The New Zealand Insurance Company Ltd v Harris
- Court
- Court of Appeal
- Judgment
- 11 December 1989
Areas of law
Judgment analysis
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Facts
The respondent, an agricultural contractor, insured his 1978 Massey Fergusson tractor with the appellant for $25,000. In December 1982, he hired the tractor out to another contractor, which was driven by that contractor's employee. This constituted a breach of a 'permitted use' warranty in the insurance policy. After the work was completed, the tractor was parked overnight on a farm and was destroyed by a deliberately lit fire on 15 December 1982. The respondent lodged a claim, which the insurer denied on two grounds: first, that the claim was fraudulent because the respondent had arranged the arson; and second, that the respondent had breached the permitted use warranty. The allegation of fraud was primarily based on evidence from the respondent's estranged wife, given 18 months after the fire during a contentious custody dispute. The High Court found in favour of the respondent on both liability and quantum, leading to this appeal by the insurer.
Held
- Under s.11 of the Insurance Law Reform Act 1977, an insured is relieved from the consequences of breaching a policy warranty if they can prove the circumstances of the breach did not cause or contribute to the loss. This requires a practical assessment of whether the breach actually increased the risk of the type of loss that occurred, not a simple 'but for' test.
- An insurer's failure to make a timely payment on a valid claim is a breach of contract for which damages are recoverable. Such damages extend to foreseeable losses, such as increased financing costs incurred by the insured, where the insurer was aware (e.g., through a noted interest on the policy) that a financier was involved. These damages are not excluded by a general policy term that negates liability assumed by the insured to third parties.
- An appellate court should not overturn a trial judge's finding of fact which depends on an assessment of witness credibility, especially where the judge found both key witnesses to be convincing but ultimately concluded that the party with the onus of proof had not discharged it due to specific concerns about the reliability of their primary witness.
The appeal is dismissed. Costs of $2,500 plus reasonable disbursements are awarded to the respondent.
Key passages6
An insurer defending a claim on the basis of fraud by the insured bears the onus of proving the fraud.
“After anxious thought and having regard to those circumstances, I cannot find that the defendant has satisfied the onus which rests upon it in respect of the allegations of fraud.”
An appellate court will not interfere with a trial judge's findings on witness credibility unless the judge has erred in principle, as the trial judge has the great advantage of seeing and hearing the witnesses.
“Viewed in that way it is, we think, impossible for this Court, on appeal from a decision in a factual area which turns in the end on the Judge's assessment of the witnesses and their evidence, to say that the Judge erred in finding that her evidence and the case for the insurer were not sufficiently persuasive to satisfy him that the onus had been met.”
The inquiry under s.11 of the Insurance Law Reform Act 1977 is not a metaphysical or simplistic 'but for' causation test. The court must determine whether the circumstances of the breach actually sustained or increased the risk of the loss that occurred.
“If the existence of the relevant circumstances did not in itself increase the risk of loss, there is no justification either in principle as the Contracts and Commercial Law Reform Committee emphasised, or under the statutory language, for denying the insured the protection of the cover.”
An insurer's failure to pay a valid claim in a timely manner constitutes a breach of contract.
“The claim by the respondent arises from the failure by the insurer to meet its liability in respect of that cover. In this respect it is for the breach of the duty to pay $22,000 by 31 January 1983.”
Damages for breach of contract are recoverable for losses that were in the reasonable contemplation of the parties at the time the contract was made as the probable result of its breach.
“the question in a case like the present must always be what reasonable business men must be taken to have contemplated as the natural or probable result if the contract was broken.”
An insurance policy exclusion for liability assumed by the insured under a separate agreement does not preclude a claim for damages against the insurer for its own breach of the insurance contract.
“It is clear from the context that the condition is directed to the liability of the insurer to indemnify the insured in respect of loss or damage to the insured vehicle and liability to third parties and that liability assumed by the insured by agreement with a third party for which the insured would not otherwise be legally liable is not covered.”
Cases mentioned in judgment
Legislation mentioned
- Evidence Act, unspecified
- Insurance Law Reform Act 1977, s.11
- Hire Purchase Act 1971, unspecified
- Judicature Act 1908, s.87