Dickinson v. National Mutual

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DMC/INS/04/05
Dickinson v National Mutual Life Association of Australasia Ltd (trading as AXA Australia)

Australia; Supreme Court of Victoria; Smith J; [2003] VSC 325; 5 September 2003
Insurance contract: alleged non-disclosure: duties of broker: loss of opportunity to impose exclusion clause

Summary
An insurerís agent may be liable to the insurer if it does not properly assist an applicant in filling out an application for insurance, particularly by answering the questions in the proposal form. Even where it could not be shown the insurer would have acted differently (sufficient to establish a remedy under the Insurance Contracts Act 1984 (Cth)), the insurer may still have a claim in damages at common law for the loss of an opportunity to act differently

DMC Category Rating: Confirmed

Case note contributed by Benjamin Cran, Lawyer & Matthew Harding, Partner at Ebsworth & Ebsworth Lawyers, Sydney. Ebsworth & Ebsworth Lawyers are International Contributors for Australia

Facts
The claimant was a chiropractor who held a risk protection package with AXA Australia ("the insurer") which provided insurance cover for total and permanent disablement, business expenses and professional income loss. By 1995 the claimant held separate income protection and lump sum total and permanent disablement policies with the insurer.

In April 1996 the claimant slipped while walking down a hill and a few weeks later he fell off a ride-on mower, falling on the same section of his back. With the second fall he felt a sharp pain in the thoracic region and thought he may have broken a rib. He had a CT scan which showed very mild changes, most of which were described as degenerative (i.e. age related) in nature.

On 28 January 1997 the claimant obtained an increase in his lump sum trauma and disablement insurance cover. This insurance was arranged through the insurerís agent. The evidence was that the claimant signed the proposal forms in blank and the agent asked no questions that might have elicited any information about the CT scan.

On 23 July 1997 the claimant underwent x-rays of his pelvic girdle and spine. No further deterioration in the condition of his thoracic or lumbar spine was noted.

In April 1999 the claimant reorganised his insurance cover through the agent by terminating the existing policies and replacing them with a Risk Protection Package, which combined the cover provided by the earlier policies. On 26 April 1999 the claimant signed the necessary proposal documents in blank. Again, the agent did not ask any questions that would have elicited information about the earlier CT scan, nor the later x-ray.

On 19 July 1999 the claimant suffered a disc prolapse at L4/L5. He submitted claims for income protection and business expenses and later a claim for the lump sum total and permanent disablement benefit. Although the income protection and business expenses benefits were initially accepted, the insurer became aware of the CT scan and x-ray when it obtained access to the claimantís Medicare claims history.

After two years (in which the Risk Protection Package was renewed twice) the insurer refused the claim for the lump sum total and permanent disablement benefit, denied liability to pay the income protection benefits, elected to avoid the policy on the basis of fraudulent non-disclosure of the CT scan and x-ray and foreshadowed a claim for recovery of the benefits already paid.

The claimant commenced proceedings in the Supreme Court of Victoria. The insurer raised a defence of fraudulent non-disclosure and issued third party proceedings against the agent, alleging breach of his obligation to exercise reasonable care and skill in assisting the claimant to complete the application form.

At the hearing, and after final submissions, the insurer settled the claimantís claim by restoring the payment of income protection benefits, and paying the lump sum total and permanent disability benefit and the arrears of past income protection benefits.

This left the only matters in dispute to be those related to the third-party proceedings between the insurer and the agent. The judgment records allegations of breaches of common law duties but does not refer to relief claimed under the Insurance (Agents and Brokers) Act 1984 (Cth).

Breach of duty
The insurer argued that it was an implied term of the agency agreement that the agent would discharge his duties under the agreement with reasonable care and skill or, alternatively, that he owed a common law duty of care to the insurer in carrying out his duties. The agent did not dispute the existence of those duties.

The insurer argued that the agent was in gross breach of his duties by having the 1997 and 1999 applications signed in blank and not asking questions as to the claimantís health necessary to complete the forms. The insurer claimed that if the agent had carried out his duties with reasonable care, it would have been provided in 1997 with information as to the CT scan and in 1999 with information as to the CT scan and x-ray.

The insurer asserted that with such information it would have imposed a "full back" exclusion on the claimant and so would not have been liable to the claimant under the 1999 policy. In the alternative, the insurer claimed damages for loss of the opportunity to impose a full back exclusion if the Court did not find it would, on the balance of probabilities, have imposed such an exclusion. The agentís counsel accepted that it was not appropriate for the agent to proceed with the proposals signed in blank but argued that had the claimant provided information on the CT scan and x-ray, it would not have produced any different outcome and the information would not have made any difference to the insurerís decision to provide cover at the premium charged.

Judgment
Smith J considered that the critical question was what would have been the claimantís response if the questions in the proposal had been asked of him, in particular the questions concerning any back disorders or x-rays. The claimant said in evidence that if asked those questions specifically he would have responded by mentioning the CT scan and x-ray. Smith J accepted that evidence and also held that on the evidence at the time of the radiological examinations, the claimant did not have any symptoms in his back.

The actual underwriters were working overseas and were not called. The insurer called its life underwriting manager, who said that a full back exclusion clause would have been imposed in 1999 if the insurer was told of the 1996 CT scan.

Smith J considered that the life underwriting managerís views were tainted by his expectation that people do not obtain a CT scan unless there is sufficient pain in the region to justify a CT scan. The life underwriting manager conceded that the reason for the CT scan would have been investigated and, based on the evidence, an investigation would have revealed no injury to the spine in 1996 and no back problems in the intervening years and that the CT scan and later x-ray were carried out for preventative reasons.

The life underwriting manager was also referred to guidelines supplied to underwriters, which he considered would have recommended a denial of insurance or a full back exclusion. Smith J observed that the guidelines were devised to provide assistance for clients with "a history of back complaint" or clients "with back problems" and as the claimant did not have these complaints, the guidelines had no operation.

Smith J concluded that the insurer would have accepted the case advanced by a valued agent and valued client and would not have required a full back exclusion or even a limited exclusion in 1997 or 1999.

Loss of an opportunity
Smith J held that if the insurer had been informed in 1999 of the CT scan and x-ray it would have had the opportunity to consider whether and to what extent it might limit cover. The breach of duty by the agent deprived the insurer of the opportunity to consider such protection.

Smith J conceded that, although he did not consider the insurer would have imposed an exclusion, it was possible that after investigation it may have imposed some form of exclusion.

Smith J weighed up the opposing factors: on the one hand, the greater the investigation by the insurer, the less concern it would have had and the less likely it would have been to take advantage of the opportunity to apply an exclusion; and on the other, the possibility of lingering doubts (as the scan had not been disclosed in the 1997 application) and that the insurer might have imposed a full back exclusion even if it could not have been rationally justified.

He concluded that at the time of the 1999 proposal there was a 20% probability of the insurer using the opportunity to impose a full back exclusion. At the time of the 1997 application, Smith J considered the disclosure of the CT scan would have led to an investigation of the claimantís spine but there would not have been the same atmosphere of suspicion compared to 1999. Accordingly, the chance of the insurer imposing such an exclusion clause in 1997 was so low that any opportunity lost should be regarded as having no value.

Smith J concluded that the insurer had established the claim against the agent for the loss of opportunity to impose an exclusion in 1999, assessed on the basis there was a 20% probability of the insurer using the opportunity to impose the full back exclusion clause. To assess the measure of damages, Smith J considered it would be necessary to compare the liability of the insurer under the 1997 policies to the liability under the 1999 policy, which was to be a matter for further submissions from the parties.

Comments
The decision demonstrates that life agents who are negligent or in breach of their agency agreement may be held separately liable for amounts representing an insurerís loss of opportunity to impose exclusions in policies or otherwise to limit their exposure to non-disclosed risks.

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