Indemnification for damage? Bechini v IUS Pty Ltd

Bechini v IUS Pty Limited (in liq) [2019] NSWSC 427

16 April 2019, Supreme Court of New South Wales – Rothman J

M&R Insurance Brokers Pty Ltd (M&R) was an agent of Dual Australia Pty Ltd (Dual) which was the Australian subsidiary of Lumley Insurance (now WFI Insurance Ltd).

Architects Proposal Form

IUS Pty Ltd (IUS) provided architectural services. Mr Ius obtained a quote from M&R for professional indemnity insurance and, on 29 March 2007, signed the “Architects Proposal Form” and returned it to M&R. However, IUS failed to return the second page of the proposal form as part of the attachment and, when accepting the proposal, neither Lumley nor Dual were aware of the missing page.

First Page:

Stated that the policy was issued on a claims made basis.

Second Page:

Dealt with:

  • Nondisclosure;
  • Surrender or waiver of any right of contribution or indemnity;
  • Notice of occurrence or events;
  • Contract by the insured affecting rights of subrogation; and
  • A privacy statement.
Third and subsequent pages:

Required completion by or on behalf of the proposer/insured. Required information included details of:

  • The proposer;
  • The professional business, its earnings and the source of those earnings;
  • Whether subconsultants were utilized;
  • Whether there was any interest in real estate;
  • Past financial year gross fees or income and the state of Australia in which they were earned;
  • Whether any fees were earned outside of Australia;
  • The five largest contractual projects undertaken by the insured; and
  • Information relating to IUS employees.
Mr and Ms Bechini

Engaged IUS to perform architectural work for the construction of two residences, and when IUS subsequently became aware of circumstances that gave rise to a claim by Mr and Ms Bechini, IUS notified its insurer, Lumley, through Dual Australia.

Proceedings

Mr and Ms Bechini sought damages for breach of contract and/or negligence both at common law and pursuant to s 12GF of the Australian Securities and Investments Commission Act 2001. Additionally, they sought rectification of the Lumley policy by the inclusion of the missing page in the proposal which was completed by IUS.

In Clause 31 Mr and Ms Bechini’s Further Amended Statement of Claim (FASOC), it was pleaded that:

“M&R promised to provide IUS with professional indemnity claims made or discovered insurance cover including for:

(b) Any circumstances of which IUS became aware during the period of insurance… which could give rise to a future claim provided IUS informed Dual… and/or Lumley in writing of such circumstances within the period of insurance…

(c) Any Claim whenever actually made subsequently to the period of insurance 23 March 2007 to 23 March 2008 which claim would be deemed to be a Claim made during the period of insurance if IUD… became aware of the occurrence which might give rise to a Claim and gave written notice to… Lumley within the period of insurance…”

Clause 35C of the FASOC referred to a notification on 29 July 2008 of Mr and Ms Bechini’s “claim” in a telephone conversation with Mr Ius.

Questions for determination:
  1. Whether the terms pleaded at [31(b)] and [31(c)] of the FASOC was a term of the Lumley first policy (which covered the period 23 March 2007 to 23 March 2008);
  2. Whether the matters pleaded and particularized at [35C] of the FASOC amounted to a “claim” within the meaning of the Lumley second policy (which covered the period 23 March 2008 to 23 March 2009);
  3. If the answer to question 1 is no, ought the Lumley first policy have been rectified by the inclusion of p 2 in the proposal form and, if rectified, what was the answer to question 1?

Judgment

  1. Yes, provided that the claim did not arise from or in connection with facts or circumstances that IUS knew or ought reasonably to have known prior to the insurance period might or could have given rise to a claim, and further provided that there was in place a relevant contract of insurance from 23 March 2008 until notification to IUS in the week following 29 July 2008. If IUS had become aware of facts that gave rise to the possibility or probability of a claim and had notified M&R or Lumley at a time when the policy applied (or, assuming continuity, had been renewed) then, with one qualification, the insurer was required to indemnify IUS for the damage up to its liability. – [94]
  2. No. The terms of [35C] of the FASOC did not refer to the commencement of civil proceedings and, as a consequence, the telephone notification was not a “claim” within the meaning of the Lumley policies – [118].
  3. Question did not strictly arise.

RECTIFICATION: Could occur where there was a continuing common intention that could be inferred in which the common intention of the parties required the contract to be in the form as rectified. Ultimately, the common intention must have been as to the content of the instrument. – [135]

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