AMP Financial Planning Pty Ltd v CGU Insurance Limited

REASONS FOR JUDGMENT 1 Reasons for judgment on the substantive issues were delivered on 18 October 2004: AMP Financial Planning Pty Ltd v CGU Insurance Limited [2004] FCA 1330. I have now heard argument as to (i) whether a declaration should be made in respect of CGU's liability to indemnify AMPFP for unpaid claims and (ii) costs. Declaration 2 Unpaid claims are those notified to CGU totalling $3,067,550 and in respect of which no payment has been made to Investors. AMPFP has deferred a decision whether to pay them (see earlier reasons at [4]). Many (perhaps most) of these claims represent investments which are still performing and may never result in a loss to Investors. 3 Given that I have rejected so much of CGU's arguments as relied on terms of the Policies (Issues 7, 8 and 9 defined in [9], discussed at [108]-[120]), AMPFP submits that a declaration should be made in the following terms: "Declare that the applicant is indemnified by the respondent in respect of the unpaid claims pursuant to the insurance policies the subject of this proceeding." 4 Authorities relied on by counsel for CGU suggest that courts will usually not make a declaration as to the liability of an insurer to indemnify an insured in circumstances where the liability of the insured to a claimant has not yet been established by judgment. 5 In Post Office v Norwich Union Fire Insurance Society Ltd [1967] 1 QB 363 at 374, Lord Denning MR said: "The insured could only have sued for an indemnity when his liability to the third person was established and the amount of the loss ascertained. In some circumstances the insured might sue earlier for a declaration, for example, if the insurer company were repudiating the policy for some reason. But where the policy is admittedly good, the insured cannot sue for an indemnity until his own liability to the third person is ascertained." 6 In AMP Fire and General Insurance Co Ltd v Dixon [1982] VR 833, the plaintiff, a young child, claimed damages for personal injuries allegedly caused by the negligence of the defendants in the conduct of their child minding centre. The defendants joined their liability insurer as a third party. In its defence the insurer denied liability to indemnify the defendants and specifically denied the plaintiff's injuries were sustained in connection with the defendants' business. Master Barker ordered that there be a separate trial of the issues between defendants and insurer prior to the trial of the action. The separate trial was duly held and Tadgell J made a declaration that the defendants be entitled to be indemnified by the insurer "in respect of any liability that they may incur for the plaintiff's injury arising out of the accident on 16 May 1977". On appeal the Full Court (Young CJ, McInerney and King JJ) held that the separate trial should not have been ordered and the declaration should not have been made. Their Honours said (at 838): "If it is ever appropriate to grant a declaration of the liability of a third party in third party proceedings before the liability of the defendant to the plaintiff is established, it can only be in most exceptional circumstances." 7 Later their Honours (at 842) pointed out some practical reasons for that view: "We have quoted the declaration that was in fact made. It is much more limited than the declaration sought but it nevertheless answers an hypothetical question. The question is hypothetical because the defendants may be found in the action not to be liable to the plaintiff. It may be said that if that were the result no harm would be done, but the harm lies not only in the effect upon the parties but also in the public interest which requires the Court not to decide hypothetical questions." After discussing the facts of the case their Honours concluded: "Where the decision on the question whether the indemnity attaches depends so much upon the circumstances of the case, we do not think that the Court should decide the question in advance of the liability of the defendants to the plaintiff being established. If at the trial the facts proved differed substantially from those proved before the learned Judge it might well be shown that 'the circumstances of the case' took it out of the indemnity." 8 Similar considerations apply in the present case where any trial of Investors' claims would turn on their beliefs and the reasonableness and good faith thereof. 9 Senior counsel for AMPFP sought to distinguish these authorities on the ground that the present Policies are on a claims made basis and also specifically provide for payment of costs of investigation. 10 But whether a policy answers to claims made during the policy period, or liability for events occurring during that period, the principle applicable is the same. There is no liability to indemnify until the liability of the insured to a claimant is established. As to investigation costs, the Policies do provide for payment of these but only if CGU incurs them or AMPFP incurs them with CGU's prior written consent: cl 3.3. Again I do not see how this provision affects the general rule. 11 The Court has express jurisdiction to make declarations: Federal Court of Australia Act 1976 (Cth) s 21. However this power should not be directed to answering hypothetical questions: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582. The declaration sought in the present case is hypothetical. In essence it means that CGU will be liable to indemnify AMPFP if Investors recover judgment against it in respect of unpaid claims. 12 Accordingly I decline to make the declaration sought. There is a further practical consideration supporting that conclusion. The findings I have made in favour of AMPFP on the Policy issues will be available to it anyway by way of issue estoppel in any future litigation.