Professional Liability Guide

CHAPTER 6 – CLAIM, CIRCUMSTANCE AND NOTIFICATION

What is a circumstance? If events fall short of a policy ‘ claim ’ (defined or not), the question becomes whether they will be construed as a ‘ circumstance that may give rise to a claim ’ of which notification should nonetheless be provided. The distinction carries potentially significant consequences for insureds, particularly in the event of late notification.

In practice, complications can arise when considering what constitutes a ‘ circumstance ’.

In Attorney-General v AON New Zealand Ltd, the Court said the test was objective:

‘requiring notice when a reasonable person in the insured’s position would consider there was a reasonable possibility of a claim. Notice is not required if the possibility of a claim is remote or unlikely. However, providing there is a real or definite risk of a claim, notice is required even if the claim is not probable.’ 398 CGU Insurance Limited v Porthouse 399 concerned a barrister’s failure to notify his insurer of circumstances that may give rise to a claim against him and the insurers’ consequent declinature of coverage under a professional liability policy. The Court applied an objective test to the question of whether the insured was aware of circumstances that may lead to a claim, being whether a reasonable person in the insured’s professional position and ignoring his personal idiosyncrasies would have thought a claim may arise. Broadly, the objective limb of the ‘ known circumstances test ’ provides important practical protection for insurers, protecting them from the genuine but unreasonable beliefs held by insureds. The first stage is to create a ‘reasonable person’ infused with the insured’s professional experience and the insured’s knowledge of the facts and circumstances. Next, the ‘reasonable person’ is asked about real (as opposed to remote or fanciful) possibilities but not certainties. What is a notification of a claim or circumstance? Notification of a claim is an explicit requirement of the trigger for cover under a ‘claims made and notified’ policy. It is not uncommon for policies to provide that an insured is required to (or alternatively may ) notify an insurer of ‘ circumstances that might give rise to a claim ’. Without more, an obligation of this nature will not operate to tie any future claim to the policy under which notification is provided. Cover can, however, be extended by a contractual deeming provision to a claim made after expiry of the policy if, during the period of insurance, the insured becomes aware of facts or circumstances giving rise to the claim and notifies the insurer of those facts and circumstances before the policy expires. Alternatively, section 40 of the Insurance Contracts Act 1984 (Cth) ( ICA ) is directed towards a situation in which an insurer might otherwise be entitled to decline or limit indemnity if the insured should fail during the currency of the policy to give notice of a claim. The contractual right of an insurer to decline indemnity in such circumstances is ameliorated by section 40(3).

398 Her Majesty’s Attorney-General suing in respect of the Ministry of Agriculture and Forestry v Aon New Zealand Limited [2008] NZHC 479 [66]. 399 (2008) 235 CLR 103.

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