Citiline Concrete Pumping Pty Ltd v Chubb Insurance Australia Ltd (No 2)

1. [1]

   The plaintiff, Citiline Concrete Pumping Pty Ltd (“Citiline”), seeks a declaration of its entitlement to indemnity under a Mobile Plant & Equipment Package Insurance Policy (“the Policy”) issued by the defendant, Chubb Insurance Australia Ltd (“Chubb”) in respect of damage sustained to a concrete pump fitted on a Volvo truck (“the Unit”) on 21 February 2019; together with consequential orders including damages.

2. [2]

   The Unit is depicted in this photograph:

3. [3]

   There is no dispute that the Policy responds to Citiline’s claim for indemnity.

4. [4]

   Chubb contends that it is not liable to indemnify Citiline because:

5. [5]

   On 23 August 2022, I made an order pursuant to Uniform Civil Procedure Rules r 28.2 that these issues be determined separately and in advance of any other issues in the proceedings. I ordered that the remaining issues, in particular the quantum of any damages to which Citiline may be entitled, be referred for inquiry and report to a referee pursuant to UCPR r 20.14. Whether that will occur in light of my decision on the issues at [4] remains to be seen.

Decision

1. [6]

   Chubb has made out both the defences referred to at [4]. Citiline is not entitled to the relief it seeks.

Citiline

1. [7]

   Citiline was registered on 9 July 2014. Its sole director and shareholder is Ms Rania Nasr. Citiline owns and operates a concrete pumping business.

2. [8]

   Ms Nasr’s husband, Mr Rostom (known as “Roger”) Nasr, has been an employee of Citiline since 2016. Roger is a licensed concrete boom pump operator.

3. [9]

   Counsel referred to Ms and Mr Nasr as “Rania” and “Roger” respectively. For convenience, and without intending any disrespect, I will do the same.

The Policy

1. [10]

   On 24 January 2019, Rania, on behalf of Citiline, engaged Ms Mary Rolph of Arthur J Gallagher & Co, an insurance broker (“the Broker”), to take out an insurance policy with respect to the Unit.

2. [11]

   Although Citiline had used the Unit, and although the Unit had been involved in accidents on 23 August 2017 and 11 September 2018 to which I will return, Citiline had not hitherto taken out any insurance coverage over the Unit.

3. [12]

   Cover under the Policy was bound on 13 February 2019 with effect from 31 January 2019 for a period of 12 months. Under the Policy the Unit was insured against material damage for $450,000 for the pump itself and $100,000 for the Volvo truck on which the pump was mounted. The Policy also provided for loss of income cover of $30,000.

The incident giving rise to the claim

1. [13]

   On 21 February 2019, shortly after the Policy incepted, Rania instructed Roger to clean and undertake general maintenance work on the Unit. Roger utilised the Unit to move a skip bin, causing damage to the Unit.

2. [14]

   Roger described this incident in his affidavit as follows:

The Misrepresentation/Non-Disclosure Defence

1. [15]

   Neither Citiline, nor the Broker, completed a proposal form.

2. [16]

   Rather, on 24 January 2019, the Broker sent an email to Mr Allen Paes, a Senior Underwriter employed by Chubb, under the heading:

3. [17]

   The Broker’s email read:

4. [18]

   Chubb contends that the Broker’s statement “no accidents/claims” [1] was a misrepresentation for the purposes of s 28 of the Act by Citiline (by its agent, the Broker) of the true position as the Unit had been involved in “accidents” which, in the circumstances I discuss below, had led to “claims” being made by Citiline (then uninsured) against the third parties responsible for those accidents.

5. [19]

   Mr Paes replied several hours later, relevantly:

6. [20]

   Chubb further contends that Citiline’s failure to respond to this statement by disclosing the circumstances of the earlier accidents constituted a breach of its duty of disclosure under s 21 of the Act.

7. [21]

   On 25 January 2019 the Broker wrote to Roger at Citiline, recommending that Chubb’s quotation be accepted.

8. [22]

   On 13 February 2019 Mr Paes wrote to the Broker stating that cover was confirmed and notifying the relevant policy number.

9. [23]

   Prior to 24 January 2019 the Unit had in fact been involved in two incidents in each of which it sustained damage. On each occasion, Roger was the operator of the Unit. On neither occasion was the accident a result of any fault of Roger. On each occasion, Citiline made a claim against the third party responsible for the accident and ultimately settled the claim through that third party’s insurer.

10. [24]

    The first accident occurred on 23 August 2017 when a tow crane operated by the head contractor on the relevant site, NZE Constructions Pty Ltd, backed into and collided with the Unit.

11. [25]

    As Citiline was uninsured, it made a claim on NZE Constructions, which in turn made a claim on its insurer, Tokio Marine Management (Australasia) Pty Ltd.

12. [26]

    Citiline’s claim against NZE Constructions was settled in June 2018 for a payment of $450,000.

13. [27]

    The second incident took place a little over a year later, on 11 September 2018 when a piece of metal became detached from a Boral concrete agitator truck fouling the Unit’s pumping apparatus.

14. [28]

    Citiline made a claim on Boral that, in turn, referred the claim to its insurer, CGU Insurance Ltd.

15. [29]

    That claim was settled in February 2021 for a payment in the order of $197,000.

16. [30]

    Thus, the Unit had been involved in two “accidents”, each of which had resulted in a “claim” by Citiline to the third party responsible for the accident, which third party had referred that claim to its insurer.

17. [31]

    The Broker’s email of 24 January 2019 represented to Chubb that the Unit had not been involved in any “accidents” nor been the subject of any “claims”.

18. [32]

    In cross-examination, Rania agreed that this was not correct and that the Unit “had suffered accidents” and that “there had been losses and claims”.

19. [33]

    Nonetheless, Mr Kirby, who appeared for Citiline, submitted that the representation in the Broker’s email was that there had been no “accidents” in which Citiline was at fault and no “claims” made by Citiline that were not “made whole” by a third party.

20. [34]

    The difficulty I see with that submission is that it is not what the Broker said. The Broker made the unqualified representation that there had been no “accidents” or “claims” at all.

21. [35]

    Mr Kirby pointed out that, perhaps unusually, neither Citiline nor the Broker had completed a proposal form and that the Broker’s email exchange with Chubb of 24 January 2019 should be seen as “experts speaking to each other in shorthand”. Mr Kirby pointed to evidence given by Chubb’s Head of Inland Marine Australia and New Zealand, Mr John Leafe, that Chubb and the Broker had a “good relationship” and submitted that Chubb would have understood the Broker’s statements to have the meaning I have set out at [33]. Although Mr Kirby cross-examined Mr Leafe, he did not put that proposition to him.

22. [36]

    I cannot see how the Broker’s email could be so read.

23. [37]

    Mr Kirby accepted that, had the Broker (or Citiline) completed a proposal form which contained questions “Has the Unit been in any accidents” or “Has Citiline made any claim in relation to the Unit” the answer would have to be “yes”. I cannot see that the situation is different in the events that happened.

24. [38]

    Rania’s evidence that I have set out at [32] shows that she agrees.

25. [39]

    The statements made by the Broker were thus untrue.

26. [40]

    Further, in my opinion, a reasonable person in the position of Citiline could be expected to know that the statements would have been relevant to Chubb’s decision to accept the risk. Citiline was seeking material damage insurance for the Unit. It should have been obvious to Citiline that the history of the involvement of the Unit in the incidents in 2017 and 2018, and damage sustained in those incidents, would be relevant to Chubb’s decision. This is because, as Mr Purdy, who appeared for Chubb, submitted:

27. [41]

    Accordingly, I find the statements made by the Broker in the 24 January 2019 email to be misrepresentations for the purposes of s 26 of the Act.

28. [42]

    For the same reasons, Citiline did not comply with its duty of disclosure under s 21 of the Act, especially in the face of Mr Paes’ statement in his 24 January 2019 reply to the Broker’s email earlier that day.

29. [43]

    As I have set out, in that email Mr Paes stated that terms would be issued on the basis of “nil losses or claims last 5 years”. As I have also set out, Rania agreed that there had been “losses and claims”. A reasonable person in Citiline’s position could be expected to know these matters to be relevant to Chubb’s decision to accept the risk, and if so, on what terms.

30. [44]

    Mr Kirby did not challenge Mr Leafe’s evidence that had the Broker or Citiline disclosed the circumstances I have summarised above, Chubb would not have provided cover.

31. [45]

    It follows that the relief to which Chubb is entitled under s 28(3) of the Act is that its liability for the claim be reduced to nil, as this is the position it would have been in had the misrepresentation not been made and the true position disclosed.

The Fraud Defence

1. [46]

   On 22 May 2019 Chubb wrote to the Broker, declining indemnity on the basis that “the damages fall outside the scope of the Policy cover”.

2. [47]

   On 12 June 2019 Mr Andrew Matwejev, a Property Claims Examiner at Chubb, wrote to Rania:

3. [48]

   Rania met with Mr Murray Johnstone, the investigator referred to in the last paragraph I have set out above, on 20 June 2019.

4. [49]

   During that interview, the following exchange took place between Mr Johnstone and Rania:

5. [50]

   Rania gave this evidence about that exchange in cross-examination before me:

6. [51]

   Rania thus admitted that she had made the following statements to Mr Johnstone, knowing them to be untrue, in order to avoid jeopardising Citiline’s claim under the Policy and to make it more likely that Chubb would pay the claim:

7. [52]

   In its List Response, Chubb set out the passage from Rania’s interview with Mr Johnstone that I have emphasised in italics at [49] above, but not the passage I have emphasised by underlining. Chubb then contended that the statements I have italicised, but not the statements I have underlined, were to Rania’s knowledge false and made to induce a false belief in Chubb that the Unit had not suffered damage prior to the inception of the Policy. [4]

8. [53]

   Nonetheless, as I have set out at [50], Mr Purdy cross-examined Rania, without objection from Mr Kirby, about both the italicised and underlined parts of the interview.

9. [54]

   Mr Kirby submitted that as Chubb had only referred in its List Response to that part of Rania’s interview with Mr Johnstone that I have emphasised in italics, it was not open to Chubb to rely on the earlier passage of the interview that I have emphasised by underlining. Mr Kirby pointed to the observations of Beazley P (as her Excellency then was) and Meagher JA (with both of whom McDougall J agreed) in Sgro v Australian Associated Motor Insurers Ltd [5] to the effect that an insurer seeking to invoke a defence under s 56(1) of the Act must plead allegations of fraud with particularity. [6]

10. [55]

    Mr Purdy made a “formal submission” that, because of the manner in which the cross-examination proceeded (without objection from Mr Kirby), Chubb should nonetheless be entitled to rely upon that part of Rania’s interview with Mr Johnstone that was not the subject of its contentions in its List Response. However, Mr Purdy in effect accepted that, by reason of the observations of the Court of Appeal in Sgro, that was not a course I could permit Chubb to take.

11. [56]

    Mr Kirby then submitted that the passage of the interview between Rania and Mr Johnstone upon which Chubb was permitted to rely (i.e. the subject of my emphasis in italics) related only to Citiline’s claim for indemnity for loss of income. This is a relatively small component of the claim as the Policy had a limit of loss of income cover of $30,000. Mr Kirby submitted that this passage of the interview did not relate to Citiline’s claim for damage to the Unit, in respect of which the cover was $450,000 and the alleged cost of repair of the Unit was a higher amount than that limit. In support of that submission, Mr Kirby referred to Mr Johnstone’s final two questions, which do appear to be directed to the question of loss of income, rather than damage to the Unit.

12. [57]

    However, the fact remains that in the part of the interview that Chubb has pleaded as bespeaking Citiline’s fraud, and upon which it is entitled to rely, Rania falsely stated that the Unit had only been “out of operation” during the time Rania was overseas in July 2018.

13. [58]

    That statement did not go only to Citiline’s loss of income claim. It also went to Citiline’s claim concerning damage to the Unit. That is emphasised by Mr Johnstone’s follow up question “But that’s not due to damage” and Rania’s response “No, no”. Read in isolation, it may be argued Rania is there saying no more than that the reason the Unit was “out of operation” during her July 2018 overseas trip was not because the Unit was then damaged. But read in the context of Rania’s earlier statement that the Unit had not sustained damage, and accepting that Chubb cannot rely on that statement as itself bespeaking fraud, it is clear that in the passage that Chubb is able to rely on Rania was telling Mr Johnstone, falsely to her knowledge, that the Unit had never been “out of operation” by reason of its being damaged.

14. [59]

    Section 56 of the Act provides, relevantly:

15. [60]

    Section 56(1) enables Chubb to refuse payment of the claim if the claim is made fraudulently. A claim is made fraudulently “if a false statement is knowingly made in connection with a claim for the purpose of inducing the insurer to meet the claim”. [7]

16. [61]

    That is what happened here.

17. [62]

    It is “not necessary to analyse the false statement to determine whether or not the falsity attaches to the basis upon which the insurer is claimed to be liable”. [8] That is, it is not necessary that the false statement be about the incident the subject of the claim. [9]

18. [63]

    Further “fraudulently” when used in s 56 “encompasses a lie which could not prejudice the insurer even if it were believed as well as a lie which does not prejudice the insurer because the insurer is not deceived. The claimant’s dishonesty is commensurate in both cases”. [10] It is therefore not to the point, contrary to Mr Kirby’s submission, that Rania’s “lie” was “silly” and “easily discoverable”.

19. [64]

    I see no room for the operation of s 56(2) which gives the Court a discretion to order an insurer to pay such amount as is just and equitable if “only a minimal or insignificant part of the claim is made fraudulently” and it would be “harsh and unfair” to deny the insured “the remainder of the claim”. Rania’s false statements were, as I have set out, directed to Citiline’s claim for indemnity in respect of the damage to the Unit; not a “minimal or insignificant” part of its claim.

20. [65]

    For these reasons, my conclusion is that Chubb has established the Fraud Defence and is entitled, for that further reason, to refuse Citiline’s claim.

Conclusion

1. [66]

   Chubb is not liable to indemnify Citiline.

2. [67]

   I will invite submissions as to the way forward and in particular, what if anything is to be done about the reference the subject of my orders made on 23 August 2022.