Application of Medical Insurance Australia Pty Limited under the Insurance Act 1973 (Cth) [2014] FCA 1015

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 810 of 2014

APPLICATION OF MEDICAL INSURANCE AUSTRALIA PTY LIMITED UNDER THE INSURANCE ACT 1973 (CTH) MEDICAL INSURANCE AUSTRALIA PTY LIMITED (ACN 092 709 629)

JUDGE: YATES J DATE: 18 SEPTEMBER 2014 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The principal proceeding is an application for confirmation of a scheme (the scheme) pursuant to which the general insurance business of MDA National Insurance Pty Limited (MDANI) will be transferred to the applicant, Medical Insurance Australia Pty Limited (MIA). 2 The scheme is part of an arrangement between two medical defence organisations, MDA National Limited (MDAN) and Medical Defence Association of South Australia Limited (MDASA) to merge their respective organisations into a new organisation, Medical Defence Australia Limited (MDA). MDANI is a wholly-owned subsidiary of MDAN. MIA is a wholly-owned subsidiary of MDASA. 3 The merger involves two related schemes of arrangement (the MDAN scheme and the MDASA scheme) for which members' meetings have been convened: MDA National Limited v Medical Defence Australia Limited [2014] FCA 954. If the MDAN scheme and the MDASA scheme are agreed to and approved by the Court, and if the insurance scheme is confirmed by the Court, MDAN and MDASA will no longer operate as membership entities. MIA, under the new corporate name MDA Insurance Pty Limited, will become the insurance arm of MDA and insure MDANI's and MIA's current policyholders. 4 In the present application, MIA seeks an order under s 17C(5) of the Insurance Act 1973 (Cth) (the Act) dispensing with the requirement of s 17C(2)(c) that a summary of the scheme, approved by the Australian Prudential Regulation Authority (APRA), be given to every affected policyholder (the approved summary), provided that certain other steps are undertaken.

MDANI's insurance business 5 MDANI was established in 1992 to provide insurance to MDAN in relation to grants of discretionary assistance and indemnity by MDAN to its members. Since 1 January 1993, MDANI has issued annual policies to MDAN in respect of its discretionary assistance liabilities. 6 From 1 July 2003, following changes implemented by the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (Cth), MDANI commenced issuing medical indemnity insurance policies to health care professionals (principally, practising doctors) and their practices. At the present time, MDANI also issues indemnity insurance policies to other health care professionals, including dental health practitioners. 7 Typically, MDANI issues policies which commence on 1 July and end on 30 June the following year. Special circumstances may dictate a different start or finish date. However, at the present time, most of MDANI's policyholders hold insurance that is due to expire on 30 June 2015. This year, MDANI issued policies with a two-year term to medical students in their final year of study. Thus, these policies will expire on 30 June 2016.

Affected policyholders 8 MDANI's policyholders affected by the scheme fall into three broad classes: current policyholders; former policyholders, and future policyholders. 9 Current policyholders fall into the following groups: MDAN; medical practitioners; medical students; dental health practitioners, and practice entities. 10 Medical practitioners are the largest group of policyholders with current insurance policies issued by MDANI. This group includes retired practitioners receiving run-off cover and practitioners who, although retired from paid medical practice, continue to provide gratuitous medical services. Overwhelmingly, these policyholders are also members of MDAN. 11 MDANI has five active broker service agreements. The brokers do not act as agents of MDANI but do receive commissions in respect of referrals of medical practitioners to MDANI. The broker agreements provide that MDANI can deal directly with the brokers' medical practitioner clients in certain specified situations, including renewal offers and claims management. 12 Registered medical students are the second largest group of policyholders with current insurance policies issued by MDANI. Medical students insured by MDANI are also members of MDAN. 13 Since July 2008, MDANI has issued professional indemnity policies to dental health practitioners, who include dentists, dental students, oral and maxillo facial surgeons, prosthetists, hygienists and dental therapists. Dental health practitioners to whom MDANI issues insurance are not members of MDAN. The dental health practitioner policies are issued through arrangements with two dental health care organisations, DPL Australia Pty Ltd (which trades as "Dental Protection") (DPLA), and the Australian Dental Association (WA Branch) Inc (ADA WA). 14 Both DPLA and ADA WA are corporate authorised representatives of MDANI. They are authorised to arrange insurance and provide general advice on behalf of MDANI to dental health practitioners in relation to that insurance. 15 Former policyholders fall into the following groups: those with extended reporting periods; those with open claims, and those with a statutory entitlement to indemnity (ie, by operation of s 40(3) of the Insurance Contracts Act 1984 (Cth)). 16 As regards future policyholders, MDANI has not yet determined the date on which it will cease to write new insurance. However, plainly, any person who becomes an MDANI policyholder prior to the effective date of the insurance scheme will be an affected policyholder.

The identity of affected policyholders 17 MDANI keeps records of its insurance business on an integrated computer database called PIVOTAL, which has been used by MDANI since 2004. These records disclose that, as at 1 September 2014, there were 41,920 affected policyholders. 18 MDANI maintains records of policyholders who have provided an email address for the purpose of receiving communication on insurance matters. These records are continuously updated to ensure that they are accurate. The evidence shows that there is an established general practice of MDANI using email to communicate with its policyholders, unless the policyholder has not provided an email address or has opted-out of receiving such communication. Generally, the use of email communication commences at the time of the policyholder's application for indemnity insurance. 19 MDANI has interrogated its computer records to produce a report, as at 1 September 2014, of current policyholders for whom it does not have a current postal address or valid email address. This report shows that there were 145 such policyholders. Of this group, 142 (98%) were medical students or interns. 20 There is evidence that MDANI has already taken steps to contact policyholders in this group by telephone, using the telephone number shown in the policyholder's record. Where there has been no answer, a message has been left for the policyholder to contact MDANI to provide an updated address or contact details. Where no response has been received, repeated attempts have been made to contact the policyholder by telephone. Where the policyholder is a medical practitioner, steps have also been taken to obtain a phone number for the practitioner based on an internet search of the practitioner's place of practice or employment, as shown in that person's record.

The dispensation sought 21 MDANI does not propose to give a copy of the approved summary of the scheme to the 145 affected policyholders to whom I have referred in [19] above, for the simple and obvious reason that it cannot; it does not have a valid email address or postal address to which it can send the summary, despite having taken steps to obtain the relevant details. 22 MDANI proposes to give a copy of the approved summary to all other affected policyholders, representing 99.7% of affected policyholders, in one of two ways. 23 First, for those affected policyholders for whom it has a current email address which the policyholder has given for receiving communication on insurance matters (namely, 37,883 policyholders representing approximately 91% of the total number of affected policyholders proposed to be notified), MDANI proposes to send an email which advises on the scheme and which contains a link that allows the policyholder to download the approved summary. 24 MDANI proposes to send the emails to affected policyholders using a bulk email platform that enables one email to be sent to each policyholder automatically and concurrently, by reference to a database that records a valid email address for each member. This avoids the need to manually create and send individually the same email to each of the affected policyholders who has supplied a valid email address for insurance communication. 25 Reports of emails so sent can be generated to identify whether the email delivery has been successful; whether there has been a "hard bounce-back" (where the email has been rejected by the recipient because the email address is incorrect or no longer in existence); whether there has been a "soft-bounce back" (where the email has been rejected by a recipient because the recipient's mailbox is full or the server is down); whether a recipient has read the email; whether a recipient has clicked on a link contained in the email; and the number of emails that might have been marked as spam. 26 MDANI will implement the following process in respect of any unsuccessful first attempt to give the approved summary to these affected policyholders by email. Designated staff within MDANI will have the responsibility of collating emails for which MDANI has received a delivery error message or "bounce-back". Attempts will then be made to contact the affected policyholder by a range of methods that include: telephoning the practitioner on numbers held by MDANI; contacting the practitioner at the practice address or any alternative address that may have been provided by that person; and searching for the practitioner on the World Wide Web to find the address of that person's hospital or practice, in order to successfully email the approved summary. 27 Secondly, for those affected policyholders falling into the following groups: those who have opted-out of receiving email communication; those for whom MDANI does not hold a current email address; those in respect of whom the proposed electronic delivery has been unsuccessful; and those to whom the approved summary has been sent electronically, who request a paper copy of the summary, MDANI proposes to give a paper copy of the approved summary of the scheme by ordinary, pre-paid post. 28 MDANI will implement the following process in respect of any unsuccessful first attempt to give the approved summary to affected policyholders by ordinary post. The envelopes within which the approved summary is posted will bear a return address. Designated staff within MDANI will have the responsibility of collating mail that is returned to that address. In respect of that mail, attempts will be made to contact the affected policyholder by a range of methods that include: telephoning the practitioner on numbers held by MDANI; emailing the practitioner (where a current email address is held); and searching for the practitioner on the World Wide Web to find that person's hospital or practice, in order to successfully send the approved summary. 29 Where the affected policyholder's insurance has been obtained through a broker or either DPLA or ADA WA, then, as part of the steps summarised in [26] and [28] above, MDANI will also seek up-to-date contact information from the intermediary concerned. 30 The processes summarised in [26], [28] and [29] will continue until confirmation of the scheme by the Court is sought, to ensure that all reasonable efforts have been made to give the approved summary to affected policyholders. 31 As regards future affected policyholders, MDANI will undertake fresh searches to update the data it obtained as at 1 September 2014. The object will be to ensure that its "mailing list" of affected policyholders is as up-to-date as it can be before dispatching the approved summary. It will then give the approved summary to affected policyholders on that list, as proposed in [23]-[30] above. 32 For future affected policyholders who become policyholders after the "mailing list" is finalised, MDANI proposes to give the approved summary, as follows: To each future policyholder who applies for or seeks information about insurance from MDANI prior to the end of the public inspection period prescribed by Prudential Standard GPS 410 Transfer and Amalgamation of Insurance Business for General Insurers (GPS 410), MDANI will provide the approved summary of the scheme either electronically or in paper form in accordance with the manner in which that person has elected to receive communication from MDANI. To each future policyholder who applies for or seeks information about insurance from MDANI after the end of the public inspection period but before the date on which the Court confirms the scheme, MDANI will provide the approved summary as above and give notice that the policyholder can obtain a copy of the scheme and any associated documentation. To each future policyholder who applies for or seeks information about insurance from MDANI on or after the date on which the Court confirms the scheme, but before the scheme takes effect, or earlier since MDANI expects to cease writing new insurance business before that date, MDANI will inform the policyholder of the effect of the scheme and provide information about how the policyholder can obtain a copy of the scheme and any associated documentation. 33 In order to maximise the awareness of affected policyholders and other stakeholders about the scheme, MDANI proposes to undertake the following additional steps: MDANI will deliver to both DPLA and ADA WA a paper copy of the scheme and the approved summary, in order to facilitate inspection by affected policyholders within their respective portfolios. MDANI will deliver to each of the five brokers with which it has service agreements, a paper copy of the scheme and the approved summary, in order to facilitate inspection by affected policyholders who have or will obtain insurance from MDANI through those brokers. MDANI will provide a copy of the approved summary to the office of the Medical Board of Australia; As required by GPS 410, MDANI will publish a notice concerning the proposed scheme in the Commonwealth Government Gazette, substantially in the form shown to the Court. MDANI will cause an advertisement of the notice to be published in The Australian Financial Review, which circulates throughout Australia, and in other newspapers. MDANI will make available the approved summary, the scheme and the actuarial report on which the scheme is based, at public inspection sites in each State and Territory of Australia. MDANI will publish a copy of the approved summary on its website.

Consideration 34 The granting of dispensation pursuant to s 17C(5) of the Act is a matter of considerable importance and should not be regarded as a matter of course: Challenger Life Limited [2004] FCA 618 at [2]-[3]; Munich Reinsurance Company of Australasia Limited [2004] FCA 1391 at [4]. The plain policy intention is that every affected policyholder should be given a summary of the scheme and an opportunity to make submissions to the Court in respect of it on a confirmation application: The Application of Commonwealth Life Ltd & Anor [2003] FCA 501 at [8]; see also Westport Insurance Corporation, in the matter of Westport Insurance Corporation [2009] FCA 1357 at [38]; HDI-Gerling Australia Insurance Company Pty Limited, in the matter of HDI-Gerling Australia Insurance Company Pty Limited (ABN 16 069 985 196) [2010] FCA 505 at [38]-[39]. 35 The application for dispensation in the present case has two aspects. 36 First, there is a very small percentage of affected policyholders for whom MDANI does not have a postal or valid email contact address. It has taken steps to obtain a contact address for these policyholders, without success. On the evidence before me, I am satisfied that MDANI has made reasonable efforts in that regard. It seems to me to be a matter of common sense that dispensation should be granted in respect of those policyholders, also bearing in mind the other steps that MDANI will undertake to bring the approved summary to the attention of affected policyholders: see [33] above. 37 Secondly, MDANI proposes to give the approved summary to a very large percentage of the affected policyholders by email, rather than by post. Section 121 of the Act relevantly provides that a document or notice required or permitted to be served on, or given to, a person under or for the purposes of the Act, may be served or given: in the case of a person other than a body corporate, by serving it personally upon the person or by sending it by registered post to the person at his or her usual or last known place of abode or business, and in the case of a body corporate incorporated in Australia, by leaving it at or sending it by registered post to the registered office of the body corporate. Plainly, electronic delivery is not contemplated. 38 I am satisfied that, in the present case, it is appropriate that, to the extent that it might be required, dispensation be granted with respect to s 17C(2)(c) of the Act, read with s 121, in respect of those affected policyholders for whom MDANI has a valid email address or postal address, so as to permit MDANI to give the approved summary in the ways it proposes. 39 With respect to those policyholders for whom MDANI has a valid email address, and who have not opted-out of receiving communication by email, this form of communication has been a customary mode of communication with MDANI. It is also a mode of communication that can be and will be closely monitored by MDANI in the ways I have described. No doubt, at the confirmation hearing, it will be important for MDANI to provide evidence of the ways in which it has monitored the giving of the approved summary by email, to ensure that the Court can be satisfied that effective notice has been given. 40 Further, email will be used for communicating with members of MDAN in relation to the MDAN scheme. Given that a large percentage of affected policyholders are also current members of MDAN (77%), and given that a large percentage of these members will receive communication in relation to the proposed merger by email, it seems desirable that there be consistency in the mode of communication used on that subject-matter. 41 Moreover, although not quantified in the evidence, I am satisfied that there will be real cost-savings by using email as a mode of giving the approved summary, without apparently compromising the effectiveness of its delivery. 42 The remaining affected policyholders represent approximately 9% of those to whom MDANI proposes to give a copy of the approved summary. I am satisfied that it is appropriate and sufficient to give the approved summary to these policyholders by ordinary, pre-paid post. I take into account the process that MDANI will implement for dealing with ordinary mail that is returned, as described in [27]-[30] above. I also take into account, once again, the steps that MDANI will undertake to bring the approved summary to the attention of affected policyholders, as described in [33] above. It will also be important for MDANI to provide evidence at the confirmation hearing of the way in which it has monitored the giving of the approved summary by ordinary, pre-paid post, to ensure that the Court can be satisfied that effective notice has been given. 43 Finally, APRA has been represented at this hearing. It has raised no objection to MDANI's proposals for giving the approved summary or to the conditional dispensation that is sought.

Disposition 44 For these reasons, the dispensation that is sought should be granted on the terms proposed. Orders will be made as sought by MDANI. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.