By Louise Cantrill, Partner and Enoch Hui, Associate 

In the recent case of Avant Insurance Limited v Darshn [2022] FCAFC 48 the Full Court of the Federal Court has upheld the primary judge’s decision that Avant was put on notice of relevant circumstances and could not deny liability under the contract of insurance on the basis of failure to notify.

It did so on two main bases:

• The solicitor appointed by the Avant to act on behalf of the insured provided information to the insurer as agent for the insured, such that the court found Avant was notified in writing of circumstances which might give rise to a claim for the purposes of s40(3) of the Insurance Contracts Act 1984 (NSW) (ICA). That section does not require an intention to notify, only that information is notified in writing.
• In any case, the insured himself had notified of circumstances through Avant’s helpline such that, in all of the circumstances, Avant’s attempt to deny indemnity was a breach of the duty of utmost good faith as contained in s13 of the ICA.

The Court also made it clear that, had there been no notification of circumstances during the policy period, s54 of the ICA cannot be used to forgive the failure by an insured to take advantage of the statutory right to notify of circumstances provided by s40(3).  

Factual Summary

Dr Darshn is a cosmetic surgeon who performed breast augmentation surgery at premises owned or occupied by The Cosmetic Institute Pty Ltd (TCI) between January 2015 and January 2018. Dr Darshn held professional indemnity insurance with Avant from 27 September 2011 to 30 June 2019.

In 2017, a class action was commenced against TCI and other defendants (the TCI proceeding) in the Supreme Court of New South Wales. At this stage, Dr Darshn had not been included as a party to the TCI proceeding.

In March 2018, Dr Darshn was indemnified by Avant in respect of a proceeding commenced by Ms Scotford in the District Court of New South Wales (the Scotford proceeding). Avant appointed Makinson d’Apice Lawyers (MDL) to act in the Scotford proceeding. Ms Scotford was originally a group member in the TCI proceeding before opting out.

Dr Darshn called Avant’s Medico-Legal Advice Service on 18 February 2019 and 22 March 2019. During these discussions, Dr Darshn mentioned receiving a detailed subpoena which was suggestive that he (along with other surgeons upon whom it had been served) might be joined as a defendant to the TCI proceeding. Dr Darshn further mentioned a letter he had received from solicitors relating to a proceeding against him commenced by Ms Summers-Hall (the Summers-Hall proceeding). Avant subsequently indemnified Dr Darshn in respect of the Summers-Hall proceeding, with MDL also appointed to act in the Summers-Hall proceeding.

Dr Darshn’s insurance with Avant concluded on 30 June 2019, with Dr Darshn then switching to another insurer.

On or around 30 June 2020, Dr Darshn (along with ten other surgeons) was joined as a defendant in the TCI proceeding via a Further Amended Statement of Claim. Dr Darshn sought indemnity from Avant for the TCI proceeding, his current insurer having denied indemnity on the basis of prior known circumstance. Avant declined indemnity on the basis that the TCI proceeding was commenced against Dr Darshn after his policy period had expired, and no written notification of circumstances which might give rise to a claim had been provided prior to expiry.

Court decision

The Federal Court of Appeal upheld the primary judge’s decision that Avant was liable to indemnify Dr Darshn.  Avant had been relevantly notified of the facts and circumstances that might give rise to the TCI proceeding in accordance with Section 40(3) of the ICA prior to expiry of the policy.

The Court of Appeal found that MDL was acting as agent for the insured in its communications to the insurer such that the information contained in that correspondence could be taken as a notification of circumstances for the purposes of s40(3), even if that was not the intention of MDL at the time. The MDL communications informed Avant that:

1. the plaintiffs in the Scotford and Summers-Hall proceedings were group members in the TCI proceeding unless and until they opted out of the TCI proceeding;
2. there was a substantial overlap between the Scotford and Summers-Hall proceedings and the TCI proceeding, and
3. the overlap of the causes of action was such that the plaintiffs in the Scotford and Summers-Hall proceedings had to choose whether to continue their proceedings (and opt out of the TCI proceeding) or discontinue their proceedings (and opt in to the TCI proceeding).

The Court of Appeal concluded that this was “effective notice of facts that might give rise to a claim against Dr Darshn, and those facts correspond to the claim ultimately made when Dr Darshn was joined as a defendant in the TCI proceeding”.

The Court of Appeal were also unimpressed with Avant’s arguments that information provided by Dr Darshn through the Medico-Legal Advice Service could not be taken as relevant knowledge. Avant accepted that if it had been sent a copy of the subpoena by Dr Darshn they could not have said they had not received relevant notification for the purposes of section 40(3). But Avant knew that Dr Darshn had been served with the same subpoena which it had received from other doctors whom Avant had granted indemnity. The Court of Appeal concluded that Avant’s insistence that Dr Darshn had to provide it with a copy of the subpoena addressed to him to obtain the benefit of s 40(3) “in all of the circumstances, does not accord with commercial standards of decency and fairness, with due regard to the interests of the insured” and therefore a breach of its duty of utmost good faith.

Implications

Form this case and the case of Avant Insurance v Burnie [2021] which we have addressed in a previous article to be found here, the Supreme Court of Appeal and the Federal Court of Appeal have applied the same principles, albeit they have reached different conclusions on the facts. In summary:

• s54 can be used to forgive failure to notify of a claim prior to the expiry of the policy period, BUT
• S54 can only be used to forgive the failure to notify of circumstances prior to expiry of the policy period if the contract of insurance itself provides a right to notify of circumstances.
• The solicitor can be an agent of an insured for the purposes of providing notification of circumstances for the purposes of s40(3), even if they don’t mean to
• S13 duty of utmost good faith can also be used to prevent an insurer from denying a claim.