The insurer was asked by AMP to provide instructions in relation to each demand by each investor, in accordance with the protocol. The insurer simply reserved its rights with respect to indemnity, and advised AMP to continue to act as a prudent uninsured party would.
AMP paid out over $3 million in settling the investor demands. The insurer refused to indemnify AMP. The insurer said that AMP had no legal liability to the investors. AMP sued the insurer.
AMP lost the case at first instance, but appealed to the Full Federal Court. The Court allowed the appeal, but sent the case back to the trial judge for determination of certain issues, so the end result of the case is not yet known.
However, the Court had some interesting things to say about the duty of good faith. The question of good faith arose in the context of considering whether the insurer’s conduct had led AMP to believe that it could proceed to settle the claims and that it would not be required to prove to the insurer that it had a legal liability for the claims.
On the subject of utmost good faith the Court said:
- Utmost good faith encompasses emotions of fairness, reasonableness and community standards of decency and fair dealing.
- The duty of utmost good faith could be breached even where there was no dishonesty. Capricious or unreasonable conduct could constitute a breach of the duty. For example, a failure to make a prompt acceptance of a good claim for indemnity, and to make payment promptly, may be a failure to act with the utmost good faith.
- A failure to communicate within a reasonable time a decision to accept or to reject a claim for indemnity may be a breach of the duty if the failure was by reason of negligence or by reason of unjustified suspicion as to the bona fides of the claim.
- Failure to make a prompt decision to accept or reject an insured’s claim for indemnity could amount to a breach of the duty even if the failure was merely a failure to proceed with reasonable promptness when all relevant material was at hand, and even if the failure did not result from an attempt to achieve an ulterior purpose.
The Court agreed that the policy did not respond to AMP's claim because AMP had no liability to the investors within the meaning of the policy. However, the Court sent the case back to the trial judge to consider the good faith issues to determine whether they prevented the insurer from denying indemnity: AMP Financial Planning Pty Ltd v CGU Insurance Ltd.
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