Repaying an insurer? Shaw thing! Bupa Australia Pty Ltd v Shaw

This article was first published in the Lexis Nexis Australian Insurance Law Bulletin (newsletter) 2013.Volume 29 no 2

The recent decision of Almond J of the Supreme Court of Victoria in Bupa Australia Pty Ltd v Shaw1 provides some useful commentary on the principles of the right of subrogation, the principles of policy interpretation, and the principles that apply when an insurer makes good faith payments under a policy of insurance. The case also dealt with an issue that arose in relation to interpretation of a clause in a Deed of Release that clearly contained a typographical error.

Applying the relevant principles, the court found that the insurer had not lost its right of subrogation; that the policy should be given a narrow, purposive and commonsense interpretation; and (in obiter) that an 1896 decision of the Privy Council in relation to good faith payments by insurers remains good law. In addition, the court found that the drafting error in the Deed of Release should be remedied in favour of the plaintiff, as it provided the most sensible result.

In the end result, Bupa was permitted to recover the whole of the amounts it had paid in respect of an insured.

FACTS

A Bupa Australia Health Pty Ltd2 (Bupa) insured, Mr Shaw, underwent surgery in September 2005. The surgery, originally to remove a tumour from the lining of the oesophagus, resulted in Mr Shaw undergoing a full gastrectomy, as a result of which he required ongoing treatment.

Mr Shaw claimed hospital and treatment expenses under his Bupa policy. Bupa ultimately paid approximately $340,000 for the benefit of Mr Shaw.

Mr Shaw commenced court proceedings against his surgeon for medical negligence (the negligence proceeding). He sought damages to cover past and future care, as well as damages to cover his medical and like expenses. The claim in relation to medical and like expenses included expenses Mr Shaw had claimed from Bupa.

In order to particularise Mr Shaw's claim in the negligence proceeding, his solicitors, Arnold Thomas & Becker (ATB), wrote to Bupa in March 2010 requesting details of all medical expenses Bupa had paid on behalf of Mr Shaw in relation to the surgery.

Bupa responded a few days later, providing ATB with an itemised list of the relevant expenses paid (the Bupa payments).3 It also asked to be kept informed of the proceeding, as any benefits that related to Mr Shaw's claim would have to be refunded to Bupa in the event that Mr Shaw's claim was successful.

Mr Shaw died on 2 May 2010, following which his wife, as executrix, continued the negligence proceeding on behalf of the estate (together with a joint executor). ATB remained the solicitors in the negligence proceeding.

The negligence proceeding was settled for $400,000 plus party/party costs in December 2011. Bupa was not consulted prior to, or notified of, the settlement. No refund of the Bupa payments was made to Bupa.

Bupa emailed ATB in February 2012, enquiring as to the progress of the negligence proceeding, and was informed by ATB that the proceeding had settled in December 2011 and that "[a]s part of the terms of settlement the Insurer of the [surgeon had] agreed to indemnify [the estate] against repayment to Bupa". The Deed of Release, which was later provided to Bupa, contained a clause to the effect that the surgeon would indemnify the estate in the event of any claim, demand or recovery action by Bupa. ATB recommended that Bupa contact the solicitors for the surgeon's insurer in relation to the refunding of the Bupa payments.

Bupa demanded repayment of the Bupa payments from the estate. The estate denied any liability to repay Bupa. (In practice, the situation was that effectively the insurer of the surgeon became liable to repay the Bupa payments pursuant to the indemnity provided in the Deed of Release, so, although the estate was making the denial, in reality the surgeon's insurer was refusing to refund the Bupa payments.)

Bupa commenced proceedings against the executors of the estate. The solicitors for the surgeon's insurer acted on behalf of the estate in defending the Bupa proceeding, pursuant to the indemnity in the Deed of Release.

QUESTIONS FOR THE COURT

The court was effectively called upon to answer the following questions.

Was Bupa entitled to exercise its right of subrogation in respect of the Bupa payments? If "yes" to question 1, was Bupa's right of subrogation prejudiced by the terms upon which the negligence proceeding was settled? If "yes" to question 1, was Bupa prevented from exercising its right of subrogation as a consequence of its own conduct? THE ARGUMENTS

Bupa argued that it was entitled to exercise its right of subrogation in respect of the Bupa payments. The relevant equitable principles governing the doctrine of subrogation are uncontroversial and well established.4

Bupa argued that the doctrine of subrogation...