SCOTT V SOVEREIGN ASSURANCE COMPANY LIMITED CA CA148/2010

SCOTT V SOVEREIGN ASSURANCE COMPANY LIMITED CA CA148/2010 2 July 2010IN THE COURT OF APPEAL OF NEW ZEALAND CA148/2010 [2010] NZCA 282BETWEEN DOUGLAS NORMAN SCOTT Applicant AND SOVEREIGN ASSURANCE COMPANY LIMITED Respondent Hearing: 15 June 2010 Court: William Young P, Ellen France and Randerson JJ Counsel: P W Michalik for Applicant B J Burt for Respondent Judgment: 2 July 2010 at 2.30 p.m.JUDGMENT OF THE COURTA The application for leave to appeal is granted. B The question upon which leave is granted is whether the High Court was correct in deciding that the applicant's proceeding should be struck out on the basis that it was out of time. C The respondent must pay the applicant costs for a standard application on a band A basis and usual disbursements.REASONS OF THE COURT(Given by Randerson J)Introduction[1] The applicant Mr Scott seeks leave of this Court under s 67 of the Judicature Act 1908 to appeal against a decision of Allan J given in the High Court in which Mr Scott's claim against the respondent insurer, Sovereign, was struck out.1 The Judge held that the claim was brought outside the limitation period prescribed by the Limitation Act 1950. Mr Scott has previously sought the leave of the High Court to appeal to this Court, but this was declined in a second decision delivered by Allan J. 2Background[2] In January 1994, Mr Scott took out a critical illness insurance policy with Sovereign's predecessor. The policy provided a benefit of $100,000 in the event of Mr Scott suffering a stroke. A "stroke" was defined in the policy:A cerebrovascular incident producing significant permanent neurological sequelae. This requires evidence of infarction of brain tissue, intracranial or subarachnoid haemorrhage or embolisation from an extra-cranial source. Transient ischaemic attacks, cerebral symptoms due to migraine, cerebral injury resulting from trauma or hypoxia or vascular disorders affecting the eye or optic nerve are specifically excluded.[3] On 1 January 1997 Mr Scott suffered a subarachnoid haemorrhage. He submitted a claim to Sovereign's predecessor on 14 January 1997 but the claim was promptly declined on 14 February 1997. Just over two years later, on 9 April 1999, Mr Scott sought a review of his initial claim. He produced a letter from his medical practitioner in which it was stated that Mr Scott's symptoms had not improved over the preceding 12 months. In the doctor's opinion Mr Scott had been left with significant permanent impairment as a result of the subarachnoid haemorrhage. [4] In response, Sovereign's predecessor referred Mr Scott to a neurologist who provided a report dated 25 June 1999 which stated amongst other things:It remains to be determined whether his present symptoms are first significant and second whether they are permanent.[5] The neurologist went on to state:1 Sovereign Assurance Co Ltd v Scott HC Rotorua CIV-2008-463-909, 30 September 2009.2 Sovereign Assurance Co Ltd v Scott HC Rotorua CIV-2008-463-909, 26 February 2010. I do not think that his present symptoms will be permanent. Certainly they have persisted for longer than is usual, but recovery after a subarachnoid haemorrhage is analogous to recovery following a head injury and can certainly continue for two-three years, recovery progressively slowing. If further assessment is to be required regarding this matter, it should not be undertaken for 12 months. (Emphasis added.)[6] On the basis of the neurologist's report, Sovereign's predecessor confirmed its decision to reject Mr Scott's claim on 16 July 1999. There was an unsuccessful attempt by Mr Scott in 1999 to obtain the support of the Insurance and Savings Ombudsman but there were no further communications between Sovereign and Mr Scott between 25 September 2000 and 3 April 2002 when Mr Scott cancelled the policy. [7] In 2005, Mr Scott asked Sovereign to review the claim again but, on 14 October 2005, it was again rejected. Mr Scott commenced proceedings against Sovereign in the District Court on 27 September 2006 claiming he was entitled to the benefit under the policy. [8] Assuming that the six year time limit for contract claims under s 4(1) of the Limitation Act applies, Mr Scott must establish that his cause of action accrued on or after 28 September 2000.The decision in the District Court[9] Judge Cooper declined to strike out Mr Scott's claim.3 He considered it was a question of fact whether Mr Scott's haemorrhage had produced significant permanent neurological sequelae. He added: 4A state of affairs which, for the time being, is temporary or regarded as temporary may become permanent. Again this is a question of fact. To accept the defendant's submission would be to say that once something regarded as temporary becomes permanent, it must be seen as always having been permanent.[10] The Judge viewed the neurologist's report as contemplating that there was at least the possibility that Mr Scott's symptoms might become permanent. Whether,3 Scott v Sovereign Assurance Co Ltd DC Taupo CIV-2006-069-285, 21 November 2008.4 At [24].and, if so, when that state of affairs arose were matters of fact for trial. But if that state of affairs occurred during the period of six years immediately preceding the filing of proceedings in the District Court then the claim would be within time.The decisions in the High Court[11] Allan J relied upon and applied the decision of Associate Judge Abbott inArnold v American International Assurance Company Ltd5 determining that time would run from "the date on which the stroke occurred". 6 Since on Mr Scott's medical evidence his symptoms were significant and permanent by 1997, the claim was out of time. [12] In Arnold, the Associate Judge had relied on English authorities for the proposition that an insurance policy is to be construed as insurance against the occurrence of an insured event and that the occurrence of such an event is treated as equivalent to a breach of contract by the insurer. On that basis, in the absence of policy terms to the contrary, the limitation period commences as soon as the insured event occurs, even though no claim has been made. 7 The Associate Judge also considered that problems in proving a claim, or in taking steps to establish an entitlement, do not suspend the operation of the Limitation Act. [13] In declining leave to appeal, Allan J considered that the contemplated appeal would be of no utility to Mr Scott. If the English cases were applied, time would run from 1 January 1997 and even if time ran from the date of the breach, this would mean that the limitation period commenced no later than 14 February 1997 when Mr Scott's claim was first declined. The Judge rejected an argument on behalf of Mr Scott that the insurer would only be in breach if it declined the claim in the face of available medical evidence capable of establishing his case on the balance of probabilities. The Judge considered this was a "thinly disguised argument" for a reasonable discoverability exception to ordinary limitation principles.8 This case did5 Arnold v American International Assurance Company Ltd HC Auckland CIV-2008-404-6987, 4 June 2009.6 Sovereign Assurance Co Ltd v Scott HC Rotorua CIV-2008-463-909, 30 September 2009 at [34].7 Virk v Gan Life Holdings Plc [2000] Lloyds Rep IR 159 (CA) and Callaghan v Dominion Assurance Co Ltd [1997] 2 Lloyds LR 541.8 Sovereign Assurance Co Ltd v Scott HC Rotorua CIV-2008-463-909, 26 February 2010 at [11].not fall within any of the recognised exceptions to the principle that accrual under the Limitation Act is an occurrence-based, not knowledge-based, concept.9 Allan J concluded that Mr Scott had not raised a question of law or fact capable of bona fide and serious argument.Submissions in this Court[14] Before us, Mr Michalik submitted that the English cases the Judge relied upon should not be applied in New Zealand, referring us to academic writings 10 and a decision of the Supreme Court of New South Wales in Council of the City of Penrith v Government Insurance Office of New South Wales. 11 Giles J held in a liability insurance case that there will be no breach until the insurer has failed or refused to perform its contractual obligations. Mr Michalik also submitted that the English rule had no application to non-indemnity insurance. Here, he submitted the insurance policy was not a contract for an indemnity. Mr Scott had simply bought a fixed amount of cover should the insured event occur. [15] Alternatively, Mr Michalik submitted that s 14 of the Limitation Act applied, in which case time did not begin to run until the "first point of time when everything has happened which would have to be proved to enable judgment to be obtained for a sum of money in respect of the claim". [16] Mr Burt opposed the grant of leave, essentially for the reasons adopted by Allan J in his decision declining leave. He emphasised that Mr Scott's submission was inconsistent with his pleadings which referred to his entitlement to payment of the benefit "at all times on and after 1 January 1997", a point also noted by Allan J. Not only was there no bona fide and serious argument of law or fact which could be advanced, but there was also no public or private interest which was sufficient to justify a second appeal. He submitted that Mr Scott's fundamental complaint remains one of difficulty of proof, notwithstanding that he had medical evidence in 1999 to support his request for a reconsideration of his claim.9 Murray v Morel & Co Ltd [2007] NZSC 27, 3 NZLR 721 at [69].10 Neil Campbell The Nature of an Insurer's Obligation [2000] LMCLQ 42; Monetary Remedies for Wrongful Declinature of Insurance Claims (2004) Insurance Law Journal 185.11 Council of the City of Penrith v Government Insurance Office of New South Wales (1991) 6 ANZ Insurance Cases 77, 210.Discussion[17] The principles upon which an application for leave is considered are well settled. The appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal. 12 Second appeals are not lightly granted. The resources of the High Court and Court of Appeal are not to be wasted nor additional expense incurred without realistic hope of benefit.13[18] It is axiomatic that an insurer's primary obligation under an insurance policy of the type in issue is to provide the insured with an agreed benefit on the occurrence of an insured event. The difficulty in the present case is determining when the "insured event" arose. The insured event may not arise immediately upon the occurrence of the stroke, but only when the sequelae have the necessary characteristics of permanence and significance so that the insurer is obliged to respond. We consider it is arguable that the insured event in this case does not arise until such time, as a matter of fact, the neurological sequelae arising from Mr Scott's stroke are both significant and permanent. The concept of permanence implies that the symptoms continue indefinitely on a lasting or persistent basis. That state of affairs may not be found to exist until some years after the stroke. [19] In Mr Scott's case, the medical evidence suggests that this state of affairs did not arise at the date of his stroke in January 1997. Symptoms which may have been thought to have been temporary at that time may have persisted to the point where, on the medical evidence, they are properly describable as permanent and significant. [20] While Mr Scott's medical adviser considered that Mr Scott's symptoms were significant and permanent as at April 1999, the neurologist engaged by Sovereign's predecessor took a different view. While he did not think Mr Scott's symptoms at that time would be permanent, he considered it remained to be determined whether his present symptoms were significant and permanent. Recovery, he thought, might12 Waller v Hide [1998] 1 NZLR 412 (CA).13 Snee v Snee (1999) 13 PRNZ 609 (CA) at 613.take several years. Effectively, the neurologist was taking a "wait and see" approach. [21] It is well settled that a cause of action accrues for limitation purposes when everything has happened which would entitle the appellant to judgment on the cause of action asserted. 14 Our research since the hearing has located the decision of the Court of Appeal in Western Australia in Cigna Insurance Asia Pacific Ltd v Packer15in which a policy entitling the respondent to compensation for bodily injury arising from accident was considered. The definition of bodily injury required that the disablement lasted for at least 12 months and that it entirely prevented the insured from engaging in any occupation for which he was fitted by reason of education, training or experience for the remainder of his life. [22] The leading judgment was delivered by Malcolm CJ (with whom Kennedy J agreed). Malcolm CJ considered the relevant date for limitation purposes was "the date upon which it could reasonably be concluded that the respondent was entirely prevented from engaging in any occupation for which he was relevantly fitted for the remainder of his life". That depended on a prognosis being made. 16 The third member of the Court (Pidgeon J) considered that this state of affairs had been reached soon after the accident and that the respondent could have issued the proceedings upon the expiry of the 12 month period after the accident. 17[23] If a court were to find that the neurological sequelae of Mr Scott's stroke did not become significant and permanent as a matter of fact until a date on or after 28 September 2000 (six years before he commenced his proceeding) then it is arguable his claim would be within time. There is some merit in his argument that this is a mixed question of fact and law which should go to trial as the District Court Judge thought. We do not overlook Sovereign's argument that s 4(7) of the Limitation Act (relating to claims in respect of bodily injury) must be brought within two years from the date on which the cause of action accrued, but we are doubtful that this provision applies and, in any event, the court has a discretion to give leave14 Murray v Morel & Co Ltd at [69].15 Cigna Insurance Asia Pacific Ltd v Packer [2000] WASCA 415.16 At [35].17 At [74].to extend the period to six years. We understand Sovereign's pleading point but amendment may not be out of the question. [24] We are conscious of the fact that Mr Scott lodged his claim some nine years after the stroke and that the grant of leave will result in further cost and delay. Nevertheless, we consider there is sufficient merit in the appeal to warrant the granting of leave. Clearly it is an issue of importance to Mr Scott and, we think, more generally.Result[25] Leave to appeal is granted. The approved question is whether the High Court was right to strike out the applicant's proceeding on the ground that it was out of time. [26] The respondent must pay the applicant costs for a standard application on a band A basis and usual disbursements.Solicitors: Knight Coldicutt, Wellington for Applicant Chapman Tripp, Auckland for Respondent