Background
Ferras Merhi, the sole director of Financial Services Group Australia Pty Ltd (FSGA), sought indemnity under a professional-indemnity policy issued to FSGA. He relied on an extension covering legal-representation costs for an inquiry or similar process concerning FSGA’s business affairs that an insured was legally compelled to attend.
The insurers pleaded that Mr Merhi’s “No” answer to a proposal question about circumstances that might give rise to a claim was false, and relied on alleged prior concerns and investigations involving Mr Merhi, Venture Egg Financial Services and Interprac. Mr Merhi applied to strike out that defence, contending those businesses were separate from FSGA and irrelevant to the risk insured. The insurers also sought to amend their defence and obtain discovery.
The Court’s Holding
Justice Jackman dismissed the strike-out application. Whether FSGA’s business was relevantly separate from Venture Egg, Interprac and Mr Merhi’s other activities involved factual issues—including the similarity of the businesses and Mr Merhi’s role in them—that required evidence and testing at trial. The Court could not conclude at this stage that the pleaded defence had no prospect of success.
The Court granted the insurers leave to file an amended defence substantially in the proposed form, including an additional alleged conflict arising from fees connected with recommendations of particular funds. It also ordered Mr Merhi to give the requested discovery. Documents generated after policy inception could shed light on facts existing beforehand, and there was no evidence that the requested categories were disproportionate.
Key Takeaways
- A strike-out application will fail where a pleaded insurance defence turns on factual disputes that must be resolved at trial.
- For professional-indemnity cover, the history of the business and the conduct of its principals may be relevant to the insurer’s assessment of risk.
- Post-inception documents may be discoverable if they can illuminate pre-inception facts.
Why It Matters
The decision leaves the insurers’ alleged misrepresentation and non-disclosure case to be determined on evidence, rather than disposing of it at the pleadings stage. It also illustrates the Federal Court’s willingness to permit discovery extending beyond policy inception where later communications may bear on the facts known when cover was placed.