Class Action Update - Shifting Sands: Orders for defendants to produce insurance policies

Articles Written by Frances Dreyer (Partner), Nicholas Briggs (Senior Associate)

We have started to see the Federal Court use its discretionary powers in respect of class actions to order defendants to disclose their insurance policies to plaintiffs. The disclosure is not framed as traditional discovery focused on the disputed facts in the case, rather it is discovery aimed at assisting the settlement process. The emergence of these disclosure orders is an example of the flexible and pragmatic approach increasingly being adopted by the Federal Court in class actions.

The conventional position

Until recently class action proceedings have been subject to the general principle that insurance policies need not be produced unless relevant to the pleaded issues in the case. That long-standing position is founded upon the principle that the existence and amount of insurance cover is not relevant to determining the extent of a party’s liability.[1]

Limited statutory exceptions have over the years been introduced. They include for example, an application by a member of a company to inspect that company’s books and records under section 247A of the Corporations Act 2001 (Cth)(Corporations Act)[2]. In the context of an application for leave to proceed against a company in liquidation, administration or bankruptcy[3], under sections 440D and 471B of the Corporations Act, and s58(3)(b) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) respectively.[4]

Past attempts by plaintiffs to compel production in a class action context have been unsuccessful. Most notably, in Richard v Centro Properties Limited (ACN 078 590 682)[5] the class action Plaintiffs sought an order that Centro Properties Limited and CPT Manager Limited (Centro Parties) produce their insurance policies. The order was sought in the context of an upcoming mediation and the Plaintiffs’ legal representatives argued, among other things, that where there was uncertainty as to the Centro Parties’ ability to meet the damages sought, it was impossible for the legal representative to properly advise on whether particular settlement offers were fair and reasonable and in the interests of class members (which counsel for the class members have to do as part of the process of having a settlement approved by the Court).[6]

Ryan J rejected those arguments and dismissed the application. His Honour did not accept that a lack of knowledge about the extent of the Centro Parties’ insurance cover precluded them from advising their clients as to settlement or forming a view about the reasonableness of any settlement reached between the parties for the purposes of an application to have any settlement approved by the court. Further, his Honour was concerned that disclosure of the policy would unfairly prejudice the defendants in any settlement negotiations.[7]

The shift

However, since the Centro case there has arguably been a shift toward more pragmatic case management principles and a greater judicial acceptance of the need to produce insurance policies in certain circumstances. In that context, and while not yet the subject of a judgment, the Federal Court of Australia has in a number of instances ordered defendants to produce insurance policies to class action plaintiffs undert the Court's broad case management powers (s33Z and 37P of the FCAA). This has been done, for example, in the class actions commenced against Slater & Gordon Limited[8] and Quintis Limited (Subject to a Deed of Company Arrangement)[9].

Section 33ZF of the FCAA provides, inter alia, that (emphasis added):

  1. In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.

It can only be relied upon in representative proceedings commenced under Part IVA, and confers on the Court a particularly wide power to do whatever it thinks appropriate or necessary to ensure that justice is done in the proceeding. It has been put to an array of uses by the Court including in the making of common fund orders.[10] Recent comments from the bench have suggested at least some judges see the disclosure of insurance policies as critical to the conduct of efficient settlement negotiations, and thus, discovery of them is able to be ordered under s 33ZF.

Section 37P of the FCAA entitles a Court or a Judge to give directions about the practice and procedure to be followed in relation to the proceeding, or any part of the proceeding. It applies to any civil proceeding before the Court, and is not limited to Part IVA proceedings.[11] It will be interesting to see whether the trend of ordering disclosure of insurance policies for settlement purposes in the class action space translates to any extent into the non-class action space under this power.

The rationale

Arguments in support of an order compelling production of insurance policies in class actions are most obviously based on:

  1. the need for the plaintiff’s legal team to form a view as to the reasonableness of any settlement, including for the purposes of having the settlement approved by the Court. Available insurance cover is often a key factor in the assessment of settlement options, as it often provides the parameters for what is actually recoverable in the case; and
  2. the requirement for the plaintiff’s solicitors to conduct the case, and incur legal costs, in a manner which is proportional to the expected benefit of the litigation.[12] Where this benefit depends largely on access to insurance funds, there may be arguments that it is difficult for the legal team to manage legal expenses appropriately without access to the relevant policies.

The disclosure orders also support the trend towards consciously running class action litigation along two “parallel paths” – preparation for hearing on one path, and mediation and settlement (and the necessary preparation for these processes) on the other. Orders for the disclosure of insurance policies support of the second path, and it appears that this is sufficient for an order under s 33ZF.

Outside of the class action space the arguments in favor of production are perhaps more difficult, but if orders requiring production of policies in class actions become common place, we expect to see applications for disclosure of policies being attempted more broadly where the resources of the Defendant to meet a judgement are in question. The likely argument would be that the available insurance funds will be a key determinate of settlement parameters and thus, as a matter of general case management, should be disclosed to enable efficient settlement negotiations.

Issues

This is a new and evolving area of jurisprudence and we await - with interest for a judgment on the issue. In the meantime, some obvious issues arise for both plaintiffs and defendants.

For Plaintiffs

In cases where recoverability is at issue, a relatively early application for access to relevant insurance policies appears prudent to ensure your settlement strategy and expectations are appropriately formed. At least in the Federal Court, we expect applications for access to insurance policies to become the “norm” in class actions against companies in administration (at least until any judgement which may define the circumstances in which the disclosure might be ordered).

It may even be that plaintiffs who do not seek such disclosure are later criticised if their case management or settlement approach proves inappropriate in respect of the actual insurance funds available.

For Defendants

The development of these disclosure orders in the context of Australia’s increasingly competitive class action market, warrants particular attention. For example:

  1. Particular care should be taken in communications with insurers, as such communications are typically captured by this new class of disclosure order. In short, nothing should be put into a letter to your insurers which you would not want the plaintiffs to see. Companies should ensure all insureds (often including ex-directors and officers) are aware of this.

  2. Careful and wide confidentiality provisions should be sought with the disclosure of any polices. This should include:

    (a) protection against policy limits being disclosed in open court or evidence, or disclosed outside of the individual solicitors acting for the plaintiffs (and not the entire firm). Policy limit information, if disclosed in the class action market, might be used to support the viability of other class actions against the company -possibly even for unrelated conduct or in different periods; and

    (b) thought should also be given to mechanisms for keeping the insurer’s name confidential, as the standard terms are familiar to some players in the market and again could be a factor supporting another claim, including claims on unrelated allegations.


[1] Lister v Romford Ice and Cold Storage Co Ltd [1956] UKHL 6; [1957] AC 555 per Viscount Simonds, at 576-577; Hunt v Severs [1994] 2 AC 350 per Lord Bridge of Harwich, at 363

[2] (Merim Pty Ltd v Style Limited (2009) 255 ALR 63; London City Equities Ltd v Penrice Soda Holdings Ltd [2011] FCA 674; Snelgrove v Great Southern Managers Australia Ltd (In Liq) [2010] WASC 51)

[3] (Lopez v Star World Enterprises Pty Ltd [1997] FCA 454; Snelgrove v Great Southern Managers Australia Ltd (In Liq) [2010] WASC 51; but see Commonwealth Bank of Australia v ACN 076 848 112 Pty Ltd [2015] NSWSC 666 at [5] – [11])

[4] Other statutory provisions which expressly or impliedly contemplate the production of insurance policies include s51 of the Insurance Contracts Act 1984 (Cth), ss562 and 601AG of the Corporations Act, and s117 of the Bankruptcy Act

[5] [2009] FCA 695

[6] Richard v Centro Properties Limited (ACN 078 590 682) [2009] FCA 695 at [7]

[7] Richard v Centro Properties Limited (ACN 078 590 682) [2009] FCA 695 at [23]-[24]

[8] See Order 1 of the Orders of Middelton J made on 17 March 2017 in Hall v. Slater & Gordon Limited (Federal Court of Australia proceedings VID1213/2016)

[9] See Order 1 of the Orders of Lee J made on 22 May 2019 in Excel Texel Pty Ltd & Anor v. Quintis Ltd (Federal Court of Australia proceedings NSD1982/2017); also see Order 1 of the Orders of Lee J made in Davis & Anor v. Quintis Ltd (Federal Court of Australia proceedings NSD862/2018)

[10] Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Limited [2016] FCAFC 148

[11] section 37P(1) of the FCAA

[12] section ; in the class action context see Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (in liq) (No 3) (2017) 343 ALR 476; [2017] FCA 330 at [181]

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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