Australia: Late claims saved from black hole; Insurers required to serve Section 81 Notice

Curwoods Case Note
Last Updated: 28 June 2011
Article by Gerry Tzortzatos and Peter Hunt

Judgment date: 24 June 2011. Gudelj v Motor Accidents Authority of New South Wales [2011] NSWCA 158. Court of Appeal1

In Brief

  • Either the claimant or the insurer may seek an exemption in the face of an adverse Special Assessment Certificate in a late claim dispute.
  • Section 73(3)(c) permits both mandatory and discretionary exemption applications to proceed through the gateway to court.
  • An insurer is obligated to determine liability in accordance with s 81, even where a claim has been rejected for procedural non-compliance.
  • Where a Section 81 Notice is not issued, the insurer will be deemed to have denied liability in accordance with s 81(3), thereby permitting a discretionary exemption under s 92(1)(b).
  • Rejection of a claim for procedural non-compliance constitutes a denial of liability for the purposes of s 81, however, it does not fulfil any of the grounds for mandatory exemption in clause 8.11.1 of the Claims Assessment Guidelines.
  • Rejection of a claim for procedural non-compliance – as a denial of liability for the claim – may, however, permit a discretionary exemption under s 92(1)(b).

Background

The claimant was injured in a motor accident on 21 May 2006. However, he did not serve a claim form until 27 October 2008. The insurer rejected the claim on the basis that it was late. The claimant applied for a Special Assessment of the late claim dispute under s 96(1)(a) of the Motor Accidents Compensation Act 1999 ('the Act'). On 2 July 2009 the Claims Assessor determined that the claimant did not have a full and satisfactory explanation for the delay. The claimant applied for a discretionary exemption from CARS but the Principal Claims Assessor ('the PCA') dismissed the application on the grounds that s 73(3)(c) only permitted her to consider mandatory exemptions where a late claim dispute had been resolved in the insurer's favour. The PCA reasoned that a discretionary exemption application was not referred to CARS `only for exemption from assessment' given that, if rejected, the application may proceed to an assessment of damages.

The claimant filed a summons in the Supreme Court seeking that both the decision of the Claims Assessor and PCA be quashed. The Supreme Court dismissed the summons and the claimant appealed.

Court of Appeal

Special Assessment

The Court of Appeal was satisfied that the Claims Assessor's determination that the claimant did not have a full and satisfactory explanation for delay was not infected by error. Although some minor errors in the reasons were noted, it was considered that these did not affect the ultimate decision.

The Court held that the Claims Assessor's determination under s 96(1)(a) was only binding in relation to a party's duties under Part 4.3 of the Act.

Duty to Serve Section 81 Notice

The Court rejected the insurer's submission that the duty to serve a Section 81 Notice did not apply in relation to late claims.

This was because, to do so would draw an 'illogical' distinction between non-compliance with time limits (s 72) and non-compliance in relation to reporting the accident to Police (s 70) or the form of notice of the claim (s 74). The Court stated that the bare minimum requirement for 'notice' of a claim was 'adequate identification of the claimant and of the accident in respect of which the claim is made', but not necessarily compliance with ss 70, 72 or 74.

Once such notice is provided, an insurer is obliged to make a decision in relation to liability.

Rejection of Claim Amounts to Denial of Liability

The Court noted that Clause 8.11.1 of the Claims Assessment Guidelines, which refers to an exemption on the basis of a denial of the 'fault of the owner or driver of a motor vehicle in the use or operation of the vehicle', could not be used to interpret s 81(1) of the Act, which refers to an admission or denial of liability.

The Court noted that an insurer might deny liability where fault is not disputed, such as when there was no injury as a result of the accident2. Similarly, the Court held that an insurer rejecting a claim for procedural non-compliance was denying liability on that basis.

Alternatively, the Court held that since s 81 applied to late claims, an insurer that did not determine liability in the time prescribed by s 81(1) was deemed to have denied liability under s 81(3).

The Gateway in s 73(3)(c)

The Court held that s 73(3)(c), which allowed the referral of late claims for exemption, was not restricted to mandatory exemptions under s 92(1)(a) but also applied to discretionary exemptions under s 92(1)(b).

The Court reasoned that there were nothing in the wording of s 73(3) which would limit the provision to mandatory exemptions, as found by the PCA.

Grounds for Discretionary Exemption in Late Claims

The Court accepted that a denial of liability based upon a procedural issue – such as the rejection of a late claim – does not fall within any of the grounds for mandatory exemption set out in paragraph 8.11.1 of the Claims Assessment Guidelines.

However, the Court held that there were strong grounds for granting a discretionary exemption certificate under s 92(1)(b) where a late claim dispute existed. This may occur where the insurer had failed to issue a Section 81 Notice within three months (giving rise to a deemed denial of liability) or where the insurer rejected the late claim (giving rise to an actual denial of liability).

The Court noted that an actual denial of liability – for reasons other than denial of fault – was not listed as a specific ground for discretionary exemption in paragraph 14.16 of the Claims Assessment Guidelines. However, the Court highlighted that paragraph 14.16 was not exhaustive and reasoned that an actual denial of liability was a better ground for discretionary exemption than a deemed denial of liability and should, therefore, be considered by the PCA in a discretionary exemption application.

Orders Made

The Court of Appeal concluded that the PCA had erred in her dismissal of the Application for Exemption and quashed her decision. The matter was referred back to the PCA for determination in accordance with the law. Whilst accepting that it was a matter for the PCA's discretion, the Court observed that there were reasonable grounds for granting a discretionary exemption in the circumstances.

Implications

Section 81 Notices

Importantly, it is now clear that insurers have an obligation to issue a Section 81 Notice within three months of receiving notice of the claim, even where procedural non-compliance exists.

The procedural non-compliance may relate to:

  • The claim form being served late (s 73),
  • A failure to report the accident to the police (s 70), or
  • A failure to complete a valid claim form (s 73).

The Court of Appeal has made it clear in Gudelj that the Insurer is under a statutory obligation to serve a Section 81 Notice notwithstanding any procedural non-compliance of this nature.

Review of All Late Claims

It may be wise to review all current late claim disputes and ensure that Section 81 Notices are issued as soon as practicable, noting that it is a condition of the insurer's licence to comply with s 81(1).

Given the first instance decision in Gudelj, delivered by McDougal J, it is most unlikely that any prior failure to serve a Section 81 Notice in a late claim will result in any disciplinary action by the Compliance Branch of the MAA.

Until the Court of Appeal delivered its Judgment on 24 June 2011, insurers had the benefit of Supreme Court authority for the proposition that they were under no obligation to serve a Section 81 Notice where there was a live late claim dispute. Insurers were entitled to act in accordance with the case law.

Effect of Section 81 Notice

A Section 81 Notice admitting fault in a late claim will not, however, prevent a claim from being exempted under s 92(1)(b), where the late claim dispute remains current.

The Court of Appeal has confirmed that an insurer may deny liability even though it admits fault. This will remain the case where the insurer admits fault in a Section 81 Notice, but rejects the claim for late notice (or any other procedural non-compliance).

A Section 81 Notice admitting fault will avoid a mandatory exemption under s 92(1)(a) and will also preclude a discretionary exemption under s 92(1)(b) on the grounds of deemed denial.

However, given the decision in Gudelj, the claimant may still obtain a discretionary exemption under s 92(1)(b) on the grounds that the insurer has denied liability by rejecting the late claim.

Form of Section 81 Notice

Where the insurer wishes to admit fault, but maintain the late claim dispute, we suggest the following wording in a Section 81 Notice:

We have investigated the circumstances of the accident and admit that the claimant's injuries were caused by the fault of our insured driver.
However, we deny liability for the claim on the grounds that the claimant failed to lodge a claim form within 6 months of the accident, in breach of s 72(1), and the claimant does not have a full and satisfactory explanation for delay as required by s 73.

As indicated, this will result in the insurer complying with the statutory obligation under s 81(1) and will avoid a mandatory exemption being granted. However, it still leaves the door open for the claimant to apply for a discretionary exemption.

Given the decision in Gudelj, there is no way of both maintaining a late claim (or other procedural) dispute and avoiding a discretionary exemption application based upon a denial of liability.

Are Special Assessments Necessary?

Following the outcome in Gudelj, it is now questionable whether any late claim disputes will proceed to Special Assessment.

If a claim form is served late and the insurer rejects the claim (and any subsequent explanation for delay), the insurer will be taken to have denied liability for the claim. The Court of Appeal has given a strong indication in Gudelj that this constitutes reasonable grounds for a discretionary exemption under s 92(1)(b).

The question therefore arises as to whether any claimant would bother proceeding with a Special Assessment to consider the late claim dispute. Many claimants may prefer to immediately apply for a discretionary exemption and proceed directly to Court. As discussed below, there may be circumstances where it is also to the insurer's advantage to have a late claim proceed straight to court for determination.

Status of Special Assessment in Insurer's Favour

If the claimant, for whatever reason, prefers to remain within the CARS jurisdiction, then he or she may proceed to a Special Assessment first.

Where the insurer rejects a late claim within time and the Special Assessment is resolved in the insurer's favour, the matter may not proceed to a General Assessment of damages (see s 73(3)(a) and s 73(3)(b)).

However, the claimant may rely upon Gudelj and proceed through the gateway in s 73(3)(c) by applying for a discretionary exemption on the grounds that, by maintaining the late claim dispute, the insurer has denied liability for the claim.

Once proceedings are commenced, the late claim dispute will be re-argued before a Judge, provided that the insurer files a Notice of Motion within two months of being served with the Pleadings. If the insurer fails to do so, the right to contest the claim on the ground of delay will be lost.

Status of Special Assessment in Claimant's Favour

If the Special Assessment is resolved in the claimant's favour, the claimant could still, theoretically, apply for a discretionary exemption, particularly if the insurer advised the claimant that it does not accept the result of the Special Assessment and does not consider itself bound (thus maintaining its denial of liability).

Where the Special Assessment is resolved in the claimant's favour and the claimant proceeds to a General Assessment of damages by CARS, it remains the case that the result of the CARS Assessment is not binding on the either the claimant or the insurer.

One benefit of the decision in Gudelj for insurers is that the Court of Appeal has confirmed that the rejection of a claim form for procedural non-compliance amounts to a denial of liability. As such, where a late claim dispute is maintained, the insurer has not `accepted liability under the claim' for the purpose of s 95(2) and is not legally obligated to pay the sum found by the CARS Assessor.

The claimant will then be forced to commence court proceedings (having now been armed with a Section 94 Certificate). Once again, provided the insurer files a Notice of Motion within two months of being served, the late claim dispute will then be determined by a Judge.

Circumstances Where Insurer Should Apply for Exemption

There may be occasions when it is to the insurer's advantage to seek a discretionary exemption – based upon its own denial of liability on the grounds that the claim is late – and proceed straight to Court.

Insurers should consider seeking an exemption on any late claim which has been rejected where the issuing of subpoenas could clarify aspects of the explanation for delay or where cross-examination would be more useful than questioning on statements at a Special Assessment.

Furthermore, where there are significant issues with regard to quantum, which require investigation through subpoena, the insurer may consider using the late claim dispute to obtain a discretionary exemption at any early stage and bypass CARS.

Are There Grounds for Opposing the Discretionary Exemption?

As we have explained, one of the adverse outcomes of Gudelj is the finding that the rejection of a claim for procedural non-compliance constitutes a denial of liability, allowing the claimant to seek a discretionary exemption under s 92(1)(b).

At paragraph 76 of the Judgment, the Court of Appeal, after accepting that it is for the PCA to decide whether a discretionary exemption should be granted, observed that there were good reasons to do so. In summary, the Court pointed to:

  • The statutory objective to compensate deserving claimants,
  • The statutory objective to ensure the consistent and stable application of the law which would be enhanced by having the court determine significant issues,
  • The fact that the Special Assessment of late claim disputes is not binding on the parties because such an assessment does not relate to the duties of the parties under Part 4.3, and
  • The fact that, pursuant to s 95(1), assessments of liability, by CARS, are not binding on the parties.

We note that each of these factors are of a general nature and not specific to the claim brought by Mr Gudelj. As such, it appears that the Court of Appeal holds the view that all late claims are worthy of a discretionary exemption under s 92(1)(b). Indeed, the Court of Appeal specifically held, in paragraph 77, that the statutory intention was that a claimant should have final recourse to the court to have his or her rights determined.

In the face of the Court of Appeal's decision, where an insurer rejects a late claim and the claimant seeks a discretionary exemption on the grounds that the insurer has denied all liability for the claim, it is difficult to envisage any valid argument in reply.

The practical implication appears to be that all claims afflicted by procedural non-compliance are likely to be granted a discretionary exemption – and proceed to court – unless the insurer accepts liability for the claim notwithstanding the procedural non-compliance.

In our view, this is an unfortunate outcome and is unlikely to be the intention of Parliament.

1. Giles JA, Hodgson JA and Handley AJA

2. See Allianz Australia Insurance Limited v GSF Australia Pty Limited [2005] HCA 26 and Zotti v Australian Associated Motor Insurers Limited [2009] NSWCA 323

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