Professional Liability Guide

CHAPTER 15 – PRIOR WRITTEN CONSENT

On appeal to the High Court, the approach taken by the New South Wales Court of Appeal on this issue was, however, rejected.

The High Court emphasised the remedial nature of the legislation but also considered that the issue turned on the terms of the policy in question, which obliged the insurer to meet the insured’s legal costs, provided there were reasonable grounds for defending the proceedings or reasonable grounds for the successful outcome of the matter. Chief Justice Brennan accordingly provided a qualified answer, concluding that the omission of the insured to seek (as opposed to obtain) the consent of the insurer to the incurring of legal expenses was an omission to which section 54 applied, but only if, before those expenses were incurred, either of those two pre-conditions were satisfied. The majority (Dawson, Toohey, Gaudron and Gummow JJ) delivered a joint judgment, in which their Honours identified the threshold issue of whether the Court of Appeal was correct in holding that the insured’s failure to obtain the consent of the insurer to the incurring of legal fees was not an act or omission to which section 54 applied. The joint judgment held that the failure of the insured to do so, which was required before the insurer was obliged contractually to meet the claim, was a situation section 54 could address.

Antico accordingly stands today as authority for the application of section 54 of the ICA to a failure to obtain consent to incur defence costs.

Although the question of whether section 54 will apply equally to an insured’s failure (omission) to obtain consent to a settlement is yet to receive any judicial consideration, there is no reason why it should not.

Of course, an insurer’s liability in these circumstances will be capable of being reduced by the extent of any prejudice suffered by reason of the insured’s conduct.

The prejudice to which section 54 refers consists of the existence of a liability that would not have been borne, in whole or in part, by the insurer if the act had not been done or the omission had not been made. 613 Its quantification in these circumstances requires identifying the amount of actual damage, as far as it can be expressed in a monetary sum, that an insurer has suffered as a result of the insured’s act or omission. 614 In other words, the inquiry is directed to what better or different position an insurer would have occupied had consent been sought. It requires examination of whether the amount of the costs incurred or the amount of the settlement reached could have been less had consent been sought.

In Moltoni Corporation Pty Ltd v QBE Insurance Ltd , the High Court set the threshold test for an insurer to establish prejudice in the following terms:

‘The relevant prejudice suffered is to be measured by reference to what would have happened (as distinct from what could or might have happened) if the act or omission had not occurred.

…

613 Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332. 614 Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149 .

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© Carter Newell 2023