Insurable Interest – Issue 42
Contents
Motley Crewe
Air crash machination
Gloss on Athanasopoulos
The law of unintended consequences
Dot your i’s and cross your herbal t’s
Working for the Man – TNT v Christie revisited
Jet-skiers rescued by section 54
Motley Crewe
An insured company provided management consultancy services to Akron Roads Pty Ltd. In addition, the managing director of the insured company – Mr Crewe – acted as a director and as chairman, and sometimes as managing director, of Akron.
Akron became insolvent and went into liquidation. The liquidator sued the directors of Akron, including Mr Crewe, for incurring debts when Akron was unable to pay them. The insured company had a CGU professional indemnity policy with a $5million limit. The liquidator obtained a judgment by consent against Mr Crewe for $13million. Mr Crewe assigned to the liquidator the benefit of his cover under the policy in exchange for the liquidator accepting a payment of only $125,000 from him.
The liquidator pursued a claim against CGU.
A Supreme Court of Victoria judge decided that the policy only provided indemnity in respect of the actual loss, which was only $125,000.
More importantly, the judge agreed with CGU that, when taking out the policy, the insured had failed to disclose that Mr Crewe provided services to Akron in the form of an active directorship of that company. The CGU underwriter gave evidence that if the directorship of Akron had been disclosed, she would have asked the broker to tell her the percentage of income received by the insured for that directorship. If a large part of the income was so derived, she would have told the broker that it was not appropriate to offer the professional indemnity policy to the insured because it would not provide cover in respect of most of its services, namely director & officer services.
Further, the underwriter said that if she had been told that only a small proportion of the insured’s income was from director & officer services, she would have offered professional indemnity cover but subject to a specific exclusion in respect of services provided to Akron.
The judge accepted the underwriter’s evidence. He concluded that the non-disclosure was not fraudulent but decided that the prejudice to CGU was such that it was permitted to reduce its liability under the policy to zero (because it would not have granted the cover if proper disclosure had been made).
Akron Roads Pty Ltd (in liquidation) v Crewe
| An attempt by the insured to get all of its liability risks covered by a professional indemnity policy, instead of taking out directors & officers cover, backfired. The underwriter’s position was assisted by a clear email trail with the broker. |
Air crash machination
In the last few years ‘other insurance’ clauses and section 45 of the Insurance Contracts Act, have received a lot of judicial attention. The leading case is the High Court decision Zurich Australia Insurance v Metals & Mineral Insurance. In the case below, the NSW Court of Appeal considered what happens when section 45 doesn’t apply and both policies contain ‘other insurance’ clauses.
Two companies sold a SAAB aircraft to a partnership, which leased the aircraft to an airline. Two years later the aircraft crashed and all 15 people on board died.
Relatives of the deceased brought a proceeding in the USA against various parties including the vendors of the aircraft. The vendors were indemnified under a SAAB-group policy.
Subsequently, the vendors learned that they fell within the description of ‘additional insureds’ under a QBE policy taken out by the lessors of the aircraft, and claimed indemnity under that policy as well. QBE refused indemnity on the basis that policy conditions about the provision of information concerning claims had not been complied with. The vendors sued QBE.
Both the SAAB and QBE policies contained an ‘other insurance’ clause, each limiting the available cover when another policy also provided cover. Applying the Metals & Minerals decision, the Court concluded that section 45 of the Insurance Contracts Act didn’t apply to the clauses because the vendors had not ‘entered into’ ‑ they had not directly contracted for ‑ either policy. In each case, they were seeking the benefit of a policy taken out by other parties.
The result was that the ‘other insurance’ clauses in each policy cancelled each other out, leaving the vendors free to seek indemnity under either policy. Having already sought and received indemnity, under the SAAB policy, they had no entitlement under the QBE policy, and so the vendors’ claim against QBE was dismissed.
The Court noted that it was up to the underwriters of the SAAB policy to claim a contribution from QBE on the basis of double insurance.
Lambert Leasing v QBE Insurance
| ‘Other insurance’ clauses still have life in them when the party seeking indemnity is not the party which took out the policy in the first place. In this case, because the party seeking indemnity under the two policies had not taken out either of them, neither ‘other insurance’ clause was neutralised by section 45, so the two clauses cancelled each other out. |
Gloss on Athanasopoulos
A NSW Local Court has rejected the suggestion that the method of assessing damages for loss of use depends on whether the chattel is income producing or non-income producing.
The plaintiff operated a hire car business and owned a 2009 Toyota Camry. The vehicle was not part of the plaintiff’s fleet of vehicles available for hire. Rather, the vehicle was used primarily by the director and other employees for business purposes, such as travelling between branches to deliver and collect hire vehicles.
On 24 August 2015, the vehicle was damaged in a collision caused by the defendant. While the vehicle was being repaired during a period of almost two weeks, the plaintiff entered a credit hire arrangement for a replacement vehicle. The director gave evidence that the plaintiff was unable to replace the vehicle from its fleet because 100% of its fleet of large vehicles was being utilised.
The plaintiff claimed damages in the amount of $1,596.80 for loss of use of its vehicle, based on the market rate for hiring a replacement.
The defendant argued that the damages should be assessed by reference to the interest calculated on the capital value of the vehicle during the period of loss. The defendant submitted that a distinction should be drawn between the measure of damages for loss of use of an ‘income producing chattel’ and a ‘non-income producing chattel’. The defendant characterised the plaintiff’s vehicle as an ‘income producing chattel’, in which case he said the loss is usually assessed by way of loss of profits or, in the absence of such losses, the loss on the capital value of the chattel.
The Court disagreed with the defendant’s attempt to differentiate between income and non-income producing chattels for the purpose of assessing damages. The Court noted that, although the nature of the damaged chattel is a relevant consideration, the application of the principles relating to the assessment of damages is not materially different and will ultimately depend on the facts. Accordingly, the Court declined to categorise the plaintiff’s vehicle as either income or non-income producing. It found that to do so would erroneously link loss of profits with the loss of use, which are two separate (albeit related) heads of damage.
The Court decided that a plaintiff who takes steps to reduce a loss of profits by obtaining a temporary replacement may recover the cost of the replacement under the head of damages for loss of use. The Court adopted Ipp AJA’s comments in Athanasopoulos v Moseley that the underlying measure of damages is the ‘need’ to replace the damaged vehicle. In the context of a business, the ‘need’ was that the vehicle was necessary to support the operations of the business.
The Court was satisfied that the plaintiff failed to establish the requisite ‘need’ because, although 100% of its large vehicle fleet was being utilised, less than 100% of the plaintiff’s other types of vehicles were being utilised. The plaintiff had hire vehicles available in the ‘mid size auto’, ‘medium auto’ and ‘economy auto’ categories, but failed to explain why those vehicles were not used as a replacement. The Court further held that the plaintiff was wrong to think that it was limited to a replacement that was similar to the damaged vehicle. The issue of comparative vehicles only becomes relevant when ‘need’ is established and the court must consider the cost of hiring a comparative vehicle.
Because it was not reasonable for the plaintiff to hire a replacement, the Court limited damages to interest on the capital value of the damaged vehicle while it was being repaired, being $39.45.
A2B Car Rentals Pty Ltd v Terkmas
| A plaintiff who obtains a temporary replacement vehicle to maintain business operations may recover the market cost of the replacement, despite an absence of actual financial loss. But that entitlement depends upon the plaintiff proving a need to replace the damaged vehicle which was reasonably met by hiring a substitute. |
This article was written by Jessica Dickson, Lawyer.
The law of unintended consequences
A customer claimant slipped on a shallot at a Woolworths supermarket. Liability was disputed.
The customer delivered numerous requests for information under section 27 of the Personal Injuries Proceedings Act (Qld) (PIPA). Woolworths answered some of the requests but declined to answer others on the grounds that they were irrelevant to the facts in dispute. The Queensland District Court allowed some of the disputed questions but refused the majority, agreeing that they were not relevant. The customer appealed, but in the interim, the parties attended a compulsory conference and the customer later filed court proceedings for damages.
There has been a series of cases analysing the relevance of section 27 questions since Haug v Jupiters Ltd. However, the Court of Appeal raised a new limitation which had not previously been considered. It had been assumed that the customer was entitled to ask the section 27 questions at any time, subject to the issue of relevance. This flowed from an earlier Queensland decision in Angus v Conelius. However, the Court preferred a 2013 ACT decision in Cleary v Rinaudo, which considered Angus v Conelius but reached a different conclusion; that the right to ask for information ceased once the pre-proceedings phase concluded.
Although the Court of Appeal discussed the relevance of the particular questions, it concluded they had ceased to be of utility as the claim had moved on. The compulsory conference had been held and Court proceedings had been commenced. The obligation to answer the section 27 questions had expired with the conclusion of the compulsory conference.
The customer had also asked for an inspection of the store to enable her ergonomics expert to conduct slip tests. Woolworths refused as it had already conceded that a shallot was a slip hazard and the debate was over the timing of the spill. The District Court agreed.
It had been common practice for PIPA claimants to request an inspection to bolster their claim (and fees). The previous court decisions had mixed results, with the judgments often turning upon very fine points of relevance.
However, instead of considering the relevance of an inspection to the claim, the Court of Appeal considered the source of the power to order an inspection. The District Court had relied on Rule 250 of the Uniform Civil Procedure Rules, but the Court of Appeal pointed out that Rule 250 only applied once Court proceedings were issued, not during the pre-proceedings phase.
The Court of Appeal then considered whether an inspection was a section 27 request for information. The Court noted that the specific wording of section 27 did not include an explicit right to inspect the property and therefore concluded that there was no power to order an inspection during the pre-proceedings phase.
Day v Woolworths & Ors (2016) QCA 337
| The Queensland Court of Appeal has imposed significant and unexpected limitations on plaintiffs’ investigations under PIPA. The decision limits the ability to gather new information after a compulsory conference, but more interestingly, limits the ability to obtain expert liability evidence before a conference. The former can be remedied by careful preparation, but the latter now forces claimants to take a punt on liability prospects when making a mandatory offer to settle. |
This article was written by Sean Sullivan, Special Counsel.
Dot your i’s and cross your herbal t’s
A recent landmark case shows how simple oversights may have a devastating impact: well-known Chinese herbalist, Dr Shuquan Liu, famous for helping Malcolm Turnbull lose weight, was found guilty of unsatisfactory professional conduct, largely due to poor clinical record keeping.
The finding should resonate with any health or medical practitioner in Australia and is an interesting case study on how poor records leave practitioners vulnerable to claims and disciplinary action.
The NSW Health Care Complaints Commission prosecuted Dr Liu regarding a program of fasting, remedial massage and acupuncture which he prescribed for a patient with chronic ulcerative colitis.
He was accused of using staff who weren’t registered or adequately skilled practitioners. But the case largely hinged on his failure to record a complete case history and to maintain proper clinical records complying with the Chinese Medicine Board of Australia’s guidelines regarding the patient’s diagnosis, symptoms, diet, treatment plan and progress.
Practitioners are particularly vulnerable without good record-keeping, because a disciplinary board or judge will often favour the complainant’s version of events – it’s commonly assumed the complainant has a stronger recall of events because they are dealing with a rare or even life-changing situation, while it’s possible that a medical practitioner’s memory is clouded from seeing large numbers of patients.
Poor record-keeping may be interpreted as indicative of sloppy behaviours more broadly, which may create a damaging impression. Conversely, clear and well-ordered records suggest high standards are maintained. It is also the case that the various health practitioner boards set minimum standards in relation to clinical records (as was noted in the context of the disciplinary action against Dr Liu).
Health Care Complaints Commission v Liu [2017] NSWCATOD 18
| Health practitioners are increasingly vulnerable to prosecution if they can’t produce a quality paper-trail. While this landmark case has garnered some attention as something of a novelty, it is not an isolated incident – we are seeing many cases where health and medical practitioners, such as doctors and dentists, are prosecuted due to inadequate medical records. |
This article was written by David Short, Partner.
Working for the Man – TNT v Christie revisited
A 32-year-old worker injured his back during the course of his employment in May and June 2008. At that time he was performing labouring work which involved jack-hammering, manhandling railway sleepers and moving bags of rubble. The worker sued the host employer, Rail Corporation New South Wales and his direct employer, Staff Innovations Pty Ltd, in the Supreme Court of New South Wales.
Rail Corp led evidence that its labourers were required to work in teams of two so that they could alternate the jackhammer work with other tasks. Staff Innovations maintained that whilst it owed the plaintiff a non-delegable duty of care, it was not in a position to exercise any control over the work that the worker was performing for Rail Corp. Staff Innovations relied on the fact that Rail Corp was in possession of the worksite and in control of the work and had devised the system of work. It asserted that any injury suffered by the worker as a result of departure from the system prescribed was not the materialisation of a risk of harm reasonably foreseeable by an employer in its position.
The trial judge referred to Rail Corp’s duty of care as being analogous to the duty owed by an employer to an employee, which was consistent with the NSW Court of Appeal’s decision in TNT Australia Pty Limited v Christie. His Honour was ultimately satisfied that there was a breach of the duty of care by both defendants.
On the issue of apportionment between the defendants, His Honour considered that the overwhelming responsibility lay with Rail Corp (90%), given its ‘vastly superior control’ of the premises and the tasks being performed. The employer was liable for the remaining 10%.
Donald v Rail Corporation (NSW) (no 11) [2016] NSWC 1897
| His Honour’s decision follows the recent trend for courts in NSW to deviate from the 75:25 apportionment between host employers and employers as determined in the NSW Court of appeal decision in TNT v Christie. The facts of each case will be determinative. The greater the host employer’s level of control, supervision and responsibility for implementing and maintaining the system of work at a worksite, the greater the liability of the host employer. |
This article was written by Terri Hirbod-Bassi, Senior Associate.
Jet-skiers rescued by section 54
On 27 November 2010, Nathan Whittington was a passenger on a jet-ski which was owned by Todd Smeaton and being operated by his brother Scott Smeaton on the Ross River in Queensland. Nathan was thrown from the jet-ski into the water, causing his foot to become tangled in the towrope. As a result, Nathan’s left leg was later amputated below the knee. Todd held a third party liability policy with Allianz. However, the policy excluded liability arising from an incident involving a jet-ski being controlled by an unlicensed person. On the basis that Scott was unlicensed to operate a jet-ski, Allianz declined to indemnify Todd and Scott.
Nathan issued proceedings against Todd and Scott, who joined Allianz to the proceeding. The trial judge found in favour of Nathan and awarded damages in the amount of $800,000. His Honour also determined that Allianz was obliged to indemnify Todd and Scott.
Allianz appealed the decision on the basis that Todd had failed to prove that no part of the loss was caused by or contributed to by the fact that Scott was unlicensed (as required by section 54(3) of the Insurance Contracts Act 1984). The Court of Appeal found that the trial judge’s approach, in considering whether the incident would still have occurred and the same damage been suffered had Scott obtained the relevant watercraft license, was correct. Allianz argued that if Scott had obtained the watercraft license prior to the incident then it would have influenced how he drove the jet-ski and reduced the likelihood of the incident occurring. Allianz also assumed that it would be Queensland (not New South Wales) licensing requirements which would apply because the incident occurred in Queensland.
Scott and Todd had extensive experience in operating boats and jet-skis in New South Wales and both had New South Wales boating licences. The Court of Appeal therefore held that obtaining a Queensland watercraft license would have made no difference to Scott’s actions on the day. Accordingly, the appeal was dismissed and Allianz was not entitled to deny the claim.
Allianz Australia Insurance Ltd v Smeaton [2016] ACTCA 59
| The obligation imposed on an insured by s 54(3) of the Insurance Contracts Act to demonstrate that no part of a loss was caused or contributed to by the relevant act or omission is often not an onerous one. Section 54 looms large in Australian insurance law. |
This article was written by Hilary Qin, Graduate Lawyer