Class action plaintiff’s application for access to insurance documents refused

Apr 2020 |

It is not uncommon in Australian class actions for plaintiffs to seek access to defendant’s insurance policies. Access is typically sought to determine the amount of cover, particularly in the lead up to mediation / other settlement negotiations, and/or to challenge insurers’ determinations on policy response which might otherwise limit the amount recoverable if the proceedings are successful. Such access may be sought notwithstanding that insurers are not parties to the class action and the facts relevant to policy response have not been determined.

This can result, as it did in Evans v Davantage Group Pty Ltd,1 in an application for production of insurance documents (which are typically beyond the scope of discovery in the proceedings).

In recent times the courts have been more inclined to order the production of insurance documents. However, in this case, His Honour Justice Beach declined a class action plaintiff’s application for discovery of insurance documents. In doing so His Honour provided useful guidance on the factors relevant to access to insurance policies and the circumstances in which the courts will permit third party insurers to intervene in access applications.

Background    

Davantage Group Pty Ltd (Davantage) issued motor vehicle warranties (warranties) to Mr Evans (the representative plaintiff in the class action) and just under 27,500 other individuals (class members). The warranties provided that Davantage had an absolute discretion to reject customers’ warranty claims and that it was ‘not obliged to pay all claims that come within the terms and conditions of the Warranty’.

The class action against Davantage alleges (amongst other things) that Davantage engaged in unconscionable conduct under s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) and that the warranties are void. Mr Evans and the other class members seek damages in excess of $47.6 million plus interest.

In a judgment dated 11 June 2019, Justice Beach made a finding in favour of Mr Evans (and the other class members) on the preliminary question of whether Davantage’s promises under the warranties are illusory2. Justice Beach commented that the ‘overriding discretion reserved to [Davantage] qualifies its promise to pay consumers to such a substantial extent that it renders the promise illusory’. It follows therefore that a trial on the illusory consideration claims is likely to be short and efficient and, in the scheme of class action trials, is unlikely to be costly.

The plaintiff’s lawyers’ investigations suggested that Davantage did not have the means to pay the damages sought in the class action without the benefit of insurance cover. Further, Davantage’s primary professional indemnity insurer had determined that its policy did not respond to a significant part of the claims, and the excess layer insurers maintained a similar position.

Issues

The plaintiff sought production of insurance documents pursuant to (inter alia) s 33ZF(1) of the Federal Court of Australia Act 1976 (Cth) (Act). It argued that the documents were required to better inform class members (and the litigation funders) whether: ​​​

  1. It was commercially viable to prosecute the class action to judgment;
  2. It was appropriate to settle the matter and, if so, for what quantum;
  3. Any application to the Court for approval of any settlement of the class action pursuant to s 33V of the Act was likely to succeed; and
  4. It was necessary to take action against insurers (as a stranger to the relevant insurance policies) to join them to the class action or to obtain declaratory relief as to the existence and / or scope of cover available to Davantage.

The primary insurer and the excess insurers opposed disclosure of their policies and sought leave (as non-parties) to intervene in the hearing of the plaintiff’s application for the purpose of opposing production.

Determination

The insurers’ applications to intervene

Leave to intervene requires the court to weigh up whether the intervener’s involvement would be useful and different from that of the parties or whether it might constitute an unreasonable interference with the conduct of the proceedings. The court however noted in this matter that where a non-party’s interests would be directly affected by a decision, leave to intervene should be granted.

Justice Beach determined that the insurers should be granted leave to intervene since:

  1. Their interests, including their legal interests in the confidentiality of the insurance policies and other documents, will be substantially and directly affected if the plaintiff’s application is granted;
  2. It is possible that the disclosure sought may lead to an attempt to either join the insurers to the class action or to bring new proceedings seeking declarations against them; and
  3. The submissions of the insurers were different to the submissions of Davantage. 

The court also noted that although the insurance documents included policies and communications relating to the policies which are confidential, contractual confidentiality claims cannot defeat any orders that the court might make, although such confidentiality is a relevant matter for the court to consider in the exercise of its discretion. Further, Davantage if necessary could enforce the primary insurer’s and excess insurers’ policies directly through s 48 of the Insurance Contracts Act 1984 (Cth).

Plaintiff’s application for production of the insurance documents

The operation of contemporary case management theory read in conjunction with s 33ZF(1) of the Act has been given broad scope and as noted by Justice Beach is ‘designed to produce litigation which is run efficiently and fairly in the interests of all parties’. However, His Honour also noted that ‘such provisions are not designed to distort the playing field so as to confer an asymmetric commercial advantage in favour of one party at the expense of another’. 

His Honour therefore did not accept (as asserted by the plaintiff) that s 33ZF(1) of the Act provided an appropriate source of power. However, he determined that the Court has the power to make the orders sought under s 23 of the Act. 

Nevertheless, Justice Beach refused the plaintiff’s application. Relevantly, in addressing the plaintiffs’ arguments His Honour commented that:

  1. The insurance documents are not relevant to the determination of any fact in issue in the class action.  Insurance policies are not normally discoverable where they are not relevant to the determination of a fact in issue, save for under specific exceptions dealing with an insolvency scenario;
  2. A class action plaintiff has no right to examine a defendant ahead of a trial in an endeavour to elicit information about its means with a view to deciding whether it is worth his while to go on with the case or some part of it, save for specific exceptions such as insolvency;
  3. The findings in BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall3 do not suggest (as asserted by the plaintiff) that s 33ZF(1) of the Act can be used to override the conventional position that insurance documents are not discoverable. It is not a sufficient justification for ordering production of the insurance documents that they may be of some assistance to group members.  The criterion ‘justice is done’ in s 33ZF(1) of the Act involves a consideration of the position of all parties, not just the plaintiff;
  4. There is a mechanism for seeking production of documents for the purpose of determining whether to commence proceedings against a third party.  That mechanism is preliminary discovery, which was not invoked by the plaintiff;
  5. The possibility that the plaintiff may join the primary insurer and the excess insurers to the class action or commence proceedings seeking declarations against them does not justify the discovery sought;
  6. The fact that the insurance documents might assist the plaintiff in a mediation does not justify their discovery, particularly where it creates a tactical advantage for the plaintiffs; and
  7. The plaintiff’s lack of access to the insurance documents should not preclude the court from being able to approve a settlement of the class action.

Our observations

The decision provides useful guidance as to the extent of the court’s powers to order discovery of insurance documents and the restricted circumstances in which discovery will be ordered when insurance documents are not directly relevant to the facts in issue in a proceeding. While the power to order discovery clearly exists, it should be exercised with caution.

However, we expect class action plaintiff’s lawyers and funders to continue their efforts to obtain access to insurance policies (likely through preliminary discovery applications) and to engage direct with insurers / insurers’ lawyers in an effort to maximise recovery particularly in the lead up to mediation.

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1 (No 2) [2020] FCA 473.
2 Evans v Davantage Group Pty Ltd [2019] FCA 884.
3 (2019) 94 ALJR 51.

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