High Court continues to grapple with IC Act

Legal practitioners need a crystal ball to accurately predict how the High Court will approach and resolve future Insurance Contracts Act disputes, two insurance lawyers have warned. 

In a paper presented to the 2016 AILA Twilight Seminar Series, Sydney barrister Dermot Ryan SC and Yeldham Price O'Brien Lusk special counsel Alexandra Bartlett said every new case presented the court with unique and complex questions.

Because many sections of the Act were yet to be interpreted by any court, judges would have to use their own interpretations of general statute construction to resolve contentious issues.

The difficulty for judges and lawyers was the highly technical and detailed wording contained within each section of the Act.

Even former insurance law reformer and High Court Justice Michael Kirby once admitted to striving "desperately to find open air" in the Act's wording: "I torment myself to find the Act's meaning. Above all it is extremely detailed."   

Mr Ryan and Ms Bartlett said: "If such difficulties existed for one of the authors of the Act, we can be sure they remain in the path of the intrepid traveller, lawyer or insurer, who descends into the dynamic and complex field of insurance law in 2016.

"While it may be the law of construction of other commercial contracts at common law is settled, there remains scope for the High Court to opine further on the operation of the IC Act and other relevant legislation, and therefore provide further guidance to the industry and practitioners on the operation of those Acts and the construction of policies." 

Mr Ryan and Ms Bartlett said the High Court had had to decide as early as 1989 whether it could or should look to the general law of insurance to inform its construction of the IC Act.

In Advance (NSW) Insurance Agencies Pty Ltd v Matthews [1989] HCA 22; (1989) 166 CLR 606, the judges rejected that approach, describing the Act as a 'statutory code' which replaced the common law.

They said the question was answered definitively in Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) [2003] HCA 25; (2003) 214 CLR 514.

In determining whether an insured had breached its obligations of disclosure to its insurer, Justices Kirby, Michael McHugh and Ian Callinan considered whether the common law assisted in the construction of s21 of the Act.

The appellants had argued the phrase 'the risk' within s21 settled meaning in common law and should be applied in construing the Act. In rejecting that submission, the judges concentrated on the Act's language and the second reading speech and explanatory memorandum prepared for Parliament.

 "The words may have a long settled meaning at common law," the judges said. "That does not, however, mean the Act was an enactment of it. The common law was generally concerned with materiality. This Act is concerned with relevance."

Mr Ryan and Ms Bartlett said: "Interestingly, [the judges] went on to say the section focused on the risk and not on the much broader question of the commercial willingness of the insurer to accept the risk.

"This would tend to suggest the High Court would be reluctant to place too much weight on commercial considerations."

But they said even that interpretation appeared to conflict with High Court rulings on other parts of the Act.

Authorities such as McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 had made it clear the court must consider insurance policies' commercial context; read them as a whole, including endorsements; and give them a 'businesslike interpretation'.

Mr Ryan and Ms Bartlett said, despite the earlier rulings, the IC Act and s54 continued to attract legal disputes and invite court intervention and they predicted arguments about interpretation and policy construction would continue for many years.

"It has been said the IC Act brought Australian insurance law out of the chaos, but there are still issues yet to be decided," they said. "The final word on s54 has yet to be delivered by the High Court.

"Insurers and legal practitioners can rest assured there has been no 'end of history' moment. Difficult questions of interpretation and policy will continue to find their way to Canberra for resolution."
 

High Court turns advocate immunity on its head

Mr Ryan and Ms Bartlett said another area of concern for lawyers and their insurers was the High Court's ruling on advocate indemnity.

The Attwells v Jackson Lalic Lawyers Pty Ltd [2016] HCA 16 decision left many unanswered questions about the extent of liability associated with legal advice and could see lawyers and their professional indemnity insurers increasingly sued by disgruntled or disappointed clients.

The majority ruling that settlement advice was not protected turned previously held legal opinion on its head and would concern trial lawyers and legal professional indemnity insurers, they said. (See the September 2016 Resolve for more details on the case.)

The decision would have significant ramifications for lawyers and insurers. It reversed the long-held understanding that lawyers were protected from legal action while advising clients on whether to settle before or during a trial.

It would concern lawyers and their insurers because clients could accept recommendations to settle but later construe the advice as negligent if they regretted their decision.

Mr Ryan and Ms Bartlett said they expected to see an increase in cases brought against lawyers and professional indemnity insurers by disappointed litigants seeking to claim negligence if they accepted settlements that did not end as well as they expected.

Lawyers could also be sued for not advising clients to settle during trials or "even before the matter got through the door".

They said it had significant wider impacts across the legal and insurance sectors and was not solely relevant to legal practitioners' insurers. 

"The insurance industry relies heavily on early resolution of claims on commercial and final terms," they said. "We imagine insurers, in a more general sense, would be loath to have such settlements revisited, even in the limited context of a suit against the practitioner involved."

Mr Ryan and Ms Bartlett said the High Court had reserved consideration of an argument that immunity could only be granted to lawyers who demonstrated their actions were in accordance with specific client instructions.

If the argument was upheld, lawyers would be forced to keep better records, especially about client instructions. Many lawyers currently do not keep those records or return them to clients after a trial.

"We expect litigants seeking to sue their lawyers will not miss this sleeper," they said.