Dominion Autoparts and Acessories Limited v. Rahmat Ali

• Jurisdiction: Fiji
• Judgment Date: 26 October 2018
• Date: 26 October 2018
• Docket Number: Civil Action No. HBC 211 of 1988
• Counsel: Mr. Padarath of Samuel K Ram for the Plaintiffs,Mr. Kumar of Krishna & Company for the Defendant
• Court: High Court (Fiji)

IN THE HIGH COURT OF FIJI

AT LAUTOKA

CIVIL JURISDICTION

Civil Action No. HBC 211 of 1988

Between:

Dominion Autoparts and Acessories Limited a limited liability Company having its registered office at Ba.

1^st Plaintiff

v.

Rahmat Ali of Namosau, Ba, Businessman.

2^nd Plaintiff

The New India Assurance Company Limited a duly incorporated company having its registered office in Suva.

Defendant

Date of Trial: 11 June 2018

Date of: 26 October 2018

Counsel:

Mr. Padarath of Samuel K Ram for the Plaintiffs

Mr. Kumar of Krishna & Company for the Defendant

JUDGEMENT

BACKGROUND

1. I am mindful that this case has been long pending for some thirty two years or so before it was tried before me earlier this year. I caution at the outset that some of the common law I discuss below and apply in this case have been reformed or modified slightly by Part VI of the Insurance Law Reform Act 1996. That said, the background to this case is as follows.

2. In a fire which occurred on 02 November 1986, the 2^nd plaintiff's building (“premises”) situated at Lot 19 Tauvegavega in Ba was partly destroyed. Also allegedly destroyed was some stock-in-trade (motor spare parts) which belonged to the 1^st plaintiff company. The second plaintiff is the “proprietor” of the 1^st plaintiff company.

3. The very next day, on 03 November 1986, the plaintiffs lodged a claim under an insurance policy it had with the defendant-insurer. However, the defendant would avoid the indemnity contract on the ground that the plaintiffs had committed a material non-disclosure. The material non—disclosure was allegedly committed through a lie which the plaintiffs made in response to a question on the standard Proposal For Fire Insurance Form (“Proposal”). The plaintiffs then filed the current action in 1989 seeking special damages in the sum of $66,000 (Sixty Six Thousand Dollars). This is made up as follows:-

• (i) $50,000 as damages suffered for spare parts.

• (ii) $16,000 as damages suffered to the said premises by the second plaintiff.

• (iii) Interest at 13.5% per annum from 03 November 1986 to date of judgement.

TRIAL

4. The trial of this matter was held on 11 June 2018. The plaintiffs called one witness only, namely, Rahimat Ali (PW1). The defendant also called one witness only, namely, one Avinesh Chand Rai (DW1). Samuel K. Ram filed written submissions for the plaintiffs on 27 August 2018. The defendant hasnot filed any written submissions, despite being granted an extension just last week.

THE ALLEGED MATERIAL NON-DISCLOSURE

5. The plaintiffs had applied to the defendant for two separate fire policies. One was to cover the premises. The other, the stock in trade at the premises. As is the usual case, the applications were made through the standard Proposal which PW2 had filled out. It is alleged that prior to taking out the insurance policies with the defendant, the plaintiffs each had a policy with another insurer. It is alleged that these other policies were either declined or refused by that other insurer.

6. Clause 8 of the Proposal relates to the plaintiff's “Previous Insurance History”and asks specific questions of the plaintiffs to declare if they have had previous policies cancelled, declined or refused. It is these declinations/refusals which the plaintiffs allegedly failed to disclose in the Proposal (see below).

THE BASIS CLAUSE

7. At the end of the Proposal, is the following “basis clause” duly executed by the plaintiffs:

I/We hereby declare that the statement made by me/us in this Proposal For more true to the best of my/our knowledge and belief and I/We hereby agree that this declaration shall form the basis of the contract between Me/Us and THE NEW INDIA ASSURANCE COMPANY LIMITED..

…………………

……………………………I/We further declare that I/We have read and understood particulars entered herein and I/We have signed this after verifying the same tobe true and complete……..

(my emphasis)

THE DEFENDANT'S CASE

8. The defendant takes the position (as per paragraph 1 of statement of defence) that it is either an express or an implied condition precedent that the plaintiff will disclose all material facts. A failure on the part of the plaintiffs to disclose a material fact would be a breach of a condition precedent which would then entitle the defendant to avoid the contract and to reject any claim.

THE PLAINTIFFS' CASE

9. The plaintiffs' response is that the Fire Insurance policies in question contain no express stipulation that a material non-disclosure will entitle the defendant insurer to avoid the policy. The insurer may only avoid the policy if the duty to disclose material facts was a condition precedent. A condition precedent can only be expressly stipulated. It cannot be implied into an insurance contract.

THE LAW

10. Again, as I have said above, most of the common law applicable in this case have now been reformed or modified slightly through the Insurance Law Reform Act 1996 which came into force some ten years or so after the occurrence of the peril in this case in 1986. Part VI of the Act deals with utmost good faith, non-disclosure and misrepresentation.

Utmost Good Faith & Duty To Give Full Disclosure

11. A policy of insurance is a contract of “utmost good faith”. It is the principle of utmost good faith which, inter-alia, obligates a person applying for insurance to give full disclosure of all material facts when applying for insurance.

12. In Blueshield (Pacific) Insurance Limited v Maureen Chandra Wati Civil Appeal No. ABU0048 OF 1995, the Fiji Court of Appeal said thus

The duty of disclosure………arises out of the fact that a contract of insurance is a contract uberrimae fidei.

Duty Begins From Proposal

13. The duty of utmost good faith is so fundamental in an insurance contract. The duty begins from the time when the party seeking to be insured is filling out the Proposal to the insurer. In doing this, the applicant is required to set forth the risk to be insured against. In setting forth the risk, he is required by law to disclose all material facts material to the risk to be insured and not to conceal them.

14. The insurer relies on the applicant to be truthful in the information in the Proposal. Whatever information an applicant provides will become the basis upon which the insurer or its underwriters will assess and decide as to whether or not to accept the Proposal and if so, on what terms it will provide insurance including the premium.

15. Lord Mansfield by his oft cited comments in Carter v Boehm (1766) 3 Burr 1905 explains this thus:

Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.

16. Romer LJ in Seaton v Heath [1899] 1 Q.B. 782 at 793 said:

Contracts of Insurance are generally matters of speculation, where the person desiring to be insured has the means of knowledge as to the risk, and the insurer has not the means or not the same means.

And earlier at 792:

There are some contracts in which our courts of law and equity require what is called “uberrimae fidei” to be shown by the person obtaining them…. Of these, ordinary contracts of marine, fire and life insurance are examples, and in each of them, the person desiring to be insured must, in setting forth the risk to be insured against, not conceal any material fact affecting the risk known to him.

Breach of Duty Entitles Insurer to Avoid Policy

17. At common law, an applicant who fails to disclose a material fact in his application (Proposal) breaches the principle of utmost good faith. Because the principle of good faith is so fundamental in an insurance contract, any breach of the principle is a fundamental breach, hence, the insurer's entitlement to avoid the policy.

18. In Brij Bushan Lal v Queensland Insurance Co. Ltd. [1967] FJLawRp 2; [1967] 13 FLR 203 (19 December 1967), Gould VP of the Fiji Court of Appeal said:

It is an elementary principle of insurance law that if the utmost good faith is not observed by either party the contract may be avoided by the other party…………..The short question therefore, upon the answer to which the right of the respondent company to repudiate liability depends, is whether the fact of the cancellations was a material fact.

Onus

19. The burden of proving breach of the duty to disclose material facts falls onthe insurer who alleges breach. There are three things which an insurer must prove to discharge this burden. First, he must prove as a matter of fact that a previous insurer had declined to renew a policy or refused indemnification for the insured. Second, that the insured had failed to disclose this fact and thirdly, that the said fact is a material fact.

Tests for Materiality

20. There are two different tests to determine whether a fact is material. Thefirst is the “Prudent Insurer Test”. Under this test, a fact is material if it would reasonably affect the mind of a prudent insurer in assessing whether or not it will accept a proposal and if so, on what premiums and terms it will provide insurance (see for example Mayne Nickless Ltd v. Pegler [1974] 1 NSWLR 228).

21. The second test is the “Reasonable Insured Test” which asks “whether a reasonable insured and with his knowledge of the relevant circumstances would have realised that they were material to the risk” (Joel v Law Union And Crown Insurance Company [1908] 2 KB 863.

22. The Fiji Court of Appeal in Blueshield (Pacific) Insurance Limited v Maureen Chandra Wati Civil Appeal No. ABU0048 of 1995 applied ...