Trying to set [your] life on fire!

06 October 2016

Australian Executor Trustee Ltd V Suncorp Life & Superannuation Ltd

The public policy implications of insureds under life policies who deliberately cause loss resulting in death did not preclude recovery of benefits by the deceased’s estate.

From time to time, insurers may seek to deny a claim that an insured would be entitled to bring, where the circumstances of the claim and any related indemnity offends public policy such that the insured forfeits their entitlement to indemnity.

The recent South Australian case of Australian Executor Trustee Ltd V Suncorp Life & Superannuation Ltd1 provides an example of a failed attempt by a life insurer to succeed in an argument that a claim should not be paid on the basis that it offends public policy.

A home belonging to Mr and Mrs Humby was damaged in a fire and both were subsequently found to have concocted and pursued a scheme to burn down their house for the house and contents insurance. Mr Humby was accidentally killed in the fire and a claim under Mr Humby’s life insurance policy was made by Mrs Humby.

The life insurer argued that public policy should prevent the beneficiary of a life insurance policy who caused (or conspired to cause) the loss by wrongful means, to be able to rely on that policy to recover the benefit.

The relevant considerations were deemed to include the likelihood that the commission of similar crimes would be promoted (His Honour noted that “where the crime is committed for the purposes of fraud, it is logical to conclude that the arsonist plans to be around to reap the financial benefit of the consequent fraudulent insurance claim“).

It was said to be important to consider the societal role that life insurance plays and that the observance of such contracts is in the public interest as they regularly provide the means by which innocent family members financially survive the death of an insured.

It was deemed relevant that Mr Humby’s death was not intentional or indeed envisaged by the wrongdoers, which provides a contrast to the very recent Federal Court matter of Westpac Life v Mahony2 in which Mr Mahony sought to benefit from a joint life insurance policy held with his partner.

In those circumstances, Mr Mahony had been charged with her murder3 and the relevant life insurer successfully argued that if Mr Mahony was criminally involved in his partner’s death, he would be disqualified from benefiting under the policy according to the “forfeiture rule”.

In the judgment, Allsop CJ determined that it was unnecessary to discuss the doctrinal basis of the forfeiture rule4 and that it is sufficient to note that there is potential for the rule to apply.

His Honour cited the judgment of Dixon, Evatt and McTiernan JJ in Helton v Allan5 where it was said [at 709]:

“It is placed upon a principle of public policy, and it was said that no system of jurisprudence could with reason include amongst the rights which it enforces rights directly resulting to a person asserting them from the crime of that person.”

The life insurer in Australian Executor also unsuccessfully argued that claim itself was made fraudulently within the meaning of the Insurance Contracts Act 1984 (Cth) (Act).

In Von Braun v Australian Associated Motor Insurers6 it was held that a fraudulent misrepresentation under section 29 of the Act “is one made with an absence of actual and honest belief in its truth: it is a deliberate decision by the assured to mislead or conceal something from the insurer, or recklessness amounting to indifference about whether this occurs“.

In Mrs Humby’s notification of claim to the life insurer, all the information requested including the date of death and a number of other requested particulars (the form did not require her to state the cause of death) was provided, along with an authorisation for the insurer to obtain all other information that it may require from any source.

It was further noted that there was nothing in the policy or any of the insurance materials provided to Mrs Humby which could be inferred by the reader that the policy did not or would not necessarily cover her husband’s death, in the circumstances that transpired.

Accordingly, it was found that a failure to provide unrequested information as to the circumstances of the death did not necessarily connote an intention on the part of the claimant to mislead (by omission) the life insurer who had not indicated, either by way of the policy wording or the claim form, that such information would be relevant to their willingness to pay the claim.

The decision is a surprising one and reinforces how difficult it is for insurers to successfully argue that a claim should be declined on public policy grounds. The decision may in the future be the subject of appellate consideration.

This article was written by Anthony Hillary, Partner and Airlie Hamilton, Solicitor.

1[2016] SADC 89

2[2016] FCA 1071

3as well as for dishonestly inducing or attempting to induce insurance proceeds from multiple insurers.

4see Edwards v State Trustees Limited [2016] VSCA 28.

5[1940] HCA 20; 63 CLR 691

6[1998] ACTSC 122; (1998) 135 ACTR 1, also see Sutton, Insurance Law in Australia, 3rd ed, par 3.138

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