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Supreme Court of New South Wales - Court of Appeal |
Last Updated: 8 November 2021
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Court of Appeal Supreme Court New South Wales
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Case Name:
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Avant Insurance Ltd v Burnie
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Medium Neutral Citation:
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Hearing Date(s):
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11 June 2021
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Decision Date:
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8 November 2021
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Before:
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McCallum JA and Simpson AJA at [1];
Emmett AJA at [40] |
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Decision:
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(1) Leave to appeal granted.
(2) Appeal allowed. (3) Orders made by the primary judge set aside. (4) In lieu thereof, Joinder Motion dismissed with costs. (5) Respondent to pay Applicant’s costs of the appeal. (6) If otherwise entitled, Respondent to have an order under the Suitors Fund Act 1951 (NSW). |
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Catchwords:
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INSURANCE – Appeal from decision joining insurer to proceedings
– Whether there was an insured liability – Where
insured gave no
notice of facts that might give rise to claim – Whether contractual
obligation to give notice – Whether
breach of obligation cured by
statute
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Legislation Cited:
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Cases Cited:
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CA & MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd
[2009] 2 Qd R 1; [2001] QSC 388
FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 Gosford City Council v GIO General Ltd (2003) 56 NSWLR 542; [2003] NSWCA 34 Guild Insurance Ltd v Hepburn [2014] NSWCA 400 Newcastle City Council v GIO General Ltd (1997) 191 CLR 85; [1997] HCA 53 Tara Burnie v Dr Leslie Blackstock [2020] NSWDC 452 |
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Texts Cited:
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Australian Law Reform Commission, Insurance Contracts (Report No 20,
1982)
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Category:
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Principal judgment
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Parties:
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Avant Insurance Ltd (Applicant)
Tara Burnie (Respondent) |
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Representation:
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Counsel:
M Windsor SC, R Gambi (Applicant) A D Campbell, R Wathukarage (Respondent) Solicitors: Carter Newell Lawyers (Applicant) Gerard Malouf & Partners (Respondent) |
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File Number(s):
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2020/264543
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Publication Restriction:
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None
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Decision under appeal:
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Court or Tribunal:
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District Court of New South Wales
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Jurisdiction:
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Civil
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Citation:
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Date of Decision:
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14 August 2020
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Before:
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Strathdee DCJ
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File Number(s):
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2018/229812
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[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11)
that unless the Court otherwise orders, a judgment or order is taken to be
entered when it is recorded in the Court's computerised
court record system.
Setting aside and variation of judgments or orders is dealt with by Rules 36.15,
36.16, 36.17 and 36.18. Parties should in particular note the time limit of
fourteen days in Rule 36.16.]
HEADNOTE
[This headnote is not to be read as part of the judgment]
The applicant, Avant Insurance Ltd (Avant), sought leave to appeal from a decision of the District Court granting leave under section 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) to join Avant to proceedings between Ms Tara Burnie and Mr Leslie Blackstock. In those proceedings Ms Burnie sought damages for personal injury allegedly suffered as a result of Mr Blackstock’s alleged medical negligence. At the time of the alleged negligence Mr Blackstock held a Practitioner Indemnity Insurance policy issued by Avant. However, that policy, which was framed as a “claims made and notified” policy, expired without Mr Blackstock notifying Avant of any claim by Ms Burnie or even facts that might give rise to such a claim. Avant did not contest that Ms Burnie had an arguable case against Mr Blackstock for damages for personal injury.
The primary judge (Strathdee DCJ) found there was a reasonable possibility that Mr Blackstock would be unable to satisfy any judgment and that there was an arguable case Mr Blackstock would, if found liable to Ms Burnie, be entitled to indemnity under his insurance policy with Avant. Avant appealed on the basis that those findings were incorrect and that leave to join Avant to the proceedings should not have been granted.
The principal issue on appeal was whether any liability Mr Blackstock may have to Ms Burnie was an insured liability under the policy. It was common ground that no claim was made or notified during the relevant policy year. Ms Burnie relied on the inclusion in the policy of an explanation of s 40(3) of the Insurance Contracts Act 1984 (Cth), which she contended gave rise to a contractual obligation to give notice of facts that might give rise to a claim, breach of which was cured by s 54 of the Insurance Contracts Act 1984 (Cth).
Held, granting leave to appeal and allowing the appeal with costs
Per McCallum JA and Simpson AJA:
The policy did not create a contractual obligation to give notice of facts that might give rise to a claim but rather explained the statutory benefits provided to those who do so: at [28]-[33].
Section 40 of the Insurance Contracts Act 1984 (Cth)
Per Emmett AJA:
The policy in its own right did not create a contractual obligation to give notice and did not rise beyond a mere allusion to the legislative effect of the statute: at [82]-[85] and [100]-[101].
Section 40 of the Insurance Contracts Act 1984 (Cth)
Per McCallum JA and Simpson AJA:
As there was no contractual obligation to give notice, Mr Blackstock’s failure to do so was not an omission to which section 54 would apply. In the absence of any notification to Avant, Mr Blackstock had no entitlement to indemnity for any liability to Ms Burnie: at [34]-[37].
Section 54 of the Insurance Contracts Act 1984 (Cth)
Per Emmett AJA:
Section 54 does not modify the operation of section 40. As the contract itself did not have an obligation to give notice section 54 did not apply: at [102]-[104].
Sections 40 and 54 of the Insurance Contracts Act 1984 (Cth)
JUDGMENT
1 McCALLUM JA and SIMPSON AJA: We have had the advantage of reading in draft the judgment of Emmett AJA. As the relevant facts and circumstances are there comprehensively set out, we can be relatively brief.
2 The plaintiff, Ms Tara Burnie, claims to have suffered personal injury caused by the negligence of Dr Leslie Blackstock (then a registered medical practitioner) in surgery performed by him on her in October 2016. The Court was informed that Dr Blackstock is no longer registered as a medical practitioner and accordingly we will refer to him as Mr Blackstock.
3 By statement of claim filed in the District Court on 26 July 2018, Ms Burnie claimed damages in respect of the injury she claims to have suffered as a result of the alleged negligence. Mr Blackstock has not responded to the statement of claim and has not filed a defence. The Court was informed that he has indicated through his solicitor that he has “no interest” in the appeal.
4 At the time of the surgery Mr Blackstock held a policy of Practitioner Indemnity Insurance issued by the applicant (Avant Insurance Ltd – “Avant”). Ms Burnie seeks via the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (“the Third Party Claims Act”) to gain access to the benefit of that policy. The Third Party Claims Act permits her to do that if Mr Blackstock’s liability to her is an “insured liability” within the meaning of s 4(1) of the Third Party Claims Act and leave to proceed against Avant is given by the court in which the proceedings are to be brought, as required by s 5. Although, by subs (3) of s 5, the grant of leave is discretionary, by subs (4) leave must be refused if Avant can establish that it is entitled to disclaim liability under the policy of insurance or under any Act or law.
5 Section 4(1) of the Third Party Claims Act is in the following terms:
“If an insured person has an insured liability to a person (the “claimant”), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court.”
6 “Insured liability” is defined in s 3 of the Third Party Claims Act to mean:
“.... A liability in respect of which an insured person is entitled to be indemnified by the insurer.”
7 By amended notice of motion filed on 5 June 2020, in her proceedings against Mr Blackstock, Ms Burnie sought leave under s 5 of the Third Party Claims Act to join Avant to the proceedings. On 14 August 2020, leave was granted by Strathdee DCJ (the primary judge): Tara Burnie v Dr Leslie Blackstock [2020] NSWDC 452. Avant now seeks leave to appeal against the order granting leave. The application for leave and the appeal (if leave is granted) were heard concurrently.
8 An applicant for leave under s 5 of the Third Party Claims Act must establish three elements:
(1) that there is an arguable case against the holder of the insurance policy (in this case, Mr Blackstock);
(2) that there is a reasonable possibility that the holder of the insurance policy will be unable to satisfy any judgment;
(3) that there is an arguable case that the holder of the insurance policy would, if found liable to the plaintiff, be entitled to indemnity under the policy; or, put another way, that any liability of the holder of the insurance policy to the plaintiff/claimant is, in the language of s 4, an “insured liability”: see Guild Insurance Ltd v Hepburn [2014] NSWCA 400 at [3] per Macfarlan JA (in respect of the predecessor of the Third Party Claims Act, the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)).
9 It is worth stating here what may be the obvious: an applicant for leave to proceed against an insurer under s 4 of the Third Party Claims Act stands in no better position than the holder of the insurance policy. What Ms Burnie seeks is direct access to whatever rights Mr Blackstock would, if he chose to access them, have against Avant.
10 In the District Court (as in this Court) Avant did not contest the first element – that there is an arguable case of liability in negligence against Mr Blackstock. Attention focussed principally on the third question: whether there is an arguable case that, if found liable to Ms Burnie, Mr Blackstock would be entitled to indemnity from Avant under the policy. A lesser, but nevertheless important, question was whether the evidence established the reasonable possibility that Mr Blackstock would be unable to meet any judgment against him. In Guild Insurance Macfarlan JA (with the concurrence of Meagher and Gleeson JJA) considered that “a low standard of arguability” is applicable to that question: at [40].
11 The primary judge was satisfied that each element had been established and, accordingly, granted the leave sought. Avant challenges the conclusions concerning the second and third elements. It is convenient to begin with the third element, whether any liability Mr Blackstock has to Ms Burnie is a liability in respect of which he is entitled to be indemnified by Avant so as to be an “insured liability” within the meaning of s 4.
12 The answer to that question emerges from analysis of the terms of the policy held by Mr Blackstock, together with certain statutory provisions.
13 As Emmett AJA has noted, Avant relevantly issued Mr Blackstock with two successive policies (there were others before those that do not arise for consideration here). The first provided him with indemnity during the period 1 July 2016 to 30 June 2017 (the first Policy Period); the second issued for the period 1 July 2017 to 30 June 2018 but was terminated by Avant on and from 24 April 2018 (the second Policy Period).
14 Although the terms of the policies are materially identical, it is the first which is agreed to be the relevant policy. Before turning to consider the terms of that policy, it is helpful to have in mind the chronology of the critical events, most of which is common ground. The first policy ran from 1 July 2016 to 30 June 2017. The treatment given by Mr Blackstock to Ms Burnie was given during that period but that is far from determinative of Avant’s liabilities. Ms Burnie did not make a claim against Mr Blackstock during the period of the first policy, or indeed until after the second policy was cancelled on 24 April 2018. There was evidence that she did complain to Mr Blackstock’s staff “about six months” after the surgery that she was not happy with the outcome. That was within the period of the first policy. It will be necessary to return to the significance of that complaint. Importantly, however, Avant has never received written notification from Mr Blackstock of any claim by Ms Burnie. Furthermore, although there was some prevarication about this point during the argument of the appeal, Ms Burnie ultimately accepted that there is no evidence that Mr Blackstock ever gave Avant notification of facts that might give rise to a claim and no basis to infer that he did. Mr Blackstock has not been insured with Avant since the cancellation of the second policy on 24 April 2018. The proceedings were commenced on 27 July 2018, after the cancellation of the second policy. Avant did not become aware of Ms Burnie’s claim or of the proceedings in the District Court until it was served with a subpoena in October 2018.
15 The first policy was issued by Avant upon Mr Blackstock’s acceptance of a “Renewal Notice and Tax Invoice” enclosing the documents which were to form the contract of insurance once accepted. The documents enclosed were a “Policy Schedule” and a booklet titled “Practitioner Indemnity Insurance Policy Product Disclosure Statement” which incorporated, in separate sections, the “Product Disclosure Statement” (PDS) and the “Policy Wording”. Although written in the less formal style of an explanatory document (reflecting its primary purpose), the PDS is expressly listed as one of the contractual documents comprising “the Policy”, together with the Policy Schedule and the Policy Wording (cl 19.19 on page 39 of the booklet).
16 The PDS characterises the Policy as one that “operates on a ‘claims made and notified’ basis”. That, also, is not definitive. The operation of the policy is to be determined by its terms and not by labels: FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 (“FAI”).
17 The principal insuring clause (clause 2 of the Policy Wording) provides:
“2. Health Care
We cover You for amounts which You become legally liable to pay as compensation for civil liability, including Legal Defence Costs, in respect of Claims made against You in the Policy Period in relation to Healthcare in private practice.”
18 “Claim” is defined as:
“A demand for compensation or damages in relation to Healthcare or Unpaid Healthcare which:
(a) is first made against You during the Policy Period; and
(b) You tell us about in writing during the Policy Period.”
“You” is defined to mean the insured.
19 Avant’s argument is simple. It contends that the effect of those provisions is that the Policy afforded indemnity only for liability in respect of a claim first made against Mr Blackstock during the policy period which he told Avant about in writing during the policy period. There was no claim made against Mr Blackstock during the period of the first policy and accordingly he did not tell Avant in writing about any claim during that period. It follows that there was no “Claim” within the meaning of the Policy and therefore any liability Mr Blackstock has to Ms Burnie is not “an insured claim” within the meaning of s 4 of the Third Party Claims Act. By the time the claim was made, Mr Blackstock no longer held indemnity insurance with Avant.
20 There is no real dispute about any of that analysis. Although it was not framed in this way, Ms Burnie’s case rests on establishing the existence of an extension of indemnity in the circumstances of this case. She seeks to do so by relying on the evidence to which we have referred that, during the period of the first policy, she complained to Mr Blackstock’s staff about the outcome of the surgery. It is convenient to assume, without deciding, that the evidence on that issue establishes that Mr Blackstock was aware during the period of the first policy of facts that might give rise to a claim by Ms Burnie. Even on that assumption, we are of the view that the argument must fail.
21 The argument invokes the following clause in the PDS:
Notification of a Claim
You must notify Us in writing as soon as practicable of any Claim against You.
Section 40(3) of the Insurance Contracts Act 1984 (Cth) provides that where You give notice to Us of facts that might give rise to a Claim as soon as was reasonably practicable after You become aware of those facts but before the Policy Period expires, You are covered for any Claim made against You arising from those facts even if it is not made against You until after the Policy Period has expired.
22 That statement in the PDS explains the effect of a requirement of clause 17 of the Policy Wording. Clause 17 appears under the heading “Conduct of Claims and Requests for Indemnity” and relevantly provides:
“17.2 You must notify Us of a Claim
17.2.1 You must notify Us in writing as soon as practicable of any Claim.
17.2.2 If You do not notify Us of a Claim as soon as practicable, You may not be covered under this Policy and Your right to indemnity may be prejudiced.
...
17.3.1 You must notify Us in writing as soon as practicable of any civil or criminal action, prosecution, enquiry, inquest, investigation or Complaint, judgment, appeal or tax audit ... directly relating Your practice as a Healthcare Professional.”
23 The Policy Wording also specifies a number of exclusions in cll 14-16 of which the following are relevant to Ms Burnie’s argument in at least explaining why she did not seek to rely upon the second policy:
“16.1 Prior or Pending Claim or circumstances
Any Claim or circumstances which might give rise to a Complaint or Request for Indemnity, which:
(a) You knew about or a person in Your position ought reasonably have thought might result in a Claim or allegation being made against You; or
(b) You notified Us, or failed to notify Us, of before the Policy Period commenced; or
(c) You notified or ought reasonably to have notified to another insurer before the Policy Period commenced.”
24 Those exclusions are subject to Clause 17.4 of the Policy Wording, which provides:
“Continuous Cover
Where You, prior to the Policy Period, first became aware of facts or circumstances that might give rise to a Claim or Request for Indemnity and You decide not to notify Us of these facts or circumstances, then, notwithstanding clause 16.1, We will cover You where:
(a) We continued without interruption to be Your professional indemnity insurer from the time You knew and ought to have known of the facts and circumstances that might give rise to a Claim or Request for Indemnity to the date You actually notified Us;
(b) Had You decided to notify Us when You first became aware of the facts and circumstances, You would have been covered under the policy in force at that time; and
(c) Your decision not to notify Us when You first became aware of the facts or circumstance was not fraudulent non-disclosure or fraudulent misrepresentation.
Our liability to indemnify You is limited to the extent We would have been obliged to indemnify You under the terms and conditions of the policy in effect at the time You knew or ought to have known of the facts or circumstances that might give rise to a Claim or Request or Indemnity.
If We are obliged to indemnify You pursuant to this clause, We may reduce Our liability to You by the amount of any prejudice We suffer as a result of Your decision not to notify Us at the time You knew or ought to have known of the facts or circumstances that might give rise to a Claim or Request for Indemnity.”
25 Ms Burnie contends that the effect of those provisions and the operation of the Insurance Contracts Act 1984 (Cth) is that the policy was a “discovery” policy rather than a “claims made and notified” policy. In FAI at [23], the High Court used that label (while at the same time noting that the use of such labels “may obscure more than it illuminates”) to describe a policy in which “the critical facts under the contract are the insured's discovery of the making of a claim on it or its discovery (its “becom[ing] aware”) of an occurrence which may give rise to a claim”.
26 This is a case in which the label obscures more than it illuminates. Ms Burnie contends that the first policy was a discovery policy because of the operation of the Continuous Cover clause. The argument is that, if (as we are prepared to assume) Mr Blackstock became aware during the period of the first policy of facts that might give rise to Ms Burnie’s claim, and had he at any stage up until Avant cancelled the second policy, notified Avant of those facts, he would have been entitled to indemnity in accordance with the Continuous Cover clause. The argument acknowledges that one of the requirements of that clause is that Avant continued without interruption to be Mr Blackstock’s professional indemnity insurer from the date of discovery to “the date you actually notify us” (which never happened). However, Ms Burnie submits that s 54 of the Insurance Contracts Act saves Mr Blackstock from his failure to notify Avant of the facts of which he became aware.
27 Section 54(1) of the Insurance Contracts Act provides:
“Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.”
By subs (6)(a) a reference to an act includes a reference to an omission.
28 The argument was first framed by reference to the wording of the PDS (which, as already noted, forms part of the contract). Ms Burnie submitted:
“the explanatory introduction to the 2017 policy indicates that facts that might give rise to a Claim ought to be notified to Avant as soon as was reasonably practicable as soon as the insured becomes aware of those facts (emphasis added). If this is done the insured will be covered by the policy even if a claim is not notified until after the policy period has expired.”
29 The argument proceeded on the basis that the statement in the PDS set out above was a contractual term requiring the insured person to give Avant notice of facts that might give rise to a claim as soon as reasonably practicable after becoming aware of those facts. That is simply not what the words say. Nor is there any such obligation in the formal policy wording, the relevant provisions of which are also set out above.
30 The first sentence in the extract from the PDS explains a requirement that the insured person give Avant notice of any claim as soon as reasonably practicable. As already noted, that requirement is found in cl 17 of the formal policy wording. There is no equivalent requirement of notification of facts that might give rise to a claim. The balance of the statement in the PDS explains the effect of s 40(3) of the Insurance Contracts Act, which is a statutory obligation imposed on the insurer under s 40(2) of the Act.
31 Section 40 implemented one of the recommendations of the report of the Australian Law Reform Commission (“ALRC”): Insurance Contracts (Report No 20, 1982). In its summary of recommendations at par 48, p xxxiv, the ALRC said:
“Some forms of liability insurance (e.g. professional indemnity insurance) apply to claims made against the insured within the period of cover rather than to events which occurred within that period. In some cases, the contract also covers claims made after the period of insurance provided they arise out of an occurrence notified to the insurer within the period of cover. Legislation should make additional cover of this type mandatory. In addition, the insurer should be required clearly to advise the insured of this additional benefit.”
32 Section 40 gave effect to that recommendation, providing:
“Certain contracts of liability insurance
(1) This section applies in relation to a contract of liability insurance the effect of which is that the insurer's liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract.
(2) The insurer shall, before the contract is entered into:
(a) clearly inform the insured in writing of the effect of subsection (3); and
(b) if the contract does not provide insurance cover in relation to events that occurred before the contract was entered into, clearly inform the insured in writing that the contract does not provide such cover.
Penalty: 300 penalty units.
(3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.”
33 The clear purpose of the section is to extend the cover of a certain kind of policy in certain circumstances. That is confirmed by the words “additional benefit” in the extract from the ALRC Report set out above (to which it is permissible to have regard in accordance with s 15AB of the Acts Interpretation Act 1901 (Cth)). This statutory extension of the cover provided for in the contract is predicated on the giving of notice, during the period of cover, of facts that might give rise to a claim (in lieu of giving notice of a claim not yet made). However, the section does not impose a contractual obligation to give such notice. It simply provides an additional benefit or extension of indemnity to a person who does so. The inclusion in the PDS of an explanation of the effect of that provision does not thereby impose an additional contractual obligation.
34 The purpose of presenting the argument as it was, premised on there being an obligation on Mr Blackstock to notify Avant of the facts that became known to him that might give rise to a claim, appears to have been to invoke the benefit of s 54 of the Insurance Contracts Act.
35 Ms Burnie submits that the effect of the Continuous Cover clause was to provide a “second trigger which would trigger the policy if facts and circumstances were notified”. She notes that the primary judge found that those facts and circumstances were not notified to Avant and submits “therefore s 54 kicks in”.
36 The argument proceeds on the premise that, although no claim was made by Ms Burnie against Mr Blackstock during the currency of the policy, there was a contractual obligation on Mr Blackstock to notify Avant of facts that might give rise to a claim and that Mr Blackstock’s failure to notify Avant of those facts was an omission to which s 54 of the Insurance Contracts Act applied.. For the reasons already given, we do not accept that there was such a contractual obligation. Accordingly, in the language of s 54, this is not a case in which “but for [section 54]”, Avant may refuse to pay Mr Blackstock’s claim. The simple position is that there is no claim by Mr Blackstock for Avant to refuse to pay.
37 Contrary to a submission put by Ms Burnie, the result is not that there is no work for s 54 to do. As observed by Emmett AJA during the hearing, if a claim was made at the beginning of the policy period and the doctor waited until the end of the period before notifying Avant, Avant might seek to disclaim liability on the basis of a breach of the obligation to notify as soon as practicable. In that event, the insured could invoke s 54. The result would be that any loss suffered by reason of the delay would reduce Avant’s liability. But there can be no liability in the absence of any notification at all. Otherwise the insurer’s provisioning for future liabilities would be hostage to what lay in the minds of its insured.
38 In light of the conclusion we have reached on this issue, it is not necessary to determine Avant’s challenge to the primary judge’s conclusion concerning the second element, whether the evidence established the reasonable possibility that Mr Blackstock would be unable to meet any judgment against him.
39 For those reasons, we agree with the orders proposed by Emmett AJA.
40 EMMETT AJA:
Introduction
The issue in these proceedings is whether Mr Leslie Blackstock (Mr Blackstock) has a liability to Ms Tara Burnie (the Plaintiff) that is an insured liability under a contract of insurance entered into between Mr Blackstock and Avant Insurance Limited (Avant Insurance). The Plaintiff claims that Mr Blackstock has a liability to her for damages and she seeks to recover the amount of that claimed liability from Avant Insurance. The issue arises in the context of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the Third Party Claims Act).
Procedural Context
41 The Plaintiff commenced proceedings in the District Court of New South Wales against Mr Blackstock claiming damages on the basis that Mr Blackstock breached a duty of care owed to her by failing to treat her with due care and skill when carrying out a procedure for breast augmentation on 27 October 2016 (the Procedure) and that that breach resulted in loss or damage. By notice of motion filed on 17 October 2018 (the Joinder Motion), the Plaintiff sought leave under the Third Party Claims Act to join Avant Insurance as a defendant in those proceedings. On 14 August 2020, a judge of the District Court (the primary judge) granted the Plaintiff leave to file an amended statement of claim joining Avant Insurance as the second defendant in the proceedings (the Amended Statement of Claim).
42 By the Amended Statement of Claim, the Plaintiff alleges that, at all material times, Avant Insurance was the insurer of Mr Blackstock and that Avant Insurance is joined pursuant to s 4 of the Third Party Claims Act. No other allegation is made against Avant Insurance as the basis for liability of Avant Insurance to the Plaintiff. Specifically, the Amended Statement of Claim does not specify the basis upon which it is alleged that Avant Insurance was the insurer of Mr Blackstock or is liable to indemnify Mr Blackstock in respect of any liability that he may have to the Plaintiff.
43 Avant Insurance now seeks leave to appeal from the order made by the primary judge on 14 August 2020. Leave is necessary because the orders made by the primary judge were interlocutory. A direction has been given that the application for leave and the appeal if leave be granted be heard concurrently.
44 Mr Blackstock is a party to the application for leave to appeal to this Court but has not appeared. However, he has been notified of Avant Insurance’s application for leave to appeal and his solicitor has informed the solicitors for Avant Insurance that he has no interest in the appeal, does not want to take part in the appeal and does not want to make any submissions in relation to the appeal either in person or remotely.
The Relevant Insurance Contracts
45 It is common ground that, as at 27 October 2016, Avant Insurance and Mr Blackstock were parties to a contract of insurance (the First Policy) that provided indemnity for the period 1 July 2016 to 30 June 2017 (the First Policy Period). A further contract of insurance (the Second Policy) was entered into between Avant Insurance and Mr Blackstock for the period 1 July 2017 to 30 June 2018 (the Second Policy Period). The terms of the Second Policy were varied on 18 April 2018 in respects that are not presently relevant. However, on 26 April 2018, Avant Insurance notified Mr Blackstock in writing that, by reason of failure by Mr Blackstock to pay an “outstanding deductible debt”, the insurance under the Second Policy ceased as of 11.59 pm on 24 April 2018.
46 The Amended Statement of Claim makes no reference to either the First Policy or the Second Policy (together the Policies). Further, in her reasons, the primary judge, did not distinguish between the Policies. However, on the hearing of the application for leave to appeal to this Court, it became apparent that the Plaintiff contends that Avant Insurance is liable to indemnify Mr Blackstock under the First Policy. Accordingly, it is unnecessary to deal in detail with the language of the Second Policy. In any event, the language of the Second Policy is not relevantly different from the language of the First Policy.
47 It appears that the First Policy became operative upon the acceptance by Mr Blackstock of an invitation to renew his “membership” with Avant Mutual Group Limited (Avant Mutual) and his insurance with Avant Insurance. The invitation was given in a document dated 26 May 2016 that was sent to Mr Blackstock by Avant Mutual and Avant Insurance (the Renewal Notice). The part played by Avant Mutual in any insurance is unclear. In any event, it does not appear to be material.
The Renewal Notice
48 The Renewal Notice appears to have consisted of nine pages although only pages 4 to 9 were in evidence. Pages 4 and 5 were headed “Renewal Notice and Tax Invoice”. Page 6 was headed “Acceptance Conditions” and pages 7 and 8 were headed “Policy Schedule”. Page 9 was blank. Page 4 of the Renewal Notice relevantly provided as follows:
“This is your invitation to renew your membership with Avant Mutual Group Limited (Avant) and your insurance with Avant Insurance Limited (Avant Insurance).
What you need to do to renew:
Please read the enclosed documents which include your Renewal Notice and Policy Schedule, our Practitioner Indemnity Insurance Policy with the Product Disclosure Statement, and the Category of Practice Guide.”
49 Details of Mr Blackstock’s name, the First Policy Period, the State where he practises, the category of his practice and the amount of his billings were set out on page 4. A “Payment summary” then followed showing the total amount payable for “membership and insurance”. Page 5 contained further details of the calculation of the amount payable after a deduction in respect of “premium support scheme (PPS) payment”.
50 The Renewal Notice contained the following statement on page 5:
“This is your notice for the renewal of your membership with Avant and your insurance with Avant Insurance. ... This is also your Tax Invoice and Policy Schedule once payment has been received.
...
This offer is based on information you have previously provided to us and is valid for 30 days from the due date.”
Under the heading “Acceptance Conditions” on page 5, the Renewal Notice relevantly stated as follows:
“It is important that you inform us of any changes to the details currently listed in your Renewal Notice or Policy Schedule.
If you do not advise us that you require any changes to your cover or if you pay the premium (if any) in full or in part, we will regard that as confirmation that you:
(a) accept this offer of renewal and the offer of retroactive cover set out in the Policy and Policy Schedule ...
(b) declare the Retroactive Dates specified on your Policy Schedule will cover all your prior uncovered incidents;
(c) have provided complete, true and correct information ...
(d) understand that you have a duty under the Insurance Contracts Act that means that before you renew your Policy you must disclose to us every matter that you know or could reasonably be expected to know that is relevant to our decision to accept your Policy ...
(e) have read and understood the PDS, Policy Wording, Category of Practice Guide, Policy Schedule, Renewal Notice and understand that the contract of insurance will be subject to the terms, conditions and exclusions of the Policy or as otherwise specifically varied by us and agreed to by you.
...”
51 Under the heading “Policy Schedule” on pages 7 and 8, the Renewal Notice specified the following matters:
Mr Blackstock was named as “Insured”, the “Policy Period” was from 1 July 2016 to 30 June 2017, the “Retroactive Date” was 14 September 2006, the “Date Issued” was 26 May 2016 and the “Policy Wording” was “Version 4.1 1 July 2015”.
The Policy Document
52 Attached to the Renewal Notice was a further document of some 42 pages (the Policy Document). The cover page of the Policy Document said:
“Practitioner Indemnity Insurance Policy
Product Disclosure Statement”.
A table of contents at pages 1 to 2 stated that the Policy Document included the following:
The Product Disclosure Statement (the Product Disclosure Statement) followed at pages 3 to 12.
The Product Disclosure Statement
53 At pages 7 to 12, the Product Disclosure Statement contained, relevantly, the following under the heading “How Your insurance works”:
“‘Claims made and notified’ policy
Part A of the Policy operates on a ‘claims made and notified basis’. This means that you need a current insurance policy to protect yourself against claims made by patients and other third parties at the time the claim is made rather than when the incident leading to the claim occurred.
Part A covers You for Claims of compensation (including Legal Defence Costs) first made against You and which You notified to Us within the Policy Period when the Healthcare or Unpaid Healthcare giving rise to the Claim occurred after the Retroactive Date.
...
This Policy does not provide cover in relation to:
...
- Claims against You, or facts that may result in claims against You, notified to Us after the end of the Policy Period; or
...
Notification of a Claim
You must notify Us in writing as soon as practicable of any Claim against You.
Section 40(3) of the Insurance Contracts Act 1984 (Cth) provides that where You give notice to Us of facts that might give rise to a Claim as soon as was reasonably practicable after You become aware of those facts but before the Policy Period expires, You are covered for any Claim made against You arising from those facts even if it is not made against You until after the Policy Period has expired.
...
Your Policy
“When We accept Your application and You pay Your Premium, We will issue You with a Policy. The Policy comprises this PDS (and the documents that form part of it) and any supplementary PDS We have provided to You, the Policy Wording and Your Policy Schedule.
...
Your Policy Schedule is Our confirmation to You that We have accepted Your insurance application. It sets out any special conditions which may apply to You, Your Policy Period, personal details, Your professional practice details, sums insured, sub-limits, Deductibles, Retroactive Date and any optional covers.
...
Premium Support Scheme
Premium Support Scheme (PSS) is a Commonwealth Government scheme which assists eligible Medical Practitioners with the cost of their medical indemnity insurance. We have entered into an agreement with the Department of Health and Ageing and Medicare Australia to administer the scheme on the Government’s behalf. Participation in the PSS is optional. Please refer to the PSS terms and conditions booklet for the full details of the scheme. This booklet forms part of this PDS.”
The material under the heading “Notification of Claim” (the Notification Provision) is of significance for reasons that will become apparent below.
54 At pages 13 to 40, the “Policy Wording” followed. Page 13 dealt with the “Sum insured” and specified the amount of cover under Part A, Part B and Part C. Part A was cover for “Your civil liability”, Part B was cover for “Legal fees and other expenses” and Part C dealt with “Additional cover”.
55 The following then appeared on page 14:
“Introduction
...
Below is your policy wording and, in consideration of the premium, sets out what we will cover you for, what we won’t cover you for and the other conditions. Some of the words in this policy have a special meaning and these can be found in the Definitions section. ....
How much We will pay:
(a) The most We will pay for any one Claim or Request for Indemnity under this Policy, and in the aggregate for all Claims and requests for indemnity during the Policy Period is the maximum sum insured listed on Your Policy Schedule. ...
(b) Any sub-limit that applies to a cover is the most We will pay against that cover for any one Claim or Request for Indemnity and in the aggregate of all Claims or Requests for Indemnity during the Policy Period for that cover. ...”.
56 The Policy Wording contained the following provisions under the heading “Conduct of Claims and Requests for Indemnity”:
“17.2 You must notify Us of a Claim.
7.2.1 You must notify Us in writing as soon as practicable of any Claim.
7.2.1 If You do not notify Us of a Claim as soon as practicable, You may not be covered under this Policy and Your right to indemnity may be prejudiced.
...
17.4 Continuous cover
Where You, prior to the Policy Period, first become aware of facts or circumstances that might give rise to a Claim or Request for Indemnity and You decide not to notify Us of these facts or circumstances, then, notwithstanding clause 6.1, We will cover You where:
(a) We continued without interruption to be Your professional indemnity insurer from the time You knew or ought to have known of the facts and circumstances that might give rise to a Claim or Request for Indemnity to the date You actually notified Us;
(b) had You decided to notify Us when You first became aware of the facts or circumstances, You would have been covered under the policy in force at that time; and
(c) Your decision not to notify Us when You first became aware of the facts or circumstances was not fraudulent non-disclosure or fraudulent misrepresentation.
Our liability to indemnify You is limited to the extent We would have been obliged to indemnify You under the terms and conditions of the policy in effect at the time You knew or ought to have known of facts and circumstances that might give rise to a Claim or Request for Indemnity.
If We are obliged to indemnify You pursuant to this clause, We may reduce Our liability to You by the amount of any prejudice We suffer as a result of Your decision not to notify Us at the time You knew or ought to have known of the facts or circumstances that might give rise to a Claim or Request for Indemnity.”
Clause 17.4 (the Continuous Cover Clause) is of some significance, as will appear below.
57 Clause 14 on pages 24 and 25 of the Policy Wording dealt with “Exclusions” that apply to “Part A – Cover for your civil liability”. There was no cover for any claim that arises out of or in connection with some 11 separate circumstances identified in the “Exclusions”. None of those is presently relevant.
58 The Policy Wording contained definitions as follows:
“19.2 Claim
A demand for compensation or damages in relation to Healthcare or Unpaid Healthcare which:
(a) is first made against You during the Policy Period; and
(b) You tell Us about in writing during the Policy Period.
...
19.9 Healthcare
Means:
(a) any care, treatment, advice, service or goods provided by You in respect of the physical or mental health of a patient;
(b) a medical examination, medical report or medical opinion prepared by You at the request of a third party, such as a Lawyer, insurer or statutory body;
(c) You providing education, giving a paid presentation or address or providing medical advice or information that is published, including in a newspaper, textbook, journal, video, mobile application or weblog;
(d) any care, treatment, advice, service or goods provided by You to a person in an emergency that is necessary to stabilise that person or to prepare that person for transfer; or
(e) You acting in an administrative capacity,
in relation to (a), (b), (c), and (e) above only to the extent that it is associated with Your Category of Practice.
...
19.19 Policy
This PDS, Practitioner Indemnity Insurance Policy and the Policy Schedule.
19.20 Policy Period
The period of cover specified in Your current Policy Schedule.
19.21 Policy Schedule
The current schedule to this Policy.
...
19.32 Us, We, Our
Avant Insurance Limited ABN 82 003 707 471 AFS Licence 238765.
19.33 You, Your
The Healthcare Professional named as the Insured on the Policy Schedule and, if that Insured is a Sole Trader, that Insured’s Practice Entity.”
The Third Party Claims Act
59 Section 4 of the Third Party Claims Act relevantly provides that, if an insured person has an insured liability to a person (the claimant), the claimant may, subject to the Act, recover the amount of the insured liability from the insurer in proceedings before a court. An insured person is, relevantly, a person who is, in respect of a liability to a third party, entitled to indemnity pursuant to the terms of a contract of insurance. An insured liability is a liability to pay damages, compensation or costs in respect of which an insured person is entitled to be indemnified by an insurer. In proceedings brought by a claimant against an insurer under s 4, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly, but subject to the Act, the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person.
60 However, under s 5 of the Third Party Claims Act, proceedings may not be brought or continued against an insurer under s 4 except by leave of the court in which the proceedings are to be or have been commenced. Section 5 provides that leave must be refused if the insurer can establish that it is entitled to disclaim liability under the contract of insurance or under any act or law.
61 The first question that arises under the Third Party Claims Act is whether the defendant in the proceedings has a liability to the claimant. On the hearing of the Joinder Motion, the primary judge accepted that, before leave could be granted under s 5 of the Third Party Claims Act, it must be established that the Plaintiff has an arguable case of liability against Mr Blackstock. Avant Insurance accepts that that requirement is satisfied in the present case.
62 The second question that arises under the Third Party Claims Act is whether the defendant is entitled to be indemnified by the insurer in respect of the liability owed to the claimant by the insured. The question of whether the insurer is entitled to disclaim liability is part of that question. The primary judge formulated the question as being whether there is an arguable case that either of the Policies responds to the Plaintiff’s claim against Mr Blackstock. Her Honour recorded Avant Insurance’s position as being that there was no such arguable case and that it was entitled to disclaim liability under each of the Policies.
63 Avant Insurance’s contention to the primary judge was that neither of the Policies responds so as to indemnify Mr Blackstock for his potential liability to the Plaintiff because no notification was given to Avant Insurance, during the First Policy Period or the Second Policy Period, of a claim by the Plaintiff or of facts or circumstances that might give rise to a claim by the Plaintiff. The primary judge observed that the basis for Avant Insurance’s submission was the wording of the Policies and their characterisation by Avant Insurance as “claims made and notified policies”.
64 The Plaintiff accepts that Avant Insurance was not notified during the First Policy Period or the Second Policy Period of a “Claim” within the meaning of either of the Policies or of facts or circumstances that might give rise to a Claim or Request for Indemnity under either of the Policies. Thus, there was unchallenged evidence on behalf of Avant Insurance that:
In addition, it is accepted by the Plaintiff that Mr Blackstock is not insured by Avant Insurance in respect of claims made against him that he has not notified and that were not made during either the First Policy Period or the Second Policy Period.
Characterisation of Contracts of Insurance
65 Contracts of insurance or insurance policies affording indemnity liability to third parties may be characterised in several ways. Thus, an “Occurrence Based” policy provides indemnity in respect of claims arising out of events that occur during the period of insurance of the policy. A “Claims Made” policy provides indemnity in respect of claims that are made during the period of insurance of the policy, irrespective of when the events giving rise to the claim takes place. A “Claims Made and Notified” policy provides indemnity in respect of claims that are both made and notified to the insurer during the period of insurance of the policy, irrespective of when the events giving rise to the claim takes place.
66 A “Claims Made” policy or a “Claims Made and Notified” policy might also contain a provision that enables the insured, during the period of insurance of the policy, to notify to the insurer facts or circumstances that might give rise to a claim by a third party. If the insured gives such a notification, indemnity is afforded by the policy in respect of a claim that arises from the facts or circumstances so notified, even if the claim is made after the expiry of the period of insurance of the policy. A policy of that character might be characterised as a “Discovery” policy.[1] Thus, a “Discovery” policy is a policy that contains a provision to the following effect (a deeming clause):[2]
“If during the subsistence hereof the Insured shall become aware of any occurrence which may subsequently give rise to a claim against him or them for breach of professional duty by reason of any negligence, whether by way of act, error or omission and shall during the subsistence hereof give written notice to the [insurer] of such occurrence, then any such claim which may subsequently be made against the Insured arising out of such negligence shall for the purposes of this Policy be deemed to have been made during the subsistence hereof.”
Where notification of the relevant occurrence is made during the policy period, such a provision functions to deem a claim in respect of the occurrence to have been made during the policy period notwithstanding that it is made after the policy period has expired.[3]
67 The Plaintiff’s contentions relied on the operation s 54 of the Insurance Contracts Act 1984 (Cth) (the Insurance Contracts Act). As will be seen, the operation of s 40 may also be relevant. It is therefore necessary to say something about each of those provisions.
68 Section 40 applies, relevantly, in relation to a contract of liability insurance the effect of which is that the insurer’s liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract. Section 40(2) provides that an insurer must, before a contract of insurance is entered into, clearly inform the insured in writing of the effect of s 40(3). Section 40(3) relatively provides that, where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract. Since it is common ground that Mr Blackstock did not give any notice to Avant Insurance of facts that might give rise to a claim by the Plaintiff against him, s 40(3) has no direct application in the present circumstances.
69 Section 54 of the Insurance Contracts Act relevantly provides that, where the effect of a contract of insurance would, but for s 54, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act or omission of the insured or of some other person, being an act or omission that occurred after the contract was entered into, the insurer may not refuse to pay the claim by reason only of that act or omission. Rather, in those circumstances, the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act or omission.
70 The elements with which s 54 deals are as follows:
Section 54 directs attention to the effect of the contract of insurance on the claim on the insurer that the insured has in fact made. It is not concerned with some other claim that the insured might have made at some other time or in respect of some other event or circumstance. Even if the fact that the third party made no claim on the insured within the period of cover was said to be an omission, it is important to recognise that the claim to which s 54 refers is the claim that was actually made by the insured on the insurer. It is not a claim for indemnity against some other claim.[4]
71 The restrictions that are inherent within a claim vary according to the type of insurance in issue. Under a “Claims Made and Notified” policy, if no claim is made by a third party upon Mr Blackstock during the period of insurance, any claim that may subsequently be made by Mr Blackstock on Avant Insurance, being the claim to which s 54 refers, would necessarily acknowledge that indemnity is sought in relation to a claim of a type not covered by the policy, because it was not within the temporal limits that identify those claims in relation to which indemnity is to be given.[5]
72 “Claims Made and Notified” policies are sufficiently common for the peculiarities of that type of insurance not to be ignored. It is a type of insurance that has distinct advantages from the point of view of both insurers and insured. Because such types of policies permit a more accurate forecast of the insurer’s risk exposure, there will be a lower premium reflecting the deletion of the insurer’s liability to “long-tail” risks. The insured therefore derives a benefit from a lower premium.[6]
73 A professional indemnity policy may indemnify the insured against a claim made after the expiration of the period of insurance where the insured gives to the insurer during the period of insurance notice of the facts or circumstances that subsequently give rise to that claim. In those circumstances, s 54 may operate to “cure” an omission to notify of the occurrence during the period of insurance.[7]
Reasoning of the Primary Judge
74 The primary judge considered that the Plaintiff’s contention that s 54 of the Insurance Contracts Act operates to prevent Avant Insurance from disclaiming liability under each of the Policies, based on the failure of Mr Blackstock to notify Avant Insurance of facts and circumstances that may give rise to a claim, would require an evaluation of Mr Blackstock’s actual or imputed knowledge. Her Honour said that, on the evidence, there had been a complaint by the Plaintiff to Mr Blackstock’s clinic, an email from him to the Plaintiff indicating that he was at the very least aware of claims being made against him by patients and a subpoena issued to him relating to the Plaintiff. Her Honour considered that all, or any one, of those facts could indicate that Mr Blackstock may well have been aware of facts and circumstances that may have given rise to a claim being made on behalf of the Plaintiff. Her Honour considered that the existence of unresolved questions of fact as to that matter demonstrated that there was an arguable case that the Policies will respond to any liability of Mr Blackstock to the Plaintiff. Her Honour concluded that there was a real possibility that, if Mr Blackstock knew or ought to have known about the circumstances giving rise to the Plaintiff’s claim, the First Policy would respond to that liability, albeit possibly in a reduced manner.
75 Significantly, that analysis was predicated upon the primary judge’s construction of the effect of the terms of the Policies. Her Honour considered that the effect of the reference to, and near verbatim inclusion of, s 40(3) in the Product Disclosure Statement[8] indicated that, had Mr Blackstock notified Avant in writing when he became aware of facts that might have given rise to the claim made by the Plaintiff during the First Policy Period, then regardless of the time when the Plaintiff made the claim, Mr Blackstock would have been entitled to indemnity from Avant. Her Honour then set out cl 17.4, the Continuous Cover Clause, and concluded that the effect of those provisions was that, if Mr Blackstock had become aware of facts and circumstances that may have given rise to the Plaintiff’s claim and had, at any time within either the First Policy Period or the Second Policy Period, notified Avant of those facts and circumstances, he would have been entitled to indemnity, subject to the terms set out in paragraphs (a) to (c) of the Continuous Cover Clause and any reduction that Avant Insurance applied to the liability based on any prejudice that it may have suffered.
76 The primary judge’s analysis construed the reference to s 40(3) and the content of the Continuous Cover Clause as supporting the existence of a contractual “Discovery clause” as opposed to merely looking to the effect of s 40(3) of the Insurance Contracts Act. Thus, the relevant act (or omission) on the part of Mr Blackstock was identified as the failure to notify Avant insurance of the facts and circumstances that may have given rise to the Plaintiff’s claim. Her Honour considered that the omission was one to which s 54(1) could apply.
Characterisation of the Policies
77 The Plaintiff’s position was that, on their proper construction, each of the Policies was a “Discovery” policy rather than a “Claims Made and Notified” policy. While there is no equivalent of a deeming clause in either of the Policies, the Plaintiff contended that certain provisions of the Policies caused them, in effect, to be “Discovery” policies rather than “Claims Made and Notified” policies. Avant Insurance disputed the characterisation of the Policies as “Discovery” policies, contending that, properly construed, each of them was a “Claims Made and Notified” policy.
78 The question of whether the Policies can fairly be characterised as “Discovery” policies in the sense indicated is significant because s 54 cannot operate to resolve a failure to satisfy s 40(3). If the Policies are to be characterised as “Discovery” policies only by the operation of s 40(3) rather than by reason of the actual contractual terms of the Policies, s 54 can have no relevant operation.
79 The essence of the cover under each of the Policies is that, during the relevant Policy Period, there must be a notification to Avant Insurance of a Claim or of facts or circumstances that might give rise to a Claim or Request for Indemnity in respect of such facts or circumstances. That is a necessary prerequisite for any entitlement to indemnity. For the reasons that follow, the Policies are not “Discovery” policies. Rather, they are properly to be characterised as “Claims Made and Notified” policies. Any “Discovery” element was derived entirely from the statutory operation of s 40(3).
80 The primary judge relied upon two provisions of the Policies, namely, the Notification Provision and the Continuous Cover Clause, as establishing that as a matter of contract, each of the Policies was a “Discovery” policy. However, her Honour did not indicate whether the relevant omission of Mr Blackstock, for the purposes of s 54, was a failure to notify under the Notification Provision, or omission to notify under the Continuous Cover Clause. Nor was the particular policy identified to which the relevant omission was said to relate. Rather, her Honour said:[9]
“The effect of the first, second and second revised policies was that if the defendant was aware of facts and circumstances that may have given rise to the plaintiff’s claim and he failed [to] notify Avant of those facts and circumstances, the insurer might have refused (and has in fact refused) to provide the defendant with indemnity. Due to the defendant’s omission to notify Avant within the policy periods, but for s 54(1) of the [Insurance Contracts Act], the insurer might refuse indemnity for the absence of a claim within the period of cover. This is certainly one kind of claim envisioned by s 54 of the [Insurance Contracts Act]... [which] ‘operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim’.” (citations omitted)
81 If the Notification Provision was a contractual provision amenable to the operation of s 54, the relevant relief would be in respect of refusal to provide indemnity under the First Policy. The relevant omission would be a failure to notify of facts and circumstances as contemplated by the Notification Provision. For that purpose, the Continuous Cover Clause is not relevant because it only concerns facts and circumstances arising under a previous policy period. If Mr Blackstock was said to have become aware, during the First Policy Period, of the relevant facts and circumstances, the Continuous Cover Clause was not applicable at that point because the awareness had not emerged “before the policy period”. To the extent that the Plaintiff’s application is in respect of a claim under the First Policy, only the Notification Provision is directly relevant.
The Notification Provision
82 Although the Notification Provision, being in the Product Disclosure Statement, formed a part of the First Policy, the reference to s 40(3) does not rise beyond a mere allusion to the legislative effect of the Insurance Contracts Act. It does not have contractual effect in its own right. Only the first component of the Notification Provision is expressed in mandatory language, which refers to notification of a claim made against the insured. In contrast, the balance of the Notification Provision merely states the effect of s 40(3) by reference to the parties to the contract of insurance. It is not worded so as to indicate the creation of a further contractual right. Further, while the Notification Provision does not fully extract the requirements of s 40(3), its language suggests only that the insured is able to receive cover in accordance with the terms of s 40(3).
83 The terms of s 40(3) are important. To satisfy s 40(3), an insured must provide notice in writing to the insurer. It would be curious if the Notification Provision were construed as not merely constituting a signpost to s 40(3) but as incorporating a new “discovery” term into the First Policy, modified so as to exclude the requirement of writing. The purpose of the Notification Provision is to draw the attention of the insured to the effect of s 40(3), which provides an independent set of rights and obligations arising by force of the statute rather than out of the contract itself. The absence of subsequent reference to notification of facts and circumstances and how notice of the same is to be effected under the terms of the First Policy, in contrast to the prescriptive notice requirements for claims, indicates a tacit recognition that what is referred to is merely those rights and obligations that are conferred by the Insurance Contracts Act.
84 The terms of s 40(2) reinforce that conclusion. Section 40(3) applies to both “Claims Made and Notified” policies and “Claims Made” policies,[10] and s 40(2) at the least applies to “Claims Made and Notified” policies.[11] Avant Insurance contends each of the Policies should be characterised as a “Claims Made and Notified” policy. Thus, for “Claims Made and Notified” policies, s 40(2)(a) requires the insurer to inform the insured clearly in writing of the effect of s 40(3). The inclusion of the reference to s 40(3) in the Notification Provision merely reflects compliance by Avant Insurance with its obligation under s 40(2)(a), rather than a contractual term. In that context, it is unsurprising that there is no provision for coverage for facts and circumstances provided as part of the terms of the Policies.
85 For those reasons, the reference in the Notification Provision to s 40(3) should not be construed as creating a contractual “Discovery” clause. It merely draws attention to the rights and obligations arising under the Insurance Contracts Act, as Avant Insurance was required to do. To the extent that the primary judge considered that the Notification Provision created a contract for a “Discovery” policy, her Honour erred.
The Continuous Cover Clause
86 It is not clear whether the primary judge considered that the Continuous Cover Clause provided a separate basis for characterising the Policies as “Discovery” policies with contractual provisions equivalent to s 40(3) or simply referred to it in aid of construction of the Notification Provision. To the extent that the Plaintiff’s claim was based only on the First Policy, the relevance of the Continuous Cover Clause is limited. It appears that the Plaintiff submitted that the Continuous Cover Clause provided evidence of recognition that the First Policy provided indemnity in respect of facts and circumstances notified as a matter of contractual effect.
87 The Continuous Cover Clause concerns a person who, before the policy period, became aware of facts and circumstances that might give rise to a claim but who decided not to notify Avant Insurance. It provides that, notwithstanding an exclusion clause that is not presently relevant, Avant Insurance would provide indemnity if certain conditions were met and the insured notified Avant Insurance of the facts and circumstances during a subsequent policy period.
88 Properly construed, the Continuous Cover Clause grants additional rights to an insured who is loyal to Avant Insurance by entering into successive policies. For such an insured, assuming that the insured satisfies the specified requirements, a failure to notify facts and circumstances under a previous policy can be covered under a subsequent policy, such as the Second Policy, if the insured relevantly notifies Avant Insurance during the renewed policy period. The Continuous Cover Clause provides for a reduction of the liability of Avant Insurance to pay in a manner reflective of the scheme available under s 54.
89 The correct analysis of the Notification Provision indicates that the liability of Avant Insurance in respect of notification of facts and circumstances would not arise out of a term of the Policy, but from the operation of s 40(3) alone. For reasons indicated below, the “Discovery” effect of a “Claims Made and Notified” policy that arises solely by the operation of s 40(3) is not open to remedy by s 54. The purpose of the Continuous Cover Clause becomes clear in that context.
90 If the liability of Avant Insurance to provide indemnity in respect of facts and circumstances notified is a liability arising out of the Policy itself, then the Continuous Cover Clause would be partially redundant, in that the relief it provides would already be afforded under s 54. However, when one considers that the liability arises only on account of s 40(3), the Continuous Cover Clause meaningfully provides an extension of coverage of that statutory liability on the proviso that an insured remains continuously covered.
91 The Continuous Cover Clause is expressed to be subject to whether Avant Insurance would have been liable “under the terms and conditions” of a previous policy. In the light of the strong considerations weighing against reading the Notification Provision as creating a liability as a contractual term, without more, the words in the Continuous Cover Clause are alone insufficient to overcome that finding. Rather, the words in the Continuous Cover Clause should be read as referring to a liability arising out of the Policy, including liabilities incurred as a result of the operation of provisions such as s 40(3).
Application of s 54
92 Section 54 of the Insurance Contracts Act was the result of consideration by the Australian Law Reform Commission (the ALRC) of contractual obligations regularly contained in contracts of insurance to protect the interests that general insurers have both during the period of cover and after a loss has occurred. One such interest that general insurers have is to prevent the risk that has been assessed from increasing during the period of cover. Another such interest is to ensure that nothing is done to inhibit proper investigation and assessment of a claim. Both of those interests may be protected by provisions of the contract of insurance that either impose promissory obligations on the insured or exclude certain risks from the stipulated cover.[12] The former would be construed as a warranty. Such a warranty may be a promise that a certain state of affairs will continue to exist or that certain matters or events will or will not exist or occur during the currency of the insurance contract.
93 Such a warranty is a promissory or continuing warranty. An example of such a warranty is a promise by the insured in a householder’s policy of insurance that the dwelling will not be left uninhabited for more than a specified period of time in any one year. A similar warranty would be a promise by the insured to take all reasonable precautions for the safety and protection of the property. If such a warranty is breached, the insurer may be entitled to deny liability for a loss even if that loss occurred after the house became inhabited again. In some cases, the insurer may even be entitled to terminate the contract of insurance.[13]
94 Terminating the contract or declining the claim may impose heavy loss upon an insured in circumstances where the insurer suffers little or no prejudice as a result of the breach of the warranty by the insured. One solution to that problem would be to limit the right of termination or declinature to cases where the conduct of the insured caused or contributed to the relevant loss.
95 The ALRC concluded that the only satisfactory solution was a combination of two tests. Where the conduct of the insured might, in principle, have caused or contributed to a loss, a causal connection approach should be adopted. Where the conduct of the insured could not, in principle, have caused or contributed to the loss, the insurer should be limited to a right to damages, which should be assessed by reference to ordinary contractual principles. The ALRC considered the actual test should be stated in terms of prejudice to the insurer and damages should be measured by reference to the prejudice that the insurer has suffered as a consequence of the conduct of the insured and the right to damages should be exercisable only by way of reduction of a claim.[14]
96 Thus, s 54 was aimed at ameliorating the consequences for an insured of an act or omission by the insured in breach of a promissory warranty included in the contract to protect the interests of the insurer. The remedy of the insurer is limited. Rather than declining the claim or avoiding the contract, the liability of the insurer is reduced to compensate the insurer for the detriment resulting from the act or omission. The section was not aimed at rectifying the consequences of an act or omission by the insured that is detrimental to the insured. More particularly, it was not intended to have the effect of permitting an “omission” to make or notify a claim or to notify circumstances within the Policy Period to be excused. That would have the effect of altering the essential character of the cover provided under a “claims made and notified” contract of insurance such as the Policies. Section 54 does not contemplate an act or omission that would entail the failure to abide by the essential character and nature of the relevant contract of insurance.
97 If the Plaintiff had made a claim on Mr Blackstock during the Policy Period of the First Policy but, for whatever reason, Mr Blackstock did not notify Avant Insurance of the making of that claim until after the Policy Period ended, would be entitled to refuse to indemnify Mr Blackstock in respect of that claim by reason of the failure of Mr Blackstock to notify Avant Insurance of the fact of the claim. Similarly, if after the expiration of the Policy Period of the First Policy Mr Blackstock had made a claim on Avant Insurance for indemnity for an occurrence of which Mr Blackstock first became aware during the Policy Period of the First Policy, Avant Insurance would be entitled to refuse to indemnify Mr Blackstock in respect of that claim because Mr Blackstock did not give notice of the occurrence to Avant Insurance during the Policy Period.
98 If the claim made by the Plaintiff after the expiration of the Policy Period of the First Policy were to be treated as a claim by Mr Blackstock, the question is whether the effect of the First Policy would be that Avant Insurance may refuse to pay Mr Blackstock’s claim by reason only of his omission to notify Avant Insurance that the occurrence, at the time, was one that might subsequently give rise to a claim by the Plaintiff against him. In such circumstances, s 54 would be engaged. Whether there was any prejudice to Avant Insurance’s interests would be a matter for the final hearing.[15]
99 That conclusion would follow only if it was a contractual term of the First Policy that, if Mr Blackstock gave notice to Avant Insurance of facts that might give rise to a claim as soon as was reasonably practicable after he became aware of those facts but before the First Policy Period or the Second Policy Period expired, Mr Blackstock would be covered for any claim made against him arising from those facts, even if the claim was not made against him until after such expiration. It would then follow that, by the operation of s 40(3) of the Insurance Contracts Act, Avant Insurance would not be relieved of liability in respect of the Plaintiff’s claim by reason only that it was made after the expiration of the Policy Period of the First Policy and, indeed, the Policy Period of the Second Policy.
100 The question, therefore, is whether the language set out under the heading “Notification of a Claim” in the Product Disclosure Statement, which is clearly derived from s 40 of the Insurance Contracts Act, is a term of the First Policy or simply states the effect of s 40. That is to say, the question is whether the effect of the First Policy is that the liability of Avant Insurance is excluded by reason that notice of a claim against Mr Blackstock in respect of loss suffered by the Plaintiff was not given to Avant Insurance before the expiration of the Policy Period of the First Policy. That raises the distinction between terms of cover, on the one hand, and an exclusion, on the other. The First Policy recognises that distinction. Under the terms of the First Policy, there is simply no cover except in relation to a claim, notice of which is given during the Policy Period or, by the extension under s 40(3), a claim arising out of facts of which notice to Avant Insurance was given during the Policy Period.
101 Some statutes, such as the Sale of Goods Act 1923 (NSW), imply terms into contracts. However, s 40(3) does not imply into a contract of insurance a term that reflects the content of that provision. Where a statute implies a term into a contract, the resulting rights and obligations created by the implied term are contractual, not statutory. Section 40(3) confers rights on an insured and obligations on an insurer, but to obtain the subsection’s protection an insured must comply with its terms, by giving notice.
102 Section 54 applies only where the effect of a contract of insurance according to its terms would be that the insurer may refuse to pay a claim.[16] If it were the intention of Parliament that s 54 should modify the operation of s 40(3) one would expect to find some indication of the intention in the provision. There is nothing in s 40(3) that makes the requirement that notice be given during the currency of the policy subject to s 54.[17]
103 Section 54 does not permit the reformulation of a claim, such that it could work with s 40(3) to allow a failure to notify facts and circumstances to be overcome where such a “discovery” clause was not a term of a policy that is properly characterised as a “claims made” policy. Section 54 operates to prevent an insurer from relying on certain acts or omissions to refuse to pay a particular claim. The section does not operate to relieve the insured of restrictions or limitations, such as the temporal limits within which a claim must be made on the insured in a “claims made” policy, that are inherent in that claim.[18] Section 54 cannot be combined with s 40(3) to modify a “claims made” policy to cover a claim arising out of facts and circumstances that were not notified during the period of insurance of the policy. The two sections have different functions.
104 No claim was made against Mr Blackstock within the First Policy Period or the Second Policy Period, and no notice of such a claim was given during either period. The claim that was made on Mr Blackstock was made outside both periods. To invoke s 40(3), it must be shown that Mr Blackstock gave notice in writing to Avant Insurance of facts that might give rise to a claim against him as soon as it was reasonably practicable after he became aware of those facts but before the relevant period of insurance under the Policies expired. Mr Blackstock did not do so and the occasion for s 40(3) to operate did not arise.
Conclusion
105 The question is whether, if facts and circumstances that may have been capable of giving rise to the Claim now made on behalf of the Plaintiff were known to Mr Blackstock during the Policy Period of the First Policy, s 54(1) would operate to prohibit Avant Insurance from refusing to pay that Claim by reason only of the failure by Mr Blackstock to give to Avant Insurance prior to the end of the Policy Period of the First Policy notice of those facts and circumstances.
106 If that question were reasonably arguable, it would follow that leave should be granted to the Plaintiff to join Avant Insurance. Even then, however, the joinder of Avant Insurance would not finally resolve the question of the proper construction of the First Policy and the application of s 54 to the circumstances of the case. That would be a matter for determination at the trial and, if need be, on any appeal to this Court or ultimately to the High Court of Australia following a final determination of the proceedings.
107 I do not consider that, in the circumstances of this case, the Plaintiff has demonstrated an arguable case that any liability that Mr Blackstock has to her is an insured liability under either of the Policies. It follows that the primary judge erred in granting leave to join Avant Insurance. Accordingly, leave to appeal should be granted. The appeal should be allowed and the orders made by the primary judge should be set aside. In lieu thereof, the Joinder Motion should be dismissed with costs. The Plaintiff should pay Avant Insurance’s costs of the appeal. If otherwise entitled, the Plaintiff should have an order under the Suitors Fund Act 1951 (NSW).
**********
[1] See FAI General Insurance Co
Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at
[23].
[2] This is the clause
considered in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd
(2001) 204 CLR 641; [2001] HCA 38 at
[14].
[3] FAI General Insurance Co
Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 64; [2001] HCA 38 at [43]
and [46].
[4] See FAI Insurance Co
Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at
[39]- [42].
[5] See FAI Insurance Co
Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at
[39]- [42].
[6] See FAI Insurance Co
Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at
[65]- [66].
[7] FAI Insurance Co Ltd
v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at
[43]- [47] and [88]-[89].
[8] See
above at [53].
[9] Primary Judgment
at [33].
[10] See Newcastle City
Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 at 94-95, 101-103, 114-116; [1997]
HCA 53.
[11] The High Court
considered that the introductory words of s 40(1) should not be read literally
so as to govern s 40(3), but at least
one member considered that those words did
define the policies to which s 40(2) relates: Newcastle City Council v GIO
General Ltd
[1997] HCA 53; (1997) 191 CLR 85 at 94; [1997] HCA
53.
[12] See para 215 of
Australian Law Reform Commission, Insurance Contracts (Report No 20, December
1982).
[13] See para 216 of
Australian Law Reform Commission, Insurance Contracts (Report No 20, December
1982).
[14] See para 228 of
Australian Law Reform Commission, Insurance Contracts (Report No 20, December
1982).
[15] See FAI Insurance Co
Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001] HCA 38 at
[45]- [46].
[16] See FAI General
Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641; [2001]
HCA 38 at [20].
[17] See CA &
MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2009] 2 Qd R 1;
[2001] QSC 388 at [44]- [46].
[18]
Gosford City Council v GIO General Ltd (2003) 56 NSWLR 542; [2003] NSWCA 34 at
[36].
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