Greg Pynt, barrister, Francis Burt Chambers, Perth

Oh behaveSome of the ways in which the Insurance

Contracts Act 1984 (Cth) controls the way in which insurers conduct claims

TerritoryInsurance Conferenceresilient future

Oh behave(Don’t misbehave)

Sgt Schultz: I know nothing!

The front of the McCormack’s house

The verandah and steps at the front of the McCormack’s house

Perhaps Sheran was wearing ‘dressy’ thongs, like these

Sarrah Le Marquand,Daily Telegraph, 30 June 2014

Schultz sought to pin the blame on the lack of a handrail and a failure on the part of her host to warn her the steps might be slippery as a result of the rain.Unfortunately for her the judge did not see it that way, concluding instead that it was her responsibility to take more care when making her way down the wet stairs.Had the court ruled in a different direction, the impact would have been felt in homes across Australia. Suddenly the departure of a dinner guest at night’s end could have become a journey fraught with legal dangers.

Schultz v McCormack, 23 October 2015NSW Court of Appeal, McColl JA

… in my view, his Honour ought to have found that a reasonable person in the respondents’ position ought to have taken precautions against the risk of harm, the most obvious of which was to warn the appellant that the porch could have become wet if the rain had been windblown and, if it had, that it would have been abnormally slippery. They could have also used mats on the verandah to provide a non-slip surface.

This presentation is about:

• Onus of proof• Section 54 of the Insurance Contracts Act• Utmost good faith in claims handling

McLennan v Insurance Australia Ltd[2014] NSWCA 300

The NSW Court of Appeal (again)

Subject to the terms of a policy, if:• an exclusion qualifies the entire insuring

promise, the insured bears the onus of proving the qualification does not apply;

• the insuring promise is subject to a specific exclusion, the insurer bears the onus of proving the application of the exclusion.

Cover for damage by explosion

The explosion cover only applied if there was physical evidence of the explosion. The requirement for physical evidence applied to all explosions and therefore had to be satisfied every time. Accordingly, the insured would bear the onus of proving physical evidence of an explosion.

Maxwell v Highway Hauliers Pty Ltd(2014) High Court of Australia

Highway Hauliers was not indemnified if the driver of a prime mover:(a) had not achieved a minimum score on a driver test known as the ‘PAQS test’; or(b) was a non-declared (not an insurer-approved) driver.

The exclusions

• but for s 54, the effect of a policy is that the insurer could refuse to pay all or part of a claim because of a post-contractual act or omission of the insured or of some other person; and

• the circumstances that gave rise to the claim fall within the insurer’s ‘core’ promise.

Section 54 is engaged if:

If engaged, the relief allowed by s 54 depends on whether the relevant ‘act or omission’:• “could reasonably be regarded as being capable

of causing or contributing to” an insured loss, in which case it is dealt with by s 54(2); or

• could not reasonably be regarded as capable of causing or contributing to an insured loss, in which case it is dealt with by s 54(1).

Step 3

If an act or omission “could reasonably be regarded as being capable of causing or contributing to” an insured loss, the insurer can refuse to pay the claim, except to the extent that the insured proves the act or omission did not cause or contribute to the loss.

Section 54(2)

If an act or omission could not reasonably be regarded as being capable of causing or contributing to an insured loss, the insurer cannot refuse to pay the claim; it can only reduce its liability to pay the claim by the extent to which it has been prejudiced by the act or omission.

Section 54(1)

The duty of utmost good faith

There is an implied term in every insurance contract to which the ICA applies, that requires each of the parties to it to act towards the other parties with utmost good faith in respect of any matter arising under or in relation to the contract: s 13. The duty applies to all aspects of the claims handling process.

Utmost good faith (UGF) requires openness and honesty

The duty of utmost good faith obliges an insurer to be full and frank with its insured about:• its handling of a claim;• the reasons for its decision to reject a claim (if that is its

decision);• the reasons for its decision to pay its insured less than

what the insured is claiming (if that is its decision);• the progress of a subrogated claim or the defence of a

third party claim it is conducting in the insured’s name.

UGF requires an insurer to act “fairly” and, in particular, to promptly:

• investigate a claim or notification of circumstances, or inform an insured why it has decided not to do so;

• make a decision about whether or not to pay a claim, or explain to its insured why it is taking time for the insurer to make that decision;

• pay a claim if that is what it has decided to do.

I wanted to end this presentation with a positive message

But I couldn’t think of one.So instead, I’m going to leave you with 2 negative messages!