The Full Court of the Federal Court has upheld the findings of the primary judge that an insurer was not permitted to avoid cover pursuant to s40(3) of the Insurance Contracts Act 1984 (Cth). The Full Court confirmed that sufficient notification had been previously provided by the insurer’s agent in a related matter and otherwise that attempts to deny indemnity were a breach of the duty of utmost good faith placed on insurers.
We have previously set out the factual background to this matter in our earlier case note, which can be found here.
Grounds of Appeal
Following on from the decision of the primary judge, the insurer appealed and argued for various reasons, that the lawyers it had appointed in respect of the earlier matters (MDL) did not have authority to give the insurer notice under s40(3) of the Insurance Contracts Act 1984 (Cth).
The Full Court rejected the insurer’s arguments and found that to the contrary, it would be expected of lawyers in the position of MDL as agent for Dr Darshn to inform Avant of facts which may give rise to a claim against him, if MDL came into possession of those facts in the course of their original retainer.
The Court also confirmed that:
- despite the appointment of MDL by the insurer, a lawyer-client relationship existed between MDL and Dr Darshn, such that MDL were in fact Dr Darshn’s agent in communications with the insurer; and
- in respect of notifying the insurer, intention is irrelevant. The only relevant matter is whether or not the required notice was in fact given.
Overall the Full Court concluded that as MDL’s communications with the insurer (where the relevant notification was provided) were provided through the provision of services to Dr Darshn in a solicitor-client relationship, they were communications for the purposes of s40(3).
While unnecessary given their findings on 40(3), the Full Court also confirmed the findings of the primary judge that the insurer had failed to act as required by its duty of utmost good faith in insisting that the relevant subpoena needed to be provided in order for Dr Darshn to receive the benefit of s40(3). The Full Court commented that Avant’s position did not accord with “commercial standards of decency and fairness”.
Implications for you
In our view, this decision should act as a precautionary tale for insurers in circumstances where they have appointed solicitors to act on behalf of insureds. The Full Court’s confirmation that solicitors appointed by insurers can be acting as agents for insureds so far as the provision of notice is concerned makes it incumbent upon both insurers and solicitors to ensure that all information about potential future, or related claims, is properly recognised at the relevant time so as to avoid similar issues in the future.
Insurers should also be mindful of the Full Court’s warning about breaches of their duty of utmost good faith, as the Courts findings indicate the protections provided to insureds under s13 remain well entrenched.