On 23 August 2013, the plaintiff’s vehicle was allegedly stolen and destroyed by fire. He subsequently made a claim on his insurance policy. His insurer (the defendant) declined the claim as it disputed the veracity of the claim.
The plaintiff challenged the defendant’s decision to decline the claim in the District Court of New South Wales (District Court).2
The defendant sought to rely on an exclusion clause involving loss or damage intentionally caused by an insured or a person acting with the insured’s express or implied consent. The defendant alleged fraud in its defence.
On the basis of expert and other evidence obtained by the defendant, it argued the vehicle could not have been stolen as:
Although there was no direct evidence of the plaintiff causing the fire, and the defendant’s case was circumstantial in nature, the trial judge was satisfied the plaintiff was involved in the destruction of the vehicle and gave judgment for the defendant.
The plaintiff appealed the decision.
It was found that the trial judge erroneously stated in her reasons for judgment that the plaintiff bore the onus of showing that there was a theft of the vehicle. The trial judge further stated that she was not satisfied the plaintiff had proven on the balance of probabilities that he was not complicit in a plan to have the vehicle moved (before it was burnt). However, the trial judge correctly observed twice in the dispositive part of her judgment that the plaintiff bore no onus and that in light of the seriousness of the allegation advanced by the defendant, the heightened standard of proof reflected in s 140(2) of the Evidence Act 1995 (NSW) applied. The Court of Appeal found that these conclusions fed directly into the trial judge’s reasoning that the vehicle had been moved “with the use of one of the two keys”. The involvement of the plaintiff in moving the vehicle was relied on by the trial judge to conclude that he was involved in the vehicle’s destruction by fire.
These erroneous statements led to the Court of Appeal finding that their inclusion materially contributed to the trial judge’s conclusion. However, establishing this ground of appeal alone did not entitle the plaintiff to have judgment entered in his favour, as opposed to a retrial.
The plaintiff submitted there was insufficient evidence to conclude that there were only two keys for the vehicle. The defendant’s expert concluded upon microscopic examination that neither side of ‘KEY-2’ had been mechanically copied, but could express no opinion concerning ‘KEY-1’ which lacked its blade. There were several theories as to how ‘KEY-1’ came to be given to the defendant’s expert and in what circumstances it was damaged. This left open possibilities that the broken key had either been replaced or copied and the replacement key stolen and used to take the vehicle. It could not be found, on a balance of probabilities, that the two keys were the only keys to the vehicle. The Court of Appeal considered this was relevant to the allegation of fraud which was the defendant’s defence. The Court of Appeal found it surprising that no supporting correspondence between the plaintiff and the defendant (including the claim form), or the defendant and the defendant’s expert (including his letter of instruction) were made available, and no explanation for their absence was provided.
Lemming JA stated:
“I am not satisfied that the inferences sought to be drawn by the insurer, that [the plaintiff] was involved in the movement and subsequent destruction of his vehicle, should be drawn, given the gaps in the evidence, and the unexplained failure on the part of the insurer to fill those gaps. Given the nature of the error and of the trial, this Court is in no worse position than the primary judge and can and therefore should determine the issue, rather than ordering a retrial. Taking the insurer’s case at its highest, it had failed to make good its defence.”3
The appeal was allowed, with the judgment of the trial judge being set aside, and judgment entered for the plaintiff.
This case demonstrates the high evidentiary threshold and standard of proof for cases of fraud which is especially onerous where an insurer’s evidence is circumstantial in nature. It also emphasises the importance of preparation and including all necessary evidence, particularly in support of a circumstantial case, noting the onus is on the insurer to prove fraud. The Court of Appeal was critical of the insurer’s lack or gaps in its evidence, as well its lack of explanation for such deficiencies.