This Alert looks at a recent Queensland case which revisits the issue of when a “claim” is made under a “claims made” policy of insurance and discusses the significance of the question for insurers.
In most professional indemnity policies, a claim must be made against the insured and notified to the insurer during the period of insurance. So it is important to know when a claim has in fact been made against the insured.
Whether correspondence received from a claimant was a “claim” as defined in a policy was recently considered by Daubney J of the Queensland Supreme Court in Livesay v Hawkins & Ors  QSC 122. In this case, the Plaintiff was a tenant of a property owned by the First and Second Defendants who was injured when a pelmet above a door in the house fell and struck her. The Third Defendant was the real estate agent retained by the First and Second Defendants to maintain the rental property. The Plaintiff alleged that the Third Defendant was negligent as he had failed to take reasonable care to maintain the property in a safe condition for tenants.
The Third Defendant held a professional indemnity policy with the First Third Party which relevantly defined a “claim” to mean (clause 2.2):
- any written demand;
- any civil proceeding
for compensation made against the Insured but only in respect of the performance of Professional Services by the Insured.
One of the questions to be determined by Daubney J was whether correspondence from the Plaintiff came within this definition.
His Honour confirmed the following relevant principles (at ):
- A contract of insurance is to be construed objectively.
- The meaning of terms in the contract of insurance are to be determined by what a reasonable person would have understood them to mean, and this normally requires a consideration not only of the text but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.1
- The question of what amounts to a claim against an insured, within the meaning of that term in the relevant policy, is one of substance and not of form.2
What was required in this case was “any written demand … for compensation”. Daubney J found (at ):
- The subject letter expressly asserted an entitlement on the part of the Plaintiff to recover for her personal injury claim “due to injury caused by dangerous fixture”.
- This statement was not enigmatic.
- It occurred in a context in the letter which the Plaintiff and her husband were seeking resolution of the complaints they had in respect of many defects in the property, and indicated that they would refrain from action in respect of those defects if the property was repaired.
- They expressly excluded from that course of action the entitlement which the Plaintiff claimed to recover for “injury caused by dangerous fixture”.
- The letter made it clear that the Plaintiff appreciated, and contended, that she had a claim against the Third Defendant – she expressly referred to the Third Defendant’s business being “held liable for any personal injury claims arising from damage caused to the tenants due to poor living conditions”.
In the circumstances, Daubney J held that it was sufficiently clear that the Plaintiff was making an assertion of liability on the part of the Third Defendant for the letter to constitute a written demand for compensation within the definition of the term “claim” in the policy (at ).
Another issue that was referred to the court for determination was whether section 54 of the Insurance Contacts Act 1984 (Cth) applied to prevent the First Third Party from refusing to pay the Plaintiff’s claim because of the failure by the Third Defendant to given written notice of that claim during the period of insurance. Daubney J found that it was not necessary to make a determination on this issue as the bodily injury exclusion in the policy excluded cover in any event.
However, this highlights the importance of knowing when a claim has in fact been made, particularly in the following circumstances:
- For insurers providing cover when a claim is notified, but when the claim was in fact made in a previous period of insurance covered by a different insurer – this would probably be grounds to refuse to indemnify the insured.
- For insurers providing cover for that previous period of insurance – the insured will no doubt try to rely on section 54 to prevent the refusal of indemnity. But in that case, the question of prejudice has to be considered, particularly if the late notification has prevented the claim being settled before proceedings were commenced and significant costs incurred.
- For insurers who provided cover for both the period of insurance when the claim was made and the period of insurance when it was notified – the “continuous cover” clause commonly found in professional indemnity policies will probably operate to prevent refusal of indemnity. But it would probably allow the insurer to apply the terms of the policy covering the period of insurance when the claim was made and allow the question of prejudice to be considered (this depends on the terms of the continuous cover clause).