Australia: Grant of indemnity: But is it even worth the paper its written on?

Last Updated: 18 February 2017
Article by Pat O'Shea

The Supreme Court of New South Wales in the matter of Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 912 looked at when an admission of liability by an insurer can be withdrawn by the insurer at a later date.

The facts:-

  • The plaintiff, Mobis Parts Australia Pty Ltd, is the owner of a warehouse at Eastern Creek in Sydney that was severely damaged in a storm on 25 April 2015. A large amount of hail accumulated on the warehouse roof and it collapsed.
  • The plaintiff made a claim under a Property Damage & Business Interruption Policy issued by the defendant, XL Insurance Company SE (XL), on 8 August 2014 (the Policy).
  • A consulting engineering firm was retained by XL to undertake a structural engineering review of the warehouse, the objective of which was to assess compliance with the relevant Australian Standards. This was of relevance to XL because of an exclusion clause in the Policy in respect of "faulty or defective design or materials" (the Exclusion Clause) A preliminary report was provided to XL which concluded that the warehouse was in fact compliant with the relevant Australian Standards (the Preliminary Report).
  • According to XL, the maximum limit of liability applicable to the loss was EUR 10 million. The damage was estimated to be in excess of $68 million.
  • Relevantly (to the end result), lawyers acting for the plaintiff were putting pressure on XL to make a prompt decision in relation to indemnity to mitigate business interruption loss, and on 26 May 2015, approximately one month after the loss, the solicitors for the plaintiff reminded XL of its utmost duty of good faith with respect to the indemnity decision.
  • On 5 June 2015 XL wrote to the plaintiff's solicitors in the following terms (the Indemnity Letter):-
  • "...

    Investigations into and the adjustment of the loss by XL has been ongoing since the date of the loss. The assertion that XL is in breach of its duty of utmost good faith is rejected.

    XL accepts liability under the local policy in respect of the loss on the basis of known facts and circumstances, and subject to the applicable terms and conditions.


    XL understands that Mobis does not agree that the limit applies to the loss. Accordingly, XL accepts that if Mobis takes payment of [EUR10m] at this time Mobis's rights remain reserved.

    XL otherwise reserves its position.' [emphasis added]

  • XL subsequently obtained expert evidence to the effect that the Preliminary Report was erroneous and that the warehouse was not in fact built in accordance with the relevant Australian Standards. XI sought leave to amend its defence to rely upon the Exclusion Clause.

The plaintiff opposed this application on the basis that the Indemnity Letter was an admission of liability, which could not be withdrawn by relying on Chesterman J's finding in Thiess Pty Ltd v ERC Frankona Reinsurance Ltd (2007) 14 ANZ Ins Cas 61-717 (Frankona) at [41] that the "acceptance of the claim is in form and substance an agreement" and "will normally amount to a contract, legally binding on the parties".

Bergin CJ, after considering prior authorities of Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 and Frankona allowed the defendant's application, and said:-

"The commercial community depends upon insurers dealing with claims with promptitude. The defendant was investigating a large claim (approximately $68 million) in urgent circumstances in which it had received a preliminary report. In complying with its obligations of the utmost good faith, the defendant admitted liability to the extent that it saw fit, reserving its position in respect of the issue that had arisen in respect of the extent of its liability, and qualifying its admission as being made on the basis of the facts and circumstances then known."

While Bergin CJ did not ultimately decide the point because he allowed the plaintiff to amend its pleadings to include an allegation that XL is estopped from relying upon the Exclusion Clause, his reasoning accords in the writer's view with common sense, and is consistent with the prior authorities on this issue. If the plaintiff is however ultimately successful with the estoppel defence, this would no doubt have drastic consequences for insureds as insurers simply won't extend indemnity, with or without qualification, until the insurer is unequivocally satisfied that there are no indemnity issues, which will inevitably result is extensive delays in claim management. It doesn't look like the issue will be ultimately decided in this matter as the plaintiff foreshadowed that if (as happened) the insurer's application was successful, it would seek to bring an alternative claim under another policy (the "Master Policy") issued by XL, by the second defendant, AIG Europe Ltd, and by UNIQA which, it is said, does not contain such an exclusion. That leave was given. The law on this issue does however now appear quite settled.

Insurers, and their legal representatives, should therefore exercise prudence when drafting extension of indemnity letters so that the admission is qualified on the basis of the known facts and circumstances, particularly when the loss is significant and/or there are potential indemnity issues. A failure to do so will normally result in a binding contract with the insured, even if the facts and circumstances do change so that an exclusion clause has clear application.

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”

Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions