When is a letter a professional indemnity ‘claim’?
June 29, 2012
In Livesay v Hawkins & Ors  QSC 122, the Supreme Court of Queensland considered whether a letter was a ‘claim’ for the purpose of the insuring clause of a professional indemnity policy held by a real estate agent and property manager.
Shirely Livesay, the plaintiff, lived in a house which she rented from the first and second defendants.
On 20 April 2005, the plaintiff entered into a tenancy agreement with the third defendant in his capacity as agent and property manager for the first and second defendants. Two days later, the plaintiff contacted the third defendant’s office complaining about a problem with the doors in the property, and in particular, the bathroom door which was stuck.
On 25 April 2005, the pelmet above the bathroom door dismantled and hit the plaintiff on the head.
On 26 April 2005, the plaintiff sent a letter to the third defendant (‘the letter’). The letter relevantly stated:
‘On 25 April at approx 10am Mrs Livesay attempted to enter the bathroom in this premise (sic)…as she opened the door the overhead pelmet dismantled from the wall and fell on top of her. It caused Personal Injury to her left hand and what appears to have cracked her nose. We are currently seeking medical advice and will advise you of our intentions on this matter
As per the Tenancy Act and advice from Rental Tribunal, Ray White Real Estate and the owners of a rental property will be held liable for any personal injury claims arising from damage caused to the tenants due to poor living conditions
If the owners of this property disagree to having the premises repaired and brought to a good standard for the rent they are asking, we will have to vacate the premises and will seek legal advice from the rental tribunal for compensation of any costs involved to do so, due to the breach of our lease. This does not include Personal Injury Claim that we are currently entitled to due to injury caused by dangerous fixture. We will take no legal action if the property is repaired effectively and promptly and made safe for living in.’
In September 2005, the plaintiff served a Notice of Claim under the Personal Injuries Proceedings Act 2002 (QLD) on the third defendant.
On 4 October 2005, the third defendant, via his broker, notified his professional indemnity insurer of the letter and the Notice of Claim.
The professional indemnity policy provided cover for:
‘all Loss which the Insured is legally liable to pay by reason of any Claim first made against the Insured during the Policy Period and notified in writing to the Insurer during the Policy Period for a Breach of Duty committed or allegedly committed on or after the Retroactive Date.’
The policy defined Claim as:
‘(a) any written demand
(b) any civil proceeding
for compensation made against the Insured but only in respect of the performance of Professional Services by the Insured.’
The policy period was from 24 July 2004 to 24 July 2005.
The insurer denied cover on the basis that no claim had been made against the third defendant during the policy period.
The issues before the Court were whether the letter was a ‘claim’ as defined in the policy; whether s54 Insurance Contracts Act 1984 (Cth) (ICA) precluded the insurer from denying cover on the basis of late notification; and whether a ‘Bodily Injury’ exclusion in the policy applied.
The insurer submitted that the letter was not a ‘claim’ as defined in the policy because:
- It did not demand compensation, but merely advised of an intention to seek medical advice
- Mentioned the prospect of liability for a personal injury claim not as the subject of a demand but as a reason why it would be prudent to carry out repairs
- Raised the possibility of Rental Tribunal compensation, but only in the context of a claim against the owners of the property for the costs of vacating
- Contained an enigmatic reference to not including ‘personal injury claim that we are currently entitled to due to injury caused by dangerous fixture.’ This was not a demand for compensation.
The insurer conceded that if the Court found the letter constituted a ‘claim’ for the purposes of the policy, then the failure to notify the insurer within the policy period was cured by s54 ICA.
Was the letter a ‘claim’?
The Court disagreed with the insurer’s construction of the letter and found that the letter ‘expressly asserted an entitlement on the part of the plaintiff to recover for her personal injury claim ‘due to injury caused by dangerous fixture.’’
The letter was a form of demand or assertion of liability; the plaintiff was making an assertion of liability on the third defendant’s part, albeit in the context of other matters including the need for the premises to be repaired. The letter was therefore a written demand for compensation within the definition of the term ‘claim’ in the policy.
In any event, the Court found that a clause which excluded cover for ‘Loss in connection with any Claim…for bodily injury…of any person …’ operated in the insurer’s favour.
This decision provides a reminder not to dismiss a piece of correspondence as not being a ‘claim’ on the basis that the correspondence does not expressly and explicitly demand ‘damages’ or ‘compensation’.
Rather, it is necessary to assess a potential ‘claim’ in the context of the insurance contract and its purpose. If correspondence only threatens proceedings in the context of an alleged breach of professional duty for which the relief to be sought is likely to be damages, that correspondence may in fact constitute a written demand for damages or compensation even if a monetary amount, or the words ‘damages’ or ‘compensation’ are not used.
Authored by Thomas Buterin, Senior Associate, Sydney.
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