Professional Liability Guide

CHAPTER 6 – CLAIM, CIRCUMSTANCE AND NOTIFICATION

In FAI General Insurance Co Limited v McSweeney , 402 Lindgren J observed that at one end of the spectrum ‘Every time an accountant prepares accounts or an auditor performs an audit, there is a possibility of a claim’ , but such a notification would likely be inadequate. Rather, his Honour cited with approval an earlier decision of the Full Court of the Western Australian Supreme Court that a more appropriate test involves ‘a known deficiency likely to result in a casualty’ , with one example being ‘if it had become known to [an insured] that he had made a serious mistake in writing a report such as using a wrong valuation, this would be [such a circumstance].’ 403 Justice Lindgren went on to observe that ‘it is not desirable to attempt to define precisely the shade of meaning signified by the expression ‘may give rise to a claim’’ , and formulated the following range of indicators: ‘The appropriate connection between the known circumstances and the claim … is, perhaps best described by saying that circumstances “may give rise to a claim” if they would … immediately suggest to a reasonable person in the proponent insured’s position who reflected upon those known circumstances, that the bringing of a claim against the insured in respect of them was a “definite risk” or a “real possibility” of “on the cards”. Perhaps the notion of the “springing to mind” of the making of a claim also appropriately expresses the shade of meaning intended.’ 404 The complex circumstances of Attorney-General v AON New Zealand Ltd 405 involved an initial apprehension of the possibility of an application being made for judicial review of the insured’s (a Government Minister’s) decision and the subsequent filing and service of such an application challenging the decision, which was known to have impacted on one potential claimant. It was held that at the earlier stage, there was ‘ nothing else to indicate that [the insured] considered a claim … to be a reasonable, real or definite risk as opposed to a remote possibility ’ 406 (and so no basis for notification to the insurer). But at the later stage, when the actual terms of the application for review were known, notification of the circumstances was required. In the later case of Barnes, 407 it was held that merely notifying that ‘publicity had surrounded widespread … building problems appearing in buildings of similar construction to those in respect of which [the insured property inspector] had completed reports’ , was insufficient to comprise facts ‘which may give rise to a claim’ , because there was ‘simply no notified circumstances by reference to which [a reasonable property inspection consultant could form the opinion] that a claim may arise’ . 408 The New Zealand High Court has applied Lindgren J’s formulation in two cases, with two different outcomes.

402 [1998] FCA 1789. 403 FAI General Insurance Co Ltd v Hendry Rae & Court (1993) 10 WAR 322, 347, cited in FAI General Insurance Co Ltd v McSweeney [1998] FCA 1789. 404 FAI General Insurance Co Ltd v McSweeney [1998] FCA 1789, 15. 405 Her Majesty’s Attorney-General suing in respect of the Ministry of Agriculture and Forestry v Aon New Zealand Limited [2008] NZHC 479. 406 Ibid [74]. 407 Barnes v QBE Insurance (International) Limited [2011] NZHC 285. 408 Ibid [54]–[57].

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