Australia: Insurance Alert #56

Last Updated: 26 September 2007
Article by Robert Samut

CGU Insurance Limited v AMP Financial Planning Pty Ltd [2007] HCA 36 (29 August 2007)-

We’ll get back to you.

The facts

In 2000 and 2001, AMP Financial Planning Pty Ltd (AMP) purchased professional indemnity cover from CGU. Some years prior, AMP had issued authorities to Mr Ashok Pal and Mr Anthony Horwath to act as its securities representatives under the Corporations Law. Pal and Horwath conducted a financial advisory business through Macquarie Advisory Group Pty Ltd ("MAG"). In May 1999, Pal and Horwath traded outside their authority by investing approximately $3.4M of investor funds in a company in which Pal was a director and which was in real financial difficulty. The money was lost. In December 1999, MAG was placed into liquidation. ASIC banned Horwath and Pal from participation in the securities industry and from the management of companies. On 16 December 1999 and 5 September 2000, AMP notified CGU of facts or circumstances that might give rise to future claims.

On 14 February 2001, officers of ASIC met with AMP and expressed concern about the delay in compensating investors for losses arising from the conduct of Pal and Horwath. ASIC expected AMP to handle investor claims efficiently and fairly and for this obligation to override any insurance concerns. It was implicit that an inadequate response by AMP could place at risk its securities dealers licence. On 1 March 2001, AMP’s solicitors wrote to CGU’s solicitors enclosing, amongst other things, a summary of the investments that had given rise to demands for compensation. A few days later, AMP’s solicitors sent CGU a proposed procedure for the management of the claims, which became known as "the protocol", and asked for confirmation of cover for liabilities arising out of the conduct of Horwath and Pal.

On 6 April 2001, CGU’s solicitors acknowledged receipt of the protocol and reminded AMP to continue to act as a prudent uninsured. On 11 May 2001, CGU solicitors sent further correspondence in which they stated that their client agreed in principal to the protocol and that CGU would consider AMP’s claim for indemnity, on an investor by investor basis. Correspondence continued to be exchanged between the solicitors for insurer and insured. CGU remained non-commital.

On 5 October 2001, a meeting took place between AMP’s solicitors, CGU’s new solicitors and representatives of CGU. AMP’s solicitors set out the demands that had been made by investors. Later that day they sent a letter to CGU’s solicitors enclosing a spreadsheet which summarised the amounts of the separate demands, including those which had been paid and those which had been rejected or deferred. After the meeting, AMP’s senior legal counsel wrote an internal memorandum revealing that AMP was trying to resolve the claims as soon as possible in order to avoid CGU’s assumption of control of them. All of the settlements were effected by the end of 2001.

AMP considered 63 claims under the protocol, and reached settlements with 47 of those investors, paying out in total a sum of $3.23M.

On 14 November 2002, CGU formally declined indemnity in respect of the investor demands. This letter was allegedly sent to AMP’s broker (but never received; it was later resent). In that letter, CGU said:-

"We are advised that AMP’s solicitors’ legal opinion on the operation of section 819 (of the Corporations Law) is flawed and not supported by case law. We are also advised that for AMP to be liable under section 819 [Corporations Law] what is required on the part of the claimant is an actual belief that Mr Pal’s conduct in providing advice was performed in connection with AMP’s business. Moreover, the investors belief must be reasonably held. It is clear that none of the schedule A investors held the belief that Pal acted on behalf of AMP at the time that the advice was provided or the investments made."

The Litigation

AMP claimed damages from CGU for money paid out to the investors, plus interest and investigation costs.

At trial, AMP did not set out to establish that it was legally liable to the investors. It did not call them, nor provide evidence to show that liability for the investor’s losses attached to it. Rather AMP set out to demonstrate that the process it followed in settling the claims was reasonable in the circumstances by bringing with it, and admitting into evidence, numerous folders containing information relevant to each claim. CGU argued that AMP was not liable to investors by reason of s819(4) of the Corporations Law.

His Honour, Mr Justice Heery, at first instance, found in favour of CGU. Relevantly he held that:-

  • CGU was not "estopped" from denying liability (ie. AMP argued that because of representations made by CGU, it entered into the settlements in the belief that it would be covered). His Honour held that until receipt of the letter of 14 November 2002, AMP recognised that CGU had neither admitted nor denied liability. In his view AMP paid the settlement sums because it considered that it was in its own interests to do so, particularly given the attitude of ASIC.
  • There was no evidence to show that at the time the settlement sums were paid, CGU represented that it would not put AMP to legal proof of its liability to the investors. His Honour was also of the view that s819(4) may well have had the consequence of making MAG, rather than AMP, liable to the investors.
  • CGU was not in breach of its duty of utmost good faith.

AMP appealed to the Full Court of the Federal Court of Australia. By a 2:1 majority, the Full Court ordered that the matter be remitted to the trial judge for consideration of the certain questions relevant to whether CGU was estopped from denying liability, whether it had acted with the utmost good faith and whether the settlements were reasonable. In remitting the matter to the trial judge, the majority acknowledged that CGU might still succeed at first instance. They simply insisted that such success should be based on a proper trial of all the issues.

The decision

CGU obtained special leave to appeal to the High Court. It disputed the basis on which the Full Court of the Federal Court remitted the matter to the trial judge on the issues of estoppel and good faith. By a majority of 4:1, the High Court upheld CGU’s appeal. Justices Callinan and Heydon said that the Full Court was mistaken in remitting the matter back to the trial judge. They held that the questions remitted by the Full Court had not been litigated at trial, were not open on appeal, and in any event could not be answered favourably to AMP in this court. They held:-

"We have already foreshadowed that in our opinion the conduct of [CGU] did leave something to be desired. It does seem to us that there was certainly a degree of opportunism on the part of [CGU] in dealing with the claims against AMP (by the investors). As Kirby J pointed out, this insurance was effected in a market in which ASIC had an important and powerful presence. It follows that it ought to have been within the contemplation of [CGU] that [AMP] might come under pressure from ASIC to settle claims. . . but there were other factors in play. [AMP] seems to have been just as keen to stay out of court as ASIC was to keep the investors out of court. [AMP] was anxious to protect its name and goodwill, and to keep [CGU] at a distance from the management of the claims."

and went on to say:-

"Having regard to the failure to invoke [a senior counsel clause] in the policies, [AMP’s] determination to settle the investor’s claims quickly for its own reasons, and its failure to consider the possibility of exoneration under section 819(4) of the Corporations Law, even if there had been an absence of good faith on the part of [CGU] as to which we make no conclusive finding, there was not such a degree of reciprocal good faith on the part of [AMP] as would entitled it to relief against [CGU]."

Chief Justice Gleeson and Justice Crennan accepted that at the time AMP paid the settlement amounts to the various investors, it was concerned not to put CGU in a position where it might decide to exercise its rights to take over and defend a claim in the name of AMP. Their Honours referred to the internal memorandum prepared by AMP’s senior legal counsel following the meeting on 5 October 2001. Their Honours noted that most of the money was paid out to investors in October and November 2001 (ie. at a time when it was evident to AMP that CGU was not committing to indemnify it). They considered that the settlements were in fact made at a time when CGU was questioning whether AMP liable at all to the investors.

Justice Kirby dissented. He was very critical of CGU’s conduct and let his feelings be known. He said:-

"When the full detail of this extended prevarication and humbug is understood, it is apparent that CGU’s conduct was quite contrary to the honourable and proper conduct of insurers in relation to insureds that should be observed in Australia in accordance with the [Insurance Contracts Act]."

"To condone and endorse, as lawful, the conduct of the insurer in this case, as the majority do, sends quite the wrong signal to Australian insurers concerning their obligations under the Act in their dealings with insureds. It is not a signal that I would endorse. It is not one that this Court should send."


  • The High Court emphasised that the duty of utmost good faith is a two way street. There was ultimately no finding that CGU had breached the duty of utmost good faith that it owed to AMP. If it were not for the evidence that AMP was acting in the manner to deliberately settle claims without CGU’s involvement there may have been a finding of breach. The High Court upheld the appeal but made it clear that it wasn’t pleased with CGU’s conduct.
    • The main criticism levelled against CGU was the lengthy period that it took to decide upon, or at least inform AMP that it was denying indemnity. The delay may well have had a lot to do with the fact that four firms of solicitors acted for CGU over that period. AMP retained one firm throughout.
    • It is difficult to imagine a similar case coming before the Court now with the General Insurance Code Of Practice in place. The Code places stringent obligations on insurers to keep insured’s informed and make prompt decisions on cover.
    • The case illustrates the difficult situation that corporations may be placed in when the subject of an ASIC inquiry. In similar circumstances, insureds ought to involve their insurers in all discussions with ASIC from the outset.
    • Underpinning the judgement was also the fact that it was never shown that AMP was liable to the 47 investors with whom it settled. Indeed the suggestion was that AMP may have escaped liability if it had relied upon s.819(4) Corporations Law.
    • Justice Kirby’s frustration may stem from the fact that he was the chairman of the Australian Law Reform Commission Committee responsible for the report which formed the basis of the Insurance Contracts Act (1984). This may explain the greater emphasis that Justice Kirby placed on the duty of utmost good faith as a deciding factor.

    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.