Professional Liability Guide

CHAPTER 6 – CLAIM, CIRCUMSTANCE AND NOTIFICATION

The insured (Antico) held a D&O legal expenses policy of insurance with CE Heath. During the period of cover but in a request for a slightly different D&O policy for the following year (providing coverage for liability and legal expenses), Antico disclosed facts or circumstances that it believed might give rise to a claim. It submitted the request to a different office of CE Heath from the one that arranged the initial policy. Subsequently, Antico sought coverage under the earlier policy for a claim based on having already notified the insurer of the underlying circumstances in the renewal request. Chief Justice Giles (at first instance) considered previous decisions of courts in both Australia and the United States, from which he said two matters generally prevailed. First, ‘it must be asked whether the insured has objectively complied with the notification requirements in the Policy [or under the ICA], and it is not sufficient that the insurer has subjectively inferred from the information provided to it that a claim might be made against the insured.’ Second, ‘a provision in a claims made policy for notification of facts out of which a claim might arise benefits both the insured by providing additional protection, and the insurer, by permitting it to close its books and thus more accurately fix its reserves for future liabilities and to compute future premiums.’ His Honour, with whom the Court of Appeal agreed, 416 ultimately concluded that notification of the facts or circumstances that might give rise to a claim, in an application for a policy of insurance of a slightly different nature, submitted to a different office of the same insurer, did not constitute adequate notification of circumstances for the purpose of section 40(3) of the ICA. It was said that ‘notification is a significant contractual step not lightly to be imputed to or imposed on the parties to the contract of insurance …’ and that accordingly ‘more was required than the incidental conveying of information … in the documents provided to [CE Heath] in connection with proposals for other insurance.’ However, in subsequent decisions (such as HIH Casualty & General Insurance Australia Ltd v DellaVedova 417 and CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd 418 ), Australian courts have, in passing, said that it would be plainly arguable that notification of circumstances to an insurer in a policy renewal request may amount to sufficient notification. Notably, in neither decision was the court required to make a determination on that issue. Best practice suggests that any notification, in terms of both timing and manner of conveyance, should be made strictly in accordance with any requirements in the policy (or else in accordance with section 40(3) of the ICA) to avoid any later dispute. An insured that purports to notify in some other manner does so at its own peril. Failure to notify of a claim or circumstance The question of whether something constitutes a ‘claim’ under an insurance policy or a ‘circumstance likely to give rise to a claim’ can have important consequences in the case of a failure to notify. This question requires consideration in the context of the relationship between sections 40 and 54 of the ICA. Section 54 is one of the most far-reaching sections of the ICA, and one of its most contentious applications is in relation to late notification. The section essentially precludes an insurer from refusing to pay a claim in circumstances that have resulted through an insured’s act or omission, provided the insured’s act or omission is not a material cause of the loss.

416 [1996] 38 NSWLR 681. 417 [1999] FCA 456. 418 [2008] FCAFC 173.

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