CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd  FCAFC 173 considered the interpretation of a 'Notification of Claims Circumstances' clause. The case examined an insured's awareness of facts and circumstances during the policy period for a claim that was made after the expiry of the policy period and whether the insured was entitled to rely on the clause. The Full Court of the Federal Court held that it was.
The Corrections Corporation of Australia Staff Superannuation Pty Ltd (CCAS) was the trustee of a superannuation fund (fund) maintained for employees of Australian Integration Management Services Pty Ltd (AIMS). AIMS operated state prisons under contracts with state governments. Due to what was described by the primary judge as the 'liquidity crisis of the fund', a number of damages claims were made against CCAS and its directors for breach of duty as well as against AIMS, by AIMS employees.
The essence of the claims was that the AIMS employees did not receive adequate superannuation entitlements (entitlement claims) following their loss of employment with AIMS. The 'liquidity crisis' was caused by the overvaluation in the fund's books of three properties and a spike in redundancies made by AIMS in about July, October and November 2000. Both issues contributed to a lack of diversification of the assets of the fund. Professional advice given to CCAS in 2000 confirmed the fund was insufficiently diversified.
CCAS was insured under a 'claims made' policy issued by CGU (CGU policy). The CGU policy covered CCAS and its directors for liability to third persons for any 'loss payment' for which they were liable arising 'out of any claim...first made against the [insured] during the period of insurance and notified to [CGU] during the 'Indemnity Period'.
The policy period of the CGU policy was 12 November 1999 to 12 November 2000. The 'Indemnity Period' was defined in the CGU policy to be the period of insurance plus 30 days.
The entitlement claims were made on or after 29 April 2002 and therefore fell outside both the policy period and the Indemnity Period of the CGU policy. CCAS, its directors and AIMS made a claim for indemnity under the CGU policy for their liability to the AIMS employees that brought the entitlement claims. Indemnity was rejected, with the result that CCAS, the directors and AIMS brought proceedings in the Federal Court against CGU.
CGU lost at first instance before the primary judge and appealed to the Full Court.
Central to CGU's appeal was the correct interpretation of the policy's 'Notification of Claims Circumstances' clause (clause 4.9) which provided that:
'If during the period of insurance [CCAS] become aware of any fact, situation or circumstance that might give rise to a claim under this policy and elect during the Indemnity Period to give notice in writing to [CGU] of such fact, situation or circumstance then any claim which may subsequently arise out of such fact, situation or circumstance shall be deemed for the purpose of this policy to be a claim made during the Indemnity Period.'
CCAS, its directors and AIMS did not made a claim on the CGU policy during the period of insurance. Consequently they relied on clause 4.9 to support their claim for indemnity.
The primary judge had held that the claim by AIMS employees arose out of a fact, situation or occurrence of which CCAS, its directors or AIMS were aware of during the period of insurance.
CGU submitted before the Full Court that although CCAS and its directors may have been aware of a 'fact, situation or circumstance that might have given rise to a claim, during the policy period, they were not aware of the fact, situation or circumstance that gave rise to the claim that was eventually made'. CGU argued that for CCAS to rely on clause 4.9, it was necessary that CCAS was aware 'not only...of the fact, situation or circumstance, but also that they be aware that it might give rise to a claim of the kind ultimately made' (emphasis added).
The Full Court rejected CGU's interpretation of clause 4.9, for a number of reasons.
First, the Full Court considered the language of clause 4.9 and in particular the words 'any claim' as meaning that the clause did not require the claim that was ultimately made against CCAS to correspond with a claim which CCAS considered, during the period of insurance, to be a claim which might possibly be made. The Full Court reasoned that 'if there is no need for such correspondence, there is no reason why the trustees need have had any particular claim in mind when they were aware, during the period of insurance, of the fact, situation or circumstance in question'.
Second, the Full Court considered the purpose of clause 4.9 and determined that it did not permit the interpretation argued by CGU. The Court considered that the sources of law under which trustees may be held liable for what are alleged to be 'wrongful acts' by the members of a fund are wide, varied and often complex. The Court also stated that commercial experience has shown that facts and circumstances may not appear at the time they occur to have the potential to give rise to claims of particular kinds. The purpose of clause 4.9 would be defeated if such a requirement was imposed on an insured under the CGU policy.
The Court reasoned that '...it is well within the bounds of everyday commercial experience (as revealed in litigation which regularly comes before the courts) that facts and circumstances may not, at the time that they occur, appear to carry the potential to give rise to claims of particular kinds, at least in the eyes of those who later find themselves being held to account in various ways.'
Finally, the Full Court considered the temporal delineation in the policy by virtue of the policy period and the Indemnity Period (which, as stated above, is the policy period plus 30 days). The Court stated that such a construction envisaged a period 30 days after the expiry of the policy period where the insured assesses facts and occurrences occurring during the policy period to determine whether such facts and occurrences should be notified under the CGU policy.
An interpretation of clause 4.9 allowing CGU to decline cover on the basis that the insured was not aware of the potential for facts and circumstances during the policy period to give rise to claims of the type ultimately made against the insured, would be at odds with the purpose of the 30 day extension comprising the Indemnity Period.
The case demonstrates the courts' practice of interpreting insurance contracts to give them business efficacy, using a common sense approach and according to the natural interpretation to be given to the language used in the policy documents. Specifically, it provides guidance on the interpretation that may be given to 'Notification of Claims Circumstances' clauses in similar policies.
The case also confirms the importance of notifying both a current insurer and the insurer on risk during the period when the facts giving rise to the claim arose.
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