Insurance across Australia: A year in review

It's been a busy financial year for insurance issues in the Courts across Australia1. With insurers having now survived the end of financial year renewals, we provide a summary of what has been happening around Australia, together with our comments on why these decisions are relevant to insurers.

 

FEDERAL

Security for costs – 'Employee Theft' cover

In All Class Insurance Brokers2, Allsop CJ held an insurer was entitled to obtain security for costs (in the sum required for a short hearing on Policy construction issues) where it could establish an insured was unlikely to be able to pay its costs of that dispute. The security was allowed, even though it was agreed that both insurer and insured had reasonable prospects of success in the Policy interpretation dispute.

Close consideration should be given to this decision if an insured's solvency is in real doubt at a time it commences proceedings for a policy dispute.


Property Insured – Industrial Special Risk

In Oceanview Developments3 Allsop CJ held the 'Property Insured' comprised all property in the 'Situation', even if part of that property was not used for the 'Business' of the insured. This was due to the indemnity extending to damage which occurred at the 'Situation', and the relevant land (which was not part of the 'Business') being included in the 'Situation' by extended definition.

This decision confirms a literal interpretation of the Policy terms will apply in order to determine the scope of cover available to the insured. Underwriters should consider all land comprised in the Situation in undertaking an assessment of the risk.


Dual insurance/ Contribution for Defence Costs – Public Liability

In QBE v Allianz4 the principles of dual insurance and contribution were considered under two public liability policies, and whether such contribution extended to defence costs. Allsop CJ held the right of contribution extended to defence costs incurred in defending the claim, as these costs formed part of the indemnity afforded to the insured under the Policy.

This decision confirms an insurer is entitled to recover a portion of all costs expended from another policy which extends the same cover to the insured, on the same apportionment.


Misrepresentation and non-disclosure – Residential Strata

The decision of Delor Vue Apartments5 considered whether pre-existing defects in a Strata Building was something which should have been disclosed to an insurer for the renewal of public liability insurance. Allsop CJ determined (on the evidence) a reasonable person in the position of the Strata Manager and Body Corporate committee would know that pre-existing defects were relevant to underwriting insurance for personal injury (and property damage), but may not know pre-existing defects were relevant for underwriting considerations for property insurance.

Underwriters should consider whether an insured has the level of knowledge required to identify a risk, and in the event of uncertainty, should tailor the questions in the proposal in order to ensure the relevant information is provided.


Broker negligence – Professional Indemnity

The Federal Court considered whether a broker's failure to provide advice on the availability and suitability of copyright infringement cover constituted negligence and a breach of the terms of its retainer in the decision of PC Case Gear6. In finding against the broker, Anderson J determined a reasonably competent broker in the same position would have identified copyright exposure as being a risk to the insured business, and provided advice on the available cover.

Brokers should ensure a comprehensive analysis of the insured business is undertaken in the course of reviewing insurance needs, to avoid gaps in the recommended cover.


Contribution claim – Combined Business Liability and Management Liability

Epsilon Insurance Broking Services7 considered a claim for contribution where two policies provided separate types of cover with some overlap for the insured's own costs by Endorsement. Allsop CJ held no "orthodox process of construction or implication can operate … to extend or imply cover"  for the insured's mitigation costs, where the cover was intended for fines and penalties paid by the insured.

This decision confirms a simple process of construction should be used for determining the available policy cover, and claims for contribution should be limited to where the same cover is available under both policies.


Proof of underlying liability – Public Liability

In National Australia Bank8, the Federal Court was asked to make a preliminary determination as to whether an insured was required to prove an underlying liability for a settlement made without the prior consent of its Public Liability insurer. Lee J determined there was no requirement for the insured to establish a liability for the loss for the purpose of securing insurance cover, as doing so would require the insured to undertake the exercise of determining the claim, which is exactly what a settlement avoids.

This decision confirms if an insured takes steps to resolve a dispute, it will not be precluded from seeking insurance cover for that resolution, subject to the Policy terms and conditions for the claim.


NEW SOUTH WALES

Contribution and 'Other Insurance' clauses – Public Liability

In the decision of Allianz v Lloyds9, the NSW Court of Appeal considered a claim for contribution between insurers, where both policies contained 'Other Insurance' provisions (which operated to limit the cover in the event another policy covered the same loss). The Majority (Bathurst CJ and Meagher JA) held the presence of 'Other Insurance' provisions in both policies effectively cancelled each other out, thereby resulting in both policies providing cover for the loss. Macfarlan J, dissenting, held there was no double insurance as the 'Other Insurance' provisions meant each of the policies provided different cover.

This case gives clarification to the operation of 'Other Insurance' provisions in insurance where multiple parties are covered under multiple policies.


Aggregation clauses for a Representative Proceeding – Civil Liability Policy

In Bank of Queensland10, the NSW Court of Appeal considered whether a single, or multiple retentions were payable for Representative Proceedings which were settled on the basis of payments being made to all investors. The Court held that multiple claims were attributed to one cause and/or series of related wrongful acts, and therefore, only one retention was payable.

This decision confirms the cause of the loss is relevant to the calculation of retentions, even where multiple parties benefit from the claim.


Leave to proceed against insurer directly – Public Liability

In Ritchie v Advanced Plumbing11 the Supreme Court of NSW determined the factors which are relevant to the granting of leave to proceed against an insurer directly, pursuant to section 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW). Campbell J held the onus was on an insurer to establish it was entitled to disclaim liability for the claim, and in doing so, the insurer had to establish "beyond argument" it had no liability. Accordingly, leave will be granted if an arguable case can be made for the policy to respond.

This decision provides useful analysis on the operation of section 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) for claims involving policy and indemnity issues.


Evidence of insured's wrongful conduct – Business Property Insurance

The decision of Worth v International Insurance12 looked at various issues following the provisional granting of indemnity for a house fire in circumstances where the insured was considered to be a person of interest in causing the fire. One of the issues considered was the evidence required by an insurer to prove the insured's wrongful conduct, with Parker J determining the insurers' obligation was "to prove that Ms Worth had lit the fire herself, not to go on and prove all of the details of her plan, if she had one."

This decision provides helpful analysis on the evidence and threshold to prove wrongful conduct and/or fraud by an insured for the purpose of determining policy cover.


Proposal forming part of the Policy – Professional Indemnity Insurance

The Supreme Court of NSW determined, as a separate question, whether the Proposal Form completed by an insured forms part of a policy of insurance in Bechini v IUS13. Rothman J determined, "the Proposal submitted… was an invitation to treat, which excited from Lumley an offer, including the premium amounts, which offer was accepted by IUS. It was that latter offer and acceptance that formed the contract." Relevantly, the definition of 'Policy' within the Policy included the Proposal.

The Proposal contains the important information used to determine the terms of cover. Therefore, underwriters should ensure the relevant information is extracted from the Proposal and recorded in the Policy which constitutes the agreement between the parties.


Employer's Liability exclusion – Public Liability Insurance

The Court of Appeal considered the application of an 'Employers Liability' exclusion in a Public Liability Policy in the decision of Ashcroft Supa IGA14. The Court (Ward CJ, Leeming JA and Payne JA) concluded the phrase "with or for" in the exclusion created two separate limbs for the exclusion, being either a contract with the insured (as an employee), or a contract (with a third party) for labour services for the insured.

This decision provides useful analysis for a common exclusion for Employment Liability, and should be considered in circumstances where a claimant is not directly employed by the insured.


Valuers Endorsement 0515 (Modified) – Professional Indemnity Insurance

The Court of Appeal considered the application of an exclusion for valuations undertaken without a prudent lender clause in XL Insurance15, where it was an agreed fact this had not caused the loss the subject of the claim. The Court (Gleeson JA, Bell P and Emmett AJA) held a businesslike and common sense approach to the wording of the Policy meant the exclusion operated for the Loss, even if the loss was not caused by the excluded circumstances.

This decision affirms that a businesslike and common sense approach will be adopted in determining the scope of the cover and excluded circumstances, irrespective of the direct cause of the loss.


Claim made during the Policy period – Professional Indemnity Insurance

In DIF III16 the NSW Court of Appeal considered whether any 'fact, circumstance or event which could reasonably be anticipated to give rise to a Claim' had arisen during the policy period, in considering the coverage available under a Professional Indemnity Policy for a subsequent claim. The Court (Bathurst CJ, Bell P and Meagher JA) dismissed the Appeal, in consideration of the documentation which was available during the relevant period.

This decision provides useful analysis of what constitutes knowledge of a 'Claim' under Professional Indemnity insurance.


VICTORIA

Extension of Policy cover – Property Insurance

In Danbol17 the Supreme Court of Victoria considered a discreet issue as to whether an agreement had been reached for extending an outgoing policy during negotiations about terms for renewal. Following fire damage after the expiration of the Policy, the insured submitted the Policy had been extended by 'unilateral agreement', following an offer of terms for extending the Policy being made by the insurer. Riordan J held some form of acceptance (being direct or implied) was required for the extension, and there was no cover for the fire damage.

This decision provides useful analysis of the conduct which is required for acceptance of terms of insurance, in circumstances where there is no formal acceptance.


What is a 'Loss' – Buyer Warranty and Indemnity Insurance

One of the issues considered by the Supreme Court of Victoria in UDP Holdings18 was whether a arbitration award made in favour of an insured constituted a 'Loss' under the Policy, or whether it constituted a contractual entitlement for recovery against the wrongdoer. and therefore, fell outside the definition of 'Loss. On this issue, Garde J held "the amount of the award does not instantly translate to the ‘Loss’ suffered under the policy", and the insured was required to establish the claim was made in accordance with the provisions of the Policy.

This decision involves various complex issues surrounding the dispute (and formed one of a number of decisions on the case). However, it provides a useful analysis of what constitutes a 'Loss' for the purpose of insurance.


QUEENSLAND

Exclusion for 'Anyone who lives at the Insured address' – Public Liability cover

In Re Murray (deceased)19 the Supreme Court of Queensland considered a discreet point as to whether the claimant (the son of the insured) was living at the insured address at the time of an incident, for the application of an exclusion. The claimant was a resident of the UK who had been staying with his father at the time of the incident. Dalton J held the claimant did not live at the insured address as the evidence supported a finding that he was "a visitor, for a limited period of time and with a limited purpose in mind. He had plans to depart when he had fulfilled that purpose; he had no plans to stay permanently or semi-permanently."

This decision provides useful commentary on exclusions for 'ordinary resident' exclusions, and confirms that an intention to depart at a specified time in the future will fall outside the scope of the exclusion.


Betterment and Reinstatement – Ship Repairers’ Liability Policy of Insurance

In Royal and Sun Alliance20, the Queensland Court of Appeal considered a claim where the market value of a lost navy vessel was considerably less than the replacement cost, and the application of betterment. In dismissing the Appeal, the Court (Fraser and McMurdo JJA and Boddice J) determined the insured was required to put the Commonwealth in the same position as if the loss had not occurred, and the obligation did not allow for any betterment in circumstances where an equivalent vessel was not available. Consequently, this was the Loss which was insured under the Policy.

This decision provides useful summary on calculating loss and issues of betterment in circumstances where it is not possible to reinstate or replace an item to the same value.


WESTERN AUSTRALIA

Insured parties – Construction and Legal Liability

In Tokio Marine21 the Western Australian Court of Appeal considered who was insured under the definition of 'You' in a Construction and Legal Liability Policy, following fire damage during building works. The issue arose as a result of a subrogated recovery being commenced against the contractor responsible for the fire, where the policy in question had a waiver of subrogation clause.

The Court held that as the contractor responsible for the fire could show it was a contractor of the named insured, it came within the definition of Insured in the Policy schedule, being 'all Principals, Contractors, and Sub-Contractors.' Accordingly, the Primary Judge's determination that the use of the phrases 'You' and 'Insured' in the Policy were interchangeable by operation of the definitions was upheld.

This decision provides a useful analysis of the extended operation of who is an Additional Insured under Construction All Risk policies.


Conclusion

The above decisions have confirmed a businesslike and commercial interpretation is given to the terms and conditions of policies of insurance, and the Courts will look at the intention of the parties to the contract in order to determine the scope of available cover.


1 There were no decisions addressing insurance issues in Tasmania, Northern Territory, South Australia or the Australian Capital Territory during this period.
2 All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840.
3 Oceanview Developments Pty Ltd trading as Darwin River Tavern & Darwin River Supermarket v Allianz Australia Insurance Ltd trading as Territory Insurance Office [2020] FCA 852.
4 QBE Insurance Limited v Allianz Australia Insurance Limited [2020] FCA 589.
5 Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588.
6 PC Case Gear Pty Ltd v Instrat Insurance Brokers Pty Ltd (in liq) [2020] FCA 137.
7 Epsilon Insurance Broking Services Pty Ltd v Liberty Managing Agency Limited (No 2) [2020] FCA 20
8 National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 3) [2019] FCA 2139
9 Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd’s of London Subscribing to Policy Number B105809GCOM0430 [2019] NSWCA 271
10 Bank of Queensland Limited v AIG Australia Limited [2019] NSWCA 190
11 Ritchie v Advanced Plumbing and Drains Pty Ltd [2019] NSWSC 1028
12 Worth v International Insurance Company of Hannover SE [2020] NSWSC 249
13 Bechini v IUS Pty Limited (ABN 93 003 359 279 (In Liquidation) [2019] NSWSC 427
14 Marketform Managing Agency Ltd for and on behalf of the Underwriting Members of Syndicate 2468 for the 2009 Year of Account v Ashcroft Supa IGA Orange Pty Ltd [2020] NSWCA 36
15 XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215
16 DIF III – Global Co-Investment Fund L.P v DIF Capital Partners Limited [2020] NSWCA 124
17 Danbol Pty Ltd v Swiss Re International Se [2020] VSC 23.
18 UDP Holdings Pty Ltd (subject to deed of company arrangement) (rec and mgr apptd) v Ironshore Corporate Capital Ltd (No 2) [2019] VSC 645
19 [2020] QSC 155.
20 Royal and Sun Alliance Insurance Plc v DMS Maritime Pty Limited [2019] QCA 264
21 Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2009] WASCA 114.

Contributors

Sally Morshead Senior Associate