Opening Address at the AILA National Conference
Perth
Thank you for inviting me to open this conference. I extend a warm welcome to everyone who is in attendance today.
I would like to acknowledge that this meeting is being held on the traditional lands of the Noongar people.
It is as important a time as ever to gather practitioners in this field to discuss the emerging issues surrounding insurance in our society and how we might best prepare to address them.
The theme for this conference is "Evolution & Revolution". In that vein, it is encouraging to see that the programme for this conference includes presentations on a diverse range of insurance-related topics, ranging from class action reform to data security, and from artificial intelligence to climate change.
It goes without saying that the heart of this area is risk, the myriad manifestations of risk, and the similarly countless ways in which individuals, businesses, and governments attempt to quantify and manage that risk. As the advent of new technologies ushers in a reality of evolved capabilities and possibilities, so too must our understanding of the legal and practical complexities surrounding those developments evolve.
The societal appetite for the convenience of the automation revolution is unlikely to be sated any time soon. If anything, the demand for so-called disruptive technologies has only accelerated in recent years. One need only cast one's mind back to the painful periods of transition and transformation in the aftermath of the Industrial Revolution to appreciate that the promise of new opportunity comes at a price, albeit one its beneficiaries may be all too willing to overlook.
It therefore falls upon us – the lawyers, the judges, the brokers, the underwriters, the claims handlers, the forensic accountants and the young professionals – to remain vigilant and cognisant of the hitherto uncontemplated perils that have arisen, and will continue to arise, as a consequence of the insatiable desire for expediency.
It is at conferences such as this one, at which issues relating to autonomous vehicles and smart contracts are discussed alongside those concerning micro-insurance for the poor, workplace harassment, and institutional child sex abuse, where we may remind ourselves, that insurance is intrinsically linked not only with financial cost, but human cost as well.
That this is the case is borne out by the various contexts in which insurance matters may arise: life, health, homes, vehicles, travel, pets, professional indemnity, public liability, consumer credit, trade credit, marine, reinsurance, the list goes on.
Insurance pervades because risk is pervasive. Life is full of risk; it is part of every human engagement. As the matter that binds together the tissue and limbs of commercial and civil society, it is clear that insurance influences and interacts with the structure of society and the development of legal rules. Indeed, the philosophical and ideological conceptions of the role of insurance in society have shifted throughout the past century. Consider, for example, Professor Fleming James Jnr's theory of compensation by risk distribution,[1] Professor George L Priest's discussions concerning enterprise liability theory,[2] and Professor Jane Stapleton's cautionary remarks against conceiving tort law through the lens of the insurability of risk.[3] These commentaries offer opposing viewpoints with respect to the appropriate extent to which risk ought to be socialised, and its burdens spread across the community.[4]
It goes without saying that insurance's multifaceted forms demand a nuanced understanding of those forms and an accompanying set of clearly delineated rules to govern their operation in society. Some insurance, such as medical expense insurance, is an example of cost and risk distribution that is funded by both public and private sources. By contrast, income protection is solely risk distribution, privately funded. Life insurance is a different creature again, in some of its forms more akin to an investment, whereas liability insurance depends, unsurprisingly, on liability, as ascertained in accordance with established legal rules.
The "intricate series of economic links"[5] through which certain risks can be assumed by the community, when properly controlled and regulated by reference to civilised and stable rules, do serve an important and tangible purpose in softening the impacts of life's vicissitudes. More broadly, a functioning insurance system can also be a useful benchmark for financing, and a contributor to market efficiency. But legal rules and fairly concluded agreements must not be swept away in favour of policy-driven ideals of the role that insurance should play. The balance must be judiciously struck, with existing legal rights duly recognised by governments and courts alike.
The need to protect the vulnerable while ensuring adherence to the rule of law has also been recently reinforced by the numerous stories of impropriety that have emerged from the recent sixth round of hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Some idea of the magnitude and breadth of the problem may be surmised from the Commission's Background Paper 26, in which it was noted that the general insurance industry earned $23.1 billion from consumer-oriented insurance products in 2017 alone. Within the same timeframe, the life insurance industry earned $18.1 billion in premiums from policy holders. In that context, the Commission is poised to consider whether the current regulatory regime is adequate to minimise consumer detriment. It is conceivable that recommendations as to the modification of aspects of the disclosure, sales, claims handling, regulation and compliance processes be modified will follow.
I do not propose today to remark on the progress of that inquiry but rather to contextualise the significance of innovation in legal practice, and in the day-to-day conduct of insurance-related matters, through two uncontroversial propositions: first, that new technologies affect many stakeholders; and second, that they pose novel challenges which require practical and precise solutions.
The Federal Court embraced that attitude when it implemented the National Court Framework in 2014, which harmonised and streamlined its operation. Part of the structural problems in the system that the NCF replaced were rooted in a certain lack of cohesion in how the different State District Registries functioned and, within them, how individual judges ran their individual dockets.
The uniformity of national practice, and the corresponding certainty of expectations afforded to litigants and practitioners alike, eventuated through the Court embracing technology. Administrative processes had for too long been paper-based in a digital world. The Court's adoption of the Electronic Court File as a complete, centralised and synchronised system for judges, court staff and parties was an important first step in the Court embracing the new possibilities afforded by innovation to enhance the way in which fair and accessible justice could be provided, and seen and felt to be provided. The storage of all information digitally was transformative.
The structural reform also positioned the Court to be able to pursue and implement initiatives that had as a prerequisite the existence of a functioning integrated digital environment. Correspondence, filed documents and other key court materials can be monitored in real time during lengthy and complex matters, which will provide a foundation for a transition to the electronic courtroom.
Another example is the significant investment that law firms have made into leveraging artificial intelligence during the increasingly voluminous discovery and document management processes. That challenge also presents itself when the Court then receives those large bodies of information and data without the benefit of the months or sometimes years spent getting across those materials. Self-directed yet precise data analysis tools can play a pivotal role in supporting judges but must be employed with skill, intelligence, awareness, and discretion so as not to incur the very costs through misuse that their use was intended to reduce.
The strategy moving forward, and the purpose of gatherings such as this conference, should therefore be to ascertain the most appropriate ways to harness the evolving technological capabilities to make the resolution of disputes as efficient and as cost-effective as possible. This includes the disposition of specialised cases through court-annexed ADR, where possible and appropriate, and through litigation only when it is necessary.
I have said previously that the courts and the profession have a duty to drive the responsible adoption of innovative technology into legal practice, with the emphasis being placed on problem solving and the facilitation of just resolution of disputes as quickly, inexpensively, and efficiently as possible.
It was in this spirit of considered judicial innovation that the Federal Court's Insurance List was established in early 2016. Introduced following consultation in 2015 with brokers, insurers and experienced solicitors in Australia and in London, the Insurance List was designed to provide a specialised forum for the targeted and co-operative resolution of discrete legal issues and avoid more costly, and protracted litigation. For now, I run the list. It is designed for short cases involving, in particular, questions of construction of the relevant policy and on the meaning and operation of relevant insurance legislation.
That element of co-operation must be stressed. It reflects the core tenets of litigation in the Federal Court.[6] The Insurance List is most useful where parties can appreciate the benefit of having a bespoke option of dispute resolution that renders unnecessary the costs of a full-blown hearing and work together to resolve critical issues swiftly and in good faith.
What do I mean by good faith in this context? Recently in New York, I spoke at a gathering of commercial court judges from around the world at the second meeting of the Standing International Forum of Commercial Courts. This is an interesting group; set up on the initiative of the former Lord Chief Justice of England and Wales, Lord Thomas. It seeks to increase the overall standard of practice and increase harmonisation of best practice of commercial courts all around the world. I am involved in a working group on case management.
To introduce the discussion about case management at the plenary session of over 100 judges, I made the following remarks.
Case management is the management or control of the resolution of disputes (not just litigation of disputes) by a judicial officer or judicial officers. It can be undertaken in a variety of ways, using a variety of procedural tools, including alternative dispute resolution, and other mechanisms under Court control to resolve disputes as quickly and as cost-effectively as possible.
Two propositions can be seen as valid: first, bad case management can be worse (in time and expense) than no case management; secondly, good case management is the best method of achieving cost effective and timely resolution of disputes.
Mirroring these two propositions are two features to bear in mind: good case management involves skilled, experienced, sometimes imaginative problem solving, using procedures as tools, adjusted to the features of the individual case; bad case management is often marked by process-driven costs, with unthinking application of standard operating procedures, irrespective of their necessity.
This last point highlights a significant risk in case management – the attempt overly to prescribe into formulaic procedures and protocols what is often an intuitive problem solving insight. The risk is the hardening into inflexibility of the rules and protocols of behaviour. Structure and order of approach can be important, to a point; but every piece of commercial litigation is unique. Every insurance dispute is unique. Flexibility, thoughtfulness and focus upon key problems and issues are the hallmark of good case management. Inflexibility and unnecessary procedural steps (whether through habit or laziness) are the hallmarks of bad case management.
The pitfalls of bad case management can be avoided by the right mental frame of reference of problem solving, not process driving. This requires an attitude of mind of the judge, the lawyer and, most importantly for today's discussion, the client. It is the client's problem, your problem, that has to be solved. It is an insurance problem bound up with the application of an insurance policy to the generally honest, sometimes not, behaviour and problems of the insured.
The contemporary problem of disproportionate litigation costs is a common talking point. The key to its minimisation is to view the whole of dispute resolution as a problem to be solved, perhaps by discussion and agreement, perhaps by structured mediation, perhaps necessarily by litigation but with an approach and a frame of mind of solving the problem. Part of that problem is resolving the issues fairly and cost-effectively. Once that mental frame of reference is absorbed the tools of procedures, the best method of defining the issues, the best way to adduce the evidence, the need (if there be any need) for discovery, the role for mediation or judicial registrars in negotiating not only a settlement, but any procedural roadblock, the use of referees or arbitrators on particular or general issues, methods of limiting expert evidence, neutral evaluation, all become flexible tools to replace the mechanical movement from filing to trial in some 18th century battle-plan.
Problem solving emphasises the individuality of the dispute and the early identification of how to reach a proportionate resolution, cost-effectively. There may need to be a cultural adjustment by judges, by the profession, and by clients. It may undermine certain litigation models of some practitioners.
It also involves the relationship between the courts, the profession and, in this context, the insurance industry. The mutual education of each by the other, the development of a cultural of problem solving by the court, by the profession and by the insurance industry is fundamentally important. The approach is reflected in modern court statutes which have an overarching principle of just, speedy and inexpensive resolution of disputes.
As I have said, an essential aspect of this is the demand for a degree of co-operation in dispute resolution. I will use what might be thought by some to be a provocative term – good faith litigation – that is, a standard of faithfulness to the resolution of the genuine issues in dispute. By genuine issues, I mean those honestly, reasonably and proportionately arrived at. This involves no sacrifice of proper self-interest.
Since March 2016, over 60 matters have been filed and dealt with through the Insurance List. In certain cases, a few case management hearings were sufficient to guide the parties to a mediated outcome. Of the matters that proceeded to hearing, I and other judges with a special interest in insurance resolved matters including questions of policy construction, the application of the Insurance Contracts Act,[7] the approval of schemes for the transfer of insurance business[8] and applications in relation to life insurance proceeds.[9]
To illustrate better the versatility and advantages of the Insurance List, I will discuss a few examples. In Aftermarket Network Australia v Certain underwriters at Lloyd's,[10] a claim for warranty insurance in relation to sale of a business was made. The matter was filed in August 2016; a decision was given in November 2016 on the construction of the policy; the matter settled without appeal in late January 2017. In Onley v Catlin Syndicate Ltd,[11] a question of the construction of a policy for defence costs was filed in January 2018, referred to a Full Court in March 2018 and disposed of in June 2018. In Sheehan v Lloyds,[12] a marine insurance claim involving the potential for disputed expert evidence was resolved with a half day hearing after the parties agreed upon a referee to deal with all factual issues replacing what almost ostensibly would have been a 3 day hearing. Costs ordered were $50,000 against the losing insured.
What has marked the practitioners in the list, to my observation, is a growing recognition that they must co-operate to eliminate all unnecessary disputation.
Such a legal culture is vital to this industry. It is not unrelated to some of the travails of those appearing in the Royal Commission. Let me say something about values, trust and commercial law.
Institutional trust is not a marketing tool. It is essential to commerce.
Commercial law is riddled with values in its principles and rules. Without values commercial law would not be certain; rather it would be the arbitrariness and tyranny of the written word, but the written word not as the vehicle for expressing human relationships, but for the expression of power. Certainty is not gained by the written word alone. It is derived and felt from an understanding of a stable and known position. That comes as much from a known demand for, and expectation of, a requisite degree of trust, honesty and lack of sharp practice, as from any clarity of expression. That is why in most civilized legal systems there is a concept of good faith, as a pervading norm or assumption that helps supply blood and oxygen to honest common sense in the processes of implication and construction of contracts.
But it is fair to say that Parliament in recent times has expressed values in statutes more frequently than in years gone by. Importantly, good faith and unconscionability (decoupled from, but still closely related to, their common law and equitable anchors) have been introduced into Commonwealth statutes governing business behaviour.
The task of the profession and of the courts is to conceptualize and interpret Parliament's will faithfully in a way which vindicates both the command of Parliament and the techniques and values of the common law and equity.
In this context one must say something of a modern cast of mind. It is the tendency, almost a mania, to deconstruct, to particularise, to define to the point of exhaustion and sometimes incoherence. Often, if not always, this is in the name of certainty and completeness; but it is false certainty. Attempts to define whole concepts concerning human experiential relationships are generally doomed. Such attempts change the concept itself and only bring artificial certainty, by that change. It can be like trying to define the beauty of Mona Lisa's smile. Not only is the task impossible, but the attempt makes the sublime and emotional prosaic.
Deconstruction and particularism plague how we think about regulation and behaviour. An example most readily apparent in the travails of those participating in the Royal Commission is the deconstruction of whole ideas of human relationships such as trust and fiduciary duty into rules, protocols and checklists that are to be ticked off and placed in boxes. So much of the conduct that is being exposed is just unthinkable if one simply understood and enforced, with rigour, fiduciary duty and holistically applied it to the whole facts.
Much of the debate in the Royal Commission can be seen to be about an inability of some in positions of trust and power to step back and see the whole circumstances of what their enterprise is doing and evaluate it from the perspective of honesty, good faith and a sense of decency, rather than the particularised abstraction of the elements in each of the boxes. So much is broken up and distributed to persons in the organization, without an analysis of the whole.
Turning to insurance, deconstructed protocols, PDSs, disclosure documents and standard forms are no substitutes for the foundation of trust, which is built on honesty and understanding the whole. You understand the whole by looking at the whole.
Take the word "unconscionability", now written into statutes that regulate you.
What is unconscionability? It is less precise than "misleading or deceptive". Decoupled from a doctrine to set aside a transaction it becomes a body of conduct directed to a norm of right behaviour. It is not to be defined because it is indefinable.
Vital to the evaluation of whether conduct in business is unconscionable, and to understanding unconscionability itself, is the proper approach to the task. You should approach the task as clients or practitioners by looking at all the facts, as a whole. Do not isolate constituent parts. The conclusion is an overall evaluation.
An appreciation of the technique to approach the evaluation helps one understand the nature and character of the norm being investigated and assessed.
It is essential not to deconstruct or abstract the judgment or assessment, not to seek to reduce it to a false certainty by seeking out some defining element. It is human behaviour that is to be evaluated and characterized. To behave unconscionably should be seen, as part of its essential conception, as serious, often involving dishonesty, predation, sharp practice, unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism. None of these is definitional. They are all the kinds of behaviour that, viewed in all the circumstances, may lead to an articulated evaluation of unconscionability. They are standards at the heart of commercial decent behaviour.
Those participating in commercial life and in the insurance industry have always appreciated that trust and honesty is at the heart of business goodwill and reduction of risk.
This should be reflected in commercial law and commercial behaviour.
Law is not just command; it is a societal will capable of rational and general expression, engendering loyalty and consent through its utility and practicality and through its characteristics of certainty, fairness and justice. Law can, ultimately, only work practically and usefully through consent and loyalty.
pNo system of law can engender loyalty and consent without an inhering justice – some intuitive response from acceptable and accepted values, not necessarily by reference to each individual provision within the system, but by reference to its whole, including its defects and its shining examples. Each gives content to the whole. Nothing is perfect. Further, no system of law can engender a sense of security without certainty.
Commercial law is no different. It must be certain, but fair and just; simple and practical, but comprehensive; and it must be able to be employed and enforced, without undue expense, delay or confusion. Commerce and trade have a central place in the formation of a sophisticated legal system. Commerce produces the need for rules of relational activities.[13] Jhering spoke of the fact that: "Long before the State arose from its couch, in the morning twilight of history, trade had already completed a good part of its day's work. While the States were fighting one another, trade found out and levelled the road which led from one people to another, and established between them a relation of exchange of goods and ideas; a pathfinder in the wilderness, a herald of peace, a torchbearer of culture."[14] This is one reason why commercial law is important. It forms the legal and moral norms of a society for exchange and relation with other peoples.
The obligation of the commercial lawyer and the commercial judge (and the commercial man or woman) is to understand the limits of legitimate self-interest and the relationship between self-interest, in its inherently selfish character, and honesty, reasonableness, decency and trust, being the qualities that make it possible for commercial people to be self-interested, but to deal with each other peacefully and with mutual benefit. It is in this context one should take the lessons of the Royal Commission. Not more rules, but more honest evaluation of the whole.
The development of a culture of good faith dispute resolution is critical to these questions.
The insurance industry has the capacity and opportunity to lead other areas of commerce in this area, and lead the region in how insurance is conducted and how its disputes are resolved.
[1] See, for example: "Accident Liability Reconsidered: The Impact of Liability Insurance" (1948) 57(4) Yale Law Journal 549–570; "Social Insurance and Tort Liability: The Problem of Alternative Remedies" (1952) 27(4) New York University Law Review 537–563; and "An Evaluation of the Fault Concept" (1965) 32 Tennessee Law Review 394-403.
[2] George L Priest, "The Invention of Enterprise Liability: A Critical History of the Intellectual Foundations of Modern Tort Law" (1985) 14 Journal of Legal Studies 461–527.
[3] Jane Stapleton, "Tort, Insurance and Ideology" (1995) 58 Modern Law Review 820–845.
[4] See also Dimond v Lovell [2000] UKHL 27; [2002] 1 AC 384 at 399 per Lord Hoffmann; cf. Perre v Apand [1999] HCA 36; 198 CLR 180 at 194 [10] per McHugh J.
[5] Dimond v Lovell [2000] UKHL 27; [2002] 1 AC 384 at 399 per Lord Hoffmann.
[6] Federal Court of Australia Act 1976 (Cth), ss 37M, 37N.
[7] 1984 (Cth).
[8] Under Div 3A of Part III of the Insurance Act 1973 (Cth).
[9] Under s 215 of the Insurance Act 1995 (Cth).
[10] Aftermarket Network Australia v Certain Underwriters at Lloyd's subscribing to Policy No 6482/13(C)-13087
[2016] FCA 1402.
[11] Onley v Catlin Syndicate Ltd as Underwriting Member of Lloyd's Syndicate 2003 [2018] FCAFC 119.
[12] Sheehan v Lloyds Names Munich re Syndicate Ltd [2017] FCA 1340.
[13] Plato noted that where there is maritime commerce there must be more law: Laws, Book 8, 842; Montesquieu said that there were more laws in a trading city: The Spirit of Laws Liv.XX, Chapter 18; Jhering spoke of commerce as a pathfinder: Zweck im Recht, I, 237; see R Pound, The Formative Era of American Law (Little Brown, Boston, 1938), 11-12.
[14] R von Jhering, Law as a Means to an End, as translated by I Husik (Boston Book Company, Boston, 1913), 175; von Jhering, n 2, I, 237, as quoted in Pound, n 2, 33.
