Abstract

Return of the premium may be ordered or allowed forin the case of innocent misrepresentation or non-disclosure, but not if it is fraudulent unless the prejudice is minimal

Article

An insurer is entitled to recover a sum paid to the insured before it obtained sufficient information to avoid the policy for fraudulent misrepresentation without deduction of the premiums paid: Finadri v Westpac Life Insurance Services Ltd [2018] VCC 2007.

“The generally accepted view is that premiums are never recoverable by the insured where he is guilty of fraud, although as a condition of active equitable interposition their return may be required. An insured is not entitled either at common law or under the Act to a refund of the premium for the insured’s misrepresentation or nondisclosure on the ground of total failure of consideration, because the insured is not entitled to rely on her or his own misconduct as the basis for the claim”: Maye v Colonial Mutual Life Assurance Society Limited (1924) 35 CLR 14 at 29; Chapman v Greater Midwest Insurance Pty Ltd (1981) 1 NSWLR 479 at 487. If Tyndall Life Insurance Ltd v Chisholm (1999) SASC 445, is to the contrary, with respect, it is in error.

This does not refer to innocent representation or innocent non-disclosure, where the insured might succeed in a quasi-contract for monies paid if the consideration has wholly failed: Chapman.

Section 31 of the Insurance Contracts Act 1984 (Cth) ameliorates the position of an insured in certain circumstances by permitting an adjustment between the parties if the court is satisfied that the insurer has not been prejudiced by the failure or misrepresentation or, if it has been so prejudiced, the prejudice is minimal or insignificant; but the power must be exercised having regard to the need to deter fraudulent conduct in relation to insurance. The qualification does not simply prohibit an adjustment, but the weight of the deterrence factor in the exercise of the discretion is clearly stated. If the section does not relieve the insured in the circumstances of a case, the underlying common law has not been displaced by it.

In Braun v Australian Associated Motors Insurers Limited (1998) ACTSC 122, the court allowed, under the Section, an equitable adjustment for the premiums paid in circumstances despite that there had been a fraudulent misrepresentation.

In an insured’s action to enforce the policy, to which the insurer pleaded fraudulent non-disclosure, it counterclaimed for an order that the plaintiff repay monies paid to her under the policy, alternatively, damages. The plaintiff was hereby fully appraised of the matters the subject of the counterclaim, and it was unnecessary to plead a cause of action for money had and received, or for money paid under a mistake of fact or law,which might be subject to a ‘change of position’ reply. In any case, a change of position defence would not be available to a party who has simply spent the money received on ordinary living expenses: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) CLR 353 at 386. See Finadri (supra).