FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd

IN THE COURT OF APPEAL 99.243
SUPREME COURT OF QUEENSLAND

Appeal No. 9902 of 1998

Brisbane
[FAI v Aust Hospital Care P/L]
BETWEEN:

FAI GENERAL INSURANCE COMPANY LIMITED
(ACN 000 327 855)

(Second Third Party) Appellant

AND:

AUSTRALIAN HOSPITAL CARE PTY LTD
(ACN 005 288 095)

(First Defendant) Respondent

DEVENDRA GURASAMY TAMPOE

(Plaintiff)

PAUL ROBINSON

(Second Defendant)

CHRISTOPHER MARK SWINBANK

(First Third Party)
Pincus JA
Derrington J
Chesterman J

Judgment delivered 9 July 1999
Separate reasons for judgment of each member of the Court; Pincus JA dissenting.
APPEAL DISMISSED WITH COSTS. ORDER THAT THE SECOND THIRD PARTY
PAY FIRST DEFENDANT’S COSTS OF THE THIRD PARTY PROCEEDINGS
AGAINST IT, LIMITED TO THE DISTRICT COURT SCHEDULE APPROPRIATE TO
AN AMOUNT RECOVERED IN EXCESS OF FIFTY THOUSAND DOLLARS

CATCHWORDS: INSURANCE - PROFESSIONAL INDEMNITY INSURANCE -
claims made and notified policy - cover of liability for occurrence of
which insured aware and notified to insurer - meaning of
“occurrence” - extent of insured’s awareness necessary.

INSURANCE - PROFESSIONAL INDEMNITY INSURANCE - claims made and notified policy - cover to include occurrence known to insured which might give rise to a claim, and notified to insurer - insured’s belief that occurrence would not give rise to claim - deliberate omission to notify insurer - whether “omission” to which s.54 of Insurance Contracts Act 1984 applies - whether insurer prevented from refusing to pay by reason of such omission - whether FAI Insurance Co Ltd v Perry (1993) 30 NSWLR 89 survives Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652.
Alex Kay Pty Ltd v General Motors Acceptance Corporation [1963]
VR 458
Antico v Heath Fielding Australia Pty Limited (1997) 188 CLR 652
Distillers Co Biochemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd
(1974) 130 CLR 1
East End Real Estate Pty Ltd v C E Heath Casualty & General
Insurance Co Ltd (1991) 25 NSWLR 400
FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89; 7
ANZ Ins Cas 61.164
Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia
Ltd (1993) 176 CLR 332
Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706;
(1999) 10 ANZ Ins Cas 61.423
HIH Casualty & General Insurance Australia Ltd v DellaVedova
(1998) FCA 456
Junemill Ltd (in liq) v FAI General Insurance Co Ltd (1997) 9 ANZ
Ins Cas 61.377
Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd
(1998) 153 ALR 529
Insurance Contract Act 1984 (Cth), s. 54
Counsel: Mr R G Bain QC with him Ms K Buxton for the appellant
Mr S S W Couper QC for the respondent
Solicitors: Clayton Utz for the appellant
McLaughlins for the respondent
Hearing Date: 19 May 1999
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND

Appeal No. 9902 of 1998

Brisbane

Before Pincus JA
Derrington J
Chesterman J
[FAI v Aust Hospital Care P/L]
BETWEEN:

FAI GENERAL INSURANCE COMPANY LIMITED
(ACN 000 327 855)

(Second Third Party) Appellant

AND:

AUSTRALIAN HOSPITAL CARE PTY LTD
(ACN 005 288 095)

(First Defendant) Respondent

DEVENDRA GURASAMY TAMPOE

(Plaintiff)

PAUL ROBINSON

(Second Defendant)

CHRISTOPHER MARK SWINBANK

(First Third Party)

REASONS FOR JUDGMENT - PINCUS JA

Judgment delivered 9 July 1999

As is explained in the reasons of Derrington J which I have had the advantage of reading,
there are two issues. As to the first, which is whether the respondent became aware of a relevant
occurrence within the meaning of condition 3 of the policy, I agree with the conclusion and with the
reasons of Derrington J.
The second point depends on the construction of s 54 of the Insurance Contracts Act
1984 (Cth). The policy covered claims made and notified during a defined period and also (under
condition 3) claims -

(1) being such that the insured, during the period of cover, became aware of
an occurrence which might subsequently give rise to a claim against it;
(2) where the insured gave written notice to the insurer, during the defined
period, of the relevant occurrence;
(3) made against the insured after the giving of the notice mentioned in (2).

I note that fulfilment of requirement (1) does not help the insurer unless it also becomes aware of
the occurrence; (1) without (2) leaves the insurer potentially liable to indemnify in respect of a claim,
whenever made, in relation to an occurrence known to the insured within the defined period, even
if the insurer is not told about the occurrence until years later.

The question is whether the respondent's failure to give the notice required by element (2)
of the cover's description brings the case within the scope of s 54 of the Insurance Contracts Act
1984 (Cth). Under subs 1 of that provision, subject to the succeeding provisions of the section, the
insurer may be precluded from relying on a provision of the contract of insurance entitling it to refuse
to pay a claim; but, for s 54(1) to operate, one must be able to postulate that the refusal to pay is
refusal "by reason of some act of the insured or of some other person". Under s 54(6) the reference
to "act" includes an omission. This apparently simple language has given rise to differences of
judicial opinion. The section plainly intends to, in effect, alter the agreed scope of cover to a certain
extent, but there has been reluctance to give the section the maximum operation of which its
language might be thought capable. The reason for that reluctance is, I think, that any expressions in the policy setting out the limits of the cover are on a literal reading likely to be vulnerable to a s
54 attack - even if the limits in question appear to be fundamental.
Any words defining the scope of the cover, wherever they appear in the policy, may be
caught by s 54; that is made clear by the High Court in Antico v. Heath Fielding Australia Pty
Limited (1997) 188 CLR 652 at 668, 669. If the insurer wishes, for example, to limit the scope
of cover to jewellery placed in a locked safe, the reach of s 54 is not necessarily escaped by
including the requirement that the safe be locked in the definition of the risk, rather than in a
condition creating an exception to the defined risk: Antico at 669. But - to continue with the
example - insurance defined to cover the contents of a safe may be thought to be taken beyond
anything which s 54 could have intended if jewellery which an employee has, contrary to
instructions, omitted to put in the safe is stolen and that omission is held to bring s 54 into play.
In the present case, the Court has the advantage that there has been a number of decisions
relating to policies of a similar character. In two of these cases, Permanent Trustee Australia Ltd
v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 and Greentree v FAI General
Insurance Co Ltd (1998) 44 NSWLR 706, in each of which the policy covered claims made
against the insured during a certain period, the absence of such a claim was held not to be an
omission within s 54. In East End Real Estate Pty Ltd v C E Heath Casualty & General
Insurance Ltd (1991) 25 NSWLR 400, and in HIH Casualty & General Insurance Australia
Ltd v. DellaVedova (Full Federal Court, ACT AG 80 of 1997, 15 April 1999) the opposite result
was held to ensue, where the insured's problem was the absence of a notification to the insurer
required by the policy. In the present case the respondent may be thought to derive assistance from
the latter two authorities; but in FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89, a view which is not easy to reconcile with that favoured in the HIH case had been adopted. There
emerges, from this body of authority, no result which clearly dictates the decision of the present
case. The best course, then, is to attempt to analyse, as briefly as may be, the bases of these
decisions.
A number of ways of refining the operation of s 54 recur in the cases.
Distinction between omission and non-event
In East End, where it was held that under a "claims made and notified policy" failure to
notify is within s 54, Gleeson CJ suggested (at 405) that there might be a "qualitative difference"
between the insured's failure to notify and the fact that no claim was made on the insured; his
Honour said, "[t]he latter may not be an omission; it is simply a non-event". The distinction is
discussed in Greentree at 710 and 715, and in Permanent Trustee at 226 and 227. In Antico,
at first instance, the difference between an omission and a non-event was described as one which
might "be thought elusive": see (1995) 8 ANZ Insurance Cases ¶61-268 at 76,011. I confess to
a little difficulty in understanding it. It is not clear why there is any more reason to treat the insured's
not having notified the insurer than a third party not having claimed against the insured as an omission
within s 54, in view of the expression "act of the insured or of some other person" in s 54(1).
If the implication is that an act contemplated by the policy, which is unperformed, cannot
be an omission unless one can postulate that a person had an opportunity to perform it, then I would
say that an act not done may be an omission within s 54 even if there was no opportunity to do the
act; cf per Clarke JA in Perry at 106. For example, if a condition of the policy is that certain
particulars must be supplied with a claim on the insurer, the fact that the insurer has no means of
knowing the required particulars does not necessarily take the case out of s 54. Nor is it, with respect, easy to accept that an act not done by the insured cannot be an omission if doing it would
have given the insured a right to cover additional to the "primary cover"; cf Perry at 93. I can see
that an act which the insured deliberately chooses not to do would not ordinarily be an omission
within s 54.
In any event, it does not appear to me that the distinction is of any assistance in the present
case.
Matters within the definition of the risk
In Greentree, Spigelman CJ remarked:
"The distinction between an 'occurrence based' policy and a 'claims made' policy
is a distinction of substance for the purposes of definition of risk". (709)
In the same case Mason P said:
"It would be quite fallacious to conclude that the way in which the risk is defined in a particular policy is irrelevant to the possible application of s 54 . . . notification of the claim was a matter addressed by the policy as something which the insured had to attend to as a condition of enjoyment of its benefits. The same cannot be said of the happening of an event that is quite outside the subject matter of the policy". (717)
"[Antico] certainly cannot be viewed as authority for the proposition that the terms under which insurance cover is defined in a claims made policy are irrelevant to the causation inquiry which s 54(1) mandates. . . . [After Antico] a distinction remains between terms of the policy which should rightly be seen as conditions to be satisfied by the insured, and terms which might expand the scope of the policy itself . . .". (722)
And in Perry, Gleeson CJ said:
"The policy provides a good example of the difficulty . . . involved in the distinction, in a context such as the present, between provisions defining the scope of cover and conditions affecting the entitlement of an insured to claim". (92)
I also note that in Greentree, Mason P referred to the "core" of the relevant policy (at 718). I am in respectful agreement with his Honour that the core or essence of the policy matters. To revert
to the example discussed above, even if the failure of an employee to put jewellery in a safe whose
contents are insured might be argued to be an "omission" within the meaning of s 54, if the limit by
reference to location is of the essence of the cover, s 54 will not apply to the employee's omission.
Mere condition
This expression comes from the judgment in Permanent Trustee at 226:
"Next, it could be suggested that section 54 would not apply because the making
of a claim against the insured was something required for the insurance cover to
attach at all, and was not a mere condition restricting the insured's right to recover.
However, that kind of distinction was directly rejected in East End . . . Perry . .
. and Antico . . .".
I am in respectful agreement with these views, if they mean no more than that the place within the
policy document where the relevant term occurs is not decisive. But the location of the term may
sometimes be of assistance if one adopts the "essence" test. It is not a test which is easy to apply,
or likely to lead to predictability of results in cases of this sort; but it is, in my respectful opinion the
most useful general test which emerges from the cases I have mentioned. Its adoption would not
however make it wrong to reason by analogy from the actual results of, as opposed to the reasoning
in, cases decided under s 54.
Whereas under earlier provisions of the policy indemnity is confined to claims made and notified

during the period of the policy, under condition 3 of the policy claims not made during that period may

be covered. If s 54 applies in such a case as the present, then the insurer's legal position is that it may

be made liable to provide indemnity in respect of claims made against the insured at any time after the

period of insurance, so long as during that period the insured becomes aware of the occurrence which

gives rise to the claim. A question which may usefully be asked is whether, as a practical commercial

matter, an insurer would have been likely to agree to accept such liability - unlimited as to time, in the

sense that claims of which it has no inkling until years after the period of insurance may be caught. If

the late notice to the insurer is shown to have prejudiced its interests its liability may be reduced under

s 54(1); nevertheless, prima facie, if s 54 applies the insurer is liable in the way I have indicated.

This appears to me to be so extreme an outcome that those who enacted s 54(1) could hardly

have intended it. The essence of this part of the cover is that the insurer has to indemnify against claims

made during or after the period of insurance, if during that period (a) the insured becomes aware and

(b) the insurer is made aware of the relevant occurrence. The insured's becoming aware of the

occurrence is not itself of any use to the insurer. To delete from the contract (subject to the possibility

of escape under s 54(1) as mentioned above) part (b) of the definition of the cover appears to me to

impose on the insurer a risk much more uncertain in scope than, and quite different in character from,

that which it agreed to accept.

For these reasons I would allow the appeal.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 9902 of 1998

Brisbane

Before

Pincus JA
Derrington J
Chesterman J

[FAI v Aust Hospital Care P/L]

BETWEEN:

FAI GENERAL INSURANCE COMPANY LIMITED
(ACN 000 327 855)

(Second Third Party) Appellant

AND:

AUSTRALIAN HOSPITAL CARE PTY LTD
(ACN 005 288 095)

(First Defendant) Respondent

DEVENDRA GURASAMY TAMPOE

(Plaintiff)

PAUL ROBINSON

(Second Defendant)

CHRISTOPHER MARK SWINBANK

(First Third Party)

REASONS FOR JUDGMENT - DERRINGTON J

Judgment delivered 9 July 1999

This appeal relates to a liability insurance policy held by the respondent, a hospital

proprietor, with the appellant insurer. Judgment was given for the insured for indemnification in respect of a claim made against it which, after the insured’s disclaimer of its liability, the insured

settled. The insurer appeals against that decision.

The policy provided indemnity in respect of claims made and notified to the insurer during

the period of the policy, and in respect of claims made after the termination of that period where,

during that period, the insured had become aware of any occurrence which may have subsequently

given rise to a claim against it for professional negligence and, again during the period of the policy,

had notified the insurer of it.

It is the latter part of the indemnity upon which this case turns. Through an irrelevant drafting

technique, it was contained in condition 3 of the policy, and its precise terms read as follows:

“If during the subsistence hereof the Insured shall become aware of any occurrence
which may subsequently give rise to a claim against him or them for breach of
professional duty by reason of any negligence, whether by way of act, error or
omission and shall during the subsistence hereof give written notice to the Company
of such occurrence, then any such claim which may subsequently be made against
the Insured arising out of such negligence shall for the purposes of this Policy be
deemed to have been made during the subsistence hereof.”

During the period of the policy, the insured became aware that a person who later became a

claimant against it had contracted septicaemia whilst a patient in its hospital and that he was having

his solicitor investigate its cause. Assuming that this was not a matter of idle but expensive curiosity,

it must have been plain to the insured that the focus of that investigation was the possibility of its

malpractice in the conduct of its hospital causing or not preventing the septicaemia.

However before the expiry of the policy, the insured investigated the matter to its own

satisfaction, and also knew that after consultation with the hospital’s expert staff, the patient’s

solicitor appeared to be satisfied that there was no indication of malpractice. Its view that there

would be no claim arising out of the matter was fortified by the absence of any further relevant activity during the remainder of the policy period. Consequently, despite its usual practice of

reporting such matters to the insurer, it refrained from doing so on this occasion. The patient’s claim

against it was then made against it after the policy had expired, and its claim on its insurer for

indemnity was refused.

The insured succeeded at the trial because it was held:

(i) that during the policy period it was aware of the occurrence which may have subsequently
given rise to the prescribed claim; and

(ii) that, although it had not given the required notice to the insurer, s.54 of the Insurance
Contracts Act 1984 prevented the insurer from refusing to pay the claim since the effect
of the contract was that it was entitled to refuse to pay by reason of that omission.

The major issues in the insurer’s appeal are:

1. Whether during the period of the policy the insured was aware of an occurrence which may
have subsequently given rise to the claim made against it; and

2. If so, whether the insured’s failure to notify it of the occurrence was an “omission” within the
meaning of s.54 of the Act, and whether that section otherwise applied.

Was the insured aware of the relevant occurrence?

The appellant’s first argument essentially is that the insured’s knowledge was limited to the

patient’s condition of septicaemia. That was a condition and not an “occurrence” within the meaning

of condition 3, which must be an event or a mishap rather than a state of affairs. The insured did

not, it says, know of the circumstances under which the condition was contracted, so it did not

know of the occurrence; nor of any particular conduct on its part that would or might render it liable to the claimant, which was necessary in order to come within the terms of the condition. However,

it does not challenge the insured’s awareness of the possibility of a claim.

It is correct to identify a distinction between a medical condition and the mishap that caused

it. However, the insured’s awareness went beyond the fact of the patient’s medical condition. It

knew that the patient had contracted the condition at its hospital, which was a mishap and one that

may have had some connection with itself. This was the “occurrence” cf Distillers Co

Biochemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 per Stephen J at 19.

It is not necessary to an awareness of an occurrence, that a person also know its mechanics; it is

enough to know that an event has occurred. A police officer who arrives at a scene where there are

damaged vehicles and debris are strewn around might well be aware of an occurrence without

knowing how it happened, and he could validly infer that the drivers might have been involved in its

cause.

It is also correct that in order to come within the terms of condition 3, the insured had to be

aware of more than the mere circumstances forming the occurrence; it had to be aware of the

possibility of a claim against itself for malpractice associated with those circumstances.[1]

[1] Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529, 567-568; HIH Casualty & General Insurance Australia Ltd v DellaVedova (Full Federal Court, ACT AG 80 of 1997, 15 April 1999). There may be reasons why an insured may be aware of facts that may give rise to a claim against some party but which do not make it aware of the possible assertion of rights against itself: DellaVedova.

However, again it did not have to be aware of how or why this might be so, or whether the possible

claim was justified or might be expected to be successful. The indemnity extended to its costs of

defending even an unsuccessful claim, so the general context supports the construction excluding any

need for belief as to the claim’s possibility of success. This is also consistent with the ordinary

meaning of the condition’s reference simply to any occurrence that may give rise to a claim, without
any further unwarranted implication that the claim should be justified or successful. The degree of its
possibility required by the term is not even qualified by any reference to reasonableness.

It is very likely that this construction was intended since the alternative would have greatly

reduced the practicality and value of the cover. In some cases an insured may not know of the full

circumstances on which the claim is based until the statement of claim is served. This would be

contrary to the liberal construction that should be applied to such terms.[2] Alternatively, if it knows

[2] Alex Kay Pty Ltd v General Motors Acceptance Corporation [1963] VR 458, 463; Junemill Ltd (in liq) v FAI General Insurance Co Ltd (1997) 9 ANZ Ins Cas 61.377.

of an occurrence and knows very well that there is no valid basis for a claim against it but that one

may still be made, it is of value to it that the cover will apply to any such occasion; and the provision

as drafted in this policy would provide that cover. That would be both intentional and commercially

reasonable.

In the present case, the representatives of the insured were not aware of any fault on its part

and did not expect a claim to be made, but from the time of notice of the solicitor’s investigation they

were aware of some possibility of a claim for malpractice, irrespective of whether or not it might be

justified. They knew that somehow the patient had contracted septicaemia in their hospital and that

his solicitor was investigating its cause, which of course indicated at least the possibility that a claim

for malpractice might arise out of it. This was sufficient to alert it as to the possibility of a claim

within the meaning of the term. It might be contrasted with the facts in DellaVedova where the

enquiry addressed to the insured was specifically directed to a possible claim against the insured’s

client without any suggestion of fault on the part of the insured.

For all the above reasons, this ground of appeal has no merit.

The scope of s.54 of the Insurance Contracts Act 1984

That part of the section relevant to the present discussion reads as follows:

“54(1) Subject to this section, where the effect of a contract of insurance would, but
for this section, be that the insurer may refuse to pay a claim, either in whole or in
part, by reason of some act of the insured or of some other person, being an act that
occurred after the contract was entered into but not being an act in respect of which
subs(2) applies, the insurer may not refuse to pay the claim by reason only of that
act but the insurer’s liability in respect of the claim is reduced by the amount that
fairly represents the extent to which the insurer’s interests were prejudiced as a
result of that act.
...
(6) A reference in this section to an act includes a reference to:
(a) an omission;

... .”

The issue here is whether the insured’s failure to give the insurer notice of the possible claim

was an omission of the kind described in the section, that is, an omission by reason of which the

effect of the contract was that the insurer was entitled to refuse to pay. In East End Real Estate,[3] it

[3] East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Co Ltd (1991) 25 NSWLR 400.

was held that the section applied to an insured’s failure to give notice of a claim actually made during

the policy period; but of course, that related to a part of the indemnity different from that under

discussion here.

The last direct authority on a provision of this specific kind was FAI General Insurance Co

Ltd v Perry.4 In the leading judgment of the majority, Gleeson CJ held that the chosen inaction of

the insured to exercise its right to expand the scope of the cover was not an omission to which the
section applied; and as that inaction was something outside the agreed cover, the basis of the
insurer’s refusal to pay by reason of it was not an effect of the contract as required by the section.

4 (1993) 30 NSWLR 89; 7 ANZ Ins Cas 61.164.

Clark JA too held that the insurer’s refusal to pay did not find its entitlement in the effect of

the contract by reason of the insured’s failure. This will be discussed further in relation to Greentree

v FAI General Insurance Co Ltd.[5] It is an approach different from that adopted in Antico v

[5] (1998) 44 NSWLR 706; (1999) 10 ANZ Ins Cas 61.423. Leave to appeal to the High Court has been refused because the presence of issues as to other legislation made that case an unsuitable vehicle for the resolution of this issue.

Heath Fielding Australia Pty Limited.[6]

[6] (1997) 188 CLR 652.

Kirby P, dissenting, found the insurer’s argument fundamentally inconsistent with East End

Real Estate and with the policy behind the Act, a view that has been endorsed in Antico. He also

found some comfort in the position, as here, that the reference to notification by the insured was

contained in a condition of the policy rather than in the operative part.

This subject has received considerable attention in the legal literature, particularly since

Antico threw into doubt the validity of the result in Perry. However in Greentree, it was suggested

that Antico did not disturb its fundamental validity, but Greentree dealt with an omission that was

very different from that in Perry and the present case, and its reasoning relevant to its own issues

does not support Perry beyond that. In DellaVedova[7] in respect of a provision identical with that

[7] (supra).

in the present case, the Full Federal Court found that Antico applied to it and implied clearly that

Perry was pro tanto overruled, but this was obiter. These authorities will be more fully discussed

later.

A few preliminary observations will serve to remove some irrelevant complexities.

·	In the present case there is no claim of prejudice to the insurer by the insured’s failure to
give the required notice.
·	That the relevant cover is contained in what is referred to as a condition is irrelevant. It is
the substance of a provision and not the form in which it is drafted that determines its status
for this purpose.[8]
·	There may be some limitations upon the extent of the remedy provided by the section
inherent in the concept of an omission. It is an essential connotation of the term that the act
omitted is capable of being performed. For example, an insured cannot omit to notify the
insurer of a claim made if the claim has not been made. There may be similar inherent
limitations which go further, but none of this is directly relevant to the present case except to
provide an understanding that the expressions used in the formulation of the remedy are not
without limitations.

[8] East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Co Ltd (supra) per Gleeson CJ at 403- 404; Antico (supra) at 668.

Turning to relevant features, first, it is desirable to analyse the cover that is provided by the

disputed provision in its full context. The structure of the total cover promised by the insurer

consisted of two interlocking parts, formulated on somewhat different bases but forming an

integrated whole, and both important to the insured. Certainly the primary focus of cover in this
policy was directed to claims made and notified during the policy period, but the cover in respect of
claims made after that period was equally a part of the total promise and of no less standing.

In respect of claims made during the period of the cover, the insured was entitled to invoke

the indemnity by notification of the claim to the insurer, but equally it could have deliberately declined

to do so by omitting to notify the insurer of it; or it may have omitted to do so for some other reason.

If there had been no notification, for that reason the insurer was entitled under the contract to

disclaim liability to indemnify against that claim. In that case, s.54 would have applied to such an

omission.[9]

[9] East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Co Ltd (supra).

In respect of an occurrence of which the insured had become aware during the policy period

and which might have given rise to a claim outside that period, the insured may similarly have

invoked the insurer by notification, but again it could have declined or omitted to do so; and again in

the absence of notification and for that reason the insurer would have been entitled under the

contract similarly to disclaim liability. The similarity of the structure of the two parts is obvious, and

both aspects of the promised indemnity were similarly factored into the insurer’s computation of the

premium.

The second part of the cover was introduced because of a serious hiatus in the earlier part.

Under that system, if the insured became aware of a possible claim that might not be made during

the period of its existing policy, it would have been in a most unhappy position, particularly, but not

only, if changing insurers. Because the claim would not be made within the period of the existing

policy it would not come within that cover. In addition, because the insured would be obliged to
disclose the known possible claim in its proposal for the new policy, that policy would usually
expressly exclude it from the cover, and/or there would be a general exclusion that would catch it.

This second form of complementary cover was introduced to provide against such a

contingency, which is far from uncommon, and it is important in its own right for that purpose. It is

validly called an extension only because it extended the formerly inadequate cover to provide an

efficient totality. Any tendency to regard it as a feature in some way outside the basic contract and

coming into existence only upon the fulfilment of its conditions is not justified and is contrary to its

purpose. It was a significant term of the contract providing an important area of cover which might

not otherwise have been available to the insured.

That it is subject to a discretionary invocation by the insured’s notification to the insurer does

not affect its status for the same reason that a similar discretionary invocation by notification of

claims actually made does not affect the quality of the first part of the cover. That the circumstances

antecedent to its exercise are different from those applied to the claims made part is due only to the

exigencies of the risk being covered, and the difference in triggers does not reduce its status either.

Both adopted the condition of notification to the insurer as a useful instrument to provide the insurer

with early notice of the claim and to provide the insured with a choice whether to invoke the

indemnity in the particular case by notification; and this identity of the mechanism of invocation

should dispel any notion that it involved any special extension of the cover when it was used under

the second part of the indemnity. This is consistent with other treatment of this complementary

feature in condition 3. After due notification the future claim is, for the purpose of the policy,

deemed to have been made during the policy period.

It is important too to understand the nature of the insured’s entitlement for which it paid its

premium. The substance of the insurer’s promise was that it would indemnify it against late claims.

Notification was but the insured’s action that would invoke its acquired right if it wished. It did not

affect its character that the claim may not have come within the policy period. There is nothing novel

about that: it is what happens under “occurrence” policies where, for example, on later receipt of the

claim the insured is entitled to refrain from invoking the right to indemnity acquired during the policy

simply by not making a claim on the insurer as required by the policy. The relevant common factor

that is necessary in all these classes of cover is that the right to indemnity must arise in the policy

period. The receipt of a claim during that time is necessary only in one of them, and then only

because that is selected as the trigger for the existence of the insured’s right in that class.

It is also necessary to distinguish between the insured’s contractual right to invoke the

indemnity, and the right to indemnity which follows upon the exercise of the contractual right.[10]

[10] There is also a right to the benefit of the indemnification when the claim has been established by judgment,

Consequently, its giving of notice is not an expansion of the cover for the right to cover is there. It is

no more than its discretionary invocation of what it is entitled to have, and any other view would

misplace the emphasis. Certainly notification has the contractual effect that the cover applies to the

claim where otherwise it would not do so, but it does not alter the contract nor is there any

expansion of the cover for which the premium was paid.

It is useful to summarise this analysis in terms appropriate to s.54. Each feature of the cover

is equally a part of the insurer’s contractual promise to provide indemnity against certain claims, but

the effect of the contract is that it may refuse to do so by reason of any omission of the insured to

notify it of the respective actual or prospective claim. That part of the cover relating to prospective
claims fits as naturally and neatly into the concept and terms of the section as does the other part,
and since Antico there is no good reason in logic or fairness why it should not do so.

The present case is a good example of this principle. If the insured had followed its usual

practice and had given notice of its awareness of a possible claim, the insurer should happily have

accepted that its liability for indemnity was part of the cover it had agreed to provide and in respect

of which it had calculated its premium. The insured’s omission to notify, though mildly imprudent in

retrospect, was far from unreasonable, for no details had emerged to suggest fault on its part, and

the patient’s solicitor appeared to be satisfied. Having reasonably chosen not to notify, it was then

faced with a disclaimer by the appellant because of that omission, and with a disclaimer by its later

insurer for non-disclosure. As the insurer is not prejudiced by the insured’s omission, and since it

would have provided indemnity but for that omission, it would seem to be a most appropriate case

for the remedy provided by the section in sympathy with its purpose of ensuring fairness between the

parties.

This reasoning conforms with that of the High Court in Antico in two major respects. First,

it was there made plain that the section applies not only to the performance of obligations but also to

the exercise of rights of an insured, as is the case here. Secondly, the thrust of the statements in that

case provides direction, emphasising the larger view by reference to the following:

arbitration or settlement, but that is not material to this discussion.

·	The dominance of substance over form in the characterisation of the terms of the policy;[11]
·	The need to avoid legal characterisation of the omission relied on by the insured;
·	The structure of the section in its avoidance of any definition of the legal character of a
reason which entitles an insurer to refuse to pay a claim, in favour of a broad view that
focuses on the conduct of the insured;[12]
·	The breadth of the terms of the legislation;[13]
·	The need to avoid diversions such as reference to inaction where the insured’s failure is
simply an omission within the ordinary meaning of the section;[14]
·	The simple and direct reasoning to be followed - once it is found that there was an omission
by the insured, “the question then is whether ‘by reason of’ such omission, the effect of the
policy, but for s.54(1), would be that the insurer may refuse to pay the claim”;[15]
·	The undesirability of any reading down of the words “by reason of” by means of any
unexpressed limitation or reference to the result of the omission rather than to the omission
itself;[16] and
·	The remedial nature of the section requiring a construction “so as to give the most complete
remedy which is consistent with the actual language employed and to which its words are
fairly open”.[17]

[11] By the adoption of the views of Gleeson CJ in East End Real Estate to this effect.

[12] Per Brennan CJ at 660-661; Dawson, Toohey, Gaudron and Gummow JJ at 669.

[13] At 669, 672-673.

[14] At 672.

[15] At 672.

[16] At 673.

[17] At 675.

It should be noted that the majority felt that the construction of the section which it applied in

that case was not a generous one but merely one which its words bore on their face.[18] The Court

[18] At 675.

also confirmed its similar approach in another case, [19] where for the purpose of this section it
[19] Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332.

found it appropriate to treat a failure to satisfy a condition precedent to an insurer’s liability as non-

compliance by omission of an obligation of the insured to which the section applied.

As it has been remarked, there is some debate as to the extent of the High Court’s

disapproval of Perry. It said:

“Submissions by the respondent which were contrary to the above construction of rejected.”[20]
[20] At 670.
s.54(1) and which apparently were based upon the reasoning of the New South

It is sterile to try to construe the extensiveness of this except to note two broad

considerations. The first is that the matter there before the Court differed from Perry in some

respects so that it was inappropriate for the Court, without full argument, to overrule that decision

except to the extent that was necessary. So no inference can be drawn from its omission to go

further. The result must be read by the application of the reasoning applied.

The second is to note the Court’s own construction of s.54(1) immediately preceding its

disapproval of the contrary reasoning in Perry. After referring to the various comments of Gleeson

CJ in East End Real Estate that referred to the desirability of a wide construction of the section, the

Court itself continued:

“Section 54 does not postulate a liability of the insurer to pay a claim which has other person’. It does not specify the act or omission of the insured as being a failure to discharge an obligation owed by the insured to the insurer. The legislation is expressed in broad terms and, on its face, there is no reason why the omission of the insured may not be a failure to exercise a right, choice or liberty which the insured enjoys under the contract of insurance. In any event, the act or omission may be that of a third party, ‘some other person’, who is unlikely to be a party to the contract of insurance in question. Submissions by the respondent which were contrary to the above construction of s 54(1) and which apparently were based upon the reasoning of the New South Wales Court of Appeal in FAI General Insurance Co v Perry (26) should be rejected.”[21]
[21] At 669-670.
been made. Rather, it takes as its starting point the existence of a claim and a
contract the effect of which is that the insurer may refuse to pay the claim. The
section directs attention to the reason founding the refusal, namely a particular act or
omission on the part ‘of the insured or of some other person’. The term ‘act’, when
used in s 54, includes a reference to an omission (s 54(6)(a)).

The applicability of this passage to the present circumstances may better be seen by a small

adjustment to this citation. For the first two sentences, substitute:

“Section 54 does not postulate a liability of the insurer to pay a possible claim of
which the insured has become aware. Rather, it takes as its starting point the
existence of a claim, of the possibility of which the insurer had become aware, and a
contract the effect of which is that the insurer may refuse to pay the claim.”

The rest follows naturally. That is not decisive, but in the absence of good reason to the contrary,

there is no reason why the substitute version should not be valid also. It is not surprising that in

DellaVedova the Full Federal Court found without much discussion that this passage did apply to a

cover of this description.

One other thing is plain. The basis on which Perry was decided, that is, that the insured’s

failure to give notice of a possible claim was not an “omission” within the section because it was

merely inaction by choice to invoke a contractual right, was certainly disapproved. It may be, as

Mason P said in Greentree,22 that the High Court did not go so far as to rule that every failure by an

insured to exercise a right under an insurance policy is curable by s.54, but its disapproval of Perry

certainly applied to the kind of omission that occurred in that case, and this. Consequently there is
no reason why the respondent’s omission to exercise this right is any different from that in East End
Real Estate or Antico.

Greentree’s preservation of some part of Perry must be applied with some caution. There

the claimant had made no claim within the period of the policy and there was no cover in respect of

possible claims of which the insured was aware. This meant that for the section to apply, the insured

had to show that the third party’s failure to claim was an omission by reason of which the effect of

the contract was that the insurer was entitled to refuse to pay the claim. In rejecting this the court

found that in substance the claim was outside the range of the cover that the insurer had promised to

provide in any circumstances, so that it was not one to which the section was intended to apply.

Despite the width of the words of the section, there is a natural reluctance to extend the agreed

cover far beyond the parties’ contemplation, since this would be contrary to the fairness to both

sides to which the short description of the Act refers.

Spigelman CJ was not particularly concerned whether the third party’s failure to claim

amounted to an omission within the meaning of the section. He decided that such conduct was

“wholly external to the policy itself” in the sense that it was “an event wholly external to the policy in

the same way as the conduct of an arsonist is an external event for a fire policy”. (The latter

reference relates to the omission of an arsonist who subsequently burns down the insured house to

have burnt it down during the period of the policy.) He focused on the words of the section, “the

22 This is discussed below.

effect of the contract of insurance”, and said the third party’s omission to make the claim had nothing

to do with the substance of the contract. Consequently, the refusal of the insurer to indemnify did

not flow from the effect of the contract by reason of that omission.

This reasoning does not have application to the present case. Here the substance of the

contract included cover where the insured was aware of the possibility of a claim, and it had the right

to invoke that cover.

The analogy of the arsonist’s conduct is similarly inapt here. In that case, the loss would

have been completely outside the contemplated cover since it would not have occurred within the

policy period, and so according to the reasoning in Greentree, the insurer’s refusal would not have

been founded on the effect of the contract. However, the loss in the present case is well within the

contemplated cover. Indeed, it is the kind of loss for which the cover is specifically provided, for

good reason, and which is central to this part of the contract. As with a claims made and notified

policy, the insured’s omission to exercise its right does not put the cover “outside the contract”.

Mason P applied much the same basic reasoning. Where an act or omission is not relevant

to the policy, he said, the gravamen of the insurer’s refusal to pay on the claim would not be the fact

that the insured or other party did or omitted to do something; it would only be by reason that

something relevant to the policy did not happen. Consequently the insurer’s refusal to pay the claim

would not be “the effect” of the contract of insurance. He adopted the description, “a non-event”,

as used by Gleeson CJ in East End Real Estate.[23] He stressed the causal relationship required by

[23] At 405.

the section between the omission and the effect of the contract entitling the insurer to refuse to pay.

Significant to the present discussion is his demonstration by way of example of how an

insured’s failure to give notice of a claim made has that causal relationship. He said:

“The classical example of an ‘omission’ for the purposes of s54(6) would be the as something which the insured had to attend to as a condition of enjoyment of its benefits. The same cannot be said of the happening of an event that is quite outside the subject matter of the policy.”[24]
[24] At 74,747.
failure to notify the insurer of a claim, whether the duty to do so is expressed in the
definition of the risk itself, by way of exclusion, or as a condition of indemnity.

That the same reasoning should apply to an omission to give notice of the possible claim would seem

to be clear, and of course that is the essential point of distinction between that case and this.

Handley JA applied much the same reasoning as the President in finding that the third
party’s failure to make a claim was “a non-event” to which the contract did not have application
so that s.54 could not apply to it.
These brief summaries are enough to show that the ratio in that case necessarily took it
into reasons that are inapplicable here. It may be said that the reasoning in Greentree supports
this by negative implication.
Since, at least in respect of this form of cover, Perry has been effectively overruled by
Antico, and Greentree is distinguishable on grounds that support the application of s.54 to it,
there is no reason why the section should not operate here. In the absence of prejudice, there is
no reason under it why its full remedial force should not prevent the insurer from refusing to pay
because of the insured’s omission, and this ground of appeal also fails.
Conclusion
The appeal should be dismissed with costs.
Further, by an obvious oversight the learned trial judge omitted awarding the respondent
its costs in relation to its successful third party proceedings against the appellant, and pursuant to
the respondent’s notice of contention, this should be rectified by an order that the second third
party pay the first defendant’s costs of the third party proceedings against it, limited to the
District Court schedule appropriate to an amount recovered in excess of fifty thousand dollars
($50,000.00).
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND

Appeal No. 9902 of 1998

Brisbane

Before Pincus JA
Derrington J
Chesterman J
[FAI v. Aust Hospital Care P/L]
BETWEEN:

FAI GENERAL INSURANCE COMPANY LIMITED
(ACN 000 327 855)

(Second Third Party) Appellant

AND:

AUSTRALIAN HOSPITAL CARE PTY LTD
(ACN 005 288 095)

(First Defendant) Respondent

DEVENDRA GURASAMY TAMPOE

(Plaintiff)

PAUL ROBINSON

(Second Defendant)

CHRISTOPHER MARK SWINBANK

(First Third Party)

REASONS FOR JUDGMENT - CHESTERMAN J

Judgment delivered 9 July 1999

Dr Devendra Tampoe went into the Pindara Private Hospital on 12 March, 1991 to have a total knee replacement the next day. On 17 March, 1991 he contracted potentially fatal septicaemia and septic shock and was transferred to the hospital’s intensive care ward. He
remained critically ill until 20 March. He gradually recovered and was discharged from hospital on
28 March, 1991.
The hospital was owned and operated by the respondent. It had effected a policy of liability
insurance with the appellant for the year 20 June, 1991 to 20 June, 1992. By the terms of the
policy the appellant agreed:
“To indemnify the [respondent] against any claim or claims for compensation first made against the [respondent] during the period of cover specified in the Schedule and reported to the [appellant] during the period of cover ...

(a)

for breach of professional duty in the conduct of the practice ... by reason of any negligence, whether by way of act, error or omission whenever or wherever the same was or may have been committed or alleged to have been committed on the part of the [respondent] ... during the subsistence of this Policy ...”

Condition 3 of the policy provided:
“If during the subsistence hereof the [respondent] shall become aware of any occurrence which may subsequently give rise to a claim against him or them for breach of professional duty by reason of any negligence, whether by way of act, error or omission and shall during the subsistence hereof give written notice to the [appellant] of such occurrence, then any such claim which may subsequently be made against the [respondent] arising out of such negligence shall for the purposes of this Policy be deemed to have been made during the subsistence hereof.”

The respondent did not renew its policy with the appellant. Instead it effected a policy of
liability insurance for the year 20 June, 1992 to 20 June, 1993 with a syndicate of Lloyds’
Underwriters.
On 10 July, 1991 Corrs Chambers Westgarth who had been retained by Dr Tampoe wrote
to the respondent:
“... Dr Tampoe was a patient at your Hospital from 12 March 1991 to 28 March 1991 when he underwent a total knee replacement operation. Subsequent to his operation Dr Tampoe contracted septicaemia. Our client is giving consideration to bringing an action against the Hospital in relation to the treatment he received.
We request that you allow us access to our client’s hospital notes in relation to his treatment during the above period. We make this request at this stage so that we can inspect the file prior to advising our client in relation to instituting proceedings”.
The request was refused. Instead on 9 August, 1991 the respondent’s executive director and
director of medical services for the hospital, Dr Kay, spoke by telephone to Dr Tampoe’s solicitor
and explained that it was concerned that the provision of the records might jeopardise its insurance
cover.
In relation to the letter and telephone conversation, the trial judge found that the respondent:
“... was at least apprehensive that Dr Tampoe’s contraction of septicaemia might result in ... an action against it. It must also be concluded, having regard to the conversations ... that [the respondent] was concerned that Dr Tampoe would assert that the hospital had breached its duty to him, that is, that there would be a claim against it in negligence” (R248)
On 21 August, 1991 Dr Kay met with Dr Tampoe’s solicitors in an endeavour to persuade
them, by reference to the respondent’s records, that it had taken reasonable care in treating
Dr Tampoe who had no basis in fact for alleging negligence. The solicitors’ reaction was non-
committal. Mr Bartley, a partner at Corrs Chambers Westgarth, said the matter would be
considered and the respondent advised in due course about Dr Tampoe’s intentions. The trial judge
found that Mr Bartley said “nothing which would indicate that Dr Tampoe would not be taking any
action ...”
Mr Bartley was pessimistic about Dr Tampoe’s prospects of success in an action against
the respondent and advised his client accordingly. Undaunted, Dr Tampoe retained other solicitors,
who, on 5 October, 1992 wrote to the respondent:
“We have now received instructions to act on behalf of Devendra ... Tampoe in relation to a claim for damages for negligence arising during our client’s period of hospitalisation in March 1991.
We appreciate that in the past you have declined to make [hospital records] available even though the client has authorised copies of such documentation to be released.
... Should you persist with your present attitude of refusing to make such documentation available then we give notice that we will be shortly arranging for legal proceedings to be issued without further notice. After pleadings have closed we will be delivering a Notice Requiring Discovery ...”
Proceedings were commenced in the District Court in December 1992. It was in 1993 that,
for the first time, the respondent notified the appellant of Dr Tampoe’s claim for damages for
negligence and of the circumstances out of which the claim arose. On 27 October, 1993 the
appellant refused indemnity under its policy on the ground that the respondent had not given notice
of a claim during the subsistence of the policy nor had it, during the same period, given notice of an
occurrence which might have subsequently given rise to a claim.
The respondent comprised Dr Tampoe’s action and successfully claimed from the appellant
the amount it paid to Dr Tampoe. It was accepted that no claim had been made on the respondent
during the subsistence of the policy.
The appellant submitted that during the operation of the policy there was no occurrence of
which the respondent became aware that might subsequently have given rise to a claim so that
condition 3 could not operate.
The appellant’s submission is that the “occurrence” referred to in condition 3 is the very act
of negligence or breach of duty which does, or may, give rise to a claim for compensation, and that
an insured cannot be aware of “an occurrence” unless it knows what it has done (or failed to do)
that constitutes the breach of duty.

12	In the present case the respondent’s officers had investigated Dr Tampoe’s illness and treatment and could find no evidence that there had been want of care on its part. Septicaemia is

a known complication from surgery and does not necessarily indicate want of medical or nursing
care. Indeed, the lack of evidence of negligence had led Mr Bartley to advise Dr Tampoe against
proceeding.

The appellant relies upon remarks made by Stephen J in Distillers Company Bio-
chemicals (Australia) Pty Ltd v. Ajax Insurance Co Ltd (1974) 130 CLR 1 at 19:
“I would not regard the word ‘occurrence’ in this context as apt to refer to the death of a victim or to his illness or injury but rather to the mishap causing such death, illness or injury and this is borne out by the contemplation of the proviso that there may be a number of distinct claimants though only one occurrence”.
It argues that the respondent knew only that Dr Tampoe had been ill but not that its default was the
cause of his illness and it is the latter which is the “occurrence”.
It is clear from the passage itself that the context with which Stephen J was concerned is
very different to the present and that his Honour’s remarks were directed only to the context there
in question. The appellant advances no reason and has found no authority to support its submission
which should be rejected. The condition requires only that something has happened (occurred)
which may give rise to a claim against the insured. There is nothing in the general words of the
condition to make it appear that the nature of the occurrence or the reason why it appears that a
claim may arise, are at all significant. It is enough if something happens which fits the description
“which may subsequently give rise to a claim”.
The trial judge said:
“[The respondent] knew Dr Tampoe had contracted potentially fatal septicaemia in the hospital, and consequently it was aware that he had suffered some damage ... it cannot be said that [the respondent] was aware of all material facts which founded the claim in negligence. Certainly [the respondent] became aware during the subsistence of [the appellant’s] policy that Dr Tampoe’s contraction of septicaemia ... might subsequently give rise to a claim for breach of professional duty ... when [the respondent] received Corrs’ letter in July 1991. The ... letter raised, by implication, the issue as to whether or not the hospital had been at fault in carrying out its professional duty. On receipt of the ... letter, [the respondent] became aware of the ‘occurrence’ (Dr Tampoe’s contraction of septicaemia while being treated in the hospital) which might give rise to a claim against [the respondent] in negligence”. (R267-8)
In my view her Honour’s conclusion was entirely right. The respondent knew of the illness,
that it had been contracted while Dr Tampoe was in its hospital recovering from major surgery and
that solicitors has been retained to advise whether a claim should be commenced. To say that, in
these circumstances, there was no occurrence which might give rise to a claim would be to ignore
the clear intention of the condition and deprive it of utility.
The real question of the appeal is whether section 54 of the Insurance Contracts Act
(Cth) 1984 overcomes the fact that the respondent did not, as the condition apparently requires,
give notice of the occurrence to the appellant before the policy expired on 20 June, 1992. The
appeal raises acutely the question whether FAI General Insurance Co v. Perry (1993) 30
NSWLR 89 remains a correct statement of principle or whether it is inconsistent with the reasoning
in Antico v. Heath Fielding Australia Pty Ltd (1997) 188 CLR 652. To arrive at a conclusion
it is necessary to review, again, the cases which have considered section 54 as it affects the present
problem.
Section 54 provides:

“(1)

Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which sub-section (2) applies, the insurer may not refuse to pay the claim by reason only of that act but his liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.

...

(6) A reference in this section to an act includes a reference to -
(a) an omission; ...”

To appreciate the rival contentions concerning Perry it is necessary first to consider the case
which preceded it, East End Real Estate Pty Ltd v. CE Heath Casualty & General Insurance
Ltd (1991) 25 NSWLR 400 because the reasoning underlying the decision was approved in
Antico. The plaintiff (“East End”) had a policy of professional indemnity insurance issued by the
defendant (“Heath”). During the period of cover a claim for breach of professional duty was made
against East End. Judgment was obtained after the expiration of the policy. Only then did East End
notify Heath of the claim and seek indemnity. The policy relevantly provided that Heath would
indemnify East End against any claim for breach of professional duty first made against East End
within the specified period and which East End notified Heath. Indemnity was refused on the
ground that it had not been given notice of the claim during the period of insurance. East End relied
upon section 54 to supply the deficiency. Gleeson CJ said (at 403):
“The ... first submission is that s 54 has nothing to say concerning acts (or omissions) which form part of the definition of the risk insured. According to [Heath] the reference in the section to the hypothesis that the effect of a contract would be that the insurer may refuse to pay a claim covers such matters as warranties, conditions and perhaps exclusions, but not matters directly affecting the ambit of the insurance cover. In the present case, it is observed, [East End] is only covered in respect of claims both made and notified during the period of cover.
...
I do not read the language of s 54 so narrowly. ... It is not ... limited to providing relief in the event of a failure by the insured to observe or perform a term or condition of the contract of insurance. When an insurer desires to frame a policy of insurance in such a way that a particular act or circumstance will bring about the result that the insurer is not liable to the insured there is often a range of drafting techniques available to produce that result, and the selection of one rather than the other may be a matter of form and not of substance. In the case of a policy of professional indemnity insurance there may be a condition obliging the insured promptly to notify all claims received, or, as in the present case, the insurance may be expressed to cover only claims that are not only received but also notified during a particular period.
... by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature has evinced an intention to avoid the result that the operation of s 54 depends upon matters of form. As a matter of ordinary language, it is perfectly appropriate to say in the present case that the effect of the contract of insurance is such that, but for s 54, the respondent may refuse to pay [East End’s] claim ... The case falls within the general words of the section and I see no justification for reading them down”.
Clarke JA agreed with the reasons of the Chief Justice.
Mahoney JA said (at 407):
“Section 54(1) looks, in its terms, not to the provisions of the contract of insurance but to ‘the effect’ of it. This ... means the effect to which the contract of insurance would, apart from the section, have in the relevant factual context. In the present case, a claim has been made on the insurer and it has refused to pay that claim. It has, for present purposes, refused to pay it ‘by reason of’ the fact that, within the terms of the policy, the claim is for a loss which is not within the cover. But the reason why the loss is not within the cover is that the claim upon the insured was not ‘notified’ to the insurer within the period of insurance. In my opinion, upon the construction of the words ‘by reason of’, the effect of the policy in the factual context would, apart from s 54(1), have been that the insured (sic) might refuse to pay the claim by reason of the fact that the claim upon the insured had not been ‘notified’ to the insurer.
For the subsection to apply, the entitlement to refuse to pay the claim must be ‘by reason of some act of the insured or of some other person’. In the present case, the immediate reason why the insurer could refuse to pay the claim was not ... by reason of an ... ‘omission’ ... of ‘the insured or of some other person’ but by reason merely of the fact that, the making of the claim upon the insured not having been ‘notified’ to the insurer, the claim was not within the cover. But it was not within the cover by reason of an (omission) of the insured. Therefore the entitlement to refuse arose by reason of that omission.”
The second paragraph in the passage quoted was approved in Antico per Dawson, Toohey,
Gaudron and Gummow JJ, 188 CLR at 673.
The result was that section 54 prevented Heath from refusing to pay the claim by reason
of East End’s not having notified it of the claim made against it, that failure being an omission for the
purposes of the section.
In Perry, the insured had a professional indemnity insurance policy issued by FAI General
Insurance Co Ltd (“FAI”). No claim was made against Mr Perry during any of the years for which
the policy subsisted. However, during that time, he became aware of circumstances that suggested
he might have been negligent and which might subsequently give rise to a claim. He did not notify
FAI of the circumstances. The policy contained a condition identical to condition 3 in the
appellant’s policy. A claim was made against Mr Perry which he compromised. He sought
indemnity from FAI for the amount the compromise obliged him to pay. FAI refused to pay.
Relying on East End, Mr Perry argued that FAI could not refuse to indemnify him by reason of his
omission to notify it of the occurrence. East End was distinguished. Mr Perry’s claim failed.
Gleeson CJ said (30 NSWLR 92-3):
“... The major question ... is whether it can be said, within the meaning of s 54, that the effect of the contract of insurance is that, but for s 54, the insurer could refuse to pay the insured’s claim by reason of some ... omission of the insured ...
Apart from s 54 [FAI] would be entitled to deny liability under the policy because ... the claim against [Perry] by his client and the notification to [FAI] of that claim took place later than the relevant period. [Perry’s] awareness of the occurrence arose during the relevant period but there was missing the second of the two elements required to bring condition 3 into play; hence there was no room for the deeming effect of condition 3 to extend the scope of the insuring clauses. Does this mean that [FAI’s] entitlement (but for s 54) to refuse to pay the ... claim exists by reason of some act or omission of [Mr Perry] ...?
[Mr Perry] submits that [FAI’s] entitlement (but for s 54) to refuse to pay the ... claim exists by reason of [Mr Perry’s] omission to give written notice of the occurrence during the relevant period. This, it is argued, is an omission of a kind not materially different from that which occurred in East End.
...
When one is dealing with claims that are mere future possibilities, a decision not to elect to expand the scope of the cover to include such claims does not seem to me to constitute an omission of the kind with which s 54 is concerned. Condition 3 is intended to relieve an insured ... against a certain practical problem that can arise in liability insurance. It does that by giving the insured a choice. The insured may choose not to follow the course made available by condition 3. In that event I am unable to conclude that the absence of liability on the insurer is by reason of an omission on the part of the insured within the meaning of s 54.”
Clarke JA said (at 107):
“... upon the assumption [that condition 3 was not in the contract] ... the position ... would simply be that the insured could claim only if the claim was made and notified within the period of the policy. In those circumstances it could not be said that the fact that the insured had not notified the existence of facts within the period constituted an act [omission] by reason of which the insurer could exercise a right under the policy to deny a claim.
...
What ... s 54 is concerned with is the loss by an insured of a right to claim under a policy by reason of some act or omission - either of the insured or some other person. It assumes the existence of a right which by virtue of the contractual provisions is lost. But in the circumstances under discussion there is no right which has been lost. All that has occurred is that the insured has not taken action, the effect of which would be to enable a claim to be made for which (on the stated hypothesis) the policy does not provide.
...
The insured has a right, but no obligation, to give notice of facts which have come to his or her notice. Equally he or she has a right to decline to give notice and to await the receipt of a claim. The fact that an insured does not give notice, for whatever reason, means no more than that the insured has not taken the action the effect of which would be to deem the claim, whenever made, to have been made within the period covered by the policy.”
There are two strands to the reasoning. One of them is common to the reasons of both
Gleeson CJ and Clarke JA. The second appears only in the reasons of Clarke JA but follows from
the first which is that section 54 does not apply to omissions which are constituted by a decision, or choice, conferred by the policy to notify an occurrence and thereby extend the ambit of the
cover. This is explicit in the reasons of the Chief Justice. It is, I think, necessarily implicit in the
reasons of Clarke JA and appears in the passage last quoted from his Honour’s reasons. The
second strand is that because the terms of the condition had not been performed by reason of the
lack of notice there was no promise by the insurer to indemnify against the claim that subsequently
arose out of the occurrence. This, as I understand it, is what lies behind his Honour’s remarks that
section 54 does not apply because it is concerned with an insured’s loss of a right to claim under
a policy. There was, on his Honour’s reasoning, no loss of that right because the insurer was not
obliged to indemnify against occurrences which had not been notified. But to get to that point
Clarke JA relied upon the absence of notice mentioned in the condition and must, of necessity, have
concluded that such absence of notice could not constitute an “omission” for the purposes of
section 54.
Kirby P dissented. His Honour said (at 100-2):
“The insured’s argument ... was that during the period of the ... policy, he became aware, for the first time, of an occurrence which might give rise to a claim ... By reason of condition 3 ... this was, ... of the policy, deemed to have been a ‘claim’ made during the subsistence of the ... policy. But it was subject to the proviso of a relevant act occurring, viz the giving of written notice to the insurer during the subsistence of the policy. Such notice was not in fact given ... but none of this was fatal because s 54 ... forbids the insurer to refuse to pay a claim: ‘... by reason only of that act (ie omission).’
Here the insurer, by condition 3, expressly bound itself to a special notional definition of when a ‘claim’ was made for the purpose of attracting the policy. It required the insured during the subsistence of the policy to give written notice of becoming aware of the occurrence in question ... By its terms, s 54 ... may apply to a policy such as the present for precisely the reasons which East End demonstrated.
The omission of the insured to give the written notice required by the terms of the condition is subject to the relief expressly provided for by s 54 ... For that omission the insurer is now denied the entitlement which would otherwise have existed under the general law or under its policy, to refuse to pay the claim”.
Antico was not concerned with the present problem but with a term of a policy which made
indemnity conditional upon the insured seeking, and obtaining, consent for incurring costs of
defending a claim against the insured. The insured, Sir Tristan Antico, defended proceedings
without having first obtained the insurer’s consent and then sought indemnity under the policy in
respect of the costs incurred.
In the Court of Appeal, (1996) 38 NSWLR 681, it was held that section 54 did not apply
because the consent which was a necessary pre-condition to the insurer’s obligation to pay
required, not only the insured’s request for consent, but also the insurer’s grant of it. Section 54
might supply the want of the first but not the second. The insurer could refuse to pay by reason of
its refusal to give consent: see at 707-8 per Kirby P; 708G per Priestley JA.
Before passing to the judgments in the High Court it is worth noting what Kirby P said about
Perry. His Honour pointed out (at 705) that the reasoning of Gleeson CJ depended, essentially,
upon legal policy, namely that section 54 should not be understood to apply to a choice allowed an
insured by such provisions as condition 3. Kirby P was critical of Clarke JA’s reasoning because:
“If s 54 were only available when the insured had established a right to indemnity from the insurer, it would be unavailable to cure any condition precedent to liability, no matter how technical or insignificant. Insurers would be able to draft insurance policies so that each and every requirement was expressed as a condition precedent to liability.”
The High Court approached the construction of section 54 in a way which, in my respectful
opinion, makes the distinction between East End and Perry untenable. Antico decided that
section 54 did apply to the insured’s failure to seek consent. The policy itself provided in what
circumstances the insurer could refuse consent and so the matter was remitted to the Supreme Court for a determination whether, if the failure to ask for consent were overlooked, the insurer would
have been obliged to indemnify its insured.
Brennan CJ expressly approved the approach to the construction of section 54 taken by
Gleeson CJ in East End and continued (188 CLR 660-1):
“Sub-section (1) of s 54 focuses not on the legal character of a reason which entitles an insurer to refuse to pay a claim - falling outside a covered risk, coming within an exclusion or non-compliance with a condition - but on the actual conduct of the insured, that is, on some act which the insured does or omits to do. The legal classification of the act or omission is immaterial.
... Sub-section (6)(a) extends a reference to an act ... to a reference to an omission. In the context of s 54, an omission is that by reason of which an insurer is entitled to refuse to pay a claim. In that context, therefore, an omission is the non- performance of an act which, if done, would disentitle the insurer to refuse to pay a claim.
... The question ... is whether, if an act which the insured omitted to do had been
done, the insurer would have been entitled to refuse to pay the insured’s claim”.
The joint judgment of Dawson, Toohey, Gaudron and Gummow JJ, having referred to
Perry, remarked that the primary judgment applied the distinction between an “omission” and
“inaction”. Their Honours then referred with approval to what Gleeson CJ had said in East End
and continued (at 669-70):
“Section 54 does not postulate a liability of the insurer to pay a claim which has been made. Rather, it takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim. The section directs attention to the reason founding the refusal, namely a particular act or omission on the part ‘of the insured or of some other person’. The term ‘act’, when used in s 54, includes a reference to an omission ...
Section 54(1) uses the phrase ‘by reason of some act of the insured or of some other person’. It does not specify the act or omission of the insured as being a failure to discharge an obligation owed by the insured to the insurer. The legislation is expressed in broad terms and, on its face, there is no reason why the omission of the insured may not be a failure to exercise a right, choice or liberty which the insured enjoys under the contract of insurance. ... Submissions by the respondent which were contrary to the above construction of s 54(1) and which apparently were based upon the reasoning of the New South Wales Court of Appeal in FAI General Insurance Co v. Perry should be rejected”.
At 672-3 their Honours said:
“Nor is it appropriate to analyse condition 1, ... so as to deny to s 54(1) any operation in this case because there was inaction or an absence of action by the insurer. Within the meaning of s 54(1) there was an omission by the appellant, who failed to obtain the consent of the insurer before incurring the relevant legal expenses. Likewise, the appellant failed to provide information to the Insurer and otherwise to comply with conditions ... The question then is whether ‘by reason of’ such omissions, the effect of the policy, but for s 54(1), would be that the Insurer may refuse to pay the claim. The phrase ‘by reason of’ does not express a limitation to the sole or unique cause of the entitlement of the insurer to refuse payment. Rather, s 54(1) refers not to precise concepts of form but to the effect of the contract and asks whether that effect is that the insurer may refuse payment ‘by reason of’ the relevant act or omission.”
It will be recalled that Gleeson CJ based his decision in Perry upon the point that section 54
did not apply to a choice ‘not to elect to expand the scope of the cover’. As Kirby P pointed out
in Antico that reasoning depends upon considerations of policy, that there are some acts or
omissions to which section 54 does not apply. There is nothing in the judgments in the High Court
which supports such a view. Indeed they expressly discourage approaching section 54 with any
preconception that it does not apply to particular categories of contractual provisions or conduct.
The joint judgment seems to me expressly to disapprove the notion that the section cannot apply
to a “choice which the insured enjoys under the contract of insurance”. Moreover, the distinction
between inaction and omissions was said to be inappropriate.
Brennan CJ pointed out the section regards the legal character of the insurer’s reasons for
refusing indemnity as immaterial. Instead, it requires attention to the “actual conduct” of the insured
and postulates the only question to be that posed by the section itself: has there been an omission (the non-performance of an act) which, if done, would disentitle the insurer to refuse to pay the
claim?
The reasoning in Antico cuts through both strands of the reasoning which supported Perry.
The policy approach, that section 54 does not apply to some kinds of acts or omissions (choices
or the exercise of rights) was severed by the observation that the section “does not specify the act
or omission ... as being a failure to discharge an obligation ... The legislation is expressed in broad
terms ...”. The second strand, that the section only applies where there is a right to indemnity which
the insurer seeks to remove by reason of some act or omission is split by the judgment that the
section “does not postulate a liability of the insurer to pay a claim which has been made...”.
The reasoning of Mahoney JA in East End seems to apply exactly to the present
circumstance. The immediate reason why the appellant could refuse to pay was that the policy did
not cover the claim. But this was because the respondent had not, during the duration of the policy,
notified the appellant of the occurrence. The claim was not within the cover by reason of an
omission of the insured; therefore the appellant’s entitlement to refuse indemnity arose by reason
of that omission. If this be the correct approach I cannot see how section 54 does not apply unless
one makes assumptions about the sorts of omissions to which the section applies. Antico makes
this approach impermissible.

The appellant submits that Perry has not been impliedly overruled but remains a correct
exposition of the law. It relies for its submission upon the subsequent decision of the New South
Wales Court of Appeal, Greentree v. FAI General Insurance Co Ltd (1998) 44 NSWLR 706.
Greentree did not address the particular point in issue in this appeal but concerned an attempt by
the client of an engineer to obtain the benefit of the engineer’s policy of insurance. The client had obtained judgment against the engineer for professional negligence but the engineer was unable to
pay. There had been policies of professional indemnity insurance in the usual terms subsisting over
three years issued by FAI. However, no claim was made by Greentree against the engineer in any
of the years. Nor, if it matters, was the engineer aware, in any of the years, of an occurrence which
it might have notified to FAI. The point litigated was whether the clients’ not making a claim against
the insured engineer during the subsistence of the policies was an omission for the purposes of
section 54. The Court of Appeal held it was not. In doing so the court suggested that Perry
remained good law. Mason P, who delivered the main judgment said (at 722):
“But Antico does not establish that every failure by an insured to exercise a right under an insurance policy is curable by s 54. The justices emphasised the requirement in s 54(1) of establishing sufficient causal connection between the insurer’s refusal to pay a claim and some act or omission of the appellant or a third party. ... It follows that Antico should not be read as overruling ... Perry. It certainly cannot be viewed as authority for the proposition that the terms under which insurance cover is defined in a claims made policy are irrelevant to the causation inquiry which s 54(1) mandates. While [a] portion of Gleeson CJ’s judgment in ... Perry contains reasoning relating to a choice or election ... disapproved by the High Court ... a distinction remains between terms of the policy which should rightly be seen as conditions to be satisfied by the insured, and terms which might expand the scope of the policy itself ... The distinction is difficult to express definitively. Ultimately, it is a question of applying the words of s 54 and the policy it expresses to the substance of the words of a particular insurance policy. Section 54 was not available to cure the omission in ... Perry, because the effect of doing so would have altered the scope of the contract of insurance in such a way that it would have been impossible for the Court to find a sufficient causal connection between the terms of the policy and the insurer’s refusal to pay a particular claim. In ... Perry and Antico, the court was at pains to identify the insured’s rights existing under the contract at the time of the claim only when they were understood was it possible to determine whether the insurer’s refusal ... could fairly be said to flow ‘by reason of’ some ... omission ... Some acts or omissions are simply ‘non-events’, in the sense of having no connection with the substantive rights conferred under the policy”.
With respect I do not find this a convincing explanation of Antico. The reasoning of Mahoney JA, expressly approved by the High Court, provides the sufficient causal connection between the terms of the policy and the insurer’s refusal to pay. The insurer would not pay because
the insured had not notified it of the occurrence. Not giving notice is inaction or non-performance
of an act which amounts to an omission for the purposes of section 54. It does not matter that the
inaction was deliberate.
Moreover, it does not appear that Perry turned upon an analysis of causal connection
between the refusal to pay and some act or omission by the insured. The express basis for the
decision was that section 54 did not apply to an insured’s choice not to extend the cover to an
occurrence. Because, it said, the section did not overcome the lack of notice, the policy did not
extend to occurrences which had not been notified. From this perspective, it can be said that the
insurer’s refusal was because of, by reason of, the fact that the policy did not extend to occurrences
so that the causal connection required by section 54 is missing. The refusal was by reason of the
policy not extending to the particular risk, non-notified occurrences. The refusal was not by reason
of the insured’s omission. The argument is, however, circular. It is answered by what Mahoney JA
said. Cover did not extend because the insured omitted to give notice. It is only if one makes the
arbitrary decision that section 54 does not apply to choices (or omissions or decisions) with respect
to giving notice of occurrences that one can say that the refusal was not “by reason of” the omission
to give notice.
In Greentree, Mason P and Handley JA referred, with approval, to the judgment of
Hodgson CJ in Eq in Permanent Trustee Australia v. FAI General Insurance Co Ltd (1998)
44 NSWLR 186 at 227-8 in which his Honour gave the example of a house set on fire after a
policy expired, and described as absurd the result if section 54 allowed the arsonist’s omission to
burn down the house in the year of cover to make the insurer liable. His Honour said:
“... the gravamen of the refusal is not that someone omitted to do something but rather that something did not happen. In my opinion, this is the true basis for the distinction drawn in cases such as East End and ... Perry. If the reason for refusal is fairly characterised as being that someone omitted to do something, then this is an omission to which s 54 can apply; but if it is fairly characterised rather as being that something did not happen, then this is not an omission to which s 54 can apply, even if it is the case this something would have happened if one or more persons had acted in certain ways.
...
Furthermore, if the insured has an obligation to do something, and cover is refused for the reason that this thing was not done, one would tend to regard the gravamen of the reason for refusal as being that the insured omitted to do it, rather than that some event did not occur. Looked at in that way, it seems to me that ... Perry is not inconsistent with Antico. In Perry the policy was a claims-made policy; and the relevant term was that if, during the insurance, the insured became aware of circumstances which may give rise to a claim and gave written notice thereof, then any subsequent claim arising out of those circumstances was deemed to have been made during the period of the insurance. On my suggested approach, it is reasonable to say that the gravamen of the refusal in Perry was the non-occurrence of the claim ... or of anything else deemed to be a claim; and not that the insured omitted to notify circumstances.”
This reasoning hinges upon the proposition that the reason for the insurer’s refusal to pay
is that the event which would give rise to an obligation to pay did not occur “even if it is the case that
the something would have happened if one or more persons had acted in certain ways”. The
proviso begs the question. The risk insured against did not eventuate, the “something” did not
happen, because of an omission to give notice of the occurrence. It seems to be impossible to
ignore that point. One comes again to the reasoning of Mahoney JA.
Moreover, the remarks of Brennan CJ suggest that the approach is flawed. His Honour
said that section 54 does not focus upon the legal character of the reason which entitles an insurer
to refuse a claim. It does not matter, for example, that the reason for refusal is that the claim falls
outside a covered risk: see at 660. This exactly covers the formulation that the insurer is entitled
to refuse to pay because it did not cover the risk of an occurrence which was not notified.
A recent article by Clarke, “After the Dust Settles on Antico: FAI v. Perry Lives” (1997)
9 Insurance Law Journal 29 argues, as its title suggests, that Perry has not been impliedly overruled.
Mason P acknowledged that he had been assisted by its arguments. Mr Clarke wrote (at p. 33):
“... what was critical for Gleeson CJ was not that the insured had a mere election or choice, but rather that it was a choice to expand the scope of the policy. To view the judgment of Gleeson CJ otherwise is a mistake.
The problem is, of course, as Gleeson CJ readily admits, that the line is a fine one ... The distinction being made ... is between terms of the policy which should rightly be seen as conditions to be satisfied by the insured, and terms which might expand the scope of the policy itself ... For Gleeson CJ, the distinction between conditions which, though technically part of the definition of the scope of the policy, do not, if waived, fundamentally alter the nature of the policy (ie, claims based), and terms which allow the scope of the policy to expand (ie, to occurrences based), is the key”.
At p. 34 the author continues:
“The distinction between East End and Perry must then be the more subtle one between policies of a different generic type, being based on either claims made (and notified) or on occurrences discovered (and reported) which may give rise to liability. In my view, Gleeson CJ was making such a distinction in Perry. The distinction, in effect, is:

(a) The effect of s 54 in curing the omission in East End does not affect what was intended to be the scope of the policy accepted by the insurer; and
(b) Section 54 cannot cure the omission in ... Perry, as the effect would have been to alter the scope of the contract of insurance as to what was the intention of the insurer in accepting cover.

[There is] a distinction between actions which are required under an existing contract of insurance, and actions which if taken, in effect, provide a new contract of insurance.”

The author emphasises the need to ascertain what are the fundamental aspects of a contract
of insurance because “Section 54 cannot operate so as to alter those fundamental aspects”. That
is illustrated by examples which, it is said, show the absurdity that would otherwise follow.
Examples may be given the other way. Suppose there is an occurrence and an insured
decides (chooses) to notify the insurer so as to obtain the benefit of the policy. Before he can do
so he is struck down by illness or accident and the policy expires. Does section 54 not apply
because the choice, had it been communicated, would have “fundamentally altered” the nature of
the policy cover? Why is the failure of notice not an omission? The section is clearly not concerned
with reasons or motives for acts or omissions. Why then should it matter that the omission occurred
because the insured decided not to give notice?
A test based upon the distinction between conditions which, “though technically part of the
definition of the scope of the policy”, do not fundamentally alter it, and those which allow the scope
of the policy to expand will be too subjective to yield consistent results. At bottom it rests upon the
notion that there are some contractual terms to which section 54 cannot apply. The section may
apply to “mere elections or choices” but not to a choice to expand the scope of the policy. There
is nothing in the terms of section 54 that provides a rational basis for making such distinctions. The
example I have given is of an election to expand the policy cover which, by omission, does not take
effect. If section 54 does not apply, it can only be because of the selection of some criterion, not
found in the section, which prevents its application. Such an approach appears fundamentally in
conflict with what the High Court had to say of the section. The formulation of the relevant question,
at 661 per Brennan CJ and at 673 per Dawson, Toohey, Gaudron and Gummow JJ is antithetical
to such an approach.
A Full Federal Court has expressed the opinion that a choice not to extend cover offered
by a policy of insurance by a term similar to condition 3 would be an omission to which section 54
would apply. Their Honours relied upon Antico. See HIH Casualty and General Insurance Australia Limited & Anor v Dellavedova (1999) FCA 456. The relevant passage is in paragraph
28.
It should be noted that the Full Court of the Supreme Court of Western Australia in Kelly
v. New Zealand Insurance Co Ltd [1996] 9 ANZ Ins Cas 61-317 adopted the reasoning in
Perry. The decision was referred to in Greentree for support. The policy in question covered a
“house and contents”. Contents were defined to include:
“Fine art, paintings, works of art, antiques or curios. These items are limited to $1,000.00 for any one article up to a maximum of $5,000.00 for claims arising from any one event unless You have specified them to us”.
Prior to the renewal of the policy for the relevant year, the insured increased the amount of contents
cover. The insurer had invited him to provide a list specifying items of particular value. The insured
did not do so. There was a burglary and several items were stolen. The insurer declined liability for
any amount in excess of the $5,000.00 limit on the ground that the insured had not provided the list.
The insured argued that the insurer was refusing to pay the full amount of his claim “by reason of”
his omission to specify the valuable works of art kept in his house for the loss of which he wished
to be indemnified. Owen J said (76,518):
“... this is a case where the distinction between an omission, properly so called, entitling the insurer to refuse to pay a claim and the exercise by the insured of a right to elect not to expand the scope of cover is critical ... The insured has a choice as to whether to extend cover ... If the insured chooses not to provide the list, for whatever reason, then it remains insured, but only to the limited extent stated in the policy clause ... Liability was denied not because the appellant failed to do something but because he deliberately elected not to extend the scope of cover ...”
It is doubtful that this reasoning remains valid when regard is had to Antico.
In the present case the answer to the question formulated by Brennan CJ in Antico: if the
respondent had given notice to the appellant of the occurrence of which it was aware, would the
appellant have been entitled to refuse to pay the respondent’s claim for indemnity? is “no”. It follows that the trial judge who took the same view was right and the appeal should be dismissed.
The result does not give rise to any particular sense of satisfaction but seems compelled by
the explanation of section 54 found in Antico. So understood the section appears to produce a
policy of insurance rather different to the one agreed upon by the parties. A promise to indemnify
the insured against claims arising out of occurrences which the insured decided to treat as a claim
and of which, during the currency of the policy, it gave notice becomes instead a promise to
indemnify in respect of claims arising out of occurrences whether or not the insured chose to treat
them as claims and whenever the insurer is told of the occurrence. In the present case the
respondent decided, for its own reasons, not to notify the appellant of the occurrence. It negotiated
a policy of insurance for the year commencing 20 June 1992 with another insurer. That policy was
in place when Dr Tampoe made his claim. It was only when the second insurer exhibited reluctance
to accept liability under its policy that the respondent asserted it had omitted to notify the occurrence
and relied upon section 54. Had the respondent given notice of the occurrence to the appellant the
Lloyd’s policy would not ordinarily have covered the subsequent claim. Although, in this case, only
some months elapsed between the occurrence and the claim for indemnity, the same result would
follow if there were years between the “omission” and the claim. The insurer’s position may have
changed substantially in the meantime. The appellant no doubt organised its affairs on the basis that
after 20 June 1992 it was not exposed to liability to the respondent. The respondent acted on a
similar basis by effecting insurance with Lloyds. The respondent has now the benefit of a second
policy of insurance for which it did not pay a premium. The effect of the section is to distort the
contractual arrangement made by the parties.

52	Perhaps in some such cases the insurer may rely upon the implied obligation of good faith contained in section 13 to resist paying where the insured seeks to resile from a decision not to give

notice of an occurrence. The matter was not argued and I express no opinion. Underwriters may
of course omit from their policies conditions which allow occurrences to be treated as claims. The
insured would remain protected by section 40(3).

The questions which arose in Greentree and Kelly do not arise in the present appeal. It would

be more than regrettable if section 54 were to reverse the effect of such decisions. Perhaps some

limitation will eventually have to be read into the section. It is enough to dispose of the point in issue to

say that Antico has removed the distinction between East End and Perry and approved the former.

I agree with the orders proposed by Derrington J.

CATCHWORDS:	INSURANCE - PROFESSIONAL INDEMNITY INSURANCE - claims made and notified policy - cover of liability for occurrence of which insured aware and notified to insurer - meaning of “occurrence” - extent of insured’s awareness necessary.
INSURANCE - PROFESSIONAL INDEMNITY INSURANCE - claims made and notified policy - cover to include occurrence known to insured which might give rise to a claim, and notified to insurer - insured’s belief that occurrence would not give rise to claim - deliberate omission to notify insurer - whether “omission” to which s.54 of Insurance Contracts Act 1984 applies - whether insurer prevented from refusing to pay by reason of such omission - whether FAI Insurance Co Ltd v Perry (1993) 30 NSWLR 89 survives Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652.
Alex Kay Pty Ltd v General Motors Acceptance Corporation [1963] VR 458 Antico v Heath Fielding Australia Pty Limited (1997) 188 CLR 652 Distillers Co Biochemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance Co Ltd (1991) 25 NSWLR 400 FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89; 7 ANZ Ins Cas 61.164 Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332 Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706; (1999) 10 ANZ Ins Cas 61.423 HIH Casualty & General Insurance Australia Ltd v DellaVedova (1998) FCA 456 Junemill Ltd (in liq) v FAI General Insurance Co Ltd (1997) 9 ANZ Ins Cas 61.377 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529
Insurance Contract Act 1984 (Cth), s. 54
Counsel:	Mr R G Bain QC with him Ms K Buxton for the appellant Mr S S W Couper QC for the respondent
Solicitors:	Clayton Utz for the appellant McLaughlins for the respondent
Hearing Date:	19 May 1999

(1)	being such that the insured, during the period of cover, became aware of
an occurrence which might subsequently give rise to a claim against it;
(2)	where the insured gave written notice to the insurer, during the defined
period, of the relevant occurrence;
(3)	made against the insured after the giving of the notice mentioned in (2).

(a)	The effect of s 54 in curing the omission in East End does not affect what was intended to be the scope of the policy accepted by the insurer; and
(b)	Section 54 cannot cure the omission in ... Perry, as the effect would have been to alter the scope of the contract of insurance as to what was the intention of the insurer in accepting cover.

[1999] QCA 243

9/07/1999