No implied obligation on insurer to give notice of intention to repudiate

Michael Fagan (plaintiff) v General Accident Fire and Life Assurance Corporation plc (defendant).

Insurance - Contract - Implied terms - Insurer repudiating on the grounds of fraud - Whether insurer obliged to give notice of intention to repudiate and of the reasons therefor - Whether principles of fair procedures apply to insurance contracts.

Insurance - Fraud - Insured's claim exaggerated - Insured's actual loss equalling or exceeding the amount insured - Whether fraud could be inferred from fact of exaggeration.

The Supreme Court (The Chief Justice, Mr Justice Hamilton; Mr Justice O'Flaherty and Mr Justice Lynch); judgment delivered 14 October 1998.

While an insurer must treat his insured fairly and with respect in accordance with the mutual obligations of good faith, there is no implied obligation on an insurer to notify his insured of his intention to repudiate and of the reasons for repudiation unless the parties contract for such an obligation.

The Supreme Court so held in holding that the defendant was entitled to repudiate the contract of insurance and in dismissing the plaintiff's appeal from an order of the High Court dismissing his claim for the maximum amount insured on foot of a policy of insurance.

Patrick Geraghty SC, Iarfhlaith O'Neill SC and Vincent Foley BL for the plaintiff. Paul Gallagher SC and John Gleeson BL for the defendant.

Mr Justice Lynch said that this was an appeal by the plaintiff from an order of the High Court (Mr Justice Murphy) dismissing his claim against the defendant in the sum of £46,585. The plaintiff claimed that the sum was due on foot of a policy of insurance entered into by him with the defendant in 1987 in respect of the contents of his home. The figure was the maximum amount insured by the plaintiff, although it did not represent the value of the contents of the house at the date of the proposal. The claim arose out of an alleged burglary and malicious fire in 1989.

The plaintiff, through his loss assessors, submitted a detailed list of over a thousand items in respect of which he was claiming compensation. The total value of the items listed was £102,481.59. Mr Tyrell, for the firm of loss adjusters engaged by the defendant to investigate the claim, requested details of the purchase and price of each item. Mr Justice Lynch said that while this was a burdensome request, there was no independent corroboration of any nature so as to confirm the value or even the existence of the items claimed.

During an initial meeting between the parties, the plaintiff had mentioned that he had purchased some items in Northern Ireland and had paid customs duty on them. If that were the case, there would have been customs records in relation to these goods and Mr Tyrell requested that these records be produced. The plaintiff informed him that he had been told by the relevant authorities that there were no records stretching back to before 1987 when the goods had been purchased.

However, Mr Tyrell made a specific request in relation to a VCR valued at £550 which the plaintiff had informed him was only four months old and had been purchased in the North. Mr Tyrell specifically requested the customs records in relation to this item.

Mr Justice Lynch said that corroboration in relation to this item would obviously establish the claim in relation to this item and as a matter of probability it would assist in relation to the claim generally. This request was completely ignored. In June 1989, the defendant's solicitors wrote to the plaintiff stating that he was in breach of general condition 6 of the policy and that the defendant was therefore avoiding and/or repudiating the policy. In a letter, the defendant set out in detail what it regarded as instances of contradictory and untrue information which had been given by the plaintiff and of exaggerated claims which had been made in relation to specific items.

Condition 6 of the policy provided that if any claim made under the policy should be in any respect fraudulent, or if any fraudulent means or devices were used by the policy holder to obtain any benefit thereunder, all benefit under the policy should be forfeited. Condition 9 provided that the due observance and fulfilment of the terms, provisions, conditions, and endorsements of the policy insofar as they related to anything to be done or complied with by the policy holder and the truth of the statements and answers in the said proposal should be conditions precedent to any liability of the defendant to make any payment under the policy.

In its defence in these proceedings, the defendant pleaded breaches of both conditions and of an implied duty of good faith owed by the plaintiff to the defendant.

In the course of the trial, the defendant conceded that the plaintiff's loss equalled or exceeded the sums insured and confined its defence to the question of liability. The plaintiff submitted that the defendant was in breach of constitutional justice and fair procedures in not giving the plaintiff prior notice of their intention to repudiate and their reasons for such: Superwood Holdings plc v Sun Alliance and London Insurance plc and Others [1995] 3 IR 303. Neither was the defendant entitled to amplify its grounds of repudiation. Furthermore, it was submitted that it was not open to the trial judge to infer a fraudulent intention since the plaintiff was never claiming more than the limit of the sums insured.

The defendant said that the claim was fraudulent in that it was exaggerated far above the limit insured so as to induce the defendant to concede the claim and to forego any detailed investigation of the claim. The defendant submitted that the trial judge had not erred in law: in particular, he had correctly accepted that exaggeration was not conclusive evidence of fraud and that the burden of proof rested on the defendant. The defendant further submitted that the principles of fair procedures were a matter of administrative law and had no application to a private contract. The defendant was therefore entitled to amplify its grounds for repudiation and was not required to give prior notice of any proposed repudiation: Carna Foods Ltd v Eagle Star Insurance Co [1995] 2 ILRM 474 and [1997] 2 ILRM 499.

Mr Justice Lynch said that the plaintiff had relied on a passage from the judgment of Mrs Justice Denham in Superwood Holdings plc v Sun Alliance and London Insurance plc and Others [1995] 3 IR 303 at page 360: "It is true that the contract of insurance does not formally require that such notice be given. However, it is a fundamental tenet of constitutional law and fair procedures that if a person's position is to be detrimentally affected he should be placed on notice. Consequently, the plaintiffs would succeed on this ground alone in the absence of such notice." That statement was made in the context of a condition in the policy in that case which related to the giving of notice by the insured and details of loss to the insurer.

It did not relate to a condition on fraud. The plaintiff was saying that he had not being given an opportunity to deal with the defendant's objection. However, Mr Tyrell had sought independent verification which might be expected to be reasonably obtainable. The evidence of the plaintiff's loss assessors was that they were asked for further particulars, not verification, but that was unsustainable. An insurer should treat his insured fairly and with respect in accordance with the mutual obligations of good faith, but was not expected to spoon feed an insured as to whose honesty and reliability he has doubts. The Superwood case had no application: it was for the parties to make their own contract and the courts should be careful not to impose on parties terms which they would never have accepted if suggested in their pre-contract bargaining.

Mr Justice Lynch said that the evidence in relation to the VCR was very relevant. The evidence for the defendant was that this was a very large claim and was unusual in that absolutely no verification of any item was offered. This item seemed to be verifiable, but the request was completely ignored. It was understandable that this would raise suspicions in the minds of those dealing with the claim.

Having regard to this, there was no obligation on the defendant to conduct a kind of trial or hearing before repudiating liability under the policy. While some contracts, such as contracts of employment, might create relationships which would give rise to a form of hearing before repudiation or termination (see Glover v BLN [1973] IR 388), this was a commercial contract and the court would not impose terms on the parties. While a contract of insurance undoubtedly involves mutual obligations of good faith, that does not mean that the insurer cannot, provided he is acting bona fide, disclaim liability without first conducting some form of trial.

In relation to the other grounds of appeal, it should borne in mind that the judgment of the High Court was handed down over two years before the judgment in the Superwood case. Nevertheless, the trial judge had set out correctly the principles of law applicable to the case and also the correct approach to exaggeration. He did not overlook the fact that the presentation of the claim was made significantly more difficult for the plaintiff by the loss of his first wife in 1984. She was the person most qualified to recollect the contents and their value. A further difficulty was that the personal and financial records which would have been of assistance to the plaintiff were destroyed in the fire. However, the plaintiff had the assistance of his daughters and his second wife. In fact, he and his eldest daughter had made an inventory and valuation of the contents less than two years before the fire when the plaintiff was completing the proposal form for the contents.

Justice Lynch said that one of the primary tasks of the trial judge in a case like this was to assess the credibility of the witnesses and to make findings of facts accordingly. The learned trial judge had addressed this in his judgment. He had found that the credibility of Mr Tyrell was established beyond question, particularly in view of the fact that it was corroborated by documents which came to the attention of the defendant only after the trial had commenced. While the plaintiff had given his evidence with sincerity and the trial judge had believed him to be truthful, he had nevertheless given evidence in cross-examination which his own counsel had admitted was wholly untrue. The trial judge had concluded that the plaintiff had to be regarded at the very least as an unreliable witness.

The trial judge had also found the evidence of the plaintiff's daughter to be unreliable. In the course of the trial, she had been cross-examined about the dates of notes on the items in the house which she had drawn up and her evidence as to the date when these notes had been made and as to how the date marked on them had been changed was unconvincing. The trial judge had also had doubts, though of a milder nature, about the evidence of the plaintiff's wife.

On an examination of the particular items in respect of which claims were made, it was clear that the trial judge had found several of the claims to be so excessive as to be fraudulent. There was ample evidence to support these findings and this court would not interfere with them. The defendant was entitled to repudiate the policy and the appeal must be dismissed.

Solicitors: Terence V. Grant & Co (Drogheda) for the plaintiff; Good & Murray Smith & Co (Dublin) for the defendant.