Arson – Where an insured plays hard to get: How is an insurer able to get to the truth of the matter? The use of subpoenas: How insurers can get closer to the truth by carefully drafting subpoenas?

12 April 2016

Lowery v Insurance Australia Ltd [2015] NSWCA 303

The background facts

On 27 March 2014, Mr and Mrs Lowery’s (the insureds) 2008 Mercedes Benz was stolen from a car park and destroyed by a fire. There were several suspicious circumstances surrounding the event. The vehicle was insured for $198,950 by Insurance Australia Ltd (the insurer) but was valued at $139,900 prior to the theft. Insurance cover commenced on 24 March 2014, only three days before the car was stolen. The burnt out vehicle was found close to the car park it was stolen from. No parts had been removed.

On 28 March 2015, the insureds lodged a claim under the policy. The insureds were unwilling to participate in or assist in the investigation. Consequently, the insurer declined to make a payment under the policy.

The insurer did not allege fraud but seemingly relied on the more fundamental defence that the insured event of theft had not been established and if the event was proved the insurer was prejudiced by the insured’s failure to co-operate

On 8 May 2014, the insureds brought proceedings against the insurer in the District Court of NSW. The insurer issued five subpoenas to the NSW Police Force, Vodafone Australia, Telstra, Optus Mobile Pty Ltd and Roads & Maritime Services (RMS) seeking documents relating to the insureds, their son and the person who controlled the car park from which the car was stolen.

The subpoenas were drafted in very broad terms. On 15 December 2014, the insureds sought orders that leave be given to set aside the five subpoenas due to the scope of the material requested. The insurer argued that the scope of material the subpoenas sought may shine light on the criminal past of the insureds or witnesses, whether there was collusion between the insureds and witnesses, the movements of the insureds and witnesses before and after the theft and the number of vehicles the insureds have previously owned and disposed of. Judge Maiden (the primary judge) declined to set aside the five subpoenas.

The insurer sought leave to appeal from this decision.

The issues considered

On appeal, Justice Basten and Justice Emmett granted leave to appeal given the issues involved a frequent litigant i.e. an insurance company and the findings of the Court may set a precedent and impact future cases involving similar issues. By a majority of 2:1 the Court ordered the subpoenas should be set aside. Justice Adamson dissented.

Justice Emmett commented that the wide scope of documents requested meant the subpoenas were speculative and ‘not for a legitimate purpose’. The subpoena issued on the NSW Police Force requested unlimited material, the subpoena issued on the telecommunications companies requested material from an arbitrary three months before and after the theft, and the subpoena issued on RMS did not make clear the relevance of the documents requested to the pleadings.

Justice Emmett observed that it is not appropriate for a subpoena to trawl speculatively for documents that could be used to question a witness’s credibility, but rather expose documents relevant to the issues in the proceedings. If there is no evidence to suggest there would be documents relevant to an issue of credibility then subpoenas requesting such documents will be ‘nothing more than a fishing expedition to see whether any such documents are in existence.’1 The material requested was considered beyond what was reasonably required to investigate the theft.

Justice Adamson focused on the general obligation of insurers to ensure claims for theft are bona fide and that no fraudulent claims are paid out. She acknowledged the difficulties insurers face in investigating theft claims, particularly when the insured does not cooperate whether by refusing to be interviewed interviews or provide documents relevant to the claim, and recognised the assistance these types of documents afford when determining whether a claim is credible. She noted that an insurance company is not required to plead fraud in order to challenge or reject a theft claim as the onus of proving the facts of a claim as alleged falls on the insured to prove theft in the first instance.

Justice Adamson considered the purpose of subpoenas and the suspicious circumstances of the present case. She agreed with the primary judge that further investigation of the claim was warranted and that the subpoenas were related to the insurer’s investigation. She concluded there was a legitimate forensic purpose for the subpoenas and that they should not be set aside.

Implications

Justices Basten and Emmett made it clear that the subpoenas would not have been set aside if they were drafted in more narrow terms. Justice Emmett stated that the insurer would be entitled to issue further subpoenas if the subpoenas were ‘limited to materials that have relevance to the suspicions thrown up by the facts… or relevant materials the existence of which might be inferred from the circumstances and which go to aspects of the credit of individuals involved in the claim.’2

The implication is that insurance companies are able to access evidence of the type sought in this type of case. However, subpoenas must be drafted in a way that narrows the scope of material in time and subject matter to that which is relevant to the allegations in issue. A subpoena seeking criminal records, complaints, reports and documentation in relation to incidents, registration records, and records of communications may be considered appropriate if limited to seeking documents that are directly relevant to facts that raise suspicions or issues of credibility.

There are many cases where subpoenas of this type are not challenged, particularly if the insured “has nothing to hide”. Frequently insureds just provide authorities to insurers for this information to be accessed during the investigation process so that all the boxes can be ticked before the insurer makes a decision.

Challenges to subpoenas of this nature may only serve to harden the resolve of insurers where they have no other alternative of getting to the truth.

This article was written by Michael Bowyer, Partner and David Muir, Partner.


1At [42].

2At [54].

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