Insurable Interest Issue 33

Contents

Righting the Wrongs: Proposed Reforms to the Wrongs Act

Dam It!

Risky Business

Deregistered But Not Out

Theres Life in the Old Dog Yet

Sex Appeal

Righting the Wrongs: Proposed Reforms to the Wrongs Act

The Victorian Competition and Efficiency Commission (VCEC) recently released its draft report into the Wrongs Act 1958 (Vic). In providing a response to the post-HIH collapse liability insurance crisis, the 2002/2003 reforms to the Act imposed a number of limits on damages recoverable by injured plaintiffs. The latest proposed reforms are primarily aimed at making the Act operate more efficiently and equitably including preventing legitimate claims from being denied or undercompensated. As part of its inquiry the VCEC was also charged with ensuring that any changes to the Act would not significantly increase insurance premiums.

The key recommendations of the draft report are to:

• adjust the psychiatric injury threshold to access damages for non-economic loss to greater than or equal to 10% impairment;
• adjust the spinal injury threshold for damages for non-economic loss to greater than or equal to 5% impairment;
• clarify that the cap on damages for economic loss applies to the gap between pre- and post-injury earnings;
• increase the maximum amount of damages for non-economic loss to align with the cap under the Accident Compensation Act 1985 (Vic). If accepted the changes should ensure that injured persons in Victoria will have access to similar damages regimes whether their claim falls under the Transport Accident Act, Accident Compensation Act or Wrongs Act; and
• provide that time thresholds that limit access to damages for gratuitous attendant care are cumulative, rather than alternative. That is, the care required is for at least six hours a week and for at least six months.

The recommended changes to the Act are estimated to increase insurance premiums by up to 4%.

The VCEC notes that the establishment and implementation of the National Disability Insurance Scheme is likely to have a significant impact on the price and availability of public liability and professional indemnity insurance. It forecasts a further review of the Act will be necessary closer to the full implementation of the NDIS, which is expected in July 2019.

It remains to be seen whether, and if so when, the recommended reforms become law. Overall the proposals are mild, and in fact they probably reflect the original intentions behind the original reforms.

This article was written by Kate Lawford, Lawyer.

Dam It!

The NSW Court of Appeal has considered some interesting issues in the context of a contract works/liability policy.

The insured constructed a dam to retain stormwater run-off in a catchment pond for a local council.  During very heavy rainfall the water level rose and the dam wall was at risk of failing.  Had it failed there would have been serious flooding of residential areas.  The insured pumped water out of the pond and shored up the dam wall with boulders.

The insured claimed the cost of those exercises ($470,000) from its contract works insurer.  The cost of shoring up the dam wall was accepted, but the insurer said the pumping exercise was not covered because of a dewatering exclusion.

Section 1 of the policy provided cover for material damage to contract works.  The Court declined to extend the cover provided by that section to the expenses incurred in pumping out, and diverting, the water in the pond.  Such expenses were not incurred in the repair of the insured works.

However, the Court decided that such expenses were covered by an extension to section 1 which covered expenses necessarily incurred for shoring up, or other temporary protection of, insured property so as to avoid further loss to insured property occurring.

The policy excluded costs associated with the installation and operation of dewatering equipment or any other costs of dewatering operations. The insurer argued that dewatering operations means ‘moving water from a place’.  The Court thought that such interpretation was too wide. It concluded that in this context dewatering meant 'removing water from a particular place so as to enable an activity or work to proceed in that place.' None of the claimed dewatering expenses fell within the scope of such meaning, and so the exclusion did not apply.

Section 2 of the policy provided liability cover. There was a condition that, in the event of an Occurrence, the insured should at its own expense take immediate action to minimise the damage. The insured argued that there should be implied into the policy a term that the insurer would cover expenditure incurred by the insured to avoid loss, damage or liability which would otherwise have been incurred.

The Court noted that there is no legal authority in Australia (or in England) for implying such a term. Further, in this case, to imply such a term would be inconsistent with the express condition in the policy requiring the insured to take action at its own expense.

Finally, in the context of deciding what was the applicable deductible, the Court decided that although the rainfall was torrential, that did not amount to a storm or tempest.

Vero Insurance v Australian Prestressing Services

Ever since the 1974 High Court decision of Guardian Assurance v Underwood Constructions there has been a query whether there can be implied into insurance policies a term to the effect that expenditure incurred by an insured to avert a loss is covered. The NSW Court of Appeal does not support the implication of such a term. This decision also provides a useful discussion about the meaning of ‘dewatering’ in the context of a construction risk policy.

Risky Business

In Insurable Interest Issue 29 NEEDS TO BE RE MADE we reported on a decision by the NSW Supreme Court in which an insurance broker was found liable for failing to properly inform the insured that its ‘Professional Liability Policy’ did not cover acts that were not carried out in connection with the insured’s business.

The insured operated a scuba diving business and while its director was navigating one of its vessels on a recreational boating trip, it collided with a fishing boat driven by the plaintiff. The plaintiff suffered injuries and was awarded common law damages against the insured and its director. The insured’s director pleaded guilty to the offence of dangerous navigation occasioning grievous bodily harm.

The Court of Appeal upheld the findings of the trial judge and determined that:

1. Although the director of the insured was convicted of dangerous navigation occasioning grievous bodily harm, the insurer was not able to rely on the ‘criminal act or omission’ exclusion, which applied only to intentional criminal acts.
2. The insurer was, however, entitled to deny indemnity to the insured on the basis that the act that gave rise to liability did not occur in connection with the insured’s business. By including the phrase ‘in connection with the insured’s business,’ the policy clearly intended a dichotomy between private and business activities. The fact that an employee of the insured was driving a vessel ordinarily used in the insured’s business did not create a sufficient connection between a recreational boating trip and the insured’s business.
3. The broker was negligent in not making it clear to the insured that its policy did not cover liability arising from recreational activities not engaged in as part of its business. As the evidence suggested that had the insured been properly advised it would have taken out a different policy, the broker was liable to the insured.

Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA368

‘In connection with the insured’s business’ is always a trap for brokers.Insurers should be aware that unless specifically worded otherwise, ‘criminal act or omission’ exclusions will likely apply only to intentional criminal acts.

This article was written by Liam Campion, Senior Associate.

Deregistered But Not Out

The New South Wales Supreme Court has given an expansive construction of section 601AG of the Corporations Act 2001.  This section allows recovery direct from an insurer of a deregistered company if:

• the deregistered company had a liability to the person suing; and
• the insurance contract covered that liability immediately before deregistration.

This case involved lenders who lost money on a property deal.  The lenders’ interest was secured by a second mortgage arranged through a now deregistered mortgage broking company which had a PI policy with Vero. The lenders sued Vero under section 601AG.  The claim was first made by the lenders directly against Vero after the mortgage broker was deregistered.

Vero made an application for summary dismissal of the action on the basis that it was a ‘claims-made’ policy and, because no claim had ever been made by the mortgage broker during the relevant policy period, the second limb of 601AG was not satisfied. In other words, Vero argued that it did not have any liability to indemnify to the mortgage broker immediately before deregistration.

The court rejected this argument and noted that section 601AG was remedial legislation intended to enable a person to bring proceedings directly against the insurer of a deregistered company without having to go to the trouble and expense of seeking orders to have that company reinstated.  In that context the court gave the section a broad construction such that it was only necessary to establish that the policy covered the risk in question immediately before deregistration.

It was not necessary for the insurer to have an actual liability to indemnify the insured immediately before deregistration.  In this case, it was enough that the Vero policy covered the mortgage broker for the risk in question, being professional negligence, breach of contract and misleading and deceptive conduct, immediately before deregistration of the company.

Sciacca v Langshaw Valuations Pty Ltd [2013] NSWSC 1285

Insurers should be aware that a ‘claims made’ policy may not prevent a claimant from recovering from an insurer of a deregistered company.

This article was written by Matt McDonald, Partner.

There's Life in the Old Dog Yet

In this recent Victorian Supreme Court case, Bupa successfully brought an action against the insured's estate claiming that its right of subrogation was prejudiced by the terms of settlement entered into by the insured’s estate.

From 2005 to 2010 Bupa paid the insured under his health insurance policy for ongoing treatment required due to complications arising out of surgery. In 2008 the insured sued the surgeon for common law damages for negligence, including recovery of those expenses paid by Bupa.

The insured died in 2010 and his estate settled with the surgeon. Once Bupa found out that the proceeding had been settled, it sought to exercise its right of subrogation to recover the expenses paid by it and issued proceedings against the insured’s estate.

The Court ultimately held that Bupa was entitled to exercise its right of subrogation, and that there was no term in the insurance policy which excluded this right even though the benefits which Bupa had paid the insured were not strictly in accordance with the terms of the policy.

The Court found that the deed of release entered into by the insured’s estate prejudiced Bupa’s right to recover monies paid to the insured. Accordingly, the insured’s estate was liable to repay Bupa in full.

Bupa Australia Pty Ltd v Shaw & Anor [2013] VSC 507

An insurer which is aware of an insured pursuing a legal action against a third party should assert its subrogated rights and remain in contact with the insured or the insured’s lawyers in relation to the status of the legal proceeding.  The doctrine of subrogation is alive and well! This decision follows on from a similar decision in Western Australia in Insurance Commission of WA v Kightly. In both cases the court ordered that the insured fully reimburse the insurer out of the proceeds of the personal injury litigation

Sex Appeal

In Insurable Interest Issue 28 we reported to you about a Federal Court decision in a workers’ compensation claim for injuries suffered by an employee in the course of her employment.  A federal government employee was required by her employer to travel to country New South Wales and stayed in a motel which had been booked by her employer.  The employee sustained facial injuries when a glass light fitting above the bed in the motel room was pulled from a wall while she was having sex.

In finding that the employee’s injuries were unrelated to her employment, the Administrative Appeals Tribunal considered that the employee’s overnight stay was an ‘interval or interlude’ in the overall period of work.  However, the ‘interval’ had been interrupted when the employee embarked upon a private activity.

The Federal Court found for the employee on appeal.  The Court held that the Tribunal had erred in finding that it was necessary for the employee to show that the particular activity which led to her injuries was one that had been induced or encouraged by her employer.  In the absence of any gross misconduct, it was only necessary for the employee to establish that the employer had encouraged her to spend the interlude in a particular place.  The very controversial decision was upheld by the Full Court of the Federal Court amid widespread publicity.

The employer recently appealed to the High Court of Australia.  The High Court held the relevant issue was not whether the employer induced the employee to be at a particular place, but whether the employer induced the activity which gave rise to the injury.  The majority of the High Court held that as the employer had not encouraged the employee to engage in the activity which gave rise to her injuries, her injuries had not arisen in the course of her employment.

Comcare v PVYW [2013] HCA 41

This article was written by Jennifer Kildea, Lawyer.