In the recent decision of Wayland v Bird  NSWCA 26, the NSW Court of Appeal upheld the primary judge’s decision to reject an application to join a professional indemnity insurer to proceedings, pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act), in circumstances where the insurer was entitled to decline indemnity as a result of the prejudice suffered at the hands of its insured.
The decision will be of interest to insurers, to the extent that it suggests that the Courts may be reluctant to, or may refuse, applications to join insurers directly to proceedings (even where there is an arguable case that the policy responds to the claim) where an insurer can demonstrate that the actions of its insured have manifestly prejudiced its position, or where there is a reasonable argument that the insured is otherwise not entitled to cover.
The Case at First Instance
Mr and Mrs Wayland were the owners of a property at Wyongah. Prior to their purchase of that property, the Waylands obtained a pest inspection report from a Mr Bird. After their purchase of the property, the Waylands identified damage to the property which they alleged had been caused by the presence of termites.
In July 2013 the Waylands commenced proceedings against Mr Bird in the District Court, claiming damages for negligence and breach of contract in relation to the inspection report and pest control services allegedly provided by Mr Bird. Mr Bird failed to file a defence or take any action to respond to the proceedings.
Mr Bird’s professional indemnity insurer was contacted directly by the Waylands’ lawyers in February 2014, at which point they were:
- informed of the claim against Mr Bird; and
- asked to confirm whether they intended to indemnify Mr Bird in relation to the claim.
The insurer appointed a loss adjuster and ultimately lawyers, to investigate the matter and to protect Mr Bird’s position. However, Mr Bird consistently failed to respond to requests for information or documentation which might allow a defence to be filed on his behalf.
Ultimately, the lawyers appointed to protect Mr Bird’s position filed a notice of ceasing to act in April 2015. Mr Bird took no further steps in the District Court proceedings to protect his position or defend the matter.
In March 2015, Waylands’ lawyers filed a notice of motion seeking leave under s 6(4) of the Act to join the insurer to the proceedings.
The primary judge dismissed the application, finding that:
the insurer was entitled to refuse to indemnify Mr Bird, as a result of the prejudice it had suffered due to his failure to cooperate; and
that section 6(4) of the Act was therefore not enlivened.
Specifically, the primary judge concluded:
“ I am satisfied that the conduct of the defendant has caused such prejudice to the insurer that it is entitled to refuse indemnity to him. That being the case, s 6 of the Act is not enlivened. For the same reasons I am not satisfied that this is an appropriate case for leave to be granted for the proceedings to be commenced.
 I should also add that in any event, I am not satisfied that there is a real possibility that the defendant would be unable to meet any judgment. There is no evidence of his financial circumstances… there is evidence that he is still operating his business and there is some evidence that implies that he intends to stay in business. His behaviour in refusing to make a claim on his policy and in refusing to participate in proceedings might seem to some to be perverse, but is not evidence of impecuniosity.”
The Waylands sought leave to appeal the primary judge’s decision.
Court of Appeal Decision
On appeal, the NSW Court of Appeal affirmed the primary judge’s decision, concluding that:
“It was clearly open to the primary judge, in the exercise of her discretion, to consider the possibility that the second respondent might be in a position to disclaim liability if its ability to defend the proceedings had been prejudiced by the Mr Bird’s lack of co-operation. Similarly, the potential operation of s 54 of the Insurance Contracts Act 1984 (Cth) was a matter that could properly be taken into account in that regard…”
The Court of Appeal went on to conclude that, insofar as the decision represented an exercise of the primary judge’s discretion, “it is not sufficient that this Court might have come to a different conclusion”.
Finally, the Court of Appeal noted that the quantum of the dispute was a relevant consideration, concluding that (given that the loss and damage alleged amounted to significantly less than $100,000) “pressing this application for leave to appeal as opposed to proceeding, once leave to join the insurer was refused, simply to obtain default judgment against Mr Bird and have an assessment of damages” did not appear consistent with the overriding principle of achieving the “just, quick and cheap” resolution of disputes.
Although the Court of Appeal accepted that it might have come to a different conclusion in determining the merits of the application to join the insurer, it was not prepared to overturn a decision which was ultimately within the discretion of the primary judge. The decision reinforces the fact that the Court of Appeal will only overturn primary decisions of this nature where it is “reasonably clear that an injustice has occurred by reason of error in the judgment”.
The decision will be of interest to insurers who are faced with uncooperative insureds, or applications seeking to join them to proceedings where there is an argument that the insured is not entitled to cover.