Claim for Stolen Jewelry Opposed by Insurer
Diamond World Jewellers Pty Ltd v Catlin Australia Pty Ltd [2021] NSWSC 1431 (5 November 2021)
A jewellery shop owner, claims from the insurance policy, for stolen and damaged stock after robbery. The insurer opposes such claims contending that the owner failed to fulfill its obligation to keep proper records. The Court, in resolving this dispute, considered the substantiation of loss, the bilateral duty of utmost good faith, and the insurance contract.
Facts:
In December 2017, three masked offenders stole stock from Diamond World. The robbers were later caught and successfully prosecuted, Diamond World’s general manager Mr Chohaili gave evidence, but only a small amount of jewellery was recovered.
Diamond World gave the insurer notice of the robbery and in December 2017 advised of its claim, the policy insuring both stock owned by Diamond World and stock which it held on consignment. Diamond World also advised the insurer that it had held a large portion of the diamond jewellery stolen on consignment and that the robbers had targeted a substantial amount of the more valuable stock, at a time when stock levels were higher than normal, in anticipation of Christmas. The policy also expressly contemplated that more stock than normal would be in store, at that time of the year.
The store was cleaned the day after the robbery, before the insurer’s loss assessor, Mr Crofton, attended and met with the loss assessor Diamond World had retained, Mr Leigh and Mr Chohaili.
Mr Crofton and Mr Leigh discussed the written advice of the claim amounting to $1,691,435.70. The claim, when finally made, was for all of the stock in the smashed cabinets on the day of the robbery. Diamond World claimed that what had been left behind had been damaged and the gold later melted, in accordance with an agreement reached between Mr Leigh and Mr Crofton. That agreement was denied by the insurer.
The pursuit of the claim and its assessment was hampered by the nature of Diamond World’s paper-based record keeping system and by what Mr Chohaili did with jewellery left behind. Mr Leigh’s retainer was terminated and Diamond World engaged solicitors to represent it. Diamond World finalised its claim, but no payment was ever made by the insurer, despite its acceptance that jewelry had been stolen and fittings damaged. After conducting an investigation, in May 2019 the insurer accepted that Diamond World had suffered a genuine loss which fell under the policy cover and by the 31 May letter advised Diamond World that a net payment of $8,600 would be made for the damaged cabinets and clean-up. However, the insurer rejected liability for any of the jewellery which had been left behind and later melted.
In October 2019 that the insurer made a written offer for $500,000 which Diamond World did not accept. In its amended defence, however, it admitted liability for only $367,990.78, the calculation of which has not been explained. Diamond World’s claim was explained by Mr Chohaili to be $1,307,597.02 for the cost price of the stolen stock and $397,183.37 for the damaged stock, reflecting its cost price, less the value of the melted gold and loose stones which could be reused, as well as $9,600 for the damaged cabinets. It was explained by the insurer that the $500,000 offered had not been paid, because its offer had not been accepted.
The NSW Police caught and prosecuted the robbers. They have been sentenced. Save for a small amount of jewellery to a value of $2,892.55 recovered by the NSW Police, the Stolen Stock has not been returned to Diamond World.
Issue:
I. Whether or not the insurer owed Diamond World any more than the $500,000 it offered to pay.
II. Whether or not the insurer is entitled to limit Diamond World’s claim by reason of the “limited information and evidence” as to the Stock having regard to the Stock Records Clause.
III. Whether or not Diamond World has “approached the matter in good faith and presented a claim which is not a true reflection of its entitlements under the Policy”.
Applicable law:
Evidence Act 1995 (NSW) s 128 - applies if a witness objects to giving particular evidence, or evidence on a particular matter, on the ground that the evidence may tend to prove that the witness--
(a) has committed an offence against or arising under an Australian law or a law of a foreign country, or
(b) is liable to a civil penalty
Insurance Contracts Act 1984 (Cth) s 56 - permits, in the case of a claim made fraudulently, an insurer to refuse to pay the claim.
Uniform Civil Procedure Rules 2005 (NSW) rr 14.14, 15.3 - requires that particulars of any claimed fraud would have to be given.
3WJ Pty Ltd & Anor v Kanj [2008] NSWCA 321 - observed that dishonesty of a witness testifying in support of a cause of action or defence in which dishonesty in any form is not an element, is not a material fact that has to be pleaded.
Banque Commerciale SA v Akhil Holdings Ltd 169 CLR 279; [1990] HCA 11 - held that a pleading must allege not only the acts involved, but that they were done in a manner that involves fraud.
Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 - explained that an insurer is also under a duty of good faith and fair dealing, which requires it to have due regard for the interests of the claimant.
Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 - observed that a case of fraud cannot be a “fall back” claim, it must be pleaded specifically and with particularity.
Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas 90-123; [2005] NSWCA 214 - held that it is not for the Court to undertake a review of the merits of the insurer’s decision, or to substitute its own view for that of the insurer, by reference to additional material not before the insurer.
Hannover Life Re of Australasia v Jones [2017] NSWCA 233 - confirmed that an insurer’s duty of utmost good faith in dealing with a claim is independent of the implied term to act reasonably.
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 - relied upon by the court in holding that the proper inference to be drawn from the unexplained failure to lead evidence in chief from Mr Crofton about his involvement in the assessment of the claim after his second report, which was relevant to various matters in issue, including whether the insurer had adhered to the obligations which it owed Diamond World when assessing its claim, is that Mr Crofton’s evidence on those matters would not have assisted the insurer’s case.
MetLife Insurance Ltd v Hellessey [2018] NSWCA 307 - held that “a decision may be set aside if the process of consideration underlying it was not undertaken reasonably and fairly, even if the outcome itself is not also shown to have been unreasonable on the material before the insurer.”
Newling v FSS Trustee Corporation (No 2) [2018] NSWSC 1405 - Parker J observed that it is thus an “essential first stage of the plaintiff’s case to demonstrate, by reference to the material before the insurer, that the insurer’s decision to decline the claim miscarried”.
Sgro v Australian Associated Motor Insurers Ltd [2015] NSWCA 262 - held that if it is fraud which is to be relied on as part of a defence to a claim such as this, it is incumbent on the defendant to plead and particularise the fraud alleged, in answer to the claim.
TAL Life Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 - provides that the insurer had to act reasonably in arriving at its decisions.
Wallaby Grip Limited v QBE Insurance (Australia) Limited 240 CLR 444; [2010] HCA 9 - held that had fraud been pleaded it would have been for the insurer to establish.
Analysis:
The Defendant have refused to provide cover for the Stolen Stock and the Damaged Stock on the basis of Cost Price, including tax where applicable, or at all. In the circumstances pleaded, the Defendants have breached the Policy.
As a result of the Defendant’ss’ breach, the Plaintiff has suffered loss and damage. Further, and in the alternative, the Defendants have sought to negotiate a payment of the claim. In doing so, the Defendants have sought to rely on the absence of information as a basis on which to reduce the amount payable by the Defendant.
The Defendants is are not entitled to the information requested and the Defendants knew, or ought to have known, that the Plaintiff did not keep such information at the time the parties entered into the Policy.
The insurer contended that the records which Diamond World had maintained were incomplete and unsatisfactory and the claim advanced “false, exaggerated, unsubstantiated and tendentious”.
However, the certificate of insurance specified that in return for payment of the premium, the insurer had agreed to insure Diamond World in accordance with the wording attached to the certificate. All risks of physical loss and/or damage were thereby insured, including goods held on trust and at the premises, in the event of robbery.
Had the insurer wished to impose an obligation on Diamond World to keep “proper records”, that had to be done expressly.
Conclusion:
Judgment was entered for Diamond World. The parties are to confer and produce final orders. If the parties wish to be heard on costs they should approach and file a short outline of submissions within 7 days.
