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Thursday, 9 August 1906


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) . - There can be no doubt about the importance of the measure j though, if I read it aright, the fire of the honorable member's ambition will, if allowed to hold sway, spread other fires throughout Australia. I regard the Bill as a fire-stick, and am not convinced by the statements of the honorable member that it means what he has explained it to mean, and . not what is the literal effect of its provisions. In opposing the measure, I do not intend to take the part of the insurance companies. No doubt most honorable members are the insured, and very few are insurers or have any interest in insurance companies. I, for one, have no such interest. I once held shares in a fire insurance company, but, instead, of making the gigantic profits pictured by the honorable member for Kalgoorlie, I lost all that I had invested, and would be very glad to make him a present of the scrip, if I still possess it.


Mr Hutchison - Was the honorable member knocked out by the ring ?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - No; the company lost its money. The fires were too numerous for the premiums.


Mr Harper - That has been the fate of a good many companies.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The Government ought to clearly declare its position with regard to this measure, legislation in regard to insurance being one of the powers given to the Parliament by the Constitution. In my opinion, there is reason for the enactment of a comprehensive

Commonwealth measure dealing with the subject. In connexion with fire insurance companies, it would be well to establish a standard policy, which would be fair toinsurers and insured alike. Many of the difficulties which occasionally, though not frequently, arise in connexion with the settlement of claims might be removed by the substitution of fair standard conditions for the differing conditions which, now exist, and occasionally allow companies, if they desire to push things to extremes, to put those who are insured to a great amount of trouble in making good their claims. The provisions of the Bill are most undesirable. Clause 5 providesthat

In the event of total loss covered by a policy,, the insured shall, notwithstanding any stipulations contained in the policy, be entitled to recover from the company the amount insured by the policy, and upon which the premiums havebeen paid.

Therefore, if a person had insured his stock for £100,000, and a fire occurred when he had only £25,000 worth on his premises, he would be entitled to recover the amount insured by the policy. Subclause 3, which the honorable member for Kalgoorlie says would prevent that happening, would have no such effect. It reads -

The above provisions shall not apply where misrepresentation, fraud, or any act of the insured in failing to comply with any reasonable requirement of the policy is proved against the insured.


Mr Fisher - The question which would arise would be, what has been the total loss?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - " Total loss" is a well-known insurance term, which has been interpreted by the Courts over and over again. .


Mr Fisher - The goods must have been destroyed to enable an insured person to obtain compensation for them.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - Not under the Bill. The honorable member for Kalgoorlie, in framing the measure, evidently had in his mind only one class of insurances, those covering houses and risks which do not alter materially from time to time. Such risks are a portion, possibly only the minor portion of .the business of the insurance companies.


Mr Fisher - It is only fair to the honorable member for Kalgoorlie to say that he is prepared to accept amendments to express his intentions, if they are not already expressed in the Bill.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - We have to deal with the measure as it has been placed before us. The honorable member apparently forgot that very large and important branch of insurance business - the insurance of stocks of merchandise. Merchants who wish to be safe must insure to an amount which will cover the full value of the merchandise likely to be in their stores at any particular time.

Mr.Fisher. - Their maximum carrying capacity.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - They insure on that or something very close to it. If they do not,the loss must fall upon them. Insurances are, therefore, effected upon the value of the largest quantity of merchandise they are likely to have on their premises when their stocks are at the fullest. But these stocks vary from day to day and f rom month to month, as the stores are filled by the arrival of heavy shipments, and emptied in the ordinary course of trade. In this way, stock may dwindle from a value of £100,000 to a value of £25,000. But, under the Bill, if a merchant had insured his stock at £100,000, and his premises were burnt down when they contained only £25,000 worth of merchandise, he would be able to recover the whole amount insured for.


Mr Hutchison - No; only the amount of his loss.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - That may be the intention of the measure, but it is clearly provided that, notwithstanding any stipulations contained in the policy, the insured shall be entitled to recover from the company the amount insured by the policy, and upon which, the premiums have been paid. The provision in regard to misrepresentation and fraud would not apply, because there would have been no misrepresentation. The merchant would have told the insuring company that his stock is a varying one.


Mr Frazer - Does he not make a statement as to what he had in stock?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - No. He simply insures for £100,000, and the company contracts not to pay him £100,000, but to indemnifyhim for loss up to that amount, which loss he has to prove.


Mr Frazer - I think that provision is made for a contingency of the character indicated by the honorable member, but if he thinks he can make the intention clearer I have no objection to accept an amendment.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - I contend that the proper course would be for the Government to introduce a measure dealing comprehensively with the whole subject of fire insurance, and that any attempt at piecemeal legislation should be discouraged. We could embody in such a measure provisions that would remedy any wrongs now inflicted. It is perfectly clear that, under the Bill as it now stands, a person insuring for £100,000, and having only £25,000 worth of goods in his store at the time of a fire, could claim the full amount payable under his policy.


Mr Watson - That would be no more dishonest than the method of averaging adopted by the companies.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - I am not saying anything about honesty or dishonesty. I contend, however, that it would be a very bad thing for the community if we enacted any such provision as that referred to. The honorable member for Bland must see what any such provision would lead to. The honorable member for Kalgoorlie states that the third sub-clause would get rid of the difficulty. But I would point out that in the case to which I have referred there would have been no misrepresentation or fraud, or any failure to comply with the reasonable requirements of the policy.


Mr Frazer - The honorable member is referring to a case in which there would be only a partial loss, and not a total loss.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The honorable member is confused as to the meaning of the term " total loss." It has a recognised meaning both among insurance people and' in the Law Courts. The term " total loss " is applied to a case in which the whole of the goods insured have been totally destroyed, and are of no value. The honorable member assumes that if an insurance policy were entered into for £100, and goods of that value were destroyed that would be a total loss. There is, however, no connexion between the two things. Now we come to the provisions dealing with partial loss. It is provided in sub-clause 2 -

In the event of partial loss covered by a policy, the insured shall, notwithstanding any stipulations contained in the policy, be entitled to recover from the company compensation equal to the amount of the "loss sustained, but not exceeding the amount insured by the policy.

Now we are on different lines altogether. That is the law at the present time. It is further provided -

Such loss shall he ascertained by mutual agreement, or by the sale of the salvage, and a deduction of the amount received therefrom from the amount of the policy.

In other words, the insured is to receive not an amount representing the difference between the value of the goods in the store at the time, and the salvage - which would be fair - but he is to be entitled to the difference between the sum realized by the salvage and the amount of the policy. Therefore all that he would need to do would be to refuse to come to an agreement - and how many agreements would be arrived at under the circumstances - in order to0 obtain an amount representing the difference between the sum realized for the salvage and the amount of his policy. The honorable member for Kalgoorlie might have been less free in his remarks in regard to those who have criticised his measure. He has referred to them as supporters of "boodlers," "liars," "insane, " and " ignorant. "


Mr Frazer - The honorable member is not justified in making that statement. 1 used those terms in regard to certain persons who had made specific statements which I had shown to be untrue.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The hon»orable member used some of the terms in reply to an interjection of mine. He said that we were supporters of "boodlers."


Mr Thomas - Is not that true?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - No, it is not true ; and I think that the honorable member for Barrier ought to deprecate the use of expressions in which he does not indulge himself. The honorable member accused those who had criticised the Bill in a certain way of being "insane" and " ignorant," but I think that I have shown by my reading of the Bill - if I am not ignorant or insane - that objections can reasonably be urged against it.


Mr Frazer - Does the honorable member say that the mart who made the statement that the measure would alter existing contracts was not ignorant?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - That maybe. But the honorable member used his opprobrious terms so freely that he apparently included all his critics within the same category.


Mr Frazer - Nothing of the kind.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - However, as the honorable member is still young, he will have plenty of time to mend his ways. The honorable member spoke of the desirability of having an exact valuation made before insurance. He apparently, again, had in his mind properties such as houses. I would point out to him that you cannot arrive at an exact valuation of stocks which are always varying. The goods in a warehouse or general store are subject to change from time to time, and it would be impossible to permanently fix a valuation upon them. I admit that a certain valuation can be placed upon a house when it is insured, and I agree with the honorable member that all prudent insurance managers should take care to assure themselves that a man is not over-insuring his property.


Mr Hutchison - -They do not care ; thev will take as much as thev can get.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - That is not mv experience, because, whenever I have bad mv furniture or house insured, an officer has always been sent to inspect, and ascertain whether the valuation was proportionate to the amount of the insurance.


Mr McCay - That is the experience of most of us.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - It is prudent for the agent or manager of a com"pany to guard against deliberate attempts at over-insurance, but I would point out that, even in the case of house properties, the valuation made at the time of insurance ceases to apply after a little while. Depreciation is always going on. Sometimes houses are left untenanted, and become knocked about, and sometimes the market value of property in certain, localities depreciates. The risk of fraud in connexion with house property is not so great as in connexion with merchandize, if the full amount of the insurance had to be paid, but there would still be some chance of the owner of house property obtaining an amount in excess of its value. I believe that the wiser insurance companies are reasonable in their dealings with their clients, but I quite agree that there may be cases of hardship. In all cases of contract hardship may occur when the question of performance comes to be dealt with. The only way in which that hardship can be overcome is by securing a reasonable policy of insurance - a policy which has. not been drafted with a view to conferring undue advantages upon either party to it. As long as there are clauses in these policies which enable difficulties to be put in the way of a settlement of claims, cases of hardship will occur. But the proposals of the honorable member for Kalgoorlie would create a condition of affairs which would be infinitely worse than is the present. Most certainly this Bill, if carried in its present form, would lead to the establishment - and that without a Government bonus - of a; new industry - I refer to the practice of insuring stock for a larger amount than it would be worth at the time disaster overtook it, although the amount of the insurance might not be an unreasonable one at the time the insurance was effected. The Bill would lead to all sorts of fraud being committed.


Mr Frazer - 1In my worst statement I did not cast such a slur as that upon the commercial community.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - I have not cast a slur upon any section of the community. Judging by his speech, the honorable member has evidently not struck a community of angels. Whenever an opportunity presents itself to make money by means of fraud it will, be availed of by some persons. This Bill would grant a bonus to that sort of thing, and I hold that fire constitutes a great danger to the community. It is not merely the individual with whom it starts who may suffer, but thousands of others. Consequently, the less we encourage fires the better. The honorable member alluded to the considerable profits which were made, and the large reserves which were held, 'by some of the companies. I should be very sorry to see our fire insurance companies without large reserves. What would they have to fall back upon in the absence of such reserves ?


Mr Frazer - I did' not denounce the reserves.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - But the honorable member mentioned the reserves as a reason why we should deal with the companies.


Mr Frazer - I merely pointed out the enormous profits which have been made.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The honorable member pointed to considerable profits and to large reserves. I say that if our insurance companies were not financially strong enough we might have to enact legislation in the interests of the insurers. But the stronger they are financially, the more secure are the insured, to whom losses which the companies were unable to satisfy would be a very serious matter indeed". In certain cases there may be some reasonable objections urged against the practice of average to which reference has been made. I know that the companies now declare that they do not apply average except to a hazardous risk unless the amount of the insurance is over £10,000. If a man insures his stock for £10,000, and keeps goods worth -£5,000 more in his store, they claim he becomes his own insurer for £5.000, and consequently he should share to that extent in any loss which may be sustained.


Mr Hutchison - But is it fair that the fire insurance companies should afterwards accept the full premium from him ?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The claim of the companies is that if he acted properly - inasmuch as he had only insured his stock for two-thirds of its value - he would be establishing an insurance fund for the remaining third, and that he ought to credit that fund with the premiums which under other circumstances he would have paid upon that third.


Mr Hutchison - That is not the point.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The companies urge that the policy-holder is the insurer as well as themselves,_ and that he ought to bear his proportion of the loss. The honorable member for Hindmarsh says that, although the individual is required to pay a premium upon £10,000, he would receive less than that amount if disaster overtook him. The answer of the companies is_ that that circumstance is due to the fact that the individual is partly his own insurer.


Mr Hutchison - Then, why do they take the full premium?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - Their claim, they argue, is not an s unreasonable one. Thev are ready" to insure the whole of his stock, and if he will only insure a part of it he should bear his proportion of the loss. There are instances, however, in which I believe the companies refuse to accept the full amount of the risk. In such cases it is not fair to apply the average clause. But under any circumstances, I think that the application of that clause by the companies is rather to their disadvantage than otherwise. The only benefit which can possibly accrue from it is that persons mav be induced to insure for a larger amount than thev otherwise would. The strongest objection that I see to it is in cases where insurance companies refuse to accept the full amount qf the risk, and compel a man against his will to bear a share of any loss which may be incurred. I hope that the Minister of Home Affairs will declare the intentions of the Government in respect of this measure, which will have very farreaching effects. I cannot dream that it will be agreed to in its present form, but even if it be passed with amendments, it may lead to the . imposition of higher insurance rates, because, undoubtedly, the insurance companies will be rendered liable to larger losses.


Mr Frazer - -But there-will be a better chance of the insured getting his claim satisfied


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - I believe that the honorable member did cite one case in which an insurance company, or its adjuster, was absolutely wrong. Personally, I have no reason, to entertain too friendly a feeling towards these companies, because I have had one or two struggles with them. But, in a business of this description, there must be strong safeguards. If the Bill were amended so as to make it provide only for the payment of the actual loss, it would be useless, because provision is already made for that in our existing law.


Mr Groom - The honorable member for Kalgoorlie has gone back to the principle of indemnifying the insured in the event of partial loss.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - But the Minister will note that sub-clause 2, of clause 5, provides -

Such loss shall be ascertained by mutual agreement, or by the sale of the- salvage, and a deduction of the amount received therefrom from the amount of the policy.

That is really giving effect to sub-clause 1 of that provision. Under such circumstances, is it likely that the parties would arrive at any agreement? The measure is important to the whole community. It deals with a matter in which strong safeguards must be provided against fraud. Those safeguards are in the interests of the community, and in a Bill of this description we should not deal with one aspect of insurance only. Further, any measure dealing generally with the subject should be brought forward by the Government.







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