Background
Between January 2015 and January 2018 Dr Darshn, a cosmetic surgeon, performed breast augmentation surgery at The Cosmetic Institute Pty Ltd (TCI). He held professional indemnity insurance with Avant from 27 September 2011 to 30 June 2019 and then with another insurer in subsequent years.
In June 2020, Dr Darshn was joined as a defendant in a representative proceeding brought against TCI and other defendants (the TCI Proceeding). Upon being joined to the TCI Proceeding, Dr Darshn sought indemnity from Avant. However, this was refused on the basis that no claim had been made against him during the period of cover by Avant (the Avant policy being a ‘claims made and notified’ policy).
In 2017 Avant had accepted a claim for indemnity by Dr Darshn for a complaint made by a former patient arising from surgery he performed at TCI premises.
In 2018 Avant accepted a claim for indemnity by Dr Darshn in respect of a proceeding against him brought by another former patient and appointed one of its panel law firms to act on his behalf in those proceeding. At the time of commencing proceedings against Dr Darshn, the plaintiff was also a group member in the TCI Proceeding.
In February 2019 the panel law firm appointed to act for Dr Darshn provided advice to Avant about seeking a stay of those proceedings on the grounds that they substantially overlapped with the TCI Proceedings. Dr Darshn was not at that time joined to the TCI Proceedings, but he had received a wide-ranging subpoena in the Proceedings, from which it was apparent that the plaintiffs were considering joining him as a defendant. Avant were aware of the subpoena and its terms, as Dr Darshn had contacted its medico-legal advice service to obtain advice regarding the subpoena. Avant was also familiar with the terms of similar subpoenas served on its insureds and the allegations made in the TCI Proceedings.
Also in 2019, Avant agreed to indemnify Dr Darshn for separate proceedings commenced against him which also arose out of surgery he had performed at TCI. The same panel law firm was appointed by Avant to represent him in those proceedings. The panel law firm wrote to Avant again with respect to both proceedings in which it was instructed and identified the overlap with the TCI Proceedings.
Dr Darshn was joined to the TCI Proceedings in 2020, at which time he sought indemnity from Avant. When indemnity was refused, he commenced proceedings against Avant seeking declarations that it was obliged to indemnify him for the TCI Proceedings. He was successful at first instance. Avant appealed the decision.
The primary issue in dispute was whether the panel law firm appointed by Avant to act on Dr Darshn’s behalf in other proceedings, had authority to give notice to Avant of facts which might give rise to a claim for the purpose of section 40(3) of the Insurance Contracts Act 1984 (Cth).
Avant argued that the panel law firm was not authorised to give such information as agent for Dr Darshn because:
(a) the firm’s retainer was limited to acting for Dr Darshn in the proceedings brought by the other plaintiffs;
(b) the firm was engaged expressly on Avant’s behalf and not as agent for Dr Darshn in his dealings with Avant;
(c) the firm was appointed “solely for Avant”;
(d) pursuant to the terms of the insurance policy, it was expressly agreed between Dr Darshn and Avant that any lawyer appointed was appointed by Avant in its own capacity and not as agent for Dr Darshn; and
(e) the retainer of panel law firm was not for Dr Darshn generally and was not sufficient to authorise the firm to provide any services to Dr Darshn; in particular, the retainer did not authorise the giving of a notice to Avant on behalf of Dr Darshn.
The Decision
The appeal was dismissed with the Court finding that the terms of the policy, which provided that if a claim was made, Avant would appoint a lawyer to provide services to Avant “for the benefit of [Dr Darshn]”. It was observed that the policy was otherwise silent about the nature of the legal relationship between the panel law firm and the doctor. Specifically, the policy did not expressly say that the panel law firm would not act as an agent for the doctor, nor did it preclude the existence of a lawyer-client relationship.
The Court noted that contrary to the position put by Avant, it would be an expected incident of the legal relationship between Dr Darshn and Avant and Avant and the panel law firm, that the law firm would inform Avant of facts that might give rise to a claim against Dr Darshn under the policy if they came into possession of those facts in the course of acting for the doctor in other proceedings.
It was also held that Avant failed to act with utmost good faith, as required by s.13 of the Insurance Contracts Act, given that it was aware of the TCI Proceedings and the terms of the subpoena received by Dr Darshn. Its failure to advise him to provide them with a copy of the subpoena in circumstances where it provided a medico-legal advice service not only about claims that may need to be notified, but also in relation to facts which might give rise to a claim, demonstrated that it had not acted with utmost good faith.
Take Away
The case reinforces the relationship which exists between an insurer, its appointed law firm and its insured and confirms that a lawyer-client relationship will arise between the panel firm and the insured, despite there being no direct retainer.
Medical defence organisations should also be conscious of the information received from members through their medico-legal advice lines and the advice being provided through these services to its members. As can be seen from the present case, a failure to advise a member to take steps to properly protect their position, may be considered a failure to act with utmost good faith.
To read the decision in Avant Insurance Limited v Darshn [2022] FCAFC 48, click here.
