Moylan Retirement Solutions Pty Ltd (MRS) was a provider of financial services. Mr Moylan, the principal of MRS, provided financial advice to a group of self-managed superannuation funds (SMSFs) to invest in Moylan Investment Group Pty Ltd (MIG). Mr Moylan was the sole director and shareholder of MIG.
As a provider of financial services, MRS was required to, and held, a professional indemnity insurance policy (the policy). The policy was underwritten by Arch Underwriting at Lloyds, Hiscox Dedicated Corporate Member Limited and Barbican Managing Agency, the first, second and fourth respondents respectively, during the period 2012 to 2013. During 2013 to 2014, the policy was underwritten by Liberty Mutual Insurance Europe Limited, the third respondent.
The SMSFs to whom MRS provided advice were controlled by incorporated entities. The SMSFs – Davey Family Investments, Smith Family Investments, Kauter Family Investments and Manning Family Investments (the claimants). The lead claimant and first appellant in the proceedings, P & S Kauter Investments Pty Ltd, was the controlling entity of Kauter Family Investments.
On 15 January 2013, as part of the renewal of its policy, MRS advised in a letter to their insurance broker (the notification) that there may be “a chance of a claim” on the policy “ …in relation to any loss that may be incurred” as MIG had been “unable to repay” the funds invested by MRS on behalf of the SMFSs.
In or around August 2014, MRS was deregistered. At the time of deregistration, there was approximately $4,630,000 of the SMSFs’ funds that had been lost on investments in MIG.
The claimants relied on s 601AG of the Corporations Act 2001 (Cth) to make a claim on the policy on the basis that MRS had engaged in misleading or deceptive conduct; provided negligent advice to the SMSFs; and breached its fiduciary duties to the SMSFs.
601AG Claims against insurers of deregistered company
A person may recover from the insurer of a company that is deregistered an amount that was payable to
the company under the insurance contract if:
(a) the company had a liability to the person; and
(b) the insurance contract covered that liability immediately before deregistration.
The primary judge determined that no claim had been made within the policy period and that a notification had not been made to sufficiently meet the requirements or otherwise engage s 40(3) of the Insurance Contracts Act 1984 (Cth) (the Act). As such, the claimants were not indemnified under the policy.
Section 40 of the Act states:
40 Certain contracts of liability insurance
(1) This section applies in relation to a contract of liability insurance the effect of which is that the insurer’s liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract.
(2) The insurer shall, before the contract is entered into:
a) clearly inform the insured in writing of the effect of subsection (3); and
b) if the contract does not provide insurance cover in relation to events that occurred
before the contract was entered into, clearly inform the insured in writing that the
contract does not provide such cover.
Penalty: 300 penalty units.
(3) 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.
On appeal, the appellants asserted that the notification provided by MRS constituted a notification “of facts that might give rise to a claim” within s 40(3) of the Act.
The policy was described by the Court as ‘a “claims made and notified” policy’ as per s 40(1) of the Act. As such, and considering the language of the Act, the Court noted that there was a requirement for there to be ‘a sufficient correspondence between the facts notified as likely to give rise to a claim and a claim subsequently made for the latter to be identified as “the” or a claim arising or resulting from those facts.’
The Court also highlighted that a notification under the Act would be made out in the event of a ‘notification…of “facts”’. The Court indicated that ‘s40(3) [of the Act] is concerned with the notification of objective matters that bear on the possibility of a claim being made, rather than matters of belief or opinion as to that possibility.’
The Court of Appeal unanimously held that the notification provided by MRS instead ‘foreshadowed the possibility of claims’. The Court noted that the notification ‘critically’ lacked any facts as to the ‘loss…suffered or that that was more than a potential possibility’. Thus, the decision of the primary judge in respect of whether a notification had been made was upheld.
This case reminds all policy holders to ensure that when making a notification, the policy holder must include sufficient facts as to any loss and ensure that any notification relied upon is not speculative or prospective. In addition, policy holders should seek to disclose sufficient facts to an indemnifier to satisfy the requirements of s 40 of the Act.
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