Case: Pech v Tilgals (1994) 94 ATC 4206
Outcome: distinguished
Counsel for the Insurers Macquarie and SVB drew attention to the reasons for subsequent decision of Dunford J in the Supreme Court of New South Wales in Pech v Tilgals (1994) 94 ATC 4206, where the circumstances involved a claim against an accountant for professional negligence, and a cross-claim by that accountant for indemnity against his professional indemnity insurer. The professional indemnity insurance policy excluded from cover claims '[a]rising from any circumstance or circumstances of which [the insured] shall became aware, prior to the commencement of insurance cover under this Policy... and which a reasonable Accountant in [the] position [of the insured] would at any time prior to the commencement of cover have considered may give rise to Claim' . His Honour first observed that the words '"at any time" (prior to the commencement of cover)' did not embrace circumstances which may have existed some time previously but which had been overtaken by subsequent events, as such a construction could at times lead to absurd results; rather in his Honour's view, those words referred to what a reasonable accountant should consider right down to the commencement of cover. 30 Assuming that policy language addressed in Pech to have relevantly similar effect as that of exclusion clause 4.1, two observations may be made. The first is that his Honour's observation cited above would have no application in relation to the operation of the first policy, but only the operation of the second policy, since the letters of 23 April 2004 and 13 May 2004 were written by PCL to Mr Teves during the currency of the first policy. The second is that the critical issue remains here as to the import of what was said in those letters concerning the implications as to what appear to have then constituted merely pending or proposed sales, rather than the implications of sales effected during that subsequent year of indemnity commencing 26 July 2004. It does not seem to me that Pech provides sufficient bearing upon the circumstances thus far in evidence in the present case. 31 PCL submitted next that s 14 of the IC Act, headed 'Parties not to rely on provisions except in the utmost good faith' , was also applicable to the present circumstances of claim, it providing by subsection (1) that '[i]f reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision' . PCL's submission was that 'the effect of what the insurer seeks to do by relying on the exclusion is to penalise the insured for failing to notify the insurer of circumstances that might give rise to a claim during the previous policy year'. PCL asserted that the previous policy year of indemnity did not contain any provision that required the insured to notify any such circumstances. Accordingly PCL contended that '... where an insured is covered under successive policies of insurance, it is arguably a breach of duty of utmost good faith to rely on [an] exclusion which relates to the failure of the insured to perform an act during the prior policy of insurance when in fact there was no obligation of the insured pursuant to the prior policy to perform that act, namely to notify those circumstances'. The Insurers asserted on the other hand that PCL did not demonstrate 'how reliance upon a well known limitation in a claims made cover could amount to a lack of good faith', though no explicit evidence has yet been tendered as to the existence of the limitation being 'well known'. 32 PCL advanced an alternative claim for indemnity based on the first policy, that being of course issued by Macquarie to ARMA for the period of cover 26 July 2003 to 26 July 2004. It appears to have been common ground that the valuations the subject of the present proceedings were undertaken and signed by Mr Teves, who was not a named valuer in the so-called special conditions appearing on page 1 of the Schedule to the first policy, the only valuer named therein being Terrence Stewart (as I have earlier recorded). Upon that basis, the Insurers' case was that the first policy did not provide insurance in relation to the circumstances of PCL's claim, the first policy not extending to valuations undertaken and signed by persons other than 'Terrence Stewart' , and hence not extending to valuations undertaken and signed by 'Neil Teves' . The Insurers submitted that there was no averment or evidence at all about Mr Teves' role or association with ARMA at the time of the commencement of operation of the first policy, or about 'any negotiations between the insured and the insurer relating to the decision to name Mr Stewart (and not Mr Teves) in the policy', and that there was therefore no basis, pleaded or otherwise, for the proposition that the first policy was intended to include valuations undertaken or signed by Mr Teves. 33 PCL invoked reliance by way of rejoinder to those submissions of the Insurers upon the remedial provisions s 14 of the IC Act, appearing within Part II thereof under the heading 'The duty of the utmost good faith' , and which read as follows: '14 Parties not to rely on provisions except in the utmost good faith (1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) Subsection (1) does not limit the operation of section 13. (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise.' The preceding s 13 relates to the contracts of insurance being 'based on the utmost good faith' , and s 37 requires an insured to be 'clearly informed' in writing by the insurer of the effect of terms 'not usually included in contracts of insurance that provide similar insurance cover' . 34 PCL asserted that the purpose of ARMA in obtaining professional indemnity insurance from Macquarie was inferentially to acquire cover in respect of valuations conducted in the course of its business, and PCL informed the Court, seemingly without objection, that Mr Teves had been at all relevant times both a company director and a shareholder of ARMA. Upon that apparent footing of Mr Teves' involvement in ARMA to the extent of being a director and shareholder, PCL contended that 'given Mr Teves' position at ARMA, it is improbable in the extreme that his name was omitted from the schedule otherwise than by mistake or oversight'. However the Insurers drew attention to the circumstance that there had been no evidence tendered as to Mr Teves' role or association with ARMA at the time of commencement of the first policy. It would be inappropriate nevertheless to permit the present proceedings to be by interlocutory strike-out by reason largely of an apparent oversight on the part of PCL to have attended to such an evidentiary formality. One difficulty for PCL, so the Insurers contended in any event, was that no evidence had been provided to enable the Court to determine whether s 14 of the IC Act operates to preclude the proposed respondents from relying on such a mistake or oversight, being evidence for the purpose of proceedings for rectification of the first policy. Nevertheless it would be an unsatisfactory approach on my part to the resolution of the present interlocutory application to uphold the same in circumstances where there had emerged an apparency of a potentially viable basis for rectification of the first policy, albeit that such an evidently available course had not yet been formally commenced.