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Insurer successfully resists production of insurance policies in class action - Evans v Davantage Group Pty Ltd (No 2) [2020] FCA 473

  • Legal Development 20 July 2020 20 July 2020
  • Asia Pacific

  • Insurance & Reinsurance

Can an Insurer resist an application for discovery of a defendant's insurance policy in a class action?  Justice Beach's recent decision clarifies how section 33ZF(1) of the Federal Court Act 1976 (Cth) (the Act) and the Court's case management powers should be used to determine whether an applicant in a class action should be granted access to the respondent's insurance policy.

Beach J refused to order disclosure, citing the following reasons:

  • the court's protective role under Pt IVA of the Act should not be used to create an asymmetric commercial advantage for one party;
  • the defendant having a deficient balance sheet, and the question of whether it is worth pursuing a proceeding, is not compelling enough to justify the exercise of the power; and
  • the primary and excess insurer had denied coverage so access to the insurance policies would be of limited benefit.

The decision provides useful guidance on when a court may order disclosure of insurance documents in a class action.

Facts

Davantage Group sold extended warranties on second-hand vehicles to Mr Evans and approximately 27,000 individuals.  It is alleged that the warranties gave Davantage absolute discretion to reject customer warranty claims. In preliminary proceedings, the Federal Court found that the warranties were illusory contractual promises and were therefore invalid.

This decision concerned an application for discovery of all relevant insurance policies of Davantage and its parent company as well as all communication regarding the insurer's position on indemnity. The plaintiff's lawyers wanted these documents as Davantage did not appear to have the financial capacity to withstand the likely judgement in this case, estimated to be over $47.6 million. The value of insurance and whether it covered the losses claimed was submitted as a relevant factor in assessing the reasonableness of any settlement offer made by Davantage.  The primary insurer had originally admitted the policy responded to certain losses but had withdrawn its provisional grant of indemnity. The excess layer insurers (represented by Clyde & Co partner Nicole Wearne) had denied indemnity.  

The applicant argued that the documents should be disclosed to assist with:

  • determining the viability of the claim as the respondent may not be able to meet the judgment amount;
  • informing mediation and litigation strategy;
  • determining if the insurer should be joined to the proceedings;
  • informing themselves if it was appropriate to settle, and if so, for what amount; and
  • the approval of any settlement by the court.

In making these arguments the Applicant relied upon Thorn [1] as authority that section 33ZF of the Act empowered the court to make the orders sought even if the documents were not relevant to the facts in issue.  Thorn was a class action against Radio Rentals for unconscionable conduct. The applicant sought production of the insurance documents of Thorn's former CEO.  In Thorn, the insurer was a party to the proceedings and it opposed production requesting that the notice be set aside as the documents were not relevant to any facts in issue. In that case the director of Thorn had foreshadowed an application to file a cross-claim against the insurer for indemnity.  Justice Gleeson ordered the insurance documents to be produced, despite the advantage this gave the applicant, it was necessary to ensure that justice was done in the proceeding.   In Thorn the insurer did not resist production on the basis that production for mediation was not a legitimate purpose and it had conceded there was an arguable case against it for indemnity.

Decision and Analysis

Beach J determined that the insurance documents were not relevant to the determination of any facts in issue and that none of the traditional exceptions, such as insolvency applied.

The High Court's reasoning in Brewster [2] was relied upon to rebut the Thorn authority. Brewster was decided after Thorn and provides authority that section 33ZF of the Act cannot be used to provide a wider scope of power than the other provisions in the Act, and the conventional position at law. Rather, the section's purpose is to support any procedural orders that are necessary. Further, it was emphasised that the powers of the court should be used to create a just outcome for all parties. Beach J found that s33ZF(1) cannot be used to empower the court to order disclosure of insurance documents.

Beach J also held that modern case management practices did not provide him with a source for the power to order production of the insurance policies. He rejected the suggestion that the applicant might join the insurers to the proceeding utilising section 4 and 5 of the Civil Liability (Third Party Claims Against Insurers) Act, noting that the Federal Court was exercising Victorian jurisdiction and there was real doubt that the NSW Act applied.

Importantly the judge noted the applicant is a stranger to the policies. Davantage retained lawyers capable of advising it on its rights and prospects of challenging the denial of indemnity by the insurers. The question of availability of insurance was likely to be ventilated between the parties to the contracts. If the applicant required access to the policies to determine whether to bring proceedings against the insurers, the appropriate mechanism was preliminary discovery.

Beach J found that while the insurance documents may assist in mediation or litigation strategy, it was not a compelling enough reason to justify providing such a powerful commercial advantage to one party [3]. Access to the insurance documents was not necessary for the approval of a settlement, and if it was necessary, they could be accessed confidentially through the court's procedures, including by the court on its own motion.  

In addition to Davantage and Thorn, the Queensland Supreme Court in Mallonland [4] has also considered the issue of whether insurance documents can be subpoenaed in a class action. Justice Mullins ultimately distinguished Thorn ordering that the insurance documents should not be disclosed as the defendant had a secure financial position. In Davantage the applicant unsuccessfully sought to distinguish Mallonland on the basis that Davantage's financial position was not secure.  

Three recent superior Court decisions in three jurisdictions have considered the discovery of the defendant's insurance documents. The decisions show conflicting reasoning as to whether the commercial advantage gained through having access to the defendant's insurance documents should be bestowed on an applicant.  Two of the cases were decided before the High Court's determination of the extent of the Court's case management power under s33ZF(1). The High Court's statement Brewster, that the power in s33ZF(1) is supplementary and should not be given a broad mandate, is likely to assist insurers in resisting similar applications. Without immediate appellate authority specifically addressing the issue of disclosure of insurance documents there remains some controversy.

Key Takeaways

The ruling is a win for insurers. However, it does not completely lay the controversy to rest.

If you as an Insurer are subpoenaed to produce insurance documents (including correspondence) you may be able to resist the subpoena if the case does not fit the 'traditional' circumstances where insurance documents are discoverable. These 'traditional' circumstances are:

  • the respondent is insolvent;
  • the insurer is joined to the proceeding; or
  • the applicant is a shareholder and utilises their rights under section 274A of the Corporations Act

An applicant will not be granted access to insurance documents simply because having access to the documents:

  • can inform mediation or litigation strategy;
  • will help determine if the insurer should be joined to the proceeding; or
  • will assist in determining if pursuing a claim or settlement is viable.

The court's case management functions will not be used to create an asymmetrical commercial advantage.

The ruling does not mean that insurance documents cannot be obtained outside of 'traditional circumstances', only that it is unlikely that they can be obtained by subpoena or discovery obligations of an insured party. Beach J confirmed that the proper way to obtain insurance documents would be through preliminary discovery. Such applications may not provide significant relief to plaintiff lawyers and litigation funders, as Beach J also cautioned that an application for preliminary discovery against insurers in these circumstances would need to overcome several legal and practical issues and would likely face significant difficulty.

If you wish to discuss specific training on managing class actions risks, please contact Gareth Horne (Sydney) or Nicole Wearne (Melbourne).


[1] Simpson v Thorn Australia Pty Ltd t/as Radio Rentals (no 4) [2019] FCA 1229.  
[2] BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall (2019) 94 ALJR 51.
[3] The funder had refused to disclose commercial terms including funder obligations, funding premium control, settlement, security for costs and termination were all redacted.
[4] Mallonland Pty Ltd & Anor v Advanta Seeds Pty Ltd [2019] QSC 250.

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