In this case, the New South Wales Court of Appeal (NSWCA) found that the potential operation of s54 of the Insurance Contracts Act 1982 (Cth) (the ICA) may be taken into account in the exercise of the discretion under s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act) to grant leave to join an insurer to proceedings.
The Decision at First Instance
Ms Hepburn, claimed damages for trespass, assault and negligence from Dr Jasmin White, formerly a practising dentist. Ms Hepburn alleged that she suffered injury as a result of wrongful dental advice and treatment provided by Dr White between March 2008 and September 2009.
Ms Hepburn sought leave under s 6 of the Act to join Guild Insurance Ltd (Guild), as a second defendant to the proceedings in September 2013 and alleged the Guild had agreed to insure Dr White against professional liability, which was the subject of the proceedings. Guild had previously denied indemnity to Dr White. Section 6 of the Act provides for the creation of a charge on insurance monies in favour of an injured person where the person at fault has entered into a contract of insurance by which he or she is indemnified against liability to pay damages or compensation.
A court will not ordinarily grant leave under s 6 of the Act unless the plaintiff demonstrates that he or she has an arguable case against the insured, that there is a real possibility that the insured will not be able to satisfy any judgment against it and that there is an arguable case that the insurer has issued a policy under which the insured is entitled to indemnity in respect of the liability alleged by the plaintiff.
Norton DCJ granted leave to join Guild to the proceedings as:
- there was a real possibility that Dr White would not be able to satisfy any judgment obtained against her;
- Ms Hepburn had demonstrated that there was an arguable case that Dr White was liable to her for damages; and
- Ms Hepburn had made out an arguable case that Guild was liable to indemnify Dr White under the retired dentist provision contained in the last policy of insurance held by Dr White for the period 30 June 2010 to 15 September 2010.
Guild appealed the decision on the basis that s 6 of the Act could not operate as the applicable policy of insurance in force from 30 June 2010 to 15 September 2010 post dated the alleged wrongful acts of Dr White.
Ms Hepburn did not seek to support the primary judge's decision on the basis of the retired dentist provision. Instead, she contended that Guild was arguably liable to indemnify Dr White under the earlier policies of insurance which were current when the allegedly wrongful acts were committed.
She asserted that, while she did not make a claim during the term of those policies, Dr White became aware, during the currency of those policies, of circumstances that might have given rise to a claim by Ms Hepburn and that s 54 of the ICA would operate to preclude Guild from relying upon the absence of any notification to it by Dr White of those circumstances.
Issues for consideration
The evidence concerning whether Guild had issued a policy under which Dr White was entitled to an indemnity in respect of these allegations was limited to a letter dated 21 May 2013 sent by Guild to Dr White declining requests for indemnity in relation to five of her patients, including Ms Hepburn. The letter referred to policies of insurance current from December 2007 to 15 September 2010.
The letter included the following paragraph in relation to the claim brought by Ms Hepburn:
“You did have a policy of insurance in place with Guild during the time that you treated Mrs Hepburn. However, no claim was made against you by Mrs Hepburn during the currency of those policies. Further, no circumstances occurred during that period that could have been notified to Guild at the time. Accordingly, the policies in place during the time you provided treatment to Mrs Hepburn do not respond to the current claim.”
The NSWCA found that this paragraph enabled a conclusion to be drawn that at the relevant times professional indemnity policies issued by Guild to Dr White were on foot, and that they were each a "discovery policy". The NSWCA was also of the view that it should be inferred from the Guild letter that the policies contained a further trigger (in addition to Ms Hepburn having actually made a claim during the policy period), that is, Dr White's awareness during the currency of the policies of circumstances that might have given rise to liability to Ms Hepburn.
Guild argued that this inference should not be drawn because the reference in the letter to the notification of circumstances might well have been an allusion not to contractual provisions, but to the terms of s 40(3) of the ICA. The distinction is of significance because the relieving provision of s 54 of the ICA is not available to overcome the consequence of an insured’s failure to notify in accordance with s 40(3).
The Court rejected this submission, with McFarlan JA stating that
“I am fortified in that conclusion by the lack of correspondence between the language in the sentence and that of s40(3), and by the fact that the insurer, although undoubtedly in possession of copies of the policies, did not tender them in evidence to demonstrate that the inference I have drawn was ill-founded”2
Ms Hepburn submitted that the nature of Dr White's allegedly wrongful acts was such as to render it arguable that she knew at the time of her acts that they might give rise to liability on her part to Ms Hepburn and in this regard Ms Hepburn relied on the expert evidence of Dr Vertoudakis.
Dr Vertoudakis’ evidence referred to the extraction of a tooth in relation to which Dr White did not provide any anaesthetic pain relief as requested by Ms Hepburn. Dr Vertoudakis implicitly accepted Ms Hepburn's description of the pain as "excruciating" and said that extraction without any form of anaesthesia would be intolerable for most patients.
The NSWCA found that
“there is no reason in principle why wrongdoers' knowledge of their wrongful acts cannot constitute awareness by them of circumstances that might give rise to claims against them, thus enlivening insurance policy notification provisions….. it will frequently not do so, as in many cases it could not be inferred that insureds who were… negligent appreciated the fact of their negligence and the possibility of it giving rise to a claim against them. However… an inference is arguably available in the present case that Dr White was aware that her conduct might give rise to a claim. In particular, the "excruciating" pain which Ms Hepburn would have suffered as a result of procedures… must have been obvious to Dr White and could thus constitute a basis for drawing that inference”’.
The NSWCA noted that s 54 of the ICA precludes insurers from refusing to pay claims in certain circumstances and prevents an insurer from refusing to pay a claim by reason of certain acts of the insured occurring after the date that the contract of insurance was entered into. In such a case, the insurer is not relieved of liability altogether. Rather, its liability is reduced by the amount that fairly represents the extent to which its interests were prejudiced.
As there was no evidence to suggest that Guild was prejudiced by Dr White's failure to notify the potential liability of which she was arguably aware, it was held that it is at least arguable that Ms Hepburn could rely upon s 54 of the ICA to avoid the consequences, in whole or in part, of the absence of notification. It was also found that Ms Hepburn had established an arguable case that Dr White was entitled to indemnity from the insurer in respect of her alleged liability to Ms Hepburn.
The NSWCA held that the primary judge erred in relying upon the retired dentist provision in the policy of insurance in force from 30 June 2010 to 15 September 2010 because the alleged wrongful acts occurred prior to that period. However, the NSWCA reached the same conclusion as the primary judge that Guild should be joined to the proceeding, although on a different basis and accordingly the appeal was dismissed.