Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

The section can be directed to the position where the insured knows of a claim or circumstance that might give rise to a claim and yet fails to comply with its contractual obligations under the policy by not providing the insurer with timely notification of the claim or circumstance. When considering the potential application of section 54(1), it is first necessary to consider whether the claim made by the insured is covered by the insuring clause – is it within any inherent restrictions or limitations? Only when that question is answered in the affirmative is it necessary to determine whether an insurer’s ability to deny indemnity was the result of an act or omission of the insured or someone else triggering an exclusion or condition.

While the history and development of the law in relation to section 54 is an interesting topic, the current position now seems well settled under Australian law and can be briefly stated as follows.

Section 54 operates to ‘ forgive ’ a failure by an insured to notify of a claim within the policy period (if cover would otherwise have been available had it done so), provided there is no prejudice to the insurer. 419 The effect is that the insurer who is on risk at the time the claim is made against the insured (and at the time the claim ought to have been notified) remains obliged to respond to the claim, subject to the policy’s other terms and conditions and the absence of any discernible prejudice.

What then is the position if an insured’s failure to notify within the policy period is in relation to a circumstance that may give rise to a claim rather than an actual claim?

In the well-known but sometimes misunderstood decision of FAI General Insurance Limited v Australian Hospital Care Pty Ltd , 420 it was held that section 54 also excuses an insured’s failure to provide notification to an insurer of a circumstance if (but only if) there is a deeming provision in the policy and provided there is no prejudice to the insurer. Prior to Australian Hospital Care , section 54 of the ICA was argued by insurers to be more limited in its application (in the context of the notification requirement) to an omission to notify claims . Pausing there, the effect of the decision in Australian Hospital Care is not to enable section 54 to forgive an insured for failing to notify of a circumstance until after the policy has lapsed where the policy does not contain a deeming provision. Such deeming provisions have now often been removed by insurers because of the Australian Hospital Care decision, to ameliorate its effect. In the Supreme Court of Queensland, Chesterman J considered the interrelationship between sections 40 and 54 in CA and MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd 421 regarding whether, in the absence of a deeming provision in the policy, the statutory deeming provision in section 40(3) could be used together with section 54 to forgive a failure to notify of circumstances. That case concerned the failure of the insured to give notice of a claim under a professional indemnity insurance policy held by a firm of valuers during the currency of the policy period. The valuers held a professional indemnity insurance policy with CUA for the period 15 September 1998 to 15 September 1999. However, proceedings by the disappointed borrowers against the valuers were not issued until December 1999 (after the termination of the policy), and indemnity was not sought by the valuers from the insurer until March 2000.

The insurer argued that it was not liable to indemnify the valuers as no notification had been given to it while the policy was in force.

419 East End Real Estate v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400. 420 (2001) 204 CLR 641. 421 [2009] 2 Qd R 1.

78

www.carternewell.com