General Insurance Update August 2010

Lawyers for personal injury plaintiffs often sue all those who might possibly be liable – a practice colloquially known as the “scatter-gun approach”. Some time down the track however, when offers are on the table, there comes a question as to whether settlement against one defendant affects or reduces the liability of the others. Based on the reasoning of the NSW Court of Appeal, it seems that in most cases, settlement against one defendant does not stymie the claims against the others.

Cherrylle Nau was injured in December 1999 while working for the Department of Education. Between August 2002 and December 2002 she was sent to Kemp & Associates, a company that provided rehabilitation services, for a supervised gymnasium program. Her rehabilitation program was devised by Ms Tarn, an employee of Kemp’s.

Ms Nau alleged that between March and August 2004, while carrying out work at another school run by the Department, she was again given inappropriate work to do, which brought about an injury to her right shoulder.

She sued Kemp and Ms Tarn in 2005 asserting that the exercises that they required her to do were inappropriate and caused her to suffer an injury to her shoulder and shock (“Kemp claim”).

She then commenced a separate action against the State of New South Wales in 2007 alleging that the State was “answerable in damages for the negligent acts of the Department of Education and Training”. That claim relied on the alleged injuries in December 1999 and between March and August 2004. In addition however, Ms Nau asserted that the State was also liable for the treatment “imposed” on her by Kemp in 2002 (“State claim”).

The matters were listed to be heard together. The parties to both matters participated in a mediation shortly before the scheduled hearing date. No settlement was reached in the Kemp claim. However, either at the mediation, or shortly afterwards, Terms of Settlement were signed to resolve the State claim.

Consent orders were filed entering judgment in Ms Nau’s favour for $220,000 inclusive of costs and relieving her of liability to repay workers’ compensation benefits.

Following the settlement of the State claim and payment of the judgment sum in that matter, Kemp applied to have the Kemp claim dismissed. That application relied on s.5(1)(b) of the Law Reform (Miscellaneous Provisions) Act 1946; which relevantly provides:

“5 Proceedings against and contribution between joint and several tort-feasors

(1) Where damage is suffered by any person as a result of a tort (whether a crime or not):

(a) judgment recovered against any tort-feasor liable in respect of that damage shall not be a bar to an action against any other person who would, if sued, have been liable as a joint tort-feasor in respect of the same damage,

(b) if more than one action is brought in respect of that damage by or on behalf of the person by whom it was suffered… against tort-feasors liable in respect of the damage (whether as joint tort-feasors or otherwise) the sums recoverable under the judgments given in those actions by way of damages shall not in the aggregate exceed the amount of the damages awarded by the judgment first given; …”

The primary judge dismissed the Kemp claim, on the basis that Ms Nau had already recovered damages from another tortfeasor for the injury that was the subject of the claim and therefore s.5(1)(b) prevented her from receiving any further amount. The Kemp claim was consequently an abuse of process.

Ms Nau appealed.

In a lengthy and somewhat disparate judgment, the three members of the NSW Court of Appeal (Justices McColl, Campbell and Sackville) came to the same basic conclusion – that s.5(1)(b) did not prevent the Kemp claim from proceeding and it was therefore not an abuse of process.

Justices Campbell and Sackville focussed their separate decisions on the words “damages awarded by the first judgment” and whether the consent order in this case amounted to “damages awarded”.

They agreed that the effect of s.5(1)(b) was that the amount of damages awarded by the first judgment limited the total amounts recoverable under all judgments for the same damage, regardless of the manner in which the amount of damages awarded by the first judgment might have been calculated. Accordingly, the amount of “damages awarded” in any first judgment was irrelevant to the operation of the section and a plaintiff could not rely on any alleged “undercompensation” in the first judgment to prevent it from applying.

However, Justices Campbell and Sackville noted that the section required that there be “damages awarded” in the first judgment. They concluded that the preferable construction was that there were “damages awarded”, within the meaning of the section, only if the court has assessed the quantum of those damages.

In this instance, as the court had not assessed the amount of damages for Ms Nau’s injury in the State claim, the consent judgment in that claim did not operate to prevent the Kemp claim from proceeding.

Justice McColl agreed that the reference in s.5(1)(b) that there must be “damages awarded by …judgment” referred to damages awarded by a court. It followed then that the consent order in the State claim was not a judgment by which “damages [were] awarded” by a “judgment first given” within the meaning of the section.

In addition however, the consent judgment entered in the State claim was pursuant to terms of settlement that were expressed to be “without admission of liability”. The consent judgment therefore did not establish that the State was a tortfeasor “liable” for the purposes of s.5(1)(b).

The end result was that the appeal was allowed and the judgment below was set aside; meaning that Ms Nau’s action in the Kemp claim could proceed.

Plaintiffs can sometimes benefit from defendants not acting in concert.

Whether rehabilitation services can be liable for the failure of those under their care to comply with the services being provided raises some difficult legal questions. At least some of those questions may have been answered by a recent decision of the NSW Court of Appeal.

Simon Swanson (the appellant in the case) suffered from drug and alcohol addiction, depression, and a mixed anti-social and borderline personality disorder. In April 2002, he had been treated at St Vincent’s Hospital and discharged as “drug-free” after several weeks in treatment. On the day of his discharge from St Vincent’s, he was admitted voluntarily to Kedesh House (operated by Kedesh Rehabilitation Services Ltd) near Wollongong to take part in an 8-week drug rehabilitation program. One of the aims of this program (which Mr Swanson, as all other participants, agreed to accept) was to make participants take responsibility for their own medication in order to equip them for independent drug-free living in the community. Mr Swanson’s medication suppressed his symptoms without curing his underlying condition.

He was allowed to leave Kedesh the weekends of 3, 10 and 17 May 2002. On such occasions, program participants were expected (and encouraged) to collect the medication they would need while they were away. Mr Swanson collected his medication before leaving on 3 and 10 May, but failed to do so on 17 May. His movements over that weekend were a matter of speculation but he failed to return on the Sunday evening; and at about 5 p.m. on Monday 20 May he jumped off the Berkeley Road overpass near Kedesh and sustained serious injuries.

He sued Kedesh claiming damages for personal injuries, and alleged that it had failed to “ensure” he did not proceed on weekend leave without his medication. It was alleged that without access to his medication he became psychotic, and acting on “voices”, jumped off the overpass.

The evidence called at trial did not establish that Mr Swanson had missed any of his doses of medication in the days before he went on leave on 17 May. There was no evidence that he was suffering from any cognitive impairment which affected his capacity to collect his weekend medication, or that there was anything about his behaviour to warn staff that he might be at risk of self-harm while on leave. Mr Swanson’s case was that staff should have ensured that residents took their medication while at Kedesh and collected the weekend’s dose before going on leave. The trial judge found in favour of Kedesh.

Mr Swanson appealed.

The NSW Court of Appeal unanimously dismissed the appeal. Delivering the court’s judgment, Justice Handley noted that the case was based on a breach of duty “by omission”; that is not that Kedesh had actively done something “wrong”, but that it failed to take steps that it ought to have taken in the circumstances.

The case put was that, as part of its duty of care, Kedesh should have “ensured” that Mr Swanson had collected his medication when he left on 17 May. However, Justice Handley found that Mr Swanson had not demonstrated “what Kedesh would have been required to do to perform that duty” and as a result, the Court “could not determine whether a duty of reasonable care required that step or those steps to be taken”.

While the argument posited that Kedesh should have “ensured” he had his medication, on a practical level, he could not identify the physical step or steps Kedesh should have taken to achieve that outcome and that it had failed to take.

In any event, Kedesh did not owe Mr Swanson a duty to “ensure” a particular outcome – its duty was to take reasonable care for the safety of its residents. As all residents, including Mr Swanson, were reminded at the end of the last session on 17 May that they should collect their medication before leaving and there was no indication of any impairment that would have prevented him from doing so; the exercise of “reasonable care” did not require anything more.

One of the key provisions in the “tort reform” process that led to the introduction of the Civil Liability Acts around Australia was the apparent restricting of claims for “nervous shock”. However, the provisions may not be as “air-tight” as some may think, particularly for “rescuers” who come on the scene in the aftermath of an accident.

Early on the morning of 31January 2003, a passenger train operated by the State Rail Authority of NSW left the tracks at high speed near Waterfall Station, south of Sydney. There were almost 50 people on the train, and seven of them died in the incident. Many others were injured, some seriously. All four carriages of the train were very badly damaged.

At the time of the accident, David Wicks and Philip Sheehan were serving members of the NSW Police. They responded to a radio message and were among the first to arrive at the scene, soon after the accident had happened. What confronted them was death, injury and the wreckage of the train. Because the overhead electrical cables had been torn down, and were lying across the wreckage, it was unclear whether it was safe to go close to the wreckage.

Some of those on board had been thrown out of the train. Many remained in the wreckage. MrWicks and MrSheehan each forced his way into damaged carriages. Some passengers were obviously dead; others were trapped, evidently seriously injured, and very distressed.

MrWicks and MrSheehan each did his best to relieve the suffering of the survivors and to get them to safety. As further emergency workers arrived at the scene, both men continued rescue efforts and later undertook other tasks assigned at the scene. Each remained at the scene for a considerable time – MrWicks until about 4.00pm; MrSheehan until about 2.00pm.

Both MrWicks and MrSheehan sued State Rail alleging they were injured as a result of being present at the crash site and what they witnessed there. They both claimed to have suffered psychological and psychiatric injuries, post traumatic stress syndrome, nervous shock and major depressive disorder.

In the NSW Supreme Court, a separate trial on the issue of liability was held. State Rail admitted that it was negligent in the operation of the railway and of the particular train that derailed; but denied that it owed any duty of care to Mr Wicks or Mr Sheehan. It also contested whether either man had suffered a recognisable psychiatric condition for which it could be liable.

At first instance, the trial judge found that State Rail was not liable and entered judgment for the defendant. That judgment was upheld in the NSW Court of Appeal. MrWicks and MrSheehan were granted special leave to appeal to the High Court.

In the High Court, much of the court’s attention was focussed on the interpretation of s.30 of the Civil Liability Act; which provides:

“(1) This section applies to the liability of a person (the defendant) for pure mental harm to a person (the plaintiff) arising wholly or partly from mental or nervous shock in connection with another person (the victim) being killed, injured or put in peril by the act or omission of the defendant.

(2) The plaintiff is not entitled to recover damages for pure mental harm unless:

(a) the plaintiff witnessed, at the scene, the victim being killed, injured or put in peril, or

(b) the plaintiff is a close member of the family of the victim.

(3) Any damages to be awarded to the plaintiff for pure mental harm are to be reduced in the same proportion as any reduction in the damages that may be recovered from the defendant by or through the victim on the basis of the contributory negligence of the victim.

(4) No damages are to be awarded to the plaintiff for pure mental harm if the recovery of damages from the defendant by or through the victim in respect of the act or omission would be prevented by any provision of this Act or any other written or unwritten law.”

In particular, State Rail relied on s.30(2); arguing that the section required that, before it could be liable, it had to be established that Mr Wicks and Mr Sheehan had witnessed a particular victim “being” killed, injured or put in peril. Since they had come on the scene after the derailment, when passengers had already been killed, injured or put in peril, the section meant that it was not liable. In addition, State Rail argued that the plaintiffs had to prove that they had witnessed a specific person or persons being killed, injured or put in peril.

In a unanimous judgment, a seven-member bench of the High Court (Chief Justice French and Justices Gummow, Hayne, Heydon, Crennan, Kiefel and Bell) rejected State Rail’s arguments.

The Court found it was not correct to read s.30 as assuming that all cases of “death, injury or being put in peril” involved events that began and ended in an instant or a few minutes. There were cases where death, injury, or being put in peril took place over an extended period. This was such a case, at least in so far as it concerned victims being injured or put in peril.

Not all the injuries sustained by passengers occurred during the derailment; and the perils to the survivors were subjected did not end “when the carriages came to rest”.

It could be inferred that the injured passengers suffered further injury as they were removed from the wrecked carriages, particularly those who were trapped in the wreckage. In addition, it could be inferred that many passengers suffered psychiatric injuries as a result of what happened to them in the derailment and at the scene. The process of their suffering such an injury was not over when MrWicks and MrSheehan arrived.

If either inference was drawn, MrWicks and MrSheehan witnessed, at the scene, victims of the accident “being injured”.

Even if neither of these inferences could be drawn, the fact remained that when they arrived at the scene, the survivors remained in peril. They sought to (and did) rescue at least some of those who had been on the train from peril. The fact that there were fallen electrical cables over the carriages was “but a dramatic illustration of one kind of peril”.

The Court found that the expression “being ... put in peril” should not be given a restricted meaning, but should be given the meaning which the words ordinarily convey. A person is put in peril when put at risk; the person remains in peril (is “being put in peril”) until the person ceases to be at risk.

State Rail’s submission that neither MrWicks nor MrSheehan witnessed, at the scene, a victim or victims being killed, injured or put in peril was therefore rejected.

State Rail’s further submission, that the section required that Mr Wicks and Mr Sheehan had to demonstrate that their psychiatric injury was occasioned by observation of what was happening to a particular victim, was also rejected. Where there were many victims, the section did not require that a relationship be identified between an alleged psychiatric injury and what happened to a particular victim.

As a result, the appeal was allowed.

Perhaps oddly, all parties agreed that the High Court should not actually decide the issue of duty of care. As a result (and despite indications that the result would have been reversed had the High Court decided the question), the issue of duty of care was be remitted for consideration by the Court of Appeal.