Insurer's Authority to Settle Claim Overturned by NSW Court of Appeal

The Court of Appeal overturned a summary judgment, allowing the defendant's appeal based on the insurer's authority to settle claims. The insurer's authority must be clear and not misused to the detriment of the insured, as ruled by the NSW Court of Appeal.

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: [NAME] v [COMPANY] [2011] NSWCA 385 Hearing dates: 2 December 2011 Decision date: 02 December 2011 Before: [NAME] at [1], Macfarlan JA at [20], Meagher JA at [21] Decision: Oral application to revoke the leave to appeal dismissed. Appeal allowed. Orders 1 and 2 made on 22 October 2010 set aside, and in lieu thereof it ordered that the plaintiff's notice of motion be dismissed. Order 4 made on 22 October 2010 set aside, and in lieu thereof the plaintiff ordered to pay the defendant's costs of the notice of motion. As to the costs on appeal, respondent ordered to pay the appellant's costs including the costs of the leave application. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: PROCEDURE - summary judgment - whether arguable defence - no question of principle. INSURANCE - defendant's [NAME] settled claim against him - whether bound defendant to pay settlement sum - policy clause gave authority to settle - payment by [NAME] alone - settlement released another party as well as [NAME] - whether misuse of authority whereby [NAME] not bound - arguable defence. Legislation Cited: Damage by Aircraft Act 1952 (NSW) Damage by Aircraft Act 1999 (C'th) Cases Cited: Beacon Insurance Company Ltd v Langdale (1939) 4 All ER 204; Groom v Crocker (1939) 1 KB 194. Category: Principal judgment Parties: [NAME] - Appellant [COMPANY] - Respondent Representation: D A Lloyd - Appellant D Stanton - Respondent [NAME] - Appellant [NAME] - Respondent File Number(s): CA 2010/00387379 Decision under appeal Citation: [COMPANY] v [NAME], unreported. Date of Decision: 2010-10-22 00:00:00 Before: Robison DCJ File Number(s): DC 2009/338569

Judgment 1GILES JA: This is an appeal by the defendant from summary judgment for $73,408 plus interest ordered against him in the District Court. Leave to appeal was granted on 27 May 2011. 2The defendant was the owner of an aircraft VH-ZNZ. On 5 April 2006, VH-ZNZ crashed at [NAME], when being piloted by [NAME] on a test flight after repairs. [NAME] was killed. Part of the aircraft hit another aircraft owned by the plaintiff, VH-MPC, standing on the ground at the airport, and damaged VH-MPC. 3Both owners invoked their insurance. The plaintiff's [NAME], a [COMPANY], indemnified the plaintiff and in the exercise of it subrogation rights made a claim upon the defendant which was dealt with by his [NAME]. After a lengthy period of negotiation, an agreement was reached between the loss adjustors for each [NAME]. Two documents dated 26 September 2007 were signed on behalf of the plaintiff, one dealing with loss of use of VH-MPC and the other dealing with the damage to it. 4The latter document was in the terms - " PARTIAL RELEASE IN CONSIDERATION of the payments of SEVENTY FIVE THOUSAND NINE HUNDRED AND EIGHT DOLLARS (the agreed sum) to [COMPANY] 24 [PHONE] - ("the claimant") of [NAME] by and on behalf of [NAME], NSW ("the owner") the claimant hereby accepts the agreed sum in full and final settlement and satisfaction of its claim (other than for loss of use) and release and discharges the owner, his [NAME] and the [NAME] from any and all claims, actions, suits or demands of whatsoever nature that the claimant may have, would or might have had for the cost of repairs to Piper Seminole aircraft Regn VH-MPC the property of the claimant as a result of the impact by Lancair aircraft VH-ZNZ on 5 April 2006 at [NAME] ("the incident"). The claimant reserves its rights in all respects with regard to a claim for loss of use. The agreed sum is being paid without admission of liability and the terms of this settlement are to remain confidential. The claimant irrevocably directs that the agreed sum be paid as follows: a) [COMPANY] $73408.00 b) The claimant $2500.00 and receipt by them of the specified amounts constitutes a full discharge of the owners obligation for payment of the agreed sum under the terms of this Release. The person signing this Release warrants that he is authorised to sign for and on behalf of the claimant." 5I will refer to this as "the release." The $2,500 appears to have been an excess payable by the plaintiff under its insurance. 6The sum of money payable under the first document was paid, as was the $2,500 the subject of the release. The $73,408 was not. There is no evidence, but we were told that [NAME] was not in a position to pay it. 7The plaintiff, in reality the [COMPANY] exercising its subrogated rights, looked to the defendant. It brought proceedings in the District Court in which it claimed $73,408, first as damages pursuant to the defendant's liability under the Damage by Aircraft Act 1999 (C'th), and secondly on an agreement found in a number of documents but essentially in the release. As to the contractual claim, the defendant filed an uninformative defence saying that he "did not agree to anything with the Plaintiff in relation to the Plaintiff's alleged claim." 8The defendant did not dispute that, on the wording of the release, it would constitute an agreement to which he was a party under which $73,408 was payable to the plaintiff (more specifically, to the [COMPANY] at the plaintiff's direction). At least as clarified on appeal, the sole issue before the judge had been and the sole issue on appeal was whether the defendant's [NAME] had authority to enter into the release on his behalf. 9The judge correctly directed himself that summary judgment should be granted only where the defence was so obviously untenable that it could not possibly succeed or was manifestly groundless. His Honour found that "there is no triable issue," stating that the evidence "is really clear cut" and "is compelling." Unfortunately, his Honour did not identify the evidence of which he took this view. 10Before the judge the defendant's policy was not in evidence. The plaintiff had required its production under a notice to produce, but there was objection to production on procedural grounds and the objection was upheld. The documentary evidence before his Honour did not permit a finding to the requisite satisfaction that the [NAME] had been authorised to enter into the release. Any inference available from the negotiation and signature of the release was insufficient. The policy was not in evidence. Other material on which the judge could have come to his conclusion could be found in admissions and statements made by the solicitor appearing for the defendant. The height to which that came was that pursuant to the defendant's insurance, the [NAME] would indemnify him in respect of any claims for damages arising from the use or operation of his aircraft; that the [NAME] had a right under its policy to enter into negotiations to settle the claim; and that the negotiations which there was no reason to dispute took place were between agents or agents and employees of the respective insurers. That, however, fell short of authority from the defendant to settle the claim against him by entry into the release. Summary judgment should not have been granted. 11Counsel for the parties recognised the need to address the real dispute. The policy was a key matter in whether the release was entered into with the defendant's authority. Counsel commendably obtained instructions whereby the plaintiff made an oral application for revocation of the grant of leave to appeal, the policy was tendered in that application, and submissions were presented going to whether the policy was a source of authority. If it obviously was, the result to which the judge came was correct. It would then be open to revoke the grant of leave to appeal and, the real dispute having been identified and dealt with, the parties would be saved further litigation and expense. 12The policy as tendered did not include the schedule, but it was agreed that it contained the wording for the insurance responding to the plaintiff's claim. Clause 5 in Section XI provided - "5. The company shall be entitled (if they so elect) at any time and for so long as they desire to take absolute control of all negotiations and proceedings and in the name of the [NAME] to settle, defend or pursue any claim." 13The plaintiff relied on this clause, which in its terms gave [NAME] authority to enter into the release on the defendant's behalf: see Beacon Insurance Company Ltd v Langdale (1939) 4 All ER 204. The defendant submitted, however, that there was a further question of the application of the clause to the settlement recorded in the release. He relied upon Groom v Crocker (1939) 1 KB 194. 14In that case the policy provided that the [NAME] should "have absolute conduct and control of all or any proceedings against the [NAME]." The [NAME] admitted liability in negligence on behalf of the [NAME], although knowing that he had not been negligent. Sir Wilfrid Greene MR said at 203 - "The question therefore is, Was the admission of negligence on which in the circumstances the insurers were entitled under the policy to require the [NAME] to make? In my opinion clearly not. The right given to the insurers is to have control of proceedings in which they and the [NAME] have a common interest - the [NAME] because he is the defendant and the insurers because they are contractually bound to indemnify him. Each is interested in seeing that any judgment to be recovered against the [NAME] shall be for as small a sum as possible. It is the [NAME] upon whom the burden of the judgment will fall if the insurers are insolvent. The effect of the provisions in question is, I think, to give to the insurers the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be the common interest of themselves and their [NAME]. But the insurers are in my opinion clearly not entitled to allow their judgment as to the best tactics to pursue to be influenced by the desire to obtain for themselves some advantage altogether outside the litigation in question with which the [NAME] has no concern. This is what was done in the present case." 15The defendant submitted that the present case was arguably analogous. Under the release he, the defendant, would have to pay the $73,408; he alone would have to pay that sum. He would obtain a release, but so also would the estate of [NAME]. The estate would pay nothing. If [NAME] as pilot had been liable and had been covered under the same policy, the estate was benefited at the defendant's expense. If [NAME] as pilot had not been covered under the same policy, the misuse of the authority under cl 5, it was submitted, was all the greater. 16The defendant said that it was material to whether there had been this misuse of the authority under cl 5 to investigate whether he or [NAME] had both incurred liability for, or their respective responsibilities for, the damage suffered by the plaintiff. While under the Commonwealth Damage by Aircraft Act they might have incurred equal liability, that depended on whether [NAME] was Commonwealth territory. It was by no means clear that they would have incurred equal liability if it was not Commonwealth territory and the Damage by Aircraft Act 1952 (NSW) applied. There was no evidence that the airport was Commonwealth territory, which required investigation, and if it was not there were further issues to be raised pursuant to s 2(3) of the State act concerning whether the aircraft had been "bona fide demised, let or hired out" by the defendant. 17In my opinion, it cannot be said that this response by the defendant is unarguable. It raises issues which in my view should be permitted to go to trial.

Accordingly, it seems to me that it cannot be said that cl 5 is so obvious a source of authority that the judge came to the correct result, whereby that the grant of leave to appeal should be revoked. 18Returning then to the judgment below, his Honour was in error because summary judgment should not have been granted. It follows that orders should be made whereby the oral application to revoke the leave to appeal should be dismissed and the appeal should be allowed. Orders 1 and 2 made by the judge on 22 October 2010 should be set aside, and in lieu thereof it should be ordered that the plaintiff's notice of motion be dismissed. 19The judge made an order as to costs in order 4. However, the question of costs is something on which we should hear the parties. 20MACFARLAN JA: I agree. 21MEAGHER JA: I agree with [NAME]. [Counsel addressed on costs] 22GILES JA: In our view there is no reason to depart from the ordinary consequences of success and failure, so order 4 made by the judge on 22 October 2010 should also be set aside and in lieu thereof the plaintiff should be ordered to pay the defendant's costs of the notice of motion. As to the costs on appeal, the respondent should be ordered to pay the appellant's costs including the costs of the leave application.

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