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Resolving financial lines insurance disputes in uncertain times: Is the Federal Court’s “short matters” insurance list the answer?

04 May 2020

#Dispute Resolution & Litigation, #COVID-19

Resolving financial lines insurance disputes in uncertain times: Is the Federal Court’s “short matters” insurance list the answer?

In March 2016, as part of the National Court Framework Reforms, the Federal Court of Australia established an insurance list for short matters (List) within the Commercial Contracts, Banking, Finance and Insurance sub-area of the Commercial and Corporations National Practice Area (NPA). The List has been running successfully for the last four years, and has dealt with over 50 matters.

Full legal proceedings against insurers where indemnity has been denied is generally an unattractive option for insureds, particularly if an insured is already facing the stress and financial burden of responding to and defending a legal claim. We have found that the List provides clients a targeted opportunity to resolve discrete issues of policy or statutory interpretation at an early stage of proceedings. 

To put these comments in a current context, with the advent of COVID-19, obtaining indemnity under insurance policies is more important than ever as businesses, companies and their directors and officers seek to navigate the current uncertainty and make wide-ranging decisions that protect the interests of the workforce, the business itself, as well as clients and wider stakeholders. 

Discrete and swift

Common reasons given by insurers for denying indemnity include the application of policy exclusions, alleged breaches of policy terms and conditions and alleged non-disclosure. Where there are discrete issues around the application of a specific clause in an insurance policy or the application of a particular section of Insurance legislation, the List is tailored to accommodate a swift resolution. 

How is this possible? The List was never intended to deal with all insurance claims. It only deals with “short matters”, that is matters in which the hearing will take no more than two hours. In other words, legal issues which do not involve a significant dispute of the facts. Emphasis is placed on parties coming to the List with the right attitude. A failure to display efficiency and cooperation in how matters are conducted in the List may see those matters removed.

How does the List work?

A party will need to say why it considers that the matter should be heard in the List by providing a half-page statement of supporting reasons when the originating application is first filed with the court. In support of the originating application, the Federal Court prefers the use of the concise statement method, which is fitting for a forum seeking to bypass costly traditional proceedings.

Concise statement

The purpose of a concise statement is to enable the applicant to bring to the attention of the respondent and the Court, the key issues and key facts at the heart of the dispute and the essential relief being sought from the Court before incurring what might be considerable cost in preparing detailed pleadings.

The concise statement is generally less than five pages and does no more than summarise the important facts giving rise to the claim. It will include the relief sought (and against whom), the primary legal grounds (causes of action) for the relief sought, and the alleged harm suffered by the applicant, including - wherever possible - a conservative and realistic estimate or range of loss and damage. The Chief Justice will ultimately decide what goes into the List. 

Case management

Parties are encouraged to develop collaboratively a case management approach tailored to resolving the issues in their case in a just, quick, inexpensive and effective manner. The Court is open to innovative case management techniques being suggested by the parties and discourages forensic-style litigation processes that may be unfair, lengthy, expensive or of questionable utility. 

The first case management hearing will, wherever possible, take place within two to three weeks of the filing of the application. The first case management hearing seeks to "triage" the case, that is, to assess accurately the true character of the legal disputes and establish the most appropriate way to prepare the case for trial and any alternative dispute resolution process.

The Chief Justice has conducted initial case management of all matters in the List to date and has heard many of the matters that have proceeded to a hearing. Other matters have either been referred to other judges in the NPA sub-area for hearing or been successfully settled at mediation. 

A forum to address COVID-19 related indemnity denials

Most insurers learned the lessons from the SARS outbreak of 2003 and introduced exclusion clauses for communicable diseases and epidemics/pandemics into most non-life products such as business interruption insurance. Business interruption policies usually pay out only if physical damage occurs to an organisation's assets or operations, so COVID-19 related claims may not be covered – but there is potential for future disputes on this issue, all of which will involve an interpretation or argument about the policy wording.

COVID-19 has seen revenues under pressure for many companies and clients may be slow to pay bills. Further, there is uncertainty as to when restrictions are going to be lifted. Directors now not only need to consider the solvency of the company but also assess its financial prospects. We may well see a rise in coverage disputes around the application of insolvency exclusions, particularly for directors and officers seeking cover for costs associated in defending claims for breaches of various director’s duties (in particular, the duty to act with due care and diligence and the duty to act in good faith in navigating the current environment). We anticipate that there may well be a new battle ground in the area of D&O insurance once the pandemic eases.

Is the List the answer?

The List provides a practical business-like method of swiftly resolving discrete disputes around policy and statutory interpretation and eliminates unnecessary "process-driven" costs. Holding Redlich is experienced in resolving coverage disputes and is able to assist in any dispute with insurers.

Authors: Howard Rapke & Jessica Tsiakis

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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