In this update we look at two recent CTP decisions covering different issues. White v Australian Associated Motor Insurers Ltd (Nos 1&2)  QSC 141 & 142 considered a nervous shock claim brought out of time and Dawes Underwriting Australia Pty Ltd v Roth  NSWCA 152 highlights the dangers for insurers of not having stringent procedures in place to deal with an insured's 'loose' disclosure.
NERVOUS SHOCK & LIMITATION PERIODS
Nervous shock claims often throw up difficult limitation period issues. Psychiatric injury can be slow to emerge, hard to identify, difficult to attribute to a specific cause and highly subjective. Often insurers/defendants are forced to make an early call whether to concede extension of the period or fight the issue with very limited information. The Queensland Supreme Court's decision in White v Australian Associated Motor Insurers Ltd (Nos 1&2)  QSC 141 & 142 reveals another option may exist.
- In latent nervous shock claims it is important to consider all options for resolution of limitation period issues and choose the best one for the particular case.
The plaintiff was a serving police officer who suffered psychiatric injury after he attended the scene of two motor vehicle accidents, one in January 2006 and the other in August 2007. He began legal proceedings for damages against the drivers of the vehicles (and their insurers) that were allegedly responsible for the accidents. However, he did not bring his claim until after the three year time limitation period for the first accident had expired.
The plaintiff sought a declaration he had complied with the pre-litigation notice requirements for motor vehicle accidents in Queensland in accordance with the Motor Accident Insurance Act 1994 (Qld). The plaintiff needed to show a reasonable excuse for the delay in notifying the claim. He alleged his psychiatric injury did not become apparent until years after the two motor vehicle accidents and only after he consulted a psychiatrist in mid-2008.
The plaintiff had to prove that he had a reasonable excuse for not notifying the claim sooner than he did. The judge openly conceded that claims involving psychiatric injuries are difficult to determine because the underlying disorder may not readily become apparent to a lay person, or the person suffering the disorder may not be able to recollect when the symptoms first appeared. A plaintiff may also be dishonest about when symptoms first arose. On the facts, the judge found contradictory evidence as to precisely when the plaintiff became aware of his psychiatric symptoms.
The judge could not justly resolve these issues at a preliminary hearing on patchy affidavit evidence and consequently he declined to make the declaration sought. However, the judge authorised the applicant to proceed further with the claim despite the possible notification noncompliance. The judge effectively left this decision and the limitation period issue to be decided at trial on the totality of the evidence.
It is apparent the judge did not consider it fair for the insurer to be forced to fight limitation period issues in preliminary or interlocutory proceedings. The judge decided that the facts and issues necessary to determine whether the plaintiff's claim fell foul of notification and limitation could only be properly determined at a full trial.
This case is important for insurers because it grants a plaintiff procedural permission to continue with a claim that is brought out of time but reserves the statutory limitation period defence for later argument. This sets a precedent for defendant insurers to waive procedural compliance anomalies while preserving limitation period rights. Concession of an extension to the limitation period may still be appropriate in certain circumstances. Alternatively, the parties may elect to resolve the issue as a preliminary point. Importantly however, in appropriate circumstances, a defendant may reserve its arguments to trial when the fullest evidence is available. This also has the secondary benefit of more comprehensive rights of appeal.
FAST CARS AND LOOSE DISCLOSURE
In Dawes Underwriting Australia Pty Ltd v Roth  NSWCA 152 a motor vehicle insurer declined indemnity to its insured, for an extensively damaged 2004 Ferrari F360 valued at $350,000, because the traffic and claims history the insured provided when he took out the policy was incomplete. The Court found the non-disclosure to be accidental, not fraudulent, and unlikely to have changed the underwriting decision.
- To prove fraud, an insured must have a clear intention to engage in dishonesty.
- Insurers should have clear and documented underwriting guidelines to avoid argument that proper disclosure would not have removed cover.
- For discretionary cover in special circumstances, clear written parameters can avoid open ended potential liability.
- Any discrepancies in the insured's disclosure should be identified and investigated prior to confirming insurance cover.
- Well drafted insurance policy wordings should clearly specify the consequences to an insured of any failure to properly disclose their driving or claims history.
The insuring agent, Dawes, specialised in performance and prestige vehicles and in its proposal documents asked various questions about important risk factors such as accidents and insurance claims, traffic offences and licence suspension. The Ferrari owner, Mr Roth was under 30 years of age. He disclosed only one claim or accident (which he categorised as 'not at fault') out of an actual five in the past five years. One of the four claims overlooked was an 'at fault' collision four years prior. From his five year driving offence record he disclosed only a ticket for using a mobile phone while driving and one speeding (less than 15 km/h over the limit) offence. He neglected to mention the following additional offences:
- Speeding – more than 45 km/h over the limit – four years prior – licence suspended.
- Speeding – between 15 and 30 km/h over the limit – two and a half years prior.
With regard to licence cancellation, he disclosed one suspension eight years prior while still a P plate driver. He failed to disclose the later suspension only four years prior as a result of the more excessive speeding offence.
Dawes' CEO Mr Garnett made the initial decision to underwrite the policy for a premium of $8,000 per year with a variable $10,000 to $15,000 excess. He gave evidence that if full and proper disclosure had been made by Roth at the outset he would never have taken on the risk. Therefore under sections 54 and 28 of the Insurance Contracts Act 1984 (Cth) the insurer was entitled to reduce its liability under the policy to nil, the amount it would have been liable to pay if Roth had disclosed all the required information up front.
Garnett pointed to underwriting guidelines which noted 'Declined Risks' to include 'any driver who has lost a licence or had a four point speeding fine in the last five years, any insured or driver who has had two 'at fault' claims or three of any type of claim or accident in the last three years, and under 30 drivers without a three year driving history of no accidents, claims or serious speeding offences'. The guidelines therefore provided three separate justifications to decline cover to Mr Roth. However they also mentioned a discretionary 'Second Chance Scheme' which allowed cover for insureds with an inferior driving record at higher premium loadings. Mr Garnett said Roth would not have qualified under this scheme based on his judgment that the combination of young age, vehicle type and offence/ penalty record rendered Roth an unacceptable risk.
Roth called evidence from an expert underwriter who thought the risk was insurable under the 'Second Chance Scheme'. Mr Roth was just the sort of driver this scheme was intended for. However there were no detailed guidelines for the scheme and its implementation remained solely discretionary.
Both the trial judge and the Court of Appeal found that:
- The insured's disclosure and misrepresentations were not fraudulent. The insured was careless but did not act recklessly, without caring if information was true or false and with no honest belief in the truth of the disclosure. Roth said he misread the disclosure period for licence disqualification, and believed it to be five years as opposed to the required 10 years. In various conversations and documents his disclosure varied slightly, perhaps flagging his loose approach to the enquiry.
- An allegation of fraud must meet the high hurdle of proving that there is 'no honest belief in the truth of the disclosure' because an allegation of fraud demands a clear intention on the part of the insured to engage in dishonesty. At best, disclosure was careless.
- It is for the insurer to prove that it would have acted differently in providing the insurance cover, had the insured made full and proper disclosure. Irrespective of the insured's lack of proper disclosure or misrepresentations, Dawes would still have agreed to provide insurance cover to the insured and there would have been no significant difference to the terms of that insurance.
- The discrepancies between the insured's various disclosures were apparent to Dawes, yet it failed to investigate the discrepancies. The Court concluded that this failure to investigate suggested that Dawes did not place reliance on the matters that were disclosed in the Proposal Form, prior to giving insurance cover.
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