In the recent case of O'Farrell v Allianz Australia Insurance Ltd, the New South Wales Court of Appeal considered ss 21, 21A and 22 of the Insurance Contracts Act 1984 (Cth) (ICA) regarding the insured's duty of disclosure and an insurer's obligation to inform the insured of that duty. The Court's decision highlights the need for insurers to "clearly inform" the insured of his or her obligations and provides a salient warning about the dangers of imprecise questioning.
In May 2010, O'Farrell insured his car with Allianz Australia Insurance Ltd. His car was stolen and he made a claim under the policy. Allianz refused to pay the claim on the basis that O'Farrell had failed to disclose two criminal convictions arising out of minor brawls in a pub.
O'Farrell brought proceedings in the Consumer, Trader and Tenancy Tribunal (CTTT) seeking an order of payment for the value of his car. O'Farrell submitted that he was only asked about convictions that related to driving and he was not alerted to the duty of disclosure or the consequences of failing to comply. The CTTT decided the case in O'Farrell's favour, finding he had not been properly advised of his duty of disclosure and, in any event, the undisclosed convictions were not to be understood as a "material risk" covered by the policy. After a successful appeal by Allianz to the District Court, the matter came before the Court of Appeal.
In a unanimous decision, the Court of Appeal overturned the decision of the District Court and reinstated the CTTT's decision.
In brief, s.21 of the ICA requires the insureds to disclose every matter that they know, or could reasonably be expected to know, is relevant to an insurer's decision to enter into a contract of insurance with them.
As O'Farrell was applying for comprehensive car insurance, s.21A of the ICA applied. Accordingly, Allianz had to ask specific questions relevant to its decision to enter into a contract of insurance and O'Farrell was obliged to answer those questions by disclosing each matter known to him and disclose what a reasonable person in his circumstances could be expected to include in the answer. However, pursuant to s.21A, if the insurer fails to ask specific questions, then it is deemed to have waived the applicant's obligation to comply with their duty of disclosure.
The case turned on whether or not Allianz had met the requirements of s.22 in clearly informing O'Farrell of the general nature and effect of his duty of disclosure. The burden of proof lay with Allianz to show it had complied.
O'Farrell obtained the insurance policy through brokers. O'Farrell gave evidence, by affidavit, as to his recollection of events which was ultimately accepted. In essence O'Farrell said he was provided with a quote for the premium and then asked a series of questions by the broker who said that she would enter the answers into the computer later. O'Farrell said that he was asked about his driving history and speeding fines and so disclosed his previous negligent driving offence, speeding fines and drink driving offence. O'Farrell said he was not asked about criminal convictions.
Allianz relied on affidavit material by a technical development manager which annexed an email from the broker's employee about what questions would have been asked. The broker's employee who dealt with Mr O'Farrell was not called to give evidence herself.
Also attached to the affidavit was a five page document signed on the last page by O'Farrell. However, it was unclear to the Court whether this was the questionnaire which the broker had before her when she asked O'Farrell questions. The document appeared to be a computer printout. The first page of the document contained a number of "important notices" including a paragraph commencing "your duty of disclosure". The Court of Appeal did not accept that the notice complied with the permissible form in Schedule 1 of the ICA.
It was decided that O'Farrell's attention had not been directed to the notices on the first page of the proposal form at the time he was asked to sign the final page or at any time. Allianz tried to argue that by signing the "Declaration" on the last page, which included a declaration that O'Farrell had read the information concerning the duty of disclosure, that his attention must have been drawn to the duty. However, this was insufficient to establish that Allianz had "clearly informed" O'Farrell of the duty.
Once O'Farrell paid the premium and was then handed a "tax invoice" which included details of his policy and other information. The "tax invoice" was also stamped with "Your duty of disclosure. Please read important notice overleaf". However this was provided after payment had been made and the contract of insurance entered into.
In considering the language used in decisions below, the Court emphasised the judgment of Stein JA in Suncorp v Cheihk. In that case it was held that "inform" means "make-known" and clarity was required in both method and form:
"Clarity was required not only in the contents of the note by which the information was conveyed but also by the manner in which the note conveying the information was made known. A note in a document without attention appropriately drawn to it would not suffice..."
O'Farrell highlights the risks for insurers of relying on proposals being "administered" by others if the person administering the proposal cannot lead clear evidence that the insured was clearly informed of his or her duty of disclosure.