FEDERAL COURT OF AUSTRALIA
Darshn v Avant Insurance Limited [2021] FCA 706
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Details
- AGLC
- Darshn v Avant Insurance Limited [2021] FCA 706
- Case
- [2021] FCA 706
- Decision Date
CaseChat Overview and Summary
The case of Darshn v Avant Insurance Limited was heard in the Federal Court of Australia. The dispute arose between Dr Darshn, a registered medical practitioner, and Avant Insurance Limited, his professional indemnity insurer. Dr Darshn sought indemnity from Avant for legal costs incurred in relation to a class action lawsuit in which he had been named as a defendant after his insurance coverage had ended. Avant denied Dr Darshn's claim, arguing that the policy did not cover claims made after the policy period. Dr Darshn contended that the policy should cover his claim due to certain provisions within it and the duty of utmost good faith owed by Avant.
The primary legal issues before the court were whether Dr Darshn's class action lawsuit constituted a "claim" under the policy terms and whether Dr Darshn had provided the requisite written notification of facts that might give rise to a claim as required by section 40(3) of the Insurance Contracts Act 1984 (Cth). Additionally, the court had to determine if Avant breached its duty of utmost good faith in handling Dr Darshn's claim.
The court found that Dr Darshn's class action lawsuit did indeed constitute a "claim" under the policy terms as it sought compensation for civil liability. The court also concluded that Dr Darshn had given sufficient written notification of the facts that might give rise to a claim. However, the court did not find that Avant had breached its duty of utmost good faith. The court held that the insurer's obligation to cover legal defence costs must be met as and when they are incurred rather than only at the conclusion of a legal proceeding. The court ordered the parties to confer and submit proposed orders within 14 days, with an extended deadline if they could not agree.
The court's reasoning and determination provided clarity on the interpretation of policy terms and the insurer's duty in handling claims, emphasizing the importance of timely coverage of legal defence costs. The final orders required the parties to submit agreed orders within a specified timeframe, with provisions for costs and confidentiality.
The primary legal issues before the court were whether Dr Darshn's class action lawsuit constituted a "claim" under the policy terms and whether Dr Darshn had provided the requisite written notification of facts that might give rise to a claim as required by section 40(3) of the Insurance Contracts Act 1984 (Cth). Additionally, the court had to determine if Avant breached its duty of utmost good faith in handling Dr Darshn's claim.
The court found that Dr Darshn's class action lawsuit did indeed constitute a "claim" under the policy terms as it sought compensation for civil liability. The court also concluded that Dr Darshn had given sufficient written notification of the facts that might give rise to a claim. However, the court did not find that Avant had breached its duty of utmost good faith. The court held that the insurer's obligation to cover legal defence costs must be met as and when they are incurred rather than only at the conclusion of a legal proceeding. The court ordered the parties to confer and submit proposed orders within 14 days, with an extended deadline if they could not agree.
The court's reasoning and determination provided clarity on the interpretation of policy terms and the insurer's duty in handling claims, emphasizing the importance of timely coverage of legal defence costs. The final orders required the parties to submit agreed orders within a specified timeframe, with provisions for costs and confidentiality.
Orders
Orders of the court
1. Within 14 days, the applicant and the first respondent file any agreed minute of proposed orders to give effect to these reasons and in relation to costs.
2. If the applicant and the first respondent cannot agree, then within 21 days, each of the applicant and the first respondent file and serve a minute of proposed orders and an outline of submissions (of no more than five pages) in support of those orders.
3. The second respondent have liberty to apply, within 28 days, if it wishes to apply for an order for costs against the first respondent.
4. Paragraph 7 of the orders made on 11 May 2021 be vacated.
5. Subject to further order, for a period of 10 days, the Court’s reasons for judgment are to remain confidential to the applicant, the first respondent and the legal representatives of the second respondent, and not to be published to the public.
6. Within seven days, the applicant and the first respondent are to inform the chambers of Justice Moshinsky whether there is any concern as to confidentiality as to any part of the reasons for judgment.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
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Evidence
Evidence Before The Court
The hearing of this proceeding commenced on 19 April 2021. However, the bulk of the time on that day and the next was occupied with resolving an issue of legal professional privilege that had arisen shortly before the hearing. Having resolved that issue, it was necessary to adjourn the hearing for several weeks to enable certain documents to be produced by Avant to Dr Darshn. The hearing resumed on 11 May 2021 and concluded the next day. Effectively, the hearing of the proceeding occupied two days, namely 11 and 12 May 2021.The evidence Dr Darshn relied on three affidavits that he affirmed, dated 23 December 2020, 25 March 2021 and 28 April 2021. Dr Darshn was cross-examined. Dr Darshn also tendered a large number of documents. Avant relied on:(a)an affidavit of Tracy Pickett, a senior solicitor employed by Avant who works in Avant’s Medico-Legal Advice Service, dated 12 March 2021;(b)an affidavit of Kate Gillman, the head of Avant’s Medico-Legal Advice Service, dated 15 March 2021; and(c)an affidavit of Kate Martin, a solicitor, dated 20 April 2021. Ms Pickett and Ms Gillman were cross-examined. Ms Pickett gave evidence by video conference from Queensland. Ms Martin was not cross-examined. Her affidavit was initially read in the context of the privilege issue referred to above. It was subsequently agreed between the parties that it should form part of the evidence in the substantive proceeding. Avant also tendered one document. I make the following observations about the evidence given by the witnesses. Dr Darshn had a poor recollection of the relevant events. Some of his evidence was internally inconsistent. I place little weight on his written and oral evidence. Ms Pickett was an excellent witness. She answered questions clearly and directly. She made clear what she did and did not recall. I generally accept her evidence. Ms Gillman also gave evidence in a clear and direct manner. She made sensible concessions, which enhanced her credibility. I generally accept her evidence.Factual findingsDr Darshn Dr Darshn is a registered medical practitioner practising as a cosmetic surgeon in Australia. During the period from 27 September 2011 to 30 June 2019, he held professional indemnity insurance with Avant.The Avant policies For present purposes, the focus is on the policies Dr Darshn held with Avant for the 2016-17, 2017-18 and 2018-19 years (each policy commencing on 1 July of one year and concluding on 30 June of the following year). Of these, copies of the policies for the latter two years are in evidence. The case proceeded on the basis that there is no relevant difference between the terms of the two policies and, further, that the policy for the 2016-17 year was in substantially the same terms. It will be sufficient, therefore, to refer to the terms of the 2018-19 policy. The 2018-19 policy is headed “Avant Practitioner Indemnity Insurance Policy”. It is labelled “Version 6.0” and dated 1 July 2018. An overview of the types of cover appears on a page headed “A quick summary of your cover”. This indicates that there are three categories of cover:(a)civil liability (Part A of the policy);(b)disciplinary and other matters (Part B); and(c)communicable disease cover and away from work costs (Part C).For present purposes, the focus is on Part A of the policy.
Decision
Reasons for decision
Accordingly, the Sixth Contention is not made out.Conclusion For the reasons set out above, I have concluded that the Second Contention is substantially made out. In the course of closing oral submissions, senior counsel for Avant submitted that some of the relief sought by Dr Darshn was premature in that no civil liability in the TCI Proceeding had yet been established. Further, it was submitted that, in the event that Dr Darshn was entitled to cover in respect of the TCI Proceeding, the insurer may take over the conduct of the claim. It was also submitted that, on the proper construction of the Avant policies, there was no obligation to cover legal defence costs at this stage; it was submitted that an obligation to cover legal defence costs would only arise, if at all, at the conclusion of the TCI Proceeding. Therefore, it was submitted, the Court should not order specific performance in respect of legal defence costs. It was accepted that, if I concluded that Avant had an obligation to indemnify Dr Darshn in respect of the TCI Proceeding (either because there was a “claim” within the meaning of the policy, or because s 40(3) was satisfied), the Court could make a declaration (T269). Insofar as Avant submits that, even if Dr Darshn is entitled to cover in respect of Ms Sanchez’s claim in the TCI Proceeding, an obligation to cover legal defence costs would only arise, if at all, at the conclusion of the proceeding, I do not accept that submission. The insuring clause (clause 2), set out at [39] above, relevantly states that “we [the insurer] will cover you [the insured] for amounts which you become legally liable to pay as compensation for civil liability, in addition to legal defence costs, in respect of claims …” (emphasis added). As set out in [43] above, “legal defence costs” is defined as meaning “[t]he necessary and reasonable costs of investigating, defending or settling a claim made against you and covered by this policy”. Reading these provisions in context, and having regard to the commercial purpose of the insurance policy, I consider it clear that the insurer’s obligation is to provide cover for legal defence costs as and when they are incurred, rather than only at the conclusion of a legal proceeding. Otherwise, the insured could be out of pocket for a very large sum of money for a long period of time. This would be contrary to the context and commercial purpose of this policy of professional indemnity insurance, which is to alleviate that potential financial burden. I will give the parties a short period of time to consider these reasons and confer in relation to the appropriate form of orders to give effect to these reasons, and costs. I will therefore make orders that:(a)within 14 days, Dr Darshn and Avant file any agreed minute of proposed orders to give effect to these reasons and in relation to costs; and(b)if Dr Darshn and Avant cannot agree, then within 21 days, each of Dr Darshn and Avant file and serve a minute of proposed orders and an outline of submissions (of no more than five pages) in support of those orders.
Ratio Decidendi
Legal Principle Established
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