Australia: Key considerations for insurers when considering renewal proposals and asserting non-disclosure

In brief - Court of Appeal upholds finding that QBE 386 not entitled to deny indemnity for alleged non-disclosure

In the recent decision of QBE Underwriting Ltd as managing agent for Lloyds Syndicate 386 v Southern Colliery Maintenance Pty Ltd [2018] NSWCA 55, the Court of Appeal has given insurers a timely reminder of matters they must take into account when considering a renewal proposal, and when contemplating an assertion of non-disclosure by the insured.

Southern Colliery Maintenance cross-claims against QBE 386 after insurer denies indemnity

  • Southern Colliery Maintenance Pty Ltd (SCM) entered into a special services agreement in January 2005 to provide supplementary labour for five mines owned by subsidiaries of BHP Billiton, including Endeavour.
  • The special services agreement contained a number of warranties (e.g., that the work would be performed with due care and skill). It also contained an indemnity that SCM would be liable for any liability, loss or damage arising from injury of SCM's employees.
  • In 2010, Mr Newman, who was an employee of SCM and was working at a coal mine owned by Endeavour, commenced proceedings against SCM (as employer) and Endeavour (as occupier) in relation to injuries he sustained in a workplace incident.
  • Endeavour cross-claimed against SCM alleging that it was entitled to be indemnified by SCM on the basis of (1) the indemnity in the special services agreement; (2) damages for breach of contract; and (3) contribution/indemnity as a joint tortfeasor.
  • SCM made a claim on its public and products liability policy with QBE Underwriting Ltd as managing agent for Lloyds Syndicate 386 (QBE 386) in respect of its liability to Endeavour. QBE 386 denied indemnity on the basis of an assumed liabilities exclusion, and on the basis of non-disclosure of the indemnity clause in the special services agreement.
  • As a result, SCM filed a cross-claim against QBE. All claims other than SCM's claim against QBE 386 settled before the hearing in the NSW District Court. At trial, the judge found against QBE 386 on both bases. The Court of Appeal dismissed QBE 386's appeal.

This article focuses on the Court of Appeal's reasoning in relation to the non-disclosure issue and lessons for insurers that can be drawn from the decision.

Renewal proposal forms and non-disclosure of special services agreement

The crux of QBE 386's non-disclosure argument was that the special services agreement, including the inclusion of an indemnity clause, had not been disclosed before the relevant policy incepted.

The starting point for this contention was the proposal forms that SCM had submitted at each policy renewal. In each proposal form, SCM had answered "no" to the question "Do you assume liability under contracts or hold harmless?" (or words to that effect).

SCM accepted that the special services agreement had not been disclosed to QBE 386 in the original proposal or in subsequent renewals. Instead, SCM argued that it satisfied its duty of disclosure by providing what was referred to as the "Access Warning Letter".

Access Warning Letter refers to service agreement but not clear whether this is the same as special services agreement

The Access Warning Letter was written by SCM's solicitors to SCM in relation to a completely different claim (made by a Mr MacDonald) arising in a different policy year. It is not clear from the judgment whether Mr MacDonald's claim arose in relation to the same mine, or a different mine owned by a BHP subsidiary.
The letter discussed the nature of the liability SCM may have to BHP in the context of potential policy implications, and stated that:

in the service agreement which you have with Billiton, it may well contain clauses [in] which you give an indemnity to Billiton for any loss or damage which is claimed against it by one of your employees. As you know these types of claims normally arise in the case of a coal mine directly from mining operations and in the case of Mr MacDonald he is suing BHP as the occupier [of] premises ...

... MacDonald will sue or has sued BHP as an occupier and as a matter of contract BHP can seek an indemnity from SCM. ... That is the unfortunate impact of an indemnity and that liability arises purely because of promises which you have made in the contract to indemnify BHP
. (At [65].)

These comments did not definitively state that the service agreement between SCM and BHP included an indemnity (although that appeared likely). But for the facts which we will turn to, it also did not definitively state that the "service agreement" discussed in this letter was the same agreement as the special services agreement.

Circumstantial evidence of disclosure of Access Warning Letter

Not only was QBE 386 itself a managing agent for the Lloyds Syndicate, but in this case it also acted through a broker, IUS.

There was no express evidence that QBE 386 actually received the Access Warning Letter before the inception of the relevant policy. The evidence relied upon in the proceedings was circumstantial.

One piece of evidence was an email that SCM's own broker had sent to SCM, copied to IUS, saying "I have sent your email [including a copy of the Access Warning Letter] on to the insurer."

Critically, another piece of evidence was that, around nine days later, after policy inception, solicitors for QBE 386 received a copy of the special services agreement and considered it in the context of Mr MacDonald's claim.

There was a factual gap as to what had happened in between. How, why and when QBE 386's solicitors received a copy of the special services agreement is unclear. However, the Court of Appeal considered this to be evidence consistent with the notion that QBE 386 had obtained the special services agreement at some stage. The Court of Appeal also appears to have considered that this was evidence that the service agreement discussed in the Access Warning Letter was the same as the special services agreement.

In turn, this appears to have informed the Court of Appeal's view as to whether the Access Warning Letter had been disclosed and, if so, what the letter had disclosed to QBE 386. It should be emphasised that the issue before the Court was only whether the Access Warning Letter was itself sufficient disclosure in relation to the special services agreement.

Court of Appeal's findings on evidence and sufficient disclosure

The Court of Appeal made the following findings:

  • The evidence was "overwhelming" that the Access Warning Letter had been sent and the onus lay with QBE 386 to establish that it had not been.
  • Disclosure of the Access Warning Letter to IUS, as QBE 386's broker and agent, was sufficient to constitute disclosure to QBE 386.
  • A distinction is to be drawn between disclosure and knowledge. The duty of disclosure requires merely that the insured communicate a matter to the insurer, and "it is perfectly possible for that to occur by communication to the insurer's agent".
  • QBE submitted that the Access Warning Letter was not sufficient to discharge SCM's duty of disclosure because it did not disclose definitively the terms of a contract containing a contractual indemnity and would have required QBE to seek information from the insured as to whether that contract existed and whether it contained an indemnity clause. The Court of Appeal rejected this submission, finding that the Access Warning Letter was sufficient disclosure as it brought a matter to the underwriters' attention "in such a manner that they can see that if they require further information they ought to ask for it". (At [103].)

These findings were made notwithstanding what appears to have been a clear non-disclosure (or misrepresentation) in the renewal proposal forms.

It is interesting to consider the extent to which the Court of Appeal's findings were informed by the fact that QBE 386's solicitors had subsequently received a copy of the special services agreement, and the inferences which this allowed the Court to draw in relation to what happened during the factual gap and what QBE 386 knew as a result.

Without this critical fact, one may query how the Access Warning Letter would have been viewed in isolation. The Court recognised that in any case of partial disclosure there may be scope for debate as to whether sufficient disclosure has been made, and that this is "a question of degree".

Five things insurers should consider when reviewing renewal proposals or asserting non-disclosure

This decision is a useful reminder of relevant considerations for insurers when reviewing a renewal proposal, and when contemplating an assertion of non-disclosure. These include the following:

  1. If your operation uses an underwriting agent or broker, you must consider all matters that have been disclosed to them by the insured.
  2. Reliance on non-disclosures or misrepresentations in a proposal form may not be enough to found a non-disclosure argument.
  3. Matters that have been disclosed in the context of claims in the previous year(s), including claims completely unrelated to the claim under consideration, must be taken into account. It may be necessary for underwriters to review claim files and discuss in detail with claims handlers.
  4. Disclosure will be sufficient if it raises matters in a manner that underwriters can see that if they require further information they ought to ask for it. In other words, underwriters need to consider not only what a disclosure says, but also what it may suggest.
  5. The onus lies with insurers to show that matters have not been disclosed. Courts will draw inferences from circumstantial evidence to conclude that matters have been sufficiently disclosed.
Enoch Law Bronwen Peberdy
Insurance and reinsurance
Colin Biggers & Paisley

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.

Authors
 
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
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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