Part I: Foundation of Insurance Law Fundamentals about Insurance General Ideas about insurance Insurance is risk transfer at a price Two categories: indemnity and contingency Two forms: first party and third party (i.e. liability) Indemnity protects against financial loss as a result of happening of a risk, be that happening risk to the insured or a third party Contingency is merely protection against occurrence of an adverse event Types of insurance policies – claims based or occurrence based Claims based is payment upon a claim whereas occurrence is payment per occurrence regardless of needing to make a claim Claims based may be claims made and notified, requiring both making and notifying of a claim before recovering Insurance cover – joint vs. composite Joint is where two or more people take out the one policy, with the act of one party directly impacting the other, with both being able to claim for the whole value of the policy (McQuade) Composite is where policy covers a shared interest but each party can only recover to the extent of their distinct interest, with a co-insured not having impact on other insured in terms of acts etc. Stuff that looks like insurance but isn’t DOFI’s and mutuals and SGIO’s (Hancock Memorial) DOFI’s are offshore insurers – generally illegal except for certain risks Mutuals are group of people whom insure each other by pooling monies Mutuals can be discretionary i.e. a claim to indemnity from the pool of money is not enforceable The need for an insurable interest No need for insurable interest under the ICA (as opposed to CL – right in property or right derivable from some contract which may be lost upon some contingency – Lucena) Insurable interest will be deemed where insured suffers pecuniary or economic loss as a result of the risk occurring Regulation of insurance market Statutory regulation Overseen by the ICA and the APRA as well as ASIC Corporations Act also regulates the financial market in general Operation of ICA ICA encompasses only federal level – albeit states have adopted the ICA into their operation ICA is not a code – common law will apply where there are gaps Should a contract fall within the ICA, you cannot contract out of its scope Section 8 is the application of the ICA – extends to all contracts of insurance to which the proper law is one to which the Act applies i.e. applies to all insurance contracts in Australia generally; express provisions in an insurance contract determining applicable jurisdiction will be ignored (Akai) Section 9 lists the exceptions i.e. workers compensation, third party compulsory motor vehicle insurance, marine insurance etc. Section 10 extends ICA to contracts of insurance in substance (Hannell) Internal regulation Agents vs. brokers (use of licenses) Agents owe duty of care – Caldwell v JA Neilson Brokers owe duty of care too – McNealy v Pennine, Rocco Pezzano; where broker misrepresents and insured is denied claim, insured can recover amount of indemnity from broker (Kotku v Vero) Premium payments Payment of premium to broker with a license – Corp. Act s 985B (1), (2); MMI v Boardman Insurance Brokers: s 985B only operates to make the payment of the premium to the broker the discharge of a liability under a contract effected as contemplated by the offer of renewal; it does not operate to make the payment the acceptance of the offer and the simultaneous discharge of the liability under the contract then formed Payment of recovery amount to the broker – s 985B (3) Insurance Contracts Formation Common law rules of offer and acceptance apply (Adie, Cronk) Consideration and certainty – through premiums Terms of contract generally specified and incorporated (but even where not specified, bound by general terms: Lotus Manufacturing, Steadfast v F & B Trading) Interim insurance In between actual insurance and proposal form for insurance, may be covered by interim insurance Subject to same terms as actual insurance through cover note (Action Scaffolding v AMP Fire) Under ICA, insured covered by interim until they get actual cover, interim is cancelled by insurer, or insured withdraws their proposal Under ICA, interim cover is not subject to satisfactory proposal of insurance Renewal of insurance Section 58 – insurer obliged to tell insured of policy end date – if not told and given 14 days prior notice, statutory policy will cover insured Cancellation Contract requires to repay time proportionate premium sum Can only cancel on grounds listed in s 60 in accordance with procedure in s 59 Part II: The Duty of Utmost Good Faith Utmost Good Faith The contract peacekeeper Under common law, utmost good faith means both parties need to deal openly, honestly and fairly in terms of the contracts interpretation, performance and execution Pre-contractually, this manifests as the duty of disclosure – failure of which will entitle insurer to rescission (elaborated in the ICA) – the duty will arise when the contract is varied or renewed Post contractually, the open, honest and fair requirement remains, requiring the parties to act in due regard to the other parties interests without giving up their own interests A statutory augmentation Section 13 and 14 of ICA implies term of utmost good faith in all contracts and prevents reliance on any clause that would be contrary to the utmost good faith Remedies such as damages, rescission and court orders are available Termination is also possible under s 60 Pre-contractual Duty of Utmost Good Faith (COMMON LAW) General test Cannot misrepresent (non-disclose) information known to the insured which is material to the risk transferred in pre-contractual disclosure (see Guardian Assurance for half truths) Elements of misrepresentation: 1. A misrepresentation of fact which the insured knows 2. Fact must be material to insurer in deciding whether to offer insurance or not 3. Misrepresentation induced entry 4. Culpability of misrepresentation Onus lies with insurer to establish misrepresentation (Goodwin v SGIO) What does the insured know? For purposes of disclosure, insured knows things they can be reasonably expected to know or know with reasonable enquiry: 1. Stuff they should know if not blind to truth – Economides 2. Stuff their agent knows (Buffe – broker ignorance does not overcome knowledge of insured) 3. Stuff their employee knows They do not know for purposes of disclosure: 1. What in ordinary course of business they ought to know 2. Information they would know if they investigated for purpose of discovering it (Blackburn v Vigors) 3. Information they ought to know publically, specific to their industry or business What is a material fact? Would fact have reasonably influenced or affected a prudent insurer in deciding whether to accept risk and if so, on what terms (Akedian, Drake, Avon House) Categories fact which may be material: 1. Facts known to insured relevant to risk of insured even fortuitously (James v CGU) occurring as a result of intrinsic nature of subject matter of insurance 2. Facts relevant to moral hazard i.e. insured’s honesty, morality, prior insurance record (Locker; Woolfe v WA) 3. Facts generally relevant to insured’s past insurance history of this type of insurance being sought (Insurance Corp. of Channel Island) – does not include criminal record Induced entry Where insurer waives scope of obligation to make fair representation (Wise Underwriting) and misrepresentation falls within the waived scope Where insurer fails to follow up vague answer which reasonable insurer would follow up (Wise Underwriting), no inducement Where insurer knows of facts contrary to representation but does nothing about it, no inducement – Avon Hill Where insurer would have entered into the same contract even with knowledge of true facts – Drake Culpability Fraud principles – knowingly, without belief in truth, recklessly indifferent (Derry v Peek) – subject to Briginshaw Not enough that there was mere lack of honesty (Muggleston) Failure to prove fraud may amount to breach of contractual duty of UGF and result in damages for insured (Bottrell) Remedies Innocent party entitled to rescission – not entitled to damages for innocent misrepresentation Where rescission, insurer must repay premium unless fraudulent (HIH Casualty v Chase Bank) Pre-contractual Duty of Utmost Good Faith (STATUTE) Insurer’s duty to inform insured of their duty of disclosure Section 22: insurer needs to inform of duty to disclose if they want to seek remedies as a result of non-disclosure or misrepresentation Within 14 days of entering the contract s 69 Section 21A In relation to motor vehicle, home buildings, home contents, sickness and accident, travel insurance Insurer will waive duty of disclosure in relation to these contracts unless questions (s 21A (5)): 1. Ask for specific questions relevant to insurer’s decision whether to accept risk, and if so, on what terms (s 21A (3)) 2. Require disclosure of answer in response to specific questions AND questions require disclosure of exceptional circumstances (i) known to insured, (ii) which could not reasonably have been expected to have been a question to which the insurer would ask, (iii) or what a reasonable insured in the circumstances would know is a matter relevant to the insurer’s choice to insure, (iv) or is not covered by s 21 (2) (s 21A (4)) Insurer bears onus in relation to exceptional circumstances that it could not reasonably be expected to make the subject of specific questions s 21A (4) (s 21A (8)) Insured will discharge duty under s 13 if they: 1. Answer by disclosing matters they know and a reasonable person in the circumstances could be expected to have disclosed in relation to that question s 21A (6) 2. Answer a question as described in s 21A (4) (s 21A (7)) Section 21 Requires broader disclosure about every matter known to insured that is: (where joint insured’s, need to be common knowledge between them (Advance v Matthews)) 1. A matter relevant to whether an insurer might accept risk and on what terms; or 2. A matter a reasonable person in the circumstances of the insured would know to be a matter relevant to the insurer’s decision whether to take on risk (subjective/objective – CGU v Porthouse: assess objective and extrinsic knowledge of insured) Insured need not disclose information that is (s 21 (2)): 1. Will diminish the risk; is common knowledge; that the insurer ought to know; or is waived by insurer Insurer will also be held to know if it is proved that responsible officer in department has appreciated or should have appreciated the significance of the knowledge – Evans v Sirius If insured in a proposal, fails to gives an answer, or gives one incompletely or irrelevantly, then insurer is held to have waived compliance with duty in relation to that matter if they accept it regardless s 21 (3) i.e. they cannot rely on non-disclosure or misrepresentation where insured does not give answer and insurer chooses to leave it at that 1. This is reinforced by s 27 which makes it so that mere failure to answer, or provide incomplete/irrelevant answer does not amount to misrepresentation by and of itself What does the insured know? What an insured ‘knows’ is stronger than what they believe or suspect (Permanent Trustees v FAI) – actual knowledge rather than constructive Does not include what the insured ought to know in course of business – Advance v Matthews Includes what the insured knows exclusively (AAMI v Goss) What a predecessor company may know (Plasteel v CE Heath) Does NOT include what their agent/broker knows (Permanent Trustees) What is a matter relevant? Threats to property and circumstantial facts i.e. property used as whorehouse (Lindsay), being denied recovery under previous cover (Plasteel), insured is a drug user (Ayoub) Misrepresentation provisions Establishing misrepresentation/non-disclosure follows common law rules i.e. a false statement of past or existing fact (in relation to any matter under s 21 or s 21A) Any question which is ambiguous will be resolved in the policy holder’s favor s 23 However, under s 26 (1), an answer will not be a misrepresentation if insured believed statement to be true (or a reasonable person in the circumstances would have held same belief) (insured onus) Exception is that where the insured or a reasonable person in the circumstances would know that statement would be so relevant to an insurer’s decision to accept risk, it will still be a misrepresentation (insurer onus) Any failure to answer or provide a complete/relevant answer will not of itself amount to misrepresentation s 27 Remedies Exclusive remedies under div. 3 of ICA for pre-contractual issues (s 33) An insurer will have no recourse if they would have entered into the same contract (same terms etc.) regardless (s 28 (1)) – onus on insurer to prove that they would not have entered into precisely same contract (but degree of proof of conduct should not be too high – Chisholm) Where misrepresentation/non-disclosure was fraudulent, insurer may choose to avoid the contract (ab initio) s 28 (2) – court may disregard avoidance if to avoid would be harsh and unfair (Plasteel) and insurer has not been prejudiced (or very little) by misrepresentation (s 31 (2)) Evans v Sirius – consider factors in s 31 (1) when choosing to disregard… If disregarded, insurer must pay just and equitable amount to the insured BUT THIS DOES NOT REINSTATE THE CONTRACT! Where chooses not to avoid, or where misrepresentation was not fraudulent, insurer may reduce their liability to an amount that would place the insurer in the same position as if the misrep. had not occurred; insurer has onus on proving their conduct had they known of the disclosed material s 28 (3) – liability can be reduced to nil (Ferrcom) Under s 60 (1) insurer may cancel but needs to be subject to s 59 requirements (caution: Johnson v Australian Casualty) POST-contractual Duty of Utmost Good Faith Overview Orakpo – no reason for duty not to continue after contract made Still requires open, honest and fair dealings (s 13) – CGU v AMP – act with interests of other party in mind – cannot rely on provision contrary to duty of utmost good faith (s 14) unless notified before formation (s 37) Insured must at all times: 1. Be frank about claim and all circumstances around claim 2. Notify of change in circumstances or any information that they know, or reasonable insured would think the insurer might want to know for purposes of dealing with claim 3. Respond promptly to any request for information, co-operation etc. Insured will be in breach if they: 1. Deliberately provide false information about a claim – Gugliotti 2. Intentionally withhold information to deceive the insurer in relation to a claim – NZI v Forbes 3. Fails to provide insurer with information they require – NSW Medical 4. Knowingly makes fraudulent claim – Moriatis 5. Fails to mitigate or consider alternatives to liability where they can – CGU v AMP Insurer must at all times: 1. Be full and frank about handling of claims, notification of circumstances about claim progress 2. Must provide reasons for decision to reject or pay less than insured amount 3. Must deal with claims in reasonable time i.e. choose to accept or reject Insurer will be in breach if they: 1. Fail to act with candor in relation to the dealing of a claim i.e. not telling insured of their entitlements 2. Attmepts to rely on clause included in error or against s 14 – Baradom 3. Delays unreasonably in dealing with claim – Moss, ACN v Zurich, Gutteridge 4. Refusing to consent to reasonable settlement of claim – Distillers 5. Makes unreasonable and unnecessary request for info. – Haghis Remedies In circumstances of breach or threatened breach, can seek damages for breaking implied term, rescind the contract, court orders preventing further breach, and option of cancellation for the insurer (s 60) Part I: Claiming on your policy An approach to claims General First look to policy type, then look to scope of insuring clause and other relevant exclusions, then prove causation, then see if s 54 or fraud applies Distinguish occurrence based insuring clauses and claims based: 1. Occurrence based insurance policy will be liable so long as it occurs within the policy year regardless of when they choose to claim against you 2. Claims (made and notified) will only respond if they make a claim against you for a loss which you can prove falls under insuring clause a. ‘Claim’ is positive intimation that third party claimant has suffered a loss b. ‘Claims made and notified’ insured may need to notify insurer before they can seek indemnity (Hollister) Step 1: Construction Principles of construction Broad construction without being too astute in finding defects; prefer just and reasonable interpretation – Transport Industries per Kirby J General principles (New Hampshire): 1. Undisclosed intention is inadmissible 2. Court considers written document alone and determines ordinary natural meaning (with reference to precedent) 3. Customary meaning taken into account only if pleaded and proved 4. Surrounding circumstances are taken into account provided they were known, or reasonably capable of being known to parties 5. Evidence of negotiations barred by parol evidence rule 6. Terms will be construed in the context of the contract as a whole 7. Contra proferentum as against the drafter of the contract (s 36 ICA) Inconsistencies will be resolved in favor of written contract (ABC v Australasian Performing) Insuring clauses Insuring clauses which record the risk the insurer is going to pay for should it eventuate and cause loss – defined in widest terms and sometimes qualified by exclusion or limitation clauses 1. Burden on insured to prove risk falls within insuring clause (Munro v War Risks Association) a. Room for estoppel or election/waiver? Control of litigation? 2. Burden lies on insurer to prove scope of limitation/exclusions (Striker v Durant) (those clauses subject to s 35 and 37) Control of litigation clause: allows insurer to take over claim; may give rise to estoppel (underlying UGF s 13) Nigel Watts v GIO; electing to take over a claim is final and conclusive (Freshmark v Mercantile cf. ACN v Zurich) Section 35 ICA – notice of payout if less than minimum specified in regulations – sufficient notice will depend on complexity of provision; understandable it with little difficulty (Marsh) Section 37 ICA – notice of unusual terms in policy Basis of contract clause: subject to s 24 ICA which reduces all warranties to pre-contractual representations Specific interpretations of certain provisions ‘Occurrences’ are things which happen at a particular time and a particular place; similar to ‘series of occurrences’; see Distillers and Kuwait Airways v Iraqi Airways ‘Defence costs cover’ is cover for defence of claims that fall within scope of policy (Sherlex v Thornton) ‘Reasonable precautions’ means taking all reasonable steps to prevent risk from occurring – reasonable in the commercial sense – will not be unreasonable merely because of negligence (Fraser v Furman; Albion v Body Corporate) … needs recklessness (S&Y Investments: in case of vicarious liability, actions of employee not 100% always actions of employer – needs authorization; reasonable precautions does not mean 24/7 supervision of employee) ‘Accidents’ are unintended and unforeseeable occurrences which produce hurt or loss (Fenton); narrow interpretation in Gray v Barr but liberal in Australian Casualty v Frederico (emphasis on unintended consequence) 1. Would an ordinary reasonable person be surprised by the occurrence and damage that resulted? Robinson v Evan Bros; Chick Miscellaneous Final threshold: is payout in interests of public policy and insurance industry e.g. Gray v Barr Insurer liable to pay for each claim even if total amount of claims exceeds policy limit – Distillers Claim paid within reasonable time or else breach of UGF and have to pay additional interest damages (Hungerford) s 57 Can claim directly against insurer per s 51 ICA so long as no valid defense against payment of claim i.e. exclusion or s 54 (see also Corps Act 601AG, NSW LRA s 6, Property Law Act s 58/s 63) Step 2: Causation General Then need to prove causation (between risk and loss) unless contract specifies otherwise (Phoenix Insurance v Liddy) Some general causative provisions: 1. 2. 3. 4. ‘Caused by’ most strict ‘Arising from’ less strict than ‘caused by’ (Dickenson v Motor Vehicle) ‘In connection with’ wide ‘In relation to’ widest (Fire Insurance v Turner) The test for causation Proximate cause test: 1. The cause that is proximate in efficiency, the real efficient cause; or 2. The effective, dominant or operative cause (Lipertis v Australian Casualty); or 3. The active or efficient cause which set in motion the events which brought damage Where there are competing interdependent causes (i.e. neither alone would be sufficient to cause loss), loss is attributed to each; insurer will be liable for insured’s loss even if one of the causes wasn’t insured – Lloyd v Northern Star But where one or more causes are excluded, then insurer need not pay anything: Wayne Tank rule; McCarthey v St Paul; Tektrol v Hanover 1. Think about layers of loss and whether recoverable for each layer; Flood scenario AKA Elilade Also, where contract requires one loss to be the sole or exclusive loss, then the insurer need not pay where there are competing causes Exceptions to causation: 1. Where a person deliberately acts or omits in relation to the loss, this can result in supervening the chain of causation, as with any other supervening act (Allianz v Waterbrook) 2. Where loss was deliberately caused by the insured (McQuade) or by any employee or agent of the insured with their knowledge cf. S&Y Investments 3. Failure to take reasonable steps to mitigate loss resulted in the additional loss which is sought to be indemnified (but rare for this to be basis for complete denial of indemnity) – Allison v Lumley Step 3A: Section 54 General Section 54 puts limits on when insurer can avoid liability Any mention of ‘act’ includes ‘omissions’ (s 54 (6)) 1. An omission being any inadvertent, careless, deliberate or reckless failure to perform a contractual obligation or exercise a right, choice or liberty the insured enjoys under the contract – Antico v CE a. Johnson v Triple C – can only be omission if had capacity to perform in the first place Extent to which insurer is prejudiced – onus on insurer to prove conduct had the act/omission not occurred – Antico v CE Heath (cheaper lawyers available to insurer) QBE v Moltoni (no proof of more proactive claim dealings) For potentially causative acts, see, Bunting, McNeil Section 54, 40 and deeming provisions Where there is a contractual deeming provision in a claims made and notified policy, a failure to notify of circumstances (that may give rise to a claim) to which the insured becomes aware of within policy year will fall within s 54 (see East End, FAI v Australian Hospital Care) Where there is no deeming provision, and only a s 40 statutory deeming provision, it will not fall within s 54 (because it isn’t the effect of the policy) – Gosford City v GIO The core limitation to s 54 One must distinguish between situations where s 54 will apply by virtue of some act or omission and situations where s 54 will not apply by virtue of a core limitation of the policy i.e. in a claims made and notified policy without a deeming provision, failure to notify within policy year will result in no indemnity for subsequent claim (Greentree v FAI; FAI v Hospital Care) – compare Antico v CE Heath (defence costs indemnity if obtain insurer consent) with Stapleton v MTI (cover for certain area) Step 3B: Fraudulence Fraudulent claims Claim is fraudulent where false statements or dishonest omissions were made in relation to claim, either deliberately, recklessly, or knowingly and lacking honest belief in the truth of the matter, for the purpose of creating false belief in insurer and thus obtain money – McCann v Switzerland; AAMI v Thiep The claim involves some element of dishonesty or moral turpitude: Australian Casualty v Hall 1. May be fraudulent even if made to prevent embarrassment – To v Associated Motors 2. Will also be fraudulent where insured, believing claim is invalid, uses fraudulent means or devices (false invoice, receipts, statements) in effort to improve chances of recovery – Agapitos v Agnew Mere exaggeration of loss should not be regarded as fraudulent – insurer has sufficient information to determine for itself range of claim 1. In Entwells, court distinguished between exaggerating value of lost stock and claiming on non-existent loss stock – the latter which was fraudulent Burden of proof High standard of proof required – Briginshaw v Briginshaw; Ocean Harvester v MMI Remedies Insurer need not pay fraudulent claim (to either joint insured): McQuade Can refuse to pay even where claim partly fraudulent – but more likely apportionment (Entwells) Under common law, insurer can only refuse where fraud not trivial or insignificant part of claim (Lek v Matthews) – can also claim damages for deceit and avoid contract prospectively (Orakpo) Under statute, s 56 ICA can only refuse to pay but not avoid contract 1. Court may disregard refusal to pay where only a small or insignificant portion of the claim is made fraudulently and to non-payment of the remainder of the claim would be harsh and unfair s 56 (2) but must regard policy i.e. deterring fraud and any other relevant circumstances s 56 (3) – if disregarded, must pay just and equitable amount 2. Can also seek to cancel contract in alternative s 60 Part II: Under-insurance, subrogation and contribution Under-insurance Averaging Clauses (s 44) Where insured nominates value of sum less than actual value of insured property, and loss which eventuates is greater than the nominated value, averaging clauses will limit amount recoverable 1. If insurer wants to rely, must notify before formation a. If in relation to house or residence, cannot rely on averaging provision if nominated value is 80% or more of actual value b. Where less than 80%, can rely on AS/P, with P being fixed at 80% of true value of property 2. Formula: AS/P (A: dollars of loss; S: amount insured) 3. Can only apply in relation to partial loss; where entire loss, insured is limited to amount policy provides Being underinsured by reason of policy type Three main policies which may lead to underinsurance 1. Defence within limits 2. Indemnity plus costs 3. Partly uninsured claims Defence within limits = defence costs included in policy cover Indemnity costs = defence costs not included but general costs included Partly uninsured = when claim only partially covered by insurance; question as to arrangement and apportionment of defence costs and third party settlements etc. Subrogation Generally Applies to any contract of indemnity (not limited to ICA contracts but ICA modifies equitable principles a little in respect of ICA contracts) Limited to rights insured has against third party – Stratti Insurer must bring in insured’s name if they wish to go against third party Insured must also account to insurer any subsequent payment they receive which may reduce insured’s loss in respect of the payout (Monson) 1. This does not include gifts, pension, or benefit which doesn’t actually reduce loss but rather ameliorates loss (Burnand v Rodocanachi) Any monies recovered from subrogation are distributed from top down (Lord Napier) – where windfall, insurer retains (s 67) but subject to potential view that insured recovers their excess first… Non-interference with insurer’s right to subrogation Subject to policy terms, normally, insured cannot breach insurer’s right to subrogation without first obtaining insurer’s consent i.e. cannot settle without consent with third party In relation to settlements by insured: 1. Settlement without consent will protect third party from subrogation only if third party not aware of existence of insurance or had no reason to suspect insurer did not consent (Buckland v Parmer) 2. Insured may then be in breach of insurance contract – Boag Where insured enters into contract limiting the insurer’s right of subrogation against third party (SGIO v Brisbane Stevedoring), insurer will be bound by this 1. Under ICA, insurer can rely on this arrangement to reduce liability if they notified insured before formation s 68 (1) – insured does not need to disclose such an arrangement before they enter s 68 (2) i.e. insurer bears risk Availability and exercising of the right Insurer can only exercise subrogation after they indemnify insured and with approval of insured (assuming there aren’t any defences against the subrogation) – Smith v Mainwaring 1. Where insurer has not indemnified fully, they cannot stop insured from commencing their own claim against the third party (Morely) Can’t claim where contract modifies or waives subrogation rights (Woodside v H & R) see above and link to s 68 Can’t claim subrogation against insured (for circuity of action: Jennings) Can’t claim subrogation against co-insured except where conduct of coinsured makes it so that they cease to be insured – Lombard v NRMA: case involving composite insurance) Can’t exercise subrogation if insurer has only contributed – only direct indemnifier can subrogate (but note what is received from subrogation claim is to be shared pro rata) Speno v Hamersly Can’t exercise subrogation against another insurer who insures same loss – look to contribution Unclear whether insurer can subrogate against non-insurer indemnifier for the same loss – Speno suggests that it may be possible but Stratti indicates that contribution is more appropriate (if liabilities are coordinate) Under ICA, can't exercise in relation with family or [former] employees (cf. Deutz v Skilled Engineering) (ss. 65-66) 1. Recognized exceptions of serious or willful misconduct (Boral v Pyke) Contribution Generally Double insurance where paying insurer proves: 1. 2. 3. 4. Circumstances and amount of insured loss; Terms of its and the other insurer’s contract That both terms respond to the loss Extent to which it paid for the loss and extent to which the other insurer has not paid Where third party settles, paying insurer must prove additionally in order to get contribution: 1. But for the settlement or flawed judgment, the insured would still be liable to the third party 2. The third party had a more than negligible or speculative chance of proving that but for the settlement/judgment, the insured would still have been liable 3. The extent to which the settlement/judgment reflected a genuine assessment of the claimant’s loss (genuine in the sense that there was a high likelihood the insured would be liable) Can claim contribution when there is double insurance (Burke) see Albion 1. Extension of contribution where insurer A insures losses X and Y and insurer B insures loss Y; when insurer A pays out for loss X, can claim from insurer B (AMP v QBE) Must seek in the name of insurer and not insured (Sydney Turf) No right of contribution between insurer and non-insurer indemnifier because liabilities are not co-ordinate (Caledonia North Sea) Contribution mechanisms Maximum potential liability – apportioned based on ratio of total to amount covered under each individual policy Independent actual liability – ratio between amount coverable under each policy divided by total potential sum covered under both policies (preferred approach: GIO v Crowley) Equal actual liability – shared loss for amount coverable under lowest limit policy with excess being paid by higher limit policy (Collyear – preferred in practice) Example: Policy A covers 3 million; Policy B covers 1 million; loss of 2 million… 1. Maximum Liability: 3/5 x 2 (Policy A) and 2/5 x 2 (Policy B) 2. Independent Liability: 2/3 x 2 (Policy A) and 1/3 x 2 (Policy B) 3. Equal Liability: 0.5 + 1 (Policy A) and 0.5 (Policy B) Other insurance clauses In situation of double insurance, other insurance clause limits/excludes liability of an insurer (subject to policy terms) – under common law, insured must disclose of other policies (Zurich v MMI) Under statute, s 45 ICA makes void any other insurance clause which has effect of limiting or excluding liability by virtue of the insured entering into another contract covering the same risk 1. Section 45 will not operate where insured obtains benefit of another contract by virtue of someone else entering into it for their benefit (Zurich v MMI) – clause is void only to extent that it satisfies s 45 Section 45 has no application to other policies entered into before entry into the contract which has the other insurance clause – effect is prospective (Speno) Section 45 does not apply in respect of true excess policies (ones where reference to other contract is made and clearly intended to operate as excess) (s 45 (2)) nor in respect of compulsory insurance contracts e.g. worker’s comp or CTP (s 45 (1)) Under statute, s 76 also prevents insurer from relying on other insurance clauses for purposes of resisting a claim i.e. other insurance clauses only effective in ICA governed contract to the extent that it responds to a claim of contribution Entry of contract by third party for benefit of another Where contract between parties requires one to obtain insurance in respect of the other, and that party fails to do so, the party can still be indemnified by the other party (straight out of pocket) – Theiss Part I: Other types of insurance contracts Life Insurance Overview Regulated by provisions of ICA Section 9 life insurance includes: payment of money on death, happening of contingency, payment of money for continuity of life, income protection No requirement for insurable interest Life Insurance Regulation Same as normal insurance contract except when dealing with certain misrepresentations, remedies and coverage Section 47 limits insurer’s denial of indemnity to only sicknesses and illnesses that were known to the insured (or a reasonable person in circumstances of insured) before the contract was entered into should that pre-existing illness contribute in whole or part to some loss covered by the insurance contract Section 48A extends coverage to benefit of another person Section 48AA extends coverage to context of superannuation Section 25 deems any pre-contractual representation made by persons who later became insured to be a misrepresentation by them Section 29 deals with life insurance remedies for misrepresentation and non-disclosure 1. Section 29 doesn’t apply if insurer would’ve entered into contract regardless or if it was in respect of DOB (1) (onus on insurer; not an overly strict onus – Tyndal v Chisholm) 2. Where misrepresentation was fraudulent (cf. Bottrell; Walton) or had effect of inducing the insurer to contract, insurer may avoid the contract (2) (3) 3. If they don’t avoid the contract, insurer (through written notice before expiration of three years after contract entered into) vary the contract by substituting the sum insured, a sum no less than ascertained in accordance with SP/Q (S: amount insured; P: premium paid; Q: premium that would have been paid had there been no misrep.) Section 30 deals with misrep. of DOB: insurer may reduce sum insured by an amount no less than obtained in accordance with SP/Q or the value of SP/Q if sum insured was less than SP/Q) Any power to avoid or refuse to pay a claim on basis of fraudulent misrepresentation or claims (see Clark v NZI and King) are subject to s 31 and s 56 Courts have little patience for tardy insurers taking too long to assess and claim and produce evidence in support of claim – Sayseng Compulsory Third Party Motor Vehicle Insurance Overview Not governed by the ICA – instead: Queensland Motor Accidents Insurance Act Applies in respect of: 1. Personal injury caused by, through or in connection with a motor vehicle only if injury is as a result of: the driving of a motor vehicle; or collision or act taken to avoid collision with a motor vehicle; or a motor vehicle running out of control; or a defect in vehicle causing it to run out of control whilst being driven; or 2. Personal injury caused by, through or in connection with motor vehicle only if injury is caused wholly or partly in connection with the wrongful act or omission by a person other than the injured in respect of a motor vehicle; or 3. Uninsured vehicles only if accident out of which injury arises happened on road or public place Does not apply in connection with bulldozers, amphibious vehicles etc. unless accident out of which injury arises happened on a road Causation: the phrase “caused by”… “Is a result of” Matter of common sense – was it the driving that brought about the accident? ICWA v Container: was it a consequence of driving or of some feature of driving a motor vehicle (note WA legislation required injury to be directly caused by…) Distinguish between acts sufficient to cause accident itself and acts which derive impetus from driving of vehicle to cause accident… often fine distinction to make… liberal approach seen in Coley v ND and Lawes v ND (No immediate connection required; words “in respect of”, “in connection with”, “is a result of” employ wide interpretative avenues); cf. Mani v ND Definition of ‘road’ and ‘public place’ Was it a road in ordinary sense? Driveway considered a road (R v Sweeney) Was it s public place at relevant time of accident? Cf. Turner Marine Insurance Overview Codified in Marine Insurance Act – not regulated by ICA except to extent of pleasure craft contracts Marine insurance insures risk against marine losses incident to marine adventure (Leon v Casey) Marine adventure is defined as including: 1. When ships, goods or other movables exposed to maritime perils 2. The earning or acquisition of freight endangered by exposure to maritime perils 3. Liability to a third party incurred as a result of insurable property being exposed to maritime perils (Gibbs v MMI) Marine perils are defined to include “the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind, or which may be designated by the policy” – see Edmunds v Rhesa and Leyland Shipping Important provisions of Marine Insurance Act Section 4: policy without insurable interest is void Section 17: imposes duty on insured of uberrimae fides Section 18: proposer of insurer has duty to disclose all material facts relevant to acceptance and rating of the risk Section 33 (3): if a warranty be not exactly complied with, then subject to any express provision, the insurer is discharged from liability as from the date of breach Section 34 (3): breach of warranty may be waived by the insurer Section 39 (1): implied warranty that vessel is seaworthy at start of voyage for the purpose of the voyage Section 39 (5): no warranty that vessel shall be seaworthy during the policy period – however, if assured knowingly allows unworthy vessel to set sail, insurer is not liable for losses caused by unseaworthiness Section 50: policy may be assigned Section 60-63: issues of constructive total loss – insured can by notice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo if it should later turn up Section 79: subrogation for salvage rights Workers Compensation Insurance Overview Workers Compensation and Rehabilitation Act – requires employers to insure against liability to pay compensation to employee for injury sustained at work ICA does not apply Application Subject to same notions of common law disclosure and misrepresentation, duty of utmost good faith, fraudulent claims, subrogation and contribution In respect of contribution, can only apply if worker has cause of action against employer in respect of indemnity – where such a cause has been extinguished, no right of contribution for third party – Bonser v Melnacis See SGIO v Brisbane Stevedoring for combination of subrogation, contribution and liability generally in respect of worker’s comp Compare with decisions of Multiplex v Irving and Vulcan v Pentax Reinsurance Insurance for the insurer Reinsurance is the practice by which an insurance company insures the entire risk itself and then passes on some of the amount it has accepted to other insurance or reinsurance companies Initial insurer will only retain an amount it can absorb When insurance company cannot afford entire risk, it can share the risk with another insurance company or it can cede the excess which it cannot absorb to a reinsurer Reinsurance not governed by the ICA and limited only by contractual terms – can be one off, cover proportional or excess of losses or cover risks horizontally/vertically Part II: Insurance Concerns Under-insurance Concerns General Concerns Disparity of interest when there is defence within limits policy – more money spent on defence = less money for payout In this context, where insurer knows of under-insurance and chooses to continue to conduct defence, must be in good faith (Re Zurich) 1. In the alternative, insurer may be able to tender indemnity amount to insured and let them conduct defence and case (may not be option where there are unlimited defence costs cover i.e. may be breach of good faith) Insurer conducting defence may also expose themselves to cost orders if it is established that insurer assumed conduct of defence in furtherance of own interests in preference to the interests of the insured – TGA Chapman Uninsured interests may be set off against limit of indemnity – Citibank NA v Excess Insurance Where a single solicitor appointed for both insured and insurer faces under-insurance, best to tell each party to seek separate legal advice Solicitor Concerns (more in Ch. 26) General duties Duty to client is paramount – Groom v Crocker Solicitor acting for insured, regardless of whether or not acting on instructions of insurer, is solicitor for insured Where solicitor appointed for two parties, cannot give advice to exclusion of the other party (Verson v Ward) Lawyer for insurer investigating claims Lawyer aware of duty of UGF owed by insurer to insured Inform insured: 1. You are acting for insurer 2. Contacted insured pursuant to their client’s instructions to investigate the claim and advise on policy coverage and exposure 3. That the insurer has not yet decided on indemnity 4. Investigation is without prejudice 5. Insured may want to retain their own lawyer before providing information to you as insurer’s lawyer Communicating reduces risk of estoppel/election arguments When informing insured that they are indemnified, qualify that indemnity if subject to terms of policy and insurer retains right to deny claim should they discover some fact which allows them to decline Lawyer for insurer acting for insured in relation to third party claim Only take on defence within scope of rights given to insurer and not for any extraneous purpose Limited by duty of UGF owed by insurer to insured – take account of client’s (insured’s) best interests Conflict of interests Where insurer gives lawyer instructions conflicting with insured instructions, lawyer can act solely on insurer’s instructions if within scope of contract and consistent with UGF 1. Defence/settlement must consider interest of insured 2. Where insurer’s solicitor takes on settlement or defence, and ends up discovering uninsured or underinsured, claim of estoppel/election may arise – Hansen v Marco Generally not smart to advise insurer on liability when acting for insured unless they have let insured know that they are only acting for them in relation to the defence and not coverage – Verson Where there is dispute as to coverage of claim, lawyer appointed for both parties should advise to each party to seek separate advise – Kennedy Where insured gives confidential information to lawyer, joint retainer ends and lawyer prevented from acting for insurer – confidentiality (ACN v Zurich) 1. Mere contractual provision saying “insured must give all necessary information to insurer and forward all documents” not enough 2. Waiver may however, be enough to eliminate confidentiality concerns but caution this approach in light of UGF Safeguards against conflict Many safeguards available: QC clauses; reservation of rights letter; nonwaiver agreement; Cumis council