Misrepresentation Regarding Ownership of Insured Property

Key Points

• Misrepresentation or non-disclosure by an insured with respect to “ownership” of insured property;

• Consideration of what constitutes an insurable interest in the property;

• Importance of asking unambiguous questions in online insurance applications.

Gonzales & Barrett v The Hollard Insurance Company Pty Ltd [2016] NSWLC 9

Facts

Ms Gonzales and Mr Barrett were de-facto spouses, and lived in a residential property in Newtown in NSW (“the Property”). Mr Barrett was the sole registered owner of the Property.

Ms Gonzales applied online for home and contents insurance with the insurer (“Hollard”). In its online questionnaire, Hollard asked the question “Do you own the home and live in it with only your immediate family?” (“the Question”) to which Ms Gonzales answered “Yes”.

Based on the completed online questionnaire, Hollard offered Ms Gonzales a home and contents insurance policy with respect to the Property (“the Policy”). Mr Barrett was not named on the Policy.

During the period of insurance, Ms Gonzales lodged a claim for storm damage to the Property (“the Claim”). Hollard denied the Claim on the basis that Ms Gonzales had misrepresented that she was the owner of the property when she was not. Ms Gonzales and Mr Barrett brought proceedings to recover the cost of repairing the storm damage to the Property.

Issues

The issues raised in this matter were, in essence, as follows:

1. Did Ms Gonzales’ answer to the Question constitute a misrepresentation for the purpose of section 28 of the Insurance Contracts Act 1984 (Cth) (“ICA”)?

2. If so, was Hollard entitled to reduce its liability under the Policy for the storm damage to nil pursuant to section 28(3) of the ICA?

Outcome

The Court determined that:

1. Ms Gonzales’ answer did not constitute a misrepresentation. This is because there was no information provided in the questionnaire to indicate that the term “own” was restricted to mean the legal or registered proprietor of the Property.Ms Gonzales resided in the property and had possession and control over the Property jointly with Mr Barrett. As the de-facto partner of Mr Barrett, she had possible rights to the Property under the Property (Relationships) Act 1984 (NSW). She would be prejudiced if the Property was destroyed, and thereby had a clear insurable interest in the Property.The Court found generally that the Question was ambiguous and therefore, from a layperson’s perspective, Ms Gonzales’ answer to the Question was unsurprising. As the Court found that the Question was capable of being construed with a wider meaning to include persons who were not the legal owners of the Property, there was no misrepresentation.

2. Even if there had been a misrepresentation (which was not the case here), the Court noted that Hollard had not discharged its onus to prove that it was entitled to reduce its liability to nil in any event.Hollard had provided evidence that it would not have allowed Ms Gonzales to continue with the online application for insurance if she had answered “no” to the Question.However, Hollard had apparently not supplied evidence from its underwriting department regarding whether Ms Gonzales would have been offered cover had she telephoned Hollard to request insurance cover (noting that it would not be unreasonable for a person unable to obtain assistance online to revert to a telephone enquiry).As Hollard had not satisfied the Court that it would not have offered the Policy on the same terms in any event, even if there had been a misrepresentation, Hollard would not have been entitled to reduce its liability to nil.

Lessons

• Insurers should avoid, where possible, asking “double barrelled” questions when offering insurance cover. In this matter, the Court noted that the Question joined two separate concepts of ownership and occupation of the Property, such that Ms Gonzales’ answer to the Question could have been construed as partially incorrect whether she had answered either “yes” or “no”.

• Insurers should utilise definitions in their online applications in order to avoid ambiguity and ensure, as far as possible, that questions cannot be misconstrued.

• When seeking a remedy under section 28(3) of the ICA with respect to an insured’s non-disclosure or misrepresentation, an insurer will need to provide comprehensive evidence from its underwriting department regarding whether it would have provided cover at all, and on what terms, in circumstances where the misrepresentation or non-disclosure had not taken place.