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Alotau Enterprises Pty Ltd v Zurich Pacific Insurance Pty Ltd [1999] PGNC 107; N1969 (10 December 1999)

Unreported National Court Decisions

N1969

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS 363 OF 1995
BETWEEN: ALOTAU ENTERPRISES PTY LIMITED
FIRST PLAINTIFF
AND: ALLEN ENTERPRISES PTY LIMITED
SECOND PLAINTIFF
AND: ZURICH PACIFIC INSURANCE PTY LIMITED
DEFENDANT

Waigani

Sevua J
17-20 August 1998
8-12 March 1999
10 December 1999

INSURANCE LAW – Duty to disclose material facts – Effects of non disclosure – Duty to take reasonable precautions to prevent loss – Liability for loss caused by third parties – Order for rectification – Circumstances under which order will issue.

REMEDIES – Damages.

Held

Non-Disclosure

1. &ـ T60; The defe defendant cannot insist that the Special Risk Policy dated 9^th Apirl, 1994 is void because the plaintiffs did not tell thendant it lly knew or ought to have known in so f so far asar as the service area in the laneway is c is concerned. Carter v. Boehm [1766] EngR 157; (1766) 97 ER 1162.

2. &##160; T60; The serv cingrend rs airs of motor vehicles on the laneway was a fact that the defendant had knowledge of. Knowledge by the agent of the insurer/defendant, Lotte Moimoi, was knowledge of the insurer/dant. mm v.s (1862(1862) 175) [1845] EngR 1312; 175 ER 1 ER 1281.

Reasonable Precautions

3. ҈& I60; co a contracttract of insurance between the insurer and the insured, the duty to take reasonable precaution, where such a condition is written into tlicy suranests on the insured alone, not his empl employeesoyees. Neg. Negligence of the insured’s employees does not entitle the insurer to avoid the contract of insurance on the grounds that the insured failed to take reasonable precautions to prevent the occurrence of its loss. Woolfall & Rimmer Ltd. v. Moyle & Anor [1941] 3 AII ER 304; [1942] 2 KB 66.

4. ـ T60; The duty to take reasonable precaution rests upon the insured personally. Fraser v. BN Furnam (Product Ltd. [1987] 1 WLR 898; Albion Insurance Company Ltd. v. Body Corporate Strata Plan No. 430. 4303 [1983] VR 339.

5. &##160; The plaintiffs have have taken reasonable precautions therefore the defendant is not entitle to avoid the policy, which inct, wdeprie plafs of a large measure of protection. The plaintiffs are entitentitled tled to como compensapensation for their losses.

Rectification

6. ټ&##160; T60; The tese test for rectification is objective, however, if the evidence reveals that each party had a common subjective interest, the Court may order rectification. NSW Medical Defence Union Co. Ltd v. Transport Industries Insurance Co. Ltd (1986) 5 NSWLR 740.

7. Where either party to a contract of insurance shows that such an insurance policy does not record the real intention of the parties, he is entitled to an order fctifin so the p corr expr the true true agre agreementement betw between teen the pahe parties.

The plaintiffs had intended that the Industrial Special Risk Insurance Policy of 9^th April, 1993 would insure all the stock at Lots 15 and 18 including the stock in the drapery section at Lot 15. The plaintiffs are therefore entitled to an order for rectification.

9. &##160; Where either party arty to a contract of insurance establishes that the policy formally embodying the term of the parties act dot rethe rgreement of the parties, he is entitled to have the policy recy rectifictified soed so that that it properly expresses their true agreement. The equity maximum on rectification that ‘equity considered as done what ought to have been done’ is applicable here. Henkle v. Royal Exchange Assurance Co. [1749] EngR 153; (1749) 1 Ves. Sen. 317 per Lord Hardwicke, LC. at 318.

Damages

10. ټ The plaintiffntiffs are entitled to the sum of K530,000.00 for the loss of their buildings. That head of damage is not contested by the defendant, although it did not admit liability.

11. laintares ntiteed to t to t to the sum of K1,375,000.00 for loss of stock situated at Lots 15 and 18. That is the value of stock recoin thedulehe Ince policy.

12. ټ Taintiffntiffs iffs iffs are aare also elso entitlntitled to the sum of K20,000.00 for damage to personal effects which is admitted, and the sum of K3,344.00 for damage to cable TV equipment.

Interest

13. ;&#16e plaintiffntiffs are are entitled to a commercial interest rate of 13.50% so as to achieve a more equitable result to plaem insition as close as possible to a total restitution. Accordingly, they are entitletitled to d to the sum of K1,569,203.95 which represent a commercial rate of 13.50% between 9^th April, 1994 to 9^th December, 1999, ie. date of loss (fire) to date of judgment.

Cases Cited

London General Omnibus Co. Ltd v. Holloway [1912] 2 KB (CA) 72

Joel v. Law Union and Crown Insurance Co. [1908] UKLawRpKQB 131; [1908] 2 KB 863 (CA)

Carter v. Boehm [1766] EngR 157; (1766) 97 ER 1162

Bates v. Hewitt (1867) LR 2 QBD 595

Pimm v. Lewis [1862] EngR 133; (1862) 175 ER 1281

Nairn v. Royal Insurance Fire & General (NZ) Ltd (1990) 6 ANZ Insurance Cases 61-010; 76, 749 at 76, 755

Pacific Queen Fisheries v. Symes [1963] 2 LL LR 201

Wheelton v. Hardisty [1857] EngR 26; (1857) 8 E & B 232

Becker v. Marshall (1922) LL LR 413

Greenhill v. Federal Insurance [1927] 1 KB 65

Mann v. Capital and Counties Insurance [1922] 2 KB 300

Woolfall & Rimmer Ltd v. Moyle & Anor [1941] 3 AII ER 304; [1942] 2 KB 66

Kodak (Australasia) Pty Ltd v. Retail Traders Mutual Indemnity Association (1992) 42 (SR) NSW 231

Fraser v. BN Furnam (Productions) Ltd [1967] 1 WLR 898

Albion Insurance Company Ltd v. Body Corporate Strata Plan No.4303 [1983] VicRp 94; [1983] 2 VR 339

Parsons v. Bignold (1846) 15 LJ Ch 379

Motteux v. London Assurance Co. [1739] EngR 100; (1739) 1 Atk. 545

Henkle v. Royal Exchange Assurance Co. [1749] EngR 153; (1749) 1 Ves. Sen. 317

NSW Medical Defence Union Ltd v. Transport Industries Insurance Co. Ltd (1986) 6 NSWLR 740

John Cybula v. Nings Agencies Pty Ltd [1981] PNGLR 120

Cullen v. Trappel [1980] HCA 10; (1980) 146 CLR 1

Blackwood Hodge Hire (Australia Pty Ltd v. Sandaun Provincial Government and Jacob Talus (unreported & un-numbered) Pratt, J. 8^th March, 1985

Counsel

Mr A. Sullivan QC and Mr. F. Lever and

Mr. K. Raphael for Plaintiffs

Mr J. Griffin QC and Mr D. Lightfoot and

Mr D. Kakarya for Defendant

10 December 1999

SEVUA J: This is an insurance claim in which the plaintiffs claimed the sum of K2,051,917.00 for losses suffered as a result of a fire which destroyed assets and properties owned by the plaintiffs, and which they claimed the defendant should have indemnified under an Industrial Special Risks Policy dated 9^th April, 1994.

The plaintiffs conducted an extensive wholesaling, retailing and distribution business from a number of premises in Alotau in Milne Bay Province. The nature of business and the outlets those businesses were conducted from are summarised hereunder.

(A) SECTION 10 LOT 15

Alotau Enterprises conducted:

(i) &##160;; a60; a SuperSupermarket known as Alotau Enterprises Family Store;

(ii) ҈ peDraSecy Section; ion; and

(iii)ټ&##160;dences and offices.

(B) SECTISECTION 10ON 10 LOT 18

Alotau Enterprisesrises conducted:

(i) ҈&&#160holesaleesnde ande and Bulk Bulkstore;

(ii) &#160ash Cnd Carry section;tion; and

(iii) &#&#Residences and offices.ices.

(C) SECTION 39 LOT 03

Alotau Enterprterprises ises conducted:

(i) ⶌ&##160;stores; and

(iip>(ii) &&#160ffStaff reff residencidences.

(D) SECTION 10 LOT 12

Alotau Enterp conducted a Hardware store.

(E) SECTION 09 LOT 0LOT 05

Alotau Enterprises conducted a Supermarket and office.

(F) SECTION 43 LOT 07

A residence.

(G) SECTION 10 LOT 11

Alotau Enterprises conducted a Liklik store.

Lot 15 is owned by the first plaintiff whilst the second plaintiff owns Lot 18. The drapery section was located in Lot 15 and was connected to the wholesale on Lot 18 by a passageway. Customer access to the wholesale was therefore through the drapery section.

In September 1983, the plaintiffs submitted a proposal form to GRE Pacific Insurance, the defendant’s forerunner, for public liability and general risks insurance (Exhibit “K”). The plaintiffs have not submitted any other proposal form and since then, they have paid annual premiums for the insurance policies issued by GRE Pacific Insurance and later the defendant.

The Industrial Special Risks policy dated 9^th April 1994, now Exhibit "A", covered all the plaintiffs' premises that have been identified.

On Saturday, 9^th July, 1994, a fire completely destroyed the buildings, stock and other goods located on Lots 15 and 18. On 4^th August 1994, the plaintiffs’ accountants, Deloitte Touche Tohmatsu, submitted a claim dated 21^st July 1994 to Wyatt Group (PNG) Pty Ltd, loss assessors engaged by the defendant.

On 22^nd September 1994, the defendant rejected the plaintiffs’ claim on the basis of material non-disclosure and/or misrepresentation and/or misdescription and/or breaches of the conditions of the insurance policy. On 25^th October 1994, the plaintiffs’ accountants submitted a detailed calculation of the plaintiffs’ claim, which included substantial documentation supporting the plaintiffs’ claim for loss of stock. On 10^th November 1994, the defendant rejected the plaintiffs’ claim and returned the documents to the plaintiffs’ accountants.

The plaintiffs then instituted these proceedings on 12^th May 1995. Since then, the parties have amended their pleadings and the trial commenced on the basis of the further amended statement of claim and further amended defence.

Three principal issues have emerged from this trial and I will discuss them separately. Both counsel have raised substantive arguments and supported their arguments with written submissions, which the Court is thankful for. In addition, numerous cases and texts have been referred to in these submissions. However, it is not my intention to canvass all these submissions and cases in minute details.

The issues raised are non-disclosure, reasonable precautions and rectification. Damages, interests, and costs have also been addressed.

NON-DISCLOSURE

From the evidence, there is a laneway between Lots 15 and 16, which is part of Lot 15. The laneway is approximately 12m x 5m and was used for minor repairs, maintenance and servicing of motor vehicles, and servicing of equipment like air conditions. Those activities commenced in approximately early 1991.

The defendant submitted that at the time the plaintiffs took out the insurance policy, they did not disclose to the defendant that they were conducting, or intended to conduct, the servicing and repairs of motor vehicles which entailed an incendiary risk. The defendant also said that that risk was not associated with the wholesaling or retailing of goods and was not incidental to that business.

There is undisputed evidence that in November and December, 1993, the plaintiffs sought to negotiate their insurance requirements with the defendant and other insurers. Competitive quotes were obtained including one from insurance broker Lowndes Lambert PNG Pty Ltd. The defendant in an attempt to match Lowndes Lambert’s quote, reduced its premium. On 24^th November 1993, the defendant sent Mr Lotte Moimoi, Senior Underwriting Manager, to Alotau to discuss the plaintiffs’ insurance requirements and to inspect the premises from which the plaintiffs conducted their business. Lotte Moimoi was the person the defendant looked to, to inform itself of the risk and its nature and other matters relating to the insurance policy. According to Donald Miller, one of the defendant’s witnesses, Lotte Moimoi’s role as Port Moresby Underwriting Manager, was “to undertake underwriting duties, acceptance of risks, liaison with re-insurance personnel”, etc. Lotte Moimoi discussed with officers of the first plaintiff, the plaintiffs’ insurance requirements and in particular, the first plaintiff’s desire to increase coverage for its stock.

It is Lotte Moimoi’s evidence (Exhibit “CC”) that on that visit, following discussions with Richard Seeto and Jayapal Jayaraj, he inspected the first plaintiff'’s premises and its stock and took photographs. He drove around Alotau with an employee of the first plaintiff who pointed out the properties used in the business. They drove past the supermarket. He walked around the supermarket and photographed the front of the Alotau Enterprises Family Store. He prepared notes, one page of which he headed, “risk assessment of fire and allied perils”, (Exhibit “II”).

He walked to the post office and on the way, he walked past the driveway of Alotau Family Store and saw a carport at the end of the driveway. The carport was clearly visible from the street. He saw a car parked on it but he did not see a workshop. He only saw a carport and “an insignificant minor servicing area.” The driveway is what I have referred to as the laneway in this judgment.

In my view, that evidence defeats the defendant’s argument of material non-disclosure. I accept the evidence of the plaintiffs' expert insurance witnesses, Max Salveson and Richard Royds. I also accept that the defendant, as an insurer, has a similar obligation to disclose any material fact within his knowledge. As Mr Salveson said, “the identification and assessment of the physical hazards associated with any risk is within the insurer’s area of expertise. An intending insured in discharging his duty of disclosure cannot do more than allow the insurer’s employees unrestricted access to inspect and survey a premises to assess the physical hazards in relation to which matters are obvious to any independent observer.”

Lotte Moimoi was the defendant’s Senior Underwriter. He was granted unrestricted access to the premises of the plaintiffs for purpose of inspection and to carry out a survey. I do not accept his evidence that he was offered bribes, and I will revert to that issue later. Whilst I accept that Lotte Moimoi was not a professional fire surveyor, I do not accept his evidence that his purpose of carrying out the risk survey was restricted to housekeeping matters. It is the practice that an insurer’s survey includes inspecting clients' properties including walking around the sides of clients' buildings, checking the construction, flammability of materials, clients' activities, neighbouring properties etc. for fire hazards or risks. A prudent insurer would do that and I see that as part of his duty to his clients. I do not accept Lotte Moimoi’s attempted justification that he was not in Alotau to do a technical fire survey nor do I accept his evidence that he did not have time.

I accept Mr Royds’ expert evidence that the duty of good faith is implied on both the insurer and the insured. In my view, that is logical and makes a lot of sense. I also accept Royds’ evidence that the plaintiffs, by allowing the defendant’s representative to visit all areas of the risk and by answering all questions asked by the representative, did not withhold or attempt to conceal any information. Mr Royds further said, “it is normal practice in Papua New Guinea insurance market for the insurer or intermediary or risk surveyor to ascertain all aspects of the risk. They are considered the “experts” in what they are looking for. It is not conceivable to consider the insured knows what aspects of a survey are required.”

Mr Royds and Mr Salveson are expert insurance witnesses who have had long association with Papua New Guinea in the insurance industry. Most, if not, all of their evidence, have not been discredited by the defendant. I accept their expert evidence and opinions. Some of the propositions put forth in their evidence have not been impugned.

The defendant has asked this Court to accept Lotte Moimoi’s evidence that he was induced to sign his affidavit sworn on 12^th September 1996 (Exhibit "CC"). Mr. Moimoi appears to be a self confessed liar who, on 12^th September 1996, swore an affidavit on oath; then in this trial, said on oath that what he had deposed to in that affidavit was not the truth, but that he was induced or bribed. I do not believe him on that issue. I find that he knew he swore his affidavit on the Bible and that he knew and believed what he had deposed to, to be the truth. The question of inducement or bribe did not arise until the trial.

Having observed his demeanour in the witness box, I can say I was not impressed with his evidence in respect of denying what he had said in his affidavit. In my assessment, his credibility was “shot to pieces” in cross examination that I could not hold him out as a witness of truth. Of course, he changed his story in the trial after realising the defendant’s situation.

I find it difficult to accept his explanation and that is why I was not impressed with his oral testimony. I find that what he deposed to in his affidavit on 12^th September 1996, were the truth and that he was quite dishonest and untruthful in his oral testimony in this Court. I reject his oral testimony in relation to disclaiming the veracity of his affidavit sworn on 12th September 1996.

Whilst it is true that the plaintiffs did not give notice to the defendant of the fact that the laneway was being used for servicing and repairs of motor vehicles, there is also evidence which I accept that, those activities are not uncommon in the plaintiffs' situation. In fact, I accept Lotte Moimoi’s evidence in his affidavit sworn on 12^th September 1996 that, “It is common in Papua New Guinea for businesses to have a service area for their vehicles and equipment, and cover is not refused for this reason.” That conclusion has support from the plaintiffs' expert insurance witnesses, Max Salveson and Richard Royds. It is also supported by Donald Miller, one of the defendant’s witnesses who was immediately Lotte Moimoi’s manager at the material time.

However, having observed that the plaintiffs did not disclose to the defendant the use of the laneway, I need to qualify that fact.

It is my view that the material non-disclosure was waived by the defendant, therefore the defendant cannot rely on the material non-disclosure to avoid settlement of the plaintiffs' claim. In my view, the material non-disclosure by the plaintiffs did not justify the defendant’s refusal to avoid the claim.

I accept as a fact that the purpose of Lotte Moimoi’s visit to Alotau on 24^th November 1993, was to inspect the plaintiffs' premises and assess the risk. He went there purposely to carry out a risk assessment, regardless of whether or not he had time. I find it hard to believe, that having gone to Alotau to carry out a risk assessment, Lotte Moimoi would not have time to carry out a thorough inspection. He walked around and saw the premises and took notes thus, this Court accepts the fact that Lotte Moimoi was there to conduct a risk assessment survey.

Having made that finding of fact, I find that the defendant, through Lotte Moimoi, had failed to properly complete the survey. He had knowledge of the laneway, he saw it when he walked past it, but he failed to include that in his written notes. In my view, it was in the defendant’s interest for him to disclose the use of the laneway.

In respect of the evidence of the defendant’s witness, Glen Shaw, I find, with the greatest respect to him that, his evidence was discredited during cross-examination. A lot of his evidence was based on non-existent and wrong assumptions, which the plaintiffs' counsel refers to adequately in his written submissions. For that reason, I do not wish to discuss that witness’ evidence in detail, as I consider it to be unreliable.

However, references to a few aspects of his evidence would illustrate what has been adverted to above. But first, let me refer again to parts of the plaintiffs’ expert witnesses’ evidence, the evidence by Richards Royds and Max Salveson in respect of the issue of non-disclosure. Both expert witnesses had prepared reports, which form part of their evidence and the plaintiffs’ case.

I have already referred to Mr Royds’ evidence that the duty of good faith is imposed on both the insurer and the insured. That proposition was agreed to by Mr Shaw. Mr Royds further said that it is important for the insurer to carry out their own surveys of the risk as it is unreasonable to expect the man on the street to be aware of all of the factors that an insurer would consider when evaluating risk. Furthermore, it is the duty of the insured to allow the insurer’s representative unrestricted entry to the premises to inspect them to carry out a survey. I find as a fact that the plaintiffs had fulfilled that duty by allowing unrestricted access to the defendant’s representative, Lotte Moimoi.

I think one of the most important proposition, which the defendant did not challenge appears on page 6 of Mr Royds’ report (Exhibit “JJ”). He said,

“The insured need not disclose information which has already been gathered, or should have been gathered by the insurer. Therefore if the insurer surveys the property and has unrestricted access to the premises, the insured need not disclose those matters which should have been apparent on inspection.”

I accept the plaintiffs’ evidence and submission in respect of that proposition. The facts relating to the issue of material non-disclosure would have been apparent to the defendant when Lotte Moimoi conducted the risk survey on 24th November 1993.

Furthermore, I accept the plaintiffs’ submission that it is not unusual for businesses to service their own vehicles in-house for minor service and repairs due to the fact that many businesses are multi-purposed. Mr Royds in cross -examination, gave examples of large corporations in Port Moresby, Lae and Madang which used oxygen acetylene and welding equipment close to their buildings. The defendant’s witness Lotte Moimoi agreed with that evidence.

I accept the plaintiffs’ evidence and submissions that, the plaintiffs, by permitting the defendant’s representative, Lotte Moimoi, to inspect and survey the premises and risk, did not withhold disclosure, nor did they misrepresent or misdescribe any of the risk.

In respect of Mr Salveson’s evidence, the Court accepts his evidence contained in Exhibit “HH”, and in particular, his conclusion that there was no misrepresentation, misdescription or non - disclosure on the part of the plaintiffs.

Now, on Mr Shaw’s evidence, the Court is of the view that his evidence should not be relied upon on the basis that his evidence was destroyed in cross-examination. As an expert witness for the defendant, though perhaps a less objective expert witness, I find that he was discredited. His evidence also includes two reports, Exhibits “AA1” and “AA2”. I have already alluded to the fact that his evidence included assumptions that did not exist and were not true. He made many crucial mistakes that at one stage of his testimony, he had to apologise for lying. I have noted that the relevant parts of that evidence is contained in pages 506 and 507 of the transcript.

In relation to his assertion that fuel had been decantered in the laneway “on very many occasions in the past”, Mr Shaw agreed that that was an overstatement. There was nothing in his evidence which supported that assumption. Another example of his incorrect and unsupported assumption was that Lotte Momoi “was not invited to carry out, and he did not in fact carry out, a risk assessment of the premises.” I find that that was clearly a wrong assumption as it directly contradicted Lotte Moimoi’s own evidence that he was sent to Alotau to inspect the plaintiffs’ premises and assess the risk. Lotte Moimoi agreed to a question put to him in cross-examination by Mr Sullivan that the purpose of his (Moimoi’s) survey was to form a risk assessment of fire and allied perils in respect of the premises to be insured. (Refer to page 564 of the transcript).

Mr Sullivan has referred to a number of incidents in his submissions in which Mr Shaw had made several assumptions, which were not supported by evidence. In cross-examination, Mr Shaw had admitted that he was wrong in making those assumptions, some of which were mis-statements. I accept the plaintiffs’ submissions regarding the evidence of Mr Shaw.

Where the evidence and expert opinions are at variance, I prefer the evidence and expert opinions of the plaintiffs. In my view, the plaintiffs’ expert witnesses were not discredited in cross-examination. There is nothing to dissuade me from relying on and accepting their evidence. I consider that the expert evidence of Richard Royds and Max Salveson for the plaintiffs far outweigh those of the defendant. In some respects, the defendant’s own witnesses, Peter Sutton and Donald Miller, who are employees of the defendant, substantially agreed with the evidence of Royds and Salveson.

The defendant submitted that the plaintiffs failed to inform the defendant of the incendiary risk involved in the work carried out in the laneway. There is no dispute that the plaintiffs’ mechanics conducted minor service and repairs of motor vehicles on the laneway. There is also no dispute that the plaintiffs did not give notice of that fact to the defendant. It was the defendant’s submission therefore that the plaintiffs’ failure to inform the defendant of the incendiary risk constituted material non- disclosure which justified the defendant's refusal to settle the plaintiffs’ claim.

The defendant relied on the principles discussed by Hardy Ivamy in General Principles of Insurance Law, 5^th ed., pages 122-123. Those principles are:

“The assured is under a duty to disclose all material facts relating to the insurance which he proposes to effect. He must make no misrepresentation regarding such facts. The assured must disclose all material facts which are within his actual or presumed knowledge. The absence of a proposal form does not modify the assured’s duty of disclosure.”

In support of those general principles, the defendant cited London General Omnibus Co. Ltd -v- Holloway [1912] 2 KB (CA) 72 at 85 where Kennedy, LJ said:

“No class of case occurs to my mind in which our law regards mere non-disclosure as invalidating the contract, except in the case of insurance. That is an exception which the law has wisely made in deference to the plain exigencies of this particular and most important class of transactions. The person seeking to insure may fairly be presumed to know all the circumstances which materially affect the risk, and, generally, is, as to some of them, the only person who has the knowledge; the underwriter, whom he asks to take the risk, cannot, as a rule, know and but rarely has either the time or the opportunity to learn by inquiry, circumstances which are, or may be, most material to the formation of his judgment as to his acceptance or rejection of the risk, and as to the premium which he ought to require.”

The defendant also relied on Joel -v- Law Union and Crown Insurance Co. [1908] UKLawRpKQB 131; [1908] 2 KB 863 (CA) at 885, where Fletcher Moulton LJ said:

“Insurers are thus in the highly favourable position that they are entitled not only to bona fides on the part of the applicant, but also to full disclosure of all knowledge possessed by the applicant that is material to the risk.”

The learned author, Hardy Ivamy said at 123: “Good faith therefore requires that he should not, by his scheme, mislead the insurers into believing that the risk, as proposed, differs to their detriment from the risk which they will actually own. On the contrary he should help them by every means in his power to estimate the risk at its proper value.”

The defendant submitted that every contract of insurance proceeds on the basis that the duty of disclosure has been discharged by the proposed assured, and the failure to discharge that duty renders the insurance voidable at the instance of the insurer. The plaintiffs, in this case, failed in their duty of non-disclosure because, such non-disclosure occurred prior to 1^st January 1994, the date the contract of insurance, the subject of this suit, was entered into. I cannot accept that in the light of the fact that Lotte Moimoi had carried out a survey on 24^th November, 1993.

The classic test on non-disclosure is stated by Lord Mansfield in the well known leading case of Carter -v- Boehm [1766] EngR 157; (1766) 97 ER 1162, which sets out the general principles on the duty of disclosure. The principle of law is stated on pages 1164 -1165 as follows:

“First. Insurance is a contract upon speculation.

The special facts, upon which the contingent change is to be computed, lie most commonly in the knowledge of the insured only: the underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risque, as if it did not exist.

The keeping back such circumstance is a fraud, therefore the policy is void ...

Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance by that fact, and his believing the contrary ........

There are many matters, as to which the insured may be innocently silent – he need not mention what the underwriter knows – scientia utrinque par pares contrabentes facit.

An underwriter cannot insist that the policy is void, because the insured did not tell him what he actually knew; what way soever he came to the knowledge.

The insured need not mention what the underwriter ought to know; what he takes upon himself the knowledge of; or what he waves being informed of ...."

Whilst it may be true that the plaintiffs did not disclose to the defendant the nature of work conducted on the laneway, I consider that, that fact was known to the defendant through its employee, Lotte Moimoi. He knew or ought to have known because he purposely went to Alotau in November 1993 to assess the risk. In my view, there could not be any misrepresentation when, on the facts of this case, the defendant, through Lotte Moimoi, had been given unrestricted entry and access to the plaintiffs’ premises. He inspected the premises and made an assessment by producing some notes of his survey. Again, I reiterate that he walked past the laneway and saw the service area. Lotte Moimoi, as a prudent underwriter, knew of his duty. He had been trained to underwrite and he knew because he had the benefit of the survey manual, which he used in his job. He was therefore required so closely inspect the service area in the laneway. He therefore had knowledge of the service area, which knowledge, in my view, was obtained in the ordinary course of his duty and employment, that is to say, in the course of his duty when carrying out the survey in November 1993. See Bates -v- Hewitt (1867) LR 2 QBD 595.

The plaintiffs referred to Pimm -v- Lewis [1862] EngR 133; (1862) 175 ER 1281, which I wish to cite here because, in my view, it supports the arguments advanced by them.

Pimm -v- Lewis (supra) was a case where a water corn mill was insured against fire risks. The insured used rice chaff instead of pollard in the mill, but did not disclose that fact to the insurer although the rice chaff was more inflammable than the pollard. The insurer’s agent had inspected the mill and he had knowledge of what was done there. Since the insurer had inspected the mill and seen what was done there, the insurers were deemed to have knowledge of the use of rice chaff. The insurers therefore could not rely on non-disclosure by the insured.

At 1282, Martin, B told the jury that “this condition clearly meant something wasmaterial to be known to the company and which was not known to them or their officers. Here, however, the matter was known to them. The mill had been used for years for the grinding of rice chaff, and used publicly and openly, and the company’s officer resident in the neighbourhood well knew the mill. Did the plaintiff, then, “omit to communicate the matter which he might well presume they knew?” It all turns on that, for there is no pretence for imputing misrepresentation, as the defendant made no representation at all.”

The High Court of New Zealand adopted the Pimm -v- Lewis test in Nairn -v- Royal Insurance Fire and General (NZ) Ltd (1990) 6 ANZ Insurance Cases 61 – 010: 76-749 at 76-755 where it was held that knowledge by the agent of the insurer was knowledge of the insurer itself. See also Pacific Queen Fisheries -v- Symes [1963] 2 LL LR 201 at 207.

From the facts of this case and the authorities referred to, I am of the view that the fact about the servicing and repair of motor vehicles on the laneway was a fact that the defendant had knowledge of. The knowledge of that fact by Lotte Moimoi was the defendant’s knowledge. It was, as far as this Court is concerned, a fact within the knowledge of the defendant. I find that the incendiary risk was a fact known to the defendant however, the defendant, through Lotte Moimoi, neglected to asked further questions or conduct a close inspection of the service area.

As a result of that finding, it is my opinion that the defendant had waived its right to disclosure. The learned author of Colinvaux’s Law of Insurance, 7^th ed., Sweet & Maxwell, 1997, discusses this issue on pages 124 -125. He says, “perhaps the most important form of waiver arises where the assured has put the insurer in a position to obtain the required information, but the insurer has chosen not to take the further step". See: Wheelton -v- Hardisty [1857] EngR 26; [1857] 8 E&B 232 at 269-270 per Lord Campbell, CJ.

The learned author continues at 125: “In the same way, by failing to ask questions after they have learned something which ought to have put them on inquiry, the insurers will be held to have waived their right to fuller and more precise disclosure by the assured himself. So where an insurer was told that the insured vessel was carrying cargo, but made no inquiry as to the nature of the cargo, the insurer was held to have waived disclosure of the fact that the cargo was inflammable.” See Lord Mansfield’s judgment in Carter -v- Boehm (supra), Scrutton, LJ in Becker -v- Marshall (1922) LL LR 413, Scrutton, LJ in Greenhill -v- Federal Insurance [1927] 1 KB 65 at 85 and Mann -v- Capital and Counties Insurance [1922] 2 KB 300.

It is my view that the principles in these cases quite correctly demonstrate the position in the present case. I accept the evidence that Lotte Moimoi surveyed the risk in November 1993; he saw the laneway, he walked past it and saw the service area; he did not inspect the service area, when, as a prudent underwriter, he should have because, he knew what he was required to do from the survey manuals he referred to in his evidence. But he chose not to closely inspect the laneway and he failed to state its existence to the defendant. In my view, it can correctly be held that the defendant had knowledge of a material fact and that nothing was not disclosed to it. Accordingly, I find that the duty of disclosure had been waived by the defendant.

On the issue of non-disclosure, I make the following findings of facts.

1. ټ The plaintiffs carr carried out minor servicing and repairs of motor vehicles on the laneway at Lot 15.

2. & T60;defe dantns employee oyee or agent, Lotimoi,ied orisk assessmsessment sent surveyurvey of the plaintiffs’ premises on 24^th November 1993.

3. 䃘&ngsurvesurvey, Lot, Lotte Moie Moimoi smoi saw thaw the laneway. He knew or ought to have known about the service area. He failed to conduct a closer inspe of tneway including the service area. His knowledge idge is thes the defendant’s knowledge.

4. ; T60 defendant through Loth Lotte Moimoi knew or should have known that the minor servicing and repair of motor vehicles in theway iommonure oinessapua New Guinea.

5. ـ &160; #160;#160;&#160 The uTe use of oxygen acen acetylene by the plaintiffs’ mechanics in the service area of the laneway did not alter the definition of risk undertaken, but merely increased the dangeross oing.

6.&#16. < &160; ;
h0; Tfendantndant’8217;s agent, Lotte Moimoi’s failure to closely inspect the laneway resulted in the defendant’s failure to inform itself of the increased danger of the loss.

7. & T60;defe dantn through Logh Lotte Moimoi, knew about the service area on the laneway and all its activities at the time the polas re in Jy, 19t thee cannot avoid the policy on the grounds of non-disn-disclosuclosure orre or chan changed cged circumstances.

8. &##160;; T60; The defe defendant had waived its right to non-disclosure.

For these reasons, I am of the view that thendant7;s plea for non - disclosure must fail.

REASONABLE PRECAUTIONS

T

The defendant asserts that the plaintiffs failed to take reasonable precautions to prevent the occurrence of their loss and that was in breach of Condition 13 of the policy.

Condition 13 provides:

“The Insured shall take all reasonable precautions to prevent loss, destruction or damage to the property insured by this policy.”

The other relevant provision of the policy, in my view, is Condition 3(b).

3. &##160;; A60; Alteratteration

"The Insurer(s) shall not be liable for loss, destruction of or damage to any property insured hereunder caused or contributed to/by any alteration after the commencement of this Policy: