The importance of notifying your insurer of potential claims

The recent decision of Livesay v Hawkins [2012] QSC 122 is a timely reminder of the importance of notifying insurers of potential claims. It shows how even equivocal letters of complaint can amount to a ‘claim’ that requires notification.

The facts

Ray White was the property manager for a house rented by Shirley Livesay. On 25 April 2005, Ms Livesay was injured when a pelmet above a door in the house fell and struck her on her nose.

Ms Livesay wrote to Ray White on 26 April 2005, and advised of the incident and her intention to seek medical assistance. She asserted that Ray White and the owners of the premises, the Hawkins, would be liable for any personal injury claims arising from damage caused to her and her husband due to poor living conditions. It was expressly noted by Ms Livesay that the letter did not include a personal injury claim, however, it noted that she was entitled to such redress.

In September 2005, Ms Livesay served Mr Newman (Ray White’s principal) with a form 1 notice of claim under the Personal Injuries Proceeding Act 2002 (Qld). She alleged Mr Newman had been negligent in failing to take reasonable care to keep the property in a safe condition for its tenants.

After receipt of the notice of claim, Mr Newman advised his insurance broker of Ms Livesay’s claim and also provided a copy of the letter dated 26 April 2005. In October 2005, a claim for indemnity was made on Mr Newman’s professional indemnity insurance policy held with American Home Assurance Company (AHAC). The AHAC policy had expired on 24 July 2005 (i.e. after the first letter but before the notice of claim was received).

AHAC declined to indemnify Mr Newman on the basis that no claim had been made against him during the policy period, and AHAC had not been notified of Ms Livesay’s claim during the policy period.

AHAC’s declinature was the subject of Justice Daubney’s decision. His Honour focused upon whether the letter dated 26 April 2005 constituted a ‘claim’ as defined by the AHAC policy.

The decision

Justice Daubney reaffirmed the need to construe a contract of insurance objectively and in accordance with what a reasonable person would have understood its terms to mean. His Honour stated that it was necessary to consider not only the text, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction. Importantly, it was a question of substance, not form, as to what constituted a ‘claim’ against an insured within the meaning of an insurance policy.

Here, the AHAC policy defined ‘claim’ to mean ‘any written demand…for compensation made against the insured but only in respect of professional services by the insured’.

Mr Newman asserted that Ms Livesay’s letter of 26 April 2005 was a claim under the policy. This was because the letter provided written notification of the facts establishing liability, details of the injury sustained and it also alleged Mr Newman’s liability for damages for the injury.

AHAC argued that the letter of 26 April 2005 was a letter of complaint about the condition of the premises; it did not demand compensation or allege that Mr Newman was liable for Ms Livesay’s personal injuries. The letter merely asserted that it would be prudent to repair the house, indicated that Ms Livesay may seek to recover the cost of vacating the premises from the Hawkins and noted that she intended to seek medical advice.

Ultimately, Justice Daubney held that the letter of 26 April 2005 constituted a ‘claim’ under the policy. It was a written demand for compensation and it expressly asserted Ms Livesay’s entitlement to recover damages for her personal injury caused by the dangerous fixture. The letter identified and contended a cause of action against Mr Newman and it expressly referred to Ray White being held liable for any personal injury claims arising from damage caused by the poor living conditions. These factors were sufficient for the letter to be considered a form of demand or an assertion of liability.

Accordingly, the letter was a written demand for compensation within the definition of the term ‘claim’ in the policy. The insured was, therefore, required to notify AHAC of the claim in April 2005.

Relevance

This decision provides a recent reminder of the importance of notifying professional indemnity insurers of potential claims in clear terms. While the provisions of the Insurance Contracts Act 1984 (Cth) provide some protection in circumstances of late notification, an insured will be in a far better position if it advises its insurer of potential claims as soon as it becomes aware of them. Failure to notify may result in declinature, and contesting an insurer’s indemnity decision will exponentially increase the cost, complexity and stress of responding to a professional indemnity claim.

If you would like further information on these issues, please contact our team on +61 7 3231 2444.