On 23 May 2008, the Full Court of the South Australia Court of Appeal handed down judgment in the long running saga of QBE Insurance Limited v Nguyen.
Doyle CJ, Gray J and Layton J unanimously dismissed QBE's appeal and held that QBE was required to indemnify the bankrupt estate of its insured such that the plaintiff was entitled to recover from QBE the judgment he obtained by default against QBE's insured.
Consideration was given to what is necessary to establish a 'legal liability' and also whether the event giving rise to the plaintiff's injury was an 'occurrence in connection with' the insured's business.
In 1995 the then 20 year old plaintiff, Mr Nguyen, was attacked and stabbed with a knife, rendering him paraplegic. The attack happened when the plaintiff was leaving a function. The organisers of the function had hired a security firm run by Mr Hiotis to provide security.
In 2000 the plaintiff sued Mr Hiotis alleging that the security guards, in breach of their duty of care, failed to intervene in the attack and protect him.
Mr Hiotis was subsequently declared bankrupt.
He was insured with QBE. Upon being declared bankrupt, the right to indemnity under the policy passed to his trustee in bankruptcy.
QBE declined indemnity to Mr Hiotis on the basis that the contract of insurance was voided by reason of fraud.
QBE contended that before the inception of cover and renewal Mr Hiotis had advised QBE that his business did not engage in crowd control activities.
The plaintiff applied to join QBE as a defendant to the proceedings commenced in 2000, but the application was dismissed. The plaintiff appealed and the appeal was also dismissed.
The bankrupt Mr Hiotis did not enter a defence in the proceedings and in 2001 the plaintiff obtained default judgment against him. The plaintiff then had his damages assessed unopposed at $2,823,700.00.
Following judgment the plaintiff entered into an agreement with Mr Hiotis' trustee in bankruptcy to assign to the plaintiff the whole of the right of Mr Hiotis to indemnity under the policy issued by QBE.
In 2005 the plaintiff commenced fresh proceedings against QBE seeking a declaration that QBE was liable to pay to him the judgment sum. The plaintiff relied on only one cause of action, being a claim based on the contractual right of Mr Hiotis (now assigned to the plaintiff) to indemnity under the QBE policy.
QBE defended the claim. QBE contended that the default judgment did not establish any 'legal liability' in terms of the indemnity clause in the policy, and that, even if it did, that liability did not arise out of an 'occurrence in connection with the business' operated by Mr Hiotis.
QBE also denied liability on the basis of the alleged fraudulent misrepresentation, but abandoned these defences before the trial.
The trial judge held that the failure by the security guards to intervene amounted to an 'occurrence' within the meaning of the policy. He also held that the term 'in connection with' had a wide connotation, requiring only some relationship between the two matters being considered, and that the failure to intervene in the attack was intimately connected with Mr Hiotis' business as a security provider.
It followed that the policy therefore responded and the plaintiff was entitled to indemnity.
The plaintiff, as assignee of the rights of Mr Hiotis under the policy, could only succeed in his claim against QBE if he could prove that Mr Hiotis was entitled to be indemnified by QBE in respect of the judgment sum.
The policy relevantly provided:
'QBE will pay to or on behalf of The Insured all sums which The Insured shall become legally liable to pay by way of compensation (excluding punitive or exemplary damages) in respect of...bodily injury...happening during the Period of Insurance as a result of an Occurrence in connection with The Business.'
'Occurrence' was defined in the policy as follows:
'"Occurrence" means an event, including continuous or repeated exposure to substantially the same general conditions, which result in bodily injury...neither expected nor intended from the standpoint of The Insured.'
QBE argued that a distinction should be made between a judgment on the merits and a default judgment that had not been set aside. It contended that where there is an identifiable question as to the legitimacy of the process of ascertainment of a judgment, then that should not be considered to be a true legal liability. The Court of Appeal was not persuaded.
It was held that the words 'legally liable' was not a technical expression and should be given their ordinary and natural meaning, which would extend to a situation in which the insured has been found liable to a third party under a default judgment.
QBE also argued that the stabbing happened so quickly that Mr Hiotis and the other security guards would not have been able to prevent it. Accordingly it could not be said the plaintiff's injury was 'as a result of Occurrence in connection with ['Mr Hiotis'] business'. The Court of Appeal did not consider this approach to be correct.
The issue was not whether an act by Mr Hiotis was the 'cause' of the injury in the sense which is understood in an action in negligence. The issue was whether the injury was a result of an occurrence in connection with Mr Hiotis' business.
It was held that the words 'occurrence', 'event' and 'as a result of' were capable of bearing a wide meaning and capable of applying to circumstances that did not involve affirmative action by Mr Hiotis. It was correct to regard the occurrence as the failure to intervene. Mr Hiotis' business involved the risk of him becoming involved in a disturbance involving people at a function for which he provided security, regardless of whether he breached a duty of care in some way or not. It was correct for the trial judge to regard the occurrence – the failure to intervene – as being in connection with his business.
Whether an occurrence is in connection with a business depends on the given facts. The plaintiff's injury may not have been in connection with Mr Hiotis' business if, for example, Mr Hiotis was at the function not in the course of his business but simply as a participant.
The factual foundation for the breach of duty to establish the default judgment was the failure to intervene in the attack.
Whilst the failure to intervene was also considered to be the 'occurrence' for the purposes of the policy, whether Mr Hiotis was negligent and whether he was entitled to indemnity under the policy involve much different considerations.
The arguments raised by QBE as to whether there would have been sufficient opportunity for Mr Hiotis and the other security guards, had they intervened, to prevent the injury from happening, are arguments that could have been raised in the defence of the original action, but they were no longer relevant.
QBE has applied for special leave to appeal to the High Court.
It remains to be seen whether QBE intends to seek to set aside the default judgment or the assessment of damages.
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