The importance of asking for remedy

27 February 2024

This case concerned an application to join an insurer to a proceeding. To establish that the joinder was justified, the plaintiff needed to demonstrate that a claim had been made during the relevant policy period, or alternatively that a combination of s40(3) and s54 of the Insurance Contracts Act 1984 (Cth) (ICA) entitled it to notify a claim after the policy expired.

In issue

  • Whether s54 of the Insurance Contracts Act 1984 (Cth) (ICA) could be used in combination with s40(3) to cure a failure to notify an insurer of circumstances which might give rise to a claim during the policy period.

The background

The plaintiff in this proceeding is the owner of a building, which it alleged contained various defects. This decision concerned an application by the plaintiff to substitute Berkley Insurance Company (Berkley) as a defendant in the proceeding. The plaintiff alleged that Berkely was the project architect’s professional indemnity insurer when a ‘claim’ was first made against the architect. At the time of this application the architect was deceased and his company deregistered. The plaintiff’s application relied on s601AG of the Corporations Act 2001 (Cth).

The plaintiff argued that Berkley ought to be joined as a defendant either because:

  • it had made a claim against the architect during the currency of the Berkley policy which it was entitled to notify after the policy expired because s54 of the ICA did not permit the insurer to refuse to pay the claim solely on the basis that the architect omitted to notify Berkley of the claim; or
  • alternatively:
    1. the plaintiff had notified the architect of circumstances which might give rise to a claim during the policy period;
    2. it was entitled to notify the claim after the policy expired due to the operation of s40(3) of the ICA, which provides that an insurer cannot refuse a claim where written notice of circumstances that might give rise to a claim were given to an insurer during the policy period; and
    3. s54 of the ICA could be relied on to pardon the failure of the architect to give written notice of circumstances which might give rise to a claim (or any notice) during the policy period as required by s40(3).

The plaintiff argued that its director had made a ‘claim’ during the policy period by sending an email to the architect which stated that the architect ‘had probably heard’ about concerns with the building’s cladding and water leaks and noted that the architect ‘had the responsibility of supervising the project’. The email went on to request details of materials specified on the project. It was not in dispute that the architect never notified Berkley of a claim.

Relevantly, the definition of ‘claim’ in the Berkley policy included: 'The positive assertion in writing of a legal entitlement to damages or other compensatory relief in connection with an alleged civil liability on the part of the insured, in terms evincing an intention to pursue such legal entitlement'.

The decision

His Honour concluded that the email fell short of containing either a positive assertion of a legal entitlement or an intention to pursue such a legal entitlement, such that he was satisfied that the definition of ‘claim’ under the Berkley policy had not been met. The plaintiff’s primary argument therefore failed.

Further, His Honour concluded that the plaintiff’s contention that s40(3) and s54 of the ICA could be used in combination to cure a failure to notify circumstances during the currency of claims made policy was ‘novel’, but without justification. Citing the recent decision in Darshan v Avant Insurance Ltd, His Honour provided approval for the increasing body of case law which establishes that s40(3) and s54 are standalone ameliorative provisions.

The plaintiff’s application to join Berkley was refused.

Implications for you

This decision joins a string of judgments which confirm that s54 of the ICA cannot be relied on to attempt to cure non-compliance with s40(3) of the ICA.

Interestingly, the plaintiff’s application may have had a different outcome if its email had made a demand for compensation or other legal remedy. The decision highlights the important and different impact s54 of the ICA can have when there is a failure to notify a claim when compared to a failure to notify circumstances which might give rise to a claim.

Fairbank Haven Pty Ltd v Merkon Constructions Pty Ltd [2024] VSC 32

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