Federal Court orders disclosure of class action respondent's insurance policies, affirming a recent trend

In brief 5 min read

In the Radio Rentals Class Action¹, the Federal Court of Australia has ordered - over the objection of an Insurer - that a respondent disclose its insurance policies to the applicant.

This decision confirms a recent trend within the Federal Court for judges in class actions to order respondents' liability insurance policies to be produced to applicants even though such policies are not relevant to the disputed issues in those proceedings. It also clarifies the factors the court will take into account when considering whether to make such orders.

Key takeaways

• It may become routine for class action applicants to seek and successfully obtain production of respondents' insurance policies (most likely in cases where there is a real question about the ability of the respondent to satisfy the judgment).
• This could also apply to applicants seeking documents concerning an Insurers' position on indemnity, adding further pressures to the already strained Side C D&O market in Australia.
• The rationale applied in this instance in favouring disclosure may also apply in regular (non-class action) proceedings.

Previously established principles in relation to the disclosure of insurance policies

Historically, plaintiffs have been able to compel the production of defendants' insurance policies in limited circumstances, including: 

• where plaintiffs have a statutory cause of action against defendants' insurers, for example, under the Civil Liability (Third Party Claims Against Insurers) Act²;
• when plaintiffs are seeking leave to proceed against companies in administration; and
• where plaintiffs are shareholders in the company and exercise their rights under section 274A of the Corporations Act to inspect the books and records of a company, including insurance policies.³

Absent those circumstances, access to liability insurance policies has traditionally been refused for the reason that, as stated by Justice Ryan in the Centro Class action:

the existence of policies of insurance held by a party or the details of such policies will not normally be relevant to the proof of any cause of action pleaded against that party.

That is despite arguments made in the past (including in the Centro Class action) that the disclosure of those policies would assist the evaluation of settlement proposals and the assessment of whether a proposed settlement is reasonable.

However, more recently, some Federal Court judges have ordered that respondents' liability insurance policies be disclosed. For example, Justice Lee in the Quintis Class Action ordered the disclosure of insurance policies pursuant to section 33ZF of the Federal Court Act. However, in that case, the orders were made by consent and without published reasons.

Simpson v Thorn Australia Pty Ltd trading as Radio Rentals (No 4) [2019] FCA 1229

In the pending class action against Radio Rentals (Thorn) - in which damages of more than $100 million are being claimed - the applicant sought production from Mr Marshall (the second respondent and former CEO of Thorn) (the Notice) of a range of documents relevant to his insurance position. Those documents included (among others) the Directors' and Officers' insurance policies procured by Thorn Group pursuant to its deed of access and indemnity with Mr Marshall. 

An Insurer intervened and sought that the Notice be set aside, contending it had no legitimate forensic purpose. Against the possibility that the court might order the Notice be set aside, the applicant's Senior Counsel applied orally for an order to produce the documents pursuant to s33ZF of the Federal Court Act. Section 33ZF(1) provides:

In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.

In contrast to Justice Ryan in the Centro Class Action, Justice Gleeson ordered that the defendant produce the insurance policies. Her Honour noted that s33ZF was not considered by Justice Ryan in his decision. 

Her Honour weighed up the factors regarding disclosure and considered that, on balance, those favouring disclosure outweighed those against; namely:

• there was a real possibility that, if judgment was obtained, Mr Marshall would not be able to meet it;
• there was an imminent mediation and the insurance documents were likely to be of utility to the applicant for the purposes of its participation in that mediation. The prospects of a settlement would be reduced if the applicant’s legal representatives are required to assess any settlement offer without information about Mr Marshall’s insurance position; and
• any settlement that may be achieved will require court approval, including evidence that the applicant’s legal representatives are satisfied the settlement is fair and reasonable and in the interests of group members as a whole. One factor that material filed in support of an application for court approval of a settlement will usually be required to address is '(g) the ability of the respondent to withstand a greater judgment'.

Her Honour accepted, as a factor against disclosure, that the documents would confer a tactical advantage on the applicant to the detriment of the Insurer and that the documents are not relevant to a fact in issue in the proceeding. However, balancing those matters against the considerations in favour of production, Her Honour was satisfied an order for production of the documents is appropriate (and likely necessary) to ensure justice is done in the proceeding.

Implications

It may become routine for class action applicants to seek and successfully obtain production of respondents' insurance policies. The factors Justice Gleeson had regard to in favour of disclosure are likely to be present in many class action cases. As Justice Gleeson noted, this will be prejudicial to insurers as the applicant's conduct of the claim, such as in settlement negotiations, is likely to be influenced by the level of insurance cover available. 

However, given Mr Marshall's likely inability to satisfy the potential judgment was a relevant factor, such orders may be more likely in cases where there is a real question about the ability of the respondent to satisfy the judgment.

The documents sought by the Notice in the Radio Rentals case did not include documents regarding the indemnity position of the Insurers. That may have been because it was already known to the applicants that indemnity for Mr Marshall had been declined, given the Insurers had been joined to the proceedings.  However, if the indemnity position was not known, then it is reasonable to expect the applicants would also seek documents concerning the Insurers' position on indemnity, which may be liable to be produced for the same reasons Justice Gleeson applied in this case.

These circumstances might also add further pressures to the Side C D&O market in Australia, which is already strained, with many insurers withdrawing participation and premiums increasing dramatically in recent years.

The rationale that Justice Gleeson applied in favouring disclosure may also apply in regular (non-class action) proceedings. Whilst s33ZF applies only to class action proceedings, we might see similar arguments attempted relying on the overarching purpose provisions under s37M of the Federal Court Act.