Judge orders retrospective rectification of insurance policy where company had intention to insure for a higher amount
Federal Court of Australia finds that there is a claim against two insurers for rectification of ‘Side C’ insurance cover, but remains unconvinced that there is a claim against other insurers.
This was an insurance case which arose in the context of a shareholder class action, and in somewhat unusual circumstances. The underlying proceeding is a shareholder class action against Quintis Ltd (Quintis) (which is subject to a deed of company arrangement). Following, and in reliance upon, representations made by Quintis’ legal representatives that its ‘Side C’ insurance cover applicable to the claims was limited to $10 million, the parties agreed to a proposed settlement of the proceeding (which was, of course, subject to the Court’s approval under s 33V of the Federal Court of Australia Act 1976 (Cth)). However, on the morning of the settlement approval hearing, Quintis’ legal representatives, quite properly, informed the applicants’ legal representatives and the Court that there may be some legitimate questions as to whether, in fact, their previous representations as to the extent of Quintis’ ‘Side C’ insurance cover were (inadvertently) inaccurate.
As a result of that revelation:
- the settlement approval hearing did not proceed; and
- the applicants subsequently sought, and were granted, leave pursuant to s 237 of the Corporations Act 2001 (Cth) to commence and prosecute, on behalf of and in the name of Quintis, this proceeding against Quintis’ insurers to determine the true extent of Quintis’ ‘Side C’ insurance cover.
The uncertainty as to the extent of Quintis’ ‘Side C’ insurance cover arose, in part, because:
- in the previous insurance period, Quintis’ ‘Side C’ insurance cover was $50 million, and there was nothing to indicate that it had intended to reduce that insurance cover in the relevant insurance period (indeed, it was not in dispute that Quintis and its insurance broker had intended to maintain that level of cover in the relevant insurance period); and
- there were multiple layers of insurance, involving numerous different insurers, and it was not entirely clear whether particular aspects of the primary layer were intended to be picked up and included in the subsequent layers.
Thus, in this proceeding, the applicants (in the name of Quintis) sought:
- a declaration that, on the proper construction of the insurance policies, Quintis’ ‘Side C’ insurance cover was $50 million (Construction Argument); or
- alternatively, an order that the insurance policies be rectified so as to provide for Quintis’ ‘Side C’ insurance cover to be $50 million (Rectification Argument).
As Lee J noted, the Construction Argument and the Rectification Argument gave rise to two fundamentally different analyses. Although the Construction Argument required his Honour to determine the parties’ intention when entering in to the insurance contracts, that intention was to be determined objectively by reference to the terms of the insurance policies, and if necessary, the surrounding circumstances. On the other hand, the Rectification Argument required his Honour to determine the parties’ actual subjective intention at the time of entering into the insurance contracts (a task made more difficult by the fact that there were multiple layers of insurance, and therefore multiple insurers whose intention was relevant, and the fact that at least some of those insurers were not party to Quintis’ insurance policies in the previous insurance period).
At - his Honour dealt with, but ultimately rejected, the Construction Argument, concluding that “on their proper construction, the instruments recording the 2016-17 Policies did not provide Side C cover of up to $50 million” (at ).
His Honour then moved to consider the Rectification Argument (at -). Quintis contended that the parties had intended to execute the relevant insurance contracts on the basis that ‘Side C’ cover was not subject to a sub-limit of $10 million, but that those policies instead provided ‘Side C’ cover of up to $50 million (Side C Coverage Intention). After an extensive review of the documentary evidence, his Honour:
- was satisfied that Quintis and its insurance broker (who arranged the insurance policies) held the Side C Coverage Intention;
- was also satisfied that two of the relevant insurers held the Side C Coverage Intention; and
- was not satisfied, to the requisite standard, that any of the other insurers held the Side C Coverage Intention.
As such, Quintis’ Rectification Argument succeeded, but against only two of the relevant insurers; and given that the policy between Quintis and each insurer constituted a separate and distinct contract, there was, in theory, no reason why that claim could succeed against only some of the insurers, but not others. Nevertheless, his Honour invited further submissions from the parties as to the precise form of relief to be granted in light of his conclusions.
Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy No B0507N16FA15350  FCA 19
Federal Court of Australia, Lee J;
28 January 2021;
Plaintiffs’ Solicitors: Piper Alderman;
Defendant’s Solicitors: Wotton & Kearney, Colin, Biggers & Paisley;
Plaintiffs’ Funder: N/A;
Austlii link: Accessible here
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