REFORMING INSURANCE LAW: - Law Commission

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period. In addition, such policies generally permit the assured to give the insurers notice of any circumstances which may or are likely to give rise to a claim, and providing the notification is made within the policy period then any subsequent claim against the assured arising from those circumstances is deemed to have been made within the currency of the policy even though it was subsequently made after the policy had expired. Claims made policies are not without their difficulties: there may be room for doubt as to whether a claim has been made against the assured; 500 the question of whether a notification of a specific claim also takes in future claims of the same type arises regularly; 501 there is some dispute as to whether a notification encompasses the assured’s continuing conduct; and the right of the assured to notify “circumstances” depends upon the wording of the clause, in particular whether it refers to circumstances which “may” or which are “likely to” give rise to a claim – the present tendency is to use the wider wording, so that assureds are often able to make “laundry list” notifications which pin the entire liability arising from a series of related acts onto one insurer. A particular feature of London market policies as they relate to the notification of circumstances is, as noted above, that there is no need for the claim itself to be made against the assured during the currency of the policy. 8.32 The position in Australia is, however, somewhat different, in that policies have been written on a “claims made and notified basis”, so that the insurers are stated only to be liable for a subsequent claim arising from circumstances notified to the insurers during the currency of the policy if the claim against the assured is itself made during the currency of the policy. The latter requirement will in many circumstances render the right of notification of circumstances nugatory, because it is often the case that the claim itself will not materialise for months or years after circumstances which may give rise to a claim have come to light. For this reason, s 40 of the Insurance Contracts Act 1984 502 gives additional rights to the holder of a policy under which a claim against the assured must be notified during its currency (the definition in s 40(1)). Section 40(3) provides that the insurer is not relieved from liability simply because the claim is made in a later year as long as the assured has given notice of the circumstances to the insurers as soon as is reasonably practicable during the currency of the policy. This provision does not operate as an implied term as such, but rather is a statutory right. There is probably no need for such legislation in the UK, given that liability policies written in this jurisdiction do not operate on this basis. 8.33 A further reason for shunning s 40 is that it has, in combination with s 54, given rise to more litigation than almost any other provision of the 1984 Act. A number of points have been raised under the section. First, the courts have held that s 40 applies to a policy which makes no provision for the notification of circumstances which may or are likely to give rise to a claim but which only applies to claims made against the assured during the currency of the policy (a pure “claims made” policy): accordingly, and irrespective of the wording of the policy, the assured has a statutory right during the currency of the policy to notify circumstances likely to give rise 500 Although the present trend is to define the term “claim” with some precision, generally encompassing the issue of proceedings against the assured or the receipt by him of a letter before action. It has been held that an assured who has been required to undertake a product review to identify possible mis-selling to clients has been subjected to a claim: Rothschild Assurance Ltd v Collyear [1999] Lloyd’s Rep IR 6 501 Hamptons Residential Ltd v Field [1998] 2 Lloyd’s Rep 248. 502 Based on ALRC 20, para 265. 95
to a claim and then to recover from the insurers in respect of a claim made after expiration. 503 Secondly, there has been major difficulty in applying ss 40 and 54 of the 1984 Act to a “claims made and notified” policy of the type described above. 504 As seen earlier, section 54 provides that an insurer may not refuse to pay a claim in reliance on an act or omission of the assured which did not cause the loss. The section operates in an unexceptional fashion where a claim has been made against the assured within the policy period but he has failed to inform the insurers of the claim within the currency of the policy as required by its terms: the policy attaches by virtue of the claim being made against the assured, and his omission can be excused under s 54, section s 40 not being engaged. 505 More problematic is the situation in which the assured has during the currency of the policy failed to notify the insurers of circumstances likely to give rise to a claim as specified by the policy, and a claim is then made against the assured in a later year: the Australian courts have here concluded that the failure of the assured is one falling within s 54 and accordingly the assured’s breach is waived by s 54 and the insurers face liability. 506 The courts have, however, refused to hold that a failure by the third party to make a claim against the assured within the currency of the policy is not capable of being excused under s 54. 507 Further, a policy which does not make provision for notification of circumstances likely to give rise to a claim does not respond where the assured has not given due notification in the policy period: this is because s 54 does not apply to the assured’s failure to avail himself of the statutory right under s 40(3) but only to a failure to avail himself of the benefits of the policy. 508 The effect of the authorities is that if the policy allows the assured to notify circumstances likely to give rise to a claim and thereby treat a later claim as within the policy, his failure to notify can be excused under s 54: if, however, the policy does not contain such a clause, although the assured has a statutory right to notify circumstances under s 40(3) his failure to do so cannot be excused by s 40(3). This has led to insurers either increasing premiums or removing from their policies the contractual right to notify circumstances. 8.34 As see earlier, the draft Insurance Contracts Amendment Bill 2007 inserts a new s 54A which removes claims made and notified policies from s 54 by providing that if the assured is entitled under contract to notify circumstances but fails to do so, s 54 cannot excuse his omission unless the claim is made within 28 days of the expiry of the policy. As far as s 40 itself is concerned, the 2007 Bill makes a number of changes. First, there is an extended definition in new draft s 40(1) of the types of policy covered by the section: it is to cover any contract of liability insurance which satisfies one of three criteria: (a) the insurer’s liability is excluded or limited if a claim against the assured or any third party beneficiary in respect of a loss suffered by some other person is not made before the insurance cover provided by the contract expires 503 Newcastle City Council v GIO General Ltd (1997) 191 CLR 85. The Newcastle decision, it is submitted, cannot be supported, although as far as the UK is concerned the case produces a result which is consistent with the way that claims made liability policies are normally framed. 504 Mann, paras 40.30, 40.35, 54.10.7, 54.10.14, 54.10.15 and 54.60; Sutton, paras 8.46-8.76. 505 East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400. 506 FAI v Australian Hospital Care Pty Ltd [2001] HCA 38, overruling FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89 and also the reasoning in Greentree v FAI General Insurance Co Ltd (1998) 158 ALR 592 and Permanent Trustee v FAI General Insurance Co Ltd (1998) 44 NSWLR 186, in each of which a failure to notify was held not to amount to an omission. 507 CA & MEC McInally Nominees Ptd Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 11 ANZ Ins Cas 61-507. 508 Gosford City Council v GIO General Ltd (2003) 56 NSWLR 52. 96
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REFORMING INSURANCE LAW: IS THERE A
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6 FRAUDULENT CLAIMS 6.1 Meaning of
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legislation as it relates to substa
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different fate. On 9 September 1976
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invaluable in that it was devised a
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in deciding whether or not to appro
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3.8 As regards misrepresentation, t
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with the duty of disclosure unless
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confirmed by s 28 which requires th
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easonable proposer for a marine pol
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in the revised version of s 22 set
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4.23 The section is hardly a model
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elevant to the decision of the insu
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treated as misrepresentation if it
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therefore, an assured who uses a br
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the matter could be resolved by an
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here, in that there can be non-disc
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Cases other than fraud: damages 4.5
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elevant facts or the assured’s mi
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and investment policies with surren
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developed has raised exactly the sa
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Co-assureds 4.68 English law draws
Page 46 and 47: Temporary cover 206 4.72 English la
Page 48 and 49: utmost good faith. 218 The remedy i
Page 50 and 51: purpose, 232 proof of honesty is no
Page 52 and 53: of the insurers under the policy, u
Page 54 and 55: 5.14 A second obvious possibility i
Page 56 and 57: has been held - perhaps inconsisten
Page 58 and 59: is unduly harsh. Whatever the effec
Page 60 and 61: 56(2), 298 and that what is require
Page 62 and 63: Warranties of fact 7.3 Warranties o
Page 64 and 65: person not to do the act or to avoi
Page 66 and 67: the risk and is purely administrati
Page 68 and 69: 7.14 The position in Australia has
Page 70 and 71: personal injury claim failure by th
Page 72 and 73: 7.20 Treasury Review I, 2003, found
Page 74 and 75: Continuing obligations in marine in
Page 76 and 77: contributed to by the illegality an
Page 78 and 79: waters, 391 that the classification
Page 80 and 81: changing market, and the Court of A
Page 82 and 83: unresolved issues as to whether the
Page 84 and 85: 8.14 Although the point is not fina
Page 86 and 87: which the need for each of the part
Page 88 and 89: Review II, 2004, as an appropriate
Page 90 and 91: 8.21 Finally, s 68 seeks to protect
Page 92 and 93: also include an address and telepho
Page 94 and 95: Standard cover 8.28 Standard cover
Page 98 and 99: (the existing s 40(1)); or (b) the
Page 100 and 101: disputes as to whether the correct
Page 102 and 103: interests to do so. However, insure
Page 104 and 105: Matters in the 1984 Act already a p
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REFORMING INSURANCE LAW: - Law Commission

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