Boardroom Briefing - December 2021

THE FACTS OF THE MATTER – NOTIFYING CIRCUMSTANCES THAT MIGHT GIVE RISE TO A CLAIM

An insurer might breach its duty of utmost good faith if it’s canvassed issues with an insured that were clearly capable of giving rise to a claim, which the insurer later denies. Further, a panel lawyer’s report to an insurer, on behalf of an insured, can amount to notification of circumstances which might give rise to a claim. The devil is in the detail when it comes to notifying circumstances to your insurer as played out in this recent case.

The Drama: Dr D, a cosmetic surgeon, was the subject of District Court proceedings by a former patient about breast augmentation surgery. Panel lawyers were appointed by Dr D’s professional indemnity insurers to act on the doctor’s behalf. As is usual the lawyers communicated with the insurer about the litigation including information about a related class action of which the former patient was a member of the class. When Dr D was served with a subpoena arising from the class action, he telephoned the insurer to discuss it. Dr D was subsequently joined to the class action with other doctors. The class action started after Dr D’s PI policy period had ended so the issue was – had Dr D given notice of the class action for the purposes of the Insurance Contracts Act (ICA) so that the insurer could not refuse to indemnify Dr D. *

The Debate: Dr D said that the panel lawyer’s communication to the insurer meant that he had given notice in writing of facts which might give rise to a claim as stipulated in the ICA. In any event, he had told the insurer orally about the subpoena which amounted to facts which might give rise to a claim, so the failure to give the notice in writing was cured by the Insurance Contracts Act (subject to any prejudice suffered by the insurer). **

The Decision: The Federal Court held that the communication from the panel lawyers was the requisite notice in writing because it showed that it was possible, if not likely, that the relevant surgeons would be joined to the class action including Dr D. The requirement that an insured give notice in writing can be satisfied by another person, an agent such as lawyers acting on the insured’s behalf. The notice to the insurer didn’t have to be in a single document; there was “recognisable correspondence” for the claim when it was made. Further, the panel lawyers were acting on Dr D’s behalf, as if he himself had given notice. It didn’t matter that the lawyers hadn’t intended to notify circumstances or that Dr D didn’t understand that he might be joined to a class action. The Court however did not accept that Dr D’s failure to give written notification was an omission that could be cured by the Insurance Contract Act.

In brief: this is an important decision highlighting how vital it is to get it right with notifying circumstances that might give rise to a claim. If you get it wrong, it’s a costly and time consuming exercise to build up an indemnity argument with an insurer after cover is denied. The usual applies – all cases live and die on their own circumstances and the particular policy wording however the factual matrix of all potential claims must feed into a consideration of what to notify to the insurer and whether the insurer has acted with commercial standards of decency and fairness. Your Lockton broker understands this pivotal process; the importance of getting notification right and the role of the Insurance Contracts Act in protecting your rights.

Darshn v Avant Insurance Ltd {2021] FCA 706

*Section 40(3) Insurance Contracts Act 1984

** Section 54 Insurance Contract Act 1984

George Harding

by  George Harding

National Manager, Global Professional & Financial Risks

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