Australian Association of Social Workers Limited v AMP General Insurance Limited, CGU Insurance Limited, Royal & Sun Alliance Insurance Australia Limited
[2003] ACTSC 51
AUSTRALIAN ASSOCIATION OF SOCIAL WORKERS LIMITED v AMP GENERAL INSURANCE LIMITED, CGU INSURANCE LIMITED, ROYAL & SUN ALLIANCE INSURANCE AUSTRALIA LIMITED [2003] ACTSC 51 (25 June 2003)
CONTRACT – policy of insurance – construction of terms – claim rejected by insurer - whether indemnity extends to costs orders made in proceedings for declaratory and injunctive relief when damage is not sought – whether costs incurred in defending such proceedings recoverable from insurer even though not approved in writing.
Marsden v The Lancashire and Yorkshire Railway Co (1881) 7 QBD 641
Roberts v Bury Improvement Commissioners (1870) LR 5 CP 310
Panamena Europea Navigacion (Compania Limitada) v Frederick Leyland & Company Limited [1947] AC 428
No SC 324 of 2002
Judge: Crispin J
Supreme Court of the ACT
Date: 25 June 2003
IN THE SUPREME COURT OF THE )
) No. SC 324 of 2002
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:AUSTRALIAN ASSOCIATION OF SOCIAL WORKERS LIMITED
Plaintiff
AND:AMP GENERAL INSURANCE LIMITED
First defendant
CGU INSURANCE LIMITED
Second defendant
ROYAL & SUN ALLIANCE INSURANCE AUSTRALIA LIMITED
Third defendant
ORDER
Judge: Crispin J
Date: 25 June 2003
Place: Canberra
THE COURT ORDERS THAT:
it be declared that the defendants refusal to indemnify the plaintiff was wrongful;
it be declared that the plaintiff is entitled to indemnity under the policy from the defendants by payment of:
(a)all costs and disbursements reasonably incurred by the plaintiff in defending Mr Robinson’s District Court of South Australia proceedings and his appeal to the Supreme Court as agreed or determined by Legalcosts Pty Ltd with such costs to be assessed on an indemnity basis;
(b)$7,000 representing the amount of costs paid by the plaintiff to Mr Robinson pursuant to the costs order made in favour of Mr Robinson by the Full Court of the Supreme Court of South Australia;
it be noted that the parties have agreed that, in the event of it being necessary for Legalcosts Pty Ltd to determine the amount of costs payable, the parties will bear the cost of such determination equally;
the defendants pay the plaintiff interest on the sum agreed or determined in accordance with paragraph 2(a) above and 2(b) above at 9 per cent per annum from 4 August 2000 and 10 October 2001 respectively to the date of payment;
the defendants pay the plaintiffs costs of these proceedings;
the parties have liberty to apply on short notice in the event of any issue arising as to the implications of the declarations.
This is a claim for payment of monies said to be due under an insurance policy or, alternatively, for damages for breach of the policy.
The policy was issued to the plaintiff by the defendants on 2 March 1999. Clause 1 which was introduced with the heading “INSURING CLAUSE” provided, inter alia, as follows:
(a)Professional Indemnity
Indemnify the Insured against Loss arising from any Claim by reason of any Wrongful Act in the course of professional duty rendered or which should have been rendered first made against them jointly or severally and notified to the Insurer during the Period of Insurance.
In addition the Insurers agree to pay defence costs incurred with the written consent of the lead Insurer.
…
(c) Association Reimbursement
Pay on behalf of the Association Loss arising from any Claim by reason of any Wrongful Act committed by an Office Bearer whilst acting in the capacity as an Office Bearer of the Association either first made against the Association and notified to the Insurer during the Period of Insurance or first made against the Office Bearers of the Association jointly or severally and notified to the Insurer during the Period of Insurance.
(d)Association Liability
Pay on behalf of the Association all Loss for which the Association becomes legally liable by reason of any Wrongful Act committed by an Office Bearer of the Association, for which indemnity is not provided under Insuring Clause (a), (b) or (c) above.
The term “lead Insurer” referred to in sub cl 1(a) was not defined, but Mr Seton SC, who appeared for the plaintiff, submitted that it referred to the first defendant which bore the bulk of the risk under the policy. Mr Strickland, who appeared for the defendant, did not demur from this suggestion and I accept that that was probably what was intended.
The circumstances that gave rise to the present claim can be briefly stated. On 22 April 1999 Mr Robinson, who was a member of the plaintiff Association, commenced proceedings against it in the District Court of South Australia seeking a declaration to the effect that in the course of investigating a complaint against him it had breached its own by-laws and, an injunction restraining it from further investigating or proceeding to determine the complaint. The plaintiff duly gave the defendants notice of the proceedings but they refused indemnity on the grounds that there had been no claim against any “Office Bearer” of the plaintiff and that, since only declaratory and injunctive relief were claimed in the District Court proceedings, no “Loss” existed which could be indemnified under the policy.
The plaintiff proceeded to defend the proceedings brought by Mr Robinson but the District Court ultimately found that it had acted in breach of its by-laws and granted a declaration to the effect that its conduct of the investigation after a certain date had been ultra vires. It also found against Mr Robinson on a number of issues and ordered that he pay half of the plaintiff’s costs. Mr Robinson subsequently appealed from this decision to a Full Bench of the South Australian Supreme Court which set aside the costs order and, in lieu thereof, ordered the plaintiff to pay half of Mr Robinson’s costs.
In defending the proceedings in the District Court and the subsequent appeal, the plaintiff incurred legal costs, charges and expenses amounting to $71,198.54 and paid Mr Robinson a further sum of $7,000 in satisfaction of the order for costs made by the Full Court. The plaintiff claims indemnity under the policy in respect of these amounts or, in the alternative, an award of damages equal to the loss sustained by the defendants’ failure to provide such indemnity.
Mr Seton began with the claim relating to the sum paid to Mr Robinson in satisfaction of the costs order made by the Full Court, submitting that this was plainly a “Loss arising from any Claim by reason of any Wrongful Act” in sub cl 1(a) of the policy.
He pointed out that the term “Loss” is defined by sub cl 2(j) to mean
(i)legal liability to pay damages or judgments or settlements, and
(ii)in addition to (i), all charges expenses and law costs incurred by the Insurer or by the Insured with the written consent of the Insurer and all charges expenses and law costs recoverable from the Insured by claimants.
Mr Seton submitted that the order for costs fell within the description contained in par (i). He cited a large number of statutory provisions and authorities in which the term “judgment” has been used to include orders for costs and pointed out that it has long been accepted that an order for costs may constitute a judgment in itself. See, for example Marsden v The Lancashire and Yorkshire Railway Co (1881) 7 QBD 641 at 643. He also argued that, even if not covered by par (i), it clearly fell within the description contained in par (ii).
In answer to these contentions, Mr Strickland argued that the real issue between the parties was not whether an order for costs could, as a matter of law, constitute a judgment, but rather whether such an order fell within the description provided by the definition of “Loss” in sub cl 2(j) of the policy. Read in context, the clause referred to a legal liability to pay money, whether by way of damages or otherwise, as a consequence of the wrongful act in question and not merely to any costs orders made in the course of proceedings unrelated to any such monetary claims. If the word “judgments” in par (i) had been intended to encompass orders for costs then the provision in par (ii) expressly dealing with legal expenses recoverable from the insured would have been otiose. Furthermore, the scope of the express provision was itself limited by the introductory words “in addition to”, which suggested that it was intended to apply only in cases also involving loss of the kind described in par (i). Hence, neither paragraph covered legal expenses or orders for costs made in proceedings that did not involve claims for damages or other orders requiring the payment of money by the insured.
Mr Strickland quite properly acknowledged that there was a potential Achilles heel in this analysis, in that if the right to indemnity for legal expenses was only available as ancillary cover when the insured had been ordered to pay money to the claimant then it would not be available if the insured was left out of pocket after successfully defending the claim. It was difficult to imagine that the parties had intended to create a situation in which the insured would only be granted indemnity if the claimant established that it had been at fault and that a judgment effectively finding that the insured had been guilty of no wrong would effectively deprive it of any right to indemnity for the legal costs incurred in saving the insurers from having to pay damages. Mr Strickland sought to circumvent this difficulty by arguing that, whilst damages need not actually be awarded or other orders for the payment of money made, the claim must at least seek relief of that nature.
The language employed in the policy does not support Mr Strickland’s contention. Subclause 2(j) merely specifies the losses that may be the subject of any right to indemnity provided by the policy. It does not address the circumstances in which such a right may arise. Furthermore, neither that sub clause nor any other provision in the policy refers to the nature of the relief sought by claimants and there are no apparent grounds for the implication of any term based upon such a concept.
In my opinion the effect of the policy is relatively clear. If there is a claim based upon a “Wrongful Act” and the claim is made and the insurers notified within the period of the insurance, then the insured is entitled to be indemnified for any losses of the kind specified in sub cl 2(j).
In the present case it was not disputed that the claim was made and that the defendants were notified of it during the period of insurance. The term “Wrongful Act” is defined by sub cl 2(o) to include “in respect of Insuring Clause (a) any act, error, misstatement, misleading statement or omission by the Insured”. It was not disputed that the claim made against the plaintiff was based upon conduct that fell within this very broad description. Hence, the plaintiff was entitled to be indemnified for the loss occasioned by compliance with the costs order if that loss could be said to be one falling within the terms of the definition of “Loss” provided by sub cl 2(j).
In my opinion it was. It is true that the use of the verb “to pay” in par (i) clearly indicates that the term “judgments” was intended to apply only to orders giving rise to some financial obligation on the part of the insured. However, the concept of “Loss” as explained in that paragraph clearly extends beyond damages and one must proceed to ask what other types of judgments imposing financial liability could have been envisaged as likely to be given in claims based on allegations of wrongful acts? There could, of course, be orders for restitution but there is no obvious reason to exclude orders for costs. The policy was put forward by three insurers and purported to provide indemnity for legal liability. Hence, there is no reason to suppose that the term “judgments” was intended to have a more narrow meaning than that likely to be attributed to it in the context of legal proceedings. There is nothing in the words of par (i) to provide any obvious basis for distinguishing between the payment of money for costs and the payment of money for any other cause.
I do not accept that par (i) should be read down because of the provision in par (ii) expressly dealing with legal expenses recoverable from the insured or that the scope of the express provision is itself limited by the introductory words. In my opinion these paragraphs simply list the types of loss covered by the policy. The apparent overlap most probably reflects an attempt to ensure that, no matter how the terms of par (i) were interpreted, the indemnity would extend to legal costs incurred in defending claims based upon the alleged wrongful acts of the insured and any orders for costs that might be made against the insured in the course of relevant proceedings.
The only remaining question is whether the plaintiff is entitled to cover the cost of defending the proceedings in the District Court and the Supreme Court of South Australia notwithstanding the fact that it had not procured written approval from the defendant to incur those costs.
In my opinion, the defendants’ initial rejection of the claim for indemnity clearly involved an implicit refusal to approve any costs in defending the proceedings or, at least, made it clear that no such approval would be given. As long ago as 1870, Blackburn J in Roberts v Bury Improvement Commissioners (1870) LR 5 CP 310 at 326 said the principle was well established that “no person can take advantage of the non-fulfilment of a condition the performance of which has been hindered by himself”. In the same case, Kelly CB said that the rule of law “exonerates one of two contracting parties from the performance of a contract when the performance of it is prevented and rendered impossible by the wrongful act of the other contracting party”. These statements were quoted with evident approval by the House of Lords in Panamena Europea Navigacion (Compania Limitada) v Frederick Leyland & Company Limited [1947] AC 428 per Lord Thankerton at 436.
In the present case Mr Strickland argued that, even if this principle applied to the costs incurred in defending the proceedings in the District Court, it could not be extended to those incurred in defending the appeal from that decision because the plaintiff had not made a further approach to the defendant seeking approval to incur those costs. I am unable to accept this submission. The defendants unequivocally rejected liability under the policy. They made no suggestion that they might be willing to reconsider that decision and neither the judgment of the District Court nor the nature of the issues raised on appeal provided any ground for suspecting that they may have been willing to do so. Furthermore, the defendant did not adduce any evidence to suggest that, if the matter had been raised, approval would have been given or at least seriously considered.
For these reasons I am satisfied that the plaintiff is entitled to the indemnity sought.
The parties agreed on the form of relief that would be appropriate should the plaintiff succeed in establishing liability and I propose making orders in the terms suggested.
Counsel also accepted that there was no reason to depart from the usual principle that “costs follow the event”.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Crispin.
Associate:
Date: 25 June 2003
Counsel for the plaintiff: Mr R W Seton SC
Solicitor for the plaintiff: Sneddon Hall & Gallop
Counsel for the defendants: Mr P Strickland
Solicitor for the defendants: Phillips Fox
Date of hearing: 11 June 2003
Date of judgment: 25 June 2003
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