Dimitra Cassidy v Eric J Leslie  NSWSC 742: What is a claim?Author : Patrick Boardman and Gabrielle LevetteProfessional Indemnity
In a recent decision of the New South Wales Supreme Court, His Honour Justice Hoeben considered what constitutes a Claim for the purposes of a claims made and notified insurance policy.
On 14 January 2008, Eric Leslie (Leslie) provided a valuation report to Dimitra Cassidy (Cassidy) which referred to a market valuation of a property (the property) of $1.5 million. Cassidy subsequently loaned $900,000 to Professional Management Services (WA) Pty Limited (PMS) against the security of the property.
Calliden issued a Professional Indemnity Valuers Scheme Insurance Policy in favour of Leslie for the policy period from 21 January 2008 to 21 January 2009 (the Policy).
By email dated 11 April 2008 (the Email) from Goodman Law (who acted on behalf of Cassidy) Leslie was advised that:
- the valuation prepared by Leslie œmay be fundamentally flawed. Two real estate agents located near the property believed that the property will not sell for one third of the amount valued;
- they were instructed to put Leslie on notice that œan insurable event may occur if the property does not provide sufficient funds at auction to repay the loan; and
- where a shortfall occurs in the auction of the property œa claim will be made against Leslie.
Leslie did not notify Calliden of the receipt of the Email or its content. Upon default of the loan by PMS, Cassidy took possession of the property which was ultimately sold at auction on 11 October 2008 for $350,000.
On 4 April 2009 Leslie was served with a Statement of Claim filed by Cassidy, in which Cassidy alleged that the valuation of $1.5 million was grossly in excess of the true value of the property. On 20 April 2009 Leslie notified Calliden that Cassidy had commenced proceedings against him. Leslie ultimately filed a cross claim against Calliden seeking cover under the Policy.
The Court had to consider whether the Email constituted a Claim within the terms of the Policy, and if so, whether Calliden was entitled to deny indemnity to Leslie on the basis that the Claim was not notified during the Policy period.
Leslie maintained that:
- the Email constituted a Claim within the terms of the Policy. The Policy definition of Claim included œa written assertion of a right to or a demand for compensation;
- in all the circumstances the statement in the Email to the effect that if there was a shortfall on sale a claim would be made, was a clear assertion of a right to compensation;
- if a Claim had been made it was entitled to cover, notwithstanding the late notification, by reason of Section 54 of the Insurance Contracts Act 1984 (ICA) (East End Real Estate Pty Limited v CE Heath Casualty  25 NSWLR 400) and the fact that no prejudice had been suffered by Calliden as a result of the late notification.
Calliden argued that:
- the Email was not a Claim (ie it was not a œwritten assertion of a right to compensation). In order to be a Claim there had to be an assertion as to an œexisting right to compensation; and
- Cassidy’s right to compensation as asserted in the Email was at best contingent as there was only a possibility of loss at that time. As such, there was no assertion which would fall within the definition of Claim within the Policy.
In support of its argument Calliden sought to rely on established caselaw such as Walton v National Employers’ Insurance Association  2 NSWLR 72; Triden Properties Ltd v Capita Financial Group Ltd (NSWCA, 15 November 1995) and Junemill Limited (in Liquidation) v FAI General Insurance Company Ltd  24 Qd R 136) which effectively provided that there had to be an existing right, not a contingent right, in order for there to be a Claim.
The Court rejected Calliden’s submissions and found in favour of Leslie. In doing so HHJ Hoeben held that:
- the difficulty with Calliden’s argument was that it was based on cases which considered the meaning of the word Claim in their particular circumstances;
- on the basis of the principles of contra proferentem, there was no justification for inserting the word œexisting in the phrase œright to compensation;
- a right to compensation can be contingent or conditional;
- the assertion that the valuation may be fundamentally flawed was made against the background of 2 other valuers’ opinions that the property would not sell for $500,000. In that context the breach had already occurred but the extent of loss was not yet known;
- the statement that if there was a shortfall, a claim will be made, was a written assertion of a right to compensation, the compensation being the extent of the shortfall (Mason P in HIH Casualty and General Insurance Limited v Pade  NSWCA 325); and
- the Email amounted to a Claim and Section 54 of the ICA remedied any late notification.
WHAT DOES THIS MEAN?
Whether or not a Claim has occurred is a fundamental issue in the operation of any œclaims made or œclaims made and notified policy. It determines whether the Insuring Clause is triggered and whether the Insured is able to rely on the remedial powers of Section 54 of the ICA in respect of any late notification (section 54 can remedy a failure to notify a Claim (East End) but not a circumstance if there is no contractual deeming provision in the Policy (Gosford City Council v GIO General Limited  56 NSWLR 542)).
This decision highlights that the determination of whether a Claim is made is dependent upon the particular Policy wording. Insurers and Insureds alike should review their policy definitions of Claim to ensure that it accords with the intended scope of cover offered or obtained.