The whole purpose of having insurance is so that you are covered
in the event things go wrong. Whether it's insurance for your
home and contents, or a business worth millions of dollars we
expect insurance to cover us. However what if you didn't tell
the insurer 'the whole truth and nothing but the truth'
when we signed up? Does the insurer still have to pay up or can
they get out of indemnifying your loss?
In a recently decided case of Prepaid Services v Atradius (no 2)
 NSWSC 21 the New South Wales Supreme Court had to decide
these very questions.
The Atradius Case
According to the facts in this case, Atradius Credit Insurance
NV (Atradius) issued a trade credit insurance policy to a number of
pre-paid mobile service providers including Prepaid Services, Optus
Mobile Pty Limited, and Virgin Mobile Australia Pty Limited
(collectively known as "the plaintiffs").
Atradius insured the plaintiffs on 24 August 2007 indemnifying
them against any failure by one of their customers, Bill Express
Ltd, to meet payment obligations during the policy period.
Sometime between 1 August 2007 and 1 August 2008 Bill Express
Limited became insolvent, which meant that the plaintiffs were not
paid. Naturally, the plaintiffs lodged a claim for payment under
the insurance policy. However, the insurer declined to pay.
Atradius denied liability under the policy on the basis that the
plaintiffs had failed to disclose certain information at the time
the policy was taken out, fraudulently or otherwise, and
misrepresented matters in relation to Bill Express Ltd's
trading history to them.
The plaintiffs took Atradius to court. Initially they claimed
that Atradius owed them "in excess of $62 million",
however under the policy Atradius was only liable for "a
maximum of $27 million".
Atradius argued that the plaintiffs were not completely truthful
or honest when they took out the insurance, and that if Atradius
had known the real financial situation of Bill Express Ltd they
would never have insured them, thus they shouldn't be made to
During the trial it was accepted that the plaintiffs had made at
least one innocent misrepresentation.
The plaintiffs knew Bill Express Ltd had a questionable
financial standing but never told their insurer. At least, they
never openly disclosed their concerns when the insurer specifically
asked about it.
Justice McDougall had to consider whether, based on section
28(3) of the Insurance Contracts Act, Atradius was entitled to
reduce its liability under the policy to nil, on the basis of a
misrepresentation that was "non-fraudulent". His Honour
came to the conclusion that if the insurer had known the real
financial story of Bill Express Ltd the plaintiffs would have been
"a buyer that Atradius did not want to insure" and that,
based on his findings, Atradius was entitled to reduce its
liability to nil.
Implications For You
While we may not all be dealing with insurance policies worth a
cool $27 million or so, this decision highlights the importance of
making complete and accurate disclosure and representations when
entering into any policy of insurance.
Ultimately, if you want to be covered by an insurance policy,
you need to make sure that you have provided complete and accurate
responses to the insurer!
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
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”
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).