Section 81 notices not the end of the road for liability disputes

Introduction

On 2 December 2015, the New South Wales Court of Appeal found that an insurer was not bound for all purposes by its section 81 notice admitting liability, in circumstances where it subsequently declined to indemnify the insured in respect of the claim.

Facts

Aaron Mordue (Mordue) sustained injuries as a front seat passenger in a motor vehicle that was being driven by his son in a motor rally in Coopernook State Forest on 1 December 2012. The accident occurred on a road that was closed to the public.

The vehicle had been issued with an Unregistered Vehicle Permit under the Road Transport (Vehicle Registration) Act 1977 (NSW) and a CTP insurance policy with QBE. Mordue made a claim for compensation under the Motor Accidents Compensation Act 1999 (NSW) (Act) on 27 December 2012 and, on 14 February 2013, QBE issued a liability notice under s 81 of the Act admitting 'fault' and 'liability' but 'reserved the right to withdraw this admission should further relevant information come into [their] possession'.

An amended liability notice was issued on 5 June 2013 denying liability on the basis that Mordue's injuries resulted from an accident during an organised motor sports event and there was a voluntary assumption of risk defence available under s 140 of the Act.

On 3 March 2014, almost a year after having received the claim, QBE issued a further letter to Mordue advising that reliance was placed on s 10(1)(b) of the Act given the CTP policy only operated when the vehicle was being used or operated on a road that was open to or used by the public. QBE contended that the insurance policy did not respond to the claim and that indemnity was therefore denied.

QBE lodged an application with the Motor Accidents Authority (now known as the State Insurance Regulatory Authority)
(Authority) pursuant to s 92(1)(a) of the Act and clause 8.11.5 of the Claims Assessment Guidelines seeking mandatory exemption of the claim from the Claims Assessment and Resolution Service (CARS).

The Principal Claims Assessor (PCA) of CARS issued a certificate of exemption on the basis that QBE had denied indemnity. The PCA noted that, if the mandatory exemption did not apply, she would have been likely to exercise her discretion to exempt the claim from CARS on discretionary grounds.

First instance

Mordue sought judicial review of the PCA’s decision to grant a mandatory exemption from CARS.

Adams J delivered judgment on 20 February 2015.¹ He found that QBE’s admission of liability in the s 81 notice necessarily implied an admission that the CTP policy responded to the claim.

Adams J observed that QBE was bound 'for all purposes' by the s 81 notice admitting liability. It followed, that if an admission of liability could not be withdrawn, neither could the implicit admission of liability to indemnify the insured.

On that basis Adams J quashed the decision of the PCA to issue a certificate of exemption on mandatory grounds.

Adams J not only found that the mandatory exemption had been given in error, but “[m]oreover, as [the insurer] is bound for all purposes by its Notice admitting liability, there is no room for the exercise of the discretion to exempt the claim, since the issue of indemnity, controversy about which would be the only basis for exemption, is no longer a live issue”² (Emphasis added).

In short, although the decision related to a denial of indemnity following a s 81 notice admitting liability, the decision appeared to preclude an insurer from amending its liability position in any circumstance. This was despite earlier case law which provided that, although revocation of a s 81 notice admitting liability is not permitted within CARS, the PCA can exercise her discretion to exempt the matter and an insurer can later deny liability in litigated proceedings and provide evidence as to why its position has changed.³

QBE appealed the decision of Adams J, which was heard on 21 October 2015.

Court of Appeal

The Court of Appeal delivered judgment on 2 December 2015.⁴ Beazley P and Ward JA were in agreement and Simpson JA delivered a dissenting judgment.⁵

In relation to the specific issue of subsequent denial of indemnity or liability to its insured, the Court found that QBE was entitled to an exemption and to have the claim determined via litigated proceedings. In such proceedings however, the Court would have to determine, as a matter of evidence, the importance of and the weight that is to be given to the initial admission of indemnity or liability.⁶ This is in accordance with Nominal Defendant v Gabriel.⁷

In relation to the statutory CTP scheme the majority observed:

The statutory scheme is premised upon the timely making of a claim and an equally timely response by an insurer. It can easily be envisioned that the circumstances in which an insurer may seek to deny indemnity may not become apparent until after the three month time limit specified in s 81. It is not an answer, in our opinion, [to] simply say that an insurer could deny liability expressly or be deemed to have denied liability under s 81(2), just in case the insurer subsequently became aware of circumstances whereby it was entitled to deny indemnity. Such an approach would be contrary to the scheme of the Act and may even jeopardise an insurer's license.⁸

The majority found that a s 81 notice admitting liability does not preclude an insurer later applying to withdraw the admission or any other implied admission within that s 81 notice.⁹ Therefore, an insurer is not ’bound for all purposes' by its s 81 notice.¹⁰

The second issue, which was not addressed in great detail by the Court given their findings and orders in relation to the PCA's decision, was whether it was open to the primary judge to prohibit the granting of a certificate of exemption on any ground at all (such as those that would be considered for a discretionary exemption). The Court unanimously held that this blanket prohibition could not be justified.¹¹

Implications

In the context of an application for exemption, CTP insurers need not fear that they will forever be bound by a s 81 notice admitting liability if new evidence comes to light that supports a denial, whether of liability or indemnity. Further liability or indemnity investigations following an admission of liability, in circumstances where new liability information comes to light, will therefore not be a wasted exercise.

¹Mordue v QBE Insurance (Australia) Ltd [2015] NSWSC 98 (Mordue v QBE)
²Mordue v QBE, [22].
³Nominal Defendant v Gabriel & Anor (2007) 48 MVR 31.
⁴QBE Insurance (Australia) Limited v Aaron Mordue [2015] NSWCA 380 (QBE v Mordue).
⁵It must be noted that Beazley P, and Ward and Simpson JJA all agreed that Order 2 of the judgment of Adams J - that the Motor Accidents Authority was prohibited from issuing a certificate of exemption - be set aside.
⁶QBE v Mordue, [42].
⁷(2007) 48 MVR 31.
⁸QBE v Mordue, [43].
⁹QBE v Mordue, [47].
¹⁰QBE v Mordue, [50].
¹¹QBE v Mordue, [55] and [99].