Bluescope Steel Ltd v Allianz Australia Ltd [2008] NSWDDT 24

Dust Diseases Tribunal of New South Wales

CITATION : Bluescope Steel Ltd v Allianz Australia Ltd [2008] NSWDDT 24

PARTIES : Bluescope Steel Ltd (Plaintiff) Allianz Australia Ltd (Defendant)

MATTER NUMBER(S) : 7240 of 2007

JUDGMENT OF: Curtis J at 1

CATCHWORDS: DUST DISEASES TRIBUNAL :- Solicitors' negligence - failure to obsereve conditions of insurance policy - excuse - s18 Insurance Act 1902

LEGISLATION CITED: Insurance Act 1902 Insurance Contracts Act 1984

MacPherson & Davies Shopfitters Pty Ltd v Mercantile Mutual Insurance Ltd (1986) BC 8600892 Khoury v GIO (1984) 58 ALJR 502 CASES CITED: Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65 Cropper v Smith (1884) 26 Ch.D.700 Distillers Co Biochemicals (Aust) Proprietary Limited v Ajax Insurance Co Ltd [1973-1974] 130 CLR 1

DATES OF HEARING: 23/9/08

DATE OF JUDGMENT: 1 October 2008

Mr G J Parker instructed by Piper Alderman appeared for the plaintiff

LEGAL REPRESENTATIVES:

Mr G F Little SC instructed by Ellison Tillyard Callinan appeared for the defendant

JUDGMENT:

Dust Diseases Tribunal of New South Wales Matter Number 7240 of 2007 Bluescope Steel Ltd v Allianz Australia Ltd 1 October 2008

JUDGMENT CURTIS J The Claim Bluescope Steel Ltd, negligently in ignorance of the fact that it held a policy of insurance with Manufacturers Mutual Insurance Ltd (MMI) that responded to the risk, employed solicitors and settled a claim for damages brought by a former employee, without informing Allianz Australia Ltd (Allianz) the successor to the liabilities of MMI. Bluescope now claims an order that Allianz grant indemnity, notwithstanding that it is in breach of conditions of the policy which stipulated that the insured may not incur the expense of litigation or make a settlement without the written authority of the insurer. The facts A plaintiff, Mr Robert Cizzio, was employed by John Lysaght (Australia) Ltd (John Lysaght), at its Newcastle plant as a pipe fitter between 11 April 1950 and 2 June 1961. In this work he was regularly exposed to asbestos dust and fibre in consequence of which he developed asbestos related diseases. John Lysaght was first registered as an Australian company in 1921. It held policies of Workers' Compensation Insurance with MMI from 1957 until becoming a self-insurer in 1979. In 1994 John Lysaght became a wholly owned subsidiary of the Broken Hill Proprietary Co Ltd (later BHP Billiton) and its name changed to Bluescope Steel Ltd. In 2002 BHP Billiton divested itself of the company. Pursuant to the terms of a Deed between BHP Billiton and Bluescope Steel, BHP Billiton retained liability for claims upon John Lysaght (Australia) Ltd as self-insurer, and also managed those claims. On 1 October 2004 Bluescope was served with a statement of claim issued by Mr Cizzio in this Tribunal claiming damages in respect of his disease. The state of New South Wales, and John C W Bridge and Co (Contracting) Pty Ltd were joined as defendants in respect of later employment where Mr Cizzio had also been exposed to asbestos. Upon receiving Mr Cizzio's statement of claim, Mr Lyal Hammond, a compensation clerk employed by Bluescope, discussed the matter with Mr Darren Bowey, BHP Billiton's Manager, Group Workers Compensation and Personal Injury . He was wrongly advised that it was likely that BHP Billiton was liable to indemnify pursuant to the Deed, and therefore instructed Mr Scott Hay, a partner of Piper Alderman solicitors, to act in defence of the claim. Mr Hay commissioned a report from Mr John Harvey, a loss assessor. Mr Harvey's investigations confirmed that Mr Cizzio was employed by Bluescope in the relevant period, and that his work exposed him regularly to the inhalation of asbestos dust and fibre. Thereafter Mr Hay qualified Dr David McKenzie, a respiratory physician, to examine Mr Cizzio, and Mr Guy Parker SC to advise on liability and quantum. On 1 July 2005 the three defendants jointly filed an offer of compromise in the sum of $220,000 plus costs. This was accepted by Mr Cizzio and on 8 August 2005 judgment was entered in his favour in the sum of $73,333.34 plus costs against each defendant. Costs were later agreed in the sum of $50,000 of which Bluescope paid $16,666.66, bringing its total liability to Mr Cizzio to $90,000. Bluescope, pursuant to cross-claims, recovered a total of $40,000 from Amaca and the three Wallaby Grip companies, leaving it out of pocket in the sum of $50,000 plus the costs incurred in defending the claim of Mr Cizzio and prosecuting the cross claims. On 2 November 2006, belatedly realising that John Lysaght in 1961 held a workers' compensation policy with MMI, Mr Hay wrote to Allianz requesting indemnity. Allianz declined indemnity on the grounds that Bluescope was in breach of conditions in the policy which required that: (1) the employer should, as soon as practicable, give notice to the insurer of any personal injury or claim; (2) the employer should not without the written authority of the insurer incur any expense of litigation, or make any payment, settlement, or admission of liability in respect of any injury to or claim made by any worker; (3) the employer shall give all necessary information and assistance, and forward all documents to enable the insurer to settle or resist the claim as the insurer may think fit. Legislation Bluescope, relying upon s18 of the Insurance Act 1902 , now seeks orders for indemnity in respect of its liability to Mr Cizzio, and for its legal defence costs. The relevant provision is as follows: 18 Powers of court in relation to insurance contracts (1) In any proceedings taken in a court in respect of a difference or dispute arising out of a contract of insurance, if it appears to the court that a failure by the insured to observe or perform a term or condition of the contract of insurance may reasonably be excused on the ground that the insurer was not prejudiced by the failure, the court may order that the failure be excused. (2) Where an order of the nature referred to in subsection (1) has been made, the rights and liabilities of all persons in respect of the contract of insurance concerned shall be determined as if the failure the subject of the order had not occurred. Explanations for the failure In 2004 Mr Michael Miller was employed by BHP Billiton as its Workers Compensation Coordinator NSW . He knew that the claim of Mr Cizzio was referred by Mr Hammond to Mr Hay, and he also knew that before John Lysaght became a self insurer in 1979, MMI was one of a number of workers compensation insurers with whom policies had been held. In a rather confusing affidavit, Mr Miller says in paragraph 14 that he did not then instruct Mr Hay to make a claim upon Allianz because he did not hold any documents that confirmed the existence or terms of any workers compensation insurance for John Lysaght, nor did he have any records in respect of Mr Cizzio's period of employment. In paragraph 29 he says that a possible recovery against Allianz was simply overlooked by him at the time. On 3 November 2004 Mr John Harvey, the loss assessor retained by Mr Hay, sent an e-mail to Mr Miller. Mr Harvey said that he assumed that this was not the first dust claim against John Lysaght and asked whether Mr Miller may have any statements which had been gathered in other matters. Mr Miller's reply of 4 November 2004 included this paragraph: "John Lysaght (Australia) Ltd became self-insured on 30 September 1979 and Allianz (MMI) were on risk prior to this date." This e-mail of Mr Miller was copied to Mr Hay. Mr Hay, who read Mr Miller's e-mail at the time it was sent, says that he did not investigate the matter further because he was not provided with documents confirming the suggested policy of insurance. In July 2006, after the resolution of the Cizzio matter, Mr Miller received a statement of claim filed for Mr Youden Richard Jackson. Mr Jackson claimed damages from John Lysaght (Australia) Ltd in respect of his disease of mesothelioma contracted from exposure to asbestos between 1957 and 1965 at the same Newcastle plant in which Mr Cizzio had worked. Mr Miller forwarded this statement of claim to Mr Hay for his attention. By e-mail of 10 July 2006, to Mr Hay, Mr Miller wrote "Some useful info in regards to this claim. John Lysaght (Australia) Proprietary Limited commenced as a self insurer on or about 1/9/76. Prior to that MMI or Allianz were on risk." This message is in almost precisely the same terms as Mr Miller's e-mail of 4 November 2004, copied to Mr Hay, in connection with the claim of Mr Cizzio. On the day that he received the e-mail of 10 July 2006 Mr Hay telephoned Mr Miller and said: " Well, if that proves to be the case and you can get some documents, it may be that we can make a claim on Allianz for Mr Cizzio's claim as well as he was at Lysaght's about the same time as Jackson. You might be entitled to an indemnity from Allianz". Mr Miller told Mr Hay that he believed that Mr Stephen Keyte, Bluescope's New South Wales Workers' Compensation Manager, had relevant documents. This turned out to be the case. On 13 July 2006 Mr Miller provided to Mr Hay a copy of the Policy of Insurance issued by MMI to John Lysaght (Australia) Ltd dated 27 March 1957, and a memorandum dated 26 July 1995 from John Lysaght's Superintendent Workers Compensation, to the Manager, Employee Services which stated that five Dust Disease claims had been received over the last 10 years, and that "We were insured for Workers Compensation liability with MMI from 1958 to 1979". I think it probable that before he received the statement of claim in Jackson, Mr Miller, as did Mr Hammond and Mr Bowey before him, simply overlooked the fact that the claim of Mr Cizzio should be covered by the insurer Allianz. He says, and I accept him on this, that neither he nor his employer obtained any benefit from intentionally breaching the policy conditions, and that the present litigation will ultimately end up costing BHP Billiton more money than if it had complied with the conditions. His failure to instruct Mr Hay to seek indemnity from Allianz is understandable as simple oversight. When, at Mr Hay's suggestion, he later turned his mind to the question of insurance in Jackson , he obtained documents from Mr Ketye and immediately forwarded them to Mr Hay. The conduct of Mr Hay however is extraordinary. Mr Cizzio's statement of claim pleaded employment ceasing on 2 June 1961. This was the relevant date for the purpose of determining which insurance policy responded to the risk. Four weeks after receiving instructions to act, Mr Hay was, on 4 November 2004, told that prior to becoming a self-insurer on 30 September 1979, Bluescope was insured by MMI. This information was almost precisely the same as the information later conveyed to him on 10 July 2006 (which inconsistently stated that self-insurance commenced on or about 30 September 1976). Before filing Bluescope's defence on 19 April 2005, Mr Hay was provided with Mr Cizzio's employment record. This confirmed that Mr Cizzio was employed by John Lysaght (Australia) Ltd between 11 April 1950 and 2 June 1961. The defence he drafted specifically admitted those facts. Mr Hay, an experienced practitioner in the relevant field, knew in 2004 of the conditions in the statutory form of workers' compensation policy now raised against Bluescope, yet he took no steps to identify the insurer so as to avoid prejudice to his client. He did not then even ask Mr Miller to obtain the documents which were then clearly at hand. Mr Hay says that from his experience in Dust Diseases litigation he knew that the firm of Messrs Ellison Tillyard and Callinan acted for Allianz in such matters. After receiving the documents which confirmed the existence of a policy responding to Mr Jackson's claim, Mr Hay telephoned Mr Christopher Anderson of that firm who confirmed that MMI was on risk in relation to that matter. Had he made a similar phone call in November 2004 in relation to the claim by Mr Cizzio, Mr Anderson would no doubt have advised him that MMI was on risk. Even if Mr Hay did not have familiarity with the jurisdiction, a simple search in the Registry of the Tribunal would have disclosed that John Lysaght was named as defendant in five previous actions. Telephone calls to the solicitors who acted in those matters would have revealed the identity of the insurer. Prejudice In MacPherson & Davies Shopfitters Pty Ltd v Mercantile Mutual Insurance Ltd (1986) BC 8600892 Wood J said of s18 that " While the overall onus of proof lies upon the insured on the question of prejudice, nevertheless an evidentiary onus rests upon the insurer to prove the prejudice which it asserts." He further said that "The kind of prejudice to which this section is directed is real and not speculative prejudice". Mr Little SC for Allianz has submitted that his client has been prejudiced in two respects; first that it has been put to additional expense in reviewing the conduct of the litigation by Piper Alderman in order to determine whether or not actual prejudice has occurred; secondly that it has been deprived of its contractual right to take over and defend the claim of Mr Cizzio on its own terms. Additional expense This first contention can be quickly dismissed. There is no evidence that Allianz has reviewed the conduct of the litigation by Piper Alderman, let alone that costs have been incurred in such an exercise. Had Allianz been properly notified of Mr Cizzio's claim, that company would have necessarily incurred expense of a preliminary investigation before granting indemnity and undertaking the defence of the claim. In any event, the merit of the claim and the quality of the defence may be conveniently examined by perusing the report of Mr Harvey, the loss assessor, and the pleadings, particulars, correspondence between solicitors, and medical reports conveniently collated within a file prepared by Piper Alderman. These documents have been made available to Allianz and are tendered in these proceedings. I have read the material. The reading did not take long. Although not complete, omitting for instance the advices of Mr Parker SC, the documents disclose no factual basis upon which it could be asserted that Allianz has been prejudiced by the settlement achieved for Bluescope. They confirm that the defence to Mr Cizzio's claim was conducted expeditiously, and that it was settled on advantageous terms. A schedule listing each item of billing by Piper Alderman has been tendered. Total fees charged to Bluescope amount to $30,747. I am uninformed as to what is a reasonable amount to charge for this legal work and Allianz bears an onus in this regard. Mr Little makes no challenge to either the legitimacy of any item, or its cost. There is no evidence that had Allianz conducted the litigation, either in-house or with the assistance of another firm of solicitors, the cost would have been any less. I am satisfied on the evidence that Allianz would have achieved no better result had the policy conditions be observed. The suggestion that there may be undetected prejudice is mere speculation. Lack of control In the absence of evidence, the contention that the insurer's loss of the opportunity to conduct the litigation on its own terms, to the same result and at the same cost, constitutes real prejudice, is not convincing. It may be otherwise if there was evidence that the insurer gained some additional benefit from controlling the litigation, for instance in staff training, or in more accurate actuarial predictions; I have no concluded view in that regard. Discussion Construction of Section 18 The failure of Bluescope to observe the conditions of the policy may be excusable upon the basis of simple oversight in circumstances where Bluescope's workers' compensation liabilities were managed by BHP Billiton. The failure of Mr Hay to discharge his professional responsibilities, is far more egregious. His conduct fell well short of the standard expected of a prudent solicitor. Should his client in consequence suffer the loss of indemnity? Mr Parker for Bluescope submits that the word reasonably in the phrase may reasonably be excused contained within s18 does no work, and that if the court is satisfied that the insurer was not prejudiced, an order that the failure to observe the conditions be excused is automatic. I reject this submission. This section is permissive. The court may order that the failure be excused. The use of the word reasonably in s18 requires an explanation of why it is that an insured should be permitted to escape the consequences of its contractual breach although the insurer has suffered no prejudice. The section is a remedial provision and is to be beneficially construed ( Khoury v GIO (1984) 58 ALJR 502, Accident Insurance Mutual Ltd v Sullivan (1986) 7 NSWLR 65). The mischief addressed by the legislature is the potential loss of indemnity caused by innocent oversight or mistake by the insured, in circumstances where the insurer suffers no prejudice as a result of that oversight. I think a useful guide to the circumstances in which an oversight or mistake may be excused is to be found in the practice of courts when asked to excuse a possibly fatal mistake in the conduct of litigation. The often cited passage of Bowen LJ in Cropper v Smith (1884) 26 Ch.D.700 at 710 is apposite. His Lordship said: Now, I think it is a well established principle that the object of courts is to decide the rights of parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach , the court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment is a matter of flavour or grace. (Emphasis added) To my mind, a failure to observe a condition of the policy because of innocent mistake, in the sense that the failure was neither advertent nor " fraudulent or intended to overreach", may reasonably be excused. To the contrary, a conscious failure motivated by an ulterior motive may not be reasonably excused even in circumstances where, by happenstance, the insurer suffers no prejudice. Such a construction is consistent with the obligations imposed upon the insured both at common law and pursuant to s13 of the Insurance Contracts Act 1984 (Clth) which states that: A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. If an insured acts in good faith, his negligence, if it occasions no prejudice to the insurer, should be excused. Findings of Fact The failure by both Bluescope and its solicitors to ensure that the policy conditions were observed was unquestionably negligent. This failure was not however advertent, designed to secure advantage, or incompatible with conduct of the utmost good faith. I do not believe that Mr Hay was wilfully blind to his duties. The failures have in no way prejudiced Allianz. I find that they should be excused. Alternative Defences Mr Little, relying upon a passage in Distillers Co Biochemicals (Aust) Proprietary Limited v Ajax Insurance Co Ltd [1973-1974] 130 CLR 1, has submitted that after judgment in favour of Mr Cizzio, the policy no longer responded to the risk. I do not quite understand this argument. Menzies J there considered the effect of a condition in an insurance policy that "The insured shall not without the consent in writing of the Company make any admission, offer, promise or payment in connection with any accident or claim." He said at p8 that, because " Upon judgment the third party's claim disappears", the insured was entitled to pay the amount of a contested judgment without breaching this condition. After speaking of an employer's liability independently of the Workers' Compensation Act , the statutory policy here under consideration provides that " The insurer will indemnify the Employer against all sums for which the Employer shall be so liable". In Distillers, Stephen J clearly stated at 27 that, pursuant to a policy employing similar language, the insurer was not subject to any obligation to indemnify the insured until the insured became liable in judgment. If the policy is not avoided by reason of breach of condition, the insurer becomes liable when judgment is entered against the insured. Because the failure of Bluescope to observe the conditions of a policy is excused pursuant to s18, Allianz is liable to indemnify Bluescope against Mr Cizzio's judgment. Alternative basis of claim Mr Parker for Bluescope has argued that the provisions of the contract upon which Allianz relies are not conditions precedent to indemnity but merely warranties for the breach of which Allianz is entitled to nominal damages. Because of my findings in relation to the claim made pursuant to s18 it is unnecessary that I address this argument. Orders Pursuant to s18 of the Insurance Act 1902, I order that the failure by Bluescope in September 2004 to observe and perform the conditions of the contract of insurance with MMI first entered on 27 March 1957 be excused. I will hear the parties on costs. The parties are to bring in short minutes of consequential orders. Mr G J Parker instructed by Piper Alderman appeared for the plaintiff Mr G F Little SC instructed by Ellison Tillyard Callinan appeared for the defendant