Abstract

Article

  Fraud of individuals attributed to insured company

A policy covers loss caused by the deliberate act of an employee or agent of the insured company unless the individual concerned causes the loss with the authority of the company or is so closely connected with the company that his acts can be said to be its acts. Fraud of individuals may be attributed to an insured company only if their act is to be regarded as the act of the insured company itself: S & Y Investments (No 2) Pty Ltd (In Liq) v Commercial Union Assurance Co of Australia (1986) 85 FLR 285, for example, if they acted, with the approval of the insured through its joint managing directors and the company’s approval was manifested through the acquiescence of all members and directors. If individuals were each, separately, entrusted with the exercise of the powers of the insured company and that each acting separately and independently constituted the mind and the active and directing will of the insured company, their wrongful relevant actions would be attributed to it. Entwells Pty Ltd v National and General Insurance Co Ltd [1991] WASC 286; (1991) 5 ACSR 424, applying Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 707, HL Bolton (Engineering) Co Ltd v TK Graham & Sons Ltd [1957] 1 QB 159 and Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153,. The mere fact that an employee or agent of an insured deliberately caused the relevant harm does not mean that the insured cannot recover: General Accident Fire and Life Assurance Corporation v Midland Bank Ltd [1940] 2 KB 388. Public policy implies some form of moral blameworthiness such that would shock the conscience to allow a person to benefit from his own misdeed: Beresford v Royal insurance Co Limited [1938] AC 586; but the moral blameworthiness attaches only to those directly committing the act or those who encourage or knowingly permit it. A person therefore may be vicariously responsible in tort without at all being tainted by the moral blameworthiness of his servants or agents. Indeed, it might almost be said to be itself against public policy if an insurer could refuse payment to an innocent insured because of the blameworthy act of the servant or agent which inflicted the very loss upon him for which he has insured. A person is not to be regarded as the directing mind and will of the company separately and solely in respect of the acts and state of mind that are in question. Rather, one must first identify who is or was the directing mind and will of the company for the purpose of conducting its affairs and making its decisions generally. The acts and knowledge, or intent, of such a person may then be regarded as the acts and state of mind of the company itself in relation to the particular act in question. Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440.

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Liability of a Bailee

The legal principles governing the liability of a bailee for loss of or damage to goods in its custody for safe keeping are as stated in Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994) Aust Torts Reports 81-292.

Subrogated Claim by Insurer Against an Insured

If the policy is composite rather than joint, (General Accident & Life Assurance Corp Ltd v Midland Bank Ltd [1940] 2 KB 388; Lombard Australia Ltd v NRMA Insurance Ltd (1968) 72 SR (NSW) 45; Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303; MMI General Insurance Ltd v Baktoo (2000) 48 NSWLR 605; [2000] NSWCA 70), the insurer may by subrogation pursue against its insured any right of action that an added Insured has in respect of the subject matter of the loss: ss 64 and 67 Insurance Contracts Act.  If their interests under the policy are several and separate, a subrogated claim for recovery may be brought against an at fault insured party under such a composite policy where the insured is at fault by reason of fraud or some wrongful act on its part that has brought about the loss, and denied indemnity. P Samuel & Co Ltd v Dumas [1925] AC 431 at 445-446; MMI General Insurance Ltd v Baktoo; Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440.

Deliberate Harm

On ordinary principles of insurance law an insured cannot by his own deliberate act cause the event upon which the insurance money is payable. Beresford v Royal Insurance Co [1938] AC 586. Similarly, if he connives at it he cannot recover under the policy (Entwells Pty Ltd v National and General Insurance Co Ltd [1991] WASC 286; (1991) 5 ACSR 424) as a result of the construction of the contract of insurance, for it is not intended to cover loss caused by his deliberate act (Beresford v Royal Insurance Co at 595) and it is against public policy to allow an insured to recover indemnity for the consequences of his own criminal or civil wrong: Gray v Barr [1971 2 QB 554.

Condition: Take all Reasonable Care to Prevent Property Damage

Circumstances in which it was found that the insured failed to “take all reasonable care to prevent [...] Property Damage”. Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440].

Quantification of Damages for Breaches of the Duty of Good Faith

Quantification of damages for breaches of the insurer’s duty of good faith is inextricably bound up with the question of what causative effect any established breach may have had. Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440].

Utmost Good Faith

By s 13(1) of the Insurance Contracts Act 1984 (Cth), the obligation of utmost good faith extends to a requirement for an affirmative or a positive action and for an insurer to act consistently with commercial standards of decency and fairness. Voitenko t/as Access Party Hire v Zurich Australian Insurance Ltd [2021] NSWSC 1441, where several forms of breach are alleged.

Fraud

Under s 56 of the ICA, if the claim is found to have been made fraudulently, the insurer may (subject to one qualification, set out in s 56(2)) refuse to pay the claim. The changes to the common law position effected by s 56 are only to limit the insurer's remedy to the denial of the fraudulent claim rather than avoidance of the policy and to enable the Court to order payment where only a minimal or insignificant part of the claim, is fraudulent and it would be harsh and unfair not to pay the remainder. Otherwise, an insurer need not pay a fraudulent claim, whether or not there is an underlying covered loss. Tiep Thi v Australian Associated Motor Insurances Ltd [2001] VSCA 48; (2001) 3 VR 279

The reference to fraud may be established by the making of a false statement, knowingly made in connection with the claim for the purpose of inducing the insurer to meet the claim. Walton v Colonial Mutual Life Assurance Society Ltd (2004) 13 ANZIC 61-620; [2004] NSWSC 616 at [144]:144] It is sufficient that the insured had a dishonest intent to induce a false belief in the insurer for the purpose of obtaining payment of his claim or some other benefit under the policy. It need not be material to his claim nor is it relevant that he considered his claim to be valid or whether the insurer suffered any prejudice. Tiep Thi To v Australian Associated Motor Insurers Ltd [2001] VSCA 48; (2001) 3 VR 279; Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (No 1) [1999] 1 Qd R 507 and Mourad v NRMA Insurance Ltd (2003) 12 ANZIC 61-560); Voitenko t/as Access Party Hire v Zurich Australian Insurance Ltd [2021] NSWSC 1441.As to whether only a minimal or insignificant part of the claim is made fraudulently and non-payment of the remainder would be harsh and unfair, order an insurer to pay a claim, see Zurich referred to three authorities: Entwells Pty Ltd v National and General Insurance Co Ltd (Unreported, Supreme Court of Western Australia, 19 July 1991) (“Entwells”); Ricciardi v Suncorp Metway Insurance Ltd [2001] QCA 190 (“Ricciardi”) and Naomi Marble & Granite Pty Ltd v FAI General Insurance Company Ltd (1999) 1 Qd R 507; Voitenko t/as Access Party Hire v Zurich Australian Insurance Ltd [2021] NSWSC 1441.

 Proof of Fraud

The insurer bears the onus of proof of fraud and the insured bears the onus of proving his loss to the extent claimed and that it was covered by the insuring promise. It is not incumbent on the insurer to negate, beyond reasonable doubt, all possibilities other than fraud by the insured but instead the insurer needs only persuade the Court, on the balance of probabilities, having regard to all the circumstances together. Voitenko t/as Access Party Hire v Zurich Australian Insurance Ltd [2021] NSWSC 1441; Cook v Sirius International Insurance Corporation Australian Branch [2020] NSWSC 1631; McLennan v Insurance Australia Ltd [2014] NSWCA 300; (2014) 313 ALR 173).

The standard of proof of fraud usually depends on the relevant Evidence Act and the Briginshaw principles (Briginshaw v Briginshaw (1938) 60 CLR 336) reflected in it. The necessary strength of the evidence may vary according to the nature of what it is sought to prove. If so serious a matter as fraud is alleged, clear or cogent or strict proof is necessary. This does not go to the standard of proof, but merely responds to a general perception that persons do not ordinarily engage in fraudulent or criminal conduct and that a court should not lightly make a finding on the balance of probabilities that a party has been guilty of such conduct. Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; [1992] HCA 66. Circumstantial evidence can be sufficient to establish a defence of fraud, particularly in a case in which there is a strong financial motive for it. Cook v Sirius International Insurance Corporation Australian Branch [2020] NSWSC 1631.

It is necessary to consider the weight to be given to the united force of all the circumstances put together. Belhaven & Stenton Peerage (1875) 1 App Cas 278 at 279; Chamberlain v R (No 2) [1984] HCA 7; (1984) 153 CLR 521 at 535; [1984] HCA 7, and  the onus of proof is to be applied only at the final stage of the reasoning process rather than to divide the process into stages and, at each stage, apply some particular standard of proof. To do so destroys the integrity of [a] circumstantial case. Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125.
The inference drawn from the proved facts must be weighed against realistic possibilities as distinct from possibilities that might be regarded as fanciful, and the, if the competing possibilities are of equal likelihood or the choice between them can be resolved only by conjecture, the allegation is not proved (see also Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5 Palmer v Dolman [2005] NSWCA 361; Voitenko t/as Access Party Hire v Zurich Australian Insurance Ltd [2021] NSWSC 1441; Voitenko t/as Access Party Hire v Zurich Australian Insurance Ltd [2021] NSWSC 1441.

 Circumstantial evidence in civil proceedings needs only raise a more probable reasonable and definite inference to the degree necessary to the seriousness of the allegation in favour of what is alleged, that is, more than conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture. But the conclusion may fall short of certainty it is not to be regarded as a mere conjecture or surmise. Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1; Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440.  The following principles apply in a civil case in determining whether circumstantial evidence leads to an inference of fraud: Palmer v Dolman [2005] NSWCA 361 at [41]:The tribunal of fact must consider “the weight which is to be given to the united force of all the circumstances put together. Belhaven & Stenton Peerage (1875) 1 App Cas 278 at 279, Chamberlain v The Queen (No 2) (1984) 153 CLR 521 at 535. The onus of proof is only to be applied at the final stage of the reasoning process: “[i]t is erroneous to divide the process into stages and, at each stage, apply some particular standard of proof. To do so destroys the integrity of a circumstantial case. Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125. The inference drawn from the proved facts must be weighed against realistic possibilities as distinct from possibilities that might be regarded as fanciful. Where the competing possibilities are of equal likelihood, or the choice between them can be resolved only by conjecture, the allegation is not proved: Bradshaw v McEwans Pty Ltd supra)’ Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440.