When is a notification one of facts that might give rise to a claim?
The New South Wales Court of Appeal (NSWCA) recently provided further guidance on what is required to be included in a notification to insurers for it to constitute a notification of facts that might give rise to a claim for the purpose of section 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA). In P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyds Ltd [2021] NSWCA 136, the NSWCA reiterated that notifications must be sufficiently detailed and precise in order to attract the remedial effect of section 40(3). The issue  A number of claims were brought against a financial planning firm, Moylan Retirement Solutions Pty Ltd (MRS), by its former clients for failed investments and misconduct by MRS.  An issue that arose out of these claims concerned whether a notification provided to MRS's professional indemnity insurers during the course of the 2012/2013 policy year was a sufficient notification of facts that might give rise to a claim so as to trigger the operation of section 40(3) of the ICA. Section 40 of the ICA applies to claims made general liability insurance policies. Sub-section (3) provides the following:  Where 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, 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. Relevantly, no claims had been made against MRS during the 2012/2013 policy year and the policy did not otherwise have a 'deeming provision' that could be relied upon together with section 54 of the ICA to remedy a late notification of facts or circumstances1. Whether section 40(3) could be relied upon to require the insurers to extend cover was therefore critical2. The notification  The notification in question, which was provided to the professional indemnity insurers with the renewal proposal prior to the expiry of the 2012/2013 policy year, included the following:  A small number of clients have invested/lent funds to property investments and/or companies that have to date been unable to repay those funds in total. At the time of the investment all appropriate disclosures were made and clients invested/lent funds with full knowledge of the circumstances at the time. At this stage no loss has been crystallised and no claim or complaint has been formally lodged. We wish to advise the insurance company that there is a chance of a claim against [MRS] in relation to any loss that may be incurred. Additional information provided with this notification included:  specifying that the potential claimants were "unknown";  a broad statement that MRS had been retained to provide "investment recommendations" in respect of the potential claims; and  stating that MRS did not know whether the retainer/contract for services was in writing as that would depend on the "likely client to bring the claim". Decision at first instance  We commented on the decision at first instance here. In summary, the primary judge held that the notification was not sufficient notification of facts that might give rise to a claim because:  the notification did not identify "facts" within the meaning of section 40(3);  the information provided by MRS indicated it was unable to identify a particular client which might bring a claim, and did not assist in identifying a particular claim as distinct from "bare possibilities";  the information provided was not client-specific, transaction-specific or time-specific;  MRS also did not specify any particular loss or any particular documents;  the notification was only of "possibilities";  the information provided in the notification was not "facts" that bore any relationship to a "claim";  merely to seek to identify circumstances in such vague terms was insufficient; and  the overall message of the notification was that the matters notified were "a potential possibility". Decision on appeal  Meagher JA, with whom Bathurst CJ and Bell P agreed, upheld the primary judge's decision with respect to the section 40(3) issue. His Honour stated that the facts notified, in the context of the information provided by the questionnaire to which they were attached, were not such as to give rise to a claim. Rather the facts foreshadowed the possibility of claims if the position became that the "small number of clients" referred to suffered losses as a result of investments made on the advice of MRS over a period of four years. His Honour stated that, critically, the notified facts did not include that any such loss had been suffered or that that was more than a potential possibility in relation to any particular client. His Honour also provided guidance on the proper approach to assessing whether a notification is one of facts that might give rise to a claim for the purpose of section 40(3), which included that:  the requirement that the notification be of "facts" indicates that section 40(3) is concerned with the notification of objective matters that bear on the possibility of a claim being made, rather than matters of belief or opinion as to that possibility;  a fact will be one which "might give rise to a claim" if, alone or taken with other notified facts, it is "reasonably [to] be regarded" as having that character; 3  the characterisation of the notified facts is to be approached objectively;  the reference to the possibility of a "claim", rather than of a liability, encompasses claims that may not have significant prospects of success; and  notified facts could include an event that, in common experience, is followed by the making of claims notwithstanding that those claims may have modest or limited prospects of success. Implications  Broad, unspecific and blanket notifications often cause difficulties and uncertainty for insureds and insurers, particularly in the lead up to renewal. This unanimous NSWCA decision provides appellate court authority for the view that notifications must be sufficiently precise to attract the remedial effect of section 40(3). Information is required to be included that, when considered objectively and in context, evidences facts that might give rise to a claim. Such information might include details of the potential claimants, the particulars of the loss suffered, whether there were particular grounds on which a claim could be made, and specific documents or transactions that could be the subject of a claim. As the decision demonstrates, potential possibility of a loss may not be sufficient. The decision provides helpful guidance to insurers seeking to assess and consider broad or blanket notifications, and some support for pressing for further information about a purported notification before accepting it as a valid notification for the purposes of section 40(3) of the ICA. Footnotes  1 FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641  2 Gosford City Council v GIO General Ltd [2003] NSWCA 34 at [37] (per Sheller JA; Spigelman CJ and Meagher JA agreeing). 3 Citing HLB Kidsons v Lloyds Underwriters [2009] Lloyd's Rep IR 178 at [142] (Toulson LJ). The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.