ACE Insurance Ltd, in the matter of ACE Insurance Ltd [2016] FCA 997

Chubb's claims analysis 11 If ACE were required to notify all policyholders who were issued policies since 1981 (assuming they could be identified), the notification task would impose a very significant burden which would not necessarily promote the objects of the Act. Chubb's appointed actuary has conducted a claims analysis which shows that the likelihood of claims is low (less than 1%) after two years for short tail business and six years for long tail business. A copy of the analysis is annexed to Mr Gourley's affidavit. 12 Long-tail classes (policies for which specific losses may not be known for some period and for which claims can take significant time to report and settle/close) includes most liability (for example, public and products liability policies) and professional risks (for example, directors and officers and professional indemnity policies). 13 Short-tail classes (policies where claims are usually made during the term of the policy or shortly after the policy has expired) include most property, personal accident and marine cargo policies. 14 Based on the claims analysis, ACE sought to limit its obligation to notify affected policyholders to policies issued: (1) since 1 January 2009 for long tail policies; and (2) since 1 January 2014 for short tail policies ("selected periods").

Chubb's policyholder records 15 Chubb's policyholder records are found in a computer system known as "PRISM". 16 A policyholder register has been compiled in the manner set out in Mr Gourley's affidavit. It includes only policyholders falling within the selected periods. There are 49,225 policyholders listed on the policyholder register. Of these policyholders, there are 36,385 policies for which Chubb has apparently valid email or postal addresses. Mr Gourley estimated that the policyholder register records the contact details of approximately 25% of the policyholders of the business, being policyholders for whom policies were issued within the selected periods. 17 In relation to the Global Brokers Unit and the Independent Brokers Unit business, Chubb does not have any direct contact with the policyholder, and all policyholder information that is recorded in PRISM in relation to policies written through those two business units is provided by the relevant broker or agent. Frequently, no direct contact information relating to a policyholder is provided: rather, the details are simply stated to be "care of" the broker. 18 In relation to the Bulk-Booked Schemes business, it is frequently the case that no policyholder contact information is supplied. Typically there is simply a "bulk book" of premium supplied monthly, although in some cases, policyholder bordereaux consisting of policyholder names (not contact details) are supplied. 19 Policyholder names and contact details would ordinarily be included in PRISM where the business has been conducted by Chubb directly. 20 In all cases, whatever policyholder information is entered into PRISM is current as at the time the policy is issued but is only updated if some event occurs that would make it necessary to do so (for example, if a claim is lodged and a new address is provided). In other words, there is no general process by which Chubb updates policyholder contact details. 21 I accept Mr Owens' submission that there is very little that could practically be done to check whether policyholder information contained in PRISM is current and accurate. However, to the extent that PRISM does not contain policyholder information because such information was only ever in the possession of the relevant broker, it is possible that notification could be achieved with the cooperation of that broker.

Efforts to increase notification of proposed scheme through brokers 22 Chubb has written by email to each broker for which it was able to identify contact details (some had ceased to do business, for example) and asked the broker if it would: (1) undertake to provide a copy of the Scheme summary to each affected policyholder for which it had records; or (2) provide Chubb with contact details for each affected policyholder for which it had records. 23 Of the brokers that have responded, different brokers have chosen different options (with some proposing a very slightly modified version of the first option, whereby Chubb would provide a list of policyholder names to the broker for the broker to notify using the policyholder contact details recorded on the broker's system).

The proposed process for notifying affected policyholders 24 As put in ACE's written submissions, the critical omissions from the notification will be: (1) any policyholder whose policy was issued before the "cutoffs" of 1 January 2009 for long tail policies and 1 January 2014 for short tail policies; (2) any policyholder whose contact details are only held by the broker or agent through whom their policy was written and where: (a) Chubb did not have email contact details for that broker; (b) the broker did not respond to Chubb's request for assistance in notifying those policyholders; or (c) the broker had informed Chubb that it would provide Chubb with policyholder contact details, but did not provide Chubb with any policyholder contact details; (3) any policyholder whose contact details, whether on PRISM or in the records of a relevant agent or broker, are incorrect or out of date. 25 In an effort to mitigate the effect of these omissions, ACE proposed to: (1) send a copy of the scheme summary to the National Insurance Brokers Association; (2) publish a notice in major national, State and Territory newspapers and the Government Gazette; and (3) publish a notice on the Chubb website.

Legal Framework 26 Section 17C of the Act provides: (1) In this section: "affected policyholder " means the holder of a policy affected by a scheme. "approved summary " means a summary approved by APRA. (2) An application for confirmation of a scheme may not be made unless: (a) a copy of the scheme and any actuarial report on which the scheme is based have been given to APRA in accordance with the prudential standards; and (b) notice of intention to make the application has been published by the applicant in accordance with the prudential standards; and (c) an approved summary of the scheme has been given to every affected policyholder. (3) Without limiting the provision that may be made by the prudential standards for the purposes of paragraph (2)(b), the notice referred to in that paragraph must include, in relation to each body corporate affected by the scheme, details of the place and time at which an affected policyholder may obtain a copy of the scheme. (4) An affected policyholder is entitled, on the person's request, to be provided by the company with one copy of the scheme free of charge. (5) The Federal Court may dispense with the need for compliance with paragraph (2)(c) in relation to a particular scheme if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that the paragraph be complied with. 27 The expression "affected policyholder" refers only to a holder of a policy being transferred under the scheme, that is, it does not include the holders of policies issued by the transferee company: Re Insurance Australia Ltd [2004] FCA 524; (2004) 139 FCR 450 ("Re IAL") at [19]; QBE Insurance Australia Limited, in the matter of QBE Insurance Australia Limited [2012] FCA 1127 ("Re QBE") at [3]. Thus, for the purposes of this application, "affected policyholders" are policyholders of Chubb and not policyholders of ACE. 28 Of course, as ACE's submissions acknowledged, the interests of policyholders of ACE will be a relevant consideration on the ultimate question of whether the scheme should be confirmed. 29 The granting of a dispensation under s 17C(5) is a matter of considerable importance and should not be regarded as something to be allowed as a matter of course: Re QBE at [16]; Munich Reinsurance Company of Australasia Limited [2004] FCA 1391 at [4]. In The Application of Commonwealth Life Ltd & Anor ("Commonwealth Life") [2003] FCA 501 at [8], Sackville J said, in connection with an application for dispensation under s 191(5) of the Life Insurance Act 1995 (Cth): Clearly enough, the policy underlying the statutory requirement, when read in conjunction with s 191(2)(b), is to give every affected policyholder a summary of the scheme and, an opportunity, if he or she so desires, to make submissions to the Court in respect of any application for confirmation of the scheme. A right to be heard in relation to a proposed scheme may be of little value if a person does not know of the proposal. 30 The principle stated by Sackville J has most recently been approved in the context of applications for dispensation under s 17C in Application of Gordian RunOff Limited under the Insurance Act 1973 (Cth) [2013] FCA 983 at [16]; AAI Limited, application under the Insurance Act 1973 (Cth) [2015] FCA 452 at [22]; QBE Insurance (Australia) Ltd, in the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) & QBE Insurance (Australia) Ltd [2015] FCA 1223 at [23]. 31 The discretion to make dispensation orders is a general one and the provision does not specify the criteria that the Court is to apply in determining whether "the nature of the scheme or the circumstances attending its preparation warrant" the making of proposed orders: Re QBE at [16]. 32 The fact that additional steps will be taken to draw the scheme to the attention of affected policyholders has been held to favour the granting of a dispensation under s 17C(5) in several cases, including In the matter of GIO Personal Investment Services Ltd and AMP Life Ltd [2000] FCA 1871 at [18]; The Application of Commonwealth Life Ltd & Anor [2003] FCA 501 at [6] and [10]; Challenger Life Limited [2004] FCA 618 at [5]; Re Calliden at [62]; Westport Insurance Corporation, in the matter of Westport Insurance Corporation [2009] FCA 1357 at [44]-[46]; and HDI-Gerling Australia Insurance Company Pty Limited, in the matter of HDI-Gerling Australia Insurance Company Pty Limited [2010] FCA 505 at [43]-[44].

APRA's position on dispensation application 33 APRA supported the dispensation application. Ms Neumueller, who appeared on the application on behalf of APRA, informed the Court that APRA is presently looking at the confirmation of the proposed scheme favourably. She confirmed that APRA considered the proposed orders to be suitable to notify affected policyholders. 34 The attitude of APRA to the dispensation application is significant: cf QBE at [18]. APRA is the prudential regulator of general insurance businesses in Australia and, consequently, has an important role in ensuring that the interests of policyholders are protected. By s 17E of the Act, APRA is entitled to be heard on the application for confirmation of the scheme.

Reasons for seeking dispensation 35 ACE identified the following three bases upon which it seeks dispensation from the requirement of s 17C(2)(c): (1) Chubb's records in relation to policyholder information are neither complete nor necessarily accurate. While Chubb will take reasonable steps to ensure that policyholders are in fact notified, there can be no guarantee that the notification will be complete or, in individual cases, effective. (2) Because a significant proportion of Chubb's business was "intermediated" (or written through a broker or other agent), the primary point of contact for many policyholders in relation to their policies is their broker or agent, and the only person with contact details for the policyholder may be the broker. In those circumstances, it may be desirable either for the notification to be given by the relevant broker or agent, or for the broker or agent to provide Chubb with contact details. But, to this extent, the process is largely dependent upon the cooperation of brokers and agents. (3) The cost and effort involved in notifying policyholders where there is only a very small prospect of a claim being made is disproportionate to the benefit that would be obtained by doing so. 36 For the reasons set out below, the evidence of Mr Gourley satisfied me of the correctness of each of these three propositions.

Reasonable steps have been taken to identify contact details for affected policyholders 37 I was satisfied that ACE has taken all reasonable steps to identify affected policyholders who were issued policies within the selected periods. I accept that there are no additional steps that could reasonably be expected to produce any better information in relation to the identification of policyholders and their contact information. That is, I accept that the best information available to Chubb is that contained on PRISM, and the information on PRISM will be supplemented or updated, where possible, by the brokers or agents who might have superior information.

Policyholders unlikely to make claims 38 In support of the proposed notification of policyholders to whom policies were issued in the selected periods only, Mr Owens of counsel referred to Re IAL at [26], where Lindgren J reasoned: The period of insurance which last expired, expired on 4 October 2001. In order for a NSW CTP policy to answer to a claim, the motor accident would have to have occurred by that date. While it is possible, it is unlikely that many claims will yet be made arising out of such motor accidents. It would be excessive to require the approved summary of the scheme to be given to some 72,500 policyholders in order to protect any beyond the approximately 130 referred to, against whose policies claims may yet be made. 39 In American Home Assurance Company, in the matter of American Home Assurance Company [2010] FCA 1499 at [9] to [11], Emmett J stated: [9] The effect of the dispensation sought is that AHAC will not send relevant material to policyholders for whom it has not been able to identify the name or current contact information. I am satisfied that in relation to the policyholders, whose name or current contact information cannot be identified, that AHAC has performed reasonable searches and made reasonable inquiries in order to obtain current contact information. [10] Further, AHAC will not send the approved scheme summary to the holders of expired policies who are unlikely to report a claim in the future. As to that second category, AHAC undertook an actuarial analysis of the historical claims reporting patterns for each class of its business to identify those holders of expired policies who are most likely to notify a claim in the future. Mr Ian Reed, an actuary, has identified the time lags after policy expiry in which 95 per cent of claims would be reported for each class of AHAC's Australian business. AHAC will send a copy of the approved scheme summary to the holders of expired policies that expired sufficiently recently, such that the effective date of the scheme will fall within the expiry lag period so identified. Mr Reed's evidence indicates that in excess of 70,000 such policy holders have been identified. [11] I am satisfied that there would be minimal utility in attempting to notify the holders of other expired policies, for several reasons. First, the holders of unexpired policies that were not identified by Mr Reed are very unlikely to report a claim after the effective date of the scheme, since such policies expired a relatively long time ago, having regard to the claims reporting tail of the relevant class of insurance business in which those policies are characterised. Secondly, because of the age of the policies, it is likely that the contact details recorded in AHAC's systems will not be current. Thirdly, because AHAC has been conducting insurance business through its Australian branch since 1959, there are likely to be large numbers of such expired policies. AHAC would incur significant costs in sending a copy of the approved scheme summary to such a large number of policyholders, without any likely material benefit. 40 In Re QBE, dispensation orders were made which relieved the applicant from notifying policyholders who were highly unlikely to make a claim, based on an actuarial analysis. 41 In Application of Sompo Japan Insurance Inc. under the Insurance Act 1973 (Cth) [2014] FCA 396, there was evidence that about 98% of claims were reported within three years of policy expiry. At [25], Yates J concluded: Based on Mr Tuinauvai's evidence, especially in relation to the short-tail nature of the Nippon Express policies and the claims reporting patterns and retention rates in respect of the other policies, it seems very unlikely that the Policyholder Notification List does not contain, overwhelmingly, the names and addresses of most affected policyholders. I am satisfied that little practical utility is likely to be achieved by requiring Nipponkoa to locate and analyse archived material with a view to ascertaining the existence of others who might be additional affected policyholders. The steps proposed for notification are likely to bring forth any objection to the scheme that is based on viable objective grounds.

Conclusions 42 Based on the evidence provided, I was satisfied that the proposed regime for notification of affected policyholders will be likely to lead to notification of a very large number of affected policyholders, sufficient to bring forth, in all likelihood any objection to the scheme that is based on viable objective grounds. 43 On that basis, and taking into account APRA's support for the dispensation orders, I was satisfied that it was not necessary that there be compliance with s 17C(2)(c) and that it was appropriate to make the orders sought. 44 In particular, I was satisfied by the claims analysis that it is reasonable for the notification process to be restricted to notification of policyholders within the selected periods, and that it would be unduly burdensome to require ACE to take any additional steps to notify affected policyholders of the proposed scheme. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.