New South Wales Medical Defence Union Ltd v Crawford [No 3]; New South Wales Medical Defence Union Ltd v Bailey [No 3]; Bailey v Crawford [No 3]

The New South Wales Court of Appeal considered appeals and cross-appeals in proceedings involving the New South Wales Medical Defence Union Ltd (the Union), Dr. Crawford, and Dr. Bailey. The underlying dispute concerned the Union's refusal to indemnify Dr. Crawford and Dr. Bailey for costs incurred in defending defamation proceedings brought against them by a third party, Mr. Smith. The Union contended that the claims against the doctors were not covered by their respective policies of insurance.

The central legal issues before the Court of Appeal were whether the Union was estopped from denying indemnity to Dr. Crawford and Dr. Bailey, and whether the Union had breached its duty of utmost good faith to its members. Specifically, the Court had to determine if the Union's conduct in handling the initial stages of the defamation proceedings, including providing advice and appointing solicitors, created an estoppel preventing it from later refusing indemnity on the basis that the claims fell outside the policy's coverage. Furthermore, the Court examined whether the Union's actions, particularly its communication with the doctors regarding the indemnity, amounted to a breach of its duty of utmost good faith.

The Court of Appeal found that the Union was estopped from denying indemnity to both Dr. Crawford and Dr. Bailey. It reasoned that the Union, through its conduct and representations, had led the doctors to believe that they were covered by their insurance policies and that the Union would meet the costs of defending the defamation proceedings. This reliance by the doctors on the Union's conduct was deemed to be to their detriment, particularly given the significant costs they had already incurred. The Court also held that the Union had breached its duty of utmost good faith by failing to clearly and promptly inform the doctors of its reservations regarding indemnity, thereby misleading them about their coverage.

Consequently, the Court of Appeal ordered that the Union was liable to indemnify Dr. Crawford and Dr. Bailey for the costs and expenses they had incurred and continued to incur in defending the defamation proceedings. The appeals by the Union were dismissed, and the cross-appeals by the doctors were upheld.