Section 56 of the Insurance Contracts Act
(s56) does not apply to fraudulent statements
made in the course of giving evidence in connection with a
disputed insurance claim.
Setting the scene
Much has been written about the decision of Justice
Hammerschlag in Brescia Furniture Pty Ltd v QBE  NSW
One of the many interesting aspects of that decision was his
Honour's finding that s56 of the Insurance
Contracts Act (relating to fraudulent claims) does not
apply to claims within Court proceedings, as opposed to the
initial claim presented to the insurer. Section 56, therefore,
would not preclude recovery under an insurance policy even if
part of the claim made within the Court proceedings proved to
The insured would nevertheless be required to prove the
claimed loss and any judgment procured by a fraud could be set
Where does fraud come in?
This limited view of the application of s56 has recently
received support from the Victorian Court of Appeal in
Allianz Australia Insurance Ltd v Douralis & Ors 
The Court of Appeal considered two appeals from decisions of
the primary judge in the Victorian County Court. The first
related to the scope of a builders home warranty insurance
contract. Although not the focus of this update, the judgment
on this subject provides a cautionary tale in respect of
accurately defining the scope of cover, particularly the
insured and additional beneficiaries of cover, and the
importance of consistency between the policy wording, schedule
and certificates of currency. The insurer's appeal
against the finding that cover extended to Mr and Mrs Douralis
in respect of the acts and omissions of a builder not nominated
in the policy was dismissed.
The second appeal was by Mr and Ms Douralis against the
primary judge's finding that s56 of the Insurance
Contracts Act entitled the insurer to refuse payment
because the affidavit of Mr Douralis filed in the Court
contained untrue statements intended to mislead the Court into
concluding that Allianz had no defence.
While it was not contested on appeal that the statements
were untrue, the Court held that s56 had no application on the
basis that s56 has nothing to do with representations made in
evidence in the course of proceedings following the rejection
of a claim.
Justice Nettle commented that despite what was said in
To v The Australian Associated Motor Insurers Limited
 VSCA 48:
"I see no reason in principle why a plaintiff's
claim against the insurer should any more be denied on the
basis that the plaintiff has given deliberately false evidence
than a plaintiff's case against any other sort of
defendant is denied on the basis that the plaintiff has given
deliberately false evidence."
His Honour noted that, while there may still be consequences
associated with giving false evidence (e.g. punishment for
perjury), there should be no additional penalty by way of
deprivation of the fruits of an otherwise valid claim.
Their Honours generally noted that even if they were wrong
in relation to the application of s56, in their view it was
just and equitable under s56(2) to otherwise order that the
claim be paid in full.
This case highlights the limited application of s56 to
claims made extra-curially under a policy rather than evidence
submitted in proceedings in respect of a disputed claim. It
also provides a further example of the Court's
willingness to find that despite the presence of fraud it would
be harsh or unfair not to pay a claim - being just and
equitable in the circumstances.
The decision is also an example of the Court giving an
expansive interpretation of a policy to include persons not
expressly referred to in the policy and highlights the
importance of accurately defining the scope of cover and
ensuring the consistency of all related documentation, such as
certificates of currency, to avoid a policy being given an
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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