Allianz Australia Insurance Ltd v Haddad

THE COURT: This is an application for leave to appeal from a judgment for the respondent on the question of liability in proceedings in the District Court. That judgment was ordered on 13 May 2014 and leave to appeal is required because it was interlocutory: District Court Act 1973 (NSW), s 127(2)(a); Computer Edge Pty Ltd v Apple Computer Inc [1984] HCA 47; 54 ALR 767. The primary issue in the proposed appeal is whether the applicant insurer (Allianz) engaged in misleading or deceptive conduct in relation to the renewal of a policy of home insurance.

Between 22 July 2003 and 22 July 2009 Allianz insured the respondent’s brick veneer house at Wadalba under annual contracts of home insurance. Those policies were renewed with effect from 4pm on each anniversary of the commencement of that cover. In June 2007 the respondent made a claim under the 2006–2007 policy for storm damage. That claim was finalised in March 2008. In June 2009 the respondent’s husband, acting on her behalf, lodged a supplementary claim for damage caused by that storm. That claim related to the repair and replacement of electricity power poles within the property. Allianz appointed loss adjusters (GAB Robins Australia Pty Ltd) to investigate the claim. The principal adjuster was Scott McKenzie. Between June and October 2009 he prepared five short claim reports. In October 2009 it was agreed that the supplementary claim be settled for $10,533. That occurred and payment was made to the respondent in late November 2009.

In the course of Allianz assessing the supplementary claim, a decision was made by Allianz, but not communicated to the respondent, to record the 2008–2009 policy as “lapsed due to underwriting decline”. Further reference to this will be made in due course (at [37]-[38]). That being the position, the policy was not renewed from 4pm on 22 July 2009. Because it was “renewable insurance cover” Allianz had been required by subs 58(2) of the Insurance Contracts Act 1984 (Cth) (the ICA), to inform the respondent of the day and time at which that cover was to expire and whether it was prepared to negotiate to renew or extend it. No such notice or information was given. That was due to administrative error on the part of Allianz. The fact that this information was not given and that this occurred in circumstances where the supplementary claim under the 2006-2007 policy was still being dealt with, form the basis for the claim that is the subject of the proposed appeal to this Court.

On 2 September 2010, the respondent made a claim on Allianz in respect of malicious damage to the property that occurred at some time between 26 August 2010 and that date. Allianz denied that claim, maintaining that there was no home insurance policy current during any part of that period.

The respondent brought proceedings against Allianz claiming as damages the amount that would have been recoverable had the Wadalba property been insured at the time it was damaged in 2010. That claim, as finally formulated by her Amended Statement of Claim, was made on five bases. They were breach of contract (being a breach of the 2008-2009 policy); unconscionable conduct within the meaning of ss 20-22 of the Australian Consumer Law (enacted as a law of the Commonwealth by the Competition and Consumer Act 2010 (Cth), s131); conventional and promissory estoppel; misleading or deceptive conduct; and the benefit of insurance cover by the operation of s 58 of the ICA.

An order was made for liability to be determined separately and before any assessment of damages. That hearing proceeded before the primary judge (Cogswell SC DCJ). His Honour delivered two judgments, the first on 13 May 2014 (Haddad v Allianz Australia Insurance Ltd [2014] NSWDC 132) and the second on 21 August 2014 (Haddad v Allianz Australia Insurance Ltd (No 2) [2014] NSWDC 308). At the conclusion of the first, his Honour ordered the entry of judgment in favour of the respondent. It is from that order that Allianz seeks leave to appeal. (The transcript of the judgments to which the Court was referred differed from those available at the preceding citations. The paragraph numbers referred to in these reasons correspond to the later form of the judgments.)

Notwithstanding the delivery of the August 2014 reasons, the only reasons to which regard may be had when determining whether the primary judge erred in ordering judgment are those delivered at the time that order was made: see Spencer v Bamber [2012] NSWCA 274 at [13]; Tre Cavalli Pty Limited v The Berry Rural Co Operative Society Limited [2013] NSWCA 235 at [55], [57].

His Honour rejected the respondent’s claims alleging unconscionable conduct, conventional or promissory estoppel and relying on s 58 of the ICA: [2014] NSWDC 132 at [29]–[37], [44]–[47]. He also rejected the respondent’s claim that Allianz had breached the 2008–2009 policy “by unilaterally stopping the automatic renewal process”: [2014] NSWDC 132 at [17].

However the primary judge did hold that Allianz was in breach of that contract by purporting to cancel or terminate it. Clause 5 of the policy recorded that Allianz had the right to cancel the policy “where permitted by law”. By paragraph 40 of the Amended Statement of Claim the respondent alleged that Allianz had breached cl 5 “by unilaterally cancelling the Policy”. The primary judge upheld that allegation saying at [26]:

In July 2009, s 63 of the ICA provided that an insurer could not cancel a contract of general insurance except as provided by that Act and that any purported cancellation in contravention of that section was of no effect. The primary judge’s reference to s 63(1) takes account of amendments made to s 63 (with effect from 28 June 2013) by the Insurance Contracts Amendment Act 2013 (Cth), Sch 5, Pt 4 in relation to the cancellation of life insurance contracts.

In relation to the claim of misleading or deceptive conduct, the primary judge held at [42]:

Notwithstanding that there was no finding that the respondent had suffered any damage by reason of that misleading conduct, his Honour concluded at [47] and [48]:

It is necessary to refer to these reasons, in order to explain the position taken by the parties in relation to the appeal.

The purpose of the further hearing that preceded the delivery of the August reasons was to address additional issues formulated by the primary judge. Those issues included whether the respondent had suffered any damage from Allianz’ “purported unilateral cancellation of the policy”; whether she had suffered any damage by reason of the misleading conduct (this issue was described as being whether the damages claimed were too remote); and, formulated by the primary judge as a separate question, whether the respondent had relied upon Allianz’ conduct: [2014] NSWDC 308 at [2], [3], [14], [30].

As to the first of these issues, the primary judge found that the respondent had not suffered any damage "arising from the repudiation of the contract" by the appellant. Allianz’ "repudiation" was described as being its uncommunicated decision in June 2009 to allow the 2008-2009 policy to lapse and not to negotiate to renew it. To the extent that the making of this decision involved any breach of contract, the primary judge held that the respondent had not suffered damage because that contract came to an end “in accordance with its terms” and could not have covered the malicious damage which occurred over a year later: [2014] NSWDC 308 at [5].

As to the second, his Honour found that the respondent had suffered loss by reason of Allianz’ misleading conduct. His Honour then separately addressed the third question and concluded that the respondent had relied upon Allianz’ conduct: [2014] NSWDC 308 at [30], [33]-[34]. His Honour’s reasons for that finding of causation included at [25]-[26]:

Finally, in these reasons the primary judge revisited the statutory basis for the respondent’s claims for damages for unconscionable conduct and misleading or deceptive conduct. The pleadings alleged that the relevant statutory provisions were Parts 2-1 and 2-2 of the Australian Consumer Law. However, the primary judge correctly observed in these reasons that the Competition and Consumer Act 2010 had come into force on 1 January 2011, well after the conduct complained of. At the time of that conduct the provisions prohibiting unconscionable and misleading or deceptive conduct in relation to the issue of insurance contracts were contained in Div 2 (Subdivs C and D) of Pt 2 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and specifically, ss 12CA, 12CB and 12DA. The statutory right to recover the amount of any loss or damage suffered by conduct in contravention of those provisions was conferred by s 12GF of that Act.

In this Court no point was taken that the respondent’s claims for unconscionable conduct and misleading or deceptive conduct had been dealt with as governed by the Australian Consumer Law rather than the ASIC Act.

Allianz seeks leave to appeal from the judgment in favour of the respondent on the grounds that his Honour erred in holding that it had engaged in misleading or deceptive conduct (grounds 3 and 4 of its Amended Notice of Appeal) and that the respondent had suffered loss or damage by reason of that conduct (ground 5). Grounds of appeal 1 and 2 were not pressed.

At the outset three matters should be noted in relation to proposed ground 5. The first is that it addresses a finding that was not made as part of the reasoning in support of the judgment as to liability. The second is that it is not accompanied by any ground that such a finding was necessary to justify a holding of liability, if that liability was based on the allegation of misleading or deceptive conduct. The need for such a finding follows from the decision in Wardley Australia Ltd v Western Australia [1992] HCA 55; 175 CLR 514 which held that the sustaining of some loss or damage is the gist of the statutory cause of action under s 82 of the Trade Practices Act 1974 (Cth): at 525. See also I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at [42]–[46]. The respondent’s misleading conduct claim was for recovery of damages only and was made relying on s 12GF of the ASIC Act, which takes the same form as s 82.

The third matter is that Allianz did not by any ground of appeal address the other reason given by the primary judge for the judgment in favour of the respondent. That reason was that there had been a breach of contract which did not require, for a holding as to liability, that there had been any damage suffered by reason of that breach: [2014] NSWDC 132 at [47]. In an action for breach of contract, the cause of action accrues at the time of breach. See Battley v Faulkner (1820) 3 B&A 288; 106 ER 668; Howell v Young (1826) 5 B&C 259; 108 ER 97 and, for a more recent application of that principle, Hawkins v Clayton t/a Clayton Utz (1986) 5 NSWLR 109 at 115, 122.

The respondent does not consent to the grant of leave to appeal and seeks to uphold the judgment as to liability, arguing that the primary judge correctly concluded that Allianz had engaged in misleading or deceptive conduct and that she had suffered loss or damage by that conduct. She also contends, albeit by way of an Amended Notice of Cross-Appeal, that the primary judge’s conclusion as to liability should be affirmed on the ground that by the operation of s 58 of the ICA there was a statutory policy in force at the time of the malicious damage. That issue is raised by ground 8 and is to be treated as if raised by a notice of contention (see Uniform Civil Procedural Rules 2005 (NSW), Pt 51, r 51.40).

More significantly, neither by the Amended Notice of Cross-Appeal nor by her written or oral argument did the respondent submit that if the issues as to misleading or deceptive conduct and the application of s 58 are decided in Allianz’ favour, any appeal must nevertheless be dismissed because she has a finding of breach of contract which is not sought to be challenged.

After the Court had reserved its decision, the parties were invited to confirm that the proposed appeal was to be dealt with on the basis that, if leave to appeal was granted and these two issues decided in Allianz’ favour, the appeal should be allowed and the judgment for liability set aside. That would also mean that should the respondent succeed only in respect of the misleading conduct issue, the judgment for liability would not be disturbed, notwithstanding that the May reasons make no finding as to reliance and some damage.

The parties did not accept that invitation. The respondent sought to argue that the judgment for liability should be maintained on the basis of the finding as to breach of contract. In response, Allianz contended that the finding as to breach of contract was wrong and could not sustain that judgment. This makes it necessary for the Court to address this issue notwithstanding that it is not formally raised as a ground of appeal.

In our view, the primary judge’s finding as to breach of contract cannot be sustained. That finding was that Allianz’ uncommunicated decision to lapse or cancel the 2008-2009 policy was a breach of contract because at that time Allianz had no right under s 60 of the ICA to terminate the contract: [2014] NSWDC 132 at [25], [26]. The problem for this analysis is that whatever Allianz may have thought or done internally, it did not communicate any such intention to the respondent or outwardly act on that intention in any way. For that reason there was no “purported” cancellation, which could be or give rise to a breach or constitute an anticipatory breach or repudiatory conduct. For conduct to be repudiatory it must be such as to convey to a reasonable person in the position of the other party an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 at [44].

The issues remaining in the proposed appeal are whether the primary judge was correct to conclude that Allianz engaged in misleading or deceptive conduct that resulted in the respondent’s not being insured at the time of the malicious damage and whether he erred in rejecting the respondent’s arguments as to the application of s 58 of the ICA.

The respondent’s husband, Jim Haddad, gave evidence before the primary judge. The respondent did not. Mr Haddad was involved in all of the dealings with the appellant concerning the insurance and acknowledged that the first policy, effective from 4pm on 22 July 2003, “was to be renewed on an annual basis”.

The 2003–2004 policy wording included the following renewal provision:

Before the 2007–2008 policy was renewed the respondent received a renewal notice dated 29 June 2008. That notice commenced:

The evidence was that the respondent and her husband appreciated that, ordinarily, insurance policies were issued from year to year and were renewed at the end of each annual period by the payment of a further premium. That appears clearly from two documents signed by the respondent in support of her claim to an indemnity for the malicious damage. The first is a letter to Allianz dated 27 December 2010. That letter pointed out that at the time for renewal of the 2008-2009 policy (July 2009) the respondent had two homes insured with Allianz, one at Carlingford and the other at Wadalba, and that she had received and acted on a renewal notice in respect of the insurance of the Carlingford property. The second is a letter from the respondent to Allianz dated 31 January 2011. That letter included the following statement:

On 15 May 2009 Mr Haddad contacted Allianz to make a claim for the cost of repairing power poles which apparently had been damaged by the June 2007 storm. On 19 May 2009 that claim was referred to Mr McKenzie of GAB Robins. (At some stage in June or July 2009 this entity changed its name to Cunningham Lindsey Australia Pty Ltd). There followed communications between Mr McKenzie and Mr Haddad. The latter described those communications in the following terms:

During this same period Mr McKenzie prepared and forwarded claim reports to Allianz. Those reports indicate that, after the building damage which had been the subject of the initial claim had been rectified, “the electricity authority attended to inspect power lines within the property. The authority advised that the lines no longer exceed minimum height requirements”. The respondent then stated that “the storm has caused the poles to sink and the poles require repair or replacement to comply with the authorities [sic] requirements”. Mr Haddad subsequently obtained a quote of $10,533 for the completion of that work. The adjuster recommended settlement of the claim for that amount. Allianz agreed and payment was made in November 2009.

On 18 June 2009 there was a telephone conversation between Mr McKenzie and Laurel, an employee of Allianz. Mr McKenzie’s note of that conversation included the following:

On the same day Laurel sent an email to the Allianz underwriting department headed “URGENT – confirmation of completion of repairs Unoccupancy”. After referring to the supplementary claim and to the fact that the earlier claim had been the subject of a “cash settlement” on the basis of damages totalling $41,000, that email continued:

What then occurred, according to the evidence, appears from two screen shots of the Allianz “Customer Information System”. The first shows the following note was made in that system at 16:29 on 19 June 2009:

The second screen shot is of the respondent’s “Contact Details” and contains the following description recorded as entered at 16:57 on 19 June 2009:

The Allianz underwriter called to explain its renewal procedures current as at June 2009 was Ms Burke. She gave evidence that due “to an administrative error” someone from the section within Allianz known as Policy Services “lapsed” the policy instead of sending a request for further information as to whether repairs had been completed. In cross-examination she explained that “lapsed” meant not offer renewal and in the case of the 2008-2009 policy referred to allowing it to lapse or expire on 22 July 2009.

The respondent’s pleaded claim was that the provisions in the policy wording, containing the promises to indemnify for damage caused by “malicious acts” (a defined insured event) and giving a right to cancel “where permitted by law” (general condition 6), were misleading or deceptive as to whether the Wadalba property “would be covered for building insurance on an annual basis from the year 2003 to the present” (presumably referring to the date of the pleading filed in October 2012).

The primary judge rejected the argument that the conditions “themselves” were misleading or deceptive: [2014] NSWDC 132 at [40]. He then turned to whether Allianz’ conduct was otherwise misleading or deceptive and identified that conduct as being:

His Honour’s conclusion as to whether that conduct was misleading or likely to mislead is extracted above at [11]. In terms it was that Allianz’ conduct was “likely to mislead” the respondent, leaving open the possibility that that was because of an erroneous assumption or belief on her part that was not reasonably made or held.

As the judgments in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 show, there are different approaches which can be taken to the characterisation of conduct as misleading or deceptive where, as here, it consists of or includes an omission to provide information. One approach is to consider whether in the circumstances the conduct, including any such omission, conveyed a representation which was misleading or deceptive. Another is to inquire whether those circumstances were such as to give rise to a reasonable expectation that if some relevant fact existed a particular thing would not be done, or not done, without disclosing that fact.

The conduct of Allianz upon which the respondent relies has three aspects. The first is that the contract of insurance was entered into in 2003 and subsequently renewed on an annual basis on five occasions. The policy wording stated that Allianz would “normally offer renewal”. It did not undertake to do so and if there was no renewal, the current policy would expire on the last day of the insurance period. None of that was consistent with there being any “ongoing contract” in the event that renewal did not occur, for whatever reason.

The second aspect of Allianz’ conduct is that of dealing with the respondent’s supplementary claim made under the 2006-2007 policy. That dealing commenced in June 2009 and continued until the claim was paid in late November 2009. The fact that the handling of that claim continued after the expiry of the 2008-2009 policy on 22 July 2009 said nothing about whether that policy had been or was to be treated as having been renewed or regarded as “ongoing”. The existence or continuance of that 2008-2009 policy was not relevant at all to the acceptance or rejection, in whole or part, of the claim under the 2006-2007 policy. Nor was anything said or done in the course of that dealing to suggest otherwise.

The third aspect of that conduct is that Allianz did not notify the respondent that the 2008-2009 policy was about to expire or indicate, as its internal records suggested, that it did not propose to offer renewal of the policy. Allianz, nevertheless, remained subject to the obligation imposed by s 58(2). As the primary judge was prepared to accept, Allianz’ omission to notify of the expiry of the policy and whether it was prepared to negotiate to renew was an “oversight” and unintended: [2014] NSWDC 132 at [43]. However, it had not promised to give the respondent a notification under s 58(2) or represented that if it did not, the policy could be taken to have been renewed. Nor had it promised to renew or to offer to renew.

Considered as a whole, Allianz’ conduct did not assume any different character. It did not convey that Allianz had renewed or would renew or extend the 2008-2009 policy in the absence of any agreement to that effect. So much was stated in the policy wording and was the basis upon which the policy had been issued and renewed from year to year. Allianz’ conduct did not justify the respondent having a reasonable expectation that Allianz would not allow the 2008-2009 policy to expire without having disclosed that was about to occur. Nor was there any reasonable basis for an expectation that if no notice of expiry was received, the policy could be taken to have been renewed or extended indefinitely.

In argument reference was made to the characterisation of Allianz’ conduct by the primary judge (when considering the question of causation) as likely to induce “a belief on Sally Haddad's part that the business relationship between her, as insured, and Allianz, as insurer, was not fundamentally altered”: [2014] NSWDC 308 at [26]. That characterisation begs the question as to what was the relationship that remained unaltered. It was one in which annual policies of insurance were issued and expired unless renewed.

For these reasons we consider that Allianz’ conduct was not misleading or deceptive and that the primary judge erred in holding otherwise. This makes it unnecessary to consider Allianz’ further argument (raised by ground 4) that its failure to inform the respondent of the expiry of the policy and of the fact that it did not propose to invite renewal, was not conduct to which s 12DA of the ASIC Act applied because that omission was inadvertent and accordingly not conduct to which that provision applied: s 12BA(2)(b),(c).

Section 58 of the ICA relevantly provides:

Section 60 which deals with the cancellation of contracts of general insurance provides by subs (4):

It was accepted by Allianz that the result of its failure to comply with s 58(2) was that, by force of that section, there was insurance which commenced at 4pm on 22 July 2009 and continued until 22 July 2010 because it was not cancelled earlier (in exercise of the right given by s 60(4)) and the respondent did not obtain replacement cover at any time during that 12 month period. The malicious damage occurred after the expiry of that “statutory” policy.

The respondent makes two arguments in reliance upon s 58. First it is submitted that the “statutory” policy in force by virtue of the first operation of s 58 was also “renewable insurance cover” to which s 58 applied. That argument must be rejected. The policy in force by virtue of s 58 was not the result of any consensual arrangement. It was imposed by reason of the insurer’s non-compliance with subs 58(2). It was not insurance cover that “it is usual to renew or for the renewal of which it is usual to negotiate” within subs (1)(b). Nor was it cover “provided for a particular period of time” within subs (1)(a). The effect of subs (3) is that the cover is not for a definite period. It may be cancelled by the insurer at any time by 14 days’ notice and ceases if the cover provided by the original contract is replaced.

The respondent’s second argument starts with the proposition that Allianz’ purported cancellation took effect after the commencement of the 2009-2010 policy. It is then said that that cancellation was, by s 63, of no effect. Therefore the 2009-2010 policy expired on 22 July 2010. As there was no compliance with s 58(2) in relation to the expiry of that policy, there was a “statutory” policy in force from 22 July 2010. The fundamental flaw in this argument is that the first proposition is not sustainable. The 2008-2009 policy lapsed or expired at 4pm on 22 July 2009. There is no suggestion in the evidence that Allianz unilaterally extended the operation of that policy for another 12 months or renewed it for that period and then sought to cancel it. This second argument also must be rejected.

The primary judge erred in holding that Allianz was liable to the respondent in damages for misleading or deceptive conduct. For that reason the interests of justice require that Allianz have leave to appeal. That appeal, amended to include a ground challenging the finding as to breach of contract, should be allowed.

The Court makes the following orders: