You’ll Have To Prove It: Court Confirms Plaintiff Must Prove Causation In Claim Against Insurance Broker

In a recent decision of the Victorian Supreme Court, Justice Osborne considered the scope of s 52 of the Wrongs Act 1958 (Vic), which states that a plaintiff must prove causation.

Osborne J determined that the effect of s 52 of the Act was that the plaintiff bore the burden of proving that a particular insurance policy would have responded to its claim (but for the insurance broker’s negligence) even in circumstances where the broker had positively asserted in its defence certain reasons why the policy would not respond to the claim.

In issue

• Whether a plaintiff bears the onus of proving causation in a claim against an insurance broker.

The background

Danbol Pty Ltd (Danbol) owned a warehouse in West Footscray. Shortly before its Industrial Special Risk Policy was due to expire, it took on a new tenant, who disclosed that it was using the warehouse to store decommissioned gas bottles.

Danbol’s broker notified the insurer of the change of use prior to the renewal, however on the day the policy was due to expire (24 August 2018), the insurer declined to renew the policy due to the change of use. Due to the timing of the refusal to renew, the insurer offered a 14-day extension to allow Danbol to find an alternative policy (14-day extension offer). The insurer also indicated that it would only offer terms if Danbol obtained a survey which confirmed that the decommissioned gas bottles were being stored appropriately.

On 27 August 2018, the broker informed the insurer that the gas bottles were decommissioned off-site by a third party. In light of the further information received, the insurer offered to renew the policy on 29 August 2018 (renewal offer), subject to the condition that Danbol obtain a survey.

The broker failed to pass on to Danbol the:

• 14-day extension offer, or
• renewal offer.

As a result, the policy lapsed.

On 30 August 2018, a significant fire occurred at the warehouse causing damage which was agreed to cost an estimated $9.8M.

In two earlier decisions, the Victorian Supreme Court¹ and the Victorian Court of Appeal² confirmed that an insurance policy did not exist at the time of the fire by reason of the broker’s failure to accept the 14-day extension or the renewal offer.

It was subsequently discovered that the tenant was illegally storing large quantities of highly flammable chemicals, which it failed to disclose.

The broker accepted that it breached the duty of care which it owed to Danbol but defended the claim on the basis that its breach did not cause Danbol to suffer loss. The broker argued that:

• the policy which was offered was to cover a warehouse being used to store decommissioned gas bottles, which did not reflect the true use of the warehouse
• Danbol’s claim on the hypothetical insurance policy would have failed because it failed to disclose the true use of the warehouse either:
  1. during the policy period, in breach of the conditions of the policy, such that the insurer could rely on s 54 of the Insurance Contract Act to reduce its liability to nil, or
  2. prior to the 14-day extension offer or renewal offer, in breach of its duty of disclosure (counterfactuals).

The decision at trial

At trial, it was argued by Danbol that the broker raised the counterfactuals in its pleadings and therefore bore the burden of proving them.

The broker submitted that Danbol’s claim was for compensation and should not be treated as a claim for indemnity under an insurance policy, with Danbol bearing the burden of proving that the policy would not respond to the claim.

Osborne J accepted the broker’s submission and confirmed that s 52 of the Act confirms that the burden of proving causation rests with a plaintiff. In the circumstances of a case involving an insurance broker, this means that a plaintiff must prove every aspect of its claim for damages including that the hypothetical policy would respond to the claim and that the amount of compensation sought would have been paid by the hypothetical insurer.

Notwithstanding that finding, Danbol was successful in its claim as Osborne J determined that:

• the change of use of the warehouse occurred after the 14-day extension offer but prior to the renewal offer
• there could be no breach of the duty of disclosure with respect to the hypothetical policy that would have existed had the 14-day extension offer been accepted (extension policy) because the change of use occurred after the extension policy theoretically commenced
• the insurer could have relied on s 54(2) of the Insurance Contracts Act 1984 (Cth) if the claim was made on the extension policy to reduce its liability to nil because the change of use caused or contributed to the loss
• there was no breach of the duty of disclosure with respect to the hypothetical policy which would have existed had the renewal offer been accepted (renewal policy) because Danbol reasonably believed the information provided to it by its tenant and therefore made no misrepresentation to the insurer, and
• the insurer would not have been entitled to rely on s 54 of the Insurance Contracts Act 1984 (Cth) to decline a claim made on the renewal policy because the change of use occurred prior to the policy being accepted.

Implications for you

The decision provides a timely reminder that it is insufficient for a plaintiff to establish breach in order to be successful in a claim for negligence. The plaintiff must also prove causation. In cases involving insurance brokers, this may be a powerful tool if it appears that the plaintiff is unable to collate the necessary evidence to establish that there was an alternative insurance policy available which would have covered the claim.

The case also provides an important example to insurance brokers of the need to communicate promptly and effectively to both the insurer and its client, particularly when handling a complex renewal.

Danbol Pty Ltd v ACN 007 198 343 Pty Ltd [2026] VSC 305

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