequivocally says that in some way it will not invoke that body of rights, it is not an election between two alternative, mutually exclusive and inconsistent rights but an issue whether it can in law resile from that position in the existing contractual relationship. It is not giving up a right, but representing that it will not use the matter as a defence to a claim and that it will otherwise deal with the claim on policy terms. This is consistent with the position where the insured is simply not covered for a loss under the terms of a policy and the insurer’s partial provision of indemnity before resiling and refusing further indemnity does not amount to election or waiver because there is no choice made between inconsistent rights. There is simply no obligation at all. And if there has been no detriment to the insured, there would be no ground for estoppel: Freshmark Ltd v Mercantile Mutual Insurance (Australia) Ltd [1994] Qd R 390. Inconsistent rights, as considered in Khoury v Government Insurance Office (NSW) [1984] HCA 55; 165 CLR 622 at 633 are different from inconsistent positions or inconsistent courses of action, as in Nigel Watts; and Immer 182 CLR at 41. “It is of the essence of election that the party electing shall be ‘confronted’ with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice.” Spencer Bower and Turner, The Law Relating to Estoppel by Representation, cited in Immer 182 CLR at 41

EStoppel

Aninsurer may be estopped from resiling from its communicating of its choice to the insured because of the detriment to it, though non-specific, such resiling would cause. Estoppel is not a single overarching doctrine or a general doctrine of estoppel by conduct Verwayen 170 CLR at 411 and 440; Giumelli v Giumelli [1999]  196 CLR 101 at 112–113, but its categories and their origins are not strictly divided with self-contained separate rules. There is a difference between estoppel by convention, which has its source in common law, and equitable estoppel: Texas Bank case (Amalgamated Investment and Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd use [1982] 1 QB ; Johnson v Gore Wood & Co [2002] 2 AC 1 at 40 per Robert Goff J.

A fully informed statement expressing the continuation of the relationship between insurer and insured as to the resolution of a claim, a relationship founded upon the utmost good faith and involving co-operation, trust and openness, raises promissory or equitable estoppel as well as conventional estoppel, a conventional basis for the governance of a relationship in the conduct of their mutual affairs in adjusting the claim. This confluence of estoppels allows the influence of equitable considerations in relation to the common law principles. The relationship would provide the insurer with certain rights in exercising its entitlements and fulfilling its duties under the policy, and perhaps entail some detriment to the insured.

Detriment, which is necessary to support  promissory estoppel: Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 437; Delaforce v Simpson-Cook [2010]  78 NSWLR 483 at 491 [43], may flow from the change of position as a source of prejudice: Grundt v Great Boulder Proprietary Gold Mines Limited [1937] HCA 58; 59 CLR 641 at 674–675 (Dixon J). Prejudice may be real though not specific. It may involve a period in which the insured could have acted for itself and excluded the insurer in its own interests, a loss of opportunity to conduct its affairs on the correct hypothesis, but that could not be pursued because the parties mutually conducted themselves on an entirely different basis whereby the insurer could gain full access to the property and the insured’s full co-operation.

Equitable estoppel and relief are not limited to the minimum equity necessary to remedy precisely-weighted detriment: Giumelli 196 CLR at 120–125; Delaforce 78 NSWLR at 485–486 and 493–494, though matters that can assuage it may still be relevant. Equity has regard to the unconscionability of resiling from encouragement or a representation, including the nature and character of the detriment, how it can be cured, its proportionality to the encouragement or representation or the detriment

 (Plimmer v The Mayor, Councillors and Citizens of the City of Wellington (1884) LR 9 App Cas 699 at 713-714; Riches v Hogben [1985] 2 Qd R 292; Giumelli at [10] and [35]), and how it would conform with good conscience to keep a party to a representation or promise, even if not contractual. Equity keeps parties to representations or promises: Burrowes v Lock  (1805) 32 ER 927; Horn v Cole 12 Am Rep 111 (1868); Meagher, Gummow and Lehane’s Equity: Doctrine and Remedies 4th ed (2002) at 556-560 [17-065]-[17-070] and 567-568 [17-110].

Proportionality of the remedy to is relevant, but not a necessary feature. Prima facie, the estoppel precludes departure from the representation unless relief framed on the basis of its truth would be inequitably harsh, that some lesser form of relief should be awarded.Whether such departure would be unconscionable is not resolved by a universal standard but by all the circumstances, including the reasonableness of the representee’s acting upon it and the nature and extent of the detriment which would follow the allowance of the representor’s conduct. It is all the stronger if it has been relied on to abandon a realistic course which could have produced a different outcome. If litigation is abandoned, the representee loses the rights in it, and may be unable to demonstrate even what may have happened in it. That the party cannot show that he or she would have been better is not fatal to the remedy. But if the case was clearly fanciful or otherwise doomed to fail, there may be no real detriment: Grundt v Great Boulder Proprietary Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641 at 674-675; Verwayen170 CLR at 443 and 445; Giumelli 196 CLR at 123 [42], 124 [43] and [44].

Waiver

Waiver which is not simply based on the unequivocal choice between two inconsistent and mutually exclusive rights but upon an intentional choice made with full knowledge between inconsistent positions and the choice being one that gives an advantage to the party making the choice which would otherwise not be available. This conception of waiver looks not to the detriment of the representee, but to the position of the party making the choice and taking an advantage, so as not to be permitted to approbate and reprobate. If, with full knowledge of all the facts, the insurer had not elected between inconsistent and mutually exclusive rights, but it waived its relevant rights by its choice between inconsistent positions which advantaged it by providing full access to the insured property and to the insured’s co-operation, there is waiver:Craine v Colonial Mutual Fire Insurance Co Limited [1920] HCA 64; 28 CLR 605.

Estoppel

Waiver requires an intentional act, with full knowledge, to treat the relevant relationship as if a state of affairs had not occurred, and it will then prevent the parties from taking an inconsistent position by approbating to get some advantage from it, and later reprobating. This approaches the operation of estoppel: Thompson v Palmer [1933] HCA 61; 49 CLR 507 at 547; Yorkshire Insurance Co v Craine [1922] 2 AC 541 at 546–547. So, a deliberate and informed confirmation of cover despite the  availability of rights under the policy to deny liability and thereby to obtain the insurer’s benefits will amount to a waiver of the inconsistent rights to deny if fairness requires that the insurer be held to the choice: Immer 182 CLR at 41.

Utmost Good Faith by the Insurer

The obligation of utmost good faith as contained in s 13 of the Act. A lack of honesty is not a prerequisite. It may require an insurer to act with due regard to the legitimate interests of an insured, as well as its own consistently with commercial standards of decency and fairness, for example, to make an efficient, reasonably prompt, candid and business-like response to a claim for indemnity. It will usually require affirmative or positive action, something more than passivity: CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; 235 CLR 1. It encompasses notions of fairness, reasonableness and community standards of decency and fair dealing. While dishonest conduct will constitute a breach of the duty of utmost good faith, so will capricious or unreasonable conduct through such as negligence or unjustified and unwarrantable suspicion as to the bona fides of the claim, even if it results merely from a failure to proceed reasonably promptly rather thanfrom an ulterior purpose: Kelly v New Zealand Insurance Ltd (1996) 130 FLR 97 at 111-112) ; AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; 146 FCR 447 at 475–476 [87] and [89]–[91]; Gutteridge v Commonwealth, unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993). But an insurer may reasonably await details which are necessary to a decision whether to accept liability or as to quantum Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145 at 154).

Delegation by an Agent

As a general rule, an agent is not authorised to delegate its authority to establish a relationship of principal and agent between principal and third party: delegatus non potest delegari (see Dal Pont G, Law of Agency (3rd ed, 2014) ch 9). However, such an authority may be express or implied, and whether it is conferred is amatter of construction of the original authority.it will be implied authority if the parties’ conduct, trade usages or the nature of the business make it reasonably presumed that the parties to the original agency agreement intended that the agent would have authority to create a relationship of principal and agent between the principal and an insurance broker: Dal Pont at 190–192; De Bussche v Alt (1878) 8 Ch D 286; Powell & Thomas v Evan Jones & Co [1905] 1 KB 11. Obtaining insurance quotations through brokers is common. It is a different question whether such a retainer has authorised the agent to engage a sub-agent, to engage a further sub-agent to act as the principal’s agent: Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588.