Professional Liability Guide

CHAPTER 6 – CLAIM, CIRCUMSTANCE AND NOTIFICATION

Encouraged by Australian Hospital Care , the valuer submitted an entitlement to indemnity on the basis that sections 40 and 54 operated in combination. That is, the valuer’s failure to notify of a circumstance that might give rise to a claim within the policy period under section 40(3) (there was no deeming provision in the policy), was an ‘ omission ’ for the purpose of section 54 and, having regard to the application of section 54 by Australian Hospital Care , the insurer could not therefore rely on that omission to justify its declining the indemnity.

Justice Chesterman rejected that argument. His Honour quoted a passage from the joint judgment of McHugh, Gummow and Hayne JJ in Australian Hospital Care to the effect that:

‘The claim which the insured made on FAI was for indemnity against liability for an occurrence of which the insured first became aware during the period of cover. The effect of the contract of insurance is that FAI could refuse to pay that claim by reason only of the fact that the insured did not give notice of the occurrence to it. Section 54, therefore, requires the conclusion that FAI may not refuse to pay the insured’s claim. The effect of the contract of insurance, but for section 54, would be that the insurer may refuse to pay the insured’s claim by reason only of the omission of the insured to notify the occurrence.’ 422 His Honour concluded that section 40(3) could not be relied on in combination with section 54 to cure the failure of the insured to provide notification of the claim to the insurer during the currency of the policy period because: ‘Section 40(3) would have obliged CUA (the valuer’s insurer) to grant indemnity, but that indemnity would have flowed from the intervention of the statute, not the effect of the policy. In this regard, the phrase, “but for this section”, which appears in section 54(1) cannot be overlooked. The effect of CUA’s policy, if one ignores HTW’s omission to give notice of its negligent valuation, would not have been that HTW was entitled to indemnity. An insurer may not refuse to pay a claim by reason only of the fact that an insured omitted to give notice of an occurrence, but, had HTW given notice, the insurer would still not have been obliged to indemnity. To get to that result, s 40(3) must also operate. But s 54 is concerned with the situation where, if an omission is disregarded, a policy of insurance would provide cover. To assist HTW here, s 54 has to be understood as though it read: Justice Chesterman further held that section 40(3) does not imply a term into insurance policies to the effect of the subsection. Rather, it confers a statutory right on an insured, and obligations on an insurer, but only in circumstances in which the insured has complied with its contractual terms by giving notice. Justice Chesterman concluded: ‘HTW’s submissions would require a modification to the subsection and provide relief in circumstances other than those specified by the legislation. If it were Parliament’s intention 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) which makes the requirement that notice be given during the currency of the policy “subject to s 54.”’ 424 Where the effect of a contract of insurance would, but for this s and s 40(3).’ 423 [our emphasis]

422 Ibid 11. 423 Ibid. 424 Ibid 12.

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