Alotau Enterprises Pty Limited and Allen Enterprises Pty Limited v Zurich Pacific Insurance Pty Limited (1999) N1969

• Jurisdiction: Papua New Guinea
• Judge: Sevua J
• Judgment Date: 10 December 1999
• Court: National Court
• Citation: (1999) N1969
• Year: 1999
• Judgement Number: N1969

National Court: Sevua J

Judgment Delivered: 10 December 1999

N1969

PAPUA NEW GUINEA

[In the National Court of Justice]

WS 363 of 1995

BETWEEN: ALOTAU ENTERPRISES PTY

LIMITED

First Plaintiff

AND: ALLEN ENTERPRISES PTY

LIMITED

Second Plaintiff

AND: ZURICH PACIFIC

INSURANCE PTY LIMITED

Defendant

Waigani: Sevua, J

1998: 17th, 18th, 19th & 20th August

1999: 8th, 9th, 10th, 11th, 12th March &

10th December

Insurance Law – Duty to disclose material facts – Effects of non disclosure – Duty to take reasonable precautions to prevent loss – Liability for loss caused by third parties – Order for rectification – Circumstances under which order will issue.

Remedies :–

Damages.

Held:

Non-Disclosure

1. The defendant cannot insist that the Special Risk Policy dated 9th Apirl, 1994 is void because the plaintiffs did not tell the defendant what it actually knew or ought to have known in so far as the service area in the laneway is concerned. Carter v. Boehm (1766) 97 ER 1162.

2. The servicing and repairs of motor vehicles on the laneway was a fact that the defendant had knowledge of. Knowledge by the agent of the insurer/defendant, Lotte Moimoi, was knowledge of the insurer/defendant. Pimm v. Lewis (1862) 175 ER 1281.

Reasonable Precautions

3. In a contract of insurance between the insurer and the insured, the duty to take reasonable precaution, where such a condition is written into the policy of insurance, vests on the insured alone, not his employees. Negligence of the insured’s employees does not entitle the insurer to avoid the contract of insurance on the grounds that the insured failed to take reasonable precautions to prevent the occurrence of its loss. Woolfall & Rimmer Ltd. v. Moyle & Anor [1941] 3 AII ER 304; [1942] 2 KB 66.

4. The duty to take reasonable precaution rests upon the insured personally. Fraser v. BN Furnam (Productions) Ltd. [1987] 1 WLR 898; Albion Insurance Company Ltd. v. Body Corporate Strata Plan No. 4303 [1983] VR 339.

5. The plaintiffs have taken reasonable precautions therefore the defendant is not entitle to avoid the policy, which in effect, would deprive the plaintiffs of a large measure of protection. The plaintiffs are entitled to compensation for their losses.

Rectification

6. The test for rectification is objective, however, if the evidence reveals that each party had a common subjective interest, the Court may order rectification. NSW Medical Defence Union Co. Ltd v. Transport Industries Insurance Co. Ltd (1986) 5 NSWLR 740.

7. Where either party to a contract of insurance shows that such an insurance policy does not record the real intention of the parties, he is entitled to an order for rectification so that the policy correctly expresses the true agreement between the parties.

8. The plaintiffs had intended that the Industrial Special Risk Insurance Policy of 9th April, 1993 would insure all the stock at Lots 15 and 18 including the stock in the drapery section at Lot 15. The plaintiffs are therefore entitled to an order for rectification.

9. Where either party to a contract of insurance establishes that the policy formally embodying the term of the parties contract does not record the real agreement of the parties, he is entitled to have the policy rectified so that it properly expresses their true agreement. The equity maximum on rectification that ‘equity considered as done what ought to have been done’ is applicable here. Henkle v. Royal Exchange Assurance Co. (1749) 1 Ves. Sen. 317 per Lord Hardwicke, LC. at 318.

Damages

10. The plaintiffs are entitled to the sum of K530,000.00 for the loss of their buildings. That head of damage is not contested by the defendant, although it did not admit liability.

11. The plaintiffs are entitled to the sum of K1,375,000.00 for loss of stock situated at Lots 15 and 18. That is the value of stock recorded in the Schedule to the Insurance policy.

12. The plaintiffs are also entitled to the sum of K20,000.00 for damage to personal effects which is admitted, and the sum of K3,344.00 for damage to cable TV equipment.

Interest.

13. The plaintiffs are entitled to a commercial interest rate of 13.50% so as to achieve a more equitable result to place them in a position as close as possible to a total restitution. Accordingly, they are entitled to the sum of K1,569,203.95 which represent a commercial rate of 13.50% between 9th April, 1994 to 9th December, 1999, ie. date of loss (fire) to date of judgment.

Cases referred to:-

London General Omnibus Co. Ltd v. Holloway [1912] 2 KB (CA) 72

Joel v. Law Union and Crown Insurance Co. [1908] 2 KB 863 (CA)

Carter v. Boehm (1766) 97 ER 1162

Bates v. Hewitt (1867) LR 2 QBD 595

Pimm v. Lewis (1862) 175 ER 1281

Nairn v. Royal Insurance Fire & General (NZ) Ltd (1990) 6 ANZ Insurance Cases 61-010; 76, 749 at 76, 755

Pacific Queen Fisheries v. Symes [1963] 2 LL LR 201

Wheelton v. Hardisty (1857) 8 E & B 232

Becker v. Marshall (1922) LL LR 413

Greenhill v. Federal Insurance [1927] 1 KB 65

Mann v. Capital and Counties Insurance [1922] 2 KB 300

Woolfall & Rimmer Ltd v. Moyle & Anor [1941] 3 AII ER 304; [1942] 2 KB 66

Kodak (Australasia) Pty Ltd v. Retail Traders Mutual Indemnity Association (1992) 42 (SR) NSW 231

Fraser v. BN Furnam (Productions) Ltd [1967] 1 WLR 898

Albion Insurance Company Ltd v. Body Corporate Strata Plan No.4303 [1983]

2 VR 339

Parsons v. Bignold (1846) 15 LJ Ch 379

Motteux v. London Assurance Co. (1739) 1 Atk. 545

Henkle v. Royal Exchange Assurance Co. (1749) 1 Ves. Sen. 317

NSW Medical Defence Union Ltd v. Transport Industries Insurance Co. Ltd (1986) 6 NSWLR 740

John Cybula v. Nings Agencies Pty Ltd [1981] PNGLR 120

Cullen v. Trappel (1980) 146 CLR 1

Blackwood Hodge Hire (Australia Pty Ltd v. Sandaun Provincial Government and Jacob Talus (unreported & un-numbered) Pratt, J. 8th March, 1985

Mr A. Sullivan QC and Mr. F. Lever and

Mr. K. Raphael for Plaintiffs

Mr J. Griffin QC and Mr D. Lightfoot and

Mr D. Kakarya for Defendant

10th December 1999

SEVUA, J: This is an insurance claim in which the plaintiffs claimed the sum of K2,051,917.00 for losses suffered as a result of a fire which destroyed assets and properties owned by the plaintiffs, and which they claimed the defendant should have indemnified under an Industrial Special Risks Policy dated 9th April, 1994.

The plaintiffs conducted an extensive wholesaling, retailing and distribution business from a number of premises in Alotau in Milne Bay Province. The nature of business and the outlets those businesses were conducted from are summarised hereunder.

(a) Section 10 Lot 15

Alotau Enterprises conducted-

(i) a Supermarket known as Alotau Enterprises Family Store;

(ii) a Drapery Section; and

(iii) Residences and offices.

(b) Section 10 Lot 18

Alotau Enterprises conducted-

(i) a Wholesale and Bulkstore;

(ii) a Cash and Carry section; and

(iii) Residences and offices.

(c) Section 39 Lot 03

Alotau Enterprises conducted –

(i) Bulkstores; and

(ii) Staff residences.

(d) Section 10 Lot 12

Alotau Enterprises conducted a Hardware store.

(e) Section 09 Lot 05

Alotau Enterprises conducted a Supermarket and office.

(f) Section 43 Lot 07

A residence.

(g) Section 10 Lot 11

Alotau Enterprises conducted a Liklik store.

Lot 15 is owned by the first plaintiff whilst the second plaintiff owns Lot 18. The drapery section was located in Lot 15 and was connected to the wholesale on Lot 18 by a passageway. Customer access to the wholesale was therefore through the drapery section.

In September 1983, the plaintiffs submitted a proposal form to GRE Pacific Insurance, the defendant’s forerunner, for public liability and general risks insurance (Exhibit “K”). The plaintiffs have not submitted any other proposal form and since then, they have paid annual premiums for the insurance policies issued by GRE Pacific Insurance and later the defendant.

The Industrial Special Risks policy dated 9th April 1994, now Exhibit "A", covered all the plaintiffs' premises that have been identified.

On Saturday, 9th July, 1994, a fire completely destroyed the buildings, stock and other goods located on Lots 15 and 18. On 4th August 1994, the plaintiffs’ accountants, Deloitte Touche Tohmatsu, submitted a claim dated 21st July 1994 to Wyatt Group (PNG) Pty Ltd, loss assessors engaged by the defendant.

On 22nd September 1994, the defendant rejected the plaintiffs’ claim on the basis of material non-disclosure and/or misrepresentation and/or misdescription and/or breaches of the conditions of the insurance policy. On 25th October 1994, the plaintiffs’ accountants submitted a detailed calculation of the plaintiffs’ claim, which included substantial documentation supporting the plaintiffs’ claim for loss of stock. On 10th November 1994, the defendant rejected the plaintiffs’ claim and returned the documents to the plaintiffs’ accountants.

The plaintiffs then instituted these proceedings on 12th May 1995. Since then, the parties have amended their pleadings and the trial commenced on the basis of the further amended...