People affected by the tragic siege in December 2014 at the
Sydney Lindt Café will be entitled to be paid compensation
after the Federal Treasurer declared the event a "terrorist
incident" and for the first time activated the Australian
Reinsurance Pool Corporation.
Insurance policies usually give the insurer the right to exclude
or cancel the insured's claim where there is terrorist event.
As a result, the reinsurance pool was established by the Australian
Government to make sure that insured businesses are not left with
an unfulfilled claim. The siege at the Lindt café provides
an example of how this scheme operates.
When an incident is declared as a "terrorist
incident", the reinsurance pool operates to pay claims under
eligible policies. However, there are limitations on what type of
policy is reinsured in the event of a declared "terrorist
incident" and this article examines those and how the
reinsurance scheme operates.
How does the legislation operate?
Section 9 of the Insurance Contracts Act 1984 (Cth)
permits insurers to vary or cancel cover for risks related to
terrorism. This usually results in insurers including terrorism as
a "general exclusion" or an "excluded peril"
within the insurance policy.
In the event of a terrorist incident, an insurer can rely on the
exclusion to avoid making a payment on a claim. While some insurers
do rely on the exclusion, others are sympathetic to the terrorism
events and, as a matter of public policy, choose not to do so and
pay out claims. This was exemplified in the events surrounding the
Lindt Café where, as at 19 January 2015, three insurance
companies had stated that they would not rely on terrorism
However, if an insurer does rely on the terrorism exclusion
clause, this has the potential to leave the insured without an
avenue to make a claim or receive a payment. To counter this, in
2003 the Australian Parliament passed the Terrorist Insurance
Act 2003 (Cth) (TI Act): a move that was largely a response to
the 9/11 terrorist attacks.
Section 6 of the TI Act provides that where a terrorist act
occurs within Australia, the Treasurer can declare that event as a
"terrorist Incident". This declaration will mean
a terrorist exclusion clause has no effect in an insurance
a reduction percentage on claims can be applied as part of the
the insurer is reinsured with the Australian Reinsurance Pool
What kind of policy can be reinsured?
Generally, insurance policies relating to loss or damage of the
property of the insured will be covered, as will business
interruption and consequential harm insurance. However other
insurance policies, including home building insurance and many
forms of travel-related insurance, are not covered under the
The process of a reinsurance claim
In effect, where an event is declared by the Treasurer as a
"terrorist incident", a claim is made by an insured to
their insurance company, who is then reinsured and paid by the
Australian Reinsurance Pool Corporation. This is demonstrated in
the flow chart below.
Lindt Café – An example of the reinsurance
The TI Act was relied on after the terrorist events at the Lindt
Café in Martin Place. On 15 January 2015, the Treasurer, Joe
Hockey, after consultation with the Attorney-General (as prescribed
by s 6(1) the TI Act) and the Insurance Council of Australia,
declared the hostage situation in Martin Place a "terrorist
incident" with no applicable reduction percentage on
In time, as hostages and the owners of the Lindt Café
make claims against their insurance policies, the relevant insurers
will be reinsured by the Australian Reinsurance Pool Corporation.
This will ensure that the claims are paid out and that none of the
hostages are left with ineffective insurance policies.
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.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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