The NSW District Court granted leave for a Plaintiff to join the defendant’s medical indemnity organisation as a named second defendant.
The key issues
Whether there was an arguable case that the insurance policies held by the defendant would respond to the plaintiff’s claim.
In 2016, the plaintiff underwent a breast augmentation performed by the defendant. Two years later, the plaintiff commenced proceedings claiming damages for loss and injury caused by the defendant’s negligence.
The defendant did not file a Defence and took no part in the proceedings before the Court. Consequently, the plaintiff sought to join the defendant’s Medical Defence Organisation (MDO) as a second defendant.
The defendant held professional indemnity policies with an MDO that indemnified him in respect of claims, or circumstances that may result in a claim, made and notified within the period of coverage. The first policy was issued for the period 1 July 2016 to 30 June 2017 (the first policy), and the second policy was issued for the period 1 July 2017 to 30 June 2018 (the second policy). The first policy was in place at the time of the plaintiff’s procedure. However, the second policy was cancelled by the MDO on 24 April 2018 due to the defendant’s failure to pay the premium.
The MDO argued that, as it had not received notice of the plaintiff’s claim or the incident leading to the claim before cancellation of the defendant’s policy, the plaintiff’s claim was not an ‘insured liability’ and there was no right to recover under section 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Act).
As a result, to continue with the proceedings against the MDO, the plaintiff required leave under section 5 of the Act and needed to demonstrate that:
a. there was an arguable case of liability against the defendant;
b. there was an arguable case that the policy will respond to that liability; and
c. there was a real possibility that the defendant will not be able to meet the liability, if the plaintiff obtains judgment against them.
The Court acknowledged that if the defendant had omitted to notify the MDO within the policy periods, the insurer might refuse indemnity for a claim arising in the period. However, the Court noted that s 54(1) of the Insurance Contracts Act 1984 (Cth) operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim. It considered that the present matter was certainly one of the types of claims envisioned to be captured by that provision.
The plaintiff was granted leave to join the MDO as the second defendant to the proceedings on the grounds that:
a. Prima facie, the facts contained in the plaintiff’s affidavit evidence when taken at their highest could support the allegations of negligence, and so there was an arguable case of liability against the defendant.
b. The plaintiff had proffered some evidence that the defendant was, or ought to have been, aware of the facts and circumstances giving rise to the plaintiff’s claim.
c. The Court was not satisfied the MDO could disclaim liability as there was a real possibility if the defendant knew or ought to have known, the MDO’s policy would have responded to that liability (albeit possibly in a reduced manner). The existence of unresolved questions of fact and law meant there was an arguable case as to the policy responding to the defendant’s liability.
d. The plaintiff’s solicitors had been unable to locate the defendant and there was a real possibility that the defendant would not be able to satisfy a judgment if one were to be made against him.
Plaintiffs may be able to proceed directly against MDOs, even in circumstances where the insurer was not notified of the relevant event during the period of coverage.
The construction of policies said to operate on a claims made and notified basis requires an evaluation of the defendant’s awareness of the facts giving rise to the claim and whether they knew or ought reasonably to have known of such matters during the policy period. In cases where a defendant is unable to be located or does not participate in the proceedings, these matters will be difficult to resolve and the existence of unresolved questions of fact will usually be sufficient to demonstrate an arguable case.
To read the full case of Tara Burnie v Dr Leslie Blackstock  NSWDC 452 click here.