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Insurance Market Update

Welcome to the inaugural edition of Hunt & Hunt’s Insurance Market Update a quarterly publication featuring hot issues and legal developments relevant to insurance professionals who have an interest in the Australian insurance market.




Victorian Construction Professionals under scrutiny: a new wave of claims on the horizon


A recent media report indicates that in excess of 4,000 homes in Melbourne's west and northern suburbs are suffering from slab heave caused by volatile soil movements leading to significant damage to property1. Slab heave is caused by soil movement under the foundations of poorly built houses and can result in significant structural damage.
Although builders are invariably seen as the primary wrongdoers, the spotlight is likely to extend to the role played by other construction professionals, in particular slab designers and soil testers.

In the context of slab designers, the use of 'waffle slab' foundations has come under scrutiny, including calls that the Victorian Building Authority, the statutory agency is responsible for domestic building consumer protection and regulating the associated industries, set up a ''waffle slab taskforce'' to determine compensation for home owners affected by shoddy building practices2. According to some observers, waffle slabs, which comprise pods that float on top of compacted ground, may be unsuitable for areas with low soil stability given that they are heavily dependent on effective drainage systems which can be notoriously difficult to design and construct3

In the context of soil testers, the likely area of concern is the classification of the soil given that it impacts on the type of slab foundation recommended and designed by the slab designer. In this regard, where a waffle slab is contemplated, soil testers may be exposed if they fail to provide sufficient details of the drainage requirements.


The recent VCAT decision of Hooper v Metricon Homes Pty Ltd4 is likely to be relied on by owners in their pursuit of claims against construction professionals, such as slab designers and soil testers, particularly in circumstances where it becomes apparent that the quantum of their claims cannot be met by the relevant builder or exceeds the limit of indemnity provided by the home warranty insurer.

The case at hand concerned a claim made by a house owner for compensation against a builder and structural engineer in respect of a poorly built slab and foundation which exhibited significant movement. In short, the owner claimed that in breach of its duty of care the engineer prepared an inadequate slab design. As against the builder, the owner claimed that in breach of the implied warranties in the Domestic Building Contracts Act 1995 (Vic) (DBCA) it failed to build the slab in accordance with the design or proper workmanship.

Although ultimately finding that the engineer's design was adequate, VCAT held that a duty of care existed in circumstances where the owner was vulnerable to the engineer. In coming to its decision, VCAT rejected the engineer's primary defence that it did not owe a duty of care to the owner because the owner was not vulnerable to it by reason of the protections of the implied warranties in the DBCA.  Put another way, the owner was considered vulnerable despite the protections afforded under the DBCA.


Although the above complaints are currently limited to Victoria, waffle slabs are commonly used throughout Australia and accordingly an increase in claims of this kind is likely to extend across all States and Territories. Should this occur, it is highly probable that construction professionals, such as slab designers and soli testers, will become embroiled in litigation given their perceived roles in the design and construction process and the 'open and arguable' cause of action against them.

Given the potential liability exposure and the likely significant costs involved in funding a defence, PI insurers may wish to adopt a cautionary approach by increasing their underwriting criteria when writing construction PI focused business. 

1  The Sunday Age, Sinkhole suburbs: thousands face ruin, 8 June 2014
2 The Age, Slater & Gordon calls for taskforce to act on faulty house slabs, 4 April 2014
4 [2014] VCAT 277



Uncertainty Continues for the Proportionate Liability Regime in Australia




Mr and Mrs Selig invested in a company, Neovest Pty Ltd ("Neovest"), upon the advice of Wealthsure Pty Ltd ("Wealthsure") and Mr Bertram, a representative of Wealthsure. Neovest ultimately failed.

The Seligs brought a claim for damages against Wealthsure, Mr Bertram and the directors of Neovest for a number of alleged breaches of the Corporations Act 2001 (Cth) ("Corporations Act"), the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"), and the common law of contract and negligence.  One of the Seligs' claims was a claim for misleading and deceptive conduct under s 1041H of the Corporations Act, which is an apportionable claim under s 1041L of the Corporations Act.


By a majority of 2-1, the Court held that the whole of the claim against Wealthsure and Mr Bertram should be apportioned, notwithstanding that the Seligs' had succeeded in other causes of action which were non-apportionable claims.

The interpretation of s 1041L(2) of the Corporations Act was of critical importance in the decision reached by the majority. Section 1041L(2) of the Corporations Act provides as follows:

"…there is a single apportionable claim in the proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind)."

The majority, Mansfield and Besanko JJ, found that the above provision indicates a legislative intention that the proportionate liability provisions are to be engaged in circumstances where different causes of action have caused the same loss or damage, notwithstanding that not all of the causes of action are apportionable claims.

In contrast, White J in dissent held that s 1041L(2) of the Corporations Act only applies to apportionable claims.  He found that the expression "based on more than one cause of action" in this provision should be read as referring only to causes of action which are apportionable claims, rather than to causes of action in general.


Shortly after the decision in Wealthsure v Selig, on 6 June 2014, the Full Court of the Federal Court delivered its decision in ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 ("ABN AMRO v Bathurst ").


This case involved a number of parties, and the facts of the matter are complex and lengthy.  At its core, the case involved issues surrounding the provision of financial advice concerning a structured financial product and the subsequent sale and marketing of this product, which relied on the previous financial advice.

The Full Court of the Federal Court was required to consider a number of issues on appeal.  Relevantly, one of the key issues was whether the damages awarded to the successful parties could be apportioned.  Damages had been awarded for misleading and deceptive conduct under s 1041H of the Corporations Act, which was an apportionable claim, and for providing false and misleading statements in contravention of s 1041E of the Corporations Act, which was a non-apportionable claim.


In a unanimous verdict, Jacobson, Gilmour and Gordon JJ held that the proportionate liability provisions in the Corporations Act only apply in respect of conduct that contravenes s 1041H of the Corporations Act, which is the misleading and deceptive conduct provision.

The Court noted the recent decision of Mansfield and Besank JJ in Wealthsure v Selig, but ultimately agreed with the conclusion reached by White J in Wealthsure v Selig, that s 1041(2) of the Corporations Act should be read as referring only to causes of action which are apportionable.

In reaching its decision, the Court also focused on s 1041L(1) of the Corporations Act, which provides that the proportionate liability provisions only apply if the claim is:

"…a claim for damages…for economic loss or damage to property caused by conduct that was done in contravention of section 1041H."

The Court noted that liability for misleading and deceptive conduct under s 1041H of the Corporations Act may arise even where the conduct is innocent, and there is no allegation that the defendant knew or ought to have known that the conduct it engaged in was misleading or deceptive.  In contrast, s 1041E of the Corporations Act requires actual or constructive knowledge or recklessness.

Accordingly, the Court found that the express reference to s 1041H in s 1041L(1) of the Corporations Act indicates that the legislature intended to exclude defendants whose conduct is deliberate or reckless (such as those defendants who are found in contravention of s 1041E of the Corporations Act) from the benefit of the proportionate liability regime.

The Court therefore held that:

  1. the damages awarded for misleading and deceptive conduct under s 1041H of the Corporations Act were apportionable between the wrongdoers; and
  2. the successful parties' were entitled to joint and several judgments against the wrongdoers for the provision of false and misleading statements that contravened s 1041E of the Corporations Act.

Noting that both of the causes of action under ss 1041E and 1041H resulted in the same loss or damage, the Court ultimately held that the successful parties could elect which remedy they were seeking.  In this context, the Court found that it was self-evident in the cross-appeal brought by the successful parties that the cause of action they relied upon was a contravention of s 1041E of the Corporations Act, and that the remedy they were seeking was an award of damages for which each wrongdoer was jointly and severally liable.


Although both cases focus on the interpretation of the proportionate liability provisions in the Corporations Act, it was held in both cases that the decisions apply to the equivalent provisions in the ASIC Act and the Competition and Consumer Act 2010 (Cth).

Neither case commented on whether the interpretations given to the Commonwealth proportionate liability provisions extend to the State proportionate liability regimes.  However, it is likely that the judgments will be influential (albeit non-binding) on the State Courts in New South Wales, the Australian Capital Territory, Western Australia, the Northern Territory and Tasmania, as the proportionate liability provisions in these States contain similar wording to the provisions in the Commonwealth legislation.

It remains to be seen how the two contrary judgments from the Full Court of the Federal Court will be applied in the future, and which view will be preferred.

If the broad interpretation favoured by the majority in Wealthsure v Selig prevails, this will have a number of benefits for insurers and insureds alike, including:

  • It will enable insurers to more accurately underwrite risks;
  • It will reduce the amount of damages payable by insurers;
  • It will prevent professional service advisors from being joined to legal proceedings on the basis that they are insured and therefore have the "deepest pockets"; and
  • It will enable insurers to offer premiums at levels which are appropriate and reasonably priced.

If the narrower approach advanced in ABN AMRO v Bathurst and by White J in Wealthsure v Selig is followed, this will benefit plaintiffs, including insurers acting through a right of subrogation.  A plaintiff will be able to circumvent the proportionate liability regime if it succeeds in a cause of action that is non-apportionable, and will therefore be entitled to recover damages on the basis that the defendants are jointly and severally liable.



Financial sector shake up


The "four pillars" policy was implemented by the Australian Government to maintain the separation of the four largest banks in Australia by rejecting any merger or acquisition between the four big banks.

Adopted by the Labour Government in 1990, the policy covers the four big banks: Commonwealth Bank; Westpac; NAB and ANZ. The arrangement was designed to ensure some level of competition in a small national market.
The Australian Prudential Regulation Authority ("APRA") sits behind the banks, applying rules shaped by a global template that are modified for domestic conditions. The Foreign Investment Review Board screens foreign investment generally and any deal on national interest groups can be blocked or approved by the Treasurer.


Fifty WTO members, including Australia, Canada, Japan, South Korea and the European Union (representing its 28 member countries) are engaged in the TiSA negotiations, which began in Geneva in 2012. WTO negotiations on the General Agreement on Trade Services, involving all 159 WTO members, have been slow. The TiSA enables a minority of mostly richer countries to negotiate behind closed doors.

Details of the TiSA negotiations show Australian trade negotiators are working on a financial services agenda that could end the Australian Government's "four pillar" banking policy. If successful, this would effectively preclude an Australian government blocking foreign takeovers of Australian banks.

Another key provision in the leaked draft text involves a United States proposal for a "standstill" on financial regulation, which would prevent governments from introducing new regulation in the future. Therefore, if Australia agrees to these provisions, a future government would be unable to introduce stronger regulation to protect consumers.

Also in the draft are US and European proposals for participating countries to allow financial service providers from other participating countries the right to establish or expand within their territories, "including through the acquisition of existing enterprises".

A significant concern about the TiSA negotiations stems from the apparent loosening of Australia's privacy laws. The US has proposed measures that would allow Australian customers' financial data to flow freely to other TiSA countries. Adding to that concern is the secrecy surrounding the negotiations, which are taking place outside of the WTO and therefore not subject to WTO transparency practices.

There has been little parliamentary comment on Australia's apparent participation in the negotiations. Whilst declining to confirm the legitimacy of the leaked documents, Trade Minister Andrew Robb has dismissed experts' warnings that the proposed changes could harm Australia's autonomy over its financial sector, saying the TiSA negotiations are a 'key focus' of government policy. Further, Robb said Australia wanted to open new opportunities for its services sector.


There is a lot of scepticism about the push towards deregulating financial services. Deregulation of financial systems, especially in the US, was a major cause of the global financial crisis. Financial institutions were operating without adequate consumer protections, investing in risky financial products and engaging in national and international mergers. The TiSA proposals contradict the global trend in regulation of financial services, which have been fiercely resisted by global banks.

In response to an inquiry into financial products and services, the former Labour Government introduced Future of Financial Advice ("FOFA") reforms. FOFA imposes stringent obligations on financial providers aimed at improving the quality of financial advice in Australia and enhancing retail investor protection. Originally intended to commence on 1 July 2012, the Australian Securities and Investment Commission ("ASIC") applied a 12 month facilitative approach, pushing the mandatory compliance date to 1 July 2013. With the subsequent change of government, proposed amendments to FOFA were introduced by the new Liberal Government, which still remain unpassed. The suggested amendments are intended to relax the strict limitations imposed by FOFA legislation in its current form.

The proposed bill of amendments was referred to the Senate Economics Legislation Committee ("Committee"). On 16 June 2013, the Committee provided a report recommending that, subject to suggested changes, the bill should be passed by Parliament. On 20 June 2014, the Australian Minister for finance, Mathias Cormann, released a statement2 outlining the Government's response to the Committee's report. Cormann indicated that Government intends to proceed with its proposed amendments to FOFA. Key changes are to be effected as soon as possible, with certain changes to be implanted via regulations set to commence on 1 July 2014.


If the TiSA negotiations proceed to fruition, the deregulation of financial activities is likely to have serious consequences for both financial advisors and consumers.

The reforms are likely to be a welcome relief from the strict limitations currently governing their operations. On a local scale, deregulation would presumably expand investment opportunities and allow banks to retain a greater commission.

However, deregulation reduces investment protection. By reducing the limits placed on financial providers, there is the risk that investments will be steered towards entities that provide a greater reward for the financial advisor, rather than investing in the best interests of the consumer. This in turn may result in the Australian financial market being more vulnerable to a future global financial crisis.

Ultimately, the impact of TiSA negotiations and the proposed reforms to FOFA legislation will remain unclear until the above measures are fully considered and implemented.






Australian Judge reaffirms responsibility for trip claims



The plaintiff, Kathleene Parker, fell from a step in the auditorium at Bankstown RSL Club (the club) on 22 December 2007. She was attending a day time dance school concert with her husband and her five children. Her children were performing in the concert. As a result of her fall she fractured her right elbow. 

The plaintiff brought a claim in the Supreme Court of New South Wales against the club, the first defendant and the proprietors of the dance school, the second and third defendants for their alleged negligence in failing to illuminate, or otherwise indicate the presence of, the step from which she fell.

The principal issues in the proceedings were as follows:

      1. how the incident occurred and whether the plaintiff fell because the step was not sufficiently indicated or whether she tripped on an object on the floor;
      2. whether the strip lighting designed to illuminate the step was working at the time of the plaintiff's fall and if was working was the illumination sufficient;
      3. if the strip lighting was off which of the defendants was responsible for it being off;
      4. whether either or both of the club and the dance school proprietors were negligent; and
      5. what damages was the plaintiff entitled to?. 


The plaintiff pleaded her claim in contract and tort.  She alleged as a ticket holder to the dance concert that a term was implied into the contract that "services" would be rendered with due care and skill.  Her Honour regarded the duties of care to be similar and co-existent in both contract and tort and therefore did not distinguish between the two claims. 

The club as occupier of the premises was found to owe a duty of care to those in the auditorium to take reasonable care to protect them from harm and to warn of risks of harm that were not obvious.

Her Honour considered that because of the dimming of the house lights during performances the risk of someone missing a step and falling (the risk of harm) was foreseeable and not insignificant pursuant to the general principles of section 5B of the Civil Liability Act (2002) (NSW) (the Act).

However, Her Honour considered that the precautions taken by the club to the risk of harm by installing metal strips along the edge of the step and strip lighting below the edge was reasonably sufficient to avoid the risk of harm. The plaintiff's expert liability evidence given that further illumination was required was not accepted.

Her Honour concluded that the plaintiff had failed to prove that the step was not illuminated.  She found that the strip lighting on the step was probably illuminated throughout the subject concert.

Her Honour found that the plaintiff had failed in her case to establish a breach of duty against the club and that she fell because she was simply not taking reasonable care for her own safety in that she did not watch where she was going. Contributory negligence pursuant to sections 5R and 5S of the Act were not considered because Her Honour considered the plaintiff was solely responsible for her fall.

The proprietors of the dance school were also found to be occupiers of the auditorium at the time of the plaintiff's fall.  However, Her Honour was satisfied that the proprietors of the dance school had not interfered with the strip lighting and that the strip lighting was likely to have been on at the time of the plaintiff's fall.  It therefore followed that the plaintiff had also failed to establish any alleged breach of duty against the proprietors of the dance school.

The plaintiff was ordered to pay the defendants' costs of the proceedings.


Notwithstanding the decision as to liability, Her Honour was obliged to assess damages.  Briefly, an overview of the assessment is as follows:

The plaintiff was aged 42 years at the time of the hearing.  As a result of the fall and fractured right elbow she had lost some of the use of her right arm and suffered pain.  The plaintiff's injury was assessed at 35% of a Most Extreme Case pursuant to section 16 of the Act, currently $193,000.

Past out-of-pocket expenses were agreed at the hearing between the parties at $22,638.07.  A lump sum for future out-of-pocket expenses was assessed at $27,583, equating to $28.85 per week for medical review and medication.

The plaintiff required 40 hours of gratuitous care per week for the first four months post fall.  The plaintiff then required 7 hours of gratuitous care per week to the hearing.2  The plaintiff requires seven hours per week of gratuitous care for the foreseeable future.3

Her Honour was satisfied that although it had become harder for the plaintiff to fulfil the needs of her children, the required tasks were able to be carried out by the plaintiff's husband or the children themselves.  No award was made.

The plaintiff failed to establish the profitability of her business prior to the fall and that her injury had any real impact on her ability to work.  She had dedicated the years prior to her fall to raising her children.  On this basis past economic loss was assessed at $20,000 and future economic loss was assessed at $50,000.  No allowance for lost superannuation was made.

The assessed value of the plaintiff's claim was therefore in the region of $564,818.


This is a useful decision for public liability insurers because it confirms that an insured occupier is only required to take reasonably sufficient precautions to avoid the risk of harm. 

It also makes plaintiffs far more accountable for their actions and should assist with the defence of future claims.

1 Pursuant to section 15 of the Act
2 Approximately, $75,178 using a gratuitous rate of $26.36 for approximately 2,852 hours.
3 Approximately, $176,419 using a gratuitous rate of $26.36 and a 5% table multiplier of 956.1.
4 Pursuant to section 16 of the Act



Graeme Armstead, Melbourne

Peter Jones, Adelaide

Darren Miller, Perth

Peter Forbes-Smith, Tasmania

Chris Osborne, Darwin

Disclaimer: The information contained in this e-alert/update is not advice and should not be relied upon as legal advice. Hunt & Hunt recommends that if you have a matter that is legal, or has legal implications, you consult with your legal adviser.

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