Insurable Interest – Issue 46
The future is super
Mr Latz was diagnosed with mesothelioma in October 2016. It was accepted by all parties that Mr Latz’s illness was caused by Amaca’s negligence.
Mr Latz worked as a public servant and accrued an entitlement to receive a superannuation pension. Mr Latz’s superannuation benefit will continue to be paid to his spouse after his death at two-thirds of the notional pension which Mr Latz would have been entitled to. Mr Latz also receives an age pension from the Federal Government, which will cease on his death.
At trial, Mr Latz was awarded $500,000 for the anticipated loss of his age pension and his full superannuation benefit following his premature death. On appeal, the majority of the Full Court of South Australia reduced the damages to reflect the fact that Mr Latz’s spouse will receive a benefit which is two-thirds of his notional superannuation benefit, noting that it should be regarded as a composite benefit.
Amaca appealed to the High Court and argued it is the loss of earning capacity which is compensable and not the loss of other passive income streams. Amaca’s argument was premised on a view that compensation should reflect the plaintiff’s loss and be directly tied to the injury. Amaca contended that less direct economic consequences which flow from a plaintiff’s injury, such as the economic consequences to his family, did not fall within the scope of compensable loss.
Mr Latz argued that the loss of both his pension and his superannuation benefit were ascertainable pecuniary consequences of Amaca’s negligence, and there was precedent in both Australia and England which supported the view that they were compensable.
The High Court dismissed the appeal. The majority took the view that damages for the loss of Mr Latz’s superannuation benefits were not too remote, finding that the loss of an entitlement to future benefits after his death was a loss suffered personally by Mr Latz. It was the loss of a benefit which he had earned and which had a present value to Mr Latz: providing for the future of his family as he would have done, but for his illness. In this regard, the Court found it useful to characterise Mr Latz’s entitlement to the superannuation benefit as ‘delayed remuneration’.
The majority found that a superannuation pension is a capital asset, the loss of which is compensable as a future economic loss. By contrast, the age pension is not a capital asset, entitlement or property and as such, the loss of it was found not to be compensable.
The net result was that Mr Latz was awarded compensation for the loss of one-third of his superannuation, but no compensation for the loss of his pension.
|This case raises a question about the limit of compensation for future economic loss and has the potential to expand the traditionally held view that it should be limited to the plaintiff’s loss of capacity to earn money from personal exertion and skill. The divided judgements of both the Court of Appeal and the High Court reflect a contentious and complex issue.|
This article was written by Kate Lawford, Senior Associate.
Class action gets a rubbish result
The NSW Supreme Court has dismissed a class action conducted by Maddens Lawyers for losses caused by a fire that escaped the Walla Walla Waste Depot and damaged a number of properties.
The lead plaintiff established that the Greater Hume Shire Council owed a duty of care to members of the group proceeding to take reasonable measures to prevent fires igniting in or escaping from its waste depot. It was also established that the Council failed to take a number of precautions which would have reduced the likelihood of a fire igniting or escaping from the waste depot (such as by spreading and covering up combustible waste, maintaining a fire break and clearing vegetation adjacent to the boundary). The plaintiff, therefore, established both duty and breach.
However, the class action failed on the question of causation. The plaintiff could not prove the cause of the fire or even the precise location within the Depot where it started. Furthermore, the expert evidence did not support a finding that the fire would not have ignited or escaped from the waste depot if reasonable precautions had been taken. Even the experts called by the plaintiff did not give evidence that the relevant precautions would have prevented the fire from escaping the waste depot. They were only prepared to say that the precautions (if taken) may have bought sufficient time for firefighters to have successfully intervened before the fire escaped. Predictably, the Court found that this evidence did not discharge the plaintiff’s burden of proving, on the balance of probabilities, that the precautions would have avoided the escape of fire.
Weber v Greater Hume Shire Council  NSWSC 667
|This is a rare example of a class action being run to judgment and being wholly unsuccessful. It serves as a sober reminder for lawyers representing plaintiffs (or subrogated insurers) to carefully consider whether the evidence establishes that the negligent acts or omissions caused the loss in question. As the Court put it, it is necessary to consider whether the negligence was a ‘necessary condition of the occurrence of the harm’.|
This article was written by Matt McDonald, Partner.
Vicarious, but not apportionable
Reed Constructions Pty Ltd entered into a design-and-construct contract for the redevelopment of an office building into apartments. Along the way, a progress payment claim was submitted by Reed’s Chief Operating Officer to the owner of the building. In the claim, the COO made a statutory declaration that, having made all enquiries, he believed that all sub-contractors and suppliers had been paid in full. The owner accepted that assurance and paid the claim.
Subsequently, Reed ceased work on the site (and later went into liquidation, leaving unsecured creditors with nothing). In order to complete the project, the owner had to make ‘restart’ payments to sub-contractors in order to get them back on site to finish the project. The owner discovered that the statement in the progress claim about all sub-contractors and suppliers having already been paid was false.
The COO was found liable to the owner for engaging in conduct in trade or commerce which was misleading or deceptive (in breach of the Australian Consumer Law). He was also found liable for negligently making a misstatement (at common law).
The COO argued on appeal to the Full Court of the Federal Court that liability should be apportioned against Reed, on whose behalf he had made the statement.
The Court found that, before making the statement, the COO had made enquiries which were so limited that on no view could they be said to be reasonable enquiries for the purposes of his statutory declaration. Further, the Court found that Reed itself had no part to play in that regard: there was no evidence remotely suggesting that anyone else on behalf of Reed had misled the COO or caused him to make the false statutory declaration.
Reed, as the employer of the COO, was vicariously liable to the building owner in respect of the false statements: in effect, it had the same liability to the building owner, so that the COO and Reed were jointly liable.
However, that joint liability in itself was no basis for an apportionment of liability against Reed. There was nothing which Reed itself had done which made it a concurrent wrongdoer.
As a result, neither the apportionment provisions in the Australian Consumer Law nor the apportionment provisions in the Victorian Wrongs Act provided the COO with any relief, and he was 100% liable to the building owner.
|Vicarious liability of an employer for the acts of an employee is not in itself a basis for apportionment of liability against the employer. The employer must itself have done something else, independently of the acts of the employee, in order for it to be regarded as a concurrent wrongdoer for apportionment purposes.|
Wastewater proves un-appealing
In Insurable Interest - issue 44, we reported on the decision in Aquagenics Pty Ltd (in liq) v Certain Underwriters at Lloyd’s, which was recently appealed to the Full Court of the Federal Court.
To recap, the insured company entered into a contract with a municipal council in Tasmania for the design and construction of a wastewater treatment plant. The contract contemplated that once ‘pre-commissioning’ of the project had been completed, then the council would provide a ‘seed sludge’ which would enable the insured to complete the project.
The parties fell into a dispute about whether the relevant phase of the project had in fact been completed: the insured demanded that the council provide the seed sludge and the council refused. Eventually, the insured left and the council stepped in and took over the site.
The insured instituted arbitration against the council and claimed re-entry to the site and damages. The insured lost and instead damages were awarded to the council for the insured’s failure to complete the project and for rectification of the work which it had completed, but which had design flaws (that were identified by the contractor engaged to complete the works).
When the insured was placed into liquidation, the liquidator sued the insured’s professional indemnity underwriter after a claim under the insured’s architects & engineer’s policy was declined.
The policy covered liability arising out of any ‘wrongful act’ committed by the insured in the course of its ‘professional activities’. The underwriter’s essential argument was that the policy did not cover what was really just a contractual dispute about an incomplete project.
Underwriters argued that in order for the policy to be triggered, the ‘wrongful act’ in question must be ‘inadvertent, unintentional or accidental’, such an interpretation being consistent with the commercial purpose and intent of the policy.
Further, underwriters’ argued that any wrongful act on the part of the insured was not committed in the course of the insured’s ‘professional activities’, “It’s just walking off the site”. It was submitted that abandoning a contract is not a professional activity.
The trial judge stated that the policy should be given a businesslike interpretation and construed how a reasonable person in the position of the parties would understand the language to be used. Given the ordinary meaning of the words used, Her Honour found no support for a conclusion that the policy required the action in question to be unintentional or inadvertent and accepted that the insured’s failure to complete pre-commissioning in accordance with the contractual requirements was a ‘wrongful act’ for the purpose of the policy.
She concluded that the insured’s failure to comply with its contractual obligations with respect to pre-commissioning was within the scope of its professional activities.
On appeal, the Full Court entirely endorsed Her Honour’s decision and reasoning. It agreed that there was no compelling reason to constrain the ordinary meaning of the words ‘wrongful act’, as the broad scope of those words was limited by the requirement that the act must be committed within the course of the insured’s professional activities, and by the policy exclusions.
Their Honours also agreed that because the contractual dispute arose out of the pre-commissioning process, which involved professional skill, the act had been committed in the course of the insured’s professional activities.
A contractual liability exclusion was found not to apply, as the damages payable by reason of the insured’s conduct were not enlarged by the terms of the contract (beyond that which would otherwise be awarded at law).
|The decision demonstrates the breadth of the terms ‘wrongful act’ and ‘professional activities’ as typically defined in a professional indemnity policy. If underwriters’ intention is that the policy ought only to respond to inadvertent or unintended actions, this must be explicitly stated in the policy wording.|
This article was written by Zoe Keith, Partner.
Is there a Right2Drive?
The underlying claim arose out of a motor vehicle collision. Liability for the collision was admitted and the defendant disputed the amount claimed for a replacement vehicle hired from Right2Drive by the plaintiff on credit. The Magistrate found that the contract with Right2Drive was void for uncertainty, and as a result, the plaintiff had no liability to pay Right2Drive for the hire car, and therefore suffered no compensable loss of use. Relevantly:
- the amount charged by Right2Drive was not recorded until after the contract was signed (1-2 weeks after the car was returned);
- the plaintiff gave evidence that he would have picked up the car earlier if he thought he had to pay for it; and
- the fact that the plaintiff needed a replacement vehicle was not in dispute.
As a further point, the defendant had argued that the plaintiff was only entitled to average market rates of hire, not the rates invoiced by Right2Drive. The Magistrate did not decide that issue, because it was not necessary after finding that the plaintiff suffered no loss.
The plaintiff (backed by Right2Drive) appealed to the Supreme Court of Victoria. Justice T Forrest found as follows:
- He accepted that the plaintiff did not have to pay for the car ‘under any circumstances’, and that the price was to be fixed later and sought from a third party, however in that context, the price is not a particularly important term of the contract (although it would be in many contracts).
- Therefore the important elements of this particular contract were sufficiently certain, and it was not void.
- Further and more importantly, even if the contract was void, the plaintiff still suffered a compensable loss.
- As long as the plaintiff has a ‘need’ for a replacement vehicle, that ‘need’ is created by the defendant’s negligence, not by some contractual liability to pay a third party. Therefore a plaintiff is entitled to the cost of hiring a replacement vehicle, even if they did not have to pay for it.
- He confirmed that Anthanasopoulos v Moseley is good law in Victoria. In legalese: injury to property is compensable with damages, regardless of whether or not the need for replacement property is productive of financial loss.
While this may seem unfair to the defendant, it is logically consistent with the law of damages. If a plaintiff is paid for the cost of repairing damaged property, they don’t have to actually use that money to repair the property.
The plaintiff, in this case, didn’t have to use his damages payout to hire a replacement vehicle, although he did still need to establish that he needed a vehicle in the first place. He would not be as likely to succeed if he had other vehicles in the garage available for use, or if he only drove the damaged vehicle on rare occasions, for example.
It was, therefore, possible for a plaintiff to recover hire car damages despite not having incurred any expense.
The claim has been remitted to the Magistrates’ Court to decide the appropriate amount of damages.
Roehlen v Mikhail  VSC 121
|In NSW and Victoria, the owner of a vehicle which is off the road because of someone else’s negligence is entitled to be compensated for the need for a replacement vehicle. The measure of such compensation will be the cost of the replacement or, if there is no cost, what would ordinarily be the commercial cost.|
This article was written by Chris Forder, Lawyer.
It's never too late to change your mind
This decision sounds alarm bells for public liability insurers and insured businesses about the potential for lengthy and complicated litigation if there is any doubt as to the employment status of a plaintiff.
The plaintiff was working for a tiling company when he was injured. WorkCover Queensland accepted the application for no-fault statutory benefits and after approximately two years issued a Notice of Assessment to the plaintiff, which is the prerequisite to bringing a common law claim. However, WorkCover then rejected the common law claim on the basis that the plaintiff was a contractor, not an employee of the defendant.
The defendant sought a declaration that WorkCover was liable to indemnify the defendant for the claim. The Queensland District Court refused the application outright.
The Court rejected the first argument that there was any ‘estoppel’ created by the acceptance of the statutory application for benefits. Neither the plaintiff nor the defendant had relied upon the acceptance of the application for statutory benefits or acted to their detriment. The fact that WorkCover Queensland may have mistakenly paid out statutory benefits to a person otherwise not entitled to them did not then prevent WorkCover Queensland from correcting its mistake in the common law claim.
The Court emphasised the separate consideration of facts between the statutory claim and the common law claim. In particular, reference was made to the philosophy of the High Court concerning a number of Victorian workers compensation claims, that the legislation does not impose any limits on the insurer with once-and-for-all determinations. WorkCover Queensland was entitled to contest in the common law claim any of the issues admitted in the statutory benefits claim, including whether there was an injury, whether the injury was in the course of employment and whether the plaintiff was a ‘worker’ for the purposes of the Act.
The judgment is a timely reminder to insureds to carefully consider the terms upon which they engage their workers, and the terms of their insurance policies, to avoid the risk of no coverage at all if the plaintiff is not a ‘worker’ under the Act but is excluded as a ‘worker’ under the public liability policy.
|This decision is presently subject to an appeal of the Queensland Court of Appeal.|
This article was written by Sean Sullivan, Special Counsel.
Keeping your cards too close to the chest
The following decisions show the risk of leaving your knock-out punch too late.
The plaintiff was a tour guide who was injured at work at a resort. Liability was admitted and the matter proceeded to trial on quantum only.
On the first day of trial, the defendant’s solicitors produced nine hours of covert surveillance, extracts from the plaintiff’s Facebook and reports from an orthopaedic surgeon and a psychiatrist commenting upon the covert surveillance. The defendant then sought to amend its pleadings to actively deny the extent of the consequences of the injury based on this evidence. The admission of the covert surveillance evidence and the late amendment were both opposed by the plaintiff.
The defendants had previously obtained a suppression order, which exempted the defendant from disclosing the covert surveillance material and further specialist reports. However, the trial judge strongly emphasised that the suppression order did not grant an exemption from the defendant’s obligation to properly plead its case in the Defence.
The trial judge noted that the purpose of pleadings was to set out the material facts in issue to avoid any surprise at trial. This included setting out the rationale for contesting a particular point.
The original Defence had a non-admission of the injuries. There was an obligation on the defendant to amend the pleadings to either admit or deny the non-admitted allegations once the defendant had completed its investigations. In this case, the defendant waited until the first day of trial to seek to convert the non-admission to a denial. It was clear that in fact, the amendment to the Defence should have occurred at least at the time of the suppression application.
The defendant complained that the surveillance evidence would lose its surprise factor if the defendant revealed its changed position in the amended pleadings. The trial judge rejected this argument, noting that the amended pleading merely involved a denial of the ongoing effects of the relevant injury and did not require the defendant to set out the evidence upon which that new denial was based. Further, the trial judge noted that by that time the defendant sought to amend the Defence, the defendant had admitted a bundle of the plaintiff’s specialist reports without the need for proof, and without the cross-examination of those specialists. Needless to say, the plaintiff’s specialist had not seen the covert surveillance material or commented on the material.
Carswell v CBRV Resort Operations Nos 1 & 2 (2017 QSC 239 and 2018 QSC 110)
|The defendant could have avoided its predicament as follows:
This article was written by Sean Sullivan, Special Counsel.
Postage stamps still work
With the continuing escalation in international trade and the unavoidable fact that most products consumed in Australia are manufactured overseas, property damage and personal injury caused by imported products are becoming more frequent. This poses problems for product liability insurers of importers, local distributors and retailers who find themselves facing claims arising from defective imported goods. Even the elementary procedure of serving legal process on foreign manufacturers can be challenging.
There are a couple of things which such insurers can usefully do. One is to look at whether the legal process can simply be served by post under the Hague Service Convention.
In 2017 the United States Supreme Court looked at Article 10 of the Convention and determined that service of legal process issued in one country can be affected by post on a party in another country if:
- both countries are members of the Convention
- the receiving country has not objected to service by mail and
- service by post is lawful in the jurisdiction where the legal proceeding is issued.
In the American case, it was found that service of legal process issued in Texas could be served in Canada because all of those requirements had been met.
An example more relevant to Australia is China. That country is a member of the Convention. However, China has not adopted Article 10, so that service by post of the legal process initiated in Australia will not be possible in China.
The other possible source of relief for liability insurers is the apportionment rules legislated in the various States. A defendant to a non-personal injury liability claim can assert that liability to the claimant should be apportioned against another party, which could include a foreign company which does not have a presence in Australia and which is not even a party to the legal proceeding.
However, in Victoria, it is a requirement that the target of the apportionment must be joined to the legal proceeding as a defendant, which will involve service on it of some legal documents. Again, such service will require consideration of the Convention and of the Convention status of the country in which the documents must be served.
Otherwise, apart from Victoria, there is no obligation on a defendant which raises an apportionment defence to join the other ‘wrongdoer’ to the legal proceeding as a defendant. Accordingly, once the apportionment defence is raised and the other wrongdoer is identified, it becomes the claimant’s problem to decide whether or not to make a claim against that other party and, if so, to work out how to serve legal process outside Australia.
|The Hague Service Convention can be of assistance to insurers wanting to exercise subrogation rights against foreign manufacturers.|
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