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Pacific MMI Insurance Ltd v Elema [2010] PGNC 153; N4032 (6 April 2010)

N4032

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

OS NO. 336 of 2002 (JR)

BETWEEN:

PACIFIC MMI INSURANCE LIMITED
Plaintiff

AND:

SALAMO ELEMA, INSURANCE COMMISSIONER
Defendant

Waigani: Injia CJ
2010: 6th April

JUDICIAL REVIEW - Administrative decision – Statutory authority - Insurance Commissioner's decision to issue direction to licensed insurer to give access to records on disputed insurance claim – Direction issued under s 33 & s 34 of Insurance Act 1995 – Whether Commissioner acted ultra vires.

STATUTORY INTERPRETATION – Meaning of ss 33, 34, 35 and Part IX of Insurance Act 1995.

Held:

1. Section 33 and s34 of the Insurance Act 1995 do not empower the Insurance Commissioner to direct a licensed insurer to give access to records in respect of a disputed insurance claim.

2. Upon receiving a complaint from a policy holder over a disputed insurance claim, the Insurance Commissioner must refer the dispute to the Insurance Complaints Tribunal established under Part IX of the Insurance Act for determination of the dispute.

3. The Commissioner acted ultra vires in issuing directions to the licensed insurer under these provisions requiring the licensed insurer to provide access to documents and other records in respect of a claim by a policyholder which was rejected by the licensed insurer. Application for judicial review is granted .

Cases cited:

Francis Damem v Mark Maipakai (2004) N2730

Counsel:

J Aisa (Jnr), for the Appellant
C Raurela, for the respondent

6th April, 2010

1. INJIA, CJ: This is an application for judicial review under O 16 of the National Court Rules made by the Plaintiff (PMMI). It seeks review of a decision made by the defendant (the Commissioner) under s 33 and s 34 of the Insurance Act 1995 (the Act) to direct PMMI to give access to in respect of certain documents held by PMMI in relation to an insurance claim made by Hanjung Power Company Ltd (Hanjung). The application is contested by the Commissioner.
   
2. Both parties filed affidavits which they relied upon at the hearing. Counsel representing both parties made submissions and I reserved my decision which I now deliver.
   

GROUNDS OF REVIEW & RELIEF SOUGHT.

3. PMMI seeks the following relief:

(1) A declaration that pursuant to sections 33 and 34 of the Insurance Act 1995 (the Act), the Defendant, its servants or agents do not have the power to access, inspect or obtain possession of the Plaintiff's documents which relate to its police holders, based on complaints made by the Plaintiff's Policy Holders to the Defendant.

(2) An injunction restraining the Defendant its servants or agents from accessing, inspecting or obtaining possession of the Plaintiff's documents.

4. The grounds relied upon are as follows:
   
   • (1) In a number of letters received by the Plaintiff from the Defendant, the Defendant asserts rights and threatens actions purporting to act under powers provided to him by the Insurance Act 1995.
     
   • (2) The two specific matters in which the Defendant has sought to involve himself relate to:
     
     • (a) a claim by Hanjung Power Ltd which the Plaintiff denied; and
       
     • (b) a policy of medical cover for Susan Turner which the Plaintiff had declined to renew, but have now offered to renew but only on modified terms and conditions.
       
   • (3) In both cases the Defendant in response to complaints by Policy Holders has written to the Plaintiff asserting rights and powers under the Insurance Act, demanding in the Hanjung case access to commercially sensitive documents and in the Turner case demanding that the Plaintiff renew the policy or face an Actuarial Investigation.
     
   • (4) In relation to both matters the Defendant has threatened the Plaintiff with sanctions arising under the Act for failure to comply with his requests.
     
   • (5) The question raised by the Plaintiff is whether the Insurance Commissioner is acting within his powers under the Act?
     
   • (6) The Defendant here purports to act under Section 33 and Section 34 of the Insurance Act 1995. Both sections have fines as the penalty for breach or non-compliance. Accordingly they are to be read narrowly and in favour of the Plaintiff.
     
   • (7) The Plaintiff contends that the Insurance Act 1995, Part V – Audits, Returns, Inspection etc, which includes Sections 33 and 34, is clearly intended to enable the Government to regulate the Insurance industry in respect of matters such as prudential probity, financial stability, confidence in the financial solvency of the PNG insurance industry and so that the commercial sector can be assured of its dealings with PNG Insurers.
     
   • (8) The Insurance Act 1995, Part IX – Complaints Procedures & Disputes Resolution, makes quite separate and detailed provision for the manner by which disputes and complaints by policy holders and Third parties are to be dealt with. It establishes an Insurance Complaints Tribunal made up of the Defendant or his nominee, two industry representatives and two consumer or public representatives. It sets out specific functions for that body, including the handling of complaints. Notably it does not leave this matter for the Defendant's sole discretion.
     
   • (9) The Plaintiff contends that the type of complaints raised in the Hanjung Power and Mrs Turner matters are intended by the Act to be dealt with under Part IX and not Part V.
     
   • (10) Accordingly, the Plaintiff contends that the Defendant is acting well beyond the powers granted by the Act.
     
   • (11) The Defendant has commenced proceedings OS No. 618 in the National Court against the Plaintiff and its Managing Director seeking leave of the Court to commence criminal proceedings against them arising out their failure to provide him with documents or information relating to Hanjung Insurance claim. At the hearing of this review the Plaintiff will seek to refer to and rely upon the Defendant's conduct in commencing the said proceedings and in particular the Defendant's Affidavit filed in support thereof.
     
   • (12) The Plaintiff further contends that in the Hanjung matter and the Turner matter the comments made by the Defendant in his correspondence give rise to a clear apprehension of bias and impartiality.
     

5. At the hearing counsel for PMMI did not pursue the Turner case. I assume that that part of the claim is abandoned.

6. PMMI's counsel also did not pursue ground 12 relating to bias. I also assume that this ground is abandoned.

FACTS

7. PMMI relies on the affidavit of PMMI's Managing Director Mr. Phil Stace, sworn on 18th October 2002 and filed herein. The Commissioner relies on his affidavit sworn on 4th October 2008 and filed herein.

8. The background facts which are relevant for purposes of determining the application before this Court are not in dispute. PMMI is a registered insurance company operating in Papua New Guinea. PMMI is subject to the regulatory provisions of the Act. It is licensed under the Act for that purpose. PMMI enters into Insurance contracts with clients. The terms of the contract are contained in the Insurance Policy issued to the insured.

9. The Commissioner is appointed under the Act. His powers and functions are set out in the Act.

10. PMMI entered into an insurance contract with Hanjung. Hanjung is involved in the maintenance of the Kanudi Power Plant which supplies power to the city of Port Moresby. The insurance contract was described as "Industrial Special Risk" Insurance Policy (the Policy). On 27th December 2000 Hanjung suffered a major breakdown in one of its generators. On 28th December 2000, Hajung gave notice of its claim to PMMI. In 2001 Hanjung lodged an insurance claim for K20 million for "Machinery Breakdown and Business Interruption" (the claim). On 9th November 2001, PMMI rejected the claim. A dispute arose between them. On 19th July 2002, Hanjung lodged a complaint with the Commissioner over PMMI's rejection of its insurance claim. On 1st August 2002 the Commissioner wrote to PMMI informing it of Hajungs's complaint. The letter stated, in part:

"Before we proceed further on this matter we ask you to provide:

(a) your explanation as to why you have rejected the claim;

(b) supporting information and documents on your decision; and the

(c) entire file since inception of the cover.

Please be advised that we make this request under Sections 34 of the Insurance Act 1995, which gives the Commissioner exclusive powers to inspect and investigate. Therefore we expect your fullest cooperation and expect to receive the requested items within 14 days of the date of this letter."

11. On 9th August 2002, PMMI wrote to the Commissioner and stated the information sought was given to Hanjung in their letter of 9th November 2001. PMMI claimed privilege in relation to information sough under item Nos. (b) & (c). PMMI's letter stated:

"We are quite happy to meet you to discuss matters in general terms. We would however feel it may prejudice PMMI's position to release information in these circumstances as we may wish to be given the opportunity to question witnesses of the insured should PMMI's decision be contested in Court."

12. The dispute remain unresolved despite further correspondences exchanged between the parties. Consequently, the Commissioner directed PMMI to allow access to documents on Hanjung' insurance claim. PMMI took issue with the direction and filed these proceedings.

ISSUES FOR DETERMINATION

13. The issues to be determined are legal issues. They involved construction of ss 33, 34, 35, 47 and 53 of the Act. Their interpretation and application to the facts will determine the outcome of the case for the parties.

14. It is necessary to reproduce these provisions. Section 33 states:-

33. Investigation and report by Actuary.

(1) Where the Commissioner is of the opinion that—

(a) the financial interests of a policy holder, shareholder or creditor of a licensed insurer might be in jeopardy; and

(b) an investigation and report by an independent actuary are appropriate, he may direct the licensed insurer—

(c) to have undertaken an investigation and report by an independent actuary approved by the Commissioner; and

(d) to instruct the independent actuary to furnish a copy of his report under Paragraph (c) direct to the commissioner.

(2) Where a licensed insurer fails to comply with a direction under Subsection (1), the Commissioner may appoint an independent actuary to undertake the investigation and report and may fix the remuneration to be paid to him by the licensed insurer.

(3) A licensed insurer shall cooperate fully with an independent actuary undertaking an investigation and report under this section and shall make available to him for inspection and copy (if necessary) all books, records, registers, financial statements and other documents.

(4) A licensed insurer, who fails to comply with Subsection (3), is guilty of an offence.

Penalty: A fine not exceeding K1000,000.00

15. Section 34 states:

34. Powers of inspection and investigation.
    

(1) The Commissioner or a person authorized by him for the purpose may at anytime during the ordinary hours of business do all or any of the following:-

• (a) enter any land or place where any person—
  
  • (i) is acting as; or
    
  • (ii) is carrying on or is reasonably suspected by him to be acting as or carrying on, business as, an insurer or insurance broker or loss adjuster;
    
• (b) make such examination and inquiries as are necessary to ascertain the manner in which any business referred to in Paragraph (a) is being carried on and, in particular, whether the provisions of this Act have been or are being complied with in respect of that business;
  
• (c) examine any person engaged or apparently engaged, whether as principal or employee, in the business, and require him—
  
  • (i) to answer any question put to him; and
    
  • (ii) furnish such information as may be required; and
    
  • (iii) to sign a declaration as to the truth of any answer given by him;
    
• (d) inspect and examine any accounts, books or records relating to, or reasonably suspected by the Commissioner or a person authorized by him to relate to, any business referred to in Paragraph (a), and for that purpose require—
  
  • (i) the holder of a licence; and
    
  • (ii) any person carrying on or reasonably suspected of carrying on any business to which this Act relates; and
    
  • (iii) any person who has possession, custody or control of any such accounts, books or records, to produce the accounts, books or records to him, and make copies of or take extracts from any of them.
    

(2) A person who—

(a) assaults, resists or obstructs the Commissioner or a person authorized by the Commissioner in the exercise of his powers or the discharge of his duties under this section; or

(b) fails or refuses to answer any question put to him by the Commissioner or a person authorized by him, or gives a false or misleading answer to any such question; or

(c) fails or refuses to comply with a request of the Commissioner or a person authorized by him; or

(d) when required to furnish information under this Act by the Commissioner or a person authorized by him—

(i) fails or refused to give the information; or

(ii) gives false or misleading information; or

(e) fails or refuses, without reasonable excuse (proof of which is on him)—

(i) to produce any books, account or record that he is required to produce required to produce under this Act by the Commissioner or a person authorized by him; or

(ii) to allow the Commissioner or a person authorized by him to make copies of or take extracts from any such books, account or record; or

(f) directly or indirectly prevents any person from appearing before or being questioned by the Commissioner or a person authorized by him; or

(g) uses any threatening, abusive or insulting language to the Commissioner or as person authorized by him whilst he is carrying out an authorized inspection under this Act, is guilty of an offence.

Penalty: A fine not exceeding K25,000.00

16. Section 47 states:

47. Internal procedures.

(1) A licensed insurer, licensed broker and licensed loss adjuster shall develop written policies and procedures, to be approved by the Commissioner, whereby complaints and disputes will initially be addressed between the insured or other affected third parties and the licensed insurer, licensed broker or licensed loss adjuster.

(2) At the time of policy issue and renewal, the licensed insurer or licensed broker shall make available to a policy holder, the following:—

(a) clear directions as to whom and where policy holders or affected third party complaints and disputes should be lodged;

(b) procedures whereby complaints and disputes shall be formally reviewed and responded to by a licensed insurer within a maximum of thirty days; and

(c) details of the Insurance Complaints Tribunal to which complaints can be referred following exhaustion of procedures under Paragraph (b) and where policy holders or affected third parties remain dissatisfied.

17. Section 53 states:

53. Functions of the Tribunal.
    

(1) The functions of the Tribunal are to consider disputes and complaints referred to it by policy holders of general insurance policies and affected third parties.

(2) The Tribunal shall not be limited to the types of disputes it considers but the Commissioner, following consultation with the Tribunal, may publish in the National Gazette guidelines as to the operating procedures of the Tribunal including an outline of classes of complaints that it shall, and shall not, consider.

(3) The Tribunal shall not consider any complaints until it is satisfied that all internal procedures for complaint and dispute resolution provided for in Section 47 have been fully exhausted.

(4) The Tribunal is empowered to adjudicate and direct a licensed insurer, licensed broker or licensed loss adjuster in the resolution of any particular complaint or dispute providing the direction does not involve claims or other payments exceeding an amount fixed by the Commissioner by notice in the National Gazette but by agreement between the parties and with the approval of the Tribunal a dispute involving an amount in excess of the fixed amount may be determined by the Tribunal.

18. Section 54 states:

54. Powers of the Tribunal
    

(1) For the purpose of performing its functions under this Act the Tribunal, or a person authorized by the Tribunal may—

• (a) require any person to produce or make available to the Tribunal or a person authorized by the Tribunal any books, document, record or information in the possession of or under the control of the person relating to a disputed matter under consideration by the Tribunal; and
  
• (b) take copies of or extracts from any books, document or record.
  

(2) A person who—

• (a) when required to do so under Subsection (1), refuses or fails, without reasonable excuse (proof of which is on him), to produce or make available any books, document, record or information; or
  
• (b) hinders or obstructs the Tribunal or a person authorized by the Tribunal in the exercise of its or his powers or the performance of its or his functions under this Act,
  

is guilty of an offence.

Penalty: A fine not exceeding K25,000.00

19. The main issue is whether the Commissioner is empowered by ss 33 & 34 to direct a licensed insurer to give access to inspect and obtain possession of documents relating to an insurance claim based on complaint by a insurance policy holder against the licensed insurer over the insurer's rejection of its insurance claim.

20. Mr Aisa of counsel for the PMMI argues that s 33 which was invoked by the Commissioner is irrelevant because that provision applies to a direction issued to the insurer to facilitate an investigation by an actuary to investigate the financial affairs of the insurer. An actuary is a professional person who investigates and reports on the adequacy of financial reserves of the insurer against anticipated claims. The direction issued by the Commissioner does not come within s 33.

21. In relation to s.34, Mr Aisa submits Hanjung's complaint amounted to a dispute over PMMI's handling of its specific insurance claim. The request made to the Commissioner by Hanjung came under his functions as chairman of the Insurance Complaints Tribunal under Part IX of the Act (ss 47 – 57 inclusive). Therefore the Commissioner acted beyond his powers in assuming power to deal with PMMI's request under s 34.

22. Mr Raurela of counsel for the Commissioner submits s 34(1) gives the Commissioner wide power to investigate the manner in which a licensed insurer handled a particular insurance claim and to have access to and examine and inspect accounts, books and other records on the particular claim. The Commissioner was entitled to request information and material from the insurer as to why it rejected the claim and PMMI was obliged to provide that information, failure to do so which is a criminal offence.

23. Both counsel did not cite any local or overseas cases on the construction of these statutory provisions or similar provisions elsewhere. I am unable to locate any local or overseas decisions. Therefore the construction of these provisions is that of my own. In so doing I prefer to ascertain and give effect to the plain or ordinary meaning of the words used in these provisions and the purpose of the provisions as a whole

24. In my view s 33 and s34 are stand-alone provisions which relate to the Commissioner's power to investigate two distinct class of persons involved in the insurance service industry. The powers conferred on the Commissioner by these two provisions are part of the body of powers conferred on the Commissioner by the Act to regulate the insurance service industry in order to maintain appropriate professional and business standards and to protect the public. They have no application to the resolution of a dispute between a licensed insurer and a insurance policyholder over the handling of a specific insurance claim.

25. Section 33 applies to a licensed insurer which is in the business of providing insurance service. Where the Commissioner has reason to believe that the financial interest of a policy holder, shareholder or creditor of the licensed insurer might be in jeopardy and forms an opinion that an investigation by an actuary is appropriate, he may direct the licensed insurer to engage the services of an independent actuary and instruct the actuary to submit his report direct to him. If the licensed insurer fails to comply with this direction, the Commissioner appoints an actuary and directs the licensed insurer to permit the actuary to conduct the investigation and furnish a report to him. Section 33 does not empower the Commissioner to conduct actuarial investigations himself. The investigation is carried out by an actuary. An actuary is defined in s 2 of the Act as a person formally qualified to the satisfaction of the Commissioner and who provides actuarial services under Section 33 or s 41.

26. I accept Mr Aisa's submission on this point. To the extent that the Commissioner relied on s 33 to direct PMMI to provide access to documents on Hanjung's claim, he acted ultra vires.

27. Section 34 applies to the Commissioner's power to investigate persons who are not licensed under the Act but are suspected of conducting insurance business without a valid license . Section 34 (1) defines the class of persons that are subject to the Commissioner's investigative powers. Subsection (1) (a) empowers the Commissioner to enter the land or place of "any person" who "is acting as... an insurer or insurance broker or loss adjuster" or "is carrying on or is reasonably suspected by him to be acting as or carrying on, business as, an insurer, or insurance broker or loss adjuster". The investigation is conducted by the Commissioner or his nominee.

28. Subsection (1)(a), (b), (c) and (c) are intended to be read together. Paragraph (b) expressly states the power under (b) relates to (a). Paragraph (c) follows on from ((b). Paragraph (d) expressly refers to (a). The purpose of this Section is to investigate persons who are suspected of carrying on insurance business without being licensed to do so. The powers are wide ranging indeed, and in my view, of necessity, the Commissioner must possess to protect the insurance industry.

29. Section 35 of the Act empowers the Commissioner to deal with reports made under s 33 and s 34 and to issue, where appropriate, directions to a licensed insurer. Based on an actuarial report submitted to him under s 33, he may issue appropriate directions to the licensed insurer concerned. Based on the report under s 34, the Commissioner may issue appropriate directions to a licensed insurer who is found to have business dealings with the persons described in s 34 (1) (a). The person who is found to have conducted insurance business without a license is prosecuted for a criminal offence under the Act.

30. Section 33 and s 34 do not confer on the Commissioner power to issue directions to a licensed insurer in respect of a specific insurance claim. Unless expressly provided for in a statute, the relationship between an insurer and insured is governed by private law of contract, the terms and conditions of which are spelt out in the contract of insurance or insurance policy. Contracts of insurance are aleatory contracts and special in nature. It is"an agreement of which the effects, with respect to both the gains and losses, whether to all parties or some of them, depend on an uncertain event.": Oxford's Dictionary of Law, 7th ed. The contract should provide for internal resolution of disputes over its terms and conditions or disputes over a specific insurance claim and if that fails, resolution of that dispute by an independent mediator, arbitrator or adjudicator appointed to a tribunal established by statute. It is most unusual to see statutes governing private insurance business granting the Commissioner power to intervene in a dispute over an insurance claim between the licensed insurer and the insured.

31. Thus Part IX provides for resolution of disputes over a specific insurance claim between an insurer and an insured but only after internal dispute resolution avenues agreed between the parties have been exhausted. Under the Act, resolution of a disputed claim is intended to be the last resort for resolving the dispute. Section 47 of the Act provides for parties to an insurance contract to amicably resolve any such disputes internally utilizing internal dispute resolution processes. It is intended by the Act that the licensed insurer must put in place, with the concurrence of the Commissioner, procedures in place to deal with disputes by insured over their claim in a fair manner. Section 47 is quiet clear on this. Only when that process fails to produce an amicable settlement should parties take up the matter before an Insurance Complaints Tribunal.

32. Under Part IX, an independent tribunal known as the Insurance Complaints Tribunal is established of which the Commissioner or his nominee is the Chairman. Its primary function is to "consider disputes and complaints referred to it by policyholders of general insurance policies and affected third parties" (s. 53 (1)) and "adjudicate and direct a licensed insurer, licensed broker or licensed loss adjuster in the resolution of any particular complaint or dispute...": (s. 53(4). The Commissioner's only and proper role in the resolution of a dispute of a particular insurance claim is through his position in the Tribunal. It can hardly be imagined that the Commissioner should be involved in the investigation of a particular disputed insurance claim and sit in impartiality in an independent tribunal dealing with the same complaint. If a party is dissatisfied with the tribunal's decision, that party has a right of appeal to the National Court under s 56 of the Act.

33. I am satisfied that in the circumstances of the present case, the Commissioner acted beyond his powers in invoking the provisions of s33 and s 34 to issue the directions to PMMI in respect of the dispute between MMI and Hanjung over a particular insurance claim.

34. In a case such as this where a policy holder registers a disputes with the Insurance Commissioner over the rejection of its insurance claim by the licensed insurer, the Commissioner must refer the dispute to the Insurance Complaints Tribunal established under Part IX for its determination.

35. Mr Raurela argues that this matter is not a proper matter to invoke the Court's discretionary jurisdiction under the judicial review procedure in Order 16. He submits the Commissioner has not made a decision on the matter and it is premature for the plaintiff to run to court.

36. The answer to this argument is found in the principles enunciated by this Court in many judicial review cases that have come before the Courts. What I said in Francis Damem v Mark Maipakai (2004) N2730 is apposite to this case. I said:

"...(T)he matter of a decision-making authority exceeding its powers given by Statute or the Constitution; or committing an error of law are serious matters. When there is clear evidence placed before the Court to show that a public authority such as a Minister of the State has clearly acted ultra vires or exceeded his power or has failed to follow procedures prescribed by the Constitution or Statute, the Court cannot be expected to sit back and do nothing. The Court must do justice. It must intervene out of necessity and arrest the flawed process from proceeding further to conclusion.

In judicial review, the relief designed for this purpose is an order in the nature of certiorari, mandamus or prohibition. Mandamus and prohibition are both injunctive in nature. Such injunctive relief will stop the flawed process from continuing thereby exposing the Departmental Head to unnecessary embarrassment and damage his professional and personal integrity and reputation and at the same time damage the good standing of his office."

37. For these reasons, the application for judicial review is granted. I grant the declaratory order and permanent injunction sought in the application. PMMI shall have its costs of the application.

38. The formal orders of this Court are:

(a) The plaintiff's application for judicial review is granted;

(b) A declaration is granted that the Defendant, its servants or agents do not have the power to access, inspect or obtain possession of the Plaintiff's documents which relate to its Hajung's insurance policy and its insurance claim;

(c) An injunction is granted restraining the Defendant its servants or agents from accessing, inspecting or obtaining possession of the Plaintiff's documents in respect of insurance policy issued to Hanjung and Hanjungs' insurance claim the subject of dispute; and

(d) The defendant shall pay the plaintiff's costs of the application.

_______________________________

Allens Arthur Robinson : Lawyers for the Plaintiff
Rageau Elemi Kikira: Lawyers for the Respondent