From Inquiry to Claim: Insurance Risks from the Victorian Royal Commission

The Royal Commission into the Integrity of Major Public and Civil Infrastructure Projects in Victoria may create significant legal costs for businesses and individuals.

One of the first questions should therefore be: does your insurance respond?

A person or business required to produce documents, attend an interview or appear at a public hearing may have insurance available for some or all of the legal costs involved. The answer will depend on the particular policy wording, the capacity in which the insured was acting, the conduct being investigated and when the relevant circumstances were notified.

1. Start by identifying potentially relevant policies

Many policies, particularly professional liability polices offer automatic extensions to a claims made policy, usually called Inquiries or Investigations cover. This extension provides defence costs for the legal representation to deal with the Commission’s investigations and any hearing. The cover is for the reasonable legal costs of assisting a person in responding. That cover usually extends to a broad range of investigations. Cover will include counsel (a barrister) representing you at any hearing, which is often a costly component of legal representation costs.

Persons will need to identify what type of policy they hold, for example is its professional liability, directors and officers, management liability, statutory liability, employment liability policy?

It will be important to identify in what capacity a person was acting and what conduct is the subject the commission’s investigation.

For example:

• An engineer or architect providing professional services;
• A project manager or superintendent managing a construction project;
• A construction contractor, building a project or subcontracting the work to others;

2. What capacity were you acting in?

Some conduct may be outside the coverage of the policy or expressly excluded. It’s important that persons review their policies with their professional advisors such as insurance brokers and lawyers.

Generally, insurance cover will be linked to those professional services or business activities that were agreed to be covered under the policy (those agreed activities are usually listed in the policy schedule). As a simple example, if the persons’ conduct being investigated by the Commission is the alleged conduct in acting as a labour hire company, but that was not a profession or business nominated in their policy, cover may not be available.

However, in the labour hire example, a person should not be dissuaded from notifying their insurer. Questions of what is and what is not covered by a policy can be complex, involving factual and legal issues- professional advice should always be sought.

Inquiries cover is usually subject to a sublimit under the policy- so that the defence costs cover is capped at a limit, usually well below the limit of cover for civil claims covered under the policy. (Subject to the wording of a policy, the mere investigation by the Commission is unlikely to be a claim under the policy, so it will not trigger cover under the principal claims insuring clauses of a policy).

3. Notify early, but do it carefully

In the context of insurance if you think you may be the subject of the Commission’s attention, the first step is to speak to your insurance broker or seek legal advice. Usually, a person will be encouraged to notify their insurer of relevant facts that should assist in triggering cover under their policy. There are often different prerequisites for cover under different sections of a policy, so it’s important that as much of the known facts as possible are notified.  If you have a reasonable belief, based on the known facts that you are likely to be requested to produce documents or be called to give evidence you should consider notifying your insurer, or ask you broker to do so immediately.

It’s important to notify your insurer as soon as possible as cover will usually be determined by the policy which was in place when knowledge of or notice of an investigation or hearing was given by the Commission.

4. What if the conduct may involve dishonesty or criminal conduct?

What if you believe that your business, or your employees may have acted criminally or dishonesty? Should you be concerned about telling your insurer? Should it be assumed, you will not be covered under a policy? This is a legitimate concern but coverage under a policy for alleged criminal or dishonest conduct is a complicated matter. An insured should not automatically assume legal representation that may involve such conduct is not covered. It is best to get early legal advice on this issue and seek that advice in circumstances where those communications with lawyers and any advice given will be the subject to legal professional privilege and remain confidential.

There any other sound reasons why a person or business should notify their insurer as soon as possible, if they think their activities may be the subject of discussion or commentary at the Commission, even if they think their role may not be specifically investigated. It is often difficult to know what evidence will unfold at the Commission. It is a wide-ranging inquiry, and it is likely many persons and businesses will be investigated. The evidence that unfolds could reveal information that forms the basis of subsequent civil claims against a person or business for negligence, breach of contract, misleading and deceptive conduct or breaches of statutory obligations. Criminal charges may be a possibility.

5. The insurance issue does not end with the Royal Commission

An investigation like the Commission can often unearth unanticipated or generally unknown facts that expose persons to a civil liability. We know from previous inquiries and royal commissions the facts revealed at an inquiry can trigger other investigations and claims long after an inquiry is finished.

So, not only will a person face inquiry costs, but they may ultimately face civil claims for damages after the commission is finished for which they will want cover under their liability policies. It is best to take all reasonable steps to ensure you have cover for these eventualities. Early notification does not automatically mean a person will be covered for a subsequent claim, but it is a prudent first step.

In conclusion, if you have concerns about being the subject of the Commission’s interest, speak to your legal advisers, don’t leave it to the last minute.  Your lawyers will need time to review documents and speak to your people to provide advice and assist you with a response and any coverage issues with insurers.

If you get a request for information, take it seriously – put in a plan to assemble the information and respond within the time allocated – and notify your insurer.