In brief - Car insurance policy avoided in circumstances of non-disclosure of licence suspension
Licence suspension not disclosed to Allianz upon renewal of car insurance policy
The car, a Jeep, was purchased by Taylor for use by her daughter. The insurance policy was in Taylor's name, but her daughter was named as a "nominated driver" under the policy. Despite the vehicle remaining in her mother's name, the daughter assumed responsibility for the Jeep, including responsibility for payment of the insurance premiums, registration, actual costs of running the vehicle and any repairs.
The daughter lived at the mother's address (the mother had moved away to care for an elderly relative) and received mail addressed to her mother from the insurance company. However, the daughter denied that she personally corresponded with the insurer.
As a result of multiple traffic infringements which were earned while the daughter was driving the Jeep, the mother's licence was suspended. The mother had not been driving the Jeep, and did not know about the infringements or about the suspension of her licence. Her daughter did and when she effected the policy renewals in June 2013 and June 2014, she did not disclose her mother's licence suspension to Allianz.
Ferrari owner, whose car was rear-ended by Jeep, seeks to recover for damages to his vehicle under Jeep's third party insurance
On 9 September 2014, the Jeep was involved in an accident with a Ferrari. The Ferrari, which was driven by the owner's personal assistant, emitted a strange chugging noise. The assistant, wanting to be cautious in her boss's car pulled the vehicle over, put on the hazard lights and attempted to call the owner. While the assistant was pulled over, the daughter and her partner (who was described as a "violent and volatile "ice" addict") drove into the rear of the Ferrari, causing the Jeep to roll onto its side, damaging both vehicles.
The owner of the Ferrari sought to recover for the damages to his vehicle under the Jeep's third party insurance. However, in the course of its investigations into the incident, Allianz was alerted to the suspension of the mother's licence and sought to avoid the policy, relying on the failure to disclose the licence suspension.
Allianz argues that insured's contractual obligations had been delegated to her daughter who was acting as her agent
Allianz's position was that even though the daughter was not the insured for statutory disclosure purposes, as a matter of law:
- she was the agent for her mother when renewing the insurance contract
- she knew about her mother's licence suspension, and
- she knew or ought to have known that a licence suspension would be a matter to be considered by the insurer when renewing the policy
Allianz argued that the daughter, as her mother's agent, had failed to disclose the suspension at the time of two policy renewals and as such, Allianz sought to avoid indemnifying the daughter under the policy.
Allianz argued that in circumstances where the policy of insurance was in effect, entirely for the benefit of the daughter, it would be incorrect to excuse the daughter from any duty to disclose something that is known to be disclosable to the insurer and that would be directly relevant to determining whether or not to insure the risk. Allianz argued that the mother had effectively delegated her contractual obligations to the daughter, including the duty to make proper disclosure and as such, she ought to have reported the licence suspension to Allianz.
Respondent argues that she has no duty of disclosure under section 21 of Insurance Contracts Act, not an agent for her mother
Further, it was argued the daughter was not an agent for her mother because it was an informal arrangement and she was doing no more than making sure the insurance was effected in her interest as a beneficiary under the policy.
Allianz appeals Magistrate's order to indemnify daughter on grounds of error of fact and law
On 29 September 2016, the Magistrate ordered there be judgment to the owner of the Ferrari for $38,000, and ordered that Allianz indemnify the daughter. His Honour said that although Allianz had a meritorious defence on the agency non-disclosure issue, the suggestion that there was also "fraud" was "bad to the point of being an abuse".
Allianz appealed the Magistrate's decision on the ground that there had been an error of fact and law. It noted that the Magistrate's basis to disallow Allianz's defence was that the daughter, when dealing with the insurance company, was acting in her own interest and for her own benefit. Therefore, she could not have been acting as the agent of her mother.
Allianz did not accept the Magistrate's conclusion and contended that the Magistrate erred by failing to accept that the daughter was acting in two capacities when she renewed the insurance policy, namely:
- acting in her own interest to ensure that she was named as a nominated driver and a beneficiary of cover, and
- acting as an agent of her mother
Associate Justice Mukhtar accepted the contention that the daughter was acting as her mother's agent as the mother had "expressly assented to the daughter taking responsibility to carry out all that needed to be carried out to effect and renew the policy for the mother as the insured" (at [31]). As she had that authority, she had power to affect her mother's legal relations with Allianz.
Insured's and third party beneficiary's duty to disclose examined by Supreme Court
The issue was then discussed - was the daughter an "insured" or was she simply a third party beneficiary, and what impact would that have on her duty to disclose?
Pursuant to section 21 of the Insurance Contracts Act, an insured has a duty to disclose to the insurer before the contract of insurance is entered into, every matter that is known (or should reasonably have been known) to the insured and that would be relevant to the decision of the insurer whether or not to accept the risk.
Under
section 48 of the Act, as was in force at the relevant time, where a person who is
not a party to the insurance contract is referred to in the contract, that person can still recover from the insurer, notwithstanding they are not a party to the contract.
However, a beneficiary does not have the same disclosure requirements. In
Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50, the High Court determined that section 48 does not deem a person to be a party to the insurance contract, and confirmed (at [24]) there is "no basis in s 48 for assimilating the position of a non-party insured to that of a person who has "entered into" a contract of insurance".
Further, in CE Health Casualty & General Insurance Limited v Grey (1993) 32 NSWLR 25, the Court considered whether duties imposed upon insureds to the contract extended to a third party beneficiary. It was held by Clarke JA that "there is no obligation to disclose, or not misrepresent, before a contract is entered into, imposed upon a person entitled to recover the amount of a loss pursuant to section 48(1)".
Therefore, the accepted position is that it can only be the insured who has the disclosure obligations under section 21.
Associate Justice Mukhtar in this matter accepted that, if the daughter was simply a third party beneficiary, she would not have a duty of disclosure. However, as the daughter was the mother's agent, the question becomes whether a matter "known to the insured" includes a matter "known to the insured's agent". After considering the position, His Honour accepted (at [51]) that "the knowledge of an agent to effect the insurance is the knowledge of the insured". As such, the daughter did have a duty to disclose the suspension of her mother's licence, as she was acting as an agent of her mother in the policy renewal.
Case provides insurers guidance on when it may be logical to extend disclosure obligations
His Honour upheld the award for damages payable to the owner of the Ferrari. He also allowed the appeal and overturned the Magistrate's order that Allianz indemnify the daughter in respect of that award.
This case is interesting as it is suspected that there may be many other daughters or sons effecting insurance for vehicles owned by their parents as was done in this case. For insurers, this decision has provided guidance on the disclosure obligations in circumstances where it is logical to extend disclosure requirements beyond the named insured, such as when insurance is effected by the nominated driver as the agent for the parent, and is for their own benefit.