MGI South Qld Pty Ltd v Arch Underwriting at Lloyd's Ltd
[2016] QDC 98
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- Unreported Judgment
- MGI South Qld Pty Ltd v Arch Underwriting at Lloyd's Ltd[2016] QDC 98
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MGI South Qld Pty Ltd v Arch Underwriting at Lloyd's Ltd[2016] QDC 98
MGI South Qld Pty Ltd v Arch Underwriting at Lloyd's Ltd[2016] QDC 98
DISTRICT COURT OF QUEENSLAND
CITATION: | MGI South Qld Pty Ltd v Arch Underwriting at Lloyd’s Ltd on behalf of Syndicate 2012 [2016] QDC 98 |
PARTIES: | MGI SOUTH QUEENSLAND PTY LTD (applicant) v ARCH UNDERWRITING AT LLOYD’S LIMITED ON BEHALF OF SYNDICATE 2012 (respondent) |
FILE NO/S: | D4214/2015 |
DIVISION: |
|
PROCEEDING: | Originating Application |
ORIGINATING COURT: | District Court at Brisbane |
DELIVERED ON: | 29 April 2016 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 9 December 2015 |
JUDGE: | McGill SC, DCJ |
ORDER: | Application dismissed with costs |
CATCHWORDS: | INSURANCE – Construction of policy – public liability insurance – claims made policy – whether letter amounted to a claim under the policy – effect of continuous cover extension. BOQ Limited v Chartis Australia Insurance Ltd [2012] QSC 319 – cited. Bowling v Weinert [1978] 2 NSWLR 282 – cited. East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 – cited. Electricity Generation Corporation v Woodside Energy Ltd (2014) 88 ALJR 447 – cited. FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 – cited. Junemill Limited v FAI General Insurance Co Ltd [1999] 2 Qd R 136 – applied. King v McKean and Park [2002] VSC 350 – cited. Livesay v Hawkins [2012] QSC 122 – followed. Phoenix Insurance Co. v Sukut Construction Co. (1982) 136 Cal. App. 3d 673 – cited. Queensland Alumina Ltd v Alinta DQP Pty Ltd [2006] QSC 391 – cited. Walton v National Employers’ Mutual General Insurance Association Ltd [1973] 2 NSWLR 73 – cited. Westrec Marina Management Inc. v Arrowood Indemnity Co. 2008 Cal. App. LEXIS 914 – cited. |
COUNSEL: | R M Derrington QC for the applicant R S Ashton QC for the respondent |
SOLICITORS: | Mullins Lawyers for the applicant DLA Piper Australia, solicitors for the respondent |
- [1]The applicant is a firm of accountants. At all times between 8 February 2009 and 8 February 2012, at least, it held policies of professional indemnity insurance arranged through Dual Australia Pty Ltd (“Dual”) as an underwriting agent. For the period 8 February 2010 to 8 February 2011, this was under a policy by Dual on behalf of the respondent. One of the clients of the applicant was Bywater Medical Management Pty Ltd (“BMM”). On 28 July 2013 the applicant was served with a claim and statement of claim by which BMM claimed damages for professional negligence against it.[1] The applicant alleges that the respondent is liable to indemnify it in relation to the claim of BMM being pursued in that proceeding, but the respondent denies this.[2]
- [2]Initially the respondent challenged the appropriateness of the originating application to resolve these issues. Ultimately, however, that point was not pressed. After some prevarication, counsel for the respondent at the hearing conceded that there was no relevant dispute as to the facts, and that the question turned on the proper construction of the relevant policies of insurance, and the proper construction of certain correspondence between BMM and the applicant. I am conscious of the need to avoid making a hypothetical declaration, one based on facts not found or agreed,[3] but ultimately the contention that that was the case here was not pursued on behalf of the respondent, and I am satisfied that the matter is proper for resolution by this procedure on undisputed facts, without further evidence.
- [3]Accordingly the dispute between the parties before me can be resolved by the determination of questions of construction arising under written documents and declarations of the rights of the persons interested within s 68(1)(b)(xiii) of the District Court of Queensland Act 1967, so long as the property in respect of which the declaration is sought does not exceed in amount or value the monetary limit. Given the dispute is in relation to an entitlement to be indemnified under a policy of insurance in respect of any liability arising from a claim in this court, it might be expected that the right of indemnity alleged by the applicant to exist would be itself within the monetary limit of this court.[4] Counsel for the respondent did not dispute the proposition that this court has jurisdiction to decide the matter, and in those circumstances I am prepared to find that the value of the property in issue is not more than the monetary limit of this court.
- [4]All of the policies of insurance were written on a “claims made” basis.[5] There was however a difference between the policy which commenced on 8 February 2009 and the policy which commenced on 8 February 2010 as to what it was that constituted a “claim” for the purposes of the policy. Under the former policy, it was defined as a situation where a proceeding was commenced on the claim, but under the latter, broadly speaking, a letter of demand also amounted to the making of a claim.
- [5]The respondent submits that what occurred here was that during the period of cover of the former policy a letter of demand was sent by BMM to the applicant. This was not a “claim” for the purposes of the first policy, because it was not a proceeding, so no indemnity is provided under that policy. In respect of the policy commencing 8 February 2010, the letter amounted to a claim made for the purposes of that policy but it was not first made during the term of that policy, so no indemnity is available under that policy. In effect, although the applicant had professional indemnity insurance organised through Dual throughout this period, because of the change in the definition of a “claim” there was a category of potential claims in respect of which no indemnity was provided under either policy, and the claim by BMM happens to fall within it. That is an unattractive outcome, but in circumstances where the wording of the policy changed for the 2010 policy, it is obviously a possible outcome, depending on the true interpretation of the policies.
- [6]The applicant sought to avoid that outcome by one of two contentions, either of which would be sufficient to sustain an indemnity:
- (a)The letter received prior to 8 February 2010 was not a “claim made” for the purposes of the new policy, so that a subsequent letter in relation to the matter received during the insurance period of that policy constituted the claim first made.
- (b)The matter was covered by a clause in the policy providing an extension described as “continuous cover” designed to ensure seamless coverage during the policy period, which on its true construction would cover any claim made during the relevant period even where it was not a claim first made during that period.
Factual background
- [7]BMM began to retain the applicant in about 2005, and various accounting work was done for BMM thereafter. It is contentious in the other proceeding whether the applicant was retained to provide advice concerning liability for payroll tax. In June 2009 the Office of State Revenue wrote to BMM raising issues about the payroll tax paid by the company, and BMM asked the applicant to respond to the letter, and it seems more generally to assist in dealing with the issues raised.[6] In December 2009 and January 2010 there were telephone discussions between representatives of the applicant and BMM, dealing with the question of payroll tax liability, during which BMM indicated it would not be paying certain unpaid accounts from the applicant.
- [8]There were then a series of emails in January 2010. On 14 January a director of the applicant sent an email to a representative of BMM.[7] The email acknowledged that there had been a misunderstanding, that they thought someone else was handling payroll tax while that person thought that they were handling it, and as a result both assumed the matter was covered by the other. The email stated: “In order to resolve this matter for both of us asap, would you please summarise exactly what you are looking for so that this matter can be signed off and put to bed.” There was also a reference to the desirability of not having lawyers involved.
- [9]On 23 January 2010 the representatives of BMM sent an email to someone else with the applicant, apparently in response to some query about payment of accounts, advising that they would communicate “regarding a fair and equitable settlement as soon as possible.” On 25 January 2010 there was a further letter to BMM pressing for payment of other unpaid accounts, which also referred to “resolving the payroll tax matter.” Then on 29 January 2010 a representative of BMM sent by email a without prejudice letter, which is relied on by the respondent as being a claim for the purposes of the second policy.[8] The letter was sent in a form which incorporated a programming feature, that the date shown on the letter automatically changed to the date on which any hard copy of the letter happened to be printed. Evidently some computer programmer somewhere thought that this was a desirable feature,[9] but the practical effect of it is that there are printouts of the letter in the material which have different dates, including 1 February 2010. Nevertheless it is clear that it was in fact sent on 29 January 2010, because the director of the applicant sent an email that day in response seeking clarification of one part of what was proposed by that letter.[10] See also the email from Dr Norman dated 11 February 2010 which referred to “our position on the matter of the OSR audit as stated in our letter sent to you on 29 January 2010.”[11]
- [10]Because of the importance of this letter I will quote it in full, omitting the formal parts at the beginning and end. I note that it was headed “without prejudice”:
“I have had the opportunity of considering my position with regard to the prospective liability for payroll tax.
My companies’ position must be that MGI was retained to deliver professional advice and within that retainer they were to give consideration to all tax liabilities that my companies were likely to incur and to use their expertise to mitigate those liabilities within the ambit of all applicable taxation laws.
I find myself in the position that a very substantial liability will now be levied as against my companies in circumstances where I believe MGI should have delivered appropriate advice. This was not done.
There is now an opportunity of making a detailed submission to the Office of State Revenue to seek the remission of penalty taxes and unpaid tax interest.
I believe that such submissions need to be drawn by persons expert in the area of Revenue Law.
There would now be an opportunity for MGI to minimise the prospective liability of my companies as the taxpayer by having all appropriate submissions drawn and, subject to my approval, submitted to the Office of State Revenue.
On that consideration I would offer on a “without prejudice” basis to resolve this matter as follows:
- MGI has at its cost prepared, subject to my approval, detailed submissions to the Office of State Revenue in accordance with Public Rulings TAA060.2.2 and TAA060.1.2 for the remission of all penalty tax and unpaid tax interest on behalf of the taxpayer; and
- MGI agrees to make payment to the taxpayer of its legal costs and outlays incurred in the matter, presently estimated at approximately $1,200.00; and
- MGI makes payment to the Office of State Revenue of all principal payroll tax obligation, penalty tax and unpaid tax interest imposed upon the taxpayer by the Office of State Revenue.
If we are able to resolve this matter satisfactorily I would prepare to see my companies continue to utilise the services of MGI.
I look forward to hearing from you.”
- [11]If the email requesting clarification produced any, it does not seem to be included in the material. On 4 February 2010 the director of the applicant sent a letter (I assume by email) to BMM, referring to the earlier without prejudice letter, and making a counter offer,[12] but indicating that the applicant was not willing to pay legal costs incurred in the matter or any payroll tax liability or interest assessed as a result of the audit. The offer was also said to be subject to all other accounts being paid in full by 12 February 2010, otherwise action would be taken to enforce them.
- [12]On 16 February 2010 BMM wrote to the Institute of Chartered Accountants in Australia (“ICAA”) complaining about the applicant.[13] That letter was accompanied by a member complaint form of the Institute which had been completed by Dr Norman and a copy of the without prejudice letter sent to the applicant on 29 January 2010, and the response to that letter. The letter stated that their complaint was the applicant “failed to act in a professional manner by failing to provide standard advice on company payroll tax liability” which resulted in a significant liability, in that BMM was denied the opportunity to alter its company structure to limit its exposure to ongoing payroll tax. The argument was that, if proper advice had been given, BMM would have employed medical practitioners as contractors rather than as employees. It was their employment as employees which had the effect of putting BMM over the payroll tax threshold.
- [13]The letter spoke about the terms of the applicant’s engagement, and about the audit by the Office of State Revenue. There was also a complaint that there had been a failure to make provision for the payroll tax in the company accounts. In reference presumably to the letter sent on 29 January, Dr Norman wrote “we have enclosed our request for recompense to [the applicant]”. A copy of this complaint was provided by the Institute to the applicant under cover of a letter of 2 March 2010.[14] The Institute advised that it was investigating the complaint to determine whether or not there were grounds for disciplinary action, and invited the applicant to provide advice in relation to the allegations, in writing, by 22 March 2010. It was submitted by the applicant that it was only when it received the copy of the letter of 16 February 2010 that the without prejudice letter of 29 January 2010 was identified as a request by BMM for recompense from the applicant. On about 18 March 2010 the applicant responded to the complaint.[15]
- [14]In May 2012 the Office of State Revenue completed the audit, and advised BMM of an assessment of payroll tax, penalties and interest charges amounting to approximately $330,000. Apparently shortly thereafter this was communicated to the ICAA, and they advised a representative of the applicant of this orally, and that BMM was seeking advice with a view to commencing a claim against the applicant for damages. Following this, notice of the claim was given to Dual in early July 2012.
First issue
- [15]The first question which arises is whether the letter sent by email on 29 January 2010 was a claim for compensation made against the applicant, so that what occurred during the insurance period of the policy issued by the respondent was not a claim for compensation first made against the applicant during the insurance period. The term “claim” was defined in clause 6.1 of the respondent’s policy[16] as follows:
“Claim means:
- (a)any civil proceeding brought by a third party against the insured for compensation; or
- (b)a written demand by a third party for monetary damages.”
There was no issue about the application of the first part of this definition, but it was submitted for the respondent that the without prejudice letter of 29 January 2010 amounted to a written demand by a third party for monetary damages. If this was a claim made prior to 8 February 2010, it would be not a claim first made during the insurance period, and would be excluded by clause 7.1(c) which excluded:
“Any claim that was first made, threatened or intimated against the insured prior to the insurance period.”
- [16]Claims made policies have been around for some time and are common enough,[17] and there are plenty of cases about whether or not something amounts to a claim on the insured. Often these involved policies where the term “claim” was not defined,[18] but in Junemill Limited v FAI General Insurance Co Ltd [1999] 2 Qd R 136 the Court of Appeal considered a policy where the term “claim” was defined as “the demand for compensation made by a third party against the insured but shall not include the insured’s costs and expenses,” a definition which is fairly similar to that in the present policy. Fryberg J with whom McPherson JA agreed said at p 145 that consideration should be given to the words in the definition rather than earlier cases dealing with the concept of a “claim”. He referred to dictionary definitions of “demand”, and expressed the view that “demand” was used in the definition to refer to the subject matter rather than the action of demanding: p 146. At p 147 his Honour said:
“There is no formula which must be included in a claim by a third party. ‘What is required, unless the policy expressly so stipulates, is a form of demand or assertion of liability, not a formal demand or assertion of liability.’[19] It must be remembered that the wording is a matter quite beyond the control of the insured.”
- [17]His Honour added at p 149:
“None of the cases cited to us involved a policy with a definition of “claim”. Nonetheless, they show that, at least in the context of the scope of cover clause, the courts have dealt with the question of what amounts to a claim as one of substance and not of form.”[20]
- [18]In that case there had been two letters from solicitors for a former client of the insured during the period of cover. The first drew attention to the fact that valuations had been provided by the insured, and advised that their opinion was that there were grounds for legal proceedings in relation to those valuations, and that in the event of their client’s sustaining a loss in relation to any of the mortgages their client intended to commence legal proceedings against the valuers. That was followed a few days later by a letter to the appellant’s insurance broker which among other things stated that “this letter will operate as sufficient notification of a claim, full details of which will be provided in due course, under the terms of their policy, notwithstanding that the policy may subsequently lapse before a formal detailed claim is made.”
- [19]The Court of Appeal, overruling the judge at first instance, held that this letter amounted to a claim as defined in the policy. The third member of the court, Fitzgerald P, referred to the letters and the argument for the respondent, and concluded at p 140:
“No amount of semantic gymnastics seems to me to lead to a conclusion that the letters from IOOF’s solicitors do not assert a right to compensation from the appellant.”
Although not expressly endorsing the comment that the question should be dealt with as one of substance and not of form, his Honour appears with respect to have applied that approach.
- [20]That decision was applied in Livesay v Hawkins [2012] QSC 122, where again there was a “claims made” policy with a definition of “claim” as (relevantly) “any written demand … for compensation made against the Insured but only in respect of the performance of Professional Services by the Insured.” The insured was a real estate agent, and received a letter from a tenant of a property managed by it which complained about the state of the premises, and included statements as follows:
On 25 April at approx 10 am [the plaintiff] attempted to enter the bathroom in this premise (most sliding doors in this house are hard to open and need attention) as she opened the door the overhead pelmet dismantled from the wall and fell on top of her. It caused Personal Injury to her left hand and what appears to have cracked her nose. We are currently seeking medical advice and will advise you of our intentions on this matter.
…
As per the Tenancy Act and advice from Rental Tribunal, [the defendant] and the owners of a rental property will be held liable for any personal injury claims arising from damage caused to the tenants due to poor living conditions.
…
We are very disappointed by the state of this home and wish to have the above-rectified ASAP. We are not bad people and wish to enjoy a happy time in our new home ensuring the owners that we will care for their home as if it were our own. If the owners of this property disagree to having the premises repaired and brought to a good standard for the rent they are asking, we will have to vacate the premises and will seek legal advice from the rental tribunal for compensation of any costs involved to do so, due to the breach of our lease.
This does not include Personal Injury Claim that we are currently entitled to due to injury caused by dangerous fixture.
We will take no legal action if this property is repaired effectively and promptly and made safe for living in. …”
- [21]Daubney J referred to Junemill (supra) and held that this was a claim within that definition, saying at [42], [43]:
“In the present case, the letter of 26 April 2005 expressly asserted an entitlement on the part of the plaintiff to recover for her personal injury claim ‘due to injury caused by dangerous fixture’. Contrary to the submissions on behalf of [the insurer], this statement was not enigmatic. It occurred in a context in the letter in which the plaintiff and her husband were seeking resolution of the complaints they had in respect of many defects in the property, and indicated that they would refrain from action in respect of those defects if the property was repaired. They expressly excluded from that course of action the entitlement which the plaintiff claimed to recover for ‘injury caused by dangerous fixture’. The letter further made it clear that the plaintiff appreciated, and contended, that she had such a claim against [the agent] – she expressly referred to [the agent’s] business being ‘held liable for any personal injury claims arising from damage caused to the tenants due to poor living conditions’.
These elements in the letter of 26 April 2005 are sufficient, in my view, for the letter to be considered as a form of demand or assertion of liability. It is not to the point that this demand or assertion of liability was co-mingled with complaints about the condition of the property. I consider it sufficiently clear that the plaintiff was making an assertion of liability on the part of [the agent], even in the context of the other matters mentioned in the letter, for it to constitute a written demand for compensation, within the definition of the term ‘Claim’ in the policy.”
- [22]There is American authority that a letter alleging wrongdoing and inviting settlement which may convey an implied threat to sue can amount to a claim.[21] There is also American authority that if a client of an insured asks the insured to do work without remuneration to correct what is said to be an earlier fault in the insured’s work, this too may be a claim.[22]
- [23]The policy in the present case contained an insuring clause 2.1 as follows:
“We agreed to indemnify the insured for any claim for compensation first made against the insured and reported to us during the insurance period in respect of any civil liability resulting from any breach of professional duty by the insured in its conduct of its professional business.”
- [24]Strictly speaking this was a claims made and notified policy, but there was no issue before me that the failure to report the claim to the insurer was a relevant factor; this said to be a consequence of the Insurance Contracts Act 1984 (Cth) s 54.[23] It was submitted for the applicant that, for there to be a claim as defined there had to be a demand for damages, which involved an assertion of a right to the payment of money which had the character of being damages. It was submitted that the policy drew a distinction between the making of a claim and the threatening or intimation of a claim: see clause 7.1(c). That is true, but the word “demand” also appeared in the definition considered by the Court of Appeal in Junemill (supra), and the Court does not seem to have attributed much significance to any notion that the use of that word involves some degree of forcefulness or insistence in the relevant written communication. That definition spoke of a “demand for compensation” rather than a “demand for damages”, but I do not think that that is of any real significance, in circumstances where damages are simply the legal term for compensation for a legal wrong.
- [25]In the present case it is not necessary to consider a situation where the unhappy client was demanding something in the way of nonmonetary compensation, because in the present case what was being sought included monetary compensation in the form of reimbursement of legal costs and outlays, and whatever amount was ultimately imposed by the Office of State Revenue. It was submitted for the applicant, however, that the letter was not a demand for damages, because it was expressed as an offer of compromise, as part of which what was offered was the prospect of a future business relationship. It was not the assertion of an entitlement, but rather an attempt to negotiate a resolution of the differences between the parties in a way which would prove satisfactory to both. This was emphasised by the fact that the letter was headed “without prejudice”. It was not expressed as a statement of an entitlement to any particular legal rights, but rather as a statement of a negotiating position, in terms of what BMM would accept in lieu of what it was legally entitled to.
- [26]It was submitted that the letter did not assert in terms any breach of duty, and strictly speaking that is true, though it seems to me that if the matter is looked at as a matter of substance and not of form it is asserting that the applicant had a duty to provide advise on payroll tax minimisation, and had failed to comply with that duty, with the result that BMM had been exposed to a liability to payroll tax which could have been avoided. It is true that a lawyer would expect this document as a “without prejudice” offer to accompany an open letter which did expressly assert a right to damages on the basis of a breach of duty or contract, but in circumstances where on the evidence there was no such open letter, it is a question of determining whether this letter alone, in substance rather than as a matter of form, constitutes a demand for damages.
- [27]In my opinion the letter does do so. It asserts, reasonably directly, that there was a breach of duty on the part of the applicant, in that it ought to have given advice as to how BMM could arrange its affairs to minimise or avoid payroll tax, and it failed to do so, with the result that avoidable liability to payroll tax had arisen. By seeking agreement to pay a certain amount, BMM was in substance asserting an entitlement to damages in at least that amount. The fact that no particular amount by way of damages was sought as an entitlement is not, I think, of any consequence; that was also the case in Junemill (supra) and in Livesay (supra).
- [28]Perhaps I should also say that I do not think it matters that BMM evidently regarded the without prejudice letter as a request for compensation, because it was described in terms similar to that when BMM was speaking of it to the ICAA. The question of whether a particular communication amounts to a claim for the purposes of the policy must depend upon an objective assessment of the communication against the criteria required by the policy, not the subjective intention of the party sending the communication, or for that matter the subjective impression of the party receiving it. On the other hand, if the letter had not been objectively a claim, that it was so described in a letter sent later to the applicant would be relevant to an objective assessment of whether a claim was then being made.
- [29]I therefore find that the without prejudice letter of 29 January 2010 amounted to a claim as defined in the second policy which was made on that date, before the insurance period of the second policy. Accordingly, it was not a claim first made during that period, and therefore did not fall within clause 2.1 and was excluded by clause 7.1(c). Prima facie, it was outside the cover provided by the second policy.
The second issue
- [30]The second policy, for the period from 8 February 2010 to 8 February 2011, included as one of the automatic extensions in Item 8, clause 3.15 “continuous cover”. That clause provided as follows:
“Notwithstanding the prior knowledge clause 7.1(a) and (b), we agree to provide cover in respect of any claim made in the insurance period where the insured:
- (a)first became aware, prior to the insurance period, that a claim might or could arise from facts or circumstances known to it; and
- (b)had not notified us of such facts or circumstances prior to the insurance period, provided that:
- (i)we were the professional indemnity liability insurer of the insured when the insured first became aware of such facts and circumstances; and
- (ii)we have continued, without interruption, to be the insured’s professional indemnity insurer up until this policy came into effect; and
- (iii)there has not been any fraudulent nondisclosure or fraudulent misrepresentation by the insured in respect of such facts or circumstances; and
- (iv)we have the discretion to apply either the terms and conditions of the policy on foot when the insured first became aware of the facts and circumstances, including but not limited to the indemnity limit and deductable, or the terms and conditions of this policy; and
- (v)the insured agrees only to make a claim under one professional indemnity policy issued by us.
For the purpose of this extension only, the definition of we/us/our in clause 6.20 of this policy also includes the underwriter(s) for which we were the agent on any previous policy issued by us as such underwriter’s agent to the insured. Subject to the terms of this extension and the terms of the policy, the intention of this extension is to provide continuous cover to the insured notwithstanding any change in the identity of the underwriters for which we presently act, or have previously acted, as agent.”
- [31]It is relevant when considering the meaning of that clause to have regard to clause 7.1, which is in the section of the policy headed “exclusions” and provides as follows:
“We will not cover the insured, including for defence costs or other loss, in respect of:
- (a)any claim arising from or in connection with a fact or circumstance that the insured knew or ought reasonably to have known prior to the insurance period might or could give rise to a claim;
- (b)any claim arising from or in conjunction with a fact or circumstance of which notice has been or reasonably should have been given under any previous insurance;
- (c)any claim that was first made, threatened or intimated against the insured prior to the insurance period.”
- [32]Commonly one would expect to find, in a policy excluding cover in respect of matters which might have been expected to give rise to a claim, a provision that if during the period of cover the insured becomes aware of any such matter and the insured gives notice of that matter to the insurer, that will be treated as the equivalent of a claim made and notified, if a claim is ultimately made. In effect an insured can give notice of an anticipated claim, and in that way obtain protection. I have not in fact been able to find such a provision in the wording of either of these policies, but that may be simply because I have not looked in the right place.
- [33]The applicant stressed that the continuous cover clause referred to any claim made in the insurance period, whether or not first made in that period. It was submitted that the effect of the correspondence with ICAA, which was invited to pass it on to the applicant, amounted to a written demand for compensation on the applicant and hence a claim within the definition for this policy. This was reinforced by the fact that clause 3.15 was an extension to the policy, which one would expect would deal with situations not covered by the basic insuring clause, and that its function was described as being to provide continuous cover to the insured notwithstanding any change in the identity of the underwriters. It was submitted that this purpose would be furthered by giving the clause the interpretation relied on by the applicant.
- [34]It was also submitted that there was no dispute about the applicability of the five provisos. Strictly speaking, proviso (iv) is not a condition, but rather something which gives the respondent a choice if the claim is accepted. However the respondent did not rely on any of the provisos in resisting this argument. It was submitted that both paragraphs (a) and (b) were satisfied, on the basis that the applicant became aware at the latest when the letter of 29 January was received, that a claim might or could arise from facts or circumstances known to it,[24] and it had not notified the respondent of the facts or circumstances prior to the insurance period. It was further submitted that this was particularly apposite in the context where there was change in the definition of claim, because the continuous cover clause applied by reference to the new, wider definition of claim.
- [35]It was also submitted for the applicant that, on the respondent’s interpretation of the clause, one would have the odd result that if a client merely drew attention to facts and circumstances which could give rise to the making of a claim, but did not actually make a claim prior to the insurance period, cover was provided under this clause, but if the third party actually made a claim prior to the insurance period cover would not be provided. That is correct, though it occurs to me that it is not necessarily an odd result: if the definition of “claim” had remained the same throughout, a claim made at any time during the three policies would always meet the requirements of one of the policies, subject to the operation of clause 7.1, and the real function of this clause was to ensure that that outcome was not prevented by the application of clause 7.1. The anomalous outcome arises not because of the application of clause 7.1 and the change of insurer, but because of the change in the definition of “claim”.
- [36]The applicant submitted that the extension in clause 3.15 should not be read down by reference to the exclusion in clause 7.1(c), or for that matter to the fact that, if the claim was first made prior to the period of insurance, the claim did not come within clause 2.1, because the whole purpose of an extension is to extend the cover which would otherwise be available under the policy.[25] So much may be accepted. The real issue however in the interpretation of clause 3.15 is as to the extent of the extension. It was submitted on behalf of the respondent that the express reference in clause 3.15 to clauses 7.1(a) and (b) showed that the extension was not intended to overcome the exclusionary effect of clause 7.1(c), just the other two paragraphs. As will be apparent from its terms, paragraphs (a) and (b) are concerned with situations which fall short of a claim being made but where circumstances are such that it would be reasonable for the insurer to anticipate that a claim may be forthcoming at some point.
- [37]There is also the consideration that there is some correspondence between paragraphs (a) and (b) of clause 3.15 and paragraphs (a) and (b) of clause 7.1. It is true that the latter paragraph (a) extends to facts or circumstances that the insured ought reasonably to have known might or could give rise to a claim, which is not found in the equivalent in clause 3.15, but otherwise there is a close correspondence in the wording, and paragraph (b) then assumes an absence of timely notice. Paragraph (b) in clause 7.1 contemplates a situation where there was or ought to have been notice given under previous insurance, and because of the extended definition of “us” in the last paragraph of clause 3.15, that could apply to an earlier policy issued by Dual as agent for some other underwriter. In such a situation, provided that at the time the insured first became aware of such facts and circumstances there was a professional indemnity liability insurer in the form of an underwriter for which Dual was agent, the extension will operate. That would be consistent with the objective stated in the extension, to, in effect, insulate the insured from the effect of Dual arranging different underwriters for different policies during an overall period when Dual was arranging professional indemnity insurance for the insured. On the other hand, there was nothing in clause 3.15 which indicated that its purpose was to provide an extension to claims not first made during the insurance period, so long as they were also made during the insurance period.
- [38]Such an operation of the clause would not readily fit in with the wording of proviso (i), which operates by reference to when the insured became aware of the relevant facts and circumstances, rather than by reference to when the claim was first made. If the intention was that clause 3.15 provided an extension relating to claims first made prior to the insurance period, one would expect paragraph (i) to require that the claim be first made at a time when underwriters of which Dual was the agent were the professional indemnity liability insurer of the insured. It also occurs to me that it is a little odd if clause 3.15 extends to any claim made in the insurance period even if the claim was first made prior to the insurance period, but it does not extend to a claim first made prior to the insurance period, if it was not made again during the insurance period. If the intention of clause 3.15 was to extend cover to claims first made prior to the insurance period, the limitation that the extension applies only if the claim is made during the insurance period, that is, made again, seems odd.
- [39]The function of clause 7.1 appears to be to exclude the insurer’s liability in circumstances where the claim ought to have been anticipated by the insured, or had been threatened or intimated to the insured, prior to the period of insurance. This would fit with the insured’s obligation to disclose such matters prior to obtaining such insurance, although it is not immediately obvious from the terms of this policy how matters so disclosed are dealt with. It seems to me that strictly speaking it was not necessary to exclude by clause 7.1 claims made prior to the period of insurance, because any such claim will necessarily not be covered by clause 2.1, not being a claim first made during the period of insurance. One feature that is not clear however, is the effect of clause 3.15 if a claim is threatened or intimated against the insured prior to the insurance period, so as to fall within 7.1(c), during an earlier period when the insurer was another underwriter for which Dual was agent. I suppose it could be said that if a claim had been threatened or intimated to the insured, prior to the insurance period, the insured had necessarily become aware, prior to the insurance period, that a claim might or could arise from facts or circumstances known to it.[26]
- [40]In these circumstances, if clause 3.15 is confined in its operation to overcoming the exclusion in clause 7.1(a) and (b), and not to effect the exclusion in clause 7.1(c), it would appear to fail to give protection in a category of cases which would appear to be within the scope of the apparent purpose of clause 3.15. That is a reason for not reading the clause down by reference to the introductory words. On the other hand, it is not sufficient, for the applicant to be entitled to an indemnity, that a claim which falls within clause 3.15 is not excluded by any part of clause 7.1. There is the further difficulty that the requirement that the claim be first made in the insurance period is part of the insuring clause, clause 2.1.
- [41]The introductory words to section 3 dealing with automatic extensions, which includes clause 3.15, says expressly that “the automatic extensions are subject to the insuring clauses and all other policy terms and conditions”. The insuring clauses are those in section 2, which include the restriction, relevantly, to a claim first made against the insured during the insurance period. I accept that this does not mean that the exclusions in section 7 all override anything contained in the extensions, given that the whole purpose of an extension is to extend cover to a situation in which it would not apply absent the extension, but it does seem to me that that can be adequately achieved by providing that the extensions can override an exclusion, but by this wording cannot extend the scope of operation of the insuring clauses.
- [42]Such an interpretation would explain the absence of the limitation of a claim “first made during the insurance period” in clause 3.15 by the fact that it was unnecessary to state this limitation in circumstances where by the insuring clauses cover was provided only in respect of claims during the insurance period which were then first made. Most of the clauses in s 3 are introduced with the words “we agree to provide cover in respect of any claim…” or otherwise refer to a claim without any limitation in relation to the claim being first made. Some of these would be surprisingly wide if the extension was not subject to the limitation, derived from the overriding application of the insuring clauses, that the claim be one first made in the insurance period: see for example clause 3.2, “any claim against any former principal, partner, director or employee of the insured in respect of the conduct of the insured’s professional business”. Another example is clause 3.5:
“We agree to provide cover in respect of any claim against the insured resulting from the conduct of the professional business by a subsidiary that ceased or ceases to be a subsidiary either before or during the insurance period.”
If that is not limited to a claim first made, it would mean that if a subsidiary ceased to be a subsidiary cover would be provided in respect of any claim resulting from its conduct whenever the claim was first made, though if the subsidiary remained a subsidiary it would not be provided unless the claim was first made during the insurance period. That strikes me as an odd result.
- [43]I am conscious of the fact that, when construing a policy of insurance, it is appropriate to adopt a liberal interpretation of extensions, and that in the event of doubt resort may be had to the contra proferentum doctrine.[27] Nevertheless, a policy of insurance is a commercial contract, and it should be interpreted in a practical, commercial, businesslike way.[28] It is also important to interpret a particular provision in the contract by reference to the context provided by the contract as a whole, and particularly by any other parts of the contract with which it is particularly related. When that approach is adopted in the interpretation of clause 3.15, I consider that it does not provide an extension to claims made during the insurance period but not first made during the insurance period. This is essentially for the following reasons:
- The introductory words to s 3 indicate that the extensions do not override the insuring clause, and the limitation to a claim first made during the insurance period, is contained in that clause.
- The argument that the extension to claims whenever they were first made in clause 3.15 is consistent with the expressed purpose of clause 3.15, to provide continuous cover in respect of a period during which the insured continues to renew public liability insurance with Dual as agent for any underwriter, would not explain the absence of a reference to claims first made in the other clauses in section 3, which is consistent only with the overriding limitation to claims first made applying to the extensions, including clause 3.15.
- The introductory words indicate an extension to restrict the operation of clause 7.1(a) and (b), but not (c), which compliments the requirement that a claim be first made during the insurance period by expressly excluding liability for claims first made prior to that period.
- Although on either interpretation there is some difficulty in working through the interrelationship of clauses 7.1 and 3.15, the wording of paragraph (a) and (b) of clause 3.15 is more consistent with the extension relating only to a situation where otherwise there would be an exclusion on the basis of anticipation of a claim, rather than the actual making of a claim.
- The provisos, particularly (i), (iii) and (iv), are worded in a way which is more appropriate if the extension applies only to anticipated claims but does not extend to claims made prior to the insurance period.
- The purpose of providing continuous cover is still achieved to some extent, by reference to anticipated claims.
- The purpose of providing continuous cover is expressed as overcoming a difficulty which would otherwise arise because of a change in the identity of the underwriter secured in a particular year by Dual. The difficulty in the present case does not arise from a change of underwriter, but because of a change in the wording of the policy, specifically in the definition of “claim”.
- [44]Overall I consider that these factors override the circumstance that if clause 3.15 is read in isolation the applicant’s situation falls literally within it, on the basis that there was a claim within the period of insurance, though not one which was first made during that period. In my opinion, therefore, on the correct interpretation of the 2010-2011 policy as a whole, extension 3.15 does not apply to the claim against the applicant by BMM, because the claim was not first made against the applicant during the insurance period, and clause 3.15 does not apply to a claim not first made against the applicant during that insurance period. I accept that there was a claim made against the applicant in the insurance period, but it was not one which meant that the applicant was entitled to indemnification under the policy.
- [45]Accordingly, it is not appropriate to make either of the declarations sought in the originating application. Specific performance of the policy was also sought, and an order for the payment of defence costs in relation to the defence of the District Court proceedings commenced by BMM in 2013, but no argument was advanced as to any basis upon which that relief could be granted in circumstances where it was not appropriate to make either such declaration. The respondent did not seek a declaration to the contrary, and in the circumstances the appropriate order is that the application be dismissed, with costs.
Footnotes
[1] Affidavit of Field filed 29 October 2015, para 2. The claim is in Ex AKS1, pages 1, 2.
[2] Ibid paras 7, 13; Ex GRF1 pp 7-9.
[3] BOQ Limited v Chartis Australia Insurance Ltd [2012] QSC 319 at [33].
[4] The amount claimed in the proceeding is $269,181.46, so there is an ample leeway to cover the costs of defending the proceeding: Affidavit of Smith filed 29 October 2015 Exhibit AKS 1 p 1.
[5] Strictly, a “claims made and notified” basis, but there was no issue before me as to the question of notification.
[6] Affidavit of Smith filed 29 October 2015, para 6; Ex AKS1, pp 46-47.
[7] Ibid, Ex AKS1, p 50.
[8] Ibid, Ex AKS1, pp 53, 54.
[9] There may exist circumstances where such a feature would be useful, but it sounds like something that, if I came upon a word processing programme with it, I would want to have turned off.
[10] Affidavit of Smith filed 29 October 2015, Exhibit AKS1, p 51, email 29 January 2010 at 7.22 pm.
[11] Ibid, Exhibit AKS1, p 59.
[12] Ibid Ex AKS1, pp 55, 56.
[13] Ibid, Exhibit AKS1 pp 69-71.
[14] Ibid, Exhibit ASK1 p 66.
[15] Ibid, pp 72-4.
[16] Ibid, pp 93-110; see p 112; for definition see p 102.
[17] They have advantages for insurers: FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 at 654-5.
[18] For example, in Walton v National Employers’ Mutual General Insurance Association Ltd [1973] 2 NSWLR 73 at 82.
[19] Citing Reid Crowther & Partners Ltd v Simcoe & Erie General Insurance Co [1993] 1 SCR 252 at 275.
[20] Cited in King v McKean and Park [2002] VSC 350 at [25], and in Livesay v Hawkins [2012] QSC 122 at [36].
[21] Westrec Marina Management Inc. v Arrowood Indemnity Co. 2008 Cal. App. LEXIS 914, cited in Derrington & Ashton, The Law of Liability and Insurance (third edition), p 1140.
[22] Phoenix Insurance Co. v Sukut Construction Co. (1982) 136 Cal. App. 3d 673 at 677.
[23] See East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 at 405.
[24] This could occur even if the applicant had not realised that that letter amounted to the making of a claim for the purposes of the policy.
[25] Bowling v Weinert [1978] 2 NSWLR 282 at 291.
[26] That may not necessarily be so. What if a client writes merely saying “we are unhappy, and are consulting lawyers, and subject to their advice may sue you for damages” without giving any details of why they are contemplating suing, and it is not obvious to the insured that the client in question might have any grounds to sue for damages? That would seem to fall within clause 7.1(c), but not to fall within clause 3.15(a). I suspect that the drafter of this policy did not anticipate such a situation.
[27] MacGillivray on Insurance Law (12thEd) #11-033.
[28] Electricity Generation Corporation v Woodside Energy Ltd (2014) 88 ALJR 447 at [35]; Queensland Alumina Ltd v Alinta DQP Pty Ltd [2006] QSC 391 at [77].