Does s 6 apply to a claims made and notified policy where the event giving rise to the claim for damages occurs prior to the commencement of the policy?
67 A question arises in relation to whether or not s 6(1) applies to "claims made and notified" policies, such as that issued by the defendants, where the event giving rise to the claim for damages occurs prior to the inception of the policy.
68 There is a divergence on this point. Although initially the Plaintiff indicated that it accepted the Defendants' submission to the effect that the section did not apply in such a case, it later resiled from that stance. As a consequence, it is necessary for me to refer to the competing authorities, and to reach a conclusion as to which line to follow.
69 In FAI (NZ) General Insurance Co Ltd v Blundell and Brown Ltd [1994] 1 NZLR 11 Richards J said, in relation to a similar provision contained in s 9 of the Law Reform Act 1936 (NZ) (at 16):
"Two elements must be present before a charge arises: the first is a contract of insurance by which the insured is indemnified against liability to pay any damages or compensation; the second is an event giving rise to a claim for such damages or compensation. In providing that the charge arises "on the happening of the event giving rise to the claim for damages or compensation" the subsection does not advert to those situations where the contract indemnified was entered into subsequent to the event giving rise to the Plaintiff's claim. No doubt that was because claims notified were not a common form of insurance practice in the contemplation of the legislators of 1936. But the subsection itself also provides that the charge is on "all insurance money, that is or may become payable in respect of the liability". It is implicit in the sub-section and in accord with the reality that the charge cannot arise unless and until there is insurance money available out of which it can be met, in short the charge arises only where there is in existence both contract of insurance indemnifying the insured and an event giving rise to the claim."
70 Robertson J similarly said (at 25):
"the respondent's claim against [the insured] is in equity and no limitation period applies. The relationship between [the insured] and his insurers is in contract. The trigger point in respect of a potential liability for the Appellant is the emergence of a claim against [the insured] during the period of insurance. It would make the insurance cover of no utility if one were to interpret the provisions so that a claim notified in respect of an incident more than six years earlier (but itself not statute-barred) could not create a liability. The notification of the claim was made in this case more than six years after the event giving rise to the liability. I am not attracted by an interpretation which indicates that the remedial benefit contained in s 9 of the Law Reform Act is to have no potential for application."
71 Lindgren J in National Mutual Property Services (Australia) Pty Limited v Citibank Savings Ltd (No. 4) (1996) 138 ALR 409 stated (at 419) that it was "arguable" that s 6 of the New South Wales Act would apply to a claims made and notified policy in respect of events occurring before its inception. That view was confirmed by his Honour in FAI General Insurance Co Ltd v McSweeney (Judgment Part 1) (1997) 73 FCR 379.
72 In the first of these decisions, his Honour expressed the view that the statutory charge could be applied to a claims made and notified policy which came into existence after the event, if the charge was conceived of as partaking of the nature of a floating charge, which becomes fixed once there are moneys payable in respect of the liability in question.
73 In FAI, Lindgren J confirmed the approach which he had considered arguable in National Mutual, and declined to follow the construction which Cole J had given to the section in Capita Financial Group Ltd v Triden Properties (infra) NSWSC 6 September 1993, for the following reasons (at 415-147):
"1. Unlike Cole J in Capita , I do not think that the expression "is indemnified'' speaks as at the time of the event, and therefore requires that a contract of insurance be in existence at that time. The construction that that expression speaks as at the time of adjudication by the court is at least equally open, and, in my view, it is the construction that is suggested by a natural and unforced reading of s 6(1).
2. The charge is expressed to be on, relevantly, "insurance moneys that may become payable'' in respect of the insured's liability to pay damages or compensation. In Oswald v Bailey , Kirby P considered (at 723F) that the expression "moneys that may become payable'' embraced a situation in which the precise amount of insurance moneys payable was not clear at the time of the event. In Bailey , McHugh and Gummow JJ referred (at CLR 449-50) to further "contingencies'' which might be contemplated by that expression, such as an insurer's right to avoid the contract because of a vitiating factor in its formation, or its right to disclaim liability for breach. While their Honours' observations assumed, consistently with the facts of the case before them, the existence of a contract of insurance at the time of the event, in my opinion, the expression "moneys that may become payable'' is apt also to accommodate moneys that may become payable after the subsequent entry by the wrongdoer into a claims made and notified contract of insurance.
3. The terms of s 6(1) do not expressly restrict the charge to, relevantly, moneys that may become payable under a contract of insurance in existence at the time of the event. Nor should such a limitation be held to be implied unless this is plainly required. It should not be readily implied because it is inconsistent with the policy objective which underlies the provision, namely, that of achieving the result that moneys which in fact become payable under a liability indemnity policy are made available to a claimant. It would have been a simple matter for parliament to add such words as "under the contract of insurance in existence at the time of the event giving rise to the insured's liability'' at the end of s 6(1) if the provision had been intended to have the restricted operation suggested.
4. No reason of policy has been suggested, and I can think of none, why the provision should not apply to a claims made and notified policy which comes into existence after the event. According to either of the two constructions described earlier, the charge is a "windfall'' for the claimant. It is no part of the policy which underlies the provision, that the claimant should have been aware of the existence of the contract of insurance, bargained for its existence, or dealt with the insured in reliance on its existence. The legislative policy of ensuring that the claimant will have the benefit of the moneys payable under a contract of liability indemnity insurance is better served by the second construction than by the first. The two constructions referred to earlier are both arguable, and the second should be preferred as better conforming to the purpose of the provision.
5. Section 6(7) presents no difficulty for either construction: according to the first, "the contract of insurance'' to which that section refers is that which was in existence at the time of the event; according to the second, it is that which existed during the period in which the relevant claim was made and notified.
6. Once it is accepted that the expression "moneys that may become payable'' encompasses the situation where moneys become payable pursuant to a claims made and notified policy entered into after the event, it is clear that the language of s 6(1) is always satisfied as at the time of the event, since it is always the case that the wrongdoer may, after the event, enter into a claims made and notified policy under which relevant moneys will become payable.
7. It seems to me, with respect, that the reasoning in Manettas gives an undue significance to the expression "on the happening of the [event]''. On any reckoning s 6(1) provides for a charge which comes into being on the happening of the event and continues in existence afterwards. Indeed, it is reasonable to think that in most cases, including most non-"claims made and notified'' cases, it is insurance moneys that "may become payable'' after the event rather than those that "are payable'' at the time of the event, on which the statutory charge can be expected to operate. This is because in most cases (as subss (2) and (3) of s 6 contemplate) the amount of the insured's and the insurer's liability will not be known on the happening of the event, and because the making of a claim by the insured upon the insurer for indemnity will be a condition precedent to the arising of the insurer's liability to indemnify. If s 6(1) had made explicit that which is implicit, by saying " … on and from the happening of the event …'', rather than simply " … on the happening of the event …'', the capacity of the provision to encompass claims made and notified policies subsequently entered into would, perhaps, have been clear."
74 Davies J in Jones v Mortgage Nominees (Federal Court of Australia 10 November 1995) had earlier indicated that he preferred this approach to the section, although he was not required to decide the matter on a final basis in those proceedings.
75 There is, however, a more consistent line of authority in this Court to the opposite effect. Cole J (as he then was) held in Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180, and in Capita Financial Group Ltd v Triden Properties Ltd NSWSC 6 September 1993, that while s 6(1) does apply to claims made and notified policies, that is not the case where the event giving rise to the claim preceded the commencement date of the policy.
76 His Honour said in Manettas:
"The argument is a simple one. The charge created by s6(1) must attach to insurance monies at the time of "the happening of the event giving rise to the claim for damages or compensation". The charge is "on all insurance monies that are or may become liable in respect of that liability". In the present instance the negligent acts or omissions of the insured solicitors occurred in 1988. The policy of insurance pursuant to which the insured solicitors claimed indemnity was a policy which came into existence in 1991. It responded to claims made and notified during the 1991-1992 financial year. Accordingly, "on the happening of the event giving rise to the claim for damages or compensation" in 1988 there were no insurance monies "that are or may become payable in respect of that liability". Thus s 6(1) can have no application to a "claims made and notified" policy, unless the event giving rise to the claim for damages or compensation occurs within the period of insurance covered by that policy so that there are, at that time, insurance monies that are or may become payable in respect of that liability. In any other circumstance there is nothing to charge because there was, at the material time, no insurance monies available to be charged. Although, as Meagher JA pointed out in Grimson at 428, the section is curiously drafted in that it "purports to grant a charge or security but not over any property", it is even more difficult to contemplate the granting of a charge at a time when the insurance policy does not exist.
There is no doubt that the time at which the notional charge attaches is the time of "the happening of the event giving rise to the claim for damages". The words "on the happening of the event" deny any alternate interpretation. The Court of Appeal has held that "it is at that time and none other, that the charge attaches. The subject matter of the charge must then be determined, again at that time" (Oswald (1987) 4 ANZ Ins Cas 60-807 at p 74, 951, 1987 11 NSWLR 715 at 723 per Kirby P). Further, Samuels JA said in Oswald …
'Furthermore, it cannot be doubted, in my opinion, that since s6 establishes a charge upon "insurance monies", the effectiveness indeed the reality of the charge, must depend upon whether that subject matter exists'.
If at the relevant time there is no insurance policy, there cannot be any "insurance monies". The words of s6(1) in my opinion, inevitably lead to the conclusion that s6(1) does not apply to "claims made and notified" policies where the event giving rise to the claim for damages occurs prior to the commencement of the period of the policy."
77 In Capita his Honour came to the same conclusion, observing:
"No liability…arises until the cause of action of the third party is complete. A negligent act without loss creates no liability in the insured nor can it give rise to "the claim for damages" in the third party. The "happening of the event" which gives rise to "the claim for damages" by the third party on the insured must thus relate to that event which completes the cause of action and permits the making or the "giving rise to" the claim for damages upon the insured. The "claim for damages" referred to in section 6(1) must, in my view, relate to a maintainable claim for damages in the sense that there is complete cause of action."
78 In Carnie v Richmond NSWSC and Ors 9 September 1997, Dowd J made reference to the proposition accepted by the authorities (Bailey v NSW Medical Defence Union Ltd (1995) 69 ALJR 890, and Oswald v Bailey (1987) 11 NSWLR 715) that the charge arises on the happening of the event giving rise to the claim for damages or compensation, and to the nature of that charge. His Honour said:
"In Findlater v Public Trustee and Queensland Insurance Co [1931] GLR 291 at 293 Blair J construed s10 of the Motor-vehicles Insurance (Third-party Risks) Act 1928, which is part of the ancestry of the current Act, as follows:
'As Wiggs' negligence (he was the insured) has not yet been established the amount of this charge is not fixed, but the charge though indefinite as to amount becomes fixed as soon as liability on Wiggs' part is established. Until it becomes fixed and there is only a possible liability the charge is in the nature of a floating charge liable to become fixed with its priority preserved as from the date of the accident'.
A more recent case, referred to me by the applicant and to which I will refer again later in this judgment, is National Mutual Property Services (Australia) Pty Ltd & Ors v Citibank Savings Bank Ltd & Ors (1996) 138 ALR 409 per Lindgren J. In that matter his Honour held that the word ('charge' as used in s6(1) might refer to a floating charge which would fasten upon a particular right of indemnity upon a claim for damages or compensation coming into existence.
I have some difficulty, however with his Honour's reasoning in that his Honour emphasises the fact that the 'charge' is on moneys that "may become payable" but does not seem to give sufficient weight to the words in s6(1) of the Act, the words that "the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation." It seems to me that a charge descending on insurance moneys "on the happening of the event" can mean only at the time of the event the subject of the claim itself and insurance moneys that "may become payable" do not comfortably fit in terms of the actual words used in s6(1) with the nature of a "claims made and notified policy".
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The legislative provision nominates a time at which the 'charge' attaches. As Kirby P indicated in Oswald at p724, "it is at this time that the decision must be made whether there are "insurance moneys" and whether at that date they "may become payable in respect of ..liability". It is apparent that the words "may become payable" were used with reference to insurance moneys being determined by litigation and in terms of quantum only rather than to necessarily import a flexibility as to when the charge may arise."
79 His Honour concluded:
"I do not consider that the New Zealand Court of Appeal decision of FAI (NZ) General Insurance Co Ltd v Blundell & Anor constitutes a decision which is as persuasive as the clearly enunciated words used in the section as set out by Cole J in Manettas.
No matter how beneficial legislation may be in intent, it is for the legislature to bring that intent to cover a new set of circumstances and not for the courts to do so, no matter how unjust the consequences of the legislative enactment may be. The fact that there has been a significant change in insurance practice would, in my view, oblige a review of s6 of the Act to bring it into alignment with the clear need to apply that legislative intent to the "claims made and notified" policies. The simply fact however is that the words used and the structure of s6(1) do not in the actual words used cover a "claims made and notified" policy and no amount of beneficial intent or appeals to justice should cause a court to stretch the meaning of the language used.
Further, I do not consider that the New Zealand Court of Appeal in the judgment referred to immediately above, which does not examine the words in the way that they were examined in Manettas, is persuasive of a legislative intent to cover a form of policy that was clearly not in contemplation at the time of the enactment of the legislation.
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