Notification of facts that might give rise to a claim – The significance of section 40(3) of the Insurance Contracts Act 1984 (Cth)
It is often thought that when an insured takes out a policy of professional indemnity insurance, an insurer will automatically accept that claim once the insured notifies the insurer of that claim.
There are, however, many nuances where insurers may deny liability for a claim.
One of those nuances, with respect to claims made and notified policies of insurance, is the insurer’s right to deny indemnity in relation to a claim made against an insured simply because an insured failed to notify their insurer in writing of any facts and circumstances that gave rise to the claim made against the insured, during the relevant insurance policy period.
To protect insureds in this circumstance, section 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA) provides:
Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract. [emphasis added]
What this means is that so long as an insured notifies their insurer in writing of any facts or circumstances that might end up eventuating into a claim against the insured in future, during a current insurance policy period, then even if that insured is served with a claim arising from those facts and circumstances after that policy of insurance coverage has ended, an insurer cannot deny indemnity for that claim (simply because the insurance policy held by that insured ended before the actual claim against the insured was made).
It is, therefore, crucial that insureds familiarise themselves with their obligation to notify their insurer(s) of any facts and circumstances that might give rise to a claim against them, in writing, as soon as possible and prior to the expiry of any policy of insurance they may hold, in order to rely on s 40(3) of the ICA.
It is also important to note that a notification of facts and circumstances does not have to be made to the insurer by the insured personally as it can be made by an agent of an insured on the insured’s behalf. Ultimately, if in doubt, insureds should always seek legal advice as soon as possible to protect their interests.
Case in Point
Darshn v Avant Insurance Ltd [2021] FCA 706; Avant Insurance Limited v Darshn [2022] FCAFC 48
Dr Darshn, a cosmetic surgeon, performed breast augmentation surgery whilst engaged by The Cosmetic Institute (TCI). At all times during that engagement, Dr Darshn held a claim made and notified policy of professional indemnity insurance with Avant Insurance Limited (Avant).
In early 2019, Dr Darshn was served with a subpoena in relation to The Cosmetic Institute Class Action (TCI Class Action). In February and March of 2019, Dr Darshn contacted Avant’s Medico-Legal Advice Line by telephone in relation to the subpoena to:
- let Avant know he had received the subpoena; and
- seek advice in relation to what he had to do to with the subpoena.
During those discussions, Avant suggested Dr Darshn send them a copy of the subpoena for the purpose of providing him with further assistance. Dr Darshn was satisfied that he had informed Avant of the subpoena, obtained the advice he required to respond to the subpoena, and ultimately did not require any further assistance with respect to responding to the subpoena. In turn, Dr Darshn did not provide a copy of that subpoena to Avant.
Notably, at the time of receiving the subpoena, Dr Darshn was not a party to the TCI Class Action, nor did he understand or was he aware of any other facts and circumstances that suggested he may be joined as a defendant to the TCI Class Action. Significantly, however, at the time that Dr Darshn contacted Avant’s Medico-Legal Advice line, particularly in March 2019 in relation to the subpoena, Avant had knowledge of the TCI Class Action as well as subpoenas served on other doctors that worked at TCI (in substantially the same terms as the subpoena served on Dr Darshn). This was because Avant was also the professional indemnity insurer of a number of those other doctors and those doctors had provided Avant with a copy of the subpoena that they had received.
At that time, it was apparent the scope and breadth of the subpoena served on Dr Darshn (and other doctors that worked at TCI) was expressed in far broader terms than a usual subpoena to produce documents and conveyed the possibility, if not likelihood, of Dr Darshn (as well as the other doctors that worked at TCI) being joined as defendants to the TCI Class Action.[1]
Despite this, at no point during the telephone discussions between Avant’s Medico-Legal Advice Line and Dr Darshn in February and March 2019, or afterwards, did Avant’s Medico-Legal Advice Line advise or otherwise inform Dr Darshn of the possibility that he may be joined to the TCI Class Action or that he needed to provide Avant with a copy of the subpoena in writing for the purposes of satisfying the requirements of s 40(3) of the ICA (in the event that he needed to make a claim in relation to the TCI Class Action in future).
In mid 2019, when Dr Darshn’s Avant policy of professional indemnity insurance came to an end, Dr Darshn decided to change professional indemnity insurer.
In June 2020, Dr Darshn was served with an amended statement of claim that was filed in the TCI Class Action. That amended statement of claim joined him, as well as another 10 doctors that worked at TCI, as defendants to the TCI Class Action.
Relevantly, Dr Darshn notified Avant in writing of the amended statement of claim joining him to the TCI Class Action for the purposes of making a claim. Avant denied indemnity in relation to that claim on the basis that Dr Darshn was no longer insured by Avant at that time he was served with the amended statement of claim and because he had not notified Avant of facts and circumstances that gave rise to the TCI Class Action Claim as required by s 40(3) of the ICA, prior to the expiry of his Avant policy (despite Avant being informed over the telephone by Dr Darshn that he had been served with a subpoena in the TCI Class Action in early 2019).
Dr Darshn commenced proceedings against Avant seeking a declaration from the Court that Avant was required to indemnify him in relation to The TCI Class Action claim.
At that time, Avant was indemnifying Dr Darshn in relation to two other proceedings, on substantially similar grounds to the TCI Class Action and Avant had appointed Makinson d’Apice Lawyers (MDL) to act on Dr Darshn’s behalf in those separate proceedings (Separate Proceedings). Both of the individuals that commenced the Separate Proceedings fell within the definition of a group member of the TCI Class Action, meaning both of those individuals were automatically part of the TCI Class Action until such time that those individuals opted out of TCI Class Action, for the purposes of pursuing their own separate claims.
In February 2019, during the course of the Separate Proceedings (and prior to the expiry of Dr Darshn’s Avant policy of professional indemnity insurance), unknown to Dr Darshn, MDL sent correspondence to Avant that outlined the correlation of the Separate Proceedings to the TCI Class Action and possible impact on Dr Darshn. Those communications from MDL to Avant were held by the Federal Court of Australia and the Full Court of the Federal Court, to be a notification of facts and circumstances made to Avant in writing by MDL as an agent of Dr Darshn, in relation to the TCI Class Action, as required by s40(3) of the ICA. As a result, a declaration was made by the Court requiring Avant to Indemnify Dr Darshn in relation to the TCI Class Action.
Notably, in providing his reasons, Moshisnky J also concluded that had he not formed the view that the requirements of s 40(3) of the ICA were met by Dr Darshn, he would have found that Avant had breached its statutory duty of utmost good faith owed to Dr Darshn because, at the time that Dr Darshn called Avant’s Medico-Legal Advice Line:
- Avant’s Medico-Legal Advice service held out that it provided advice to insureds, not only in relation to claims that may need to be notified, but also facts that might give rise to a claim;
- Avant was aware of the nature of the TCI Class Action and the terms and breadth of the subpoena issued to Dr Darshn given Avant had a copy of the subpoena in substantially the same terms as the subpoena served on Dr Darshn, (as other doctors that worked at TCI that were also insured by Avant, had provided Avant with a copy of the subpoena that had been issued to them);
- the terms and breadth of the subpoena conveyed the possibility, if not likelihood, of Dr Darshn, as well as the other doctors who worked at The Cosmetic Institute, being joined as defendants to the Class Action;
- despite Avant being aware of the nature of the TCI Class Action and terms and breadth of the subpoena, and likelihood of Dr Darshn being joined to the TCI Class Action, Avant did not advise or inform Dr Darshn of the effect of s 40(3) of the ICA and the fact that he needed to provide Avant with a copy of the subpoena in the event that he was joined to the TCI Class Action and needed to rely on s 40(3) to make a claim in future;
- Avant had accepted indemnity for other doctors that worked at TCI (that it insured and were joined to the TCI Class Action), simply because those doctors had provided Avant with a copy of the subpoena they were issued and based on that, Avant accepted that had Dr Darshn provided Avant with a copy of the subpoena he was issued with, that would have constituted notice in writing and satisfied the requirements of s 40(3) of the ICA.
These circumstances demonstrated that all Dr Darshn was required to do to obtain indemnity from Avant was to provide a copy of the subpoena he received to Avant at the time that he sought out Avant’s Medico-Legal Advice Line or prior to the expiry of his Avant policy of insurance.
On appeal, Jagot, Derrington and Colvin JJ also concluded that, based on the above circumstances, ‘Avant’s insistence that Dr Darshn had to provide it with a copy of the subpoena addressed to him to obtain the benefit of s 40(3), in all of the circumstances, does not accord with commercial standards of decency and fairness, with due regard to the interests of the insured.’
Key Takeaways
The matter is significant as both the decisions of Moshinsky J (at first instance); Jagot, Derrington and Colvin JJ of the Full Court of the Federal of Australia (on appeal) held that:
- written correspondence made to an insurer by its panel appointed lawyers, in relation to a claim made by an insured, amounted to a written notification of facts and circumstances, by an agent on behalf of the insured, for the purposes of s 40(3) of the ICA;
- the intention to make a written notification for the purposes of s 40(3) is not required;
- an insurer may be deemed to have breached its duty of utmost good faith in circumstances where the insurer is aware of matters capable of giving rise to a claim, but when contacted by the insured for advice, the insurer fails to advise the insured of the requirement to make a notification to the insurer in writing to meet the requirements of s 43(3) of the ICA.
Avant filed a Special Leave Application with the Hight Court of Australia. Special Leave was refused by Gageler J (now CJ) and Gleeson J.
William Roberts Lawyers acted on behalf of Dr Darshn and successfully obtained judgment in favour of Dr Darshn at first instance; successfully defended and broadened that judgment in Dr Darshn’s favour when the matter was appealed by Avant to the Full Court of the Federal Court of Australia; and further successfully opposed the application for special leave to appeal to the Hight Court of Australia made by Avant.
Please feel free to contact Robert Ishak or Effie Dimos should you find yourself in a similar circumstance and require assistance.
[1] Darshn v Avant Insurance Limited [2021] FCA 706 at [224]
The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.
