This section looks at some cases from around the globe (with outcomes that may not have been the same if decided by Australian courts).
Prior knowledge and defence costs under D&O policy
Kenge Mansur v Sahar Zion Insurance Co Ltd (CA Haifa 4600/07) considered the application of a prior known circumstances exclusion and payment of defence costs under a directors and officers (D&O) insurance policy.
The appellant (Mansur) had, between 1989 and 1998, served as the head of a local council. In 1999, a defamation claim was filed against him in the Magistrates' Court on account of his actions when serving on the local council. At the time, Mansur was insured under a D&O Local Council liability policy. The insurer declined cover, alleging that Mansur was aware of the potential claim against him prior to the policy's inception date. A year prior to the policy's inception, Mansur had received a letter from the plaintiff in which he demanded an apology and stated that if no apology was provided within seven days, he would 'be forced to instigate legal proceedings' against Mansur.
The Magistrates' Court ultimately declined the defamation claim and ordered that the plaintiff pay IS15,000 to Mansur in expenses, leaving a gap between this payment and his actual costs of IS61,000. He issued proceedings against the insurer seeking payment of this amount under his D&O policy.
At first instance, the claim was denied on the basis that:
- A prior known circumstances exclusion applied, as the demand letter constituted circumstances expected to give rise to a claim, which was required to be notified to the insurer. Had Mansur done so, the insurer would have excluded any claim arising from the demand.
- Even if the claim was covered, as the insurer was not a party to the fee agreement between Mansur and his attorney, it was not bound by this agreement and should not be required to indemnify him for the costs.
On appeal by Mansur, the Court reversed the decision at first instance, determining that:
- The burden of proving the applicability of a policy exclusion lies with the insurer and, in this case, the burden was to prove that a reasonable insured should have known that the demand letter was likely to result in a claim. As the demand letter was sent to Mansur one year before the claim was filed, it was not necessarily considered as a threat that the claim was about to be filed.
- Coverage can be declined based on the insured's breach of disclosure duties only if the insured breached its duty to provide full and honest answers to questions presented by the insurer (which had not occurred here), and only in cases where a reasonable insurer would not have agreed to insure the risk had it been aware of the actual situation. The insured's duty to initiate disclosure is very limited and an insurer can only decline coverage based on such a breach in extreme circumstances (for example, fraud).
- Since the D&O insurer had chosen to decline coverage and rejected Mansur's request to approve his defence costs, it was estopped from arguing that the fee agreement reached between Mansur and his attorney was unreasonable or non-binding, and the insurer was required to cover the actual defence costs.
United Kingdom Court of Appeal on notification of circumstances
In the March 2009 Insurance Focus, we reported on the decision of HLB Kidsons v Lloyds Underwriters Subscribing to Lloyds policy no 621/PK1D000101 (2008) (EWCA Civ 1206), specifically with regard to the Court of Appeal's guidance on when a notification of circumstances that might give rise to a claim is effective.
The Court of Appeal in the decision also considered the interpretation of a General Notice Condition in the policy which provided that:
'The Assured shall give to the Underwriters notice in writing as soon as practicable of any circumstance of which they shall become aware during the [policy period] which may give rise to a loss or claim against them. Such notice having been given, any loss or claim to which that circumstance has given rise which is subsequently made after the expiration of the [policy period] shall be deemed for the purpose of this Insurance to have been made during the subsistence hereof.'
The Court of Appeal agreed with Judge Gloster at first instance that this provision operated as a condition precedent to coverage, the key words being 'such notice having been given'. Kidsons' argument that, to rely on this general condition, insurers must also show they had been prejudiced by any delay, was rejected. The Court noted that if an insurers' only remedy for late notification was damages, a 'claims made' policy would become open ended.
The Court of Appeal found that the notification made to the following Lloyds' market three months after the expiry of the policy period, and four months after Kidsons was deemed aware of circumstances giving rise to the claim, could not be regarded as one which had been made 'as soon as practicable'.
Duty of care by a public authority in exercising a statutory power
The House of Lords in Trent Strategic Health Authority v Jain & Anor  UK HL4 determined unanimously that a duty of care was not owed by the Nottingham Health Authority (Authority) to the operators of a nursing home (Mr and Mrs Jain) in exercising its statutory power to make an ex parte application seeking the cancellation of the nursing home's registration.
The Authority had filed the ex parte application seeking the urgent cancellation of the registration of the nursing home due to concern over the welfare of the residents.
The Magistrate agreed with the application, which had the effect of requiring the immediate removal of 30 elderly and infirm patients who were residing at the nursing home. The only recourse available to Mr and Mrs Jain was an appeal to the Registered Homes Tribunal, which took four months to determine. Although the Tribunal was scathing about the Authority's decision to make the ex parte application without notice and overturned the decision, by this time Mr and Mrs Jain's nursing home business had been ruined and serious economic harm had been inflicted.
At the time that the events unfolded, the Human Rights Act 1998 (Act) had not come into operation (it came into effect on 2 October 2000). Therefore the only relief available to Mr and Mrs Jain was a claim in negligence, notably that the Authority owed them a duty of care in the making of the ex parte application which it had breached.
In his leading decision, Lord Scott of Foscote compared this situation with prior cases involving welfare organisations. In particular, where it had been determined that no duty of care was owed by a welfare organisation, in conducting investigations into a potential child abuse, to the parents of the child who was suffering or likely to suffer ill treatment (see D v East Berkshire Community NHS Trust  EWCA Civ1151). The reasoning behind this line of authorities was that the imposition of such a duty would or might inhibit the exercise of the statutory powers and be potentially adverse to the interests of the class of persons the powers were designed to benefit or protect.
While the House of Lords dismissed the appeal in this instance on the basis that no duty of care was owed by the Authority to Mr and Mrs Jain, they did so with sympathy to their position. The House of Lords extended criticism of the Magistrate in the lower Court who had heard the ex parte application without taking steps to contact and give the owners an opportunity to state their case.
Their Honours ultimately determined that if the Act did apply, it was likely that the applicants in this matter would have been entitled to relief against the Authority, in particular, referring to Article 6 of the Convention which provides that:
'In the determination of his civil rights and obligations ... everyone is entitled to a fair and public hearing ...'
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