Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (No 4) [2010] FCA 482

Harwood Andrews represented the interests of the defendant insurer in this Federal Court action before Justice Rares in Sydney. Judgment was handed down on 18 May 2010.

Justice Rares found the denial of indemnity by the insurer was correct. The decision is important for all insurers when considering whether to deny a claim based on a failure by the insured of their duty of disclosure and under exclusions where the insured driver is believed to be either “under the influence of intoxicating liquor” and/or whose blood alcohol concentration was “in excess of the legal limit”.

Facts

A nominated driver under the policy was driving after consuming alcohol at the Mittagong RSL when her vehicle left the roadway colliding with two trees before rolling and coming to rest against a third tree. The insured Mercedes was written off in the single vehicle collision. The sum insured was $173,000. The driver had two convictions in 1999 and 2002 for driving whilst in excess of the prescribed concentration of alcohol in her blood and was disqualified from driving for 18 months and 12 months respectively.

The claim for the total loss of the Mercedes was denied by the insurer on three grounds:

• A misrepresentation was made or a breach of the duty of disclosure occurred as the insurer was not made aware of the cancellation or suspension of the nominated driver’s licence in 1999 or her conviction;

• The driver was driving the insured vehicle “under the influence of intoxicating liquor”; and

• An analysis of the driver’s blood taken within two hours of the collision contained a percentage of alcohol that was “in excess of the legal limit” prescribed in NSW.

The nominated driver succeeded in defeating the Police charge as the blood vial seal was broken when it arrived for analysis.

Issues considered by the court

• Whether the insurer was correct to deny the claim due to breach of the duty of disclosure and thereby reduce its liability to nil under s 28(3) of the Insurance Contracts Act 1974 (Cth) (“the Act”);

• Whether in fact the driver was driving “under the influence of intoxicating liquor”, enabling the insurer to rely on its policy exclusion and deny the claim on that basis; and

• Whether the insurer was entitled to deny the claim on the basis that the driver’s blood alcohol concentration was “in excess of the legal limit”. The insured claimed the sample was inadmissible as it was taken two hours after the collision and the vial seal was broken when it arrived for analysis.

The decision

• The court was satisfied the insured and the driver misrepresented her driving record by omitting the 1999 offence and the cancellation of her driver’s licence. The answers given by the insured in evidence on disclosure were held to be untrue and a misrepresentation and a reasonable person in the insured’s position would have known this. The court also found a reasonable person in the insured’s position would have understood from the questions asked that the two convictions in three years indicated the driver posed a substantial risk of re-offending. It was inferred by the court that the insured was seeking to avoid disclosing her earlier offence for fear the insurer would reject her from being covered under the policy. It was established that had the duty of disclosure been complied with, the insurer would have rejected the driver from coverage under the policy. As a result, the insurer was entitled to reduce its liability to nil under s 28 (3) of the Act.

• For the insurer to maintain a denial of indemnity based on the “under the influence of intoxicating liquor” exclusion it faced the burden of proof. Justice Rares relied on evidence as to the observations of those who came into contact with the driver at or close to the time of the collision including another road user, attending police officers, ambulance officers, the triage nurse at the hospital emergency department, the attending doctor at the hospital and by cross examination of the driver in the witness box. The court also relied on expert evidence as to the level of intoxication which would be expected as the driver admitted consuming at least two double whiskies just prior to driving. Justice Rares found on the evidence the driver was “under the influence” at the relevant time.

• The final decision for the court was whether the insurer was entitled to rely on the policy exclusion to deny the claim due to the driver being a person whose blood alcohol content was “in excess of the legal limit” as prescribed by law. The court found having considered all the evidence that the blood sample was taken within two hours of the collision and was admissible evidence of her blood alcohol content in this civil case. The insured claimed that as the seal of the vial containing the blood sample was broken at the time it was received by the analyst, the sample should be inadmissible. As there was no intelligible reason as to how or why the blood sample could be contaminated and as the sample returned a result consistent with the totality of the evidence presented Justice Rares deemed the sample admissible in the civil case.

Conclusion

This case highlights the ability of an insurer to deny a claim due to:

• A failure by the insured of their duty of disclosure. The questions posed by the insurer were clear and unambiguous and the persons responsible for the policy underwriting presented as honest and reliable witnesses;

• The driver being “under the influence of intoxicating liquor”. Insurers should seek as much information as possible of the driver’s behaviour shortly before and after the collision as these observations proved crucial in this case. Expert evidence is also important; and

• The driver being “in excess of the legal limit” of alcohol. This exclusion may be relied on even when the criminal charge has been dismissed. However, the court will pay close attention to how the sample was gathered and the ability of the insurer to rely on the sample having considered any relevant legislation, in this case the Road Transport (Safety and Management) Act 1999 (NSW).

The insurer could have succeeded on any of the above denials but such was the strength of the evidence in this case the court found all three could be relied upon and dismissed the applicant’s claim and awarded costs to the insurer.

For more information on anything in this Alert please contact one of the authors:

Geoff Donovan 
t - 1800 552 018
gdonovan@harwoodandrews.com.au

Ainslee Minihan 
t - 1800 552 018
aminihan@harwoodandrews.com.au