Unusually, in the second half of 2021 there have already been two cases relating to notifications under 'claims made and notified' policies, which have looked at whether an Insured's failure to notify facts and circumstances that have the potential to give rise to a claim can be cured by section 54 of the Insurance Contracts Act 1984 (Insurance Contracts Act).
The cases discussed below have clarified that omissions to notify facts and circumstances that might give rise to a claim are not omissions to which section 54 can apply.
Avant Insurance Limited v Burnie  NSWCA 272
Ms Tara Burnie obtained orders to join Avant Insurance Limited (Avant) as the second defendant in her case against Leslie Blackstock (formerly a registered medical practitioner). Mr Blackstock had performed breast augmentation surgery on Ms Burnie in October 2016. He did not respond to the District Court statement of claim and did not file a defence.
Ms Burnie sought leave to join Avant to the proceedings under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW). Avant argued that it was entitled to disclaim liability under its policy and should not be joined, but the District Court allowed the joinder. Avant appealed to the NSW Court of Appeal.
The Avant policy was a 'claims made and notified' policy, meaning the insurer had no obligation to indemnify Mr Blackstock unless a claim was made and notified within the policy period. Mr Blackstock had two separate policies with Avant - the first was from 1 July 2016 to 30 July 2017 (the First Policy) and the second was from 1 July 2017 to 30 June 2018 (the Second Policy). The Second Policy was cancelled by Avant on 26 April 2018.
Ms Burnie underwent surgery in October 2016 (within the First Policy Period). She filed a statement of claim concerning that surgery in July 2018, which was outside both policy periods.
Roughly six months after her surgery, Ms Burnie informed staff at the clinic that she was unhappy with her results. A subpoena was issued concerning Ms Burnie within the policy period. Mr Blackstock did not inform Avant of these facts, which may have given rise to a claim.
Under section 40(3) of the Insurance Contracts Act, if during its policy period an insurer is notified of circumstances that may give rise to a claim against an Insured, it cannot later decline indemnity for a resultant claim on the basis that the claim was made after the policy expired.
Section 54 of the Insurance Contracts Act provides that an insurer may not refuse to pay a claim based solely on an act (or omission) that occurred after its policy commenced.
Ms Burnie argued that section 40(3) and section 54 of the Insurance Contracts Act applied, and that Avant was not entitled to decline indemnity. She argued that under his policy, Mr Blackstock was required to notify Avant of the circumstances that may give rise to a claim, and that the failure to do so was an omission during the Avant policy period that could be cured by section 54.
The Court of Appeal did not agree that Mr Blackstock's Policy required him to notify Avant of facts or circumstances that may give rise to a claim. He had the option to do so (and section 40(3) could then work to extend cover if a claim was made after the policy period), but this was not a requirement under his policy with Avant.
Rather, the policy required Mr Blackstock to advise Avant of a claim made within the policy period. Section 54 of the Insurance Contracts Act was not enlivened because there was no actual claim made within the policy period. Therefore, there was no claim by Mr Blackstock for Avant to refuse to pay.
The Court of Appeal unanimously allowed Avant's appeal, and set aside the interlocutory orders of the District Court, with costs.
Darshn v Avant Insurance Limited  FCA 706
In the matter of Darshn v Avant Insurance Limited  FCA 706, Dr Darshn performed breast augmentation surgery on a patient who later brought proceedings against him.
Dr Darshn was indemnified by Avant for the proceedings brought by the former patient, Ms S. However, Avant declined to indemnify Dr Darshn when he was later joined in a class action commenced against the surgical institute where he had performed breast surgeries, on the basis that the class action claim was made after the policy period expired.
Avant argued that Dr Darshn had not notified relevant facts and circumstances for the class action within the policy period, meaning the extension of cover afforded by section 40(3) of the Insurance Contracts Act was not available.
However, from material provided to Avant in Ms S's proceedings, it was apparent that Dr Darshn may be joined to the class action. Further, Dr Darshn received a wide-ranging subpoena in the class action and telephoned the Avant help line twice within his policy period to discuss the subpoena - although he did not send a copy of the subpoena to Avant.
The Federal Court found that Avant had been made aware of the facts and circumstances that might give rise to a class action, from a variety of sources. This included:
- written information from the solicitors acting for Dr Darshn in Ms S's proceedings (even though the notification was not intended or contemplated when the information was provided);
- the subpoena to Dr Darshn discussed with the help line team; and
- similar subpoenas which had been served on other Avant insureds in the class action.
Avant had agreed to indemnify other doctors who had worked at the same institute as Dr Darshn, where those doctors had sent the subpoena to Avant while it was on risk. The Federal Court decided that Avant had been duly notified of facts and circumstances that might give rise to the class action, and that Dr Darshn was therefore entitled to indemnity under this policy, even though the class action was commenced against Dr Darshn after the policy period had expired.
In argument, Dr Darshn submitted that if he had omitted to notify facts that might give rise to a claim, this could be cured by section 54 of the Insurance Contracts Act, but the Federal Court rejected that argument. Section 40(3) and section 54 did not interact in this manner.
Both Avant Insurance Limited v Burnie  NSWCA 272 and Darshn v Avant Insurance Limited  FCA 706 came to different conclusions in respect of whether the Avant policy should respond - although the cases are consistent in their analyses of section 40(3), as well as on the operation of section 54 of the Insurance Contracts Act.
Whilst the application of these provisions in the Insurance Contracts Act happens to lead to opposite results in terms of policy coverage - together the cases illuminate the fact that a failure to notify a circumstance under section 40(3) of the Insurance Contracts Act cannot generally be remedied by recourse to section 54 of the Insurance Contracts Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.