FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd [2001] HCA 38

HIGH COURT OF AUSTRALIA

GLEESON CJ,

McHUGH, GUMMOW, KIRBY AND HAYNE JJ

FAI GENERAL INSURANCE COMPANY LIMITED APPELLANT

AND

AUSTRALIAN HOSPITAL CARE PTY LTD RESPONDENT

FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd [2001] HCA 38

27 June 2001

B23/2000

ORDER

Appeal dismissed with costs.

On appeal from the Supreme Court of Queensland

Representation:

P A Keane QC with R G Bain QC for the appellant (instructed by Clayton Utz)

S S W Couper QC with K N Wilson for the respondent (instructed by McLaughlins)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd

Insurance – Professional indemnity insurance – Claims made and notified policy – Term of policy deeming claim against insured made after expiry of period of cover to be covered by policy if, during period of cover, insured became aware of occurrence which gave rise to the claim and gave written notice to insurer – Claim by third party made after expiry of period of cover – Insured became aware of occurrence which gave rise to claim during period of cover but failed to notify insurer – Whether insurer entitled to refuse indemnity for failure to give notice – Whether s 54 of Insurance Contracts Act 1984 (Cth) applicable.

Insurance Contracts Act 1984 (Cth), s 54.

1. GLEESON CJ. The application of the general provisions of s 54 of the Insurance Contracts Act 1984 (Cth) ("the Act") to contracts of insurance of the kind presently in question has produced a deal of division of judicial opinion. My views on the subject are set out in East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Ltd[1] and FAI General Insurance Co Ltd v Perry[2]. I agree with the dissenting judgment of Pincus JA in the Court of Appeal of Queensland in the present case[3]. Since mine is a minority opinion, I will not repeat what I have said in earlier cases, but will state briefly why I would allow the present appeal. 2. The respondent insured was covered, for successive annual periods, by policies of professional indemnity insurance. The two periods of present relevance are 20 June 1991 to 20 June 1992 ("the first year"), and 20 June 1992 to 20 June 1993 ("the second year"). The appellant was the insurer for the first year. Lloyd's Underwriters were the insurers for the second year. It was held by the Court of Appeal of Queensland, and is not in issue in this Court, that the respondent was covered, in respect of the relevant occurrence, by the Lloyd's policy, that is, the policy in respect of the second year. The issue in the present appeal is whether the respondent was also covered, in respect of the same occurrence, by the policy in respect of the first year. The majority in the Court of Appeal held that it was. 3. The insuring clause of the policy stated that the appellant agreed "[t]o indemnify the [respondent] against any claim or claims for compensation first made … during the period of cover … for breach of professional duty … [or] by reason of any negligence …". It is to be noted that the indemnity is against claims, not against occurrences, or liability. A person or corporation against whom a claim for professional negligence is made may suffer financial loss even if no liability is established. The costs of defending the claim may be substantial, even if the defence is successful. A failure to recognise that the nature of the insurance is that it provides indemnity against claims seems to me to underlie parts of the respondent's argument. As will appear, the condition of the policy on which the respondent relies is closely tied in with the insuring clause. 4. The allegedly negligent conduct of the respondent, which ultimately led to a claim against it, occurred before the commencement of the first year. The injured party was Dr Tampoe, who was a patient at one of the respondent's hospitals in March 1991. No claim was made by Dr Tampoe until the second year. During the early part of the first year there had been some correspondence from, and communications with, Dr Tampoe's solicitors, but no claim was made, and no action was commenced. In June 1992, Dr Tampoe's solicitors advised him that his prospects of success were not good. He was evidently still undecided as to whether to take any action. When, in June 1992, the respondent applied for Lloyd's insurance for the second year, it stated in the proposal form that it was not aware of any circumstances that might give rise to a claim. The position at the end of the first year was that no claim had been made upon the respondent in respect of the relevant occurrence, it was not expected by the respondent that a claim would be made, the respondent had not notified the appellant of any possible claim, and the respondent had told its proposed insurer for the second year that it was not aware of any circumstance that might give rise to a claim. In the event, a claim was made by Dr Tampoe during the second year. The Lloyd's policy was held to cover the respondent. The decision of the majority of the Court of Appeal of Queensland was that the respondent is also covered by the appellant's policy. That outcome depended upon a conclusion that the fact that the respondent did not, during the first year, notify its insurer of the occurrence involving Dr Tampoe, was an omission of a kind against which s 54 of the Act relieved. That is a conclusion I am unable to accept. 5. The insuring clause provided that the appellant agreed to indemnify the respondent against claims for breach of professional duty or negligence first made during the first year. Condition 2 of the policy provided that it was a condition precedent to the respondent's right to indemnity that any such claim be notified to the appellant immediately. It is condition 3 of the policy which is of particular relevance. The condition provided that if, during the subsistence of the policy, the respondent should become aware of any occurrence which might subsequently give rise to a claim, and should, during the subsistence of the policy, give written notice of the occurrence to the appellant, then any such subsequent claim would, for the purposes of the policy, "be deemed to have been made during [the first year]" (emphasis added). Thus, if the respondent gave a timely notice of the kind referred to, any later claim would be deemed to have been made during the subsistence of the policy. The deeming mechanism was related to the language of the insuring clause. It was not a free-standing and alternative cover. It operated by deeming a claim to have been made within the period of cover. The policy covered claims first made during the first year. Claims would be deemed to have been made during the first year if notification of an occurrence was given during that year. In that context, "made" obviously meant "first made". That was the contract of the parties. The question concerns the effect of s 54 of the Act upon that contract. 6. Section 54 relieves an insured against loss of entitlement to indemnity, in certain circumstances. It refers to "some act of the insured", but, by definition, a reference to an act includes a reference to an omission. So understood, in its application to the present case the section provides: