Proving that a prior settlement was unreasonable is not easy, but a recent decision of the Supreme Court in Queensland shows that it can be done.

A motor vehicle accident near Townsville injured two people after a second car collided with them. Suncorp settled claims with the injured parties for a total of $1.26 million, at a compulsory conference. Suncorp then sought to recover that amount from the driver of the second car.

The liability of the driver to pay this amount was easily established, but the key issue at trial was whether the amount that the claims had settled for was “reasonable”. In assessing this issue, the Supreme Court of Queensland followed the established case law that it is not necessary that the reasonableness of the settlement should be proved by adducing all or precisely the same evidence as would have been required if the action had been tried rather than settled. Further, any question as to whether the settlement was reasonable must be judged by reference to the material the parties had available to them at the time the compromise was reached.

The Court had particular regard to the High Court decision – Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) involving an insurance broker who did not adequately disclose the prior history of the insured, where the issue had been previously examined. The Court extrapolated the following guidance from the High Court’s (Brennan CJ and Hayne J) decision:

  • The test of reasonableness is an objective one, and depends on the circumstances existing at the time of settlement;
  • Evidence of the advice which the insured received to induce it to enter the settlement is not proof in itself of the reasonableness of the settlement;
  • Reasonableness is not to be judged according to whether material which was obtained later shows that a different result might have been obtained;
  • Consideration will often be required of whether the party maintaining that the settlement was reasonable had made sufficient inquiries and had sufficient information available to it to warrant reaching the compromise;
  • But attention may need to be given to whether the costs of seeking further information (at the time of settlement) would outweigh the benefit that it was reasonable to expect may be obtained from doing so; and
  • An assessment of the chance of the parties succeeding in their respective claims or defences will almost always be required.  

In this case, contradictory evidence as to the extent of one of the parties’ injuries was available at the time of the settlement. This material had the potential to drastically change the amount that could be claimed for future lost income (i.e. whether he would be able to later engage in physical work), and the Court considered that Suncorp should have sought further information or made further inquiries to satisfy themselves that the particularised amount for this head of damage was reasonable. A significant discount was given on the judgement sum ($500,000) on account of this.

Suncorp Metway Insurance Ltd v Ruckman [2012] QSC 100