Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

However, the courts have discretion to disregard the avoidance of a policy by an insurer on the grounds of fraudulent failure to comply with the duty of disclosure or fraudulent misrepresentation if it would be harsh or unfair for an insurer to avoid the policy. 514 That discretion may only be exercised where a court is of the opinion that, in respect of the loss that is the subject of the proceedings before the court, the insurer has not been prejudiced by the failure or misrepresentation, or any such prejudice is minimal or insignificant. 515 Further, the power is only applied in relation to the loss that is the subject of proceedings before a court, and any disregard by the court of the avoidance does not otherwise operate to reinstate the contract. 516 If the insurer is not entitled to avoid the contract – or is entitled but has not done so – their liability in respect of a claim reduces to an amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made. 517 Accordingly, where an insured innocently fails to comply with the disclosure duties set out in the ICA, an insurer may be able to reduce its liability to the level it would have been had the insured disclosed the relevant information. An insurer may be able to reduce its liability to nil if it can prove that it would have imposed conditions or exclusions that would have excluded cover for that kind of claim or not have offered insurance terms to the insured at all had proper disclosure been made. That would require evidence from the insurer’s underwriting personnel of the relevant underwriting policies and procedures as well as evidence those policies and procedures had been implemented.

Where an insurer is entitled to reduce their liability to nil because of section 28(3) of the ICA, the insurer must account to the insured for the premium that has been paid. 518

514 ICA s 31(1). 515 ICA s 31(2). 516 ICA s 31(4). 517 ICA s 28(3). 518 FAI General Insurance Co Ltd v Hendry Rae & Court (1993) 10 WAR 322.

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