Insurance Litigation – Professional Indemnity & Liability: News and Commentaries: Edition 1

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Mat Wilkins
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Damages in Land Contamination Cases: Loss of Opportunity v Diminution in Value

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The Victorian Court of Appeal has dismissed an appeal brought by Winky Pop Pty Ltd (Winky) and reinforced the trial judge’s finding that it was not entitled to loss of opportunity damages from Mobil Refining Australia Pty Ltd (Mobil) as it was too ambiguous an assessment. Assessment of damages by way of diminution in value provided more certainty.

In 2006, Winky’s land in North Williamstown in Victoria was contaminated by petroleum hydrocarbons following a perforation in a pipeline owned by Mobil. Winky argued that but for the land contamination, it would have eventually been able to rezone, subdivide and redevelop the land into a housing estate.  The profit from the development was estimated at $170 million. At the time of the spill, whilst the land was industrially zoned, there had ongoing and protracted negotiations with Council to rezone the land for residential purposes.

Following the spill, Mobil had actively taken steps to rehabilitate the land in accordance with the EPA and would continue to do so until the land was designated as “Cleaned Up to the Extent Practicable” (CUEP). It was accepted, that the land could be rehabilitated to its pre-contamination state.

Counsel for Winky raised that the trial judge erred in finding that there was no genuine prospect of rezoning the land. Instead, it was submitted that the trial judge should have found, on the balance of probabilities, there was a prospect of rezoning at a relevant time and assessed the damage according to probabilities and possibilities, making appropriate reductions or discounts.

The Court of Appeal rejected this approach. They were not satisfied that the rezoning application would have been successful, given the site specific considerations.  The Court acknowledged that in some situations, loss of opportunity may be appropriate as the method of assessment of damages. However, to do so in this case would mean that the assessment would be based upon a series of cascading hypothetical circumstances, which the Court was not willing to entertain for fear of the uncertainty and the risk of overcompensation it would bring. Instead, diminution in value damages (making its assessment of highest and best use before and after the breaching conduct) would be a more appropriate and reliable method for assessment of damages.

Whilst all loss of opportunity claims require a Court to consider what would have happened in a hypothetical situation, if there are too many hypotheticals, the risk of overcompensation and unreliability will come into the Court’s consideration.  In those situations, courts see diminution in value (or potentially, cost of remediation) as an attractive reliable assessment.

Immunity from Liability for Negligence of Road Authority

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The New South Wales Court of Appeal has dismissed an Appeal and reiterated the finding at first instance that a road authority was immune from liability for a failure to carry out road works as they did not have actual knowledge of the particular risk which resulted in the harm.

Mr John Mansfield was driving his fully loaded water truck along a single lane track when the left hand side of the culvert gave way. This resulted in Mr Mansfield’s truck rolling over into the water course subsequently causing him to be injured.

At first instance, Mr Mansfield was required to prove the Great Lakes Council’s failure to build a sufficiently large culvert with head walls, which could have prevented the erosion and collapse of the embankment, was so unreasonable that no road authority could properly consider it to be a reasonable exercise, or failure to exercise, its power. The Court held that the evidence presented by Mr Mansfield did not satisfy the Court of this. This was because he failed to establish that the ignorance of the Council was itself so manifestly unreasonable that no council acting properly could have failed to identify the circumstances calling for action.

The Court of Appeal considered the issue of knowledge and held that the evidence failed to establish that any officer who arguably had the requisite authority within the Council had actual knowledge. Further, it was not the negligent inspection that caused the harm, but instead the failure to carry out the road works. In addition, the Court held that as there was no evidence that there even was a negligent inspection, there was a lack of evidence from which negligence could be inferred.

Exclusion Clauses and the Liability of Owner and Occupiers

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This case involved the proper application of an exclusion clause in a home insurance policy and the insurer’s ability to rely upon it for the purposes of denying liability. In 1993, Mr Verini the owner of a property in Ballajura (Western Australia), lodged an application of a building licence to construct a residential building. The proposed building, including the balcony was constructed between June 1993 and June 1994. Whilst Mr Verini engaged a carpenter to construct the balcony, Mr Verini also assisted and supplied materials to the carpenter. He did not engage a structural engineer or any other person to supervise the building of the balcony.

In 2007, Mr Verini obtained cover under WFI Insurance’s Classic Home Policy. In 2009, the balcony collapsed, with a number of people on it suffering personal injury. The collapse was caused as the main support beam had no vertical support and therefore was inadequate to support the load it was carrying. The claimants suffered personal injury and sued Mr Verini, who in turn claimed indemnity from WFI Insurance pursuant to the Policy.

The Policy included the following exclusion clause, “this policy does not insure You or Your Family against any liability for Personal Injury directly or indirectly caused by or arising out of a breach of Your duty as the owner of a building or structure we did not insure at the time of the Occurrence that caused the Personal Injury.” WFI asserted that this exclusion clause applied and that it was not liable to indemnify Mr Verini.

The issue in the appeal was whether Mr Verini’s liability to the claimants for personal injury was directly or indirectly caused by, or arose out of, a breach by Mr Verini of his duty as the owner or occupier of the house. More specifically, the issue was whether for the purposes of the exclusion clause, Mr Verini as owner of the house, owed and breached a duty of care to the claimants.

His Honour held that WFI’s case was dependent upon a recognised duty of care in the execution of building works which may be owed by an owner/builder and that this was a novel duty. He said even if the duty was recognised, this raised the issue of whether the reference to ‘breach of .. duty as .. owner’ in the exclusion clause applies to a duty of care and this existence was not recognised by law at the time of policy inception in 2007.

Therefore, the Court of Appeal held that WFI had not established that the exclusion clause applied to exclude cover under the policy.  The appeal was dismissed.

When is a Risk, a Material Risk?

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On 3 August 2006, Ms Maria Morocz consulted Dr David Marshman about a condition that she suffered from (hyperhidrosis) commonly referred to as sweaty palms.  At this consultation Ms Morocz was given a brochure produced by the Society of Thoracic Surgeons about bilateral endoscopic thoracic sympathectomy which described the risks of that procedure (STS Brochure).  Dr Marshman also discussed the risks during the consult. The extent and nature of warnings conveyed to Ms Morocz by the STS Brochure and Dr Marshman during this consultation were key issues at trial.

On 6 February 2007, Dr Marshman performed a bilateral endoscopic thoracic sympathectomy on Ms Morocz.  Following that surgery, Ms Morocz complained of a number of health problems and side effects which did not improve over time.  In February 2010, Ms Morocz commenced proceedings against Dr Marshman in which she claimed damages for the allegedly negligent failure to warn her of the material risks of the sympathectomy.

The primary judge delivered three judgments.  The first rejected a number of expert reports that had been filed on behalf of Ms Morocz as inadmissible.  The second dismissed Ms Morocz’s case.  The third ordered that Ms Morocz pay Dr Marshman’s costs.  Ms Morocz appealed all three judgments.

On 11 August 2016, the New South Wales Court of Appeal dismissed Ms Morocz’s appeal.  In relation to the allegation regarding the negligent failure to warn, the essence of Ms Morocz’s complaints were that:

  • In relation to the material risks that she was warned about, the primary judge erred in finding that those warnings were adequate; and
  • The primary judge did not properly identify all the material risks about which the appellant should have been warned.

The Court was assisted by reference to contemporaneous documents, such as letters and file notes, which were kept by Dr Marshman.  This was particularly so in relation to the first complaint: that the warnings Dr Marshman gave Ms Morocz were not adequate.

The Court held that the duty to warn extends to warning about “material risks” which may attach to a proposed treatment.  A risk is “material” if in the circumstances of the particular case a reasonable person in the patient’s position, if warned of the risk, would be likely to attach significance to it or if the medical practitioner is or should reasonably be aware that the particular patient, if warned of the risk, would be likely to attach significance to it.

The Court held further that the amount of information that a careful and responsible doctor is required to disclose depends on a complex range of factors, the nature of the matter to be disclosed, the nature of the treatment, the desire of the patient for information, the temperament and health of the patient and the general surrounding circumstances.  Also relevant is the personal circumstances of a patient, so that a patient who is obviously intelligent and well educated and has conducted considerable research themselves is more likely to be aware of and understand the risks involved.

An important enquiry is the identification of risks the medical practitioner knew or ought to have known about at the time of discussing the proposed treatment or, at the latest, at the time immediately prior to performing the proposed treatment.  The Court will consider what was known or reasonably capable of being known at the relevant time as an important part of determining whether a warning was required about the matter.  That is, the state of knowledge of a reasonably competent medical specialist practising in the area at the relevant time.

The Court also held that the fact that a patient may suffer various medical issues following treatment is also not of itself probative of the existence of known risks he or she should have been warned about prior to making the decision to undergo the treatment.

Finally, the Court agreed that patient autonomy is an important principle which informs the extent of the duty owed by medical practitioners to warn patients of the risks of procedures they are contemplating.  So where, for instance, surgery is elective, a surgeon does not have a legal duty to refuse elective surgery to a patient if the surgeon’s personal view, or if the reasonable medical view, was or ought to have been that the surgery was unnecessary or unwarranted.

Public Authorities and Actual Knowledge

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On 23 December 2015, a majority of the New South Wales Court of Appeal dismissed an appeal by Jason Nightingale (Mr Nightingale) against the decision of the primary judge that Blacktown City Council (Council) was immune from suit by reason of section 45 of the Civil Liability Act 2002 (NSW) (Act).  The primary judge found that Mr Nightingale had failed to prove that the Council had “actual knowledge of the particular risk the materialisation of which resulted in the harm”.

On 27 February 2011, Mr Nightingale injured his right foot and ankle when he fell as a result of stepping into a sunken area of a public footpath.  Mr Nightingale sued the Council, being the authority having responsibility for the care, control and management of the footpath, for damages for its alleged negligence in failing to repair the footpath and warn pedestrians.

The primary judge applied the decision of North Sydney Council v Roman [2007] NSWCA 27, in which it was held, by majority, that for a council to have the “actual knowledge” referred to in section 45(1) of the Act, “that actual knowledge must be found in the mind of an officer within the council having delegated (or statutory) authority to carry out the necessary repairs”.  As an aside to this case, the High Court had granted special leave to appeal from the decision in Roman, but the appeal was settled before it was heard.

Mr Nightingale appealed the decision of the primary judge on the following grounds. First, that the Court should reconsider its decision in Roman and adopt the view of the dissenting judge in that case (McColl JA). Second, even if the Court did not adopt that view, the appeal should be allowed because:

  • The primary judge should have found that the Roman test was satisfied on the evidence in the present case.
  • Alternatively, section 45 of the Act does not confer immunity upon the Council because Mr Nightingale’s injuries were caused by the Council negligently conducting inspections of the footpath and, as this amounted to the negligent performance of an activity that fell within the definition of “road work” in section 45, section 45(1) does not apply, it only being concerned with a failure to carry out road work.

Although ultimately Mr Nightingale’s appeal was dismissed, we consider that the case of Roman will likely be reconsidered in the short to medium term. First, the High Court granted special leave to appeal from the decision upheld in Roman.  Secondly, one other member of the Court inRoman has favoured reconsidering the decision and preferring the minority opinion. Thirdly, only two judges in this case (Macfarlan JA, with whom Meagher JA agreed) considered that the decision in Roman could not be reconsidered because it was not plainly wrong (as is required for the Court to depart from one of its earlier decisions).

Finally, of the other three judges: Beazley JA said at [3] that he would prefer to avoid any formulation as to the category of persons who are the repository of the relevant knowledge for the purposes of section 45(1) of the Act; Basten JA said that he would grant leave to reargue the construction of section 45 of the Act adopted in Roman, but that this was not an appropriate case; and Simpson JA found that the case of Roman was wrongly decided.

For now, however, in order to establish liability of a road authority, a plaintiff must demonstrate actual knowledge [of the particular risk the materialisation of which resulted in the harm] in the mind of an officer within the authority having delegated (or statutory) authority to carry out the necessary repairs.

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