Class members declared recovering party in Powercor bushfire class action

Judiciary grapples with the disbursement of settlements between insured losses (paid to insurers) and uninsured losses (paid directly to class members) in the Powercor class action, determining that class members are the recovering party in this case.

In this judgment Nichols J dealt with an issue which had arisen in the context of an application for approval of settlements of two related bushfire class actions. The settlements themselves were approved in an earlier judgment (Lenehan v Powercor Australia Ltd (No 2) [2020] VSC 159). The particular issue dealt with in the present judgment arose in the following way.

As is often the case, many of the class members in the class action were only partly insured in respect of their losses, with the consequence that:

  • their respective insurers paid part of those class members’ losses under their respective insurance policies;
  • those insurers therefore had (subject to the terms of the particular insurance contract) subrogated rights to pursue a claim against the defendant in respect of the amounts they had paid out; and
  • the partly insured class members also had rights to pursue a claim against the defendant in respect of the losses for which they were not insured.

From very early on in the proceedings, a dispute arose between the solicitors for the plaintiffs and class members on the one hand, and the insurers on the other hand. Specifically, the insurers had proposed to opt all of their insured clients (including partly insured clients) out of the proceedings, and to pursue their own proceedings against the defendant. The solicitors for the plaintiffs and class members disputed that, at least in relation to partly insured class members, the insurers had any right to do so. Ultimately, although the insurers maintained that they had the right to opt partly insured class members out of the proceedings, they decided not to exercise that right in relation to any class members who objected. Thus, many of the partly insured class members remained as class members in the proceedings at the time of settlement.

The issue which then arose was how the amounts allocated out of the settlement sum to the claims of those partly insured class members should be divided as between their insured losses (and therefore paid to their respective insurers) and uninsured losses (and therefore paid directly to the class members themselves). Although that issue often arises in bushfire related class actions, it has never really been the subject of previous judicial consideration and determination.

In the proposed settlement distribution scheme, the solicitors for the plaintiffs and class members had proposed that that issue be resolved by the insurers receiving such component of each partly insured class member’s distribution entitlement as the settlement administrator (who was, of course, the solicitors for the plaintiffs and class members) determines having regard to:

  • the terms of each individual class member’s policy of insurance;
  • the terms of the Insurance Contracts Act 1984 (Cth) (IC Act);
  • any notice of submission from the insurers;
  • the instructions received from class members in relation to the distribution of their assessed entitlement; and
  • any other applicable legislation or case law.

The insurers objected to that proposal on multiple grounds (not least of all the almost unfettered discretion which it would repose in the settlement administrator to determine the appropriate division), and instead proposed a simple pro-rata division between insured and uninsured losses (but subject, of course, to any contrary terms in any particular insurance policy). This was similar to the division which has been adopted in previous bushfire class actions.

Her Honour held that the appropriate division of the amount recovered is affected by s 67 of the IC Act (which hadn’t been adverted to in any previous cases), which in general terms (and subject to any contrary terms in the relevant insurance policy) accords a priority to the party who ‘recovered’ the amount in question. In that respect, both parties in this case contended that they had ‘recovered’ the amount in question, and ought therefore be accorded priority – in the case of the insurers that was in effect because, so they contended, they had permitted the class member to litigate the claims by choosing not to exercise their right to opt them out of the proceedings. Nevertheless, the insurers were still prepared to compromise on the basis of their proposed pro rata division noted above.

Ultimately, for reasons which were set out at [64]-[94], her Honour concluded that based on the particular facts in this case, the class members themselves (and not the insurers) were the ‘recovering party’ for the purposes of s 67 of the IC Act, and thus the division of proceeds between the insurers and partly insured class members should reflect that result by according the partly insured class members a priority in accordance with s 67; and this was so notwithstanding the relatively ‘benign’ role which class members ordinarily perform in representative proceedings.

Although it was unnecessary to do so (because s 67 of the IC Act applied in the circumstances) her Honour went on (at [95]-[112]) to consider what the position would have been under the general law, and concluded that it did not support the insurers’ contentions.

Notwithstanding the above, her Honour (at [113]-[117]) did accept the insurers’ argument that independent counsel (rather than the solicitors for the plaintiffs) should be appointed to determine the appropriate division of proceeds in each particular case between the insurer(s) and the relevant class member (which she indicated “would principally involve the construction of the relevant insurance policies”).

In a further judgment ([2020] VSC 877) her Honour dealt with the questions of costs, and concluded that:

  • although the issue in dispute arose in the context of an application for approval of a proposed settlement of the proceedings, it was in substance an inter partesdispute in which two groups of opposing parties (namely, the insurers on the one hand, and partly insured class members on the other), squarely joined issue on opposite sides of a clearly formulated question that affected their interests directly (at [10]);
  • as such, the insurers’ role, properly characterised, was not one of contradictor (as they had submitted), but instead they had sought to advance their own interests in the dispute, and as such costs ought follow the event, with an order for costs of the dispute being made against the insurers (at [11]-[16]); and
  • the costs of the independent counsel appointed by the court to determine the appropriate division of proceeds in each particular case would not constitute “administrative and legal costs incurred in connection with the recovery” within the meaning of s 67(3) of the IC Act, and therefore would not fall to be dealt with in accordance with that section – instead, the appropriate order was that those costs be borne in each case by the insurers and partly insured class members pro rata to their respective distribution entitlements (at [17]-[28]).

Case details

Francis v Powercor Australia Ltd [2020] VSC 836; [2020] VSC 877

Federal Court of Australia, Rares J;
 4 December 2020;
Plaintiff’s Solicitors: Maddens Lawyers;
Defendant’s Solicitors: N/A;
Solicitor for the Insurer Objectors: Hall & Wilcox Lawyers;
Plaintiff’s Funder: N/A;
Austlii link: Accessible here

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