FEDERAL COURT OF AUSTRALIA

Gordian RunOff Limited, in the matter of Insurance Australia Limited [2011] FCA 691

GORDIAN RUNOFF LIMITED, IN THE MATTER OF INSURANCE AUSTRALIA LIMITED (ABN 11 000 016 722)

THE COURT ORDERS THAT:

1.    Pursuant to section 17C(5) of the Insurance Act 1973 (Cth) (the Act) the need for the applicant to comply with section 17C(2)(c) of the Act is dispensed with on condition that the applicant complies with orders 2, 3, 4, 5 and 6 below.

2.    The applicant must, prior to the date on which the scheme documents are to be made available for public inspection, cause a copy of the approved summary of the proposed scheme to be sent by pre-paid post to all persons identified, as at that date, as affected policyholders that have been identified from records and from the publicly available sources, as described in the affidavits of Veronica Atley, Warren Dresner and Sandra O’Sullivan for which the applicant has an address.

3.    The applicant must, prior to the date on which the scheme documents are to be made available for public inspection, cause an advertisement providing notification of the proposed Scheme to be placed in the following publications in addition to the Gazette and newspapers, approved by APRA in circulation in each State and Territory of Australia:

(a)    New South Wales – The Sydney Morning Herald;

(b)    Victoria – The Age;

(c)    Queensland – The Courier-Mail;

(d)    Western Australia – The West Australian;

(e)    South Australia – The Advertiser;

(f)    Northern Territory – The Northern Territory News;

(g)    ACT – The Canberra Times;

(h)    National - The Australian;

(i)    International New Zealand Herald; and

(j)    International - The International edition of the Financial Times.

4.    The applicant also must, prior to the date on which the scheme documents are to be made available for public inspection, cause a copy of:

(a)    proposed Scheme;

(b)    summary of the proposed Scheme;

(c)    actuarial report from PricewaterhouseCoopers; and

(d)    independent peer review actuarial report from Ernst & Young.

to be publically available on Enstar Australia Limited’s website www.Enstardivision3a.com.au/IAG.

5.    The applicant must make a copy of the proposed scheme and any actuarial report upon which it is based available for inspection for a period of at least 15 business days (between the hours of 9:00 am and 5:00 pm Monday to Friday), prior to the date on which the proposed scheme is to be confirmed by the Court, at the offices of Enstar Group Limited in the United Kingdom (located at either 2 Cathedral Hill, Guilford Surrey or America House 2 America Square London) where the documents can be obtained. This is in addition to locations approved by APRA under Prudential Standard GPS 410 in each State and Territory in which an affected policyholder resides.

6.    The applicant must provide, upon request, to any policyholders that identify themselves as such, a copy of the approved summary of the Scheme, free of charge.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

GORDON RUNOFF LIMITED, IN THE MATTER OF INSURANCE AUSTRALIA LIMITED (ABN 11 000 016 722)

REASONS FOR JUDGMENT

1        I have before me a notice of motion filed on 9 June 2011, pursuant to which the applicant, Gordian RunOff Limited, applies under s 17C(5) of the Insurance Act 1973 (Cth) for dispensation from compliance with s 17C(2)(c) of the Act. Section 17 provides for steps that are to be taken in relation to a scheme for the transfer of any part of the insurance business of a general insurer to another general insurer before Court confirmation of the scheme. These steps include the requirement under s 17C(2)(c) that an approved summary of the proposed scheme pursuant to which liabilities are to be transferred to the applicant is to be given to every affected policy holder.

2        The proposed scheme is for the transfer to the applicant of the inwards reinsurance portfolio of Insurance Australia Limited (IAG). IAG has not underwritten Australian inwards reinsurance since 2001.

3        The applicant applies for dispensation from the statutory obligation imposed by s 17C(2)(c) subject to conditions which provide a different regime for the notification of the scheme to affected policyholders. The reason for the application for dispensation is that the applicant is unable to identify or obtain correct contact details for all the affected policyholders.

Evidence in support of application

4        In support of its application the applicant has provided affidavit evidence which sets out the steps that have been taken to identify policyholders. It is not necessary for me to describe those steps in detail; they are fully explained in the affidavit of Veronica Atley sworn on 6 June 2011. Ms Atley is a Senior Manager of Reinsurance Claims within the reinsurance department at Insurance Australia Group Limited (Insurance Australia). In her affidavit she details not only the steps to identify affected policyholders taken by the applicant but also by Insurance Australia and AON Benfield Australia Limited (Aon) and itself.

5        Additional information in relation to the identification of affected policyholders is also given in the affidavits of Warren Dresner, treaty broker Aon Benfield Australia Limited and Sandra O’Sullivan, Chief Financial Officer of the applicant, both sworn on 3 June 2011. As a result of the steps taken by or under the supervision of Ms Atley, Mr Dresner and Ms O’Sullivan, the number of affected policyholders has been determined and the contact details for all except 21 of the 399 affected policyholders have been verified. It has been established that 5 of the 21 policyholders whose contact details have not been found are corporations that have been deregistered or are in liquidation. This leaves 16 affected policyholders who cannot be notified of the proposed scheme in the manner contemplated in s 17C(2)(c).

Relevant considerations

6        The discretion reposed in the Court to dispense with compliance with s17C(2)(c) is broad but, as is well established, its exercise should not be regarded as a foregone conclusion. In Westport Insurance Corporation, in the matter of Westport Insurance Corporation [2009] FCA 1357, Lindgren J reviewed the nature of the discretion and identified facts relevant to the exercise of the Court’s discretion in that case. With one exception, the considerations identified by his Honour in Westport are equally applicable in the present circumstances and I respectfully adopt his Honour’s approach.

A comprehensive and diligent search

7        In the first place, I am satisfied by the evidence presented, that a comprehensive search of all the relevant records has been diligently undertaken. The search, as I have already indicated, has been carried out not only by Insurance Australia, but also by Aon and the applicant itself.

Likelihood of unidentified policyholders making a claim

8        It has also been submitted that the policyholders who are unable to be located are unlikely to make a claim. The basis of this submission is that there has been no activity since 2008 in any of the policies, and it may be that in some policies the period of inactivity dates from a much earlier point in time. The Court can take some comfort from that information.

Steps to notify affected policyholders

9        The most important consideration relevant to the exercise of the Court’s discretion is whether, in all the circumstances, the applicant proposes adequate steps to ensure that the scheme will come to the notice of affected policyholders. In this case I am satisfied that the proposed steps outlined below are adequate.

Scheme documents to be available for public inspection

10        The applicant must make a copy of the proposed scheme and any actuarial report upon which it is based available for inspection for a period of at least 15 business days (between the hours of 9:00 am and 5:00 pm Monday to Friday), prior to the date on which the proposed scheme is to be confirmed by the Court. In addition to locations approved by Australian Prudential Regulation Authority (APRA) under Prudential Standard GPS 410 in each State and Territory in which an affected policyholder resides, the documents must also be available at the offices of Enstar Group Limited in the United Kingdom.

Provision of scheme summary to affected policyholders

11        Prior to the date when the scheme documents are to be made available for public inspection all affected policyholders able to be identified are to be sent by prepaid post a copy of the scheme summary in a form approved by APRA. The applicant also proposes that it be obliged, upon request from policyholders that identify themselves, to provide a summary of the proposed scheme free of charge.

Publication in Gazette and newspaper

12        In addition to publication of the scheme in the Gazette and newspapers approved by APRA the applicant proposes to advertise in leading newspapers in each State and Territory of Australia, in New Zealand and, internationally, in the international edition of the Financial Times.

Internet publication

13        The applicant also proposes prior to the date on which the scheme documents are to be made available for public inspection, to cause copies of the proposed scheme and a summary of the scheme, an actuarial report from PricewaterhouseCoopers and an independent peer review actuarial report from Ernst & Young to be publically available on Enstar Australia Limited’s website, www.Enstardivision3a.com.au/IAG.

APRA has no objection

14        Finally, APRA has been represented at the hearing today and has informed the Court that it has no objection to the dispensation sought being granted.

Conclusion

15        For the above reasons I am satisfied that the orders sought by the applicant, incorporating the conditions described above, should be made.

Associate:

Dated:    16 June 2011