Australia: When is a contract of insurance formed?

Last Updated: 24 April 2012
Article by Danielle Sirio

Leading Synthetics Pty Ltd v Adroit Insurance Group Pty Ltd & Anor [2011] VCS 467 (21 September 2011)


In this case, the Supreme Court of Victoria determined that even where no written policy is prepared, no invoice issued and no premium is paid, a contract of insurance may still exist.


Leading Synthetics Pty Ltd ('Leading Synthetics') supplied synthetic resins to customers on 60 day payment terms. Signum Synthetics ('Signum') was one such customer.

In late 2007, Leading Synthetics had growing concerns that a number of its customers, including Signum, may fall into arrears amidst the start of the global financial crisis. In an effort to reduce its credit risk exposure, Leading Synthetics instructed its insurance broker to obtain credit risk insurance.

A few days prior to 28 April 2008, the broker sent a document to the insurer entitled, 'Indication of Terms' which stated that the terms of the policy were provided without commitment on the part of the insurer until such time as the insurer provided written confirmation that they were on risk for the transaction and agreed to issue a policy.

By 28 April 2008, all the essential terms of the contract of insurance had been agreed between the broker and insurer. The broker had agreed on behalf of the insured that the policy should commence, retrospectively, from 28 April 2008.

On 5 May 2008, the broker sent a further email to the insurer outlining the status of the six different credit risk covers, including the Signum cover, that had been under negotiation, and sought confirmation that the insurer was of the same understanding. In relation to the Signum risk cover, the broker wrote:

'Cover placed awaiting outcome on others prior to processing.'

The broker responded by addressing the other risk covers but did not mention the Signum cover.

In November 2008, Signum was placed into liquidation at which time it owed the insured approximately $2.265 million.

The proceedings

The insured instituted proceedings against the insurer for indemnity alleging that a contract of insurance had been made and, alternatively, the insurer was estopped from denying such a contract was formed due to the email of 5 May 2008. In the event that these arguments failed, the insured sought damages from the broker for failing to obtain cover.

The insurer raised the following arguments in its defence:

  • There was no binding agreement because it had not provided a written policy nor had it agreed to issue a policy to the insured
  • The insured had breached Section 21 of the Insurance Contracts Act 1984 (Cth) by failing to disclose matters concerning Signum's payment history so that liability should be reduced to nil, because it would not have entered the risk had such matters been disclosed
  • Liability was excluded under the automatic stoppage of cover provision of the policy because Signum owed a prior debt of $957 at the time of inception of the policy.

Contract Formed

The Court concluded that despite the non payment of a premium and the absence of a written policy, a contract of insurance had been formed on 28 April 2008.

In determining whether a contract had been formed, the Court considered the objective intentions of the parties to create legal relations, including consideration of what was known to the parties and what was written, said and done.


The Court accepted the insured's estoppel argument because:

  • The broker and insured assumed that the insurance had been placed
  • The insurer induced the assumption held by the broker and insurer that the insurance had been placed by failing to respond to the Signum risk after the email on 5 May 2008
  • The insured refrained from obtaining other insurance because of its assumptions
  • The insurer knew (or ought to have known) that the insured would refrain from obtaining other insurance because of its assumptions
  • The insured's failure to obtain other insurance caused it detriment.

Reduction of liability due to non disclosure by insured

The Court did not accept that the insured had failed to comply with its duty of disclosure for the following reasons:

  • The insured did not know or ought to have known that Signum's payment of a few invoices beyond the maximum payment terms was relevant to the insurer's decision as to whether to accept the risk
  • Even if the duty of disclosure had been breached, the insurer did not persuade the Court that it would have declined the insurance had it been informed of Signum's payment history.

Automatic stoppage of cover

The Court found that the automatic stoppage term did not apply because:

  • The object of the term was to prevent an insured who had the benefit of the credit risk insurance from continuing to supply a buyer, at the insurer's risk, while at the same time abandoning normal prudential practices such as refusing to supply the buyer until trading terms were normalised
  • The fact that a proposed insured has allowed a debt from a buyer to remain long outstanding, before inception of the policy was not considered a manifestation of that mischief
  • The meaning of 'receivable' in the policy was confined to a debt which arose after the commencement of the policy.


This decision reinforces the view that the absence of formalities such as the formal issuing of a policy and payment of a premium are not fatal to the formation of a contract of insurance. Rather, a Court will consider the intentions of the parties by reference to the content and effect of their communications as a whole.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.