Insurance Update - Commercial Lines November-December 2007

The owners argued that cl.23 provided a separate head of cover, distinct from both Sections 1 and 2 of the policy. In particular, they pointed to the different wording of the clause (which did not specifically refer to any “physical” loss), and the words “[n]otwithstanding anything contained herein to the contrary”.

Justice Hargrave in the Victorian Supreme Court noted that, while the wording of cl.23 was slightly different from the remainder of the policy, it had to be construed in the overall context of the policy. That context was such that the policy required – whether a claim was made under Section 1 or Section 2 – that there be physical loss, destruction or damage to property. Cl.23 did not provide an independent head of cover, as (in contrast to the other sections of the policy) it contained no basis of settlement provisions.

Justice Hargrave found that cl.23 extended the cover provided by the policy to damage to insured property arising from:

In the end then, as the owners had conceded that there was no physical damage to insured property (and such physical damage was crucial to indemnity under the policy), Justice Hargrave found that cl.23 did not respond to the owners’ claim. He however gave a strong hint that perhaps the owners should reconsider their concession in light of the events at the mine.

As a result, this is could well be simply the first round in a larger fight over indemnity.

 

 

 

The term “Claim” was defined as a “notice received by … the Insured … of the intention of a person or entity to hold the Insured responsible for the results of any Wrongful Act”.

At first instance, the hearing judge dismissed Power’s application, principally on the ground that none of the matters encompassed in the charge had any potential to give rise to a “Claim” within the meaning of the policy. Power appealed to the Court of Appeal.

By a 2-1 majority, the Court of Appeal allowed the appeal (Justice Philippedes dissented, and would have upheld the decision at first instance). Justices Jerrard and Fryberg found, firstly, that the document referred to in the charge was provided by Mr Power to the CMC in the course of his duties as a Councillor. It was therefore a “wrongful act”, as defined in the policy.

They were also satisfied that the CMC’s actions amounted to an “Investigation”.

The majority crucially found that the summary hearing and the CMC investigation related to matters which “may give rise to a Claim”, within the meaning the first part of the proviso in extension (b).  They considered that the prospect of charges for an indictable offence would satisfy the definition of “Claim”. 

The claim for indemnity in the letter dated 30 May 2006 was made when proceedings in the Magistrates Court were on foot. Proof that Power had provided misleading documents would establish not only the simple offence with which he was charged, but was also capable of supporting an indictable offence of attempting to pervert the course of justice.

The possibility, before the dismissal of the charges in the Magistrates Court, that there might be a prosecution instead for an indictable offence, was enough to satisfy the requirement that the “Investigation” related to matters which “may give rise to a Claim”. At the time Power sought indemnity, it was possible that proceedings for an indictable offence might be brought. That was enough to trigger indemnity under extension (b).

Even though the majority acknowledge that the syndicate’s argument – that Power had not in fact been charged with any indictable offence – was one based on “commonsense”, it had to yield to the specific terms of this policy. As Power had satisfied those terms, he was entitled to indemnity.

 

 

 

A mutual corporation offering “protection” to members is not an “insurance company”, the Victorian Supreme Court has found. Capricorn Mutual was prosecuted under the Metropolitan Fire Brigades Act for failing to lodge a return. Such a return was however only required from an “insurance company”.

Capricorn Mutual was a mutual corporation limited by guarantee. Members were offered a range of benefits, including “protection” against certain business risks, including the risk of fire. Its rules however did not guarantee indemnity in particular circumstances. Instead, members had a right to have a claim considered and the Capricorn Mutual board had a discretion as to whether or not it met any claim.

Following the English decision of Medical Defence Union v Department of Trade (approved by the High Court in Bailey v New South Wales Medical Defence Union Limited); Justice Williams found that an entitlement to proper consideration of a claim is not sufficient to constitute a contract of insurance. It followed that the relationship between Capricorn Mutual and its members was not one of insurer and insured. 

 

 

Regular readers will recall that we previously discussed the case of Fung v Stocovaz concerning limits on the cost of repairs in property damage cases. That case has now had its sequel in the Court of Appeal; which has affirmed the earlier decision.

The facts were simple – Fung’s Mercedes Benz vehicle was damaged in an accident with Stocovaz. The vehicle was repaired at a cost of around $14,000. Stocovaz’s insurer admitted liability, but contended that the cost of the repairs was unreasonable, and they should not have cost more than $6,000.

The primary judge held that that Fung was entitled to be indemnified by the defendant for the actual cost of the repairs, provided that cost was not extravagant. The defendant applied for leave to appeal.

In the Court of Appeal, Justice Handley found that the primary judge’s decision was substantially correct. He found there were two limitations on claims for damages based on the cost of repairs. Firstly, the claim cannot be for more than the actual cost of repairs; and secondly, that cost must not be extravagant or unreasonable. The terms “extravagant” and “unreasonable” in this context were interchangeable terms.

 

 

 

Chief Justice Young found that the relevant activity (i.e. operation of the gasworks), ceased to be a cause of the claim in 1950 when it was closed. Although tar in the ground was a possible cause of the claim, this ceased to be connected with the activity of the gasworks well before it became a problem.

In addition, it was hard to see how an exception in an insurance policy could relate back to an activity which had ceased before the policy came into force.

As a result, the exclusion did not apply.

Interestingly, Chief Justice Young also concluded that the council was probably not liable for the (then) potential liability of its predecessor. As no liability had been established against the previous council before it was amalgamated, the current entity was not responsible for any liability flowing from its activities. It followed that in this instance, the pollution in question was not the result of any act of the insured.

Forbes Shire Council v AG Australia Holdings Ltd [2007] NSWSC 847

Direct offshore foreign insurers (DOFIs) and discretionary mutual funds (DMFs) operating in Australia face new requirements for operating in Australia. The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007 received assent on 24 September 2007.      
                        
The changes brought about by the Act (which will not be fully operational until 1 July 2008) require DOFIs wishing to continue operating in the Australian market to be authorised by APRA. This means that DOFIs now need to have a general insurance licence and be subject to prudential regulation through APRA. It should be noted however that the requirement does not apply to offshore foreign reinsurers.

DMFs will not need to be authorised but they will be required to supply certain information to APRA.

APRA now recognises five different categories of insurer: locally incorporated insurers, wholly owned subsidiaries of local or foreign insurers, foreign insurers operating as foreign branches, association captives, and sole parent captives.

The new system also involves amendments to the Corporations Act to require Australian Financial Services Licence (AFSL) holders dealing in insurance products to only deal in products of APRA-authorised insurers, unless an exemption exists in a particular case. Just what those exemptions will be have not yet been finalised, but a Treasury discussion paper proposes three exemptions – for “high-value” insureds; for “atypical” insurance lines (e.g. kidnapping & ransom cover) not commonly available in Australia; and a “case-by-case” exemption where the cover required cannot be placed in Australia and other exemptions do not apply.

Once finalised, the exemptions will be promulgated by way of regulations.

And finally, a very important note for aviation insurers…

Two Irish hunters got a pilot to fly them to Canada to hunt moose.

They managed to bag 6. As they were loading the plane to return, the pilot said the plane could take only 4 moose. The two lads objected strongly.

“Last year we shot six. The pilot let us take them all and he had the same plane as yours.”
Reluctantly, the pilot gave in and all six were loaded. However, even on full power, the little plane couldn't handle the load and went down.

Somehow, surrounded by the moose bodies, Paddy, Mick & the pilot survived the crash. After climbing out of the wreckage, Paddy asked Mick, “Any idea where we are?”

Mick replied, “I think we're pretty close to where we crashed last year.”