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The production of insurance policies in litigation

Newsletter 01 July 2008

It is a well established practice that insurers refuse to disclose details of insurance cover that they carry for their policyholders. In litigation, a plaintiff has a very real commercial interest in establishing the extent of financial resources including insurance cover, which a defendant has to satisfy a judgment. From a defendant’s perspective, the ongoing uncertainty of insurance cover can also place the defendant in a stronger bargaining position during settlement negotiations and in many cases can discourage potential plaintiffs when there is a real question mark as to the nature and extent of insurance cover.

The two main areas in litigation where defendants can be compelled to produce insurance documents – under the examination provisions of the Corporations Act 2001 (Cth) and under the rules governing discovery of documents.

Examination under provision of the Corporations Act 2001 (Cth)

The Courts have held[1] that pursuant to the examination provisions of the Corporations Act 2001[2], insurance documents are of legitimate interest for examination by an ‘eligible applicant’ which includes ASIC, a liquidator or an administrator[3].

In circumstances where the liquidator has to make a commercial judgment on the ‘likelihood, or otherwise, of potential ultimate recovery from a relevant insurer’, section 596B enables a liquidator to ‘obtain information which would have been denied to him within normal civil proceedings as between party and party, pursuant to the traditional processes of discovery and interrogation’[4].

Joinder of Insurers to Proceedings and the Rules of Discovery

If a plaintiff can join the defendant’s insurer to the proceedings between the plaintiff and the defendant, the plaintiff will be able to seek discovery of documents relevant to a defendant’s insurance coverage under the applicable Court rules. But when can a plaintiff join the defendant’s insurer to the proceedings?

The circumstances are limited because the issues concerning the liability of the defendant to the plaintiff are usually substantially different to the issues concerning the insurer’s liability to the defendant[5]. The Courts have permitted joinder of insurers in very limited factual situations usually where the solvency of the defendant is in issue and the insurer has denied indemnity. The Courts have also permitted a plaintiff to join an insurer to proceedings where the determination of facts were relevant to the plaintiff’s claim against the defendant and the defendant’s claim for indemnity (which had been denied) against the insurer[6].

An exception to the Court’s restricted position on joinder of insurers, is where the plaintiff has a direct cause of action against the insurer under statute. Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 creates this right in circumstances where the insured is insolvent or may be unable to meet a judgment.[7] Another statutory provision giving third parties a direct cause of action against an insurer is section 51 of the Insurance Contracts Act in circumstances where the defendant has died or cannot be found.

Where a claimant has a cause of action under statute against an insurer, the Courts will grant an order for preliminary discovery of documents relevant to a defendant’s insurance cover to establish the identity of the insurer[8].

If a plaintiff is unable to join a defendant’s insurer to the proceedings, the plaintiff will be faced with difficulties under the rules of discovery when seeking the production of insurance documents. Although it is expressed differently in most jurisdictions, the general rule for discovery is that documents which relate to a matter in dispute in proceedings are discoverable[9]. A matter in dispute doesn’t necessarily have to be pleaded and may be any question which arises during the proceedings[10].

Although, the Courts have given a wide interpretation to the meaning of a ‘matter in dispute’ to grant discovery of documents which may directly or indirectly advance a litigant’s case or damage that of its adversary, this approach has not been adopted for the discovery of insurance documents. In the limited cases where a plaintiff has sought discovery of insurance documents where the insurer is not a party in the proceedings, the Courts have given a narrow interpretation to deny discovery of insurance documents[11].

For example, in Beneficial Finance Corporation Ltd and Ors v Price Waterhouse[12], the Court considered the tactical advantage the discovery of insurance documents would give to a plaintiff compared to the detriment a defendant would suffer from having confidential information on its insurance position in the public domain. The Court held that where there was no issue between the defendant and its insurer, this cannot be outweighed by case flow management principles or the prospects of mediation and therefore a plaintiff is not entitled to discover and inspect details of a defendant’s policy of insurance.[13]

A more recent decision of the District Court of South Australia has also considered the production of insurance policies where the insurer is not a party to the proceedings. In Bennett v WMC (Olympic Dam Corporation) Pty Ltd[14], the plaintiff brought a claim in negligence for personal injury damages against the defendant. The defendant claimed indemnity from the plaintiff’s employer and the employer’s insurer. A term of the employer’s contract of insurance required the defendant, as a claimant under the policy, to disclose details of other insurances which it held. Her Honour distinguished Beneficial Finance on the basis that the insurance policies held by the defendant were directly relevant to an issue arising on the pleadings and ordered the defendant to discover any insurance policy which it had entered into which did or may respond to the plaintiff’s claim.

Josh Harcourt v FEF Griffin [2007] EWHC 1500 (QB)

In contrast to the position in Australia, a recent decision of the High Court of Justice Queen’s Bench Division has given a broad interpretation to the rules governing discovery in the United Kingdom to order production of documents relating to a defendant’s insurance where the insurer was not a party to the proceedings and the production of the policy was not directly relevant to an issue arising on the pleadings.

In Josh Harcourt v FEF Griffin, the plaintiff was rendered a tetraplegic following a gymnastics accident. Prior to the commencement of a split trial on liability and quantum, the parties reached a settlement in respect of an apportionment of 75% of the full liability value of the claim, the remaining 25% being contributory negligence.

The plaintiff was concerned about the defendant’s ability to satisfy any award of damages and sought to obtain further information about the extent of the defendant’s insurance cover. The rules provide that the Court may order a party to give discovery to clarify a matter or give additional information at any time ‘whether or not the matter is contained or referred to in a statement of case’[15].

Although the nature and extent of the defendant’s insurance cover was not a matter in dispute between the parties, the Court took a liberal and broad interpretation of the rules concerning discovery and ordered the defendant to produce the documents sought by the claimant.

Irwin J held that the thrust of the rules was “to avoid waste of time and cost and to ensure swift and, as far as possible, proportionate and economical litigation”[16] and that the details of the defendant’s insurance coverage was fundamental to the claimant’s decision of whether, and in what way, to continue with litigation against the defendant.

What will be the Impact on discovery in Australia?

Although Josh Harcourt v FEF Griffin was a personal injury case and there remains no general duty for a defendant to disclose its insurance cover under the Court rules in the United Kingdom, there is no reason why a similar application might not be made in commercial cases where quantum is contested and significant costs are involved. This decision may be the start of a concerning trend for insurers in the United Kingdom jurisdiction.

However, insurers can take comfort in the Court’s recognition that such applications should be approached with caution as they may result in undesirable and wasteful satellite litigation – the existence of an appropriate policy of insurance does not eliminate the prospect of cover subsequently being excluded and the policy avoided.

In Australia, documents relevant to a defendant’s insurance cover can only be discovered in limited circumstances. The current position is that applications for the discovery of insurance documents have been denied even in proceedings concerning large damages claims, unless it has related to a matter directly arising on the pleadings. For Irwin J’s reasoning in Josh Harcourt v FEF Griffin to be adopted, the Courts will have to give greater weight to case flow management principles and a more liberal interpretation of the meaning of ‘matter in dispute’.

It is arguable that the Courts interpretation of the meaning of ‘matter in dispute’ has not been tested because there is limited case law directly concerning a plaintiff’s application for discovery of insurance documents relevant to a defendant’s insurance coverage.

Insurers in Australia will have to wait and see as to whether the Courts will revisit the current position and their interpretation of ‘matter in dispute’ when exercising their discretion under the rules for discovery.

[1] Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1993) 61 SASR 557
[2] Section 596B of the Corporations Act 2001 (Cth)
[3] See definition in section 9 of the Corporations Act 2001 (Cth)
[4] See Olsson J at 520 and 521 in Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1993) 61 SASR 557. In this case the major asset of the company in liquidation was a potential action in negligence against the defendant accountant. The Full Court of the SA Supreme Court upheld the order at first instance for the liquidator to examine the auditors on the nature and extent of their professional indemnity insurance. Leave to appeal this decision to the High Court was refused.
[5] In these circumstances, the Court prefers to determine the insurer’s liability separately to the plaintiff’s claim – see GPI Leisure Corp Ltd v Yuill (NSWSC, Young J, No 1907/94, 6 August 1997, unreported)
[6] JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432.
[7] Also note that Section 48 of the Insurance Contracts Act gives specified or named beneficiaries of an insurance contract the right to recover their loss from the insurer in accordance with the insurance policy not withstanding that they are not parties to the insurance contract.
[8] See Perpetual Trustee Co Ltd v Wilkins [2001] NSWSC 1192. Santow J denied the application for preliminary discovery to ascertain the identity of the insurer on the basis that the plaintiff had failed to establish an arguable case against the defendant.
[9] (Cth) Federal Court Rules 15 rr 1, 2,(2)(a), (ACT) Court Procedures Rules r 606, (SA) Supreme Court Civil Rules r 142, (TAS) Supreme Court Rules 2000 r 382, (WA) Rules of the Supreme Court 26 r 1(1), In Victoria and the Northern Territory, discovery is to be made in relation to any question raised in the pleadings: (VIC) Supreme Court (General Civil Procedure) Rules 2005 r29.02(1), (NT) Supreme Court Rules rr 29.02(1), 29.03(2). In New South Wales , a document must be relevant to a fact in issue to be discoverable – Uniform Civil Procedure Rules 2005 r21.2(4). In Queensland , the duty of disclosure is confined to documents directly in issue – Uniform Civil Procedure Rules 1999 r 211(1).
[10] Philipps v Philipps (1879) 40 LT 815 at 820 per Denman J at 821 per Lindley J
[11] Beneficial Finance Corp Ltd v Price Waterhouse (1996) 68 SASR 19.
[12] See Perry J’s comments at 76,980-1 Beneficial Finance Corporation Ltd and Ors v Price Waterhouse (1996) 9 ANZ Ins Cas 61-327. This case concerned a very large damages claim for professional negligence against company auditors. The plaintiff sought discovery of documents relating to the defendants’ professional negligence insurance cover with a view to having insurers joined as defendants. The Court held that where there is no suggestion that the underwriters have declined to grant indemnity, the plaintiff is not entitled to discover and inspect details of the opposing party’s policy of insurance.
[13] Beneficial Finance Corporation Ltd and Ors v Price Waterhouse (1996) 9 ANZ Ins Cas 61-327
[14] Bennett v WMC (Olympic Dam Corporation) Pty Ltd & Akula Pty Ltd (in liq) & CGU Insurance Ltd & Ors [2008] SADC 42
[15] Note that rule 18.2 provides “The court may direct that information provided by a party to another party (whether given voluntarily or following an order made under rule 18.1) must not be used for any purpose except for that of the proceedings in which it is given”.
[16] Paragraph 10

Alistair Little, Partner

Sarah Wheeler, Senior Associate

Newsletter 01 July 2008
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