The policyholder obtains the right to cover after the “facts” notified by the insurer’s lawyer finally become a “claim”

Under “claims made and notified” policies (such as professional indemnity policies or D&O policies), policyholders can ensure that any claim which may be made against them after the policy has expired is still covered – they must have notified the insurer of the facts giving rise to this claim during this previous period of insurance. Section 40(3) of the Insurance Contracts (Cth) Act 1984 (ICA) provides for this right even if this right is not explicitly stated in the policy.

The full Federal Court upheld a broad interpretation as to when a valid notice of “facts giving rise to a claim” is made under ICA Article 40(3) and strengthened the rights of policyholders. We have reported the trial decision here and provide this update on the appeal.

KEY POINTS TO REMEMBER

  • A law firm appointed by the insurers to represent the policyholder in one case may validly notify the insurers on behalf of the policyholder of facts likely to give rise to a claim in another case.
  • It is not necessary for a notification under Article 40(3) of the Insurance Contracts Act 1984 (Cth) (I AC) to state explicitly that it is made under Article 40(3) or even to be intended to be a notification under Article 40(3) by the person making the notification
  • The decision confirms that policyholders must communicate in writing to their insurers all the “facts” from which a claim could arise at a later stage.

REALITIES

Dr. Darshn was a cosmetic surgeon who performed surgeries at The Cosmetic Institute Pty Ltd (ICT) between 2015 and 2018. He was covered for professional liability with Avant until June 2019 and with another insurer from July 2019. Each of the policies was a “loss declared” policy.

In 2017, a class action lawsuit was filed against TCI in relation to surgeries that had taken place on its premises. Dr. Darshn was not joined as a defendant until June 2020 (after the Avant policy expired).

However, in March 2018, Avant accepted a claim from Dr Darshn regarding a claim by Ms Scotford, a former patient, and appointed attorneys (DML) to act on Dr. Darshn’s behalf in the defense of Scotford’s claim.

In January 2019, plaintiffs in the TCI class action served subpoenas on Dr. Darshn and other TCI cosmetic surgeons seeking documents. The content of those subpoenas suggested that they could be joined as defendants in the class action. Dr. Darshn telephoned Avant for advice on the subpoena, but did not provide a copy to Avant. Shortly thereafter, MDL informed Avant of the Scotford proceeding and another action against Dr. Darshn, and identified a significant overlap between those actions and the TCI class action.

When Dr. Darshn was later joined as a defendant in the TCI class action after the Avant policy expired, he could not make a claim under his new policy (due to various exclusions in that policy), he therefore sought compensation under his previous policies. with Avant, arguing (among other things) that the update of the MDL to Avant constituted notice of facts that he could be joined to the class action so that Section 40(3) of the ICA applied. This was accepted by the primary judge.

COMPLETE DECISION OF THE TRIBUNAL

In a unanimous decision, the Plenary Chamber upheld the trial decision stating:

  • Firstthat Dr. Darshn’s attorneys, MDL, could give a 40(3) opinion on Dr. Darshn’s behalf to Avant, although they were originally appointed by Avant from his panel to represent Dr. Darshn in the other case – independently, once named, they were Dr. Darshn’s attorneys and there was no reason to restrict their authority in the way Avant argued.
  • Secondly, that the update letters written by Dr. Darshn’s attorneys constituted effective notice of the potential claims against Dr. Darshn that later emerged in the TCI class action. In doing so, the Court underlined the absence of formal notification requirements under Article 40(3): it should not be interpreted narrowly or with excessive technicality. In particular, it was irrelevant that the communication:
    • did not explicitly indicate that it was a notification under Article 40(3);
    • did not use the words “potential claim”, and
    • was not intended to constitute a notification under Article 40(3).

In dismissing the appeal, the Court also upheld the senior judge’s finding that Avant had not acted in the utmost good faith in failing to inform Dr. Darshn when he rang for advice on the summons that he had to provide a copy of the summons to Avant if he wanted to be covered for any claims that might arise in connection with it (since Article 40(3) is only triggered when the notice is made in writing).

CONVENIENT TAKE AWAY

Claims made and policies notified are useful in that the coverage is not tied to when the relevant (but usually unknown) misconduct occurred, but to when the insured actually knows about it. a claim. However, they exclude cover for claims resulting from facts or circumstances known to the policyholder before the contract was taken out.

It is therefore very important that the insured report in writing any fact likely to give rise to a future loss, at the latest before renewal, if they want to be sure that a subsequent loss resulting from these facts will be covered by the policy. expired (as it will be excluded under the renewed policy). This decision lowers the bar of the formality required to animate the rights of the insured when at least part of the information has been transmitted to the insurer within the framework of the expired policy.

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