The Federal Court of Australia has held that an insured, the Uniting Church in Australia Property Trust (NSW) (UCPT), was entitled to indemnity by relying on a bulk notification of a "problem".
Between 1999 and 2011, UCPT held various professional indemnity policies which provided for continuous insurance cover. UCPT commenced proceedings seeking:
- indemnity and consequential orders in respect of settlements with third party claimants; and
- declaratory relief for potential claims made by potential third party claimants in the future.
It was UCPT's case that, during the period of insurance (in 2009, 2010 and 2011), UCPT made four bulk notifications that were notifications to Allianz of facts that might give rise to claims within the meaning of s 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA). That is, UCPT claimed that, by operation of operation of s 40(3), the policies were engaged and UCPT was entitled to indemnity. This was because the facts it notified to Allianz over the course of the period concerned sexual or physical abuse involving former students, teachers and staff of a school, which might give rise to claims against UCPT, and which were notified as soon as was reasonably practicable after UCPT became aware of those facts.
Since 19 May 2014, Allianz had either declined indemnity or otherwise reserved its rights in respect of all claims on the basis that the matters were known circumstances or occurrences which could give rise to a claim and which were relevant to Allianz's decision to write the risk. Allianz claimed that UCPT had breached its duty of disclosure.
The trial judge accepted that UCPT had made sufficient notifications and was entitled to indemnity under the policies. Until the hearing of any appeal lodged, the judgment confirms the following key matters regarding the notification of circumstances in Australia:
1. A "hornet's nest" or "can of worms" notification can attract the protections of s40(3) of ICA
Section 40(3) operates for the protection of both insureds and insurers by modifying the operation of certain contracts of insurance to cover claims made outside the period of cover, subject to the integral requirement that the insured notifies the insurer as soon as was reasonably practicable after the insured becomes aware of the facts forming the basis for the notification.
Undertaking an objective analysis of whether a person in the possession of particular facts, at a particular point in time, having the requisite awareness of facts which might give rise to a claim within the meaning of s 40(3) is not necessarily a straightforward exercise and it must be approached contextually by placing oneself insofar as possible into the shoes of the insured of whom it is alleged was armed with facts which might give rise to a claim. This assessment involves consideration of the broad context, and paying due regard to the particular quality and characteristics of facts which it is said might give rise to a claim within the meaning of s 40(3).
A key question for the trial was whether an insured may give a valid notification by communicating a state of affairs.
UCPT argued the facts notified were sufficient and were provided as soon as was reasonably practicable to engage the protection of s40(3) of the ICA. UCPT argued that a notification for the purposes of s 40(3) may be of a "problem" (provided the problem may give rise to a claim) and may be a "hornet's nest" notification.
The Court stopped short of expressing a definitive view as to whether the "hornet's nest" principle identified by UCPT accurately describes the metes and bounds of the potential for a notification under s 40(3) to be a notification of a "problem" described in general terms. The Court did, however, find that s 40(3) does not preclude the notification of a "problem" described in general terms, provided that the "problem" constitutes a notification of facts which might give rise to a claim.
The Court also found:
- it is a matter of fact and degree in each case as to whether the quality of facts notified are sufficient to enliven s40(3), which must be informed by the relevant context and dealings between the insured and insurer;
- applied in this case, the contents of the first and second bulk notifications must be construed against the surrounding circumstances or background;
- it is not necessary for a notification of facts to name potential claimants (such that, in this case "the problem" was not limited to the victims of named alleged perpetrators).
2. An agent of an insurer, such as a solicitor, can give (on behalf of an insured) and receive (on behalf of an insurer) notifications and the insurer will be imputed to have knowledge of notifications given
UCPT submitted that facts were notified to Allianz via defence counsel in its capacity as agent for both Allianz and UCPT.
The Court rejected the submission that the panel firm did not have actual or ostensible authority because:
- there is no authority for the proposition that a solicitor must be invested with specific authority in order to give or receive s.40(3) notifications on behalf of an insurer;
- no limitations existed on the scope of the panel firm's authority; and
- the panel firm represented Allianz as its agent as noted in the panel appointment documentation.
3. In light of the High Court's recent decision in Delor Vue, where an insured is relying on an insurer's previous representation and breach of utmost good faith, all roads now lead to estoppel and to establish detriment
Applying Delor Vue, the Court found in this case that "all roads lead to estoppel" because:
- in the absence of establishing some form of detriment, any waiver or election on the part of Allianz was capable of being revoked; and
- given the "bespoke circumstances of this case, it is difficult to conjure a universe" where Allianz's conduct could be characterised as inconsistent with the commercial standards of decency and fairness and not form the basis of estoppel.
While the Court did not need to form a concluded view on whether UCPT had suffered detriment for the purposes of finding estoppel, the Court reaffirmed the position that in a case alleging estoppel, some form of detriment is required. That is, an insured needs to establish "the loss of an opportunity that was of real and substantial value" if an insurer were to be permitted, broadly speaking, to resile from a previous position.
Implication for insurers
The decision could be appealed.
As always, panel appointed firms need to be cognisant of any notification of facts that they may receive and insurers will need to consider the scope of their retainers with their agents (including defence counsel) in light of all the contractual documentation (including legal service agreements, costs agreement, procedural manuals and other relevant documents). Bulk notifications could prove valid even if the scale of the "problem" is not known at the time the bulk notification is made and a Court will consider the notification against the background at the time (including media reports).