Vero Insurance NZ Ltd v Posa HC Hamilton CIV 2007-419-1279 [2008] NZHC 1239; [2008] 3 NZLR 701 (6 August 2008)

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This judgment was delivered by me on 6 August, 2008 at 11:00 am pursuant to Rule 540(4) of the High Court Rules

Introduction [1] Background [2] The District Court decision [9] The grounds of challenge [15] Approach to the appeal [19] Failure to disclose efforts to sell the boat [23] The duty of disclosure [23] Materiality under s 18(2) [33] Evidence that the information was material [39]

Was the policy an “agreed value” policy? [44] Fraudulent misstatement as to the value of the boat [64] Misstatement in support of a false claim [75] General conclusion [89] Result [90]

[1] This is an appeal brought by Vero Insurance NZ Limited (“Vero”) against a judgment of the District Court at Hamilton, where a claim brought by Ivan Yerko Posa (“Mr Posa”) against Vero was determined in Mr Posa’s favour and judgment entered for him in the sum of $105,000 together with interest. The appeal is brought pursuant to s 72 of the District Courts Act 1947.

[2] The background is straightforward. From about 1994 Mr Posa owned a boat hull, which by 1998 he had developed into a catamaran runabout, described as a

1998 or 1999 7.3-metre Robson Powercat called Millenium. The overall cost of the boat was approximately $170,000. Mr Posa used the boat intermittently from 1998 through to January 2005.

[3] On 28 November 2002 Mr Posa obtained an insurance policy (“the policy”) from Vero for the period 28 November 2002 to 28 April 2003. He renewed the policy for a 12-month period from 28 April 2003, and then again from

Mr Posa attached a battery charger to the boat’s motors, intending to charge the battery and prepare the boat for summer use. He went to play golf for several hours, leaving the battery charging. He returned home to find that a fire had broken out where the battery was being charged. The boat was severely damaged and proved to be unsalvageable, while the trailers and motors had some limited residual value.

[5] Mr Posa made a claim to Vero on 27 January 2005. He was then interviewed by Vero’s assessor, Kevin Byrne. Mr Byrne then prepared a statement for him, to which Mr Posa made two amendments. Mr Posa signed it on 3 February 2005. Mr Byrne appeared to be friendly to Mr Posa, but Vero was actually very suspicious

of Mr Posa’s claim, and Mr Byrne was seeking evidence of arson or serious irregularity.

[6] Ultimately Mr Posa’s claim for cover under the policy was declined. He subsequently issued proceedings claiming $105,000.

[7] Vero’s statement of defence filed in the District Court pleaded as a first affirmative defence that Mr Posa had failed to disclose material information when he renewed the policy on 28 April 2004. In the alternative, Vero pleaded that Mr Posa had supplied a fraudulent valuation of the boat when he renewed the policy on

28 April 2004. Vero claimed that the likely market value of the vessel was $80,000 rather than the $105,000 on which basis its insurance was renewed. In a further alternative, Vero pleaded that Mr Posa had made a fraudulent statement in support of his insurance claim in February 2005 by misstating his attempts to advertise and sell the boat in the years prior to the fire.

[8] At the hearing in the District Court Vero also contended that the evidence did not support a conclusion that the fire was accidental, either on the basis that Mr Posa knew or ought to have known that the battery charger was dangerous, that he intended to cause a fire or deliberately courted the risk of fire, or that he was indifferent to that risk.

[9] The District Court Judge rejected Vero’s allegation that the fire was not accidental and its allegation that Mr Posa deliberately or recklessly caused the fire. The primary witness in support of these serious allegations was Mr Posa’s estranged brother, Roko Posa. The Judge rejected Roko Posa’s evidence entirely, stating that it lacked both reliability and credibility. She also recorded that she was satisfied that Mr Posa was attempting to be truthful and accurate when giving his evidence about the fire. Vero has not challenged on appeal the Judge’s finding that Mr Posa did not deliberately or recklessly cause the fire. Vero has also not challenged the Judge’s conclusion that the fire led to sudden accidental physical loss or damage.

[10] The Judge concluded that Mr Posa had regarded Millenium, its trailer and motor as available for sale from virtually immediately after he took possession of it. She recorded that Mr Posa had advertised Millenium for sale in a publication called Trade A Boat on 15 occasions and had accepted an offer of free additional advertising for a further month. Mr Posa had stored the boat in a marine broker’s yard for a period, and the broker also advertised Millenium on its website. Nevertheless, she concluded that Mr Posa was not a desperate or anxious seller.

[11] The Judge concluded that Mr Posa did not disclose to Vero at the time he renewed the policy that he was willing to sell the boat and that he had placed advertisements for its sale. The Judge found as a matter of fact at [28] that Mr Posa did not disclose to Vero:

• Between November 2002 and the fire on 22 January 2005 that he had advertised the insured property for sale up to December 2003 (in all a total of 15 times with additional free website listings); and

• That between November 2002 and December 2003 he would accept any reasonable offer, or $100,000 or $85,000 or finally $80,000 for the insured property;

• That he had ceased purchasing advertisements recording the insured property for sale after December 2003; and

• That if a prospective purchaser offered an acceptable sum between December 2003 and 22 January 2005 he would have sold the insured property. He did not say, but I infer from his actions, that an acceptable price after December 2003 would be fixed having regard to market valuation.

[12] However, she did not consider that the information was material to Vero. She also concluded that when Mr Posa renewed the policy in April 2004, the boat trailer and motors in fact had a market value of $120,000, higher than the $80,000 claimed by Vero and the $105,000 supplied by Mr Posa. She therefore concluded that Vero would not have altered the terms of the policy even if it had known the boat’s true value and of Mr Posa’s efforts to sell, and that no prudent insurance underwriter would have done so. In the course of reaching this conclusion she rejected a submission that the policy included an agreed value for “Millennium”. She also implicitly concluded that Mr Posa did not misstate the value of the boat.

[13] The Judge also concluded that Mr Posa failed to record correctly his efforts to advertise the boat for sale in his statement to Vero when he made the claim in February 2005. However, the Judge considered that Mr Posa did not make the misstatements deliberately and was not being reckless as to the truth of what he said. She therefore found that Mr Posa did not fraudulently mislead Vero when making the claim.

[14] The Judge entered judgment for Mr Posa for $105,000 together with interest at the rate of 7.5 percent from the date of the fire.

[15] Neither party challenged the Judge’s findings that Mr Posa had made efforts to sell the boat for as little as $80,000, and had failed at the time the policy was renewed on 28 April 2004 to disclose those efforts to Vero. Vero submitted that Mr Posa’s non-disclosure was material to Vero’s decision to renew the policy, which therefore permitted Vero to decline the claim. Vero submitted that the fact that the boat was unsuccessfully advertised for $80,000 was material given that the boat was insured under the policy for $105,000.

[16] Vero further submitted that Mr Posa knowingly supplied to Vero a valuation that was higher than the boat’s true value, which therefore permitted Vero to decline the claim. Vero submitted that the $80,000 for which the boat was advertised represented the true value of the boat.

[17] Finally, Vero submitted that Mr Posa’s statement to Mr Byrne for Vero fraudulently misstated his previous efforts to sell the boat in support of his claim, which permitted Vero to decline the claim.

b) Whether Mr Posa supplied a fraudulent valuation of the boat when the policy was renewed.

c) Whether Mr Posa’s statements regarding his efforts to sell the boat amounted to a fraudulent misstatement in support of his insurance claim.

[19] This appeal has been filed under s 72 of the District Courts Act. By virtue of s 75, it is an appeal by way of rehearing.

[20] Section 76 governs the powers of the appellate courts. The High Court’s powers were expanded by the District Courts Amendment Act 2002 to include “mak[ing] any decision which it thinks ought to have been made”. This formulation invites the appellate court to substitute what it considers is the right answer rather than to determine only whether there was a sufficient basis for the District Court decision.

[21] Mr Ring QC for Vero made careful and detailed submissions on the approach that should be taken to the appeal. He submitted that in light of the recent observations of the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141, the appellate court in an appeal by way of re-hearing should carry out its own assessment of the facts and should not hesitate to substitute its own findings of fact. He submitted that in so doing, the appellate court should also not hesitate to substitute its own judgment on issues of credibility. Mr Morgan QC for Mr Posa in response pointed out that the Supreme Court apparently accepted that caution was appropriate when interfering with credibility assessments made by the original fact-finders, referring to the discussion in Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA).

[22] I consider that Austin, Nichols is an important reminder of the duty of an appellate Judge to apply independent judgment to findings of fact, including those turning on findings of credibility, and not to defer to the trial Judge’s conclusion

when a different conclusion appears correct. Nevertheless, Austin, Nichols makes it clear that the onus is still on an appellant to show that the trial Judge was wrong: at [4]. Further the Court recognised the “advantage” that a trial Judge has when considering an issue of credibility although this must not transform into slavish deference to the trial Judge’s conclusion: at [13]. While the appellate court must review the evidence that relates to a matter of credibility at issue on appeal, such a trial Judge’s finding is of relevance and should be disregarded only with caution.

[23] In this case the obligation to disclose all material information or circumstances to the insurer comes from three different sources. The first source is the insurance policy itself. The general conditions of the policy recorded:

You are to immediately inform the company in writing if any material circumstances change during the period of cover.

You must advise us of any changes or further information likely to affect our acceptance of this insurance. If there are changes and you do not tell us, cover may not apply.

[24] The policy further states that if an insured person breaches any condition of the policy all benefit under it will be forfeited. Under the heading “observance of terms and conditions”, it is specifically stated:

The observance and fulfilment of the terms and conditions of this policy by you insofar as they relate to anything to be done or complied with by you and the correctness of any statements contained in any proposal or made elsewhere to the company by you, are conditions precedent to any liability of the company to provide any indemnity under this policy.

[25] The second source is the common law duty of disclosure. This was discussed in Misirlakis v New Zealand Insurance Co Ltd (1985) 3 ANZ Insurance Cases 60-

633 (CA) and does not require elaboration. The obligation to disclose applies as

much to a renewal as to a proposal for a new policy: Pan Atlantic Insurance Co Ltd

[26] The third source is the Marine Insurance Act 1908. The parties appear to have assumed that the Marine Insurance Act applies. I have no doubt that it does. Section 3(1) defines marine insurance as:

(1) A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses—that is to say, the losses incident to marine adventure.

(a) Any ship, goods, or other movables (such property being hereinafter referred to as “insurable property”) are exposed to maritime perils:

(b) The earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefit, or the security for any advances, loan, or disbursements, is endangered by the exposure of insurable property to maritime perils:

(c) Any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property by reason of maritime perils.

(3) Maritime perils means the perils consequent on or incidental to the navigation of the sea—that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or designated by the policy.

[29] As Fisher J observed in Gate v Sun Alliance Insurance Ltd [1995] LRLR 385:

[T]he statute is not confined to insurance of vessels which spend all their time voyaging.

Similarly, in Countrywide Finance Ltd v State Insurance Ltd [1993] 3 NZLR 745, the Marine Insurance Act was held to apply to a wooden ferry. The fact that

Millenium was normally kept on land rather than at sea or in a marina is not determinative. Australia, like New Zealand, enacted legislation almost identical to the English Marine Insurance legislation when it passed its Marine Insurance Act 1909 (Cth). The Australian Act has subsequently been amended by s 77 of the Insurance Laws Amendment Act 1998 (Cth) to exclude “pleasure crafts”. There is no comparable exclusion in New Zealand.

[30] Millennium was built for “marine adventure” as defined by the Act in that it was to be exposed to the perils consequent on or incidental to the navigation of the sea, although hopefully the seas off Tauranga would not contain pirates and involve the detainment of princes. I am satisfied therefore that the Act applies.

[31] The classification may not be particularly important in this case, as the duty of disclosure under the Marine Insurance Act does not differ from the duty under the common law: State Insurance General Manager v McHale [1992] 2 NZLR 399 (CA) at 411; Gate v Sun Alliance at 399.

(1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract.

(2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk.

(3) In the absence of inquiry the following circumstances need not be disclosed, namely:

(b) Any circumstance known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know:

(d) Any circumstance which it is superfluous to disclose by reason of any express or implied warranty.

(4) Whether any particular circumstance which is not disclosed is material or not is in each case a question of fact.

(5) The term “circumstance” includes any communication made to or information received by the assured.

[33] Section 18(2) defines a material circumstance as a circumstance which would influence the judgment of a prudent insurer in fixing the premium or determining whether the risk will be taken. Materiality is assessed objectively. The circumstance must be known to the insured under s 18(1), although the insured need not personally understand that it is material.

[34] The Court of Appeal accepted in Jaggar v QBE Insurance International Ltd [2006] NZCA 358; [2007] 2 NZLR 336, following Pan Atlantic Insurance, that an insurer relying on non-disclosure must establish that the information not disclosed was material to the actual insurer but also would have been material to a prudent insurer.

Whenever an insurer seeks to avoid a contract of insurance or re-insurance on the ground of misrepresentation or non-disclosure, there will be two separate but closely related questions. (1) Did the misrepresentation or non- disclosure induce the actual insurer to enter into the contract on those terms? (2) Would the prudent insurer have entered into the contract on the same terms if he had known of the misrepresentation or non-disclosure immediately before the contract was concluded? If both questions are answered in favour of the insurer, he will be entitled to avoid the contract, but not otherwise.

The evidence of the insurer himself will normally be required to satisfy the court on the first question. The evidence of an independent broker or underwriter will normally be required to satisfy the court on the second question. This produces a uniform and workable solution, which has the further advantage, as I see it, of according with good commercial common sense.

[36] The Court of Appeal in Jaggar noted that the Pan Atlantic Insurance approach raised two questions: first, whether a presumption of inducement follows once materiality has been established, and secondly, whether it is sufficient if the

fact in issue would have merely had an effect on the mind of a prudent insurer or whether it must be shown that the fact would have had a decisive influence: at [42]. The Court of Appeal ultimately considered that it had to be satisfied on the balance of probabilities that the actual insurer was induced to enter into the contract of insurance by the non-disclosure: at [46].

[37] In order to prove inducement the actual insurer must show that the non- disclosure or misrepresentation was an effective cause of its entering into the contract on the terms which it did, although it does not have to be the sole effective cause: Assicurazioni Generali SPA v Arab Insurance Group (BSC) [2003] Lloyd’s Rep IR 131 (CA) at [62]. This approach is also indicated by the words of s 18(2) of the Marine Insurance Act, which states that a circumstance is material if it would influence the judgment of a prudent insurer in fixing the premium or determining whether to take the risk. The phrase “influence the judgment” connotes an effective cause, rather than the sole effective clause in relation to a notional prudent insurer.

[38] The Court of Appeal in Jaggar referred to Pan Atlantic Insurance on the basis that the respondent had accepted that Pan Atlantic Insurance should apply, without determining definitively that it did apply in New Zealand. However, no issue has been taken with the Pan Atlantic Insurance approach in this appeal, and I accept it as good authority. It is necessary, therefore, to consider the following:

[39] Mr Ring submitted that if Mr Posa had disclosed to Vero when he renewed the policy that he had unsuccessfully tried to sell the boat at $80,000, this would have been decisive to Vero and influential to a prudent underwriter. He submitted that disclosure of the unsuccessful efforts to sell at that price would have alerted Vero to the difference in real and insured value.

[40] John Mortimer, the managing director of Vero’s agent, Mariner Underwriters

Mr Posa advised that the boat had cost $120,000 and sought insurance at a figure of

$105,000. The policy renewals were also for a figure of $105,000. Mr Mortimer said that if Mr Posa had told Mariner Underwriters at the time he renewed his policy that he was prepared to sell the vessel for $80,000, he would not have offered a renewal of the policy for an “agreed value” of $105,000. Mr Mortimer said that he would have offered a renewal with an agreed value of the boat of $80,000. He explained that even if Mr Posa had produced a valuation showing that the vessel was worth more than $80,000, he would not have agreed to insure it for a greater amount:

From my point of view as a marine underwriter, the agreed value under the policy would have meant that in the event of a total loss, Mr Posa would be over-indemnified. Accordingly, the difference between the agreed value and the amount which Mr Posa was prepared to sell the vessel for raised two issues in my mind:

[41] It is clear that the fact that the policy set an “agreed value” for Millennium was central to Mr Mortimer’s reasoning. The fact that the policy set an agreed value meant that in the event of a total loss, in Mr Mortimer’s words, “Vero would pay out the full amount insured without any reduction for depreciation.”

[42] Vero called Graeme Orchard, the marine manager of a leading marine underwriter, QBE Insurance International Limited, to give independent evidence on what a prudent insurer would have done. Mr Orchard said that the fact the boat had been unsuccessfully advertised for $80,000 would have been material to an offer of renewal. Like Mr Mortimer, he referred to $105,000 as being the “agreed value” of the boat under the policy. He considered that knowledge of the unsuccessful efforts to sell the boat at $80,000 would have alerted the insurer to the possibility of over- insurance. He stated that over-insurance posed a potential “moral risk”, by which he meant that the potential windfall benefit of having the vessel over-insured could encourage a dishonest and fraudulent claim. This could have led a prudent insurer to reduce the agreed value or even to decline the insurance.

[43] In order to assess the evidence produced by Vero, it is necessary to determine whether the underlying assumption made by both deponents, namely that the insurance policy was an “agreed value” policy, is correct.

[44] The District Court Judge concluded that the policy in question did not fix an agreed value for the boat.

(2) A valued policy is a policy which specifies the agreed value of the subject-matter insured.

(3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss is total or partial.

(4) Unless the policy otherwise provides, the value fixed by the policy is not conclusive for the purpose of determining whether there has been a constructive total loss.

[46]	Section 29 provides: 29 Unvalued policy
	An unvalued policy is a policy which does not specify the value of the subject-matter insured, but, subject to the limit of the sum insured, leaves the insurable value to be subsequently ascertained in the manner hereinbefore specified.
[47]	A valued policy therefore sets in advance the agreed value on a claim.	An

unvalued policy does not set the agreed value, leaving value to be subsequently ascertained in the event of a claim.

[48] Vero argues that the policy was a valued policy in terms of s 28(2) of the Marine Insurance Act, which meant that in the event of a total or partial loss the agreed value would be treated as conclusive in terms of s 28(3), or at least the

starting point for the determination or assessment of the loss. Vero relied for its submission on British Traders’ Insurance Co Ltd v Monson [1964] HCA 24; (1964) 111 CLR 86.

[49] Whether a policy is an agreed value policy is a matter of interpretation of the particular insurance contract: Thor Navigation v Ingosstrakh Insurance Co Ltd [2005] EWHC 19 (Comm) at [16]. The ordinary principles of contractual interpretation, set out by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 (HL) at 912-913 and applied in New Zealand in Boat Park v Hutchinson [1999] 2 NZLR 74 (CA), apply to the interpretation of clauses in an insurance policy.

[50] The insurance policy states that: “Your insurance contract consists of this, the schedule and the proposal or application form.” The “Trailer craft schedule” states that the “sum insured” is $105,000. There is no reference to an agreed value.

The total liability of the company in respect of the vessel shall not exceed the amount specified in the schedule against each item.

“agreed value” means we have agreed on the value of the vessel and other property specified in the schedule. It will be used to help us measure the amount of loss.

[52] Thus far, while the introductory words refer to “agreed value”, they do not appear to use that term in the sense that “valued policy” is used in s 28 of the Marine Insurance Act. Rather than stating that the agreed value is “conclusive”, it is expressed to be a “help” in measuring loss, and the amount specified appears to be a maximum only.

[53] Under the heading “Conditions” and the subheading “Claim settlement” it is stated:

We will pay for total loss of your vessel and other property only if the vessel is completely lost or destroyed. We will also pay for a constructive total loss if the cost of recovering and repairing the vessel is greater than the amount of insurance specified for your vessel in the schedule. We will not pay for unrepaired damage in addition to a total loss or constructive total loss. If we pay you for a total loss or constructive total loss you agree that we are entitled to the proceeds of any salvage. If there is a total loss to your vessel we will not deduct for depreciation in determining the value of any property. If there is a partial loss, however, we deduct for depreciation on sails, protective covers of fabric or similar material, outboard motors more than

[54] Under this critical paragraph Vero has the option of settling “up to” the sum insured. If there is a total loss on the vessel, there will be no deduction for depreciation “in determining” the value of any property. These words together disclose that the policy does not fix a value “conclusive of the insurable value of the subject intended to be insured”, in the words of s 28(3). To the contrary, it is explicit that the insurable value will be the subject of determination at the date of claim and the sum insured is no more than the maximum amount that will be paid out. This is consistent with the introductory paragraph and the definition of “agreed value”. Thus, if Mr Posa were to make a claim, he would be paid the value of the boat as determined at the date of claim rather than any figure in the insurance policy.

[55] The summary of the policy stated that the cover included various matters including:

... agreed value single sum insured on the vessel which includes, where applicable, spas, sales, machinery, tender, outboards, trailer, equipment and other accessories that would normally be sold with the craft.

This alone of the contractual conditions is some indication that the value of the boat, and the insurer’s liability, is agreed. However, at the foot of this document it is stated that it is a resume only and that full details are contained in the policy

conditions. The policy conditions unambiguously point to the stated figure being the maximum to be paid out and not the agreed value. In the event of a conflict, the policy, being the key contractual document, obviously prevails over the summary.

[56] I therefore conclude that this was not an agreed value or valued policy, but rather an unvalued policy. While limiting the sum insured, the policy left, in the words of s 29 of the Marine Insurance Act, “the insurable value to be subsequently ascertained in the manner hereinbefore specified”.

[57] Vero argued that Mr Posa actually pleaded in his statement of claim that the policy was an agreed value policy, presumably suggesting that this now prevents Mr Posa from maintaining a contrary proposition. The statement of claim, however, does not plead that the insurance policy was an agreed value policy. It states that the agreed value of the insured property was $105,000. The pleading may reflect Mr Posa’s lack of initial focus on the technical meaning of “agreed value” in legal argument. However, there does not appear to have been any prejudice to Vero as a result of any apparent change in position by Mr Posa. Vero did not suggest that there was an inadequate opportunity to argue the agreed value issue in the District Court hearing. Mr Mortimer was cross-examined on the point and it was fully argued. I conclude that the nature of the pleading does not estop Mr Posa from denying that the policy was an agreed value policy.

[58] Mr Mortimer and Mr Orchard both therefore gave their evidence on an incorrect assumption, namely that the policy was an agreed value policy. They both assumed that Vero would pay out the full amount insured without any reduction for depreciation in the event of a claim. In fact Vero did not have to do so. As a consequence their evidence as to materiality is of limited value. An insurer cannot prove materiality when it is asserted on the basis of a crucial assumption that as a matter of law is incorrect.

[59] I bear in mind Vero’s submission that even if the policy were not an agreed value policy, over-statements as to value might still engender from a dishonest insured a dishonest claim, in the hope that the over-stated value, while not agreed, might still be accepted. This could increase the moral risk posed by the insured,

something material to the insurer when deciding whether and on what terms to renew the policy. However, this was not the primary basis on which Mr Mortimer or Mr Orchard put their evidence. More importantly, as I will set out in the next section of this judgment, the evidence did not show that the value put forward for renewal purposes of $105,000 was an overvalue at all. There was no temptation on the insured’s part to be sanguine about accidents to the boat or to make false or dishonest claims. Rather, the boat being insured for its true value, there was no particular financial advantage to Mr Posa if he was obliged to make a claim.

[60] Even if the value of the boat was in excess of $105,000, Mr Posa’s considerable unsuccessful efforts to sell the boat could still be said to be relevant to moral risk and therefore material to the insurer. However, I consider that such a conclusion would be taking the concept of materiality too far. I do not accept that there is an obligation on an insured to disclose to an insurer that an insured item may be difficult to sell if the sum insured or the item’s value is correctly stated in the proposal documents or on renewal, even less so if the policy is not an agreed value policy. It would place far too high a burden on an insured, beyond what is required by s 18(2) of the Marine Insurance Act.

[61] I conclude that Mr Posa’s efforts to sell the boat were not material for two reasons. First, the policy was not an agreed value policy, so Mr Posa would not have recovered more than the actual value of the boat. Secondly, as I will set out, the value of the boat was in fact at least $105,000, which was the maximum that could be claimed in any event. There was thus no rational reason for Mr Posa to make a dishonest claim.

[62] I also record, for reasons which I elaborate in the next section of this judgment in relation to the later claim, that I do not consider that Mr Posa was acting dishonestly or recklessly in not disclosing his efforts to sell the boat. I consider that he genuinely did not consider those unsuccessful efforts as relevant to value. Indeed, he was right in this, as the boat was worth the sum of $105,000 for which it was insured.

[63] Thus I agree with the District Court Judge’s conclusion that Mr Posa did not fail to disclose a material fact or facts which would have influenced the judgment of Vero or a prudent insurer in fixing the premium or determining whether it would take the risk of insurance.

[64] Section 20 provides that every material representation made by the insured to the insurer during the negotiations for the insurance contract must be true; if a misrepresentation is untrue, the insurer may avoid the contract.

[65] Vero submits that the value of the boat supplied by Mr Posa at the time of renewal, namely $105,000, was too high. Vero submitted that Mr Posa supplied this valuation fraudulently.

[66] Russell Smith, the manager of Steadecraft Marine in Mt Maunganui, a company which manufactures and sells boats, gave evidence as to the value of Millennium. His company had installed the outboard motors on Millennium. His evidence was primarily concerned with what efforts were made to sell the boat while it was in his company’s possession. He stated in his evidence:

When the boat was operating to my satisfaction Ivan asked me to value it for insurance purposes. I was happy to do so as I knew the original purchase price, what Ivan had spent on the hull and I had supplied and stored the engines, plus supplying miscellaneous bits and pieces. I valued it at

Boats do depreciate, but it rather depends upon the make and model ... Millenium is a boat that I would not expect to depreciate at all apart from the motors ... with only 25 hours on the clock I would have thought they may have lost perhaps $15,000.

Under cross-examination Mr Smith confirmed that Mr Posa had recently become a business partner with him in the Steadecraft company.

[67] Andrew Fink, the proprietor of Andrew Fink Marine Limited, a manufacturer of wood and fibreglass boats with experience in selling boats, also gave evidence as to the value of the boat. He stated that in his opinion the boat had a completed value once relaunched of about $135,000. He recorded that it would have depreciated,

depending on its age, condition and the hours it was used, but not in a significant way. He noted that its replacement cost would have been around $200,000. He deposed that the boat, being custom built, would have taken a long time to sell, given the limited number of buyers who would be attracted to the boat’s specific features.

[68] The Judge recorded that she found the evidence of both Mr Smith and Mr Fink to be credible. She concluded that the boat’s market value at the time of the fire was $120,000, and that Mr Posa’s offers to sell had been on the basis of a sale at undermarket value. Vero attacked this conclusion as unsustainable.

[69] Vero criticised the Judge’s decision because she did not mention Mr Smith’s lack of independence from Mr Posa and did not draw a distinction between market value and a value for “insurance purposes”. However, Mr Smith’s evidence that he valued the vessel “for insurance purposes” does not discredit the valuation as a market valuation. Given that he referred to depreciation, it is the overall tenor of his evidence that he was talking about market value and not replacement or another sort of value. He calculated market value for insurance purposes. He was not cross- examined on the basis that he was not talking about market value. Indeed, his valuation was not directly challenged in any way at all.

[70] The fact that Mr Smith was not independent of Mr Posa is not determinative as to the credibility of his evidence. Nor is it necessary for a trial Judge to refer to every point made about a witness’s evidence when credibility is being assessed. The business connection was recent and had arisen since the valuation. There was nothing to indicate that the connection made him biased or unable to give reliable evidence. It was always open to Vero to call another valuer to show that Mr Smith’s evidence was wrong but it did not do so. It is my view that Vero did not show that Mr Smith’s evidence of a value of $120,000, as supported by Mr Fink, was wrong.

[71] A core assumption of Vero’s submissions on this point was that a boat which was extensively advertised for sale at a certain price and which did not sell at that figure must be worth that price or less. The Judge did not accept that submission and nor do I. Vero did not call any evidence as to the market value of the boat, and therefore the only evidence was that of Mr Smith and Mr Fink. There is nothing

inherently impossible or even improbable in an item having a market value above that for which it is unsuccessfully advertised. As a powered catamaran runabout, the boat had a particular and unusual specification. It was marketed in Hamilton and the Bay of Plenty. The advertisements undoubtedly had some circulation, but there was no evidence of any national marketing campaign. While the advertisements had a personal flavour and indicated a keen seller, they may well have not been pitched to the right market. Despite the fact that the boat was on the market for quite long periods, it is perfectly conceivable that Mr Posa was simply unlucky, or targeting the wrong market, or not pursuing sale with vigour. In evidence he observed that if he had really wanted to sell it, he would have placed it with another dealer, Ted Carson at Family Boats.

[72] Indeed, given that the boat had a replacement value of $200,000 and had only been used for some 25 hours, Mr Smith’s valuation at $120,000 had an inherent credibility. It was also supported by the evidence of Mr Fink. While criticisms can be made of their evidence, it is supportive of Mr Posa’s assessment of value and essentially unchallenged by Vero. I conclude that the value of the boat was at least the insured value of $105,000. I do not consider that Vero has established that the unsuccessful advertising proved a value of $80,000 or less.

[73] Section 5(1) of the Insurance Law Reform Act 1977 is relevant to Vero’s allegation of misstatement. That section provides that a contract of insurance shall not avoided by reason of any statement, unless it was substantially incorrect and material. I have found that the sum insured of $105,000 in the renewal schedule was not incorrect and in the circumstances was not material.

[74] Thus I conclude that there was no misstatement as to value. A representation need not be fraudulent for the insurer to avoid the insurance. However, given the accuracy of the figure of $105,000, no question of fraud arises.

[75] It is now necessary to determine whether Mr Posa’s statements in support of his insurance claim regarding his efforts to sell the boat amounted to a fraudulent misstatement.

[76] There are two sources of a duty on Mr Posa not to make a false claim. First, the policy states under the heading “Fraud” that if any claim is in any respect fraudulent, or if any fraudulent means are used to obtain any benefit under the policy, all benefit under the policy in respect of the claim will be forfeited.

[77] Secondly, at common law, once a contract is concluded an insured has a duty to act honestly and not to put forward a fraudulent claim: Engel v South British Insurance Co Ltd (1983) 2 ANZ Insurance Cases 77,938; New Zealand Insurance Co Ltd v Forbes (1988) 5 ANZ Insurance Cases 75,449; Gate v Sun Alliance Insurance at 423. This duty is part of the common law duty of good faith that applies to insurance contracts. To be entitled to claim the benefit of such a misstatement and avoid the claim, the insurer must prove that the insured made a false statement (or misrepresentation) in support of the claim, that the misrepresentation was either deliberately false, or was made recklessly as to its truth or falsity, and that it was not de minimus: Gate v Sun Alliance Insurance at 423. The onus of proving dishonesty is on the insurer.

[78] In its statement of defence Vero set out the false statement that it alleges was made by Mr Posa. Paragraph 11 of his written signed statement, dated

11. Both Debra and I and the kids have always loved this boat. It has been the best one we ever had. We have never wanted to get rid of it, and have never been approached by anyone to sell it. There was a brief period back in about 2000, when dad was sick, that we (very reluctantly) considered selling it. I placed on a couple of advertisements offering it for sale, but when there were no bites, that was it. I didn’t bother advertising again. Then when dad passed away, sad day that was, we knew that life would gradually return to normal, and we would be able to use the boat again.

[79] The Judge recorded that she did not consider that Mr Posa deliberately or recklessly misled Mr Byrne. She said at [42]:

... I am satisfied that Mr Posa failed on 1 February to correctly record his efforts to advertise the insured property for sale, but he did not do so deliberately, knowing it was incorrect. I am entirely satisfied he had forgotten what he had done, and he did not exercise more care because he did not perceive the issue as important, because of the way Mr Byrne had influenced the enquiry. He was neither deliberately false nor reckless as to the truth. He recorded what he remembered, without seeing the need to make his own further enquiries to prompt his memory. Further the difference between the objectively correct position (see findings above as to the number of advertisements) and what he stated is not great in the circumstances.

[80] In his statement Mr Posa conveys the impression that he only tried to sell the vessel for one relatively brief period in the year 2000 when his father was sick. He stated that he placed only a “couple” of advertisements which did not attract any interest, and that he then stopped advertising. He gave the impression that for most of the period that he owned the boat he did not want to sell it.

[81] There is no doubt that this was a misrepresentation of the true position. The period of Mr Posa’s father’s illness was not just a period in “about” 2000, but in fact a period that ran from May 2000 to December 2002. Mr Posa, at least towards the end of 2004, was ready to sell the boat if the right offer came along. He actually advertised it between December 2000 and December 2003, and for a period the boat was on the yard at Steadecraft Marine.

[82] Thus I have no doubt that Mr Posa’s statement amounted to a misrepresentation. This was also the District Court Judge’s conclusion. The question that then arises is whether he misstated the position innocently, or whether he did so deliberately or was reckless as to whether the statements were true and correct.

[83] Mr Posa was cross-examined at length about what he said and why he said it. There appears to have been a measure of unfairness in the interview process adopted by the assessor working for Vero, Mr Byrne. Mr Byrne’s initial telephone conversations with Mr Posa about his claim were recorded. The Judge had this to say about Mr Byrne’s actions:

40. ... In the telephone call of 1 February, Mr Byrne deliberately suggested repeatedly that some questions had little relevance or importance to the claim, and then reinforced that by the extremely casual chatty way he approached his enquiries, and I find he led Mr Posa to believe any intention to sell the insured property in the past was not important to the claim or Mr Byrne’s enquiries. Mr Byrne already had copies of the advertisements from the agreed bundle 21, a fact he, in effect, hid from Mr Posa. I am satisfied Mr Posa had genuinely not remembered the details of his advertisement on 1 February 2005.

41. Further I note Mr Byrne did not correctly record what Mr Posa was saying to him at times (e.g. p. 30 transcript ... I take it you hadn’t been trying to sell it or anything like that? IP: no not rec ... KB: No attempts at sale. Well you wouldn’t have gone to all that trouble and expense, you wouldn’t have would you? ... IP: Well exactly I was never. KB: Had you ever advertised it for sale or anything like that?... IP: I did in ... couple of times earlier on when, when we had dad, we though we’d never use the damned thing much ... KB: Oh okay, couple of ads in the early days, what shortly after you brought it, when dad was ...? IP: Yep. KB: After dad, okay but no plans since ... IP: No. .. KB: No attempts to sell it ... IP: No nothing. KB: since he died, okay and what else ... ah covered all this ...) That section illustrates how Mr Byrne influenced the ultimate written statement, which I am satisfied arose from his already formed view about this claim and Mr Posa.

[84] A reading of the transcript of the interview confirms the Judge’s impression that Mr Byrne was trying to cajole Mr Posa into minimising the advertising. At the time of this interview Mr Byrne in fact was proceeding on the basis that the damage was actually the result of arson, and was obviously seeking to obtain statements from Mr Posa with an eye to declining the claim for misstatement. Mr Byrne actually knew about much of the effort that Mr Posa had made to sell the boat and had copies of the advertisements, but was feigning ignorance. I have no doubt that the fact that Mr Byrne was encouraging Mr Posa to respond in a certain way is a factor in the way in which the statement was actually drafted and accepted by Mr Posa. Mr Byrne was, as was put to him in cross-examination, putting words into Mr Posa’s mouth. His words and tone would have confirmed to Mr Posa that he did not need to think back any further.

[85] Re-selling was clearly a part of Mr Posa’s life. He was obviously buying and selling items all the time. But while there is evidence that he quite actively tried to sell the boat, the evidence disclosed little significant personal involvement on his part. In his evidence he convincingly indicated that he placed little weight on his

efforts to sell assets because re-selling was such an ordinary part of his every day activities. He easily forgot the extent of them and for how long they continued.

[86] It is also relevant that Mr Posa had not been trying to sell the boat in the year before the fire. His memories of his efforts to sell would likely have faded by the time the issue was raised by Mr Byrne. The lapse of time also makes it less likely that he would have been acting fraudulently or recklessly, as there was nothing to show he wished to get rid of the boat at the actual time of the fire.

[87] It is also necessary to recall that Mr Posa could not necessarily be expected to understand that a precisely accurate statement as to prior advertising was important for the purposes of the claim. It was a matter referred to by Mr Byrne in a somewhat dismissive way, and occupied only a very small portion of the total lengthy interview and only one paragraph of a 16-page statement.

[88] Having considered the statement, the transcript of the interview with Mr Byrne and the transcript of the cross-examination of Mr Posa and Mr Byrne, I am not satisfied that Mr Posa was lying or reckless when making his statement. I consider that Mr Posa carelessly misstated the extent of advertising without thinking about it much, and without setting out to deceive. I conclude that Mr Posa did not set out to mislead Vero, and was not being reckless when he made his statement. I agree with the Judge’s finding on this point.

[89] I conclude that Mr Posa failed to disclose at the time of renewal his efforts to sell the boat. However, because the boat was insured only for its actual value or less, Mr Posa’s non-disclosure was not material. I conclude that Mr Posa did not misrepresent the value of the boat so that the insured sum of $105,000 was not an over-value. Finally, I conclude that Mr Posa’s misstatement as to his efforts to sell the boat at the time of making a claim was made innocently and not dishonestly or recklessly.

[91] Mr Posa is entitled to costs on a 2B basis, together with reasonable disbursements.

High Court of New Zealand Decisions

Vero Insurance NZ Ltd v Posa HC Hamilton CIV 2007-419-1279 [2008] NZHC 1239; [2008] 3 NZLR 701 (6 August 2008)