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Insights into a Professional Indemnity Case | Claims Notification

Insurance brokers play a critical role in guiding clients through the world of professional indemnity insurance. A notable case, outlined by Carter Newell Lawyers in their article “The consequences of no notification revisited: Fairbank Haven v Merkon Constructions” highlights critical aspects of policy notifications under ‘claims made’ policies and the interaction of sections 40(3) and 54 of the Insurance Contracts Act 1984 (ICA).

The Case Background

The spotlight of this case centres on a legal battle involving a building owner (the plaintiff) and the insurer. The plaintiff sought to make a claim against the insured. However, the insured was deregistered. The plaintiff then sought to recover directly against the insurer and applied to the court to have the insurer added as a defendant. When deciding whether to grant the plaintiff’s application, the court considered two issues:

  1. Whether the plaintiff made a ‘Claim’; and
  2. If a ‘Claim’ was not made, whether the plaintiff could rely on sections 40(3) and 54(1) of the ICA, such that the insurer could not refuse indemnity.

Defining the ‘Claim’

Critical to the first issue was whether an email sent by the plaintiff to the insured, expressing concerns about building defects and requesting information about these issues, satisfied the definition of a ‘Claim’ under the insurance policy. As the email was merely a request for information, the court found that the email was not a ‘Claim’ as it did not assert any legal entitlement to damages or compensation or suggest legal action would be taken.

Interaction of sections 40(3) and 54(1) of the ICA

In the alternative, the plaintiff contended that:

  • It was entitled to notify the Claim after the policy expired due to the operation of s40(3) of the ICA, which provides that an insurer cannot refuse a claim where written notice of circumstances that might give rise to a claim were given to an insurer during the policy period; and
  • Section 54 of the ICA operated to excuse the failure of the insured to provide written notice of circumstances which might give rise to a claim during the policy period as required by section 40(3).

On the second issue the court rejected the plaintiff’s contention. It found that sections 40(3) and 54 of the ICA are standalone provisions and cannot be used in combination to cure a failure to notify circumstances during the currency of a ‘claims made’ policy.

Broker Implications

This decision highlights several key points for brokers:

  • Professional indemnity insurance products can have different technical definitions for what is and what is not a claim. It is important to understand the precision of language used in policy wordings and how they trigger the insuring clause.
  • Keep in contact with your clients. By maintaining regular and open dialogue, you will be in a better position to know whether your client has experienced circumstances that may give rise to a claim that requires notification to their insurer.
  • Your client will only receive the benefit of section 40(3) of the ICA if they have complied with its terms – that is – they have given written notice to the insurer during the policy period of circumstances that might give rise to a claim.

The findings about the interaction between Sections 40(3) and 54 of the ICA in this case follows other recent decisions confirming they are standalone provisions. For brokers, this serves as an opportunity to reemphasise to clients the need for vigilance, clear communication, and understanding of policy requirements. Only a valid notification safeguards your client’s right to claim.

Carter Newell Lawyers. ” The consequences of no notification revisited: Fairbank Haven v Merkon Constructions” https://www.carternewell.com/page/Publications/2024/the-consequences-of-no-notification-revisited-Fairbank-Haven-v-Merkon-Constructions/. Accessed 20/03/2024.

Fairbank Haven Pty Ltd v Merkon Constructions Pty Ltd [2024] VSC 32

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Important Notice

Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Information provided is general only, intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. It is not intended to constitute legal advice. You should always obtain legal or other professional advice appropriate to your own circumstances. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy or continue to hold a financial product, you should review the relevant Policy Wording.