Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

In CGU v AMP, Gleeson and Crennan JJ said, ‘the objective reasonableness of the settlements, bearing in mind the circumstances of haste and external pressure under which they were reached, could not be divorced from the question whether AMP was liable to the investors. ’ 621 What is required is a reasonable evaluation of the prospects of a successful defence to a third party claim. 622 The standard of reasonableness is objective and to be assessed at the time the settlement is reached. So, an insured cannot be disadvantaged if later events demonstrate that a settlement was more favourable than it would have been had those events been known at the time. Evidence of legal advice received by an insured influencing its decision to settle (and on what terms) becomes relevant but is not proof in itself of the reasonableness of the settlement advised. The factors that lead to the giving of the advice and the reasoning supporting it are equally relevant factors to any determination. 623 ƒ the strengths and weaknesses of the available evidence; ƒ the likelihood of success of a claim; or ƒ the availability of specific defences (the settlement in CGU v AMP was judged unreasonable in light of the insured’s failure to raise a statutory defence available to it) or third-party rights of contribution ( Broadlands Properties Ltd & Anor v Guardian Assurance Co Ltd 624 ). An insured is also obliged not to do anything to prejudice an insurer’s interests (bearing in mind the duty of good faith under section 13 of the ICA), which means an insurer’s interests are relevant to the question of reasonableness. Therefore, in Broadlands Properties Ltd & Anor v Guardian Assurance Co Ltd, 625 it was held that a settlement was neither reasonable nor bona fide vis-a-vis the insurer, in the absence of any consideration of the insurer’s rights of subrogation. At the same time, the Court in Broadlands noted that the settlement was unreasonably influenced by matters extraneous to the insured’s legal liability, such as its repudiation and desire to resolve the matter promptly. Similar considerations were made in CGU v AMP , the settlement in that case also being influenced by a desire to achieve settlement quickly before the insurer could take over defence of the claims and by pressure from an industry regulator. The principle applies equally to incurring defence costs. In Wesfarmers Federation Insurance Ltd v Stephen Wells t/as Wells Plumbing, 626 it was held that an insurer’s declinature of cover and recommendation that the insured immediately take steps to protect its interests, including obtaining legal representation, constituted consent under the policy to incur defence costs. It was found there was no repudiation of the policy itself in that instance. Section 41 of the ICA Section 41 of the ICA affords further protection to an insured in relation to the settlement of claims. It effectively prevents an insurer from declining cover because of an insured’s breach of a policy requirement to obtain consent to an admission or settlement where the insurer fails to respond within a reasonable time to a request to admit liability under the policy and confirm whether the insurer proposes to assume conduct of the defence of a claim. 621 Ibid 16. 622 Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd (1974) 130 CLR 1. 623 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603. 624 [1983] NZHC 185. 625 Ibid. 626 [2008] NSWCA 186. So, what might become relevant in any particular case could include things such as:

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