In this practice area
Coverage disputes for financial services licensees and institutions under professional indemnity, civil liability, D&O and financial institutions bond policies.
When these disputes arise
Financial services businesses, including financial advisers, fund managers, responsible entities, credit providers and brokers, buy specialised covers: professional indemnity or civil liability policies, directors and officers policies, and financial institutions bonds covering crime and fraud losses. Many licensees are required to hold adequate compensation arrangements, which in practice means professional indemnity insurance that meets regulatory standards.
Disputes typically follow a wave of client complaints, an ASIC investigation, a class action or a remediation program. Insurers may argue that remediation payments are not loss, that related complaints are one claim subject to a single deductible or limit, or that the licensee knew of the problem before inception.
The legal framework
Section 912B of the Corporations Act 2001 (Cth) requires Australian financial services licensees that provide services to retail clients to have arrangements for compensating those clients, and ASIC Regulatory Guide 126 sets out ASIC's expectations for professional indemnity insurance used to meet that obligation. The policy is still governed by the Insurance Contracts Act 1984 (Cth), including sections 13, 28, 40(3) and 54.
Common points of contest include aggregation clauses (whether many claims arising from one cause are treated as one), the definition of loss and whether it includes compensation paid voluntarily, the treatment of AFCA determinations, prior known circumstances exclusions, and the insurer's consent to settlements. Where the licensee is insolvent, claimants may seek to proceed against the insurer directly, in NSW under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).
How these matters run
These matters often involve many related complaints arriving over time, some through internal dispute resolution, some through AFCA and some in court. Notifying the insurer of the underlying circumstance early, with enough detail to capture later complaints, is critical. So is obtaining the insurer's consent before any remediation program makes payments that the licensee intends to claim.
Regulatory processes run on their own timetables, and ASIC notices may require a response within days. Coverage for investigation costs is often a separate extension with its own limit.
How GopherWood Lawyers acts
We act for licensees and their directors in the coverage dispute and alongside the regulatory or client claims that drive it. We advise on circumstances notifications, aggregation, consent to remediation and settlement, and the insurer's obligations under the Insurance Contracts Act.
Where the insurer declines, we pursue declarations and damages in the Federal Court or the Supreme Court.