Gosford City Council v Gio General Ltd [2003] NSWCA 34 (7 March 2003)

Last Updated: 12 March 2003

NEW SOUTH WALES COURT OF APPEAL

CITATION: GOSFORD CITY COUNCIL v GIO GENERAL LTD [2003] NSWCA 34

FILE NUMBER(S):

40539/02

HEARING DATE(S): 12 February 2003

JUDGMENT DATE: 07/03/2003

PARTIES:

Gosford City Council - Appellant

GIO General Ltd - Respondent

JUDGMENT OF: Spigelman CJ Meagher JA Sheller JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): 50010/02

LOWER COURT JUDICIAL OFFICER: Bergin J

COUNSEL:

D L Davies SC/M Fraser - Appellant

D L Williams - Respondent

SOLICITORS:

P J Donnellan & Co - Appellant

Ebsworth & Ebsworth - Respondent

CATCHWORDS:

INSURANCE - Professional indemnity policy - Claims made policy - Indemnity for claims made outside period of policy - Requirement of immediate notice of occurrence which might give rise to claim - Failure to give notice - Insurance Contracts Act 1984 (Cth) ss40, 54

LEGISLATION CITED:

Insurance Contracts Act 1984 (Cth)

DECISION:

Appeal dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40539/02

SC 50010/02 (Equity Division)

SPIGELMAN CJ

MEAGHER JA

SHELLER JA

GOSFORD CITY COUNCIL v GIO GENERAL LIMITED

By a policy of insurance, the insurer agreed to indemnify the appellant city council against risks including those of professional liability. The policy provided indemnity in respect of claims made on the insured during the period of insurance. Following a suit against the insured for wrongly approving certain construction work, the proceedings were settled and the insured claimed from the insurer indemnity for certain costs arising thence but not covered by the settlement. The insurer denied that the policy covered the claim.

The insured had not given written notice of a potential claim before the period of insurance expired. The claim was not made upon the insured until after the expiration of the policy.

On appeal, the insured sought to rely upon a combination of ss40(3) and 54(1) such that s40(3) transformed the policy into a discovery policy. So transformed, it was submitted that s54(1) prevented the insurer from refusing to pay its claim by reason only of the act of its failing, within the times prescribed in s40(3), to give notice in writing to the insurer of the facts which might have given rise to such a claim.

HELD (per Sheller JA, Spigelman CJ and Meagher JA concurring):

1. That s54 does not permit the reformulation of the claim. It is necessary to consider the actual claim made by the insured that must be considered when evaluating the potential application of s54.

2. That s54 did not operate to relieve the insured of restrictions or limitations inherent in the claim, such as the temporal limits within which the claim had to be made upon the insured.

3. That s40(3) could not be relied upon since notice had not been given in writing to the insurer before the period of cover expired of facts that might have given rise to a claim. Therefore the occasion for s40(3) to operate did not happen.

FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 applied.

Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 applied.

Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652 applied.

Einfeld v HIH Casualty and General Insurance Ltd [1999] NSWSC 867; (1999) 166 ALR 714 distinguished.

CA & MEC McInally Nominees Pty Ltd v H T W Valuers (Brisbane) Pty Ltd (2001) 121 ANZ Ins Cas 61-507 Approved

Legislation cited:

Insurance Contracts Act 1984

Cases cited:

Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652

CA & MEC McInally Nominees Pty Ltd v H T W Valuers (Brisbane) Pty Ltd (2001) 11 ANZ Ins Cas 61-507

Einfeld v HIH Casualty and General Insurance Ltd [1999] NSWSC 867; (1999) 166 ALR 714

FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641

FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89

Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706

Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622

Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85

Permanent Trustee v FAI (1998) 44 NSWLR 186

Reid Crowther & Partners v Simcoe & Erie General Insurance Co (1993) 1 SCR 252

ORDER

Appeal dismissed with costs.

**********

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40539/02

SC 50010/02 (Equity Division)

SPIGELMAN CJ

MEAGHER JA

SHELLER JA

Friday, 7 March 2003

GOSFORD CITY COUNCIL v GIO GENERAL LIMITED

Judgment

1 SPIGELMAN CJ: I agree with Sheller JA.

2 MEAGHER JA: I agree with Sheller JA.

3 SHELLER JA:

Claims made insurance

The present is another of a sequence of recent cases concerned, in the context of liability insurance, with the ways in which ss40 and 54 of the Insurance Contracts Act 1984 (Cth) (the Act) operate on policies that have become known as "claims made" and "claims made and notified" policies. The distinction between the two is that in the first the insured's right to indemnity, if unmodified by statute, depends upon a claim being made against the insured during the period of insurance and in the second upon such a claim being not only made against the insured but also notified to the insurer during the period of insurance.

4 In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 at 654-5 McHugh, Gummow and Hayne JJ, in a joint judgment, cite what McLachlin J said in Reid Crowther & Partners v Simcoe & Erie General Insurance Co (1993) 1 SCR 252 at 262-4 about the reasons for the issuing of such policies in the United States and Canada. McLachlin J observed that the claims made type of policy was seen as a means of providing liability insurance at reasonable rates while avoiding the problems associated with the "long-tail" nature of "occurrence" policies. But their Honours went on to say that matters of this kind were not considered by the Australian Law Reform Commission in its 1982 report on insurance contracts which was the precursor of the Act.

Factual background

5 The facts that gave rise to these proceedings can be stated shortly and are not disputed. Gosford City Council (the insured) obtained a policy from GIO General Limited (the insurer) which was entitled "Broad Form Liability Insurance". The policy, as issued and renewed, covered the period from 30 June 1989 to 31 December 1991. The section entitled "Liability Coverage" provided relevantly:

"GIO will pay to or on behalf of the insured all sums for which the insured shall become legally liable to pay by way of compensation (excluding punitive and exemplary damages) in respect of:

...

(c) Professional Liability

A claim or claims made against the insured during the Period of Insurance arising out of any negligent act, error or omission committed or alleged to have been committed, by the insured in the conduct of the insured's business as specified in the Schedule."

6 Condition 3 of the policy required that notices in writing should be given as soon as possible to the insurer:

"(a) of any occurrence, claim, writ, summons or proceedings or of any impending prosecution or inquest, ...."

7 On 30 May 1991 an officer of the insured telephoned the insured's insurance broker, Jardine Australian Insurance Brokers Pty Limited, and spoke to Mr Hornery about a potential claim. The substance of that conversation was set out in a fax Mr Hornery sent to the Local Government Association (LGA). However, none of what was said was passed on by the broker or by the insured to the insurer. The fax to the LGA was as follows:

"Gosford City Council

Potential PI Claim

Further to my telephone conversation with Council - they may soon be drawn into a PI situation.

The Central Coast Leagues Club has over the years received many additions - each, include [sic] the original construction, receiving Council building approval.

Just recently a building survey of the entire club produced a certificate to say that the Club hasn't come up to Fire Ordinance requirements.

The Club sacked the Architects.

The Architects are suing the Club for o/s fees ($400,000) and the Club has filed a countersuit for the rectification of sub-standard structures.

It is only now a matter of time before the penny drops and suits are directed towards Council - as they always do [sic].

I'm having Council put something in writing at this stage - but I first wanted to at least have the Insurer Knowledgeable [sic] of the situation.

If there are any problems please contact me."

8 As the fax stated, no claim against the insured had been made or foreshadowed by the Club. But Mr Hornery felt that in the course of time a claim would be made against the Council.

9 Three years later, on or about 27 July 1994, the insured was served with an amended statement of claim in Common Law proceedings begun by the Club against the insured and others. The Club pleaded breaches of duty by the insured in approving what was described as the 1978 and 1987 work carried out on the Club's premises. By letter of 22 May 1995 the insurer declined to indemnify the insured for this claim because no claim had been made against the insured during the period of the policy.

10 By orders made on 5 February 1999 the Club's proceedings against the insured were dismissed by consent with no order as to costs. The insured claimed from the insurer indemnity for such of its costs as were not paid under the agreement by which the Club's proceedings against it were dismissed.

11 On 17 April 2001 the insured began proceedings against the insurer in the Common Law Division. On 13 June 2002 Bergin J, who heard the proceedings, held that the insurer was not obliged to indemnify the insured under the policy. On 17 June 2002 entry of judgment was directed for the insurer and the insured was ordered to pay its costs. The insured appeals to this Court from these orders. The argument proceeded on the basis that the insurer was not notified until 22 August 1994 of the claim or of any facts, such as those revealed to the broker, which might give rise to a claim.

Sections 40 and 54 of the Act

12 Section 40(1) of the Act states that s40 applies in relation to a contract of liability insurance:

"the effect of which is that the insurer's liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract."

13 The present policy is a claims made policy. It does not require notice of the claim against the insured to be given to the insurer before the expiration of the period of insurance cover. However, it is well established that s40 applies in relation to a contract of liability insurance even though it is not a claims made and notified policy and does not call for notification of the claim to the insurer within the insurance period; see Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 at 92, 102-3 and 114-117. Accordingly, s40 applied to the policy presently under consideration.

14 Section 40(3) provides, in the particular circumstance stated, that "the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract." The subsection is, of course, speaking of the claim, or to use another word, "demand", against the insured. The particular circumstances for the denial of the contractual right of the insurer to be relieved of liability is expressed as follows:

"[w]here the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired."

15 Section 40(3) should not be read down so as to restrict its operation to claims made and notified policies. In Newcastle City Council v GIO General Ltd McHugh J said at 114-5:

"To give effect to the purpose of the section as well as the language of s40(3), the apparent conflict between s40(1) and s40(3) is best reconciled by treating s40(1) as being concerned with cases where a claim against the insured was not made during the period of insurance and which therefore has resulted in notice of the claim not being given to the insurer during the period. On that construction, despite the literal meaning of s40(1), both sub-ss (1) and (3) are directed to cases of claims being received outside the period of insurance. That construction accords with the evident intention of the framers of s40.

The purpose of s40(3) is to reduce the occasions where an insured will lose its indemnity by reason of a claim being made against it after the period of insurance has expired. As long as the insured has given the insurer written notice of a potential claim before the period expired, s40(3) ensures that the fact that the claim is made after the expiration of the cover will not prevent recovery from the insurer. If s40(1) is given a literal reading, however, a claims made policy would never come within s40 even though it is the paradigm example of a policy that s40(3) was intended to protect.

...

Section 40(3) ensures that `the insurer is not relieved of liability ... in respect of the claim, when made, by reason only that it was made after the expiration of the period of insurance cover'. It does not deal with the insurer's liability in respect of a policy which provides that the insurer must be notified of a claim during the period of cover. ...The insured must look elsewhere to find assistance in overcoming the failure to provide notification within the period of cover of any claim made against it.

On the present state of the authorities, that assistance is provided by s54 which, broadly speaking, states that where the insurer may refuse to pay a claim by reason of some act or omission of the insured, the insurer may not refuse to pay the claim by reason only of that act, but its liability in respect of the claim is reduced to reflect the prejudice to its interests." (my emphasis)

16 The insured did not dispute that no notice in writing or otherwise was given to the insurer of facts that might give rise to a claim either as soon as was reasonably practicable or before the insurance cover provided by the contract expired. The insured's argument was based upon a particular operation it urged the Court to give to s54(1) of the Act. This section is found in Division 3 "Remedies" and is headed "Insurer may not refuse to pay claims in certain circumstances". The subsection provides:

"(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act."

17 The section is to be read in a broad fashion. In Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652 at 669-670 Dawson, Toohey, Gaudron and Gummow JJ in a joint judgment said:

"Section 54(1) uses the phrase `by reason of some act of the insured or of some other person'. It does not specify the act or omission of the insured as being a failure to discharge an obligation owed by the insured to the insurer. The legislation is expressed in broad terms and, on its face, there is no reason why the omission of the insured may not be a failure to exercise a right, choice or liberty which the insured enjoys under the contract of insurance. In any event, the act or omission may be that of a third party, `some other person', who is unlikely to be a party to the contract of insurance in question. Submissions by the respondent which were contrary to the above construction of s54(1) and which apparently were based upon the reasoning of the New South Wales Court of Appeal in FAI General Insurance Co v Perry should be rejected."

18 At 673 their Honours said that s54(1) "refers not to precise concepts of form but to the effect of the contract and asks whether that effect is that the insurer may refuse payment `by reason of' the relevant act or omission." At 675 their Honours described s54 as remedial in character and said that "...its language should be construed so as to give the most complete remedy which is consistent with the actual language employed and to which its words are fairly open (Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622 at 638)."

Insured's submissions

19 In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd the indemnity clause in the policy was extended (cl 3) to provide that if during the subsistence of the policy the insured should become aware of any occurrence which might subsequently give rise to a claim against him for breach of professional duty by reason of any negligence and should during the subsistence of the policy give written notice to the insurer of such occurrence, then any such claim which might subsequently be made against the insured arising out of such negligence should for the purposes of the policy be deemed to have been made during the subsistence thereof (204 CLR 650). A policy containing such a clause is sometimes described as a "discovery policy" (204 CLR 653). The insured submitted that s40(3) transformed the policy here in question into a discovery policy. So transformed, the effect of the contract of insurance was that the insurer might refuse to pay the claim by reason of the act of the insured in failing to give the notice in writing to the insurer of facts which might give rise to a claim against the insured before the insurance cover expired. This was the particular circumstance whereby s40(3) became operative. The insured relied upon s54(1) to submit that the insurer in terms of a policy so transformed could not refuse to pay its claim by reason only of the act of its failing, within the times prescribed in s40(3), to give notice in writing to the insurer of the facts which might have given rise to a claim.

20 Mr Davies SC for the insured took us to the relevant authorities. In Newcastle City Council v GIO General Ltd at 93-4 Brennan CJ said:

"The Act alters the balance of interests to ensure a fair operation of the relationships between insurers, insureds and other members of the public. It does so chiefly by statutory modification of contractual relations. Section 40 addresses the problem of the notification of claims. Subsection (3) substitutes a statutory notice condition for any contractual condition of the kind referred to in sub-s (1). Under policies of the kind referred to in sub-s (1), an insurer was liable for claims made on an insured during a policy period provided notice of the claim was given within that period. But where the interests are protected by a notice as prescribed by subsection (3), it is to be liable for claims made outside the policy period."

21 Reliance was placed upon the observation that s40(3) substituted a statutory notice condition for any contractual condition of the kind referred to in s40(1). Accordingly, it was submitted that there was no reason why the omission of the insured to give notice in writing to the insurer, in accordance with that statutory notice condition, of facts that might give rise to a claim as soon as was reasonably practicable and before the insurance cover provided expired should not be treated as a failure to exercise a right, choice or liberty that the insured enjoyed under the contract of insurance, on which s54(1) operated.

22 In this Court Mr Davies did not press any contention that s40 alone or in combination with s54 gave rise to an implied term in the policy of a "deemed claims" provision. He submitted that s40 converted the policy into a discovery policy.

Bergin J's decision

23 Bergin J found that the insured did not give written notice of a potential claim before the period of insurance expired and that the claim that was made upon the insured was made after the expiration of the policy. Her Honour referred to the decision of Rolfe J in Einfeld v HIH Casualty and General Insurance Ltd [1999] NSWSC 867; (1999) 166 ALR 714 where Rolfe J, in considering a claims made and notified policy which contained a "deemed claims" clause, concluded at para 46:

"...to the extent that s40 provides a statutory extension to the policy there is no reason why the ameliorating provisions of s54 cannot apply to it."

24 The insured submitted to Bergin J that by combination of s54 and s40 there was implied into the contract a "deemed claims" provision or, alternatively, there was a statutory extension of the contract which operated to the same effect. As her Honour pointed out, this would mean that notwithstanding the fact that no claim was made during the period of insurance and no notification was given to the insurer of circumstances during the period of insurance, the insurer was obliged to indemnify the insured. The submission was that the failure to notify the circumstances during the period of cover was the only matter that would entitle the insurer to refuse to indemnify the insured.

25 Bergin J did not agree that the policy fell within the discovery category identified by the High Court. Her Honour said:

"33 The facts in the cases relied upon by the plaintiff are each distinguishable from the facts in this case. In Antico a claim was made during the period of insurance and there was a failure to notify the insurer during that period. Similarly in [East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400] a claim was made during the period of insurance and there was a failure to notify the insurer during that period. In Newcastle City Council there was a notification during the period but the claim was made outside the period. In both FAI and Einfeld there were deeming provisions. In this case there is no deeming provision, there was no claim made during the period and there was no notification during the period."

26 Bergin J referred to CA & MEC McInally Nominees Pty Ltd v H T W Valuers (Brisbane) Pty Ltd (2001) 11 ANZ Ins Cas 61-507 where Chesterman J considered a claims made policy that required the insured to give notice of the claim "in writing as soon as reasonably possible in that year". In that case the insured had been sued in negligence in respect of a valuation it had provided during the course of its business as a valuer of real estate. Chesterman J said that s40(3) did not imply into policies of insurance a term to the same effect as the subsection (para 44). His Honour compared statutes such as the Sale of Goods Act 1923 whereby it could be said that terms were implied into contracts. Chesterman J referred to parts of Brennan CJ's judgment in the Newcastle City Council case and continued:

"[45] Section 40(3) confers rights on an insured and obligations on an insurer, but to obtain the subsection's protection an insured must comply with its terms, by giving notice. HTW's submission would require a modification to the subsection and provide relief in circumstances other than those specified by the legislation. If it were Parliament's intention that s54 should modify the operation of s40(3) one would expect to find some indication of the intention in the provision. There is nothing in s40(3) which makes the requirement that notice be given during the currency of the policy `subject to s54'."

27 His Honour quoted the following passage from FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd in the joint judgment at 656:

"Section 40 and s54 deal with different problems. Section 40 is concerned with certain contracts of liability insurance and, among other things, with the insured giving notice of a potential claim during the period of insurance cover when the claim is not made until after the expiration of the period. Section 54, by contrast, deals with the much more general subject of an insurer refusing to pay claims."

28 Bergin J by way of contrast referred to s13 of the Act which expressly implied into a contract of insurance a provision requiring each party to it to act towards the other with the utmost good faith. She observed there was no similar provision in the Act to support the implication for which the insured contended. Bergin J concluded:

"37 What the plaintiff seeks to do is to utilize the combinations of ss40 and 54 of the Act to imply a deemed claims clause and then utilize the Act again to claim that notwithstanding the implication the plaintiff omitted to comply with the requirement of the implied term and thus, but for that omission, the later claim would have been deemed to have been made during the Policy period. In my view the plaintiff's submissions in this case would, as in HTW's submissions before Chesterman J, require modification to the subsection and provide relief other than that specified in the legislation.

38 In my view it would have at least been necessary for the plaintiff to give to the defendant some notice of a claim during the period of insurance before any statutory manipulation of this Policy could occur: Newcastle City Council v GIO General Limited per McHugh J at 114. Even then, in the circumstances of the provisions of this particular Policy, it would be difficult in my view to justify such manipulation. However I accept that there would be better prospects for the plaintiff in the light of the authorities to which reference has been made.

39 This Policy is a claims made policy, not a claims made and notified policy, and did not have a deemed claims clause. The claim for indemnity was not for a demand of the kind dealt with by the Policy because it was not a demand by a third party within the period of cover. The reason for refusal was that the Policy did not extend to the demand made on the insured and was not some act or omission of the insured or some third party: FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd at [44]. In my view there is nothing within the legislation that would justify the statutory implication of a contractual term or a statutory extension of the Policy."

29 In FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89 the majority of this Court (Gleeson CJ and Clarke JA) allowed an appeal from Cole J who had held that an insured was entitled to indemnity under a discovery policy notwithstanding that it covered claims made during the currency of the policy and no claim was made against the insured until after the termination of the policy. The discovery condition was in the same terms as that in the policy under consideration in FAI Insurance Co Ltd v Australian Hospital Care Pty Ltd. The insured failed to give notice of the occurrence and the majority held s54 did not apply.

30 Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 concerned a "claims made and notified" policy. The issue was whether or not the failure by a third party to make a claim on the insured was an "omission ... of some other person", within the terms of s54(1) of the Act. The Court of Appeal held that it was not. At 710 Spigelman CJ said:

"The absence of a claim on the insured does not create any `effect' that an `insurer may refuse to pay a claim' by the insured. Until the first kind of claim is made, no issue of a claim of the second kind arises at all."

31 Mason P at 721 referred to FAI General Insurance Co Ltd v Perry and said it was plain to him that the High Court in Antico v Heath Fielding Australia Pty Ltd at 669-670, a passage I have already quoted, was rejecting portion of the reasoning in FAI General Insurance Co Ltd v Perry, but not questioning the result in that case. At 722 Mason P said:

"Section 54 was not available to cure the omission in Perry, because the effect of doing so would have altered the scope of the contract of insurance in such a way that it would have been impossible for the Court to find a sufficient causal connection between the terms of the policy and the insurer's refusal to pay a particular claim. In Perry and Antico, the Court was at pains to identify the insured's rights existing under the contract at the time of the claim. Only when they were understood was it possible to determine whether the insurer's refusal of the claim could fairly be said to flow `by reason of' some act (or omission) of the insured or of some other person."

32 The President quoted the following passage from the judgment of Brennan CJ in Antico v Heath Fielding Australia Pty Ltd at 661:

"... [s54(1)] does not operate to alter the contractual promise of the insurer to pay a claim. It is engaged when the doing of an act or the making of an omission would excuse the insurer from an obligation to pay a claim for a loss actually suffered by the insured."

Spigelman CJ, subject to some further comments, and Handley JA agreed with the reasons of the President.

33 In Permanent Trustee v FAI (1998) 44 NSWLR 186 at 228 Hodgson CJ in Eq held that Perry was not inconsistent with Antico and that s54 of the Act did not apply when no claim was made on the insured within the period of the policy.

34 In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd the High Court overruled the decision of this Court in FAI General Insurance Co Ltd v Perry and said that the reasoning in Greentree v FAI General Insurance Co Ltd and in Permanent Trustee v FAI should be rejected but that the actual decision in each case was right. It was in this context that it was said in the joint judgment at 659:

"Section 54 directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made. It is not concerned with some other claim which the insured might have made at some other time or in respect of some other event or circumstance. It requires the precise identification of the event or circumstance in respect of which the insured claims payment or indemnity from the insurer. For example, in Greentree the insured claimed indemnity against liability for a claim which the third party had first made on it outside the period of cover. (To distinguish between the claim which a third party makes on the insured, and the claim which the insured makes on the insurer, it is convenient to refer to the former as the `demand' by the third party.) The insured's claim necessarily incorporated a temporal dimension. The contract of insurance applied only if the third party's demand on the insured was made within the period of cover. The insured's claim on the insurer therefore had to identify when the demand was made. That being so, the claim could not properly be described without that temporal element.

Even if the fact that the third party made no demand on the insured within the period of cover were said to be an `omission' it is, nevertheless, of the first importance to recognise that the claim to which s54 refers is the claim by the insured on the insurer that was actually made. It is not a claim for indemnity against some other demand (such, for example, as a demand assumed to have been made during the period of cover). Section 54 does not permit, let alone require, the reformulation of the claim which the insured has made. It operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim. In other words, the actual claim made by the insured is one of the premises from which consideration of the application of s54 must proceed. The section does not operate to relieve the insured of restrictions or limitations that are inherent in that claim.

The restrictions that are inherent within a claim vary according to the type of insurance in issue. Under an `occurrence' based contract, no claim can be made under the contract unless the event insured against takes place during the period of cover. Under a `claims made and notified' policy, if no demand is made by a third party upon the insured during the period of insurance, any claim that may subsequently be made by the insured on the insurer (that is, the claim to which s54 refers) would necessarily acknowledge that indemnity is sought in relation to a demand not of a type covered by the policy (because not within the temporal limits that identify those demands in relation to which indemnity must be given).

In the context of `discovery' contracts, containing clauses such as condition 3, the analysis is similar. If an insured `become[s] aware of any occurrence which may subsequently give rise to a claim' during the period of cover, an event of the type contemplated by the contract of insurance has occurred. Any subsequent claim would be for indemnity against a demand of a type covered by the contract.

It is apparent that, in the circumstances considered in Greentree, the effect of the contract of insurance was that the insurer might refuse to pay the claim that had been made. This was not, however, by reason of any act or omission of the insured or some other person. The claim made by the insured was for indemnity against liability for a demand that was not a demand of the kind dealt with by the policy because it was not a demand by a third party made within the period of cover. The reason for refusal was not some act or omission of the insured or some other person. It was that the policy did not extend to the demand referred to in the claim for indemnity.

By contrast, if a third party had made a demand on the insured during the period of cover but, for whatever reason, the insured had not notified the insurer of the making of that demand until after the period of cover ended, it is apparent that the effect of the contract, but for s54, would be that the insurer may refuse to pay the insured's claim only by reason of the failure to notify the fact of the demand.

Similarly, in the present case, the claim which the insured made on FAI was for indemnity against liability for an occurrence of which the insured first became aware during the period of cover. The effect of the contract of insurance is that FAI could refuse to pay that claim by reason only of the fact that the insured did not give notice of the occurrence to it. Section 54, therefore, requires the conclusion that FAI may not refuse to pay the insured's claim. The effect of the contract of insurance, but for s54, would be that the insurer may refuse to pay the insured's claim by reason only of the omission of the insured to notify the occurrence which, at the time, was one which might subsequently give rise to a claim by the third party against it. That being so, the section is engaged. No prejudice to the insurer's interests was suggested."

35 I have quoted at length from this judgment to emphasise the distinction between a claim against the insured which is not of a type covered by a claims made or claims made and notified policy, namely a claim made against an insured outside its temporal limits, and a claim made against the insured within those temporal limits, and therefore covered, but not notified to the insurer within the time allowed. In the second case, the insurer could refuse to pay the claim by reason only of the insured's act in failing to give notice to the insurer within time. In that case, s54(1) may operate to prevent the insurer refusing to pay the claim. In the case of a discovery policy, if an insured became aware during the period of insurance of an occurrence which might subsequently give rise to a claim, an event of the type contemplated by the policy occurred. Any subsequent claim would be for indemnity against a demand of the type covered by the policy. This explains in the present case the insured's argument that s40(3) converted the policy into a discovery policy.

Conclusion

36 Section 54 does not permit the reformulation of the claim. It operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim. The actual claim made by the insured is one of the premises from which consideration of the application of s54 must proceed. The section does not operate to relieve the insured of restrictions or limitations, such as the temporal limits within which the claim must be made upon the insured in a claims made policy, that are inherent in that claim.

37 As was said in the passage that I have quoted from FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd the contract of insurance was a claims made policy. No claim was made against the insured within the temporal limits of the period of insurance. The insured's right to indemnity depended upon the third party's demand on it being made within the period of cover. The claim that was made on the insured was made outside that period. That fact was decisive unless s40(3) applied. If the subsection operates it denies the insurer escape from liability because the claim against the insured was not made within the temporal limits. To invoke s40(3) the insured must have given notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired. This was not done. In my opinion, that is the end of the matter. The occasion for s40(3) to operate did not happen. Accordingly, the subsection does not apply to prevent the insurer contending that the claim is not within the policy.

Order

38 For the reasons which I have given and which accord with those given by Bergin J, the appeal should be dismissed with costs.

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LAST UPDATED: 12/03/2003