The New South Wales Supreme Court recently handed down a decision that provides guidance on what is required to be included in a notification of facts that might give rise to a claim for the purpose of section 40(3) of the Insurance Contracts Act 1984 (Cth)(ICA). The decision, Esined No. 9 Pty Ltd v Moylan Retirement Solutions Pty Ltd1, supports the view that notifications must be sufficiently detailed and precise in order to attract the remedial effect of the legislation.
A number of claims were brought against a financial planning firm, Moylan Retirement Solutions Pty Ltd (MRS), by its former clients for failed investments and misconduct by MRS. An issue in dispute concerned whether a notification provided to MRS's professional indemnity insurers during the course of the 2012/2013 policy year was a sufficient notification of facts that might give rise to a claim so as to trigger the operation of section 40(3) of the ICA.
Section 40 of the ICA applies to claims made general liability insurance policies. Sub-section (3) provides the following:
Relevantly, no claims had been made against MRS during the 2012/2013 policy year and the policy did not otherwise have a 'deeming provision' that could be relied upon together with section 54 of the ICA to remedy a late notification of facts or circumstances2. Whether section 40(3) could be relied upon to require the insurers to extend cover was therefore critical.
The notification in question, which was provided to the professional indemnity insurers with the renewal proposal prior to the expiry of the 2012/2013 policy year, included the following:
Additional information provided with this notification included:
- specifying that the potential claimants were "unknown";;
- a broad statement that MRS had been retained to provide "investment recommendations"; in respect of the potential claims; and
- stating that MRS did not know whether the retainer/contract for services was in writing as that would depend on the "likely client to bring the claim";.
Whilst acknowledging that section 40 of the ICA is remedial in nature, Justice Slattery held that the notification was not sufficient notification of facts that might give rise to a claim.
His Honour held that the notification failed principally because it did not identify "facts"; within the meaning of section 40(3). Further, his Honour stated that:
- the information provided by MRS indicated it was unable to identify a particular client which might bring a claim, and did not assist in identifying a particular claim as distinct from "bare possibilities";;
- the information provided was not client-specific, transaction-specific or time-specific;
- MRS also did not specify any particular loss or any particular documents;
- the notification was only of "possibilities";;
- the information provided in the notification was not "facts"; that bore any relationship to a "claim";;
- merely to seek to identify circumstances in such vague terms is insufficient; and
- the overall message of the notification was that the matters notified were "a potential possibility";.
Broad, unspecific and blanket notifications present legal and practical issues for claims handlers, underwriters and brokers, particularly in the lead up to renewal.
Esined No. 9 supports the view that notifications of facts or circumstances that might give rise to a claim must be sufficiently detailed and comprehensive so as to indicate to the insurer the claim that might arise. That could include by whom the claim may be brought, for what reason and on what grounds. Pointing to specific transactions and documents may also be appropriate.
The decision will provide some support for insurers faced with broad blanket notifications and justification for pressing for further information from the insured before accepting a notification as being valid for the purpose of section 40(3) of the ICA.
1 Esined No. 9 Pty Limited v Moylan
Retirement Solutions Pty Ltd; P&S Kauter Investments Pty Ltd
ATF the Kauter Superannuation Fund v Moylan Retirement Solutions
Pty Ltd; Graeme Manning v Arch Underwriting At Lloyds Limited on
Behalf of Syndicate 2012 (No. 2)  NSWSC 359
2 Gosford City Council v GIO General Ltd  NSWCA 34 at  (per Sheller JA; Spigelman CJ and Meagher JA agreeing). This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author.
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