Top 10 Potential Coverage Issues for the Banks Royal Commission
The Federal Government has, some might say kicking and screaming along the way, agreed to establish the long awaited ‘Banks Royal Commission’ with Mr Kenneth Hayne, former High Court judge, appointed as Commissioner.
Armed with $75 million in public funding, the Royal Commission has been given 12 months to investigate and report on misconduct in the financial services sector. At this stage, it is anticipated that the Royal Commission will start hearing evidence in February 2018.
While the exact scope of the inquiry has yet to be finalised, it is expected that the Royal Commission will target specific perceived problem areas in the financial services sector such as financial planners, consumer credit, life/TPD insurance, mortgage lending and broking. Given the number of businesses and individuals that may be impacted by the Royal Commission, we anticipate that a broad range of professional indemnity, management liability and D&O policies will be called upon to meet inquiry and representation costs (initially) and subsequently defence costs.
Given the broad scope of the Royal Commission and the large numbers of businesses and individuals that may be the subject of its attention, it is difficult to anticipate the exact types of coverage issues which will arise.
As a starting point, however, insureds and insurers would do well to consider the following general issues:
|Notifications under Section 40||In order for section 40 of the Insurance Contracts Act 1984 (ICA) to intervene, the notification must be made in relation to “a claim against the insured in respect of a loss suffered by some other person”. A notification regarding an inquiry per se (i.e. the loss being only the payment of the insured’s own Defence Costs) may not be sufficient to entitle an insured to rely on section 40 of the ICA to remedy a late notification.|
|Claim or Loss||It is not unusual for policies to carve out ‘inquiry costs’ from the definition of Claim or Loss (usually on the basis that there is no demand for compensation by a Third Party). Insureds should look to whether they have standalone inquiry cover.|
|Standalone Inquiry Extension||While many policies provide specific cover for inquiry costs, there is usually no standard wording. Such cover is typically triggered by the receipt of a notice to attend an inquiry during the Policy Period and in relation to the insured’s business (management liability or D&O policies) or profession (professional indemnity policies). Such cover is typically sub-limited.|
|Related Claim||If the subject matter being investigated by the Royal Commission in relation to a specific entity or individual relates to an earlier notified claim or circumstances, an earlier policy may apply rather than a current policy (also consider whether the Prior Known Claims exclusion may apply under the current policy).|
|Aggregation||If multiple insureds are called to give evidence, insurers and insureds will need to consider whether a single or multiple excess and limit apply. Usually, for matters to be aggregated, there must be sufficient commonality between the claims (such as a single originating cause).|
|Run-Off||Under some policies, past/retired individual insureds may have lifetime or extended Run-Off cover afforded to them which may allow them to claim under those policies.|
Policies will typically require that any defence, inquiry and/or representation are ‘reasonably incurred’ (both in terms of the hourly rates applied, the amount of work carried out and the reasonableness of having undertaken that work).
To avoid disputes down the track when reimbursement is sought, insureds (and/or their brokers) should always seek approval from their relevant insurer prior to appointing defence counsel. Some policies provide automatic consent subject to the Insured appointing a panel firm as defence counsel.
|Prior Known Claims Exclusion||It is important for both insurers and insureds to consider whether the substance of inquiries by the Royal Commission can be attributed to earlier notified claims or notifications. This is important not only for the potential application of the prior known claims/circumstances exclusion, but may also be relevant to an insured who has previously notified under another policy.|
|Retroactive Date Exclusion||Consider if the substance of the matter being investigated by the Royal Commission occurred prior to the relevant Retroactive Date (if so consider if the matter was subject to notification under another policy).|
|Professional Services Exclusion||It is not unusual for Management Liability and D&O policies to contain Professional Services exclusions. Given the substance of the Royal Commission centres on the conduct in the financial services sector, there may be arguments that the services under investigation, or requiring an insured’s attendance, may be professional in nature.|