Carters v State of New South Wales & Anor

Michelle Carters (Plaintiff) PARTIES: The State of New South Wales (First Defendant) Dean McCartney and Jason Finn (Second Defendants)

AJ Stone (Plaintiff) COUNSEL: W Fitzsimmons (QBE) S Davis (State of NSW)

SOLICITORS: White Barnes (Plaintiff) David McLachlan, Solicitor (First and Second Defendants)

The plaintiff needs an operation to her neck. She wants QBE Insurance (Australia) Limited ("QBE") to pay for it.

The plaintiff injured her neck in an accident on 5 July 2006. She was then a prisoner in the back of a prison van being transported from jail to court. She stood up during the journey and was thrown forward when the van suddenly braked. She struck her head and neck on a part of the van.

The first defendant is the owner of the van. QBE is its third party insurer. The second and third defendants are employees of the first defendant. One of them was the driver of the van.

The plaintiff says that her injury was caused in a motor vehicle accident falling within the Motor Accident Compensation Act 1999 ("MACA"). On 2 July 2008 a claim form was served on QBE.

On 13 October 2008 QBE issued a Section 81 Notice by which it admitted liability for the claim and alleged contributory negligence on the plaintiff's part.

The effect of the admission was to trigger certain obligations that the MACA imposes on an insurer. The obligation relevant here is set out in Section 83. There is a duty on an insurer, once liability has been admitted, to make certain medical payments.

The payment for the plaintiff's neck operation is a payment that would normally fall within the bounds of Section 83. In this regard an appointed medical assessor (Dr Meakin) has certified that the surgery to the plaintiff's neck relates to "injuries caused by the motor accident" (Exhibit B).

Following the admission of liability, QBE continued to investigate the matter and ultimately came to a conclusion that the plaintiff's injury did not fall "within the definition of "injury" in Section 3 of the Act as it was then enacted" (affidavit of Mr Sweeney affirmed on 21 September 2009). If the plaintiff was not injured in circumstances falling within the definition, then her action would not fall within the MACA and, more importantly for present purposes, QBE would not be liable to indemnify the owner or driver of the vehicle in respect of any liability they might have to the plaintiff.

On 14 July 2009 QBE advised the first defendant that it would not indemnify it. On 24 September 2009 QBE said it would not pay for the surgery because it was not liable to indemnify the defendant.

The plaintiff does not concede that the insurer's indemnity argument is correct. She does, however, accept that there is a genuine argument to that effect. Section 79 of the MACA caters for this circumstance by enabling an insurer to be joined to the legal proceedings as a separate party so that it may argue an indemnity point.

The first motion before me is QBE's application under Section 79. The first defendant does not oppose the application. The second and third defendants have taken no part in the proceedings. I will return to the plaintiff's attitude below.

The plaintiff responded to QBE's motion by filing her own motion, on 23 October 2009, in which she seeks an order that QBE pay her medical expenses pursuant to its obligation under Section 83. This is the second motion that I am hearing.

By consent of the plaintiff and QBE, the two motions were heard together.

The plaintiff's approach to the motions can be categorised in this way:- (a) She does not think the court has the power to make the order that she has sought, but nevertheless she seeks a finding that QBE's obligation under Section 83 has not been affected by its withdrawal of liability. (b) If the above finding is made, although she cannot have the order she wants, it should be a condition of QBE obtaining leave to be joined as a party, that QBE meet its Section 83 obligation.

QBE's attitude, in response, is as follows:- (a) The court does not have power to make an order enforcing Section 83. (b) Even if the court had this power, it would not exercise it because, having withdrawn the admission of liability, QBE is no longer bound by Section 83. (c) Although there is a discretion in the granting of an application under Section 79, it is not wide enough to cater for the order sought by the plaintiff.

There are two other relevant dates: On 8 May 2009 an Exemption Certificate, under Section 92(2) of the MACA, was issued by the Motor Accidents Authority. The effect of this certificate was that the plaintiff's claim was taken out of the Authority's internal, statutory, dispute regime ("CARS"). This enabled the plaintiff to file court proceedings, which she did on 19 May 2009.

Can the plaintiff have an order enforcing a Section 83 obligation?

I agree with the defendant's submission, which was effectively conceded by the plaintiff. This question was considered by the Court of Appeal in respect of the legislation that preceded the MACA, in Stubbs v NRMA Insurance Ltd 42 NSWLR 550. This was the Motor Accidents Act 1988. The equivalent section in this Act was Section 45. I think I need only quote from the head note to describe the result of this case:- "Section 45(2) of the Act does not confer upon a person who has been injured in a motor accident, liability for which has been admitted or determined in favour of that person, a private right of action to enforce the duty of the relevant insurer to make payments to or on behalf of that person in respect of the expenses referred to in that subsection."

The MACA sought to overcome this problem through Section 96. This provides for the resolution of disputes between a claimant and an insurer as to, inter alia:- "(1)(e) Whether a payment is required to be made under Section 83 …)."

The plaintiff, however, cannot take advantage of this apparently useful provision because her claim has been exempted from assessment, as I have already said, under Section 92. Without access to the dispute resolution provision in Section 96, the plaintiff's position falls back to that which faced the plaintiff in Stubbs, namely that she does not have a right to enforce the insurer's obligation, if there be one, under Section 83.

The plaintiff's inability to obtain the order she seeks under her Notice of Motion should dispose of the matter without more. The plaintiff, however, has sought a finding on QBE's obligation. In my view this is effectively seeking a declaration, a process that would have been better pursued in the Supreme Court. The issue does, however, have a relevance to the defendant's Motion so that I will consider it. I stress, however, that I do not attribute to any finding that I make, the status of a declaration. Rather it is a finding necessary for the disposition of QBE's application.

The plaintiff's argument on this point is, in simple terms, as follows:- (a) When the insurer admitted liability it surrendered to the statutory scheme imposed on third party insurers for dealing with persons injured in motor vehicle accidents, as defined by the MACA. (b) The withdrawal of liability was permissible but only relevant to the court proceedings. (c) Thus QBE could argue in court that it was not liable to indemnify the defendant but that did not relieve it of its obligations under the statutory scheme.

QBE's response is as follows:- (a) There is a fundamental inconsistency in it being allowed to deny indemnity in court but at the same time being obliged to act as if indemnity is admitted. (b) The very terms of Section 83, in particular subsection 2(c), cater for this circumstance and permit the insurer to refuse to make the payments.

At the core of the plaintiff's argument is the decision of the Court of Appeal in The Nominal Defendant v Gabriel & Anor (2007) 71 NSWLR 150. The plaintiff relies most heavily on the following passages from the judgment of Campbell JA, with whom Hodgson JA substantially agreed:- "142. In my view, the provisions of the MAC Act do not confer on an admission of liability under section 81 any consequences other than those provided for by the Act itself. Thus, the making of such an admission of liability triggers an obligation to pay the medical and related expenses referred to in section 83. Pursuant to section 94(1)(a) an assessor is not empowered to decide the issue of liability for the claim if the insurer has accepted liability. However, an admission of liability under section 81 has no greater status, once court proceedings are begun, than any other admission of liability made out of court has in those proceedings." "143. There is no provision in the MAC Act that says that a section 81 admission of liability, once made, can be "withdrawn", either unilaterally by the insurer or with the permission of a court or of anyone else. In contrast, section 81(4) empowers an insurer to in effect retract either an actual denial of liability, or a deemed denial of liability arising under section 81(3)." "167. The "amended section 81 notice" served in the present case does not have any effect pursuant to the MAC Act , for the simple reason that the MAC Act has no provision for any amended section 81 notice that retracts an admission of liability previously made in a section 81 notice. For reasons already given, it is not open to an insurer to "withdraw" a section 81 notice in the sense that it ceases to be an admission for the purposes of the law of evidence. Because it is not made in court proceedings, in my respectful view, no question arises of whether, if an adequate explanation was forthcoming, an admission in a section 81 notice could be withdrawn in the same way that a formal admission made in court proceedings can sometimes be withdrawn. Whether a section 81 admission, once made, can ever be departed from by an insurer in the course of the bureaucratic assessment procedure, and whether circumstances that show that a section 81 admission was made in error could be grounds for the Authority to issue a section 92 certificate (thereby permitting the insurer to dispute liability in court proceedings) are questions that do not arise in this appeal." "172. Section 83 creates an obligation for an insurer to pay medical and similar expenses that is not dependent upon the fault of the person against whom the claim is made. Rather, it is an obligation, purely of statutory origin, that arises from the fact that an insurer has made an admission of liability wholly or in part, or that there has been a determination of liability wholly or in part. Section 118 has the effect that any payment that has been made pursuant to that special statutory obligation can be recovered only if the making of that payment arose from the type of fraud that section 118 is concerned with. A payment made under section 83 can be recovered only in the circumstances section 118 sets out, regardless of whether there is litigation concerning the claim. Recovery of the money paid under section 83 is, of course, different to relying on the fact that the payment was made as a means of reducing, under section 83(5), the amount of damages that would otherwise have been payable."

Basten JA dissented, but the plaintiff nevertheless seeks support from this passage in his Honour's judgment at paragraph 31:- "31. … A purported withdrawal of the admission will not excuse the insurer from continuing liability [to make payments] …"

The plaintiff relies on the above passages from Gabriel to argue that the withdrawal of liability by QBE only affects the court proceedings and cannot relieve the insurer of its obligations under the statutory scheme. I agree and think that a more important passage, than those quoted above, from Gabriel, is to be found in the judgment of Campbell JA at paragraph 173 where he said the following:- "173. The critical question for the present case concerns the circumstances in which an insurer can, by the first defence it files in litigation, dispute liability. The liability concerned is a liability to make a payment that a plaintiff claims the insurer is legally obliged to make by reason of the negligence of the insured, not a liability that arises by force of statute under section 83."

This passage in Gabriel was summarised by Fullerton J in Australian Associated Motor Insurers Ltd v Cassidy & 2 Ors [2009] NSWSC 804 in this way:- "42. …s 83 imposes an obligation on an insurer to pay medical and other expenses that is purely of statutory origin since it does not depend upon the fault of the person against whom the claim is made, a fundamental feature of liability at common law."

Fullerton J was dealing a matter in which there had not been an Exemption so that the claim remained within the bureaucratic process. That is not the situation here but I think her above quoted comment precisely sums up, for present purposes, the effect of the decision in Gabriel. Although the court in Gabriel did not make any definitive finding on whether there could be a withdrawal of admission of liability whilst a matter stayed within CARS it said that the insurer's right to withdraw liability in an exempted matter was a function of its right to defend a case at common law on a common law basis.

In my view, the effect of the withdrawal of liability in the present case must be confined to the withdrawal of liability in defence of the common law proceedings.

The admission made under Section 81 by the insurer does not therefore bind it in court, but absent some specific provision allowing it to withdraw the liability within the statutory scheme, which does not exist, the liability under the scheme must continue. The inconsistency between the obligation to make payments and the possibility of an absence of an obligation to ultimately indemnify, is I think met by Fullerton J's above quoted comment in particular the words "… since it does not depend upon the fault of the person against whom the claim is made …".

I think these words also deal with a distinction that the defendant raised between Gabriel's case and the present matter. In Gabriel the insurer wished to change its admission of liability because it wanted to raise a factual argument concerning the fault of the insured for the accident. QBE says that in this matter the argument that it wishes to raise goes to indemnity of the insured, not whether or not the insured was at fault. I agree that there is a distinction, but I do not see that the distinction affects the entry into the statutory scheme, which arose on QBE issuing the Section 81 Notice.

I think it important to remember that this entry into the statutory scheme by QBE, was a product of its voluntary conduct through the issuing of the Section 81 Notice. It did not arise simply by QBE being the third party insurer of the relevant vehicle. QBE itself created its obligation to make Section 83 payments by admitting liability. In other words QBE, as a result of Gabriel, is free to argue indemnity in court but it remains entrenched in the statutory scheme by its Section 81 admission.

This subsection, relevantly, is as follows:- "(2) The duty of an insurer under this section to make payments applies only to the extent to which those payments: (a) are reasonable and necessary in the circumstances, and (b) are properly verified, and (c) relate to the injury caused by the fault of the owner or driver of the motor vehicle to which the third-party policy taken to have been issued by the insurer relates." 33. Subsections (a) and (b) have been met in relation to the neck operation. QBE relies on subsection (c) to argue that it does not need to make the payments because subsection (c), by its terms, includes an acknowledgment of fault on the part of the owner or driver of the relevant vehicle and, of a valid indemnity under the vehicle's third party insurance policy.

I disagree with this argument, for this reason: The obligation to make payments under Section 83 is only triggered upon an admission of liability, in whole or in part, as stated in subsection (1). To allow the insurer to refuse to make the payments because of a negligence or indemnity issue, under subsection (2)(c), is a direct contradiction of the admission of liability. On QBE's submission, the admission of liability under subsection (1) can, in effect, be ignored under subsection (2)(c).

I think the better meaning of subsection (2)(c) is that it enables the insurer to refuse to make payments in respect of injuries that it does not consider relate to the accident that has given rise to the liability. An, admittedly over simple, example would be that a claimant suffering a broken leg in a motor vehicle accident could not claim expenses in relation to a broken arm with which he was already suffering when the accident occurred. In a more likely scenario, the subsection allows an insurer to argue that a particular injury, or perhaps its extent, was not suffered in the relevant accident.

I am therefore of the view that Section 83(2)(c) does not assist QBE.

This section is as follows:- "79. An insurer may apply to the court to be joined as a party to legal proceedings brought against a defendant who is insured under a third-party policy with the insurer in order to argue that in the circumstances of the case it has no obligation under the policy to indemnify the defendant."

The plaintiff submitted that a discretion arises from the word "apply" which suggested that joinder was not automatic. QBE agrees with this submission but says that the discretion is essentially related to matters of fundamental practicality. Thus, for example, an insurer applying on the first day of a long set down hearing might not be entitled to be joined to the proceedings, absent appropriate notice, as the effect would be to prevent a plaintiff proceeding with an already prepared case. In addition, QBE submitted that the discretion might extend to ensuring that there was a real indemnity question to be argued. An application under Section 79 should fail if the insurer did not have a proper basis for challenging indemnity.

In this matter QBE says the application has been made in a timely fashion and there has been a concession by the plaintiff that it has a genuine argument to run. Therefore, it is entitled to be joined as a party under Section 79.

The plaintiff's position is that once a discretion exists it can be utilised to achieve justice between the parties. The plaintiff says that the failure of MACA to give her a means of enforcing Section 83 (in an Exempted claim), and on the background of there being an obligation on the insurer to comply with Section 83, entitles her to a condition that says to the insurer: yes, you may be joined, but only if you make the payments which you are obliged to pay me but I cannot otherwise force you to make.

There is a sense of achieving fairness in the plaintiff's argument but I do not think it can be applied to prevent or constrain the joinder of the insurer. I make the following points in support of my conclusion:- (a) The joinder of the insurer to argue indemnity is essentially a procedure to resolve a dispute between the insurer and its insured. The plaintiff's action is against the insured and although she might benefit from the existence of the insurance, her dispute is with the owner and driver of the vehicle. (b) The plaintiff's purpose is to overcome a deficiency in the Act arising from her inability to otherwise enforce an obligation under Section 83. Resolution of this quandary lies with the legislature, not within my discretion. (c) The finding I have made above that QBE has not escaped its statutory obligations is confined to the bureaucratic process. My inclusion of a condition on the joinder application would impose the process on the Common Law proceedings and blur the distinction that is at the core of the decision in Gabriel .

A short summary of my findings is as follows:- (a) The plaintiff's motion must fail because the MACA does not allow the enforcement of an insured's obligations under Section 83 by a claimant. (b) Despite the preceding finding, QBE is still bound by the obligations under Section 83 that fell upon it when it issued the Section 81 Notice. (c) Section 83(2) does not permit an insurer to refuse to make a payment because it disputes indemnity under the policy. (d) The discretion that exists under Section 79, in considering an insurer's application to be joined as a party, does not extend to allow the imposition of a condition on the joinder that the insurer meet its obligations under Section 83.

Accordingly, I make the following orders:- (a) In QBE's Notice of Motion filed on 23 September 2009:- (i) QBE Insurance (Australia) Ltd be joined as a party to the proceedings in accordance with Section 79 of the Motor Accidents Compensation Act 1999. (ii) Each party to pay its own costs of the Notice of Motion. (iii) No order as to costs of this Notice of Motion in respect of the first, second and third defendants. (b) In the plaintiff's Notice of Motion filed on 23 October 2009:- (i) The Notice of Motion is dismissed. (ii) The plaintiff is to pay QBE's costs of the Notice of Motion. (iii) No order as to costs of this Notice of Motion in respect of the first, second and third defendants.

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