Kumar v Dominion Insurance Ltd [2000] FijiLawRp 53; [2000] 1 FLR 223 (6 October 2000)

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Insurance - whether insurance policy extant at time of fire - whether notice a cancellation or mere threat to cancel policy at common law - whether notice of threatened cancellation effective communication

Fire destroyed the plaintiff's factory, equipment, stock and business on 19 September 1991. The plaintiff paid 49% premium for renewal of policy and obtained cover note. Clause 5 of the policy provided that policy may be terminated by insured, and also at option of the insurer for which demand made be made on rateable proportion of premium for unexpired term. A reminder letter sent to the plaintiff which the plaintiff contended was never received, and notice was mere threat, not actual termination per se.

Held - (1) There was no ambiguity as to payment payable. The obligation to pay premium before expiry of policy and the continuation of cover were inextricably linked, thus the insurance company was entitled to cancel after expiry of notice and failure of plaintiff to pay full payment of premium.

(2) The effect of the renewal certificate was that it did not become valid until the premium was fully paid. The liability of the insurer to indemnify for the term of the policy was conditional upon the premium having been paid unless the defendant by words or conduct had waived that term.

Cases referred to in judgment
Foll Dominion Insurance Ltd v Sea Island Paper & Stationery Ltd ABU0008/07S
cons Westpac Banking Corporation & Ors v Dominion Insurance Limited HBC 0648/94
appl Ali Motors Limited v National Insurance Company of Fiji Ltd ABU052/82
Foll Wilson v Guardian Royan Assurance co of NZ Limited [1986] 1 NZLR 572
appl Turner v Metropolitan Life Assurance Co. of NZ Limited (1988) 5 ANZ Insurance Cases 60

Vinod Kumar the plaintiff claims compensation for loss suffered under Fire Policy No. 218431 FCP001 issued by Dominion Insurance Limited the defendant with effect from 17 January 1991 to expire on 17 January 1992. On 19 September 1991 fire destroyed his factory, equipment and stock at Lautoka. The policy provided cover as follows:

(1) $30,000.00	for building premises
(2) $2,700.00	for business fixtures
(3) $30,000.00	for stock ($15,000.00 processed work, $15,000.00 unprocessed work)
(4) $40,000.00	for plant and machinery
(5) $2,700.00	for fax machine

These heads are detailed in the schedule to Policy No. 218431 FCP001 (Exhibit P1) and debit cover note No. 33030 (for Policy No. 218431 FCP001) and 33031 (Exhibit P2 & P3) and cover debit note No. 32183 (Exhibit D1). Exhibit P1, P2 and P3 were issued on 22 May 1991 and Exhibit D1 on 15 May 1991. The plaintiff paid $600.00 premium towards the total premium of $1233.75 on the said policy on 17 January 1991 and was issued receipt No. 10691 of 17 January 1991. It was his intention at the time to take out three policies from the defendant namely No. 218431 FCP001/02 (for factory and plant equipment), No. 218431 FCP001 (for stock in trade) and No. 218431 FCP002 (for motor vehicles). On 19 September 1991 the plaintiff's business premises was totally destroyed by fire. The plaintiff subsequently lodged a claim for $105,000.00 with the defendant which was declined on the basis that the policy had been cancelled after expiry of a notice of cancellation dated 21 August 1991 (Exhibit P7).

"This insurance may be terminated at any time at the request of the insured, in which case the company will retain the custom short-period rate for the time the policy has been in force. This insurance may also at any time be terminated at the option of the company, with 7 days' notice to that effect being given to the insured, in which case the company shall be liable to repay on demand a rateable proportion of the premium for the unexpired term from the date of the cancelment."

The major point of contention between the parties related to the issue of whether the said insurance policy was extant is Exhibit P7. The defendant asserts that it was sent to the plaintiff who denies receiving it as does the Fiji Development Bank in its letter dated 8 July 1993 (Exhibit P8). Exhibit P7 was in the following terms:

We refer to the above policy and note with concern that your renewal premium of $1719.75 remains outstanding.

Our renewal certificate clearly stated that the premium was required before expiry date for continuation of cover. Unless we receive the full premium within 14 days from the date of this letter we will assume that cover is no longer required and cover will be cancelled from inception.

This means that we will not be responsible for any loss which may have occurred while this premium was outstanding.

Learned counsel for the plaintiff submitted that the plaintiff never received the notice of cancellation and even if he did it matters not because it was a mere threat to terminate rather than a notice of termination per se. He cited the learned author of Insurance Law in Australia 2nd Ed. where Kenneth Sutton states at 442:

"A letter stating that if full payment of the premiums due on the policy is not received by a specified date the policy will be cancelled, is not a cancellation of the insurance but merely a threat to do so, and the policy is still extant pending notification that it is cancelled: Kelly v Harris (1983) 2 ANZ Ins Cases 60-51-0 SCSA."

In his evidence the plaintiff stated that he thought he had a year to pay the balance of the premiums when he paid the initial $600.00 leaving a balance payable of $1719.75 on three policies that incepted from 17 January 1991. Interestingly, the plaintiff did not bother to pay premiums for insurance on his motor vehicle ($1054.50) or for his showroom ($31.50) which suffered no damage. Yet when he paid $600.00 on 17 January 1991 it was part payment for a total of $2319.75 on all three policies including that covering the factory. The plaintiff had this to say about Exhibit P7 in cross examination:

"I have seen attached letter to Exhibit 7. I say I did not receive it. I have seen the letter many times since this case began. Had I received it I would have paid on the spot. If I had received it, I would have understood the policy could be cancelled after 14 days. But I did not receive it."

The plaintiff also claimed he was extended credit facilities by the defendant in being given time to pay the premium. However, as is apparent from the debit cover notes he received in respect of the various policies that were incepted from 17 January 1991 for a year, no credit was given for the $600.00 part payment he had made. The defendant expected him to pay the full amount of the premium in accordance with the terms of the policy. And for reasons that are stated shortly, the court places little credence on what the plaintiff has to say.

Inoke Dreketirua the underwriter for the defendant testified that he prepared and despatched the notice to post office box 4515 Lautoka, the plaintiff's postal address. Exhibit P1 and P2 as well as cover debit note No. 32183 dated 15 May 1991 for Datsun Reg. No. EO476, Isuzu Reg. No. AW517 and Isuzu Reg. No. BE465 (Exhibit D1) were all received at the same address. In cross examination Mr Dreketirua referred to an affidavit of one Ajay Singh a former employee of the defendant to the effect that the notice had been received by the plaintiff. Although the Fiji Development Bank which held a charge over the property subsequently stated it did not receive Exhibit P7 either, the court places little store by its claim (Exhibit P8). First it replied to the plaintiff's solicitors some two years after Exhibit P7 was sent on 8 July 1993. Second its response was sent from Suva while Exhibit P7 was copied to its branch at Lautoka.

The court prefers the evidence of Mr Dreketirua to that of the plaintiff in this regard. He was open and forthright and even allowed the mail may not have reached its destination. It respectfully notes the caveat that Hardie-Boys J. placed on the reliability of delivery of mail in Wilson v Guardian Royal Assurance Co. of NZ Ltd [1986] 1 NZLR 572 but it is of opinion that the plaintiff did in fact receive Exhibit P7. He has been less than forthcoming. He is a businessman with an investment worth allegedly in excess of $100,000.00. Yet he was decidedly casual about the payment of the premiums and says that had he been asked to he would have paid the entire amount in January 1991. There is an inconsistency in his conduct that reflects on his credibility. He received the debit cover notes of the policies he had taken but did not receive Exhibit P7. In his claim form Exhibit P5 the plaintiff had stated the situation of loss was Leonidas Street, Lautoka. However in the policy document Exhibit D4 the location was described as Bebe Street, Lautoka. This obvious discrepancy reflects adversely on him and his explanation it was a mistake is too disingenuous to be believed. For those reasons there must be serious doubt about the plaintiff's assertion that he did not receive the defendant's notice of cancellation (Exhibit P7).

Furthermore, until the unfortunate fate which befell his factory in September 1991, some eight months after he made initial payment for his insurance premium, the plaintiff did nothing about them. He admitted he was not exercised about the two other policies (Exhibit P2, Exhibit D1) because no damage was sustained by the items covered thereunder. The plaintiff received the notice dated 21 August 1991 and did nothing about it. It was consistent with the lackadaisical attitude he had demonstrated from the outset and which he evinced on 15 and 22 May when he received the debit cover notes in respect of the three policies. He did likewise when he received Exhibit P7. In the court's opinion the plaintiff had no intention of paying the balance of the premium as reflected in his admission that he was not concerned about Exhibit P2 and Exhibit D1. The fire in September altered that mindset completely for obvious reasons but by then it was too late.

As to whether Exhibit P7 was sufficient communication to terminate the plaintiff's policy's at common law an election to rescind a contract must be communicated Chitty on Contracts 25th ed (1983) at para 444; Turner v Metropolitan Life Assurance Co. of NZ Ltd (1988) 5 ANZ Insurance Cases 60-61. In some situations the courts have treated a communication to the effect that a policy will be cancelled after the expiry of a certain period as a mere threat Kelly v Harris (1983) 2 ANZ Ins Cases 60-51-0 SC SA. Exhibit P7 has already been reproduced.

In Dominion Insurance Ltd v Sea Island Paper & Stationery Ltd Civil Appeal No ABU0008 of 1997S their Lordships of the Court of Appeal held a letter providing that if the premiums were not received "within fourteen (14) days from the date of this letter we would have no option but to cancel all your policies without any further notice" was not a notice of termination but a threat to do so. However learned counsel for the defendant submitted that the facts of that case had some bearing on the result. There was a history of credit and the prior renewal notice stated the policy had been renewed and required payment on a date already expired. Those considerations undermined the insurer's contention the policy had been cancelled.

"In consideration of the Insured named in the Schedule hereto having paid to the Company first premium as mentioned in the Schedule ...."

The defendant agreed to indemnify the insured (i.e. the plaintiff) on the terms set out in Exhibit P1. Liability to indemnify for the term of the policy was conditional upon the premium having been paid unless the defendant by words or conduct had waived that term. On 22 May 1991, the defendant forwarded to the plaintiff a copy of the policy and cover debit note No. 33030 (Exhibit P2). It stated inter alia:

"We acknowledge the following insurance has been accepted renewed by the company."

The cover debit note also set out the details of the policy including its term (17 January 1991 to 17 January 1992) and a request to the effect "Please detach and send with payment to ...." and the "Amount Payable of $1233.75." The effect of the renewal certificate was that it did not become valid until the premium was fully paid. It issued during the currency of the policy and sought payment of the premium payable. There was in the court's respectful opinion no ambiguity. In his evidence the plaintiff in receiving the cover debit notes on 15 and 22 May 1991 respectively understood payment of the premiums was required but merely filed them away. Exhibit P7 makes clear that renewal was conditional on payment of the premium: "Unless we receive the full premium within 14 days from the date of this letter we will assume cover is no longer required and cover will be cancelled from inceptions." In the present case, payment had been repeatedly sought to no avail. The opening part of Exhibit P7 referred to the obligation to pay the premium before the expiry of the policy for continuation of cover.

The purport and tenor of the defendant's notice in Exhibit P7 was no mere threat. Upon the failure of the plaintiff to pay the full premium within the stipulated period, his cover would be cancelled from inception. The two events were inextricably linked with the latter taking effect upon the occurrence of the former. The gravity of the notice and its consequences were reinforced by the last sentence as follows "We would urge you to treat this matter as URGENT."

In Westpac Banking Corporation & Ors v Dominion Insurance Limited Civil Action No. 0468 of 1994 Fatiaki J made the following observations on the renewal certificates that were cited before him at p.9:

"I confess that on my reading of the above-mentioned 'notices' in the RENEWAL CERTIFICATES, there appears to be some inconsistency or conflict between them; certainly the 'notices' are not free from all of ambiguity nor in my view are they easily reconciled and neither counsel sought to reconcile the 'notices' in their respective submission.

... In neither 'notice' however, are the consequences of the customer's failure to pay the premium by the due date clearly and unambiguously set out, nor in my view do the 'notices' plainly and unequivocally make the payment of premium a pre-requisite to the renewal of the insurance.

In such a circumstance, the 'contra proferentum' rule of construction requires the court to adopt a construction favourable to the assured and against the insurer from whom the document emanates. As per Blackburn J in Fowkes v Manchester and London Life Assurance Association (1863) 129 RR 607 at 615."

The renewal notices in Exhibits P2, P3 and D3 refer to the premiums payable with a remittance advice which suggests that the insured must forward the premiums pursuant to the stated intention in the policy itself that the insured pay the first premium to the defendant. Case Exhibit P7 then sets out clearly the consequences of non-payment of the premium within a specified period. Payment of the outstanding premium is clearly a prerequisite to renewal of the insurance. The plaintiff had seven months to pay the premium and had done nothing. He admitted in evidence that had he received the notice he would have interpreted it as a demand for payment of premium by a certain date failing which the policy would be cancelled. In view of the court's finding, the plaintiff had no doubt about the purpose of Exhibit P7. The defendant set out clearly the consequences of non payment within a certain period.

In All Motors Limited v National Insurance Company of Fiji Ltd Civil Appeal No. 52 of 1982 the learned Court of Appeal determined that as the insured had refused to perform its part of the contract there was renunciation. However in obiter remarks there appeared some suggestion that the notice the court at first instance held had not been received (which was in like terms to Exhibit P7) may have been sufficient. Given the facts of the instant case, the court is respectfully of opinion that Exhibit P7 was sufficient communication by the defendant of cancellation of Exhibit P1.

The plaintiff's case is accordingly dismissed and there will be judgment for the defendant. Costs are summarily assessed for the defendant in the sum of $1750.00.

Fiji Law Reports

Kumar v Dominion Insurance Ltd [2000] FijiLawRp 53; [2000] 1 FLR 223 (6 October 2000)