Determination Case number: 299529 General Insurance - Domestic Insurance - Home Contents - FSP Decision - Denial of claim 11 July 2013 Background 1. The Applicant and her former husband (WB) held a home building and contents policy with the Financial Services Provider (FSP), which covered their home and contents for up to $535,000 and $120,446 respectively. 2. WB set fire to the home on 4 April 2011, causing total destruction of the insured home and contents. 3. The Applicant claimed for the loss but the FSP declined liability on the basis the fire was started by WB, with the intention of causing damage. 4. The Applicant maintains WB was suffering from a mental illness and as such was incapable of forming the requisite intention in respect of his actions, in starting the fire and causing the claimed damage. Summary of Applicant s position 5. The fire was not intentionally caused by WB because: Medical evidence shows that he was mentally ill at the time of the fire and was incapable of being responsible for his actions. The magistrate dealt with his assault and arson charges on the basis he was mentally ill at the time of setting the fire, suffering from extreme suicidal depression and as a result the magistrate applied section 32 of the Mental Health (Forensic Provisions) Act 1990, to discharge WB. 6. She and WB were legally separated at the time of the fire. They have since divorced. 7. The home is now hers alone following the divorce settlement. 8. The FSP has not dealt with her claim fairly. 9. She seeks full indemnity under the policy and if that is not possible, an ex gratia payment. Case No: 299529 Determination Page 1 of 9
Summary of FSP s position 10. WB started the fire with the intention of causing damage because: WB threatened to burn down the home 2 months before the fire. This threat was made in the context of a marital separation, a mediation and proposed settlement of marital assets, and demonstrates that WB would have had a motive to cause damage to the Property beyond suicide. WB was able to hold a steady job immediately before the fire, demonstrating that his depression was not so severe or crippling that he was unable to control his actions or acknowledge their consequences. WB threatened the Applicant things would get worse just hours before starting the fire. The Applicant lodged a report with the police that WB had assaulted her resulting in the serving of an Apprehended Violence Order (AVO). It is feasible that WB s response was in retaliation to this occurrence. WB turned himself in to the police after the fire, demonstrating he knew that his actions were criminal in nature. WB s legal representative conceded that he had the capacity to plan and carry out the burning down of the property. WB has admitted to all elements of the criminal offence and his admission can be used in any civil proceedings against him. It is a peculiar turn of events that WB would walk out of the property and drive away if he had intended to commit suicide. If WB intended to harm his family, it is peculiar that WB did not set up the fire in such a way that would prevent his family members from escaping or assault them by more direct means. WB wounded himself after the event and away from the property. This is inconsistent with an intention to commit suicide by starting a fire. WB intended to damage the property whether or not he intended to commit suicide. 11. The policy, pursuant to the general exclusions, also excludes loss or damage intentionally caused by an insured, a family member or someone who lived at the property. The relevant exclusions do not require any consideration as to how or why an intention was formed. They apply as long as there was an intention to damage property. 12. It is possible that WB may be entitled to 50% of any payment as he is a coinsured under the policy. It would be unfair that he should profit from his criminal acts. In a later submission, the FSP now says it is irrelevant whether or not WB intended to profit from the claim. 13. It is inappropriate for FOS to deal with this dispute because: Case No: 299529 Determination Page 2 of 9
FOS can only resolve 19% of the dispute (i.e. the contents aspect) whereas a court could resolve the whole dispute (i.e. the home and contents claims). Irrespective of how FOS determines the contents claim dispute, it will likely result in legal proceedings based on the same facts and issues that are currently before FOS. 14. The FSP relies on the following policy provisions: Fire Not covered if the fire was started with the intention to cause damage by: - you or someone who lives in your home General exclusions The exclusions shown in this section apply to all cover under the policy. What we don t cover Loss, damage arising from: any intentional act or omission by: - you, your family or someone who lives in your home Definitions You all the people named as the insured on your current Certificate of Insurance. If more than one person is named as the insured, we will treat a statement, act, omission or claim by any one of those people as a statement, act, omission or claim by all those people. 15. The FSP refers to clauses 5.2(a) and 8.7(a)(ii)(B) of the Terms of Reference. Issues 16. Whether it is appropriate for FOS to consider this dispute. 17. Whether WB specifically, started the fire with the intention to cause damage or generally caused loss, damage that arose from any intentional act by him. Case No: 299529 Determination Page 3 of 9
Reasons for decision Preliminaries 18. Due to the nature of the dispute, it has been directly referred to the Panel for Determination in accordance with the Operational Guidelines to the Financial Ombudsman Service s (FOS) Terms of Reference. 19. The Panel consists of an Ombudsman and two Panel Members with extensive experience in insurance industry matters and consumer claims. 20. The Panel is satisfied that the material has been exchanged and the parties have had the opportunity to respond to the issues raised. 21. The Panel understands: The fire resulted in a total destruction and loss of the insured home and contents. The Applicant originally sought the Service s assistance with respect to the denial of both, the home and contents claims. However, due to the Service s jurisdictional limitations with respect to the home building claim, the Applicant has elected to withdraw the home building claim and only proceed with the contents claim, reserving her right to pursue the home building claim before a different forum. 22. In the circumstances, the Panel will only address the Applicant s contents claim in this Determination. Whether Service should determine the contents claim 23. Although the contents claim is well within the Service s jurisdictional limits, the building claim is not and cannot be considered by the Service and thus, the FSP maintains that it is inappropriate for the Service to determine the matter and a court would be a more appropriate place to deal with the dispute. 24. When considering this issue, the Panel has had regard to the very recent Supreme Court of Victoria decision of Cromwell Property Securities Limited v Financial Ombudsman Service Limited, Peter Radford and Robyn Radford, [2013] VSC 333, when His Honour, Digby J said: 74. It follows that, as a matter of construction, at least where a party seeks to have FOS refuse to consider the relevant dispute on the ground that another forum is more appropriate, FOS is required to consider the relative appropriateness of the FOS process against the appropriateness of the other forum and in this exercise take into account the proper submissions of the parties and considerations which the terms of paragraph 5.2 indicate are relevant to the issue. That would include FOS considering the advantage and prejudice to each party from having the dispute determined by FOS and by the other forum. Indeed, FOS itself emphasised in its oral submissions that FOS is required to consider the effects of its decision on both parties. Case No: 299529 Determination Page 4 of 9
75. For these reasons, I conclude that FOS was required to take into account those considerations made relevant by paragraph 5.2 of the TOR including the advantage and prejudice to each party from having the dispute determined by FOS in accord with all the features and benefits and requirements of the TOR rather than in a court, or other potentially suitable forum. 76. However, the task of evaluating that advantage and prejudice, assigning them weight, and balancing them against each and against other factors going to appropriateness, is a matter for FOS in the exercise of the discretion which the parties have expressly agreed to repose in FOS... 25. In the Panel s view, under the Terms of Reference to the Service, the Applicant is fully entitled to pursue her claim in respect of lost contents. 26. Both parties have presented evidence, including a transcript from the New South Wales District court and the Panel has had the opportunity to review that evidence and to weigh the value of each item of evidence. 27. Noting that WB has returned to his country of birth and is not available to be cross examined and in light of the District Court s findings, based upon the medical evidence, the Panel is satisfied that a proper review of all of the evidence is sufficient for the Service to make an accurate determination as to the merits of the dispute. 28. The Service, as an ASIC approved external dispute resolution scheme (EDR), exists to provide retail consumers with an easily accessible, reasonably quick and cost free dispute resolution service as an alternative to the courts. Furthermore, the Federal Parliament has seen fit to enshrine this approach in legislation, by mandating that companies wishing to sell financial services/products to retail customers, must be members of an ASIC approved EDR scheme, in order to offer dissatisfied clients an alternative to court proceedings. 29. As stated and on the facts currently before the Panel, it is apparent that WB has returned to the country of his birth. Unless he were to voluntarily return to Australia, the prospects of the Applicant being able to prosecute a court case against the FSP, in respect of her contents claim, appear limited. In these circumstances, the inquisitorial processes under which the Panel operates and by which the FSP is contractually bound, may well provide the Applicant with the only feasible avenue by which the merits of her case can be examined. 30. The FSP s submissions as to why a court would be a more appropriate place to deal with the dispute relate to: The contents claim represents only 19% of the amount in dispute and a determination by FOS would leave 81% of the matter unresolved, whereas a court would resolve 100% of the dispute; and Regardless of the outcome of the dispute before FOS, the dispute is likely to result in legal proceedings seeking a court s determination Case No: 299529 Determination Page 5 of 9
based upon precisely the same facts and issues that are currently before FOS. 31. The Panel has carefully considered the FSP s submissions in this regard. 32. There is no evidence that any of the Applicant s claims are currently pending before a court. In addition and given that WB is now resident overseas, the Panel is satisfied that the Applicant faces significant difficulties, as detailed, were she to consider taking court proceedings. 33. Finally, whilst the Panel accepts that it is only able to deal with a portion of the Applicant s claims, the prejudice suffered by the Applicant if she were unable to bring her dispute to the Service, is significant and may amount to the full amount of all claims. 34. Given these considerations, the Panel is satisfied that it is appropriate and fair in all the circumstances, that it determines the merits of the Applicant s content s claim. WB s state of mind 35. There is no dispute that: The policy covered the insured home and contents against fire damage, but specifically excludes such damage where the fire was started with an intention to cause damage or generally, where loss, damage arises from any intentional act, relevantly in this instance, by WB. The insured home and contents were destroyed by a fire started by WB, who was listed on the Certificate of Insurance as a co-insured. The Applicant was also listed on the Certificate of Insurance as a coinsured. 36. As the policy covered the insured home and contents for fire damage, the Applicant has established a prima facie claim for indemnification and the onus of proof devolves to the FSP, to establish the operation of the exclusions it relies on to deny the circumstances of the claim. In the context of this dispute, the FSP has to prove (effectively in respect of both the specific and general exclusion) that the fire was started by WB with the intention to cause damage. 37. The Applicant believes WB could not be said to have started the fire with the intention to cause damage, because his mental illness meant he lacked the requisite mental aptitude necessary for making such an informed decision. Traditionally, courts have declared that a person in WB s position needed to possess both mens rea and actus reus, in order for a crime to be proven and although this dispute involves a civil claim, the wording of the policy exclusion effectively requires the Panel to similarly consider whether WB possessed the relevant mens rea, at the time he started the fire. The FSP, on the other hand maintains that his actions were intentional. Case No: 299529 Determination Page 6 of 9
38. The Panel has carefully reviewed the available evidence and is satisfied that the evidence establishes: WB was sent to H Hospital for a psychiatric evaluation. According to the discharge summary issued by the hospital: WB was assessed as having clear symptoms of long standing major depressive disorder. He appears to have had this disorder for some 8 years. WB s psychiatric diagnosis was major depressive disorder with suicidal ideation/deliberate self harm. WB s psychiatric condition was also evaluated by the consultant forensic psychiatrist Dr. TOC, for the purposes of section 32 of the Mental Health (Forensic Provisions) Act 1990 (NSW); a provision which allows a magistrate to deal with persons with mental health disorders, otherwise than in accordance with the law. Relevantly, Dr. TOC provided the following medical opinion: [WB] has a long term emotional disorder. This manifests as a recurrent severe or major depression but also has features of a Bipolar Disorder. This is provisionally known as a Major Depressive Episode. This is a recognised mental disorder in NSW, within the meaning of section 14 of the Mental Health Act. It is most probable that the Major Depressive Disorder is the cause of his aberrant behaviour. That is, his reason at the time of the offence was affected by his mental disorder. There is considerable evidence that this was so. The police, on his apprehension, were concerned that he was mentally disturbed and took him to hospital on an observation order. He was examined in the hospital and found to be a suicide risk, as well as being diagnosed as suffering a Major Depression. He was initially put on suicide watch. This would indicate he was in an abnormal state of mind at the time of the offence and in the time thereafter. There is no evidence to suggest any other cause for his behaviour than Severe Depression. On the day of the offence, his wife was concerned about his behaviour and left the marital home, thinking he was in an abnormal state of mind. She was then so concerned for the family that she took out an AVO. This was at the time of, and part of, the offences with which he is charged. It was his abnormal state of mind that caused his wife to so react. His account indicates that he was in a confused state of mind when he offended. His account, for example, that he had strewn petrol around his house and struck several matches before the petrol caught fire is most unlikely. This most probably indicates the incident he was trying to recall was when he was in an abnormal mental state. It is likely his faulty recall reflects this abnormal mental state. Similarly, he cut his wrist through a plaster bandage, which shows further confusion at the time of the offences. That is, an abnormal state of mind. Case No: 299529 Determination Page 7 of 9
He suffers a recognised psychiatric disorder, known as a Major Depression, as discussed above. This is well defined in the psychiatric literature. In my opinion, he fulfils the criteria for such an order, that is, s32 of the Mental Health (Forensic Provisions) Act. Although WB was charged with a number of offences (which included the offence of intentionally or recklessly causing property damage), he was discharged by the relevant magistrate pursuant to section 32 of the Mental Health (Forensic Provisions) Act 1990 (NSW) (the Act). In arriving at this conclusion, the relevant magistrate had accepted the psychiatric evidence provided by H Hospital and Dr. TOC, amongst other considerations. 39. Contrary to the FSP s claims, the Panel finds no evidence to support suggestions that: WB had pleaded guilty to a criminal charge in relation to the Fire. The FSP s Notice of Response references this as occurring on page 1 of the hearing in R v (name of defendant) dated 27 July 2012. However, the Panel can find no such evidence of same, or that WB would benefit from any insurance payout. 40. What the evidence does establish is that WB was discharged from the relevant charge pursuant to section 32 of the Act and according to the Applicant s uncontested evidence, WB has since left the country and returned to his country of birth. 41. Furthermore, the magistrate in applying section 32, detailed: I am satisfied that (name of defendant) was suffering from a mental illness, a condition that seriously impaired his mental functioning temporarily, or (sic) at least a month, and that it was characterised by the severe disturbance of mood that I have described. And again later:.i should say, from obvious psychotic symptoms and those persons who suffer from the subtle mental illness, which is a major depressive episode, when I have a look at the whole of the matter, including the fact he was untreated, that he has never before offended and that it was apparent even to his wife earlier on that day that he was in a crisis situation, that he has made a threat that scared her so much that she left the house and went and got an AVO. It seems to me that I must regard it as an appropriate case for a discharge under s 32. 42. Ultimately, the Panel is satisfied that the weight of the evidence at hand supports the argument that WB did not have the necessary mental capacity to be in control of his actions at the time he started the fire. 43. Having reached that view, the Panel is mindful of the FSP s references to a number of factors which purport to demonstrate elements of premeditation on WB s part, or that WB was likely to have been in control of his actions at the time of the fire. However, such factors should not be considered in isolation, but in light of the evidence that has been presented as to WB s Case No: 299529 Determination Page 8 of 9
mental capacity; particularly the matters identified in paragraphs 38 and 41 above. 44. The available evidence suggests that WB was not in full control of his actions when he started the fire, so there is significant doubt as to whether he had the necessary intention to cause damage at the time of the fire. 45. As previously detailed, the FSP carries the onus of proof to establish the application of the policy exclusion. 46. Accordingly, the Panel is not satisfied that the FSP has established, on the balance of probabilities the operation of the exclusions to the circumstances of the claim. 47. It follows that the policy responds to the Applicant s claim within this dispute. Determination 48. The Panel determines that the FSP is to make payment, in accordance with the policy, of the full sum insured for the contents, less any applicable excess, together with interest at the statutory rate from 27 June 2011 (the date the FSP first declined the claim), until the amount is paid. Case No: 299529 Determination Page 9 of 9