Citation: Khatchadourian v GIO General Limited [2007] NSWDC 179
Court: District Court of New South Wales
Date: 30 August 2007
Judge(s): Johnstone DCJ
Background
The insured purchased a 1998 Porsche 911 Carrera at auction as a repairable write-off in late 2003, spending approximately $68,575 on the vehicle and a further $80,000 restoring it. At least three insurers, including AAMI, Allianz, and NRMA Insurance, had already declined to insure the Porsche before the insured approached GIO General. On 4 May 2004, GIO General issued a comprehensive motor vehicle insurance policy with an agreed value of $148,000.
The Porsche was stolen from a shopping centre car park on 25 February 2005 and never recovered. The insured lodged a claim for indemnity under the policy. GIO General refused the claim, alleging that before the policy was issued, the insured had fraudulently misrepresented his driving record and failed to disclose material information, including the true purchase price of the vehicle and the fact that multiple insurers had previously declined to insure it.
The insured's version was that he had faxed his true driving record to a GIO commercial insurance representative, Mr Balafas, who had handled the family's business insurances for years, and that GIO was therefore on notice of his history. GIO denied that Mr Balafas had any involvement in issuing the policy, which was incepted through GIO's Call Centre by a different operator.
Legal Issues
- Whether the insured made a fraudulent misrepresentation, or fraudulently failed to disclose, his true driving history before entering into the insurance contract, within the meaning of section 28(2) of the Insurance Contracts Act 1984 (Cth)
- Whether GIO General would have issued the policy on the same terms had it known the true facts
- Whether any disclosure to Mr Balafas could be attributed to GIO General so as to fix the insurer with knowledge of the insured's driving record
- Whether the court should exercise its discretion under section 31 of the Insurance Contracts Act 1984 (Cth) to disregard the insurer's right to avoid the contract on the basis that it would be harsh and unfair not to do so
Decision
The court rejected the insured's central factual claim that he had disclosed his true driving record to GIO General through Mr Balafas. Even accepting that the fax was sent to Mr Balafas, the court found that mere possession of that information by Mr Balafas, without it being placed on a file or into GIO's computer system and made accessible to other underwriters, was insufficient to fix GIO General with knowledge of the insured's driving history. There was no relevant connection between any communication with Mr Balafas and the inception of the policy through the Call Centre.
The insured's actual driving record at the time of the policy's inception included at least seven offences within the preceding five years. The Certificate of Insurance recorded only two items that bore no relationship to the offences on his actual record. The court found the insured well understood the importance of his driving history to the insurer's acceptance of the risk, given his previous rejections by multiple insurers.
The court was comfortably satisfied, applying the civil standard heightened for serious allegations consistent with Briginshaw v Briginshaw, that the non-disclosure was fraudulent and that GIO General would not have issued the policy on the same terms, or at all, had the true facts been known. GIO General was therefore entitled to avoid the contract and refuse indemnity under section 28(2) of the Act.
The insured raised section 31 for the first time at the end of the trial, seeking the court's discretion to disregard the insurer's right to avoid. The court declined. The provision had not been pleaded and was not agitated during the hearing. In any event, no circumstances were established that might justify the exercise of that discretion, and the court could not be satisfied that GIO General had not been prejudiced by the misrepresentations and non-disclosures.
Orders Made
- Judgment entered for the defendant (GIO General Limited)
- The plaintiff to pay the defendant's costs, on the ordinary basis up to 12 February 2007, and on an indemnity basis thereafter
Key Takeaways
- The District Court confirmed that disclosure of material information to one representative of an insurer does not, without more, fix the insurer with that knowledge; the information must be placed into the insurer's systems so as to be accessible to those responsible for underwriting the relevant risk.
- A fraudulent misrepresentation or fraudulent non-disclosure of driving history before inception of a motor vehicle insurance policy entitles the insurer to avoid the contract entirely under section 28(2) of the Insurance Contracts Act 1984 (Cth), with no obligation to pay the claim.
- Under section 31 of the Insurance Contracts Act 1984 (Cth), a court may disregard an insurer's right to avoid only where circumstances justifying that discretion are properly established; the provision cannot be raised for the first time at the conclusion of a trial without having been pleaded or agitated during the hearing.
- Indemnity costs were ordered from the date of what appears to have been a settlement offer, reflecting the consequences for a plaintiff who continues litigation without bettering that offer.
- Where an insured's driving history makes a vehicle effectively uninsurable in the conventional market, and the insured is aware of that position through multiple prior refusals, the court will scrutinise closely any claim that the insurer was nevertheless adequately informed of the risk.
Legislation and Cases Referenced
Legislation:
- Insurance Contracts Act 1984 (Cth), sections 21, 28(1), 28(2), and 31
Cases:
- Briginshaw v Briginshaw (1938) 60 CLR 336 (standard of proof for serious allegations in civil proceedings)