Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

CHAPTER 15 – PRIOR WRITTEN CONSENT

Professional indemnity policies commonly stipulate that an insured not take certain steps without obtaining the prior written consent of an insurer. The two most common examples involve not making any payment, settlement or admission of liability and not incurring defence costs. The obligation is generally imposed in one of two forms, either as a condition precedent to cover (as part of the insuring clause or its related definitions) or by a separate contractual obligation (such as a claims condition ) prohibiting the conduct. Where an insured promptly notifies of a matter, and an insurer appoints defence counsel on the insured’s behalf, the issue of consent to act will not usually be contentious, as the insurer will be associating effectively in (if not directing) the conduct of the defence. Problems arise where there has been a failure to promptly notify of a claim (in other words, an insured has already committed the offending act before notification occurred) and, less commonly, if an insured retains the conduct of proceedings but neglects to keep the insurer informed of developments. Section 54 of the ICA At common law, the failure to obtain an insurer’s consent ordinarily disentitles an insured to cover, as it means either an insuring clause was not engaged or there was a breach of a policy condition. The effect of an insured’s failure to obtain prior written consent has largely been ameliorated by section 54 of the ICA, which, as noted in previous chapters, prevents an insurer from refusing to pay a claim by reason of some act (or omission) of the insured. In Antico, the insured sought indemnity under a D&O legal expenses policy for legal expenses incurred in defending legal proceedings brought against the insured as a director. The insurer rejected the claim because the legal expenses were incurred before obtaining the insurer’s consent, in breach of the policy. In response, the insured relied on section 54 of the ICA. On appeal to the New South Wales Court of Appeal, Kirby P considered the failure of the insured to obtain the consent of the insurer and the suggested application of section 54 of the ICA to relieve against that failure. 610 Having held that the insured was entitled to rely on section 54 to relieve against his failure to seek consent from the insurer, his Honour noted that the requirement under the policy that the insured ‘ obtain ’ the consent of the insurer required both the act of the insured in seeking consent and the act of the insurer in granting consent. 611 Kirby P concluded thus: ‘Since s 54 only deals with the conduct of the insured, it cannot assist where the insurer does not grant consent … Section 54 allows a court to prevent an insurer from denying liability on account of some act or omission of the insured. It does not allow the courts to intervene and take control of the insurer’s other rights under the contract.’ 612 609 (1997) 188 CLR 652. 610 Antico v CE Health Casualty and General Insurance Ltd (1996) 38 NSWLR 681. 611 Ibid 707. 612 Ibid 707–708. The remaining members of the Court of Appeal, Priestly and Powell JJA agreed with Kirby P on this point. This is best illustrated by the High Court’s decision in Antico v Heath Fielding Australia Pty Ltd. 609

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