The NSW Court of Appeal has once again been called upon to adjudicate upon an insurance dispute arising from the allegedly negligent performance of breast augmentation surgery by former medical practitioner, Leslie Blackstock. On this occasion, the Court considered the definition of a ‘claim’ in the context of a ‘claims made and notified policy’ issued by a medical indemnity insurer.
Between 2012 and 2016, Mr Blackstock performed breast augmentation surgeries on the Applicants.
On 7 March 2019, the Applicants’ solicitor sent letters to Mr Blackstock (and a copy to Avant Insurance Ltd (‘Avant’)) which included the following statements:
“We hereby put you on notice that our client intends to make a claim for damages against you for the injuries, loss, and damages she has suffered
We ask that you provide a copy of this correspondence to your indemnity insurer as a matter of urgency”.
In 2021, the Applicants commenced proceedings against Mr Blackstock in the District Court seeking damages for personal injury. Avant was named as the second defendant. The Applicants subsequently filed Notices of Motion seeking leave to continue the proceedings against Avant pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017.
Mr Blackstock’s Insurance
Mr Blackstock held medical indemnity insurance until his policy was terminated by Avant with effect on and from 24 April 2018 for non-payment of deductibles. On 16 May 2019, Mr Blackstock was declared permanently incapacitated for work as a medical practitioner. As a consequence, Avant was required to issue run-off insurance to Mr Blackstock.
The run-off insurance policy insured Mr Blackstock for amounts which he became legally liable to pay as compensation for civil liability “in respect of claims made against you in the policy period in relation to healthcare in private practice”. The policy period was on or from 16 May 2019. The claim had to be one which arouse out of healthcare provided during the run-off period, namely 14 September 2006 to 24 April 2018.
‘Claim’ was defined to mean: “a demand for compensation or damages in relation to healthcare which: (a) is first made against you during the policy period; and (b) you tell us about in writing during the policy period.”
Reasons of the Primary Judge
In order to obtain leave to proceed against Avant, it was necessary for the Applicants to establish that:
(a) they had an arguable case that Mr Blackstock is liable to the plaintiff;
(b) there was an arguable case that the Avant policy responded to that liability;
(c) there was a real possibility that Mr Blackstock would be unable to satisfy any judgment against him in full; and
(d) it was otherwise reasonable for the insurer to be joined (i.e. the residual discretion).
Argument before the primary judge focused upon the second element i.e. whether there was an arguable case that the Avant policy responded to Mr Blackstone’s liability to the applicants.
Avant submitted that there was no arguable case that the policy would respond because the demand for compensation or damages was first made by the letters of 7 March 2019 which was before the commencement of the period of cover.
The Applicants advanced three arguments in response. First, it was submitted that the letters of 7 March 2019 contained only notifications of an intention to make a demand for compensation by the bringing of proceedings and thus did not answer the description of a demand for compensation as required by the policy. Secondly, it was submitted that since there was no evidence that Mr Blackstock had actually received the letters of 7 March 2019, even if those letters constituted a demand for compensation, they had not been made to and against Mr Blackstock. Thirdly, it was submitted that the language of the policy – “first made against you during the policy period” – addressed attention to the first claim which was made against Mr Blackstock during a period when he had insurance and thus the letters of 7 March 2019 did not answer that description but the commencement of proceedings did.
The primary judge held that the letters of 7 March 2019 constituted a demand for compensation which asserted an existing and unsatisfied right to damages for Mr Blackstock’s negligence in the procedures that he had carried out and that the letters had been received at Mr Blackstock’s residential address. The primary judge rejected the Applicants’ construction argument.
The appeal concerned the primary judge’s conclusion as to the third argument, namely whether the commencement of the District Court proceedings constituted a claim which was first made and notified under the run off policy. The argument put on behalf of the Applicants was that the District Court proceedings were commenced during the policy period and satisfied the requirement that they be first made during that policy period because they were the first demands made at a time when Mr Blackstock had insurance, and accordingly had any policy period.
The Court rejected the argument because it did not engage the ordinary meaning of the language in the policy. It was held that the words of the policy required that there was a demand first made against Mr Blackstock during the policy period i.e. on and from 16 May 2019. The relevant inquiry was whether the demand for damages made by the Statements of Claim had been made against Mr Blackstock at some time before 16 May 2019. Given the finding of the primary judge that the letters of 7 March 2019 constituted a demand for compensation and that finding had not been challenged on appeal, the answer must have been ‘yes’.
The Court held that the description of the policy as a ‘claims made and notified policy’ confirmed that particular construction.
Although unnecessary for resolution of the appeal, the Court agreed with the primary judge’s characterisation of the 7 March 2019 letters as a demand for damages in respect of the negligence and injuries which were to be the subject of those proceedings. The Court of Appeal held that “in communicating that their clients were entitled to damages and requesting that the letter be provided to Mr Blackstock’s indemnity insurer, the applicants’ solicitors were implicitly making a demand for compensation on behalf of their clients”.
Finally, the Court of Appeal held that the non-satisfaction of the requirement that there be a claim first made during the policy period could not be cured by Section 54 of the Insurance Contracts Act 1984 (Cth).
The Court’s construction of the oft-used policy wording is perhaps unsurprising. Nevertheless, the decision is useful on at least two other fronts.
The Court’s obiter as to what constitutes a ‘demand for compensation’, in this case the conveyance of an intention to claim damages, is at least interesting for insurers and insureds alike. In this case, it would seem that if the letters of 7 March 2019 had not been sent, the filing of proceedings in the 2021 would have constituted the claim first made and thus brought the claim within the policy period (although there may have been myriad reasons why it was otherwise necessary to write to Mr Blackstock and the insurer before proceedings were commenced).
Finally, the decision is a useful reminder about the limits of s 54’s remedial powers and the prohibition against using s 54 to reformulate a claim or relieve an insured of the restrictions or limitations of a given policy.