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Date: Wed, 30 Jul 2008 06:44 From: Neil Foster Subject: HCA on Professional Negligence Insurance
Dear Colleagues In CGU Insurance Limited v Porthouse [2008] HCA 30 (30 July 2008) a unanimous 5-member bench of the High Court of Australia upheld an appeal by a professional negligence insurer against a finding that it was bound to pay out under a contract of insurance taken out by a barrister. (As insurance law as such is not my forte, I apologise in advance if I use some of the "insurance jargon" wrongly!) P, the barrister, had been engaged, the day before a new legislative regime commenced restricting common law damages, to advise about a damages claim. The evidence suggested that if Mr Bahmad's (the injured person) claim had been made under the old regime it would have been successful; but under the new regime, as it turned out finally, he failed. The issue in the case which the insurance company was fighting over was whether or not the barrister, on 20 May 2004 when he renewed the relevant insurance coverage, should have disclosed the fact that the client may have made a negligence claim. He did not, and CGU claimed that they were not liable to pay because of his failure to disclose. The tricky bit of the facts was that, as at May 2004, a trial judge had delivered a judgement in favour of P's client; an appeal had been lodged, but P had received advice from senior counsel that there were "reasonable prospects of success" for the client in the appeal. In those circumstances, should he have told the insurance company about a possible claim by B in the event that the appeal succeeded? (Which is what eventually happened.) Of course it all came down to the wording of the policy. Under "Section" (the term used in the Policy) 11 there were two types of "Known Circumstances" which had to be disclosed - (a) those which the Insured knew might result in a claim, and (b) those which "a reasonable person in the Insured's professional position would have thought" ... "might result in someone making an allegation against" the Insured that "might be covered". Despite the attempts of the trial judge and the NSW CA majority to confine these words somehow (and find in favour of P), the HC said that they were pretty clear. It was not only a "successful" or "strong" claim that had to be disclosed; mere allegations had to be revealed, and all that a reasonable person had to know was that there was a "real (not a fanciful or remote) possibility (not a certainty) of an allegation being made" - para [64]. The court seemed to imply (not that they actually said this) that the standard was that of "reasonable foreseeability" under the "breach" question in Wyong Shire Council v Shirt. They did comment that the "professional position" criterion meant that evidence of practice across a profession may be needed in some cases (specifically noting that "while the legal criterion here is not the standard of care for professional conduct, similar considerations might arise" - [72].) But they said that here the inferences to be drawn from the admitted facts were "so obvious" that they could decide the question for themselves, and here there was "no real doubt" that a barrister "would have thought that there was a real possibility that an allegation might be made in respect of a liability which might be covered by the policy" - [73]. As someone who does not practice in the courts, this seems to me to be a pretty tough standard! P had in his favour an existing decision of a trial judge and independent advice that the decision should be upheld. Presumably to comply with this clause in future barristers should perhaps simply provide a list of every client they have acted for in the past year, noting that in theory almost any of them could make an "allegation" (even those who had received decisions in their favour in the Court of Appeal; perhaps counsel who acted for CGU, however, would be allowed to leave off mention of them since they actually had a High Court decision in their favour!).
Regards Neil Foster
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