High price of non-disclosure: Citiline v Chubb
A concrete pumping company has lost its appeal to overturn a finding of misrepresentation and fraud that resulted in its insurer, Chubb, declining its claim for damage to a $450,000 concrete pump.
The Court of Appeal’s decision in Citiline Concrete Pumping Pty Ltd v Chubb Insurance Australia Ltd  NSWCA 123, illustrates the importance of disclosing all information to your risk advisor, the consequences of non-disclosure, misrepresentation and the provision of fraudulent information when seeking out insurance.
The case also reconfirms the need for risk advisors to ensure proposal forms are fully completed and to ask their clients the relevant questions when subjectivities are raised by insurers.
The plaintiff, Citiline Concrete Pumping Pty Ltd (Citiline), sought declarations 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.
Chubb contended that it was not liable to indemnify Citiline because it was entitled pursuant to s 28(3) of the Insurance Contracts Act 1984 (Cth) (“the Act”) to reduce its liability to nil by reason of Citiline’s misrepresentation and non-disclosure relating to the Unit’s history (the Misrepresentation/Non-Disclosure Defence); and the claim was made fraudulently for the purposes of s 56 of the Act and that it was thereby entitled to refuse payment (“the Fraud Defence”). Citiline lost its case and then appealed the decision.
The Policy and prior accidents and claims
On 24 January 2019, Citiline engaged an insurance broker (Broker), to take out an insurance policy with respect to the Unit. Cover under the Policy was current from 31 January 2019 to 31 January 2020. Citiline had used the Unit prior to 24 January 2019, and it had been involved in accidents in 2017 and 2018, each of which it sustained damage. On each occasion, Citiline had not taken out any insurance coverage over the Unit and made a claim against the third party responsible for the accident, ultimately settling the claim through that third party’s insurer.
The incident giving rise to the claim
On 21 February 2019, Ms Nasr (sole director and shareholder of Citiline) instructed her husband to clean and undertake general maintenance work on the Unit. He utilised the Unit to move a skip bin, causing damage to the Unit.
The Misrepresentation/Non-Disclosure Defence
Neither Citiline, nor the Broker completed a proposal form. On 24 January 2019, the Broker sent an email to Chubb, stating that there were no accidents / claims / convictions and that the current insurance expired in Sept last year as not working. Insurer Unknown. The statements made by the Broker were untrue.
Chubb contended that the Broker’s statement “no accidents/claims” 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 had led to “claims” being made by Citiline (then uninsured) against the third parties responsible for those accidents.
The underwriter at Chubb replied stating: “Terms are issued on the basis of nil losses or claims last 5 years …” Chubb contended 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. The Broker’s email represented to Chubb that the Unit had not been involved in any “accidents” nor been the subject of any “claims”.
- Citiline failed to comply with its duty of disclosure and made a misrepresentation to Chubb before the contract was entered into, entitling Chubb to reduce its liability in respect of Citiline’s claim to nil under the Act
- Citiline’s claim was made fraudulently, entitling Chubb to refuse payment of that claim under s 56(1) of the Act.
Conclusion on Misrepresentation/Non-Disclosure Defence
The relief which Chubb was entitled under s 28(3) of the Act was 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.
Citiline made the following statements, knowing them to be untrue, in order to avoid jeopardising its claim under the Policy and to make it more likely that Chubb would pay the claim: that the Unit had not sustained damage; and the Unit has only been out of operation (and then not because of damage) when Rania was overseas.
Citiline appealed on the ground that the primary judge erred in making findings on the evidence to support the contention that either the director or plant operator were aware at the time of seeking indemnity from the defendant on the insurance policy that the Unit had suffered damage on a previous occasion. The Court of Appeal also held that the primary judge’s finding that Citiline failed to comply with its duty of disclosure with respect to these two events involved no error.
Section 56(1) of the Act enabled Chubb to refuse payment of the claim if the claim was 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”. On appeal it was held that Chubb’s establishment of the Fraud Defence was made out and it was therefore entitled, for that further reason, to refuse Citiline’s claim.
On appeal it was held that the primary judge’s finding, that there was a misrepresentation, was also justified – the statement that there had been no accidents in the conduct of Citiline’s business was not correct. That statement amounted to a ‘misrepresentation’ within s 26(2) of the Act such that a reasonable person in the circumstances could be expected to have known that such a statement would have been relevant to Chubb’s decision to accept the risk, and, if so, on what terms.
Citiline was not entitled to the relief sought and the appeal was dismissed with costs.
This case serves to highlight the importance of complying with your duty of disclosure, the onus of which lays with the insured. Failure to meet disclosure obligations jeopardises coverage for potential claims. Here, the diligence of the risk advisor also comes into play – it being their role to deal honestly and transparently with both their client (the insured) and the insurer and to ensure the quality and accuracy of information provided to insurers will enable an insurable event to result in a successful claim.
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