CORPORATE INSURANCE TRENDS 2015

CORPORATE INSURANCE
TRENDS 2015
LOOKING INTO THE FUTURE OF CYBER
INSURANCE
CAUSATION AND RELIANCE IN AUSTRALIAN
SHAREHOLDER CLASS ACTIONS
TRENDS IN MASS TORT LITIGATION AND
NATURAL DISASTERS
AUSTRALIA’S NEXT TOP MODEL LAW
REGULATION OF LITIGATION funding
DISASTER RISK REDUCTION AND CLIMATE
CHANGE ADAPTATION
PENALTIES AND INSURANCE
PROFESSIONAL LIABILITY ON A KNIFE’S
EDGE: CAPPING YOUR LIABILITY
Contents
LOOKING INTO THE FUTURE OF CYBER INSURANCE
in the future, cyber insurance will be as common as any other type of insurance
05
CAUSATION AND RELIANCE IN AUSTRALIAN SHAREHOLDER CLASS ACTIONS
Is there a storm brewing, or do we just need a bex & a lie down?
08
TRENDS IN MASS TORT LITIGATION AND NATURAL DISASTERS A focus on Asia Pacific
10
AUSTRALIA’S NEXT TOP MODEL LAW
Courts bound to enforce arbitration agreements
12
REGULATION OF Litigation Funding
Remains elusive
14
DISASTER RISK REDUCTION AND CLIMATE CHANGE ADAPTATION Is insurance the key?
15
PENALTIES AND INSURANCE Where the only certainty, is uncertainty (for now)
17
PROFESSIONAL LIABILITY ON A KNIFE’S EDGE: CAPPING YOUR LIABILITY The power and pain of capped liability schemes
19
KEY INSURANCE CONTACTS 21
02 | DLA Piper – Corporate Insurance Trends 2015
OVERVIEW
Over the last 12 months, the insurance industry has seen
speculation with respect to litigation funding regulation,
resolutions of large class actions and consolidation in the
form of acquisitions in the industry. There has been significant
activity in the industry.
In this publication we have examined some of the trends and
key issues that have arisen and are excited to bring you a
collection of articles addressing what we have observed and
what we believe lies ahead.
Our cyber team experts have considered the real and
continuing risks associated with cyber breaches and the
industry’s response to those risks. The message continues
to be that breaches are inevitable so organisations need to
prepare. Cyber risk continues to present great opportunities
for the industry.
One of the continuing hot issues is the role of litigation
funding and class actions. These matters are discussed in the
context of regulatory changes, the impact of natural disasters
and the resolution of some of the largest class actions in
Australian history.
We also address capped liability for professionals and how it is
operating since its introduction, along with issues concerning
the role of insurance in the imposition of penalties.
Finally, we look at the Court’s response to the tension
between arbitration and litigation.
We are Australian insurance law experts, operating one of the largest
insurance practices in Australia. We have access to the resources of the
world’s largest business law firm, a firm with a focus on the insurance sector.
In our areas of expertise, no one will have the knowledge or resources to
be better.
www.insuranceflashlight.com | 03
dla piper CONTRIBUTORS
The Corporate Insurance Trends 2015 publication would not be possible without the following DLA Piper contributors:
Solicitors
Senior Associates/Special Counsel
Allan Flick, Solicitor, Sydney
Belinda Randall, Special Counsel, Melbourne
Ashleigh Cowper, Solicitor, Sydney
Carmen Elder, Senior Associate, Sydney
Benjamin Hine, Solicitor, Melbourne
James Morse, Senior Associate, Sydney
Cian Horner, Solicitor, Brisbane
Natasha Stojanovich, Senior Associate, Melbourne
Heidi Edwards, Solicitor, Melbourne
Nicholas Boyle, Senior Associate, Sydney
Nitesh Patel, Senior Associate, Sydney
Partners
David Leggatt, Partner, Melbourne
Gitanjali Bajaj, Partner, Sydney
Jacques Jacobs, Partner, Sydney
Kieran O’Brien, Partner, Melbourne
Peter Jones, Partner, Sydney
Samantha Kelly, Partner, Sydney
Sophie Devitt, Partner, Brisbane
04 | DLA Piper – Corporate Insurance Trends 2015
LOOKING INTO THE FUTURE OF CYBER
INSURANCE
In the future, cyber insurance will be as common as any other
type of insurance
By Nitesh Patel, Senior Associate and Nicholas Boyle, Senior Associate (Sydney)
Given the attention that cyber-attacks, data breaches and cyber insurance have been recently
receiving (particularly in the past year), the proposition above seems to carry a lot of weight.
But what changes will take place to facilitate the proliferation of cyber insurance? How will
the growth of cyber insurance impact the market? How will the market change and how do
we handle any fallout? We provide our insights as to the future of cyber insurance.
The role of mandatory breach notifications and worldwide complications
Recent surveys and reports regarding the growth in the uptake of cyber insurance policies, particularly in the United States of
America (United States), support the notion that mandatory data breach notification legislation is a catalyst for an increased
uptake of cyber insurance policies.
Indeed, there can be little doubt that the requirement to notify breaches has necessarily increased the exposure that data breach
incidents have received. It is arguable that without mandatory breach notifications, the massive data breaches experienced by
Sony, Adobe, Target, Anthem and many other companies would not have become widely known until long after the breach
occurred, if ever.
Australia has seen a number of false starts regarding the introduction of mandatory breach notifications. As a result, many breach
incidents continue to go unreported until well after they have occurred (in one case some three years after). But we see it as
simply a matter of time before mandatory breach notification legislation is introduced in Australia, most likely later this year.
However, there is a growing perception that mandatory breach notifications may not be the panacea for the exposure of cyberattacks and data breach incidents that it first appears to be. There are concerns, primarily coming from the US where mandatory
breach notifications were first introduced, that the influx of breach notifications may desensitise society to the impact of all but
the largest breach incidents. Smaller notifications may be lost as background noise in the face of larger breach notifications.
A problem we see with this reasoning is that it inherently requires that society first have a sufficient understanding of cyber risk before
it can be desensitised to the risk. We therefore do not see this as having any material impact on the application or uptake of cyber
insurance policies or the rate of claims, since people will be able to quickly and easily search notifications that affect them (if they are
not personally notified).
Of far greater concern is the increasingly complex and differing notification regimes being implemented worldwide. In our
experience, breach incidents often involve the data of entities from multiple jurisdictions. Identifying the jurisdictions and relevant
breach notification laws as soon as possible after a breach incident is critical given the diversity of requirements imposed by
notification laws across the world.
From our experience, notification requirements across the globe can differ significantly for even a relatively minor breach, with
regulations in some jurisdictions stipulating that a minor breach amounts to criminal conduct, whereas no action may be required
in other jurisdictions. The deadlines by which a breach needs to be notified also tend to vary by jurisdiction.
Cyber security has an inherently global dimension and the jurisdictions in which a company may face exposure is an often
overlooked risk that companies do not properly consider. In fact, a 2015 Cyber Impact Report revealed that only 24 percent of
respondents are fully aware of the consequences that could result from a data breach or security exploit in countries other than
those in which their company operates.
We expect that the complexity and diversity of breach notification requirements across the world will only increase in the next five
years. Indeed, breach notification requirements in the United States itself will likely become more complex in the near future on
account of the anticipated introduction of Federal notification laws in addition to pre-existing state laws. It is and will increasingly be a
major cost for insurers and insureds. We cannot see there being any unification of breach notification laws across many countries in
the near or long term future.
www.insuranceflashlight.com | 05
Cyber insurance as a standalone
product and rapid response
Insurers are taking steps to ensure that cyber related risk is
excluded from policies which were never designed to cover
such risks. For example, in our experience insurers are refining
management liability policies to exclude cyber related incidents they
were not designed to cover. Claims relating to electronic records
and data are also being excluded from general liability policies.
Coinciding with this is the growth in specific cyber cover
extensions for these policies which were (as opposed to
stand-alone cyber policies). These products fit a current
market demographic of insureds who are not yet willing to
purchase a stand-alone cyber insurance product.
However, cyber cover extensions generally have more
limitations compared to stand-alone products. This can include
limiting the range of potential attacks covered, providing low
policy sub-limits, or often limiting the heads/classes of loss
as compared to a standalone policy – as the types of losses
arising from a cyber-attack are very broad.
In addition, many stand-alone cyber policies provide a rapid
response cover. The protection afforded by rapid response
comes into play as soon as a cyber-attack has been identified.
In our experience, rapid response cover can play a pivotal role in
controlling the fallout from an attack and also limit the financial
and reputational damage by controlling what happens in the first
48 hours after a company has identified it is under a cyber-attack.
The decisions made on how to deal with an attack at this time
will impact how the matter will be handled going forward. This
includes the protection of sensitive communications, how best
to address the attack itself from an IT perspective (a brute
force approach is often not the best approach) and the extent
of notifications that need to be made (including the number of
jurisdictions involved as raised previously). In this respect, not
all cyber-attacks result in a data breach incident (a common
misconception).
We expect that over time businesses will prefer the protection
and breadth of cover afforded by stand-alone products as
opposed to choosing a cyber cover extension to existing
policies. However, this will depend on how these policies evolve
to respond to cyber risks. Management liability policies, in
particular, have proved to be very flexible and dynamic in terms
of how they can respond to a variety of quite different risks.
What will become standard in cyber policies, whether standalone or by way of extension, is the inclusion of access to a
rapid response team. This will benefit both the insurers and
the insureds, including by limiting the extent of potential losses
while preserving the information relating to the incident itself.
Ultimately, insurers may be far better placed to formulate an
expert rapid response team than an insured. Most businesses
will ideally have very few instances where they require a rapid
response team, whereas it is of significant benefit to an insurer
to have an expert team (or teams) handling cyber claims in a
consistent manner for all their clients.
06 | DLA Piper – Corporate Insurance Trends 2015
Standardised Protection Regimes
An impediment to the uptake of cyber insurance for potential
insureds is the difficulties and complex task of collating information
reflecting the extent of their cyber exposure. Many potential
insureds are not aware of the extent of their cyber risk.
To that end, we are already witnessing increasing legislative
pressure on businesses to take “reasonable steps” to ensure
that their data and systems are secure. But we can foresee
legislation stipulating in further detail a minimum level of
protection that is required (beyond simply the requirement to
take reasonable steps). There is, of course, no such thing as a
fool-proof system invulnerable to a cyber-attack.
However, we expect to see the introduction of cyber security
“packages” that will attempt to standardise a number of
key elements to developing cyber resilience, including data
retention, handling and cyber-attack policies, a gamut of IT
systems security measures and physical security measures.
An insured will be able to purchase or adopt a standardised
level of cyber resilience by purchasing and adapting one of
these cyber security “packages”.
There are a number of forces that will drive these changes,
including the aforementioned legislative amendments requiring
greater standards of security, IT security entrepreneurs who
identify the opportunity to provide such a service and the
insurance industry itself as it develops ways to penetrate
but also reform the cyber market. For example, we expect
insurers will implement cyber specific loss minimisation clauses,
which may exclude cover for losses arising out of a failure to
patch vulnerabilities within a reasonable time. While some
policies have attempted to do this already, our experience
suggests there is room for improvement.
The potential benefits of standardised security packages are
numerous, including higher minimum security levels, faster
patching of vulnerabilities, simplification of pricing cyber risk
for insurers, a reduction in cyber policy premiums (based on
improved base level security) and increased accessibility and
uptake of cyber policies.
A change in the nature of attacks,
a change to the nature of claims
An uptake of standardised security packages may in turn
impact the trends and style of cyber-attacks. In other words,
cyber attackers will continue to tailor their attacks to changes
in business systems to cause maximum damage.
The current environment stems from the lack of attention that
cyber security has received prior to the last few years. This has
led to a volume of wide and varied vulnerabilities across many
systems as businesses struggle with making their systems more
resilient. The resultant nature of cyber-attacks have been wide
and varied, including ransomware, distributed denial of service,
watering hole, remote access, phishing and malware attacks.
When the uptake of standardised security packages reaches a
critical mass over the next six to eight years, we expect cyber
attackers will focus their attention on identifying and attacking
vulnerabilities within those packages so that they maximise the
potential number of targets susceptible to their “handy work”.
There will be other barriers that data breach class actions
will face, including grappling with the fallout from the US
Supreme Court decision in the Halliburton class action and its
implications on class certification. However, we expect they
will ultimately be overcome.
An example of what may be to come is the exploitation of the
Heartbleed vulnerability (which impacted systems that used
OpenSSL) that came to light in April 2014. The vulnerability
was exploited en masse within hours of its release, before a
fix had been developed or could be applied.
The Neiman Marcus decision is another step towards the
inevitable path of successful class actions. We expect the first
successful action to occur in the next 6 years.
There will always be claims arising from
large, targeted attacks on high profile
businesses. However, cyber claims generally
may now arise from a single vulnerability
being exploited within a short period of time
against a number of exposed businesses.
The losses that arise from these claims may
reduce over time due to the expected
increased base cyber security.
However, it is likely that the response times to address
vulnerabilities may be improved significantly in the future
(due in part to insuring policies excluding losses due to tardy
patching of vulnerabilities), which will narrow the time in which
a vulnerability can be exploited. Contrast this with Heartbleed,
where one year after its release, approximately 84% of
Australian businesses had yet to fully address the vulnerability.
Class Actions and the evolution of the
Court Process
The nature of cyber-attacks and data breach incidents are such that
they impinge on records affecting thousands of people (or more).
Unsurprisingly, this has given rise to class actions arising from data
breach incidents. To date these class actions, commenced mainly in
the United States, have faced a number of hurdles.
However, class actions have shown an ability to adapt and
overcome obstacles as they arise. This was most recently
demonstrated in the landmark decision by the US 7th Circuit
Court of Appeal in the Neiman Marcus case. The Court ruled
that, contrary to a number of decisions in the US Federal
District Courts, the fear of future harm from a data breach
incident is sufficient to establish standing to sue and that actual
harm need not have been already suffered. In making the
ruling the Court reinstated the class action.
Spurred by the successes and the overcoming of hurdles,
we expect to see an increase in the volume of class actions
arising from data breaches in that time, including in Australia.
One question arising is, how will the Australian court system
handle the load of class actions, particularly given the intensive
manner in which the actions need to be managed?
The court system too has shown an ability to adapt with the
times (albeit at a slower pace). The Federal Court recently
adapted its docket system to introduce a Commercial and
Corporations National Practice Area to manage the influx of
commercial and corporations related cases. The NSW Supreme
Court introduced the Technology and Construction List to
better manage such cases. We see no reason that the Courts will
not create a dedicated List to manage data breach related class
actions. The List will also have with it a practice note of rules to
address the specific issues that come with managing a class action.
A window into the world to come
The risk of cyber-attacks and data breaches are here to stay
for the long term and the same can be said for cyber insurance.
The world is trying to catch up with this relatively new breed of
risks that it faces.
There is rapid progress being made right now and with it will
come a significant change in the future. Our insights above into
the future raise just a few of many matters that we and many
others look forward to confronting in the cyber insurance space.
KEY CONTACTs
Jacques Jacobs
Partner
T +61 2 9286 8284
[email protected]
Peter Jones
Partner
T +61 2 9286 8356
[email protected]
The decision is, and will no doubt continue to be, the subject
of much debate. However, even before the decision, class
actions began to adapt. To attempt to show sufficient standing,
class action lawyers successfully started suing in the name of
lead plaintiffs who suffered an actual harm.
www.insuranceflashlight.com | 07
CAUSATION AND RELIANCE IN AUSTRALIAN
SHAREHOLDER CLASS ACTIONS
IS THERE A STORM BREWING, OR DO WE JUST NEED A BEX & A LIE DOWN?
By Belinda Randall, Special Counsel (Melbourne) and Cian Horner, Solicitor (Brisbane)
The challenge of proving causation and reliance in shareholder class actions has been an
entrenched feature of securities litigation in Australia (although securities class actions have
traditionally been settled before this issue is determined). Shareholder plaintiffs are typically
required to prove their respective decisions to buy shares in a company were causally
connected to any alleged non-disclosures. That is, to prove something about their decision to
purchase the shares, as opposed to merely relying on a general submission that the price at
which they purchased their shares was inflated as a result of non-disclosures by the company.
Recently, however, speculation (and some trepidation) has
been building that change is looming and that we are inevitably
heading to an American style “fraud on the market” basis
for proving causation. This speculation has arisen from a
combination of recent judicial commentary and subsequent
debate amongst stakeholders in the Australian class action
‘industry’. But is this speculation warranted?
Of particular recent note is the March 2015 Federal
Court decision of Grant-Taylor v Babcock & Brown Limited
(In Liquidation), where Justice Perram weighed into the
debate about causation and proof of loss in these actions.
Notwithstanding the emphatic dismissal of the plaintiffs’
claim that the company had failed to disclose certain material
information, Justice Perram made obiter comments on
questions of causation in cases involving alleged non-disclosure
of price sensitive information (even though this issue did not
arise, given the plaintiffs’ failure to prove any relevant nondisclosure). Specifically, although His Honour accepted that
generally a plaintiff must show in a misleading conduct case that
they would have acted in a particular way but for the conduct,
he considered that it is ‘artificial’ to speak of reliance in market
non-disclosure cases. Further, that whist reliance is a sufficient
condition of establishing causation it is not a necessary one.
The high watermark of Justice Perram’s comments was his
acceptance that a party who acquires shares on a stock
08 | DLA Piper – Corporate Insurance Trends 2015
exchange can recover compensation for price inflation arising
from a failure to disclose material required by s674 of the
Corporations Act, so long as they are not themselves aware of
the non-disclosed material.
It has been suggested that Justice Perram’s analysis (whilst not
binding) lends support to plaintiffs in shareholder class actions
being able to rely on an “indirect causation” to prove their loss
(and to circumvent the evidential burden of proving reliance by
each class member). This approach to causation is favoured by
plaintiff law firms (who often plead indirect causation on behalf
of group members) and litigation funders. Plaintiffs in American
shareholder class actions have relied on a “fraud on the
market” presumption of reliance since the 1988 seminal case of
Basic Inc. v Levinson. Members of the class do not need to prove
that they individually relied upon incorrect information – it is
assumed that the market reacts to and relies on misinformation
about a financial security. The United States Supreme Court
considered the issue in the 2014 Halliburton case, and left
intact the “fraud on the market” presumption of reliance (but
introduced procedural amendments to allow the presumption
to be rebutted at the pre-certification stage of a class action).
The application of the “fraud on the market” presumption may
have certain limitations, as demonstrated by the recent (and
ongoing) Vivendi securities fraud class action in the United States.
In that case, Vivendi argued that certain class investors could not
recover for “fraud on the market”, because they had actively
sought the stocks in the company they believed the market had
undervalued. Those investors could not then later turn around
and claim that they had been defrauded for the same reason
that they considered the price to have been artificially low. The
Court’s finding on these arguments is pending.
It can hardly be said that the Grant-Taylor v Babcock & Brown
Limited judgment represents a further step by Australian
Courts towards market-based causation, similar to the “fraud
on the market” doctrine, which exists in the United States.
Having regard to the totality of the judgment (representing
a comprehensive loss for the plaintiffs), the specific facts and
the highly qualified nature of Justice Perram’s comments (he
made it clear that it was unnecessary for him to reach a view
on causation), in our view there can be no real suggestion that
the causation landscape in shareholder actions has changed. In
the absence of legislative intervention we believe it is unlikely
that “fraud on the market” theory will ever apply here, as on
one view it displaces how causation is established in a statutory
cause of action (which shareholder class actions are necessarily
founded upon).
Nevertheless, it can be expected that
plaintiff class action lawyers (and funders)
will continue to press for early lucrative
settlements on the basis that the approach
to causation is ripe for testing by the Courts.
A close watch will need to be kept on other shareholder
claims to see whether the existing law in securities
actions will be subject to change. A number of Australian
interlocutory level decisions in the months preceding
Grant-Taylor v Babcock & Brown Limited, such as Caason
Investments Pty Limited v Cao (Federal Court) and
Camping Warehouse v Downer (Victorian Supreme Court)
have indicated some support of an indirect causation
theory to enable plaintiffs to satisfy the requirement for
proof of causation and reliance in shareholder claims for
misleading conduct.
However, speculation about an imminent
change to causation principles in Australian
securities class actions to reflect “fraud on
the market” or “indirect causation” theories
is not warranted.
Nor, for that matter, are predictions that the path is being
paved for a proliferation of successful shareholder class
actions due to relaxed causation requirements. However,
D&O insurers operating in the Australian market will need to
closely monitor any further judicial commentary on causation
and reliance issues and (to the extent the current obiter
comments translate into a revised approach to determining
causation), be in a position to respond to any increased liability
risks that may arise.
KEY CONTACTs
Toby Barrie
Partner
T +61 8 6467 6029
[email protected]
Jacques Jacobs
Partner
T +61 2 9286 8284
[email protected]
David Leggatt
Partner
T +61 3 9274 5473
[email protected]
Kieran O’Brien
Partner
T +61 3 9274 5912
[email protected]
www.insuranceflashlight.com | 09
TRENDS IN MASS TORT LITIGATION AND
NATURAL DISASTERS
A FOCUS ON ASIA PACIFIC
By Natasha Stojanovich, Senior Associate and Kieran O’Brien, Partner (Melbourne)
There is increasing evidence that population expansion, climate change, a
higher concentration of people and assets in exposed areas, and interference
with natural environments (especially in the pursuit of new forms of energy
and resources) are bringing the human race and nature into increasing conflict.
As a result, natural disasters and environmentally based events are seemingly
becoming more frequent.
In addition to the human toll, the economic impact of such disasters, particularly in our region, has been and will continue to
be significant. Of the top three most costly insurance losses over the past 40 years, all have been natural disasters and all in the
past 10 years. The increasing frequency of such events raises particular challenges in the Asia Pacific region, and also in the realm
of class action litigation.
The impact of natural disasters on the insurance industry is significant, particularly for those underwriting property and liability
risks. By way of example, in Australia and California, bushfire losses alone have accounted for billions of dollars of compensation
payouts in the past 25 years. Of course, where liability can be shifted to other entities (private and public) and/or individuals,
property insurers can transfer some of their losses to liability insurers, presenting insurers with unenviable decisions about
whether to assume conduct of subrogated claims to mitigate their losses (and passing through property losses to liability insurers).
Natural Disaster trends in the Asia Pacific region
In 2014, whilst Oceania/Australia was responsible for only 2.1% of total losses for catastrophes (US$2.3 billion), our Asian
neighbours shouldered 47% of total global losses for catastrophes, roughly $45 billion of which was uninsured. It is perhaps no
coincidence that Asia continues to be an epicentre for population concentration/growth and economic development.
Last year saw the top three natural disasters in terms of overall losses all occur in our region (Cyclone Hudhud in India, Winter
damage in Japan, and Floods in India/Pakistan). It is often said that it is the vulnerability of a community which converts an
‘event’ into a disaster. In much of Asia, the combination of large densely populated areas and poor regulatory responses to both
resilience capacity building (such as building controls and regulation) and disaster management have left our neighbours vulnerable
to large scale incidents, with recent experience seeing heavy loss of life, damage to infrastructure and significant uninsured losses.
The seeming unpreparedness for the 2004 Boxing Day tsunami is a case in point.
The Australian experience has seen a gamut of natural disasters in recent times, including the Black Saturday bushfires, 2011 floods
in Queensland and the Brisbane hailstorms of 2014, which collectively saw AU$1.3 billion in losses.
10 | DLA Piper – Corporate Insurance Trends 2015
Class action litigation: A focus on
bushfires
Mostly costly insurance losses
(1970 – 2014)
Class action litigation arising from bushfires has been a key
trend in the past 5 years, with a spate of class actions arising
out of the devastating Black Saturday bushfires in Victoria.
Defendant targets of such litigation have included electricity
distributors, fire authorities, government at all levels and
vegetation management contractors. The magnitude of
these claims has been significant. In December 2014, the
Supreme Court of Victoria approved the settlement of one
bushfire class action for $494 million the biggest settlement in
Australian class action history.
1. Hurricane Katrina (US, Gulf of Mexico, Bahamas),
2005, US$78,638 million
Whilst plaintiff lawyers and litigation funders continue to
push the boundaries of mass tort litigation and its potential
targets, both the courts and defence lawyers are also adopting
innovative strategies to respond to what is increasingly
complex and large scale litigation.
The use of technology in particular has a key role to play in
expediting processes and delivering cost savings to litigants.
Notably in the Kilmore litigation, his Honour Justice Jack Forrest
issued an edict banning trolleys and folders of hard copy
documents with the aim of running a paper free trial.
Research conducted by the Supreme Court of Victoria
indicated that the adoption of various technologies saved
about one-third of Court time, and this dramatically reduced
both the length and cost of the trial. It was nonetheless a
staggeringly large piece of litigation, with 40 expert and 60 lay
witnesses and 208 sitting days.
What does the future hold?
The impact of global warming, rising temperatures and
increased incidence of drought are predicted to increase
bushfire activity and vulnerability to bushfires, particularly
in southern Australia. Whilst bushfires have been a
naturally occurring phenomenon for countless years, we
are still learning about the complex interactions between
climate and vegetation (and the added complication
of human interference). The fact that highly flammable
eucalyptus trees dominate Australia’s South-East (much like
southern California) leaves Australia particularly vulnerable.
2. Earthquake/tsunami (Japan), 2011, US$36,828 million
3. Hurricane Sandy (US, Caribbean), 2012,
US$36,079 million
Source: Liberty International Underwriters, World Catastrophes
2014 Report
In Australia, we expect continuing class action activity in
response to natural disasters like bushfires, cyclones and other
phenomena that impact on the community such as coastal
erosion and standalone events like the Hazelwood coalmine fire.
We expect that the litigation funding regulatory environment to
remain unchanged in the immediate future (See our Regulation
of Litigation Funding Remains Elusive article on page 14).
Whilst part of this rise is due to litigation funders and the
attraction of substantial costs recoveries by plaintiff lawyers, the
increasing frequency of such natural disasters also makes more
activity somewhat inevitable. Aggressive adoption of cutting edge
technologies by lawyers and courts is a critical part of ensuring that
costs of defending mass tort litigation can be managed effectively.
More broadly for the region, whilst the incidence, type
and location of natural disasters are inherently difficult to
predict (one can only “control the controllables”), progress
is being made in both building community resilience to
withstand events (e.g. building code restrictions in high
bushfire/earthquake prone areas and in coastal areas), and
in innovation regarding insurance products, which can assist
community resilience to withstand such events and reduce the
economic impact on individuals, businesses and governments.
In our view, the insurance industry must continue to lobby the
Government to ensure that sensible guidelines on post-disaster
redevelopment are in place, and that Government is willing to
assist in legislation, funding and education around what constitutes
sustainable redevelopment that is funded by insurance claims
payouts. There is significant potential for insurers willing to drive
product innovation in response to natural disasters particularly
in the Asia Pacific region, as insurance is a critical component of
reducing community vulnerability in this area.
KEY CONTACTs
James Berg
Partner
T +61 2 9286 8193
[email protected]
Kieran O’Brien
Partner
T +61 3 9274 5912
[email protected]
Samantha Kelly
Partner
T +61 2 9286 8032
[email protected]
www.insuranceflashlight.com | 11
AUSTRALIA’S NEXT TOP MODEL LAW
COURTS BOUND TO ENFORCE ARBITRATION AGREEMENTS
By Allan Flick, Solicitor and Gitanjali Bajaj, Partner (Sydney)
Apparent tensions between arbitration and litigation in Australia have been largely resolved
by recent amendments to Australia’s statutory arbitration regime. These amendments, which
follow international best practice, have been upheld by Australian Courts, so that a court
must refer a dispute to arbitration if requested to do so by a party to a valid arbitration
agreement. This now provides a solid legal foundation for a party to an arbitration agreement
to enforce its right to arbitrate knowing that it will not, in most circumstances, be forced to
litigate in apparent defiance of a valid arbitration agreement.
Recent amendments to Australia’s statutory arbitration regime (Commercial Arbitration Acts) significantly reduced the historic
tensions between arbitration and litigation by removing the court’s discretion to refuse to refer a dispute to arbitration if
requested to do so by a party to a valid arbitration agreement. The Commercial Arbitration Act of each State and Territory (with
the exception of the ACT) now incorporates a provision identical to Article 8 of the UNCITRAL Model Law on International
Commercial Arbitration (Model Law) setting out the circumstances in which a court is required to refer a dispute to arbitration.
These provisions of the Commercial Arbitration Acts reflect the commercial arbitration statutes in most countries that have
adopted the Model Law so that Australian law is now in harmony with most other jurisdictions.
Section 8(1) of each State’s Commercial Arbitration Act provides that a court before which an action is brought in a matter
which is the subject of an arbitration agreement must, on the request of a party, refer the parties to arbitration unless the
arbitration agreement is found to be “null and void, inoperative or incapable of being performed”. Section 8(2) provides that the
commencement of litigation in breach of an arbitration agreement is no bar to the commencement or continuation of an
arbitration by an innocent party.
While these provisions provide parties with comfort that they can, in most circumstances,
apply to the courts for an order compelling performance of a valid arbitration agreement,
there are a number of key issues to be aware of.
12 | DLA Piper – Corporate Insurance Trends 2015
TIMING OF AN APPLICATION FOR REFERRAL
COSTS
Obtaining an order under section 8 of the Commercial
Arbitration Act is conditional on the application to the court
being made “not later than when submitting the party’s first
statement on the substance of the dispute.”
One matter where Australian courts appear to have departed
from international best practice is in the award of indemnity
costs for a successful referral application under section 8 of
the Commercial Arbitration Act.
In practice, a party should apply to the court for referral
before their first substantive response, and certainly before
submitting their statement of defence. Otherwise it stands to
lose its right to arbitrate.
Countries that have also adopted the Model Law (such as
Singapore and Hong Kong) follow the rule established by the
English case of A v B [2007] EWHC 54 that a party who has
commenced legal proceedings in breach of a valid arbitration
agreement should ordinarily be ordered to pay the innocent
party’s costs on an indemnity basis (as opposed to ordinary
basis) upon referral to arbitration.
GROUNDS FOR REFUSAL
Although section 8 of the Commercial Arbitration Act provides
very little scope for a party to elect to litigate disputes in the
court in breach of a valid arbitration agreement, a court is not
required to refer parties to arbitration if the agreement is “null
and void, inoperative or incapable of being performed”. These
are well defined reasons with specific examples in limited
circumstances:
■■
■■
■■
null and void: an arbitration agreement may be null and
void where it is affected by some invalidity from the
beginning.1 This would cover internationally recognised
defences such as lack of consent due to misrepresentation,
duress, fraud or undue influence: Comandate Marine Corp
v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45.
inoperative: an arbitration agreement may be inoperative
where it has been waived, repudiated, abandoned or
where it contains a time limit that has expired. Parties
should exercise care as a delay in commencing proceedings
or participation in litigation may render an agreement
inoperative. This may also amount to a failure of the
statutory condition concerning timing of the application for
referral in section 8 of the Commercial Arbitration Act.
incapable of being performed: this exception primarily
concerns pathological deficiencies in an arbitration
agreement that would render it incapable of being
performed. This is most common where an agreement
includes an equivocation as to whether binding arbitration
is intended by the parties.
It should be noted that Australian courts will ordinarily seek to
give effect to an arbitration agreement despite a minor defect or
ambiguity, although this is ultimately a question of fact and degree.
STAY OF COURT PROCEEDINGS
Section 8 expressly removes the court’s discretion to order a
stay in curial proceedings when referring parties to arbitration.
However, the preferred approach of Australian courts
continues to be to order a stay in proceedings (rather than
dismissing the court proceedings altogether) while referring
the parties to arbitration.
However, this approach has to date only been followed by
the Supreme Court of Western Australia, and has not been
followed in the Supreme Courts of Victoria and New South
Wales. It may take some time for uniformity to be achieved.
KEY TAKEAWAYS
Further to the considerations set out in our article
in Corporate Insurance Trends 2014 (Arbitrations and
underwriting risks), insurers should now note:
■■
Australia’s statutory arbitration regime provides a strong
legal foundation for the mandatory enforcement of
arbitration agreements so that a party’s right to choose
arbitration instead of litigation will ordinarily be enforced.
■■
Insurers should be aware that their insureds will also be
bound by section 8 and will not be able to elect to litigate if
they no longer wish to resolve a dispute by arbitration.
■■
Parties will be able to protect their right to arbitrate by
applying to a court for a referral order under section 8 of
the Commercial Arbitration Act. However, parties too will be
bound by section 8 and will not be able to elect to litigate if
they no longer wish to resolve a dispute by arbitration.
KEY CONTACTs
Gitanjali Bajaj
Partner
T +61 2 9286 8440
[email protected]
Richard Edwards
Partner
T +61 8 6467 6244
[email protected]
Liam Prescott
Partner
T +61 7 3246 4169
[email protected]
1
See for example, section 43 of the Insurance Contracts Act 1984 (Cth), which renders any compulsory arbitration agreement contained in a direct insurance contract void, unless
both parties agree to submit to arbitration (i.e., a submission agreement for arbitration) after a dispute has arisen.
www.insuranceflashlight.com | 13
REGULATION OF LITIGATION FUNDING
REMAINS ELUSIVE
By Belinda Randall, Special Counsel & Benjamin Hine, Solicitor (Melbourne)
In May 2014 the Attorney General, Senator George Brandis, announced
increased regulation of litigation funding. Even though we are still yet to see
any substantive legislative developments in relation to this issue, there is
continued debate regarding how the sector should be regulated as the impact
of litigation funding in recent large scale litigation is felt.
At present, litigation funders in Australia do not need to be
licensed and are largely unregulated, aside from the requirement
that litigation funders disclose that a funding arrangement’s in
place. The anticipated regulation, depending on the detail (which
will inevitably reflect the prevailing political and economic climate),
would be likely to guide Australia away from a US type system,
regarded by many commentators as beneficial mainly to lawyers.
In March this year, Justice Croft of the Supreme Court of
Victoria suggested that the current litigation funding framework
in Australia requires debate about the role of litigation funders,
especially in the context of class actions, and the need for
adequate regulation. In an address to the APIG Victorian branch
in April 2015, his Honour Justice Murphy of the Federal Court
expressed the view that greater regulation of litigation funding
was desirable and that the Federal Court was working on a
new Practice Note to deal with adequate disclosure by funders
and plaintiff law firms to consumers. Their Honours’ comments
follow a particularly eventful year in the litigation funding and class
actions areas, especially in Victoria.
In the last 12 months we have seen the biggest ever class action
settlement in Victorian history in the Kilmore East Kinglake
bushfire proceeding settlement was reached and approved
at almost $500 million (see our Trends in mass Tort
Litigation and natural disasters article on page 10-11).
Outside of the natural catastrophe context, other major cases
involving Great Southern (settlement approved in December 2014
with a Scheme of Arrangement application pending),
Willmott Forests (settlement reached in December 2014 with
the settlement approval decision pending) and a claim regarding
certain unlawful bank fees (involving litigation funders) have also
been settled in the past year. Whilst not all of these matters were
propelled by litigation funders, the increasing use of class actions
as a legal avenue has led to increased scrutiny of litigation funding.
The Productivity Commission released a report on Access to Justice
Arrangements late last year which considered litigation funding,
class actions and litigation funding of class actions. The Report
recommends regulation of third party litigation funding by imposing
provisioning requirements, requiring separation of the financial
interests of solicitors and litigation funders, and increased scrutiny
of litigation funding fairness and control.
14 | DLA Piper – Corporate Insurance Trends 2015
The Commonwealth government has not yet responded to the
Report which was tabled in the Senate on 3 December 2014.
Whilst it seems the Attorney-General has an interest in regulating
litigation funding demonstrated by the Productivity Commission’s
Report, and there has been interesting judicial commentary about
litigation funding in the cases of the past year,
we do not think there is enough appetite
in the current political climate for any
legislative change in the near future.
Without legislative intervention, litigation funding will continue
to experience the current increase in competition. When the
time does come, any regulation will need to balance (to the
extent possible) the interests of all stakeholders and ensure
that the litigation funding regime in Australia is sustainable.
Continued vigilance of litigation funding (including regulation of
class action) will be key.
KEY CONTACTs
Toby Barrie
Partner
T +61 8 6467 6029
[email protected]
James Berg
Partner
T +61 2 9286 8193
[email protected]
Sophie Devitt
Partner
T +61 7 3246 4058
[email protected]
Samantha Kelly
Partner
T +61 2 9286 8032
[email protected]
DISASTER RISK REDUCTION AND CLIMATE
CHANGE ADAPTATION
IS INSURANCE THE KEY?
By Ashleigh Cowper, Solicitor and Samantha Kelly, Partner (Sydney)
The Intergovernmental Panel on Climate Change released its publication
Climate Change 2014: Impacts, Adaptation, and Vulnerability, Part A: Global and
Sectoral Aspects as part of its Fifth Assessment Report last year (IPCC Report).
The IPCC Report considered, amongst other things, the implications of climate
change on global economic activity and, specifically, the challenges facing the
insurance sector. We report on the key findings of the IPCC Report below.
The IPCC Report described the insurance sector as a key
tool towards global climate change adaptation as the industry
“enables recovery, reduces vulnerability and provides
knowledge and incentives for reducing risk.”
However, as the risks and extreme weather events associated
with climate change continue to increase, large scale and high
cost claims become more likely. The IPCC Report noted,
for example, that global insured weather-related losses had
increased by an average of US$1.4 billion each year between
1980-2008. The Australian market presents a multitude of
environmental risks, with the average national temperature
increasing by 0.9ºC since 1910, with reports that this figure
could rise to 5.1ºC by 2090 (see The Climate Institute,
Australia’s Financial System and Climate Risk – Discussion Paper,
July 2015). The IPCC Report considered that Australia faces a
range of extreme weather risks arising from flooding, bushfire,
tropical cyclones, hailstorms and thunderstorms.
The challenge currently facing the insurance industry in relation
to climate change is to find the balance between providing
affordable premiums, whilst maintaining an adequate reserve
funding pool. The IPCC Report provides that the costs that
need to be covered by the insurers include “expected level of
losses, expenses for risk assessment, product development,
marketing, operating and claims processing.”
The range of insurance products that may be impacted by
climate change is very broad, and could include, for example,
homeowner’s insurance, flood insurance, property and
business interruption insurances, agricultural insurances, and
liability insurance.
Since publication of the IPCC Report, the decision of
Urgenda Foundation v The State of the Netherlands (Ministry of
Infrastructure and the Environment) was handed down, in which
the District Court of The Hague ordered that the Dutch
Government limit the volume of annual Dutch greenhouse
gas emissions by at least 25% of the 1990 level, by 2020
(Urgenda Case). The Urgenda Foundation, which brought
the action on behalf of 900 other parties, was also awarded
€13,521.18 in costs (plus statutory interest).
In light of the Urgenda Case, insurers should
be aware of the risk of potential climate
change litigation defence costs and damages
coverage that could be captured under liability
insurance products, and should be conscious
of the same when drafting policy terms.
www.insuranceflashlight.com | 15
The IPCC Report suggests several options for insurers to
“sustain insurability”, including risk-based premiums to
incentivise policyholders to reduce vulnerability; discounts
on premiums for demonstrable loss prevention (such as
compliance with building codes to mitigate flood damage);
and a coordinated effort between governments and insurers
(such as sovereign insurance schemes). The IPCC Report
notes that insurance uptake may be counteracted, however, if
there is an expectation that the government will provide relief
in response to climate change induced weather disasters.
The insurance industry faces further challenges, in that local
legislation and policies incur frequent changes, and consistent,
accurate and quality risk and disaster data can be hard to access.
The 21st Conference of the Parties to the United Nations
Framework Convention on Climate Change will take place in
Paris at the end of this year. It is anticipated that the Parties will
agree on a new international agreement on the climate, to be
implemented post-2020. The issues that will be considered by
the agreement will likely include, amongst others, adaptation,
mitigation, financial, market (such as a price on carbon) and
monitoring and reporting mechanisms. Any commitment made
by the Australian Government will shape local policies and
regulations, proving greater certainty to industry.
Going forward, we envisage that the local Australian insurance
sector will play a much more active role in encouraging
insured parties to establish mitigation measures aimed at
reducing exposure to climate related risk. For example,
in relation to areas known to be at greater risk of floods,
insurers will likely develop products and sophisticated
pricing models that recognise those areas, organisations and
individuals that are truly risk prone, and also those that are
taking steps to mitigate potential impacts, such as by ensuring
that new developments are built higher off the ground, or
the strategic placement of geobags. The Northern Australia
Insurance Premiums Taskforce will also issue its report to
the Government by November 2015, addressing options to
reduce the cost of insurance that stems from cyclone risk
in Northern Australia. Whilst this includes the potential to
establish a mutual cyclone insurer and a cyclone reinsurance
pool, the Taskforce is also exploring the option of deploying
incentives for insureds to cyclone-proof their insured property.
At an international level, we are also seeing the insurance
sector fund and establish think-tanks and working groups that
are tasked with ensuring adequate risk management data
and product innovation is developed to respond to the risks
presented by climate change and related weather events.
Due to the unique climatic challenges that will likely impact the
Australian market, we anticipate that local insurers will adopt a
stronger focus in the area of data development, public education
as to the risks presented by climate change and steps that can be
taken to mitigate the impact of climate disasters, and investment
in products that respond to the local effects of climate change.
In summary, climate change presents a risk to global economic
sectors and services, including the insurance industry, with
an increase in the frequency and severity of global extreme
weather events. The insurance sector provides a means
through which to incentivise good environmental practices,
whilst accounting for the cost of large scale environmental
risk, before such risks occur, thereby alleviating some of
the pressure from individuals, business and governments.
In order to ensure that disaster and climate change risk does
not become “uninsurable”, the IPCC report suggests that
improvements are required in the areas of risk management,
product and financial innovation, and policies and regulations.
The complete Fifth Assessment Report can be accessed on the
Intergovernmental Panel on Climate Change’s website.
KEY CONTACTs
Samantha Kelly
Partner
T +61 2 9286 8032
[email protected]
16 | DLA Piper – Corporate Insurance Trends 2015
Samantha O’Brien
Partner
T +61 7 3246 4122
[email protected]
Penalties and insurance
where the only certainty, is uncertainty (for now)
By James Morse, Senior Associate (Sydney)
Insurers can and do offer insurance against civil offences and pecuniary
penalties. However, increased regulatory action in recent years has raised
additional issues and uncertainty for the future. What impact, if any, will the
availability of insurance have on sentencing offenders? Is there still room for
insurers to be involved in the negotiation and assessment of any appropriate
penalties? What about the impact of adverse prosecution costs?
It is a well-known principle of insurance that an individual or corporate entity should not be indemnified for criminal conduct. The public
policy considerations are clear: there is little to no general or specific deterrence against criminal conduct if a person enters into an
agreement (whether by way of insurance or otherwise) to avoid some or all of the consequences of that very conduct.
Insurance cover is however available to cover defence costs in relation to both criminal and civil actions. Insurers can also indemnify an
insured against civil penalties, such as those that can be awarded under the Corporations Act 2001 (Cth) and the Australian Consumer Law,
yet they often do not cover criminal penalties, or where the conduct was reckless, wilful, dishonest or intentional.
The impact of the availability and take up of insurance cover is however beginning to have an interesting impact on the imposition and
size of civil penalties. In some cases, judges have decided to ignore the presence of insurance, as not being a consideration material to
penalty. Yet that has not been a universal approach.
We saw the alternative approach in Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22, where a company director
personally paid the deductible under the company’s insurance policy that provided cover in respect of penalties, and which drew the
following comments from the Industrial Magistrate (at [81]):
In my opinion [the director’s] actions [in paying the deductible] are so contrary to a genuine
acceptance of the legal consequences of his criminal offending that they dramatically outweigh
the benefits to the justice system of the early guilty plea and statement of remorse. Accordingly
it would be entirely inappropriate to grant any reduction of penalty to [the director] or [the
insured company] in these circumstances.
www.insuranceflashlight.com | 17
As this case demonstrates, a clear consequence of insuring
against penalties is that penalties can and will be higher. Going
forward, we expect the presence of insurance will weigh more
heavily into the debate on penalty. We also expect this will create
something of a two-tiered market, where similar conduct will be
met with differing penalties, depending on whether there is an
insurer standing behind the offender. Naturally, insurers will need
to ensure their exposure is accurately rated and appropriately
priced. However, the imposition and reporting of larger penalties
against offenders is also likely to increase demand for such policies
in the first place, thereby creating a commercial opportunity for
insurers as well.
The terms of the policy in question were not before the Court in
Ferro Con, so the Court had no ability to consider if the indemnity
provided to the director and the insured company was invalid
because it was contrary to public policy. As the presence of
insurance becomes a more relevant enquiry in the Courts, we
also expect to see increased argument as to whether certain
terms or provisions of such insurance policies are indeed contrary
to public policy.
A further consideration however is whether parties (and
their insurers) can be involved in the negotiation and potential
agreement of appropriate penalties in civil prosecutions.
Cases such as Barbaro v The Queen; Zirilli v The Queen (2014)
253 CLR 58 and Director, Fair Work Building Industry Inspectorate
v Construction, Forestry, Mining and Energy Union (2015) 105
ACSR 403 currently appear to limit or prohibit the making and
consideration of submissions as to appropriate penalty, including
on an agreed or consensual basis. Yet the Commonwealth of
Australia has since appealed the latter decision to the High Court,
and special leave has been granted. We expect the matter will be
heard later this year.
The imposition of a penalty is often but one side of the coin. The
issue of prosecution costs in penalty proceedings is an important
factor that can give rise to substantial exposure for insurers.
Indeed, the Australian Securities and Investments Commission
recently announced it would be actively using the power under
section 91 of the Australian Securities and Investments Commission
Act 2001 (Cth) to recover costs and expenses of its investigations.
Historically, ASIC has rarely exercised this power, yet it has now
“reviewed its approach and considers that it should more frequently
seek to recover the expenses and costs of an investigation from the
person who has caused those expenses and costs to be incurred.”
circumstances, we expect it – and other regulators – will actively
look to recover costs in prosecution proceedings, in appropriate
circumstances.
Overall, whilst it is of course healthy for the law to continue to
grow and develop in response to new and emerging issues, the
current lack of clarity around these issues need to be addressed.
The present uncertainty in the industry rests like a Sword of
Damocles over various industry participants. Insureds are unable
to accurately assess the extent to which they are left personally
exposed, which can cause a reluctance to support commercial
innovation, or take calculated and entrepreneurial risks. Insurers
are also unable to accurately rate and price the risk being offered,
creating an inefficient market and potentially exposing insurers to
large losses on particular books.
We therefore expect to see further development in these areas
in the near future, particularly over the next 12 to 18 months. As
always, regular updates will be available on
www.insuranceflashlight.com.
KEY CONTACTs
Paul Baxter
Partner
T +61 7 3246 4093
[email protected]
James Berg
Partner
T +61 2 9286 8193
[email protected]
David Leggatt
Partner
T +61 3 9274 5473
[email protected]
Cameron Maclean
Partner
T +61 8 6467 6013
[email protected]
While this is obviously concerning news for those involved in
ASIC investigations, it is also concerning for insurers who provide
cover against such investigation costs. Whilst it remains to be
seen how often such orders are made by ASIC, and in what
The impact of the availability and take up of insurance cover is beginning to have an interesting
impact on the imposition and size of civil penalties, and will continue to do so in the near future.
18 | DLA Piper – Corporate Insurance Trends 2015
PROFESSIONAL LIABILITY ON A
KNIFE’S EDGE: CAPPING YOUR LIABILITY
the power and pain of capped liability schemes
By David Leggatt, Partner and Natasha Stojanovich, Senior Associate (Melbourne)
The potential of capped liability schemes is immense. As a professional person,
the prospect of being able to cap your exposure to claims from clients at a
fixed monetary ceiling, for a modest annual fee, is an attractive one. Imagine
upon receiving a claim for $100 million, being able to rely upon a capped
liability scheme and draw a line in the sand (of your legal liability) at $2 million,
with no prospects of exposure above this. Does it sound too good to be true?
The concept really is quite simple. Limitation of civil liability should create a stable market for professional indemnity insurance
premiums which will benefit professionals and clients alike. Under such schemes, liability can be limited by reference to mandated
minimum insurance standards, available business assets or by reference to a formula involving a multiple of fees charged (or a
combination of the three). To apply, it needs to be raised as a defence. However, it will not stop a claimant from bringing a claim
in the first place.
The policy rationale is that claims are often effectively capped in any event by the availability of assets or insurance to meet any claim,
neither of which are limitless. Capped liability schemes started in New South Wales in 1994, and following the 2001 collapse of
HIH, a suite of tort law reforms enacted the same legislation throughout Australia. The tort reforms were largely in response to the
“insurance crisis” which saw premiums sky-rocket and certain professions become almost uninsurable.
Problems
Despite operating in Australia since the last 1990s, capped liabilities schemes are a relatively new beast. There have been no
reported decisions testing the operation of capped liability schemes in Australia. We also cannot look abroad for guidance, as no
other country has comparable legislation. They are a unique Australian invention. Hence, the legislation is untested territory, as is the
practical operation and mechanics of the various schemes. In particular, for example:
■
■
How to calculate the relevant cap by reference to a “multiple of fees”, which is not as straight forward as it may sound.
Take for instance an accountancy practice with a very broad retainer for a long-standing client. How do you separate out the
relevant fee, or what if the case is about the accountant’s failure to undertake required work?
The issue of “one claim” or “the claims.” Given claims are often pleaded on alternate bases, (i.e., contract, tort and statute),
does this mean three caps apply, or one? What about class action litigation with the same cause of action, but hundreds of
claimants?
www.insuranceflashlight.com | 19
There are currently 26 approved capped
liability schemes in Australia, composed of:
engineers, accountants, lawyers, barristers,
valuers and surveyors. Roughly 60,000
professionals are members of capped
liability schemes in Australia.
Given that capped liability schemes are largely untested, they
also present particular challenges for the insurance industry.
For instance:
■
■
For insurers in underwriting risk for professions such as
engineers and accountants or auditors, how safe a bet is
it that you will actually be able to rely on the cap? With
larger claims and risky professions, the difference in potential
exposure could be significant. How confident can you be that
your insured will comply with Scheme requirements, including
their disclosure requirements to their client (which are an
essential precondition to being able to rely on a cap by way of
defence)? It is important to be aware of whether your insured
can rely on a cap and if so, to raise it at the earliest possible
opportunity (i.e., it must be pleaded in the defence).
For brokers it is important that they are across the
minimum insurance requirements, as a failure to have the
proper cover in place for their client may jeopardise their
client’s ability to rely on the cap as a defence down the
track. Brokers should also be careful about warranting
or representing that insurance policies will meet a given
occupational association’s insurance standards, as getting
this wrong could have dramatic consequences.
Solutions for the future
Whilst there is notionally a coordinated national approach
to the operation of capped liability schemes, with mutual
recognition in most states, there are still subtle differences
between the legislation in each state and territory, and Tasmania
operates on a stand-alone basis. This presents particular
regulatory compliance challenges for professional service firms
operating on a national basis. In order for these schemes to
operate seamlessly, there needs to be a truly national approach.
The way forward needs to see a coordinated approach
between the occupational associations, their insurers, the
regulator and consumer groups. It will only be through
engagement of affected parties that the professions and the
insurance industry can be certain that the caps will apply.
Likewise, although capped liability schemes have now
been operating in Australia for in excess of 15 years, their
enforceability has never been tested in the Courts. The full
power and potential of capped liability schemes is unlikely to be
fully realised until they are tested in the Courts and operate to
successfully cap a professional’s liability.
We therefore anticipate a test case will arise in coming years,
and it is important that such a test case happens sooner rather
than later, to ensure professionals and their insurers can have
confidence in the operation of capped liability schemes. A test
case will bring more certainty, and highlight either the efficacy
of such schemes (obviously the preferred option), or whether
legislative reform is required. Either way, it will provide more
certainty to consumers, professionals and insurers alike as to if
and how such schemes will operate to successfully cap liability.
KEY CONTACTs
Drew Castley
Partner
T +61 7 3246 4097
[email protected]
David Leggatt
Partner
T +61 3 9274 5473
[email protected]
20 | DLA Piper – Corporate Insurance Trends 2015
Lindsay Joyce
Partner
T +61 2 9286 8273
[email protected]
KEY INSURANCE CONTACTS
joint INSURANCE SECTOR LEADERs – AUSTRALIA
David Leggatt
Partner
T +61 3 9274 5473
[email protected]
Samantha O’Brien
Partner
T +61 7 3246 4122
[email protected]
BRISBANE
Paul Baxter
Partner
T +61 7 3246 4093
[email protected]
Drew Castley
Partner
T +61 7 3246 4097
[email protected]
Sophie Devitt
Partner
T +61 7 3246 4058
[email protected]
David Randazzo
Partner
T +61 3 9274 5482
[email protected]
Michael Regos
Partner
T +61 3 9274 5437
[email protected]
canberra
Catherine Power
Partner
T +61 2 6201 3411
[email protected]
MELBOURNE
Kieran O’Brien
Partner
T +61 3 9274 5912
[email protected]
www.insuranceflashlight.com | 21
PERTH
Toby Barrie
Partner
T +61 8 6467 6029
[email protected]
Richard Edwards
Partner
T +61 8 6467 6244
richard.edwards@
dlapiper.com
Cameron Maclean
Partner
T +61 8 6467 6013
cameron.maclean@
dlapiper.com
Mark Williams
Partner
T +61 8 6467 6015
[email protected]
SYDNEY
James Berg
Partner
T +61 2 9286 8193
[email protected]
Samantha Kelly
Partner
T +61 2 9286 8032
[email protected]
22 | DLA Piper – Corporate Insurance Trends 2015
Jacques Jacobs
Partner
T +61 2 9286 8284
[email protected]
Lindsay Joyce
Partner
T +61 2 9286 8273
[email protected]
SAVE
THE DATE
2016 INSURANCE SYMPOSIUM
Wednesday 24 February 2016
2.30 pm to 5.30 pm followed by drinks and canapés
DLA Piper Sydney
For further information, please contact Suzanna Allan on
+61 2 9286 8369 or [email protected]
The program and official invitation will be distributed in January 2016.
www.insuranceflashlight.com | 23
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