Legal_Process

Question 1 The issue in this case is whether or not Paul and Sue are entitled to claim the $120,000.00 damage from their insurance company. In this case the insurance policy contains an average clause. The unusual impact of such a clause is that if you underinsure i.e. not insure to the full value or the amount of insurance limit purchased is inadequate, your claim may be reduced in proportion to the amount of the under-insurance. Average clauses only apply where there is a partial loss. If there is a total loss the amount paid will be the sum insured. The average formula is: (Value of property stated in the policy) divided by (Actual value of the property) X (Actual loss) = (Amount paid). In this case the property is insured for $200,000.00 and its actual value is $300,000.00, and $120,000.00 damage is caused to the property, the amount of compensation payable by the insurer would be: $200,000.00 / $300,000.00 X $120,000.00 = $79,999.99. The insured is unable to recover the whole of the loss. The reason is because the insured is carrying their own insurance for the difference between the actual value and the insured value. If the insured property had been totally destroyed the insured would have received $200,000.00. Section 44 of the Insurance Contracts Act, 1984 (Cwlth) limits the average clause so that they are partly protected from the impact of an average clause. It gives the homeowner a buffer of 20%. The Act provides that an insurer will be unable to rely on an average clause unless the insured has been advised in writing of the clause and effect of such a clause, before the contract is made. Further, the Act provides that an average clause will be ineffective where the sum insured is 80 per cent or more of the value of the property. Where the sum insured is less than 80 per cent of the actual value of the property, the Act provides that the amount of reduction will be calculated by a formula based on 80 per cent of the value of the property at the time the contract was entered and the sum insured. The effect of Section 44 of the Insurance Contracts Act, 1984 (Cwlth) in such a case would be: (Value of property stated in the policy) divided by 80% divided by (Actual value of the property) X (Actual loss) = (Amount paid). $200,000.00 divided by 80% divided by $300,000.00 X $120,000.00 = $99,999.99. (Victoria University Business & Intellectual Property law (VBM912) Resource Materials, pages 14 & 15). Question 2 The issue in this case is whether or not the insurance company can refuse Tom and Jeff’s claim based on a non-disclosure of a material fact. A contract of insurance is said to be a contract uberrimae fidei. This Latin expression means ‘the utmost good faith’. Parties to an insurance contract are required to exercise the utmost good faith and disclose all relevant matters to each other. It is common for an insurer to disallow a claim based on a non-disclosure of a material fact. A material fact is a fact that an insurer should know when deciding whether to insure. The duty of disclosure does not only rest with the insured. This duty applies also to the insurer. Matters required to be disclosed at common law are those that would have affected the mind of a reasonably prudent insurer in determining whether he will accept the insurance, and if so, at what premium and on what conditions. This materiality test was laid down by Samuels J in Mayne Nickless Ltd v. Pegler (1974) 1 NSWLR 228 at 239. The duty of disclosure applies to cover notes, as it does to other insurance contracts. In Woolcott v. Sun Alliance and London Insurance Ltd (1978) 1 WLR 493 the insured had criminal convictions for robbery. This was held to be a material fact, requiring disclosure, in a proposal for insuring a building against fire. In Marine Knitting Mills Pty. Ltd. v. Greater Pacific Insurance Limited (1976) 11 ALR 167 premises from which a business was operated by the insured had previous fires was also held to be a material fact requiring disclosure in respect to a cover note for fire insurance. The common law rules above have been modified by the provisions of the Insurance Contracts Act, 1984 (Cwlth). Section 21(1) of the Insurance Contracts Act, 1984 (Cwlth) states that an insured has a duty to disclose to the insure, before the relevant contract is entered into, every matter known to the insured being a matter that the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk, and if so, on what terms and what a reasonable person in the circumstances of the insured could be expected to know to be a matter so relevant to the insurer’s decision to accept the risk. The difference between the common law duty of disclosure and the duty under the Act is that the former considers whether the fact not disclosed was material to a reasonably prudent insurer’s decision to insure whereas the latter focuses on the actual insurer not a reasonably prudent one. Section 28(1) Insurance Contracts Act, 1984 (Cwlth) the insurer is not entitled to avoid the contract if the failure by the parties not to disclose was innocent. Section 28(2) of the Insurance Contracts Act, 1984 (Cwlth) provides that an insurer can avoid the contract in the event of a fraudulent breach of duty to disclose. In this case both parties failed to inform the insurer of a previous claim, information of which was relevant to the insurer’s decision whether to accept the risk. In Advance (NSW) Insurance Agencies Pty. Ltd. and Another v. Matthews and Another (1989) 166 CLR 606 the Court held that where more than one person was insured under a policy the duty to disclose imposed by Section 21 extended to each of them to disclose all information relevant to the insurer’s decision whether to accept the risk. It was held that the remedy provided by Section 28(2) for the insurer to avoid the Contract for a fraudulent failure to disclose would apply. (Fundamentals of Business Law, M. L. Barron, 1994, pages 324 -326). Question 3 The issue in this case is whether the insurer can refuse the claim of the daughter and her husband even though Mr & Mrs Smith continue to pay its policy but failed to notify the insurer of the change in ownership. Section 21 of the Insurance Contracts Act, 1984 (Cwlth) outlines an insured’s duty to disclose all information relevant to enable the insurer to make a decision whether or not to accept the risk of insurance, and if so, on what terms. The Act requires disclosure of all information relevant including changes of the insured’s risk and changes of the insured’s circumstances such as change of location, insured names etc. In this case both the daughter and the husband’s interest in the property was not noted on the contract of insurance and they failed to disclose to the insurer that their had been a change in ownership of the property. If you fail to comply with your duty of disclosure, even innocently, the insurer may be entitled to reduce its liability in respect of the claim or may cancel the contract. Section 28(1) of the Insurance Contracts Act, 1984 (Cwlth). If non-disclosure is fraudulent, the insurer may also have the option of avoiding the contract from inception. This would have the effect that you were never insured. Section 28(2) Insurance Contracts Act, 1984 (Cwlth). Question 4 (a) The relationship between a bank and the customer is regarded by law as a contractual one. It is between debtor and creditor. Section 32 of the Cheques Act & Payment Orders Act, 1986 states that where any signature is placed on a cheque without authority then it is inoperative unless: 1. The person against whom the signature is being asserted is estopped from denying its genuineness; and 2. It has been ratified by the alleged signatory. However, it does operate as a valid signature in favour of any person who takes the cheque bona fide for value and without notice of the defect. The Bank has a duty to its customer to: 1. Pay any cheque presented for payment if there are sufficient funds as it will be liable for defamation if it doesn’t; 2. Pay only in accordance with instructions given by the drawer; 3. Ensure that it has not been notified of any forgery prior to honouring the cheque. The Bank is protected by Section 92, 93(2) and 94 if it honours a cheque in good faith, without notice of defect and without negligence. The collecting bank is also protected under Section 95. The Act provides that the person who writes or places the unauthorised signature on the cheque will be liable to any person who takes the cheque, in good faith, for value and without notice of the unauthorised nature of the signature. (b) A signed blank cheque is just that – blank and can be made payable for any amount, to anyone, on any date and use the cheque at any time and given the amount of cheques processed by banks everyday and the chances of a decently forged signature or stolen blank cheque being discovered is probably remote. The major contractual obligation of the bank is to pay the customer's cheque, provided it is properly written and there are adequate funds available in the account. It is highly unlikely that a court will rule that a bank did not act in good faith even though its actions may have been negligent. When Vesna signed the blank cheque she gave the necessary unconditional order to her bank to pay the amount stated on the cheque to the person specified. Section 10(b). In this case Vesna will have no other alternative but to sue in tort of conversion as the true owner of the cheque. Commonwealth Trading Bank of Australia v. Sydney Wide Stores Pty. Ltd. (1981) 148 CLR 304 it was stated that: ‘Arising from the contract between banker and customer, there is a duty upon the customer to take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration which might occasion loss to the banker’. (c) Section 31(2) of the Act provides a person who signs a cheque in a business or trade name or an assumed name will be liable, as if it were signed in their own name. Section 31(3) provides that the signature of a firm name on a cheque will be deemed to be the name of all persons liable as partners in the firm. With respect to a person signing on behalf of a company, Section 31(4) provides any person who signs, authorises or issues a cheque on behalf of a company, or endorses same, will remain liable on the cheque. Question 5 (a) A cheque made payable to ‘Karen or bearer’ is a cheque made payable to the person who holds the cheque (the bearer), even if that person has found it or stole it and unless the bank has reason to suspect that the cheque has fallen into the wrong hands it will pay the cheque. Financial institutions are required to pay to the bearer. Section 22. In this case Michelle cannot make a claim against her financial institution or Toms Supermarket as Mandy was in possession of the cheque i.e. the bearer. (b) A cheque crossed in this manner is a signal to the bank not to pay the cheque other than into an account and that the cheque is subject to defects in title and the nemo dat rule (‘You cannot give what you do not have’) applies. You accept the cheque at your own risk and will gain no better title than the endorser. Section 55 of the Cheques and Payment Orders Act. In this case if Michelle draws a cheque in favour of Karen and crosses it ‘non negotiable’ and it is later stolen from Karen by Mandy and cashed at Tom’s Supermarket, Tom’s Supermarket could not obtain a good title to the cheque as the person from whom it received it, Mandy, did not have a good title as she had stolen the cheque. The last person to possess a good title was Karen. Section 93 of the Cheques and payment Orders Act provides that if a bank on which a cheque is drawn pays it in a manner that is contrary to the crossings, the bank will be liable to the true owner if loss is suffered. However, in this case it is Tom’s Supermarket who is liable for Michelle’s loss as it cashed a ‘Non Negotiable’ cheque which should have paid into the account of Karen, the payee on the cheque. In Radford v. Ferguson (1947) 50 WALR 14 the Plaintiff drew a cheque and crossed it “Not Negotiable” and gave it to the Defendant. The defendant cashed the cheque with a third party who paid the cheque to the bank who honoured it. The court ordered third party to pay plaintiff the value of the cheque. Question 6 At common law, a customer owes a duty to their bank to take reasonable care. A person who is aware that someone has forged their signature and fails to notify the bank cannot subsequently, in relation to a later forgery, deny the geniuses of the signature. They are estopped from doing so as they did not take any steps to notify the bank of the previous forgery. In Greenwood v. Martins Bank (1933) AC 51 the plaintiff was not entitled to recover the sum claimed. By remaining silent when he knew his wife was forging his signature, the plaintiff breached his duty to the bank. He was estopped from denying the signatures were forgeries. The duty of the customer to take care in drawing cheques applies equally to taking care to avoid a cheque being forged.