Insurance Law

Authors: Partner Greg Stirling, Associate Hayley Nankivell, and Solicitor Hannah Hewitt

The New South Wales Supreme Court recently considered the complexities of limitation arguments in the context of a professional negligence claim against an insurance broker in Bogovic v Aon Hewitt Financial Advice Limited [2024] NSWSC 668.

Background

The decision concerns a notice of motion filed by the plaintiff for leave to file an amended statement of claim and by the defendants for summary dismissal of the proceedings on the basis the plaintiff’s claims were statute barred.

The plaintiff commenced the proceedings on 30 June 2023, alleging the defendants acted negligently on various dates between May 2008 and February 2016 by failing to exercise reasonable care in providing financial planning and insurance advice. In particular, the plaintiff alleged the defendant recommended he obtain total and permanent disability (TPD) cover of an inadequate amount.

From 1 April 2017, the plaintiff was unable to work due to various medical conditions. On 20 September 2023, his insurer formed the opinion he was totally and permanently disabled and paid him benefits of $44,896.40, stating the date of loss as 20 May 2020. The plaintiff alleges that had he been appropriately advised by the defendants, he would have maintained an appropriate (albeit unspecified) sum of TPD insurance and received a higher payout.

The parties’ positions

The defendants applied for summary dismissal of the proceedings on the basis the claim was statute barred. The defendants argued that any economic loss was first suffered when the plaintiff lost the opportunity to obtain more advantageous TPD cover – that is, when the plaintiff’s medical condition progressed to the point where he became incapacitated for work, being 1 April 2017. After that point, the defendants argued it was not possible for the plaintiff to obtain TPD cover for that condition at an affordable premium.

The plaintiff argued that measurable economic loss was not suffered until all of the conditions specified in the policy entitling the plaintiff to the payment of the TPD benefit had been satisfied. The plaintiff argued that did not occur until either:

1. September 2023, being when the insurer formed the opinion that the plaintiff was totally and permanently disabled; or
2. At the earliest, May 2020, being the date of loss as ascribed to the claim under the policy.

The plaintiff’s counsel placed emphasis on the High Court’s decision in Commonwealth v Cornwell1 as providing an analogy. That case concerned negligent advice which was provided to the plaintiff in 1965 to the effect that he was ineligible to join a particular superannuation scheme. While the plaintiff subsequently joined a different scheme in 1987, that scheme was less advantageous to him. The plaintiff retired on 31 December 1994, and alleged:

1. His existing superannuation entitlements were less advantageous than those that would have been available to him had he been correctly advised of his entitlement to join the extant scheme in 1965;
2. The cause of action for economic loss for negligent advice accrued upon his retirement.That argument was accepted by the plurality of the High Court, holding it was only upon the plaintiff’s retirement that he became entitled to a benefit which was limited or diminished. Before that, the Court held the loss was only prospective until the happening of various statutory contingencies which had to be met for the respondent to be entitled to a statutory benefit.

The Court’s decision

The Court dismissed the defendants’ application for summary dismissal and granted the plaintiff leave to file and serve the amended statement of claim. In reaching that conclusion, the Court noted that:

1. The question is whether a maintainable claim is pleadable rather than pleaded. The Court therefore focused on the claim as pleaded in the proposed amended statement of claim;
2. Identification of the date upon which a cause of action accrued is a question of fact, may be elusive and will vary from case to case;
3. As outlined by the High Court in Wardley Australia Limited v Western Australia2, there must be actual damage, as opposed to only prospective or contingent loss. The Court also had regard to the High Court’s comments in Wardley regarding the undesirability of limitation questions being decided in interlocutory hearings, except in the clearest of cases, given there is generally insufficient information about the damages sustained by a plaintiff and the circumstances in which that damage was sustained;
4. As outlined by the New South Wales Court of Appeal in Segal (t/as Segal Litton & Chilton) v Fleming,3 there is a significant difference between the loss of a chance and the chance of a loss. In that case, the Court held that:
   
   1. Where a chance is lost, it will never be known how things would have turned out and therefore the only possible compensation a plaintiff can obtain is for the value of the chance itself. Accordingly, it is reasonable to require a plaintiff to commence proceedings within the limitation period once the chance has been lost;
   2. On the other hand, where a person incurs a chance, even a substantial chance, of suffering a loss, they may ultimately suffer no loss. As such, so long as there is some appreciable chance that no loss will be suffered, it is unreasonable to require a plaintiff to commence proceedings and unreasonable to award damages against a defendant. However, once there is actual loss, even if there is also the chance of further loss, a plaintiff must commence proceedings within the applicable limitation period.

Having regard to the matters outlined above, the Court was not satisfied there was a clear case for summary dismissal. In this respect, the Court referred to the necessary high degree of certainty required for summary dismissal and held that upon a full examination of the facts it may be found that at the time the plaintiff stopped working there was still come appreciable chance that no loss would be suffered. If so, the cause of action would not be complete until measurable or actual loss was suffered.
The Court went on to state that, “The prospective loss constituted by the TPD cover arranged for the plaintiff by the defendants, in the words of the plurality in Cornwell, at least arguably, “was only in prospect” and “matured into actual loss only” when he satisfied the necessary conditions of the policy arranged on his behalf by the defendants to qualify for the payment of the TPD benefit.” (our emphasis)

In forming that view, the Court had regard to the New South Wales Court of Appeal’s description of TPD cover in Onepath Life Ltd v Standley [2020] NSWCA 321, being “a form of contingency insurance which provides no indemnity but instead a payment upon the happening of a contingent event”.

Conclusion

This decision serves as a useful reminder of the complexities and challenges that can arise when determining the accrual of a cause of action for pure economic loss in professional negligence cases. The Court’s decision highlights the importance of carefully considering the specific facts of each case when applying the legal principles to determine when a loss becomes actual, rather than merely prospective or contingent. While the case does not provide definitive answers, it does offer valuable guidance on the approach to be taken when faced with similar circumstances.

The decision also underscores the difficulties defendants face in seeking summary dismissal of claims based on limitation periods. The Court’s reluctance to make findings on complex factual matters at an interlocutory stage is a clear message that other than in the clearest of cases, defendants will generally need to wait until trial to resolve disputes about when a cause of action accrued.

Finally, the case also highlights the difficulty surrounding the application of limitation periods to claims involving the loss of a chance. The Court’s reliance on the distinction between the loss of a chance and the chance of a loss, as outlined in Segal, provides some clarity but further development of this area of law may be necessary to provide more definitive guidance for practitioners.

1 (2007) 229 CLR 519; [2007] HCA 16. 2 (1992) 175 CLR 514 [527]. 3 [2002] NSWCA 262.