When Do You Need to Notify Your Insurer of an Adverse Event? Guild Insurance Limited v Hepburn [2014] NSWCA 400
Friday 4 September 2015 / by Zara Officer & Vahini Chetty posted in Health Aged Care & Life Sciences Insurance

For practitioners, knowing what is classified as an adverse event, which must be notified to their professional indemnity insurer, is often difficult. Failing to notify of an adverse event could mean that the practitioner is not covered by their insurer for any claim arising out of the adverse event.

Following the decision reached by the New South Wales Court of Appeal in Guild Insurance Ltd v Hepburn [2014] NSWCA 400, a patient’s complaint of “excruciating pain” is sufficient to alert a practitioner that a claim may be made in the future.

By statement of claim filed in the NSW District Court on 22 April 2013 Ms Mary Hepburn, the respondent, claimed damages for trespass, assault and negligence from Dr Jasmin White, formerly a practising dentist. Ms Hepburn alleged that she suffered injury as a result of wrongful dental advice and treatment given to her by Dr White between March 2008 and about September 2009. Dr White sought leave to join Guild insurance (Guild) as a party to the proceedings.

The Court considered whether cover should have been provided by Guild under the “claims made and notified” policy held by the practitioner.

Under “claims made and notified” policies, practitioners are entitled to insurance cover under the policy if a claim is made by a patient against the insured practitioner during the policy period and the practitioner notifies the insurer during the policy period. Most medical malpractice/professional indemnity insurance policies are “claims based”. This is to be distinguished from “occurrence based” insurance policies during which the insurance policy period covers the date of the event/occurrence/significant event.

In this instance, the adverse event occurred during the policy period but the practitioner did not notify Guild. Furthermore, the claim by the patient was only made after the policy period had expired. 

Section 54 of the Insurance Contracts Act 1984 (Cth) precludes insurers from refusing to pay claims in certain circumstances. In particular, s. 54 prevents an insurer from refusing to pay a claim by reason of certain acts of the insured occurring after the date that the contract of insurance was entered into. In such a case, the insurer is not relieved of liability altogether. Rather, its liability is reduced by the amount that fairly represents the extent to which its interests were prejudiced. 

There being no evidence to suggest that the insurer was prejudiced by Dr White’s failure to notify the potential liability of which she was arguably aware, the Court concluded that it is at least arguable that Ms Hepburn can rely upon s. 54 to avoid the consequences, in whole or in part, of the absence of notification.

This decision is currently the subject of a leave application in the High Court of Australia.

A good rule for practitioners to follow is to always notify their insurer where they believe an outcome could give rise to a claim. The finding in this decision was highly unusual and in circumstances such as these it would be common place for an insurer to deny indemnity in the absence of a notification during the policy period.

Written by Zara Officer, Special Counsel and Vahini Chetty, Associate

This article was included in the recent Holman Webb Health Law Bulletin.  To read other articles in the September edition of the bulletin, please click here.

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