Wong on Insurance Contracts

Select topics on Insurance Contracts in Australia

Work-in-progress, 22 September 2024

[A] Interpretation of Insurance Contracts

[A1] Meaning of "Claim" in Insurance Contract: 

• See generally, Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) [2006] NSWSC 223, [899]-[910], [1172]-[1194] et seq. eg. "[903] ... claim is the demand which is not the same thing as a cause of action: West Wake Price & Co v Ching [1957] 1 WLR 45 at 55" ... "[905] ... If the word [‘claim’] is to be used with any precision, it must be defined in relation to the object claimed. The grounds for the claim or the causes of action which support it can give it colour and character, but cannot give it its entity…if you identify a claim as something that has to be paid (and that is how it is referred to in the QC clause), it must be something capable of separate payment: you cannot pay a cause of action. It follows, I think, that if there is only one object claimed by one person, then there is only one claim, however many may be the grounds or the causes of action which can be raised in support of it: likewise, where several claims are each dependent on the same cause of action (as, for example, where one cause of action leads to alternative claims for an injunction, damages or an account or other different forms of relief), there remains only one cause of action, however many claims give rise to it." ... [906] In Haydon v Lo & Lo [1997] 1 WLR 198, Lord Lloyd of Berwick, delivering judgment for their Lordships, said the following in relation to the meaning of the word “claim” in a professional indemnity policy held by a firm of solicitors (at 204-206): “Their Lordship’s agree with Mr Kentridge that it is the underlying facts which are determinative, and that the formulation of the claim by the third party cannot be decisive of an insurer’s liability, whether the for the purpose of calculating the deductible, or for any other purpose … But it does not follow that there was a separate claim whenever a separate cause of action arose, nor that there were, as a consequence 43 claims. Although the nature of the demand cannot be decisive, it at least provides a useful starting point in a claims made policy, such as this was. There is nothing here to displace that first impression… that there was only one claim by the Tang estate against Lo & Lo – namely a claim for restitution of the loss caused by a dishonest employee of the firm.” [907] The meaning of the word “claim” is ultimately a question of a construction of the policy. [908] In determining what the claim “is” for the purposes of determining whether it falls within the indemnity provisions of an insurance policy, it is necessary to focus upon “the facts which give rise to the claim and not the form in which the claim is asserted”: Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241 at 255; Allianz Australia Finance Ltd v Wentworthville Real Estate Pty Ltd [2004] NSWCA 100 per Mason P at [23]; State of New South Wales v AXA Insurance Australia Limited (2002) 54 NSWLR 409 per Ipp AJA at [47]." "[909] ... “Plainly a claim can only be enforced by legal proceedings where the appropriate cause of action is pleaded and proved, but the cause of action is not, itself, a claim but the necessary vehicle for its legal enforcement … [Thorman].” ... "[910] The number of claims made under the policy is dependant upon the underlying facts which give rise to the claim or claims. In Haydon v Lo & Lo, Lord Lloyd of Berwick stated (at 204): '… it is the underlying facts which are determinative [of how many claims have been made under a policy], and that the formulation of the claim by the third party cannot be decisive of an insurer’s liability, whether for the purpose of calculating the deductible, or for any other purpose.' [Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241 at 255 per McNair J.] [Both Thorman and Haydon v Lo are closely considered later in the judgment]". (see also [A1.2.1]).

•  Junemill Limited v FAI General Insurance Co Ltd [1999] 2 Qd R 136, 147: "“There is no formula which must be included in a claim by a third party.  ‘What is required, unless the policy expressly so stipulates, is a form of demand or assertion of liability, not a formal demand or assertion of liability.’[19]  It must be remembered that the wording is a matter quite beyond the control of the insured.”"

• MGI South Qld Pty Ltd v Arch Underwriting at Lloyd’s Ltd on behalf of Syndicate 2012 [2016] QDC 98, [20]-[29]: "[Junemill] was applied in Livesay v Hawkins [2012] QSC 122, where again there was a “claims made” policy with a definition of “claim” as (relevantly) “any written demand … for compensation made against the Insured but only in respect of the performance of Professional Services by the Insured.” The insured was a real estate agent, and received a letter from a tenant of a property managed by it which complained about the state of the premises, and included statements as follows: On 25 April at approx 10 am [the plaintiff] attempted to enter the bathroom in this premise (most sliding doors in this house are hard to open and need attention) as she opened the door the overhead pelmet dismantled from the wall and fell on top of her. It caused Personal Injury to her left hand and what appears to have cracked her nose. We are currently seeking medical advice and will advise you of our intentions on this matter. … As per the Tenancy Act and advice from Rental Tribunal, [the defendant] and the owners of a rental property will be held liable for any personal injury claims arising from damage caused to the tenants due to poor living conditions. … We are very disappointed by the state of this home and wish to have the above-rectified ASAP. We are not bad people and wish to enjoy a happy time in our new home ensuring the owners that we will care for their home as if it were our own. If the owners of this property disagree to having the premises repaired and brought to a good standard for the rent they are asking, we will have to vacate the premises and will seek legal advice from the rental tribunal for compensation of any costs involved to do so, due to the breach of our lease. This does not include Personal Injury Claim that we are currently entitled to due to injury caused by dangerous fixture. We will take no legal action if this property is repaired effectively and promptly and made safe for living in. …” Daubney J referred to Junemill (supra) and held that this was a claim within that definition, saying at [42], [43]: “In the present case, the letter of 26 April 2005 expressly asserted an entitlement on the part of the plaintiff to recover for her personal injury claim ‘due to injury caused by dangerous fixture’. Contrary to the submissions on behalf of [the insurer], this statement was not enigmatic. It occurred in a context in the letter in which the plaintiff and her husband were seeking resolution of the complaints they had in respect of many defects in the property, and indicated that they would refrain from action in respect of those defects if the property was repaired. They expressly excluded from that course of action the entitlement which the plaintiff claimed to recover for ‘injury caused by dangerous fixture’. The letter further made it clear that the plaintiff appreciated, and contended, that she had such a claim against [the agent] – she expressly referred to [the agent’s] business being ‘held liable for any personal injury claims arising from damage caused to the tenants due to poor living conditions’. These elements in the letter of 26 April 2005 are sufficient, in my view, for the letter to be considered as a form of demand or assertion of liability. It is not to the point that this demand or assertion of liability was co-mingled with complaints about the condition of the property. I consider it sufficiently clear that the plaintiff was making an assertion of liability on the part of [the agent], even in the context of the other matters mentioned in the letter, for it to constitute a written demand for compensation, within the definition of the term ‘Claim’ in the policy.” There is American authority that a letter alleging wrongdoing and inviting settlement which may convey an implied threat to sue can amount to a claim.[21]  There is also American authority that if a client of an insured asks the insured to do work without remuneration to correct what is said to be an earlier fault in the insured’s work, this too may be a claim.[22] ... The policy in the present case contained an insuring clause 2.1 as follows: “We agreed to indemnify the insured for any claim for compensation first made against the insured and reported to us during the insurance period in respect of any civil liability resulting from any breach of professional duty by the insured in its conduct of its professional business.” Strictly speaking this was a claims made and notified policy, but there was no issue before me that the failure to report the claim to the insurer was a relevant factor; this said to be a consequence of the Insurance Contracts Act 1984 (Cth) s 54.[23]  It was submitted for the applicant that, for there to be a claim as defined there had to be a demand for damages, which involved an assertion of a right to the payment of money which had the character of being damages.  It was submitted that the policy drew a distinction between the making of a claim and the threatening or intimation of a claim: see clause 7.1(c).  That is true, but the word “demand” also appeared in the definition considered by the Court of Appeal in Junemill (supra), and the Court does not seem to have attributed much significance to any notion that the use of that word involves some degree of forcefulness or insistence in the relevant written communication.  That definition spoke of a “demand for compensation” rather than a “demand for damages”, but I do not think that that is of any real significance, in circumstances where damages are simply the legal term for compensation for a legal wrong. In the present case it is not necessary to consider a situation where the unhappy client was demanding something in the way of nonmonetary compensation, because in the present case what was being sought included monetary compensation in the form of reimbursement of legal costs and outlays, and whatever amount was ultimately imposed by the Office of State Revenue.  It was submitted for the applicant, however, that the letter was not a demand for damages, because it was expressed as an offer of compromise, as part of which what was offered was the prospect of a future business relationship.  It was not the assertion of an entitlement, but rather an attempt to negotiate a resolution of the differences between the parties in a way which would prove satisfactory to both.  This was emphasised by the fact that the letter was headed “without prejudice”.  It was not expressed as a statement of an entitlement to any particular legal rights, but rather as a statement of a negotiating position, in terms of what BMM would accept in lieu of what it was legally entitled to. It was submitted that the letter did not assert in terms any breach of duty, and strictly speaking that is true, though it seems to me that if the matter is looked at as a matter of substance and not of form it is asserting that the applicant had a duty to provide advise on payroll tax minimisation, and had failed to comply with that duty, with the result that BMM had been exposed to a liability to payroll tax which could have been avoided.  It is true that a lawyer would expect this document as a “without prejudice” offer to accompany an open letter which did expressly assert a right to damages on the basis of a breach of duty or contract, but in circumstances where on the evidence there was no such open letter, it is a question of determining whether this letter alone, in substance rather than as a matter of form, constitutes a demand for damages. In my opinion the letter does do so.  It asserts, reasonably directly, that there was a breach of duty on the part of the applicant, in that it ought to have given advice as to how BMM could arrange its affairs to minimise or avoid payroll tax, and it failed to do so, with the result that avoidable liability to payroll tax had arisen.  By seeking agreement to pay a certain amount, BMM was in substance asserting an entitlement to damages in at least that amount.  The fact that no particular amount by way of damages was sought as an entitlement is not, I think, of any consequence; that was also the case in Junemill (supra) and in Livesay (supra). Perhaps I should also say that I do not think it matters that BMM evidently regarded the without prejudice letter as a request for compensation, because it was described in terms similar to that when BMM was speaking of it to the ICAA.  The question of whether a particular communication amounts to a claim for the purposes of the policy must depend upon an objective assessment of the communication against the criteria required by the policy, not the subjective intention of the party sending the communication, or for that matter the subjective impression of the party receiving it.  On the other hand, if the letter had not been objectively a claim, that it was so described in a letter sent later to the applicant would be relevant to an objective assessment of whether a claim was then being made. I therefore find that the without prejudice letter of 29 January 2010 amounted to a claim as defined in the second policy which was made on that date, before the insurance period of the second policy.  Accordingly, it was not a claim first made during that period, and therefore did not fall within clause 2.1 and was excluded by clause 7.1(c).  Prima facie, it was outside the cover provided by the second policy."

See especially, John Marshall and Geoffrey Kennett, 'One Claim, One Limit, One Excess?' (1999) 19 Insurance Law Journal 99. 

[A1.1] Meaning of Claim in Policy Wording - The meaning of the word “claim” is ultimately a question of a construction of the policy, and is context-dependent: see Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) [2006] NSWSC 223, [907]; see also, Drayton v Martin (1996) 137 ALR 145; Re St Paul Fire and Marine Insurance Co and Guardian Insurance Co of Canada [1983] 1 DLR (4th) 342 (Ont CA) at 357; Cassidy v Leslie [2010] NSWSC 742.

[A1.2] Meaning of Claim in Policy Wording - not to be equated with "cause of action": See, Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd [2014] FCA 44, [31]-[33].

[A1.2.1] Approach to interpretation: Look to whether the word "Claim" is defined in the policy wording, otherwise, it is not a technical term and the concern is its natural and ordinary meaning: see Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) [2006] NSWSC 223, [899]-[908]; King v McKean & Park [2002] VSC 350, [20]-[29].

[A1.3] In determining what the claim “is” for the purposes of determining whether it falls within the indemnity provisions of an insurance policy, it is necessary to focus upon “the facts which give rise to the claim and not the form in which the claim is asserted”: Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241, 255; Allianz Australia Finance Ltd v Wentworthville Real Estate Pty Ltd [2004] NSWCA 100, [23] (Mason P); State of New South Wales v AXA Insurance Australia Ltd (2002) 54 NSWLR 409, [47] (Ipp AJA); Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) [2006] NSWSC 223, [908];  Junemill Limited v FAI General Insurance Co Ltd [1999] 2 Qd R 136, 147: "“There is no formula which must be included in a claim by a third party.  ‘What is required, unless the policy expressly so stipulates, is a form of demand or assertion of liability, not a formal demand or assertion of liability.’[19]  It must be remembered that the wording is a matter quite beyond the control of the insured.”"

[A1.4] Determining the number of claims made under a policy - whether events underlying claim should be characterised as one claim under the policy: The number of claims made under the policy is dependent upon the underlying facts which give rise to the claim or claims: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (formerly GIO Insurance Ltd) [2006] NSWSC 223, [910], [1172]-[1194], citing and summarizing the relevant principles from Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd’s Rep 7; Haydon v Lo & Lo [1997] 1 WLR 198, and Schipp v Cameron (Supreme Court of New South Wales, 9 July 1998, unreported, Einstein J). See also, Kajima UK Engineering Ltd v The Underwriters Insurance Co Ltd [2008] EWHC 83, [105]-[111] (Akenhead J), cited and followed in CIMIC Group Ltd v AIG Group Ltd [2022] NSWSC 99.

[A1.5] Number of claims - application and construction of aggregation clause - might be too simplistic to reduce criteria for determining number of claims to construction of an aggregation clause - require appreciation of facts of "Claim": See eg: Laina Chan, 'Class actions and multiple plaintiffs — how many claims do they constitute? Bank of Queensland Ltd v AIG Australia Ltd' (2019) 35(5) Australian Insurance Law Bulletin 55 <https://www.2selborne.com.au/wp-content/uploads/2021/07/Class-actions-and-multiple-plaintiffs-how-many-claims-do-they-constitute-Bank-of-Queensland-Ltd-v-AIG-Australia-Ltd-2019-355-ILB-55-Laina-Chan.pdf>; Bank of Queensland Limited v AIG Australia Limited [2019] NSWCA 190 (aggregation in class action proceedings - Ponzi scheme -  finding that on characterisation of the facts, there were 192 claims arising from 192 Class Member Registration Forms which each constituted a written demand of the policy - but later found that the aggregation clause was engaged - engaged the words "[based on] a series of related Wrongful Acts" - finding that Ponzi scheme was a scheme or series of wrongdoing) - Note: this finding seems consistent with cases discussed in Baulderstone Hornibrook supra on characterisation of number of claims, eg, Hayden v Lo (multiples instances of clerk cheating customers of a firm) and Schipp v Cameron (series of wrongdoing by solicitor).

[A1.6] Notification of a Claim (cf Notification of Circumstances s 40 ICA) - sufficient notification / sufficient particulars of a claim: 

I. Is there a 'Claim' - capable of being the subject of a notification to Insurers?

• see eg, Junemill Limited v FAI General Insurance Company Limited [1997] QCA 261: "The letter of 5th September 1990:  In the end, it is unnecessary that I express a concluded view on this point. The reason for that is that the letter of 21st August 1990 was not the last word on the subject from Higgins Teale. On 5th September 1990, those solicitors wrote to Alexander Stenhouse, the appellant's insurance broker. It seems this letter was received on 7th September 1990. In the course of that letter there appeared this paragraph: "We request that you acknowledge receipt of this letter and confirm: .  . . 3. that this letter will operate as sufficient notification of a claim, full details of which will be provided in due course, under the terms of their policy, notwithstanding that the policy may subsequently lapse before a formal detailed claim is made." Having regard to the circumstances known to both Higgins Teale and Novak Tonkin, the claim referred to in that letter, read against the background of the letter of 21st August 1990, is an existing claim, and implies an existing loss. It is not to the point that that letter, read in isolation, may not include sufficient subject matter to constitute a claim. There is no reason why the letter should be read in isolation. Nor does it make any difference that particulars of the claim were not furnished at that time. They do not have to be included."

• MGI South Qld Pty Ltd v Arch Underwriting at Lloyd’s Ltd on behalf of Syndicate 2012 [2016] QDC 98, [20]-[29], referring to Junemill and Livesay v Hawkins & Ors [2012] QSC 122: "It was submitted that the letter did not assert in terms any breach of duty, and strictly speaking that is true, though it seems to me that if the matter is looked at as a matter of substance and not of form it is asserting that the applicant had a duty to provide advise on payroll tax minimisation, and had failed to comply with that duty, with the result that BMM had been exposed to a liability to payroll tax which could have been avoided.  It is true that a lawyer would expect this document as a “without prejudice” offer to accompany an open letter which did expressly assert a right to damages on the basis of a breach of duty or contract, but in circumstances where on the evidence there was no such open letter, it is a question of determining whether this letter alone, in substance rather than as a matter of form, constitutes a demand for damages. In my opinion the letter does do so.  It asserts, reasonably directly, that there was a breach of duty on the part of the applicant, in that it ought to have given advice as to how BMM could arrange its affairs to minimise or avoid payroll tax, and it failed to do so, with the result that avoidable liability to payroll tax had arisen.  By seeking agreement to pay a certain amount, BMM was in substance asserting an entitlement to damages in at least that amount.  The fact that no particular amount by way of damages was sought as an entitlement is not, I think, of any consequence; that was also the case in Junemill (supra) and in Livesay (supra). Perhaps I should also say that I do not think it matters that BMM evidently regarded the without prejudice letter as a request for compensation, because it was described in terms similar to that when BMM was speaking of it to the ICAA.  The question of whether a particular communication amounts to a claim for the purposes of the policy must depend upon an objective assessment of the communication against the criteria required by the policy, not the subjective intention of the party sending the communication, or for that matter the subjective impression of the party receiving it.  On the other hand, if the letter had not been objectively a claim, that it was so described in a letter sent later to the applicant would be relevant to an objective assessment of whether a claim was then being made. I therefore find that the without prejudice letter of 29 January 2010 amounted to a claim as defined in the second policy which was made on that date, before the insurance period of the second policy.  Accordingly, it was not a claim first made during that period, and therefore did not fall within clause 2.1 and was excluded by clause 7.1(c).  Prima facie, it was outside the cover provided by the second policy."

II. Notification - brought to the attention

• a matter of policy construction?; Junemill; MGI South Qld Pty Ltd v Arch Underwriting at Lloyd’s Ltd on behalf of Syndicate 2012 [2016] QDC 98, [28]-[29].

[A2] Meaning of "Property Damage" in Insurance Contract: See generally, Owners - Strata Plan No 91086 v Fairview Architectural Pty Ltd (No 3) [2023] FCA 814.

[A2.1] Damage to property - earthquake damage - latent manifestation: (query analogy to cases of ?design defects): See generally, Darley Main Colliery v Mitchell (1886) 11 App Cas 127, 132: "A house that has received a shock may not at once shew all the damage done to it, but it is damaged none the less then to the extent that it is damaged, and the fact that the damage only manifests itself later on by stages does not alter the fact that the damage is there" (quoted in Burgchard v Holroyd Municipal Council [1984] 2 NSWLR 164, 174). Query, National Mutual Life Association of Australasia Limited v Coffey & Partners Pty Ltd (QSC, 3 October 1989, No 767 of 1983, unreported).

[A3] Meaning of 'Demand: see Morris v Hallett Brick Industries (1996) 67 SASR 328, (Perry J): "there must be a clear intimation that payment is required to constitute a demand; nothing more is necessary, and the word "demand" need not be used; neither is the validity of a demand lessened by its being clothed in the language of politeness; it must be of a peremptory character and unconditional, but the nature of the language is imaterial provided it has this effect".

[A3.1] Meaning of 'Accident' / 'Accidental': (Singapore): Quek Kwee Kee Victoria (executor of the estate of Quek Kiat Siong, deceased) and another v American International Assurance Co Ltd and another [2017] SGCA 10 <https://www.elitigation.sg/gd/s/2017_SGCA_10>. 

[A4] Exclusion Clauses: Defence (to breach) or Definition (of obligations)?: see David Yates, Exclusion Clauses in Contracts (Sweet & Maxwell, 2nd ed, 1982) ch 4, p 123 et seq; Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936, 940 (Denning LJ). 

[A5] Orthodox approach - Exclusion and Insuring Clauses: see Karembla Pty Ltd v XL Insurance Company SE trading as Brooklyn Underwriting [2023] FCA 769, [8] (Jackson J): "the insuring clauses and any exclusion clauses must be read together in a harmonious way so that due effect is given to both". See also, Natasha Burn and Benjamin Wong, 'Contractual Construction of "Tools of Trade" Clauses - Kerembla Pty Ltd v XL Insurance Company SE trading as Brooklyn Underwriting [2023] FCA 769' (2024) 38(8&9) Australian Insurance Law Bulletin 109-111 (co-authored with Natasha Burn). (text)

[A5.1] Note, orthodox approach also involves consideration of conditions, claim conditions, and provisions of the Insurance Contracts Act 1984 (Cth) in relation to disclosure (and non-disclosure), uberrimae fidae.

[A6] Policy terms responds to claim for costs? can costs be sought otherwise?: Fussell v Pilbara Iron Company (Services) Pty Ltd [2024] WADC 72 ; see also, [265]: "For the avoidance of any doubt, that Pilbara Iron is not entitled to an indemnity under the Insurance Policy for its costs does not prevent it from seeking an order for costs as a consequence of its success in these proceedings.  I will hear further from the parties on the question of costs."

[A7] Meaning of "Accident" in Insurance Contracts:

• Paul Trigg, 'What is an 'accident' under a contract of insurance' (2006) 17 Australian Insurance Law Journal (Lexis) 62, archived at <https://perma.cc/BWD2-7ZQP>.

[B] Insurance Contracts Act 1984 (Cth)

[B1] Section 40(1) - "(1)This section applies in relation to a contract of liability insurance the effect of which is that the insurer’s liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract".

[B2] Section 40(3) - "(3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract."

[B2.1] s 40(3) applies to a "claims made" policy: See generally, P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyds Ltd [2021] NSWCA 136, [26] (Kauter), citing Newcastle City Council v GIO General Ltd (1997) 191 CLR 85.

[B2.2] General Operation of s 40(3) - s 40(3) is remedial in nature – it reduced the occasions upon which an insured would otherwise forfeit indemnity by reason of a claim made after the expiry of a policy: See generally, Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [36]; s 40 should not be construed narrowly or with undue technicality Newcastle City Council at 102–103 (Toohey, Gaudron and Gummow JJ); Avant Insurance Ltd v Darshn [2022] FCAFC 48, [36] (Jagot, Derrington and Colvin JJ); a beneficial construction of the Act which achieves its perceived purpose of protecting the insured is to be preferred over a narrow or literal reading: FAI Insurance v Australian Hospital Care (2001) 204 CLR 641, 661 (Kirby J); s 40(3) is concerned with not relieving an insurer of liability “in respect of the claim”: Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [244]; Section 40(3) is not implied into a contract such that if there was a failure to notify, the insurer could refuse to pay the claim: CA & MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 166 FLR 271 (Chesterman J). Rather, section 40(3) alters the operation of the policies of insurance: Avant Insurance Limited v Darshn [2022] FCAFC 48, [35]. Section 40(3) is a facultative provision which enables an insured successfully to claim indemnity under a policy of the type specified even though the insured has not received any claim from a third party during the currency of the policy provided that notice of facts which may give rise to a claim has been given: FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89. 

[B2.2.1] There are two requirements that must be satisfied to enliven s 40(3): 1. The insured must have given notice in writing to the insurer of facts that might give rise to a claim against the insured; and 2. As soon as reasonably practicable after first becoming aware of those facts before the policy expired: see generally, cases cited and summarized in Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190.

[B2.3] Written Notice of Facts - Multiple Written Communications: “an insured may give an insurer notice in writing of facts that may give rise to a claim by multiple written communications to the insurer, which may be considered collectively”: see Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [265], “no notification can be considered in a vacuum”: Ibid at [262]–[266] and [454], [531]; "bulk notifications": Ibid at [540].

[B2.4] Written Notice of Facts - Requirements: 

• Notification of facts necessitates the insured giving notice of objective matters that bear upon the possibility of a claim being made, rather than matters of belief or opinion as to the possibility of a claim being made: Kauter at 119 [33]. The process of characterising a purported notification is therefore to be approached objectively, not subjectively, by turning one’s mind to the precise facts which are said to form the basis for the notification: 1. must identify facts that might give rise to a claim, ie, information that assist in identifying a particular claim (Esined No 9 Pty Ltd v Moylan Retirement Solutions Pty Ltd [2020] NSWSC 359); 2. does not include opinion or view as to bare possibilities (Kauter; Esined); 3. an opinion is not necessarily precluded as a “fact” within meaning of s 40(3), provided that the opinion exposes the underlying facts which might give rise to the claim (Kauter), ie, it identifies the factual basis or carry with it notification of facts that may give rise to a claim; 4. An opinion may form the firmament above a substratum of facts which support the process of reasoning that led to its adoption, but, at the end of the day, one must have regard to the terms of s 40(3) which concern the notification of facts which might give rise to a claim: see Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [241]-[244]; The language of s 40(3) necessitates that there be a “sufficient correspondence” between the facts notified to the insurer that likely give rise to a claim, and a claim subsequently made or arising from those facts: Kauter at 119 [31]; Uniting Church v Allianz at [244]; "deliberately undemanding test": CIMIC Group Ltd v AIG Group Ltd [2022] NSWSC 999, [172]; Facts refer to “recognisable correspondence” between ‘facts that might give rise to a claim’ given in writing to the insurer within the insurance period and ‘the claim, when made’”, and “the “facts that are notified must at least point towards ‘a claim’, not mere ‘bare possibilities’”: Avant Insurance Limited v Darshn [2022] FCAFC 48, [38]; The content of a notification can be expressed as an opinion, eg, “I am going to be sued”, if presented together with facts that undergird it, and whether those facts might give rise to a claim. An opinion may form the firmament above a substratum of facts which support the process of reasoning that led to its adoption: Uniting Church v Allianz at [243]; 

• "recognisable correspondence" between ‘facts that might give rise to a claim’ given in writing to the insurer within the insurance period and ‘the claim, when made’: Avant Insurance v Darshn [2022] FCAFC 22, [38] (Jagot, Derrington and Colvin JJ). 

• Esined No 9 Pty Ltd v Moylan Retirement Solutions [2020] NSWSC 359, Slattery J stated, [537]-[540] (affirmed on appeal in Kauter NSWCA): “Appendix A does not improve the communication. The first sentence commencing, “A small number of clients…” gives no information. Read with the answers to the previous questions the proper inference is that Mr Moylan is not able to name the clients, perhaps upon the basis that he does not know which “small number of clients” will end up being unpaid and therefore he cannot identify which clients might be the claimants. But that being so, there is no identifiable relationship between “facts” and “a claim”. The statement in the second sentence, “all appropriate disclosures were made” adds nothing more. It is not client specific, transaction specific, or time specific. Nor does the statement in the third paragraph that “no loss has been crystalised” add anything extra. Nor does the statement that there is “a chance of a claim against MRS” in the last sentence. Appendix A conveys that no particular client, no particular transaction, no particular loss and no particular documents can be identified. This is not notification of “facts”. It is only a notification of “possibilities”. And more specifically it is not notification of “facts” that bear any relationship to a “claim”. Cases such TBI Pty Ltd v AON Financial Planning Limited (2004) 13 ANZ Ins Cas 61-601; [2004] VSC 40 illustrates the importance of the focus within s 40(3) upon “notification of facts that might give rise to a claim”. Merely to identify circumstances in such vague terms is quite insufficient. And here the MRS covering letter of 15 January 2013 is important. So far as claims are concerned, the overall message it delivered was that they were just “a potential possibility”. The plaintiffs have not established that notification has taken place under the 2012/2013 policy.”

• Contra, eg, Timbertop Finance Pty Ltd (in liq) [2015] VSC 338, [60]-[63]: "The policy includes a ‘notification of circumstances’ provision pursuant to which, during the policy period the insured may notify the insurer of any circumstances reasonably expected to give rise to a claim.  The notice must include reasons for anticipating that claim and full particulars as to dates, acts and persons involved. Whether such a provision is included in the policy or not, s 40(3) of the Insurance Contracts Act will enable notification of such circumstances and, in effect, extend the policy to cover a later claim falling within those circumstances. The notice of a possible claim that is given must, however, relate to the later claim for which cover is sought.  The facts notified must be the basis of the claim that is to be brought within the cover, ‘for there is a plain identity between the claim to which the facts to be notified are related and the claim for which the insurer is not relieved from liability’.  Thus, the claim for which indemnity is later sought must arise out of the circumstances notified, not just by reference to the subject matter, but by a chain of causation. The particular notification of circumstances need not indicate that a claim will follow.  A mere possibility is enough, but the facts must be causally related to the potential claim. The notification of the claim made on behalf of the defendant arising out of the letters of 21 July 2009 is quite different from the claims the subject of this proceeding. The fact that they each give rise to claims for misleading or deceptive conduct under some of the same provisions of the Corporations Act does not lead to the conclusion that the latter falls within the former." ((NB: Notification of a claim could potentially constitute a notification of circumstances, provided there is identity in the facts notified)). 

• DIF III – Global Co-Investment Fund LP v Babcock & Brown International Pty Limited [2019] NSWSC 527, [377]-[381] (note, potentially reveresed in NSWCA appeal - notification of a 'problem').

• Expert opinion sufficient as fact: MS Amlin Corporate Member Limited v LU Simon Builders Pty Ltd [2023] FCA 581.

[B2.5] Written Notice of Facts - that might give rise to a claim - Notification of a "Problem": The notification may be of a “problem” which, in and of itself, may give rise to a claim or claims by persons or entities bearing particular characteristics, without the insured necessarily having knowledge of the quantum of such claims or the identity of the claimant or claimants: DIF III — Global Co-Investment Fund LP v DIF Capital Partners Ltd [2020] NSWCA 124 , [171] (Meagher JA, with whom Bathurst CJ and Bell P agreed); Kauter (at 119 [31]); Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [245], [258]; BB v Helena College Council Inc [2021] WADC 42, [272]-[282].

[B2.6] Written Notice of Facts - that might give rise to a claim - Notification of a "State of Affairs": "In DIF III, Meagher JA summarised and adopted the approach to the construction and application of contractual deeming clauses analogous to s 40(3) in the Court of Appeal decision of Euro Pools Plc v Royal & Sun Alliance Insurance Plc [2019] EWCA Civ 808; (2019) Lloyd’s Rep IR 595 . Meagher JA considered that a notification need not be limited to particular events and may constitute a “problem” described in general terms, provided that the problem may give rise to a claim, and notwithstanding that “the quantum and character of such claims, or the identity of claimants, may not be known at the date of notification” (at [171]). In Kauter, Meagher JA reaffirmed his reasoning in DIF III and suggested that a fact for the purposes of s 40(3) of the Act will be “one which ‘might give rise to a claim’ if, alone or taken with other notified facts, it is ‘reasonably [to] be regarded’ as having that character” Kauter (at 119–120 [33])": Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [252].

[B2.7] Written Notice of Facts - that might give rise to a claim - immaterial that "Problem" is described in general terms, or quantum and parties unknown: "It is immaterial that a notification of a “problem” is described in general terms, or that the quantum, character or identity of claimants may be unknown at the date of the notification: DIF III (at [171])": Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [497].

[B2.8] Written Notice of Facts - “as soon as reasonably practicable after the insured became aware of those facts”: "this element is concerned with providing the insurer with knowledge of claims that might be made shortly after the insured acquires that knowledge: Kauter (at 119 [32])": Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [248]; this is an objective evaluation of the circumstances: Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190, [249]-[250].

[B3] Section 54 - Operation of s 54: 

• Where an insurance policy provides that an insurer may refuse to pay a claim by reason of some act of the insured or of some other person after the contract is entered into, and which does not engage subsection (2), an insurer may not refuse to pay the claim by reason of only that act, but liability is reduced to extent of prejudice. Query, is subsection 2 engaged? Subsection (2) is engaged where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. Subsection (2) is not engaged where: 1. the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act;  or 2. the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act; or 3. Where: (a)  the act was necessary to protect the safety of a person or to preserve property; or (b)  it was not reasonably possible for the insured or other person not to do the act; Section 54(2) “takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim. The section directs attention to the reason founding the refusal, namely, a particular act or omission on the part of the insured or of some other person”: Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 (Dawson, Toohey, Gaudron and Gummow JJ).

• "The following propositions regarding the interpretation of s 54 are also relevant: (a) The section is remedial in character and its language should be construed so as to give the most complete remedy that is (Page 23) consistent with the actual language employed and to which the words are fairly open: Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652, 675. (b) The section operates only where, but for the section, the effect of a contract of insurance according to its terms would be that the insurer may refuse to pay a claim. Consequently, if the section applies, the parties to a contract of insurance will necessarily have different rights and duties from those for which their contract of insurance provided: FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 [20]. (c) It is necessary to pay close attention to the elements with which the section deals: the effect of the contract of insurance between the parties; the claim which the insured has made and the reasons for the insurer's refusal to pay that claim: Australian Hospital Care [39]. (d) The section directs attention to the effect of the contract of insurance on the claim that the insured has, in fact, made on the insurer. It requires the precise identification of the event or circumstance in respect of which the insured claims payment or indemnity from the insurer: Australian Hospital Care [40]. (e) The section does not permit, let alone require, the reformulation of the claim that the insured has made. It operates to prevent an insurer from relying on certain acts or omissions to refuse to pay the particular claim. The actual claim made by the insured is one of the premises from which consideration of the application of the section must proceed. The section does not operate to 'relieve the insured of restrictions or limitations that are inherent in that claim': Australian Hospital Care [41].": Highway Hunters Pty Ltd v Maxwell [2012] WASC 53, [67], but cautionary treatment required - s 54 directs attention to a claim in fact made by the Insured, and not limited to the insured risk. 

> "The Antico construction of s 54(1) is inconsistent with the Insurers' proposition that the "claim" to which the section refers is limited to a claim for an insured risk. That construction is reinforced by the reasoning in FAI. The plurality there emphasised both that s 54(1) "directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made"and that "[n]o distinction can be made", for the purposes of the section, "between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting an entitlement to claim" ... The Insurers sought support for their argument from a statement of the plurality in FAI that the section "does not operate to relieve the insured of restrictions or limitations that are inherent in [the] claim"[14].  They misapply that statement in equating its reference to restrictions or limitations that are inherent in a claim with any restriction or limitation on the scope of the cover that is provided under the contract.  A restriction or limitation that is inherent in the claim which an insured has in fact made, in the sense in which the plurality in FAI used that terminology, is a restriction or limitation which must necessarily be acknowledged in the making of a claim, having regard to the type of insurance contract under which that claim is made. Thus, as explained in FAI, the making of a claim under a "claims made and notified" contract necessarily acknowledges that the indemnity sought can only be in relation to a demand made on the insured by a third party during the period of cover.  The section does not operate to permit indemnity to be sought in relation to a demand which the third party omitted to make on the insured during the period of cover but made after that period expired.  Similarly, the making of a claim under a "discovery" contract, of the type in issue in FAI itself, necessarily acknowledges that the indemnity sought can only be in relation to an occurrence of which the insured became aware during the period of cover. The making of a claim under an "occurrence based" contract, the type of insurance contract in the present case, necessarily acknowledges that the indemnity sought can only be in relation to an event which occurred during the period of cover.  That restriction or limitation is inherent in a claim which is made under such a policy.  But it is of no moment in the present case. The Insured having made claims seeking indemnity under the Policy in relation to accidents which occurred during the Period of Insurance, it is sufficient to engage s 54(1) that the effect of the Policy is that the Insurers may refuse to pay those claims by reason only of acts which occurred after the contract was entered into. Precisely how the Policy produced that effect is not to the point. The conclusion of the Court of Appeal in the present case was correct.":  Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33. 

> "Put another way, section 54 does not prevent an insurer from refusing to pay a claim which is not in respect of a risk insured by the policy: Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 at [131] (Meagher JA, with whom Macfarlan and Emmett JJA agreed).": Drummond v Gordian Runoff Ltd [2023] NSWSC 607, [8]. 

• Requires examination of the Policy as a whole: "No distinction can be made, for the purposes of s 54, between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting an entitlement to claim. The substantive effect of the contract can be determined only by examination of the contract as a whole.": FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641, McHugh, Gummow and Hayne JJ at 656.

• See also, Watkins Syndicate 0457 at Lloyds v Pantaenius Australia Pty Ltd [2016] FCAFC 150, [48]-[49] (Allsop CJ, Rares and Besanko JJ).

[B3.1] Section 54(2) - “reasonably be regarded as being capable of causing or contributing to a loss”: 

• Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332; 

• Austcan Investments Pty Ltd v Sun Alliance Insurance Ltd (1992) 7 ANZ Ins Cas 61-116 (SASFC); 

• Mann’s Annotated Insurance Contracts Act, 7th ed, [54.20];  

• Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at Lloyd’s [2016] FCA 1.

• Commens (T/as Subsonic Music) v Certain Lloyd's Underwriters subscribing to Policy No ALTCNX1900332 (Trial Judgment) [2024] FCA 434: "[136]  Mr Commens relies on s 54 of the Insurance Contracts Act 1984 (Cth) (ICA) in the event that any of the exclusion clauses are held to apply to his claim. It is not strictly necessary for me to deal with this question, as I have held that the insuring clause was not engaged by reason of the fact that there was not a “necessary cancellation” in the present case. However, for completeness I will deal also with this question. ... [138]  I accept that the decision by the owners of Riverwood Downs to refuse to allow the event to be held on their property was an “act” of persons other than the insured within the meaning of s 54. Further, the failure of Mr Commens to obtain the approval of the Council in a prudent and timely manner, and his failure to obtain the consent of the owners of Riverwood Downs in a prudent and timely manner, were “acts” of the insured within the meaning of s 54, noting that a reference to an act includes a reference to an omission by reason of s 54(6)(a). However, in my view each of those acts could reasonably be regarded as being capable of causing or contributing to a loss under the Policy, within the meaning of s 54(2). The lack of timely consent by the Council and by the owners substantially increased the prospect of the event being cancelled, thereby causing loss to Mr Commens as the organiser of the event. Accordingly, I reject Mr Commens’ reliance on s 54 in relation to the exclusion clauses. It is not necessary for me to deal with the further question as to whether s 54 does not operate on the basis that the relevant restrictions or limitations under the exclusion clauses are inherent in the claim, in the sense referred to by the High Court in Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33; (2014) 252 CLR 590 at [23] (Hayne, Crennan, Kiefel, Bell and Gageler JJ)."

[B3.2] Relationship between s 40(3) and s 54(2) - query if s 54(2) can operate to ameliorate s 40(3)?: 

• Section 40(3) and 54 are stand alone provisions, and that the language used in s 54 suggests that its intended operation was upon the “effect of a contract of insurance” rather than upon the effect of a contract of insurance taken together with s 40(3) or the provisions of the Act more generally: Darshn v Avant Insurance Limited [2021] FCA 706, [195] (Moshinsky J); Antico v Health Fielding Australia Pty Ltd (1997) 188 CLR 652, 675. Despite this, In Einfeld v HIH Casualty & General Insurance Ltd (1999) 152 FLR 211, Rolfe J opined that to the extent that s 40 provides a statutory extension to a policy of insurance, there is no reason why the ameliorating provisions of s 54 cannot apply to it; The "act" of failing to notify the insurer of facts that may give rise to a claim during the term of the policy is an “omission” within meaning of s 54(1) and engages s 54(1) because the effect of the contract was that the insurer could refuse to pay the claim based on the occurrence of this “act”: FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641(per McHugh, Gummow. Kirby and Hayne JJ) - though query is this is correct? 

• In Avant Insurance Ltd v Burnie [2021] NSWCA 272, it was stated: "[102]  Section 54 applies only where the effect of a contract of insurance according to its terms would be that the insurer may refuse to pay a claim. If it were the intention of Parliament that s 54 should modify the operation of s 40(3) one would expect to find some indication of the intention in the provision. There is nothing in s 40(3) that makes the requirement that notice be given during the currency of the policy subject to s 54. [103]  Section 54 does not permit the reformulation of a claim, such that it could work with s 40(3) to allow a failure to notify facts and circumstances to be overcome where such a “discovery” clause was not a term of a policy that is properly characterised as a “claims made” policy. Section 54 operates to prevent an insurer from relying on certain acts or omissions to refuse to pay a particular claim. The section does not operate to relieve the insured of restrictions or limitations, such as the temporal limits within which a claim must be made on the insured in a “claims made” policy, that are inherent in that claim. Section 54 cannot be combined with s 40(3) to modify a “claims made” policy to cover a claim arising out of facts and circumstances that were not notified during the period of insurance of the policy. The two sections have different functions." (**see Avant v Burnie for general discussion of s 40 and s 54 ICA).

• Affirmed, Fairbank Haven Pty Ltd v Merkon Constructions Pty Ltd [2024] VSC 32. 

[B3.2.1] Does s 54 even apply?: scope of the claim against insurer v scope of the cover by insurer. s 54 directs attention to the former. 

• If policy on its terms does not respond, query whether s 54 applies where the refusal is on the basis of policy non-response, rather than a term permitting the Insurer to refuse to pay a claim: Avant Insurance Ltd v Burnie [2021] NSWCA 272, [102]; see also, "It is apparent that, in the circumstances considered in Greentree, the effect of the contract of insurance was that the insurer might refuse to pay the claim that had been made. This was not, however, by reason of any act or omission of the insured or some other person. The claim made by the insured was for indemnity against liability for a demand that was not a demand of the kind dealt with by the policy because it was not a demand by a third party made within the period of cover. The reason for refusal was not some act or omission of the insured or some other person. It was that the policy did not extend to the demand referred to in the claim for indemnity.": Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at Lloyds [2016] FCA 1, [67], citing FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641, at 658-660 [44] (McHugh, Gummow and Hayne JJ).

• "The reason why Liberty may properly refuse to pay the purported claim is because Icon seeks indemnity in respect of alleged property damage that did not occur within the period of insurance under the relevant policy. Section 54 contemplates a restriction or limitation “which must necessarily be acknowledged in the making of a claim” by Icon: Maxwell (at 598 [23] per Hayne, Crennan, Kiefel, Bell and Gageler JJ).": Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493 (Lee J).

• ?It does, but does not prevent an Insurer from refusing to pay: "[S]ection 54 does not prevent an insurer from refusing to pay a claim which is not in respect of a risk insured by the policy: Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 at [131] (Meagher JA, with whom Macfarlan and Emmett JJA agreed).": Drummond v Gordian Runoff Ltd [2023] NSWSC 607, [8]. 

[B3.2.2] Applies to a claim for contribution in circumstances of double insurance: Watkins Syndicate 0457 at Lloyds v Pantaenius Australia Pty Ltd [2016] FCAFC 150, [51], [53] (Allsop CJ, Rares and Besanko JJ). 

[B3.3] Example where amount of cover under s 54 (and by s 28 defence) reduced to zero: Cimic Group Limited v AIG Group Limited [2022] NSWSC 999, aff'd on appeal: Zurich Australian Insurance Limited v CIMIC Group Limited & Ors [2024] NSWCA 229, [371]. 

[B3.4] Requirement of notification and making of a (precise) claim against Insurers: Cimic Group Limited v AIG Group Limited [2022] NSWSC 999, [637]: "CIMIC has not yet notified and made a claim against the 2010 Insurers and therefore section 54(1) has not been enlivened. Therefore, even if I did consider the operation of section 54 IC Act in the context of the First Declaration, the operation of the provision is premised on there already being, in fact, a claim by the insured. As the plurality (McHugh, Gummow and Hayne JJ) found in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 at 659 [40] : Section 54 directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made. It is not concerned with some other claim which the insured might have made at some other time or in respect of some other event or circumstance. It requires the precise identification of the event or circumstance in respect of which the insured claims payment or indemnity from the insurer."

[B4] Section 28: avoidance of contract where material failure of Insured was fraudulent; or reduction of liability where failure was material. 

• "Issue 7: Did the primary judge err in finding that the 2011 Insurers were entitled to reduce their liability to nil under s 28(3) of the Insurance Contracts Act? This issue arises from CIMIC’s notice of cross-appeal in the Berkley Appeal. Specifically, CIMIC contends, by grounds 2 and 6, that the primary judge erred in finding that each of the 2011 Insurers was entitled, pursuant to s 28(3) of the Insurance Contracts Act, to reduce their liability in respect of the Company Securities Claims to nil. In support of these grounds CIMIC contends that the primary judge made no findings as to what any of the 2011 Insurers would have done “had the Savage Statements (and no other matters) been disclosed” and that it was not open on the evidence for the primary judge to make any such findings. CIMIC further contends, by ground 8, that the primary judge erred in finding that each of the 2011 Insurers was entitled, pursuant to s 28(3), to reduce their liability to nil on account of CIMIC’s misrepresentation. In this part of the judgment we consider only the factual issues arising as to s 28(3). The issues raised as to the construction of s 28(3) are considered below. CIMIC’s submissions misfire to the extent that they rely upon a characterisation of the “matter” which the primary judge found that CIMIC was required to disclose under s 21(1) of the Insurance Contracts Act as being the Savage Statements. As set out above, the matter which the primary judge found ought to have been disclosed under s 21(1) was the matters identified in the Iraq File Note, including that the substantive matters were communicated by a person in the position of Mr Savage. Section 28 of the Insurance Contracts Act Section 28 of the Insurance Contracts Act is set out above at [24]. It is helpful to reiterate it here: 28   General insurance (1)   This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into: (a)   failed to comply with the duty of disclosure; or (b)   made a misrepresentation to the insurer before the contract was entered into; but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into. (2)   If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract. (3)   If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made. There are two questions under s 28. First, whether the insurer would have entered into the contract for the same premium and on the same terms if the relevant non-disclosure or misrepresentation had not occurred. Second, whether the insurer has shown that the terms upon which it would have entered into the contract would have led to a reduced liability to indemnify CIMIC in respect of the various losses that occurred. Applicable principles The insurer bears the burden of proving that it would not have entered into the contract for the same premium and on the same terms as it did if the matter that ought to have been disclosed had in fact been disclosed: Manchester Unity Total Care Building Society v MGICA Ltd (1991) 6 ANZ Ins Cas 61-062 at 77,154 (Beach J). By analogy with the approach taken to s 54 of the Insurance Contracts Act, s 28(3) requires proof of what the insurer would have done if the non-disclosure or misrepresentation had not occurred. It is not sufficient for the insurer to prove that it lost a chance to reduce its liability: Moltoni Corporation Pty Limited v QBE Insurance Limited (2001) 205 CLR 149; [2001] HCA 73 at [16]-[20]. As set out in relation to s 28(3) by Meagher JA (Macfarlan and Emmett JJA agreeing) in Prepaid v Atradius at [71]: “This provision requires an inquiry as to the position the insurer would have been in if the relevant misrepresentation had not been made. It is the same as would be made if the insurer was claiming damages for misrepresentation in the amount by which it seeks to have the insured’s claim reduced. Accordingly, it must establish on the balance of probabilities what it says its position would have been if the misrepresentation had not occurred. That is so notwithstanding that the hypothesis upon which the reduction of liability is based is not an historical fact.” In Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2014] NSWCA 440 (“Atradius Credit”), Macfarlan JA (Meagher JA and Sackville AJA agreeing) held at [71] that it was not incumbent upon an insurer: “… to prove each step that would have been taken within its organisation in the hypothetical circumstance that s 28(3) of the Insurance Contracts Act required to be addressed. Section 28(3) does not specify any particular mode of proof that need be adopted by the insurer. It is sufficient for it to prove on the balance of probabilities what the outcome would have been in the hypothetical circumstance.” As Sackville AJA held in Stealth Enterprises v Calliden at [87], evidence as to what an insurer would have done had a particular matter been disclosed has to be considered with an awareness that the evidence is given through the “prism of hindsight”. Thus, such evidence needs to be assessed not simply on the basis of the credit of the witness, but also by reference to the objective probabilities. Background facts and the primary judge’s findings as to s 28(3) As no party made any submissions about an intermediate possibility whereby the 2011 Insurers’ liability was reduced to something other than nil, the primary judge was presented with a binary choice: at J[332] and [366]. There was no suggestion on appeal that the position was otherwise. Her Honour’s ultimate finding, at J[365], was: “I consider the evidence supports the 2011 Insurers’ case that, had there been disclosure of the information concerning the Iraq File Note, the 2011 Insurers would not have entered into the 2011 Policies on the same terms, without including liability exclusions for losses attributable to the Iraq File Note. The precise form of those exclusions is not relevant to that conclusion; some sort of action would have been taken in response to the notification. CIMIC’s submissions largely avoided this point and do not go as far as suggesting that no action would have been taken, such that the terms of the 2011 Policy would have been exactly the same.” (Emphasis in original.) As is plain from that passage, the primary judge addressed the issue arising under s 28(3) on the basis that the factual premise for the counterfactual enquiry was “disclosure of the information concerning the Iraq File Note”. Read in the context of her Honour’s findings at J[322], we construe this as referring to the “matters identified in the Iraq File Note”, which the primary judge found ought to have been disclosed, also described by the primary judge as the “Iraq File Note facts”, at J[328]. This has some significance given that, in the course of analysing the evidence relied upon by the 2011 Insurers, the primary judge used a range of different terminology to refer to the relevant premise for the counterfactual enquiry under s 28(3). On a fair reading of the judgment, it is apparent that there was no mismatch between the premise for the counterfactual enquiry undertaken under s 28(3) and that which her Honour found ought to have been disclosed under s 21. The different terminology used at times in the course of analysing the evidence does not indicate otherwise. As is clear from the factual chronology set out above, Leighton did not disclose the matters identified in the Iraq File Note prior to the inception date for the 2011 Policies. ... 

[B4.1] Co-Insureds: Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606, 616, 619: "It is natural to read the reference in that sub-section to "an insured" as a reference to each and every insured when the context is one in which the statute sets out to impose a duty to disclose material facts to an insurer. As Samuels J.A. noted in the Court of Appeal, the insurer has an interest in the individual history and claims record of each person who seeks insurance with the insurer. It would not harmonize with this context or with the existence of the duty of utmost good faith imposed by ss.13 and 14 to read s.21 as creating only a joint duty to disclose, that is, a duty to disclose limited to the joint acts and omissions of the co-insured."

[B5] Unnamed Insureds - Extension of Cover to Unnamed Insureds: 

• Hansen Yuncken Pty Ltd v The Hollard Insurance Company Pty Ltd [2024] FCA 398: "[43]  Overall, the Policy contemplates the inclusion of other entities and persons by three different means. The fact that the drafting is poor, and that the extension in the Schedule does not mesh seamlessly with the Policy Wording, does not assist Hollard. The insertion of the extension into the Schedule cannot be ignored, and Hollard has not made any application for rectification and did not suggest that its inclusion was a mistake. [44]  There was no need for Hansen Yuncken to be specifically named in the extension contained in the Schedule, as opposed to being described by the reference to a class of persons: see s 20 of the Insurance Contracts Act 1984 (Cth). That section applies generally to all insurance contracts and does not, as Hollard submitted, “fall to one side” where s 48 of the Insurance Contracts Act is not relied upon. In any event, it is common for policies of this nature to include, within the scope of the insureds, persons or entities who are described in general, as opposed to specific, terms. On this issue, reference was made to the decision in QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326 , which concerned s 48 of the Insurance Contracts Act. There, Lumley General Insurance Ltd (Lumley), insured a building contractor, Probuild Constructions (Aust) Pty Ltd (Probuild), in respect of its public liability. The policy extended to the liability of Probuild’s “subcontractors”, which included the company Commercial Interiors Australia Pty Ltd (Commercial Interiors). Commercial Interiors was itself insured with QBE Insurance (Australia) Ltd (QBE), and the QBE policy covered “principals” of Commercial Interiors, which included Probuild. In the course of undertaking fit-out works, Commercial Interiors damaged certain fire suppression equipment causing flooding of the premises and damage to the fit-out works. Probuild made a claim on the Lumley policy and Lumley accepted liability for the loss and paid Probuild in respect of the rectification costs. ... [47]  It follows that the ambulatory operation of such extensions does not require the persons insured by it to be specifically named as opposed to being described. The Policy in the present case uses the descriptors “you” and “your” as a shorthand means of referring to the insured, and its meaning is provided in the Schedule as including, inter alia , “all parties for whom the Insured undertakes to insure for their respective rights, interests and liabilities”. This widens the scope of the specific insureds under the Policy. The extension within the Business Liability section of the Policy in respect of the “principals” of the insured simply widens the scope of the Policy further and in a different manner. [48]  Here, the wide definition of the insured in the Schedule includes Hansen Yuncken. There are no countervailing textual or contextual considerations which necessitate a departure from the clear words which the parties used: cf Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson (t/as Holgerssons Complete Home Service) [2019] WASCA 114 [97]–[104]. ... [81]  Hansen Yuncken ought to be granted a declaration that it is entitled to indemnity under the Policy issued to Choices Flooring. As the above discussion reveals, Hansen Yuncken is insured by reason of it being included as an insured on the Insurance Certificate because it came within the words, “all parties for whom the Insured undertakes to insure”, and thus within the scope of the expression “you/your” in the policy. Whilst it also has cover as the principal of Choices Flooring, that cover does not apply in the particular circumstances."

• see also, below [G2]. 

[B5[ Section 21: 

• "Section 21 of the Insurance Contracts Act Section 21 of the Insurance Contracts Act as at 30 June 2011 is quoted at [24] above. The Explanatory Memorandum to the Insurance Contracts Bill 1984 (Cth) explains that, in part, the rationale for cl 21 (which became s 21) was to clarify the test of materiality, and to ameliorate the existing law by providing that the insured’s duty is only to disclose those facts which they knew or a reasonable person “in the circumstances” would have known to be relevant to the insurer’s assessment of the risk and further, that the Court would not be precluded from considering an insured’s position and circumstances in applying the test. Applicable principles The relevant point in time for the purposes of determining both what is known to the insured, and materiality, under s 21 is the time when the contract is made: s 11(9)(b). In Permanent Trustee Australia Limited v FAI General Insurance Company Limited (in liq) (2003) 214 CLR 514; [2003] HCA 25 at [30] (McHugh, Kirby and Callinan JJ) it was held that “[t]he word “knows” [in s 21] is a strong word. It means considerably more than “believes” or “suspects” or even “strongly suspects”.” The terms “known” and “knows” are used in s 21 in their ordinary sense and what is or is not known is a question of fact: Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735; [1999] NSWCA 422 at [37]. As held by Meagher JA (with whom Macfarlan and Emmett JJA agreed) in Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 at [98] (“Prepaid v Atradius”), the relevance of what is known must: “… either be to the decision of the insurer as to whether to “accept the risk” or as to the terms on which it will do so. … In this context “matter” describes anything which is known to the insured which also is known to be relevant, or that could be expected to be known to be relevant, in each case in the respects described above.” In CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30 at [52] (“CGU v Porthouse”), the Court said that the phrase “a reasonable person in the circumstances could be expected to know” in s 21(1)(b) of the Insurance Contracts Act: “… has been interpreted as meaning that one should take into account only factors which are “extrinsic” to the insured, such as the circumstances in which the policy was entered into, rather than “intrinsic” factors such as the individual idiosyncrasies of the insured. Whilst it is possible to take into account the circumstances of the insured, the ultimate question under s 21(1)(b) turns on consideration of a reasonable person’s state of mind, not the insured’s state of mind.” (Footnotes omitted.) In GIO General Limited v Wallace [2001] NSWCA 299 (cited with approval in CGU v Porthouse at footnote 37) Heydon JA held: “Under s 21(1)(b) it is necessary, in judging what a reasonable person could be expected to know, to take into account the circumstances affecting the actual insured, but the ultimate question turns on what could be expected of a reasonable person’s state of mind, not on the insured’s state of mind.” Having referred to these authorities, Meagher JA (Ward JA and Sackville AJA agreeing) in Stealth Enterprises Pty Ltd t/as The Gentlemen’s Club v Calliden Insurance Limited [2017] NSWCA 71 (“Stealth Enterprises v Calliden”) held at [41]: “… the imputing of knowledge of the insured’s “circumstances” to the hypothetical reasonable person is directed to putting them in the same position as the insured without taking into account the insured’s subjective state of mind (for example, that the insured thought information was irrelevant to an insurer). The Court does however take into account that the insured knows the facts relied on as not having been disclosed…”. (Emphasis in original.) The issue under s 21(1)(b) of the Insurance Contracts Act is whether the particular matter that was known to the insured would be something that a reasonable person in the circumstances of the insured would know to be relevant to the insurer’s decision whether to accept the risk under the particular policy and if so, on what terms. It is not enough if the reasonable person merely suspects or considers that the matter could be so relevant. ... 129. The primary judge found that the relevant knowledge of Leighton, for the purpose of determining whether it had an obligation of disclosure under s 21 of the Insurance Contracts Act prior to the inception of the 2011 Primary Policy, was “at least” that of Mr Stewart, but that the knowledge of Mr Savage and Mr Wild prior to that date “can also be imputed to Leighton”: at J[187]. CIMIC contends that the primary judge erred in so finding, and that the knowledge of Leighton for this purpose should have been that of Mr Savage, as only he had direct knowledge of the underlying facts". ...The overarching contention of CIMIC on Issue 6 is that the primary judge erred both in her Honour’s findings as to what CIMIC knew, and as to materiality, for the purposes of s 21 of the Insurance Contracts Act. CIMIC advances, in essence, seven submissions. First, CIMIC submits that it is not clear what “matter” the primary judge held ought to have been disclosed under s 21 of the Insurance Contracts Act. CIMIC submits that the “matter” found by the primary judge to be known by CIMIC for the purposes of s 21 is either what it describes as the Savage Statements (set out above at [114]) or both the Savage Statements and Mr Stewart’s interpretation of them as being possibly true. CIMIC submits that in either case, the primary judge erred in finding that s 21 applied based upon the findings at J[322]. CIMIC’s submission should be rejected. It is clear from J[322], extracted above at [132], that the primary judge found that the matter that CIMIC ought to have disclosed under s 21 comprised the “matters identified in the Iraq File Note”. These are sometimes described by the primary judge as “allegations”, presumably having regard to the fact that they disclose at least potential serious illegality or impropriety albeit that, as CIMIC submits, there is nothing to suggest that Mr Savage was making something in the nature of an allegation of wrongdoing when he communicated the matters identified in the Iraq File Note to Mr Stewart on 23 November 2010. In the chapeau to J[326], the primary judge paraphrased and summarised some of the matters identified in the Iraq File Note, but that distillation should not be taken as a narrowing of the matter that her Honour found ought to have been disclosed by Leighton under s 21. Thus, the matter that the primary judge found ought to have been disclosed under s 21 went beyond the Savage Statements, as defined by CIMIC, but did not include Mr Stewart’s interpretation of those statements. That was not a matter “identified in” the Iraq File Note and there is nothing to suggest that the primary judge found that Mr Stewart’s state of mind ought to have been disclosed to the 2011 Insurers under s 21. CIMIC’s contention as to this should thus be rejected. It is, of course, correct that at J[322] the primary judge also made reference to the fact that Mr Stewart was not sure whether the matters identified in the Iraq File Note were true or not. The possibility that the matters identified in the Iraq File Note may have been true was an important part of the factual context, for reasons elaborated upon at [269]-[283] below. Nor, contrary to AIG and Catlin’s submission, did the primary judge find that “the whole contents of the Iraq File Note” was the “matter” which had to be disclosed by Leighton under s 21. Her Honour rightly excluded those parts of the Iraq File Note that went beyond “matters identified” in that note. Thus, her Honour did not find that Leighton ought, under s 21, to have disclosed Mr Stewart or Mr Wild’s reaction to or interpretation of Mr Savage’s statements as recorded in the Iraq File Note. The matters identified in the Iraq File Note were that, according to Mr Savage: Leighton had won the US$720 million Iraq Phase 1 Contract by making a payment of US$87 million to a nominated subcontractor, who would do the onshore works, when the real value of the work was less than half of that; Leighton had an opportunity to negotiate a US$500 million extension/variation to the Iraq Phase 1 Contract but that would require a payment of US$50 to 60 million to a third party nominated subcontractor who would do all onshore works, when the real value of the work was less than half of that; Mr Waugh had negotiated the subcontract; and Leighton had been introduced to the nominated subcontractor by the client, SOC. In this regard it is of no moment that Mr Stewart’s evidence was that he recorded what Mr Savage told him in substance but not entirely verbatim. As set out above, the primary judge found at J[290] that the Iraq File Note was an accurate record of what Mr Stewart genuinely believed Mr Savage had said, and it was made during and shortly after the conversations. The “matters identified in the Iraq File Note”, which the primary judge found ought to have been disclosed to the 2011 Insurers under s 21, thus comprised both the substance of each of subpars (1) to (4) at [146] above, and the fact that they were communicated by Mr Savage, a very senior officer in Leighton and the COO with direct executive responsibility for such matters, in one face to face and one telephone meeting with Mr Stewart, another COO and CEO-designate. All of those components are important when analysing whether CIMIC ought to have disclosed “the matters identified in the Iraq File Note” under s 21. Importantly, the “matters identified in the Iraq File Note did not include Mr Stewart’s understanding of the term nominated subcontractor or NSC”, set out above at [91(5)]. As CIMIC submitted, there is no evidence to support this expression having a standardised industry meaning. For the purposes of s 21, the significance of the description of the payment being made to a nominated subcontractor, which formed part of the matters identified in the Iraq File Note, is that a subcontractor had been paid US$87 million in circumstances where that was around twice the real value of their work and that the contract with SOC had been won by that payment. Contrary to CIMIC’s submission, it does not matter that Mr Stewart’s understanding of the term “nominated subcontractor” may not have accurately reflected Unaoil’s status. Nor does it matter how Mr Savage understood the term “nominated subcontractor”. Once the matter that the primary judge found ought to have been disclosed under s 21 of the Insurance Contracts Act is properly characterised, contrary to CIMIC’s submission, there is no error in the primary judge having found, at J[322], that the 2011 Insurers should succeed in their defence relying upon s 21. The evidence supports a conclusion that the matters identified in the Iraq File Note were both known to Leighton, and that a reasonable person in Leighton’s circumstances would have known (not merely strongly suspected or believed) that those matters would be relevant to whether an insurer under a proposed D&O policy would accept the risk and if so on what terms: Zurich Australian Insurance Limited v CIMIC Group Limited & Ors [2024] NSWCA 229. 

[C] Double Insurance 

[C1] Definition: There is double insurance when an assured is insured against the same risk with two or more independent insurers: Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342, 345 (Barwick CJ, McTiernan and Menzies JJ). Double Insurance arises when two or more indemnity contracts of insurance cover the identical loss that the insured has sustained: Albion Insurance at 345; QBE Insurance (Aust) Ltd v Insurance Australia Ltd [2011] ACTSC 40, [57] (Refschauge J). To insure doubly is lawful but as a general principle the assured who has more than one claim to indemnity is not entitled to be paid more than once: Albion Insurance at 345. The double insurance principle also prevents an insurer from being unjustly enriched at the expense of another: QBE Insurance Australia Limited v Allianz Australian Insurance Limited [2020] FCA 589. There are two alternative ways of giving effect to this principle: Subrogation and Contribution: Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd [2009] WASCA 31, [219] (Beech AJA, with whom Martin CJ and McLure JA agree).

[C1.1] Subrogation - Subsequent liability: the insurer who has paid is entitled to be subrogated to the assured’s rights of indemnity against the other insurer liable: Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd [2009] WASCA 31, [218], [225] (Beech AJA, with whom Martin CJ and McLure JA agree). This is usually the case when the liability of the insurer who paid is secondary to the liability of the other insurer liable: Speno Rail at [218]. Such a situation arises, for example, in a successful action for negligence against a hospital, where a patient may be assured under their personal health insurance policy and the health service’s insurance cover, but liability of each insurer to the assured arises differently – health insurer’s liability arises in surety, the hospital’s insurer in tort: Bupa Australia Pty Ltd v Shaw (as Joint Executor of the Estate of Norman Shaw) [2013] VSC 507. The health insurer may upon fully indemnifying the assured seek contribution from the health service’s insurer (ie, be subrogated to the insured's position). 

[C1.1.1] Subrogation - Insurer: an insurer is entitled, buy subrogation, to bring an action against a third party for the purpose of reducing or diminishing the insured's loss which the insurer is bound to pay as a result of its obligation to indemnify the insured: Zurich Australian Insurance Ltd v Metals & Minerals Insurance P Ltd [2007] WASC 62, [202], [413] (Johnson J). 

[C1.1.2] Subrogation - Ambit of Doctrine: "It is settled law that an insurer who has paid the amount of a loss under a policy of indemnity is entitled to the benefit of all the right of the insured in the subject matter of the loss and by subrogation may enforce them. This right of subrogation is inherent in the contract of indemnity": State Government Insurance Office (Q) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228, 240-1 (Barwick CJ).

[C1.2] Contribution - Co-ordinate liabilities: Payment by one insurer discharges the liability of both indemnifying insurers and gives rise to rights of contribution against the other insurer liable: Speno Rail at [219]. This is usually the case when the liability of the insurer who paid was primary, or the liabilities of both indemnifying insurers are equal and coordinate: Ibid. In cases where insurers are under liabilities of the same nature and to the same extent to indemnify an identical loss sustained by the happening of the relevant (and identical) risk (Burke v LFOT Pty Ltd (2002) 209 CLR 282, 292-4 (Gaudron ACJ and Hayne J); QBE Insurance (Aust) Ltd v Insurance Australia Ltd [58] (Refshauge J)), both insurers must share the burden either equally where they are liable in the same amount or proportionately, where the amount of their liability differs: Burke at 292; QBE Insurance (Aust) Ltd v Insurance Australia Ltd at [60]; Albion Insurance at 350 (Kitto J). The right to contribution depend on whether the liabilities of both indemnifying insurers to an assured was “of the same nature and to the same extent”: Burke at 292 [15] (Gaudron ACJ and Hayne J).

[C1.3] Right to Co-Contribution: The existence of the right to seek contribution turns on one question: whether there are two or more indemnity contracts of insurance that cover the identical loss that the identical insured has sustained. It is relevant to consider the commercial purpose and objects of each insurance cover. the nature of the risks that each applicable policy insures, and the extent of cover that each policy provides. It is also relevant to consider whether any exclusion clauses are engaged. The relevance and importance of these enquiries are highlighted in QBE Insurance (Australia) Limited v NTI Limited [2022] NSWSC 1273; (2022) 102 MVR 12, a relatively short decision of the NSW Supreme Court where an issue of whether to order contribution between insurers turned on the interpretation of an exclusion clause relating to “Tools of Trade”. These enquiries are determinative of the right to seek contribution: McCann v Switzerland Insurance Australia Limited [2002] 203 CLR 579, [22] (Gleeson CJ); QBE Insurance (Australia) Limited v NTI Limited (No 2) [2022] NSWSC 1357, [10]-[11] (Stevenson J); QBE Insurance (Australia) Limited v NTI Limited [2022] NSWSC 1273, [3] (Stevenson J). 

[C2] Orthodoxy of the Criterion in Albion Insurance Co Ltd v GIO (NSW): see Natasha Burn and Benjamin Wong, ‘QBE Insurance (Australia) Limited v NTI Limited [2022] NSWSC 1273: A Cautionary Tale of Exclusion Clauses in the Context of Double Insurance’ (2023) 38(3) Australian Insurance Law Bulletin 27-29 (LexisNexis Australia). 

[D] Insurance Clauses 

[D1] Essence of Simple English: Pennsylvania Company v Mumford [1902] 2 KB 537, 551: "the sooner [the policy] is put into language intelligible to the ordinary insured the better".

[D2] whether sub-subcontractor is a Named Insured: see Mie Force Pty Ltd v Allianz Australia [2024] NSWCA 23. See also, Wong on Civil Liability - discussion on pure economic loss and Duty of Care of sub-subcontractor to owners.

[D3] "with respect to" / "in respect of" / "for" - "liability for injury": "First, whether an indemnity “for” Injury responds only to direct claims by persons who sustain personal injury, or whether it extends more broadly, is a well-rehearsed area of the law. Many of the decisions were reviewed by this Court in the judgment of Glass JA, with whom Samuels and Mahoney JJA agreed, in Rheem Australia Ltd v Manufacturers’ Mutual Insurance Ltd [1984] 2 NSWLR 370, where attention was given to decisions which turned on the distinction emphasised by Argo, namely, between liability “for” injury and liability “in respect of” injury. While, generally speaking, “for” connotes a closer relationship than “in respect of”, it is clear that both expressions are “relational terms” (to use French CJ’s expression in R v Khazaal (2012) 246 CLR 601; [2012] HCA 26 at [31]). The nature and breadth of the relationships those terms cover will depend upon the text and context of the policy. Thus in particular contexts the words “liability for injury” have been held to extend to claims by third parties, and not merely for statutory contribution to a joint tortfeasor, but to (a) liability to pay the Nominal Defendant when an insured caused damage in a motor vehicle accident for which it was relevantly uninsured, which the Nominal Defendant paid out and sought to recover pursuant to statute (Thiess Bros Pty Ltd v New Zealand Insurance Co Ltd (1968) 13 FLR 3 and Dickson Primer Industries Pty Ltd v National Employers’ General Insurance Association Ltd [1974] 2 NSWLR 292 at 298), (b) claims for nervous shock by relatives and third parties pursuant to ss 3 and 4 of the Law Reform (Miscellaneous Provisions) Act 1944 (NSW) (Findlay v Westfield Development Corporation Ltd [1972] 1 NSWLR 422 and Manufacturers Mutual Insurance Ltd v Hooper (1988) 5 ANZ Ins Cas 60-849) and (c) liability to meet a claim at common law by a spouse for loss of consortium, which was the claim in Rheem Australia itself, as well as in State Government Insurance Office (Queensland) v Crittenden (1966) 117 CLR 412; [1966] HCA 56. As Hope JA explained in Hooper at 75,306-75,308, the latter two classes of claims are not mere “derivative” claims such as a joint tortfeasor’s claim for contribution. But that does not stand in the way of their being characterised as giving rise to a liability “for” personal injury. ... The present case is distinct. This is not a case of departing from the literal meaning, but instead giving content to an inherently flexible, context-dependent relational term such as “for”. Even if the most natural meaning of “liability for injury” is liability for injury sustained by the claimant, there is nothing strained in “liability for injury” extending to secondary or derivative liability of a third party which is the direct consequences of someone’s personal injury. Indeed, Glass JA observed in Rheem Australia at 375 that “the liability of a tortfeasor for an injury is in modern parlance not limited to his primary liability to the injured party but includes as well the secondary liability he may incur to others as a result of or consequent upon that injury”. I respectfully agree, although I would not regard Glass JA’s reasons as extending to all secondary liability, however remote from the injury, so long as there is some causal connection between the injury and the liability. That is implicit in McHugh JA’s concurrence in Hooper. The fourth, fifth and sixth considerations identified by the primary judge are confirmatory of the width of the phrase “liability for injury” in this policy. I respectfully doubt the force of the second consideration relied on by the primary judge, although it is a submission which is commonly enough made. The meaning of the words that appear in a contract (or a statute or a will or any other legal instrument) is often not greatly illuminated by a submission that posits words which were not used, which if they had been used would clearly resolve the question of application which arises in the facts of the particular case. I am saying nothing more nor less than that a submission that the question of construction would disappear if different words had been used is often merely rhetoric, and does not greatly assist resolution of the legal meaning of the words which have in fact been used. In the light of those considerations, the first consideration identified by the primary judge was rightly rejected by his Honour as dispositive. It is really saying nothing more than if the words “liability for Injury” are considered in isolation then it is more natural that they connote a direct or primary liability for Injury, rather than an indirect or secondary liability. But it is axiomatic that the words are not to be considered in isolation. The policy is to be read as a whole, and in particular it is to be construed in light of the fact that “Injury” extends to death and the other considerations mentioned above. This is precisely the point made by Spigelman CJ writing for this Court in Zurich Australian Insurance Ltd v Regal Pearl Pty Ltd at [45]: The Appellant’s submissions in this Court relied on these authorities as if they established the proposition that the word “for” in such a context will be read narrowly so that, absent a formulation such as “with respect to”, an insuring clause will only respond when proceedings are instituted by an injured person. This submission should be rejected. The word “for” is capable of meaning “in respect of”. Whether it does so or not will be determined by the context. Likewise in QBE Underwriting Ltd as managing agent for Lloyds Syndicate 386 v Southern Colliery Maintenance Pty Ltd (2018) 97 NSWLR 459; [2018] NSWCA 55 at [24], it was observed that if could be “unsafe to construe such inchoate relational terms as ‘for’ and ‘in respect of’ in isolation”. When the contract is read as a whole, it is clear that the relational term “for” in this context is one which is broad, rather than narrow, extending to secondary liability for personal injury. The primary judge was correct to conclude that the insuring clause responded to Sydney Trains’ claim for damages for breach of contract, where the damages were Sydney Trains’ loss caused as the direct result of Ms Michael’s personal injury by slipping on the insured’s tile.": Sydney Trains v Argo Syndicate AMA 1200 [2024] NSWCA 101, [144]-[145], [150]-[156] (Leeming JA). 

[E] Workers Compensation - Insolvent Insurer - Guarantee Funds

[E1] Statutes: Workers Compensation Supplementation Fund Act 1980 (ACT); Employers’ Indemnity Supplementation Fund Act 1980 (WA) ss 19-25; Workers Compensation Act 1987 (NSW) pt 7, ss 227, 236; Motor Accidents Compensation Act 1999 (NSW) pt 7.3; Home Building Act 1989 (NSW) pt 6A; Workers Compensation Act 1958 (Vic) s 98; Workers Rehabilitation and Compensation Act 1988 (Tas) ss 126-129; Work Health Act (NT) s 137; Motor Accident Insurance Act 1994 (Qld) ss 33, 61.

[E2] Case Law: HIH Casualty and General Insurance Ltd v Building Insurers' Guarantee Corporation [2004] NSWSC 910; Mcgrath v Workcover WA [2010] NSWSC 384, [4]; University of New South Wales v AAI Ltd [2014] NSWCA 153: "[44]  As has been noted, the procedural consequence of identifying one insurer for the purposes of ss 151AB and 151AC is to identify which of several insurers may be responsible for dealing with a claim. Assuming that that purpose may be thwarted where the insurer sought to be appointed as designated or primarily responsible insurer is insolvent, that is not the present case. There remains the substantive purpose of the provision which is to identify which insurer is primarily responsible and carries sole immediate liability for indemnifying the employer. That purpose is not frustrated by the insolvency of other possibly liable insurers. It remains a matter of some moment as to which insurer issued a policy which responds to the claim against the employer. If it were found to be GIO, the respondent would be liable; if it were found to be another insurer, recovery by the respondent would depend on the state of the liquidation and the operation of Pt 7, Div 7."; ICI Australia Operations Pty Ltd v WorkCover Authority of New South Wales [2004] NSWCA 55; **In the Matter of Richards Contracting Co Management Pty Ltd [2021] NSWCA 34.

[E3] Review of Guarantee Fund laws/Re-Insurer right to subrogation: HIH Casualty and General Insurance Ltd v Building Insurers' Guarantee Corporation [2003] NSWSC 1083.

[E4] Literature: See, Robert Guthrie and Robert Aurbach, 'Workers’ compensation self insurers in Australia: Insolvency and worker protection' (2010) 21 Insurance Law Journal 24 (LexisNexis Australia) (text). 

[F] Actions Against Insurers - here  : eg, s 601AG Corporations Act 2001 (Cth) and 2023 reforms. Jurisdictional gateway. See below.

[F. A] Actions against Insurers - Insurance Contracts Act 1984 (Cth)

[F. A1] see section 51 Insurance Contracts Act 1984 (Cth). See also, Greg Pynt, 'When can a third party claim the benefit of another person's liability insurance contract?" (2018) 149 Precedent 32. 

[F. A2] Leave to commence against company in liquidation - insurer: Hall v Kwik Transport & Crane Hire Pty Ltd (in liq) [2023] WASC 465 (Musikanth J).

[F. B] Actions against Insurers - Corporations Act 2001 (Cth) s 601AG

Overview: Natasha Burn and Benjamin Wong, 'The Treasury Laws Amendment (2023 Law Improvement Package No 1) Act and s 601AG of the Corporations Act — implication on insurers’ liability for latent diseases' (2024) 38(10) Australian Insurance Law Bulletin 133-137 (text).

[F. B1] Deregistered insured company - recoverability of a liability owed immediately before deregistration - s 601AG

[F. B1.1] Explanation of the operation of s 601AG: see Kitay v Chaucer Syndicates [2021] WASC 450, [187]-[188] (Archer J). Purpose of s 601AG: see Kitay v Chaucer Syndicates [2021] WASC 450, [187]-[188] (Archer J); Sciacca v Langshaw Valuations Pty Ltd [2013] NSWSC 1285, [27] ("the evident purpose of s601AG is to obviate the need for a claimant who wishes to make a claim against a corporate insured which has become deregistered to apply for the insured to be reinstated for the sole purpose of having the insurer act for the corporate insured by subrogation"); Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd (2005) NSWLR 14, [19]; [2005] NSWCA 19 ("In my view, the purpose of the legislature in inserting s 601AG in the Corporations Act is to require the insurer of a deregistered company to stand in the shoes of the company to the extent necessary to allow creditors of the company to recover from the insurer whatever amounts they were entitled, by force of law, to recover from the company had it not been deregistered. This purpose is discernible from the section as a whole and the Explanatory Memorandum ...").

[F.B1.1.1] "Section 601AG was introduced in 1998, with the general purpose of providing an alternative to reinstating the company to the register for the purpose of proceeding against its insurer: see Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd (2005) 62 NSWLR 148; [2005] NSWCA 19 at [18]. It was said at [19]:Section 601AG creates a new cause of action. The action is not a claim for damages. It is for an amount that was payable to the deregistered company under the relevant insurance contract. A claim in terms of s 601AG is subject to two conditions, namely, proof that the deregistered company “had a liability” to the person claiming and that the insurance contract covered that liability immediately before deregistration.": Sydney Trains v Argo Syndicate AMA 1200 [2024] NSWCA 101, [32] (Leeming JA). 

[F. B1.2] Critical time for determining whether deregistered company "had a liability" to  person claiming is immediately before deregistration: see Almario v Allianz Australia Workers Compensation (NSW) Insurance Ltd (2005) NSWLR 14, [19]; Nicholas v Astute Hire Pty Ltd [2015] NSWSC 711, [36] (Hall J); Tzaidas v Child (2009) 74 NSWLR 208, [26].

[F. B1.3] Proof of "had a liability" prior to deregistration date required as a question of standing?: recent cases suggests that a plaintiff may initiate proceedings against an insurer with a view to establishing the liability of the insured, rather than only being able to proceed only where the insured's liability had been determined, leaving the question of actual recovery of damage to proof of a liability prior to the deregistration date: Tzaidas v Child (2009) 74 NSWLR 208, [33]-[35] (McCallum J); Allianz Australia Insurance Ltd v Mercer [2014] TASFC 3, [130], [142] (Porter J, Tennent and Wood JJ agreeing); Webb v Estate of Herbert (2006) 31 WAR 492, [13]-[24]; cf Campbell v Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) [2005] WASC 272.

[F. B1.4] In illnesses with long latency period between exposure to hazard and first symptom of illness - eg, pleural mesthelioma - where worker exposed prior to deregistration but liability may not have  crystallised until after deregistration: 

[F. B1.4.3] Query - whether "liability" in s 601AG extends to "potential, conditional, contingent or inchoate liability"?: 

[F. B1.4.3.1] Meaning of liability context dependent - transfer of liabilities to new authority: see Crimmins (as executrix of estate of Crimmins (dec'd) v Stevedoring Industry Finance Committee (1999) 167 ALR 1, 3 ("Depending on the context, the meaning of "liability" can include a contingent or potential liability"). Further in the case: [147] (McHugh J): "[147] In my opinion, his Lordship's comments are entirely applicable to this case. The respondent disagrees with this, contending that the words "liabilities vested in or attaching to an authority" in the legislation considered in Walters v Babergh District Council distinguish that case from this case. In my opinion those words do not make Walters distinguishable. In that case, as in this case, the Court had a choice between a restricted meaning of "liabilities" and one which embraced "potential" or "contingent" liabilities. Given that the legislation was concerned with the re-organisation of an industry, his Lordship thought that principle required that the term "liabilities" should be given the meaning which would save potential rights in tort that would have matured into causes of action if there had been no re-organisation. Nor, in my view, is it wrong to speak of a contingent liability in tort "that existed" as at 26 February 1978. There is no evidence to suggest that the mesothelioma developed from anything other than the exposure to asbestos in the years 1960-1965. Thus at the end of the "transitional period" when the Committee succeeded the Authority, assuming breach of a duty owed the plaintiff is established, there was what could quite accurately be described as a "contingent" liability in tort which would become a complete cause of action dependent only on the development of mesothelioma with the effluxion of time." ... ALR[339], [369] (Callinan J): Quoting "I do not think it is appropriate to say that the word 'liabilities' in s14 includes 'contingent' or 'potential' liabilities. For one thing, each of these adjectives lacks precision. To say, as the argument for the respondent would have it, that 'potential' liabilities are included is to my mind plainly wrong because a 'potential liability', whatever it may be intended to describe, is the antithesis of a liability that 'existed immediately before the expiration of' the transitional period, as s14(b) requires. To say that 'contingent liabilities' are included is at best misleading because it cannot be asserted that the phrase 'contingent liabilities' has any settled legal meaning. The imprecision of the word 'liabilities' is magnified when it is coupled with the adjective 'contingent' which, in any event, s14 does not contain. It is true enough that some liabilities are accurately described as contingent which may also be accurately described as existing: a surety's uncalled liability under an existing guarantee is an obvious instance. The expression 'contingent liabilities' is sometimes found in a statute and must be construed in its context. Re Sutherland, decd340 provides an example. There, it was held by the House of Lords (by a majority) that an existing legal liability was not essential to the creation of a contingent liability within the meaning of s50(1) of the Finance Act 1940. Lord Guest341 described the expression as there found as '... a liability which depends for its existence upon an event which may or may not happen'. By comparison, s14 of the Termination Act not only does not contain a reference to contingent liabilities but the context excludes the concept of contingency. Apart from that, the notion of a contingent liability in negligence seems to me to be a contradiction in terms. A contingent liability pursuant to a contract or referred to as such in a statute is understandable; but I have neither heard of nor been able to find any reference to an existing set of facts as giving rise to a contingent liability in negligence or, indeed, in tort of any kind. The reason, perhaps, is that a liability for most kinds of torts - at any rate for negligence - is dependent upon the infliction of damage to the plaintiff; and, when damage occurs, and not before, tortious liability - if it arises at all - arises immediately. In other words, if a liability in negligence exists, its very nature is such that it is not contingent. ... [369] Save for any suggestion of gross incompetence on the part of the draftsperson of this legislation, the reasoning which I have quoted I would generally adopt and apply to this case. Liabilities in this case should be taken to include a contingent liability for an injury of the kind suffered by Mr Crimmins if the appellant is able to establish her case against the respondent that there has been a breach of the duty of care as I have defined it."

[F. B1.4.3.2] There is a line of authority that suggests that "liability" in s 601AG extends to "potential, conditional, contingent or inchoate liability" at time of company deregistration (albeit all obiter dictum (and interlocutory)): see Campbell v Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) [2005] WASC 272, [18]-[19] (Le Miere J); Molloy v BGC (Australia) Pty Ltd [2006] WADC 98, [29], [40]-[46[ (McCann DCJ); Tzaidas v Child (2009) 74 NSWLR 208, [33]-[35] (McCallum J); Allianz Australia Insurance Ltd v Mercer [2014] TASFC 3, [130], [142] (Porter J, Tennent and Wood JJ agreeing); Webb v Estate of Herbert (2006) 31 WAR 492, [13]-[24].

[F. B1.4.3.3] Remedial Legislation - Meaning of liability context dependent: see [D1.4.3.1]. s 601AG is a remedial provision: meaning of liability context dependent: see Molloy v BGC (Australia) Pty Ltd [2006] WADC 98, [40] (McCann DCJ);  Tzaidas v Child (2009) 74 NSWLR 208, [33]-[35] (McCallum J); Kitay v Chaucer Syndicates [2021] WASC 450.

[F. B1.4.3.4] References to inchoate duty/obligation/liability in other legislation (Eg, s 9 Corps Act "liability":" liability (except in relation to a sub-fund of a CCIV): (i)  includes a duty or obligation of any kind (whether arising under an instrument or otherwise, and whether actual, contingent or prospective); and ... "):

• unassessed tax as contingent and uncrystallised debt: Binetter v Commissioner of Taxation [2016] FCAFC 163, [124], [131]: "[131]  The ratio of the decision appears to be that the meaning of the word ‘debt’ in provisions like s 88 is broad enough to capture effectively contingent or uncrystallised debts, and that unassessed tax is such a contingent or uncrystallised debt. Depending on the view one takes about the significance of the reference to the ‘inchoate obligation’ in the reasons of Isaacs and Rich JJ at 107, it may also be that all the Justices accepted that the Income Tax Act 1922 generated some kind of liability, although this proposition is difficult to assert with certainty."

• Seafarers Safety, Rehabilitation and Compensation Authority v Associated Steamships Pty Ltd [2019] FCAFC 232, [45]: "[45]  Like every stipulation in Pt 2 the compensation obligation is expressed in the passive voice and omits any reference to or by whom the compensation is to be paid. The obligation thus created is inchoate. Section 24 makes clear that this inchoate obligation is crystallised into an obligation on the employer actually to pay compensation on the happening of an event, namely, a determination by the employer of the amount which is to be paid. It provides: Liability to pay compensation The liability of an employer to pay compensation to a person under this Act is the liability of the employer to pay the amount or amounts that the employer determines, in accordance with this Act, to be payable to the person." - Seafarers Rehabilitation and Compensation Act 1992 (Cth)

• Clone Pty Ltd v Players Pty Ltd (In Liquidation Receivers Appointed) and Ors [2012] SASC 12, [151]: "[151]  The 1935 Act and the 2006 Rules provide that, in general, a successful party will receive an award of costs in his or her favour. That inchoate obligation becomes a legal right and entitlement on the making of the costs order. It is, of course, also a substantive right of the parties to litigation, including the successful party, to have communications with their legal representatives in connection with the litigation privileged from production. If production of privileged documents in the course of taxation of costs were, in itself, to amount to a waiver of privilege, either one or both of those substantive rights would, for all practical purposes, be compromised."

• Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514, (Deane J): "it is not possible to derive from the authorities63 or from settled principle a simple negative or affirmative answer to the abstract question whether, for the purposes of a limitation provision, the mere incurring of a contingent liability to make a monetary payment in the future suffices to give rise to a cause of action of which loss or damage is a necessary ingredient. Nor, in my view, is it practicable or desirable for the courts to attempt to provide in advance an unqualified affirmative or negative answer to that abstract question.... On balance, it seems to me that the mere assumption of such an isolated and truly contingent liability did not give rise to a factual situation within the prima facie meaning of the words "suffers loss or damage" until the stage was reached where subsequent events gave rise to actual or certain liability or other actual or certain financial detriment (e.g. a payment made to escape from the contingent liability). ... Finally, it appears to me to be unlikely that the Parliament would have intended, as a matter of policy, that a cause of action should arise under s82 in a case where all that was involved was the incurring of an isolated contingent liability involving a mere risk (or greater risk) of actual liability to make a payment at some future time. The implementation of such a policy would give rise to the situation where a cause of action would arise regardless of whether any actual concrete loss was ultimately sustained by reason of either the contingency liability becoming an absolute one or some other financial detriment being actually sustained (e.g. a payment made to escape the contingent liability). The result would be to require the institution of proceedings before it was known whether any concrete loss or damage would ever come home, in order to avoid the possible injustice of a legitimate claim being barred if action was not instituted until it could be seen whether the contingent liability would result in ultimate loss. Moreover, the difficulties and expense involved in establishing the present value of an isolated contingent loss and the potential injustice involved in requiring proceedings to be instituted within a limited time after a contingent or potential liability first arises provide further reasons for the rejection of such an approach. From the point of view of policy, the main disadvantage involved in a situation where no cause of action accrues unless and until a contingent liability becomes absolute or some actual financial loss or detriment comes home is that circumstances could well arise in which it is desirable that entitlement and liability under s82(1) be determined at an earlier stage. The availability of declaratory remedies and of the anticipatory remedies under s87 of the Act go some way, however, to diminish the practical significance of that disadvantage."

• Independent Holdings Ltd v Deputy Commissioner of Taxation (1992) 38 FCR 68: "As to contingent liabilities, Lord Reid in Winter v Inland Revenue Commissioners (1961) 3 All ER 855 said, at 858 in a passage relied on by the Commissioner in the present case: No doubt the words 'liability' and 'contingent liability' are more often used in connexion with obligations arising from contract than with statutory obligations. But I cannot doubt that if a statute says that a person who has done something must pay tax, that tax is a 'liability' of that person. If the amount of tax has been ascertained and it is immediately payable it is clearly a liability; if it is only payable on a certain future date it must be a liability which has 'not matured at the date of the death' within the meaning of s 50(1). If it is not yet certain whether or when tax will be payable or how much will be payable why should it not be a contingent liability under the same section." At 859, his Lordship quoted from Erskine's Institute of the Law of Scotland, Vol 2; (Book III, title I, s 6): Obligations are either pure, or to a certain day, or conditional … Obligations in diem … are those in which the performance is referred to a determinate day. In this kind … a debt becomes properly due from the very date of the obligation, because it is certain that that day will exist; but its effect or execution is suspended till the day be elapsed. A conditional obligation, or an obligation granted under a condition the existence of which is uncertain, has no obligatory force till the condition be purified; because it is in that event only that the party declares his intention to be bound, and consequently no proper debt arises against him till it actually exist: so that the condition of an uncertain event suspends not only the execution of the obligation, but the obligation itself … Such obligation is therefore said in the Roman law to create only the hope of a debt. Yet the granter is in so far obliged that he hath no right to revoke or withdraw that hope from the creditor which he had once given him. 'He continued, on the same page: So far as I am aware that statement has never been questioned during the two centuries since it was written and later authorities make it clear that conditional obligation and contingent liability have no different significance. I would, therefore, find it impossible to hold that in Scots law a contingent liability is merely a species of existing liability. It is a liability which, by reason of something done by the person bound, will necessarily arise or come into being if one or more of certain events occur or do not occur. If English law is different — as to which I express no opinion — the difference is probably more in terminology than in substance." and at 860: The essence of a contingent liability must surely be that it may never become an existing legal liability because the event on which it depends may never happen. " The gravamen of the applicant's submission in this respect is based on the observations of Mason J in Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 with which are to be contrasted the observations of Gibbs CJ in that case and earlier Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256."

• Comcare v Etheridge [2006] FCAFC 27, [53]: "[53]  This question can be understood to be raised by these appeals because the alternative submission of Comcare involved the contention that the inchoate or contingent liability of the commission to pay compensation to Messrs Hill and Etheridge (taken, on Comcare’s argument, to have passed from the Commonwealth to the commission upon the commencement of the CERC Act) vested in the ATC on the day that the ATC was declared to be an administering authority and was thereafter assumed by Telstra.".

• Tax yet to accrue is not "inchoate" (contrasted with Mesothelioma): Orica Limited and Anor v CGU Insurance Limited [2003] NSWCA 331, [97]-[99]: "[97]  One might compare the first kind of liability to the liability to tax which is yet to accrue, but inevitably will fall upon the tax-payer at the close of the year of income, when the tax can then be calculated and an assessment issue; compareNewton v Federal Commissioner of Taxation [1958] 98 CLR 2 at 7 (Privy Council). Such a liability is not a contingent liability in the sense of it depending on any uncertain contingency. Here too we know, though in retrospect, that there was no further uncertain contingency required. Onset of disease was, we now know, unavoidable after the fatal ingestion. Though it took many years to come home, it worked its inexorable way to that outcome. [98] That intermediate sense of “liability” picking up claims accruing due is in no way strained. It aptly fits the context of a compulsory insurance scheme comprehending, for the benefit of worker, diseases of gradual onset. If such a gap exists in the insurance coverage, this would be as oppressive as a new authority succeeding to the assets and liabilities of the old, but not those liabilities by way of claims accruing but not yet accrued; seeCrimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1, discussed later. It is wrong to treat this case as the paradigm, for in many situations the period between injury and damage may be much shorter. Moreover if there be a second policy only when damage manifests, it will not answer either, as injury pre-dates. Thus inKelly v Norwich Union Fire Insurance Ltd (1990) 1 WLR 139 a policy was held not to answer which was in force when damage to a building occurred as the relevant event bringing that about (incursion of water) pre-dated the policy. Importantly the Court of Appeal emphasised that the crucial event triggering policy cover was the event of incursion of water, not the later damage. That is an approach which applies by analogy here, where the event of injury from exposure to asbestos fibre is the essential trigger, not the advent of damage from later established legal liability, as distinct from an earlier accruing liability. That of course needs to be tested by reference to the precise policy wording of the policy here under consideration and I deal with that later in this judgment. Essentially I conclude that the policy is triggered by injury and an accrued or accruing liability, though the latter be yet to crystallise in the damage that constitutes a completed cause of action. This has the beneficial result that statutory compensation and common law liability independently of the Act are not artificially differentiated, based on statutory compensation supposedly not requiring damage, in terms of qualifying for insurance cover. [99]  The starting point to elaborate on the answer to these questions must be the contractual terms of the statutory policy in its statutory context. Account must be taken of subsequent amendments or re-enactments, but only to the extent, if at all, that they have retrospective effect. The terms so construed must then be applied to the present circumstances. While legal principles and authority have determined in other cases when “liability” and “injury” occur, those terms ultimately depend for their interpretation on the policy terms themselves. I turn, however, first to the salient facts, which are not in dispute."

• Policy reason for s 601AG?: Nixon v Philip Morris (Australia) Ltd [1999] FCA 1107, [68]: "[68]  In separate judgments Brennan, Deane and Toohey JJ expressed similar views. At 545 Deane J echoed the view expressed in the joint judgment about the undesirability of compelling a plaintiff to institute an action "before it was known whether any concrete loss or damage would ever come home, in order to avoid the possible injustice of a legitimate claim being barred if action was not instituted until it could be seen whether the contingent liability would result in ultimate loss."

• Transfer of liabilities - creation/constitution of new council: Yarra City Council v Metropolitan Fire and Emergency Services Board [2017] VSCA 194, [165]: "[165]  We have no doubt that Yarra would be held liable for an asbestosis claim like Crimmins arising out of injury caused by the actions of Richmond but occurring after the creation of Yarra; likewise, it would be held liable in negligence for damage to property (like Babergh) negligently caused by Richmond but occurring after the creation of Yarra. The better view, having regard to the context and purpose of the Order in Council, is that ‘all liabilities’ also includes a contingent liability of the type with which we are concerned." 

• Viscariello v Legal Profession Conduct Commissioner [2021] SASCFC 24: "[34]  The precise meaning to be given to the word “liabilities” depends on the context in which it appears, the subject matter involved, and the evident policy of the legislation in which it is found. [35]  Reference was made during the course of the appeal to Yarra City Council v Metropolitan Fire and Emergency Services Board22 for the proposition that the word “liabilities” in the transitional provisions encompasses prospective and inchoate liabilities. In Yarra City Council, the Victorian Court of Appeal held that a statutory transfer of “liabilities” from one local Council to another following Council restructuring included liability for the acts done by the predecessor Council in breach of environmental laws giving rise to compensation claims by occupiers of polluted properties. Relying on the decision of the High Court in Crimmins v Stevedoring Industry Finance Committee ,23 it was argued in Yarra City Council that the words “all liabilities of the former Councils are liabilities of the Yarra City Council” contained in an Order in Council effecting the restructuring process included prospective and inchoate liabilities of the former Council. Applying Crimmins, the Court held that “the word ‘liability’ may include contingent, prospective, and inchoate liabilities”.24 In ruling as it did, the Court reasoned: … The contingent liability that Richmond had incurred, at the time of the transfer to Yarra, to comply with a clean up notice under s 62A of the Act in respect of pollution it had caused, was a liability which the Order in Council succeeded in transferring to Yarra. In effect, the breadth of cl 18(b), construed in the context of the whole of the Order of Council, and consistently with the context and purpose of the Order in Council, has had the consequence that, at law, Yarra has become ‘the person who caused or permitted the pollution to occur’…. It is rather that the legal effect of the Order in Council is, relevantly, that for the purposes of s 62A(1)(b), Yarra occupies the role of Richmond; it is the person to whom the EPA has the authority to direct compliance with a clean up notice. [36]  The situation in Crimmins related to the transfer of liabilities from one statutory authority (the Australian Stevedoring Industry Authority) to another (the Stevedoring Industry Finance Committee). For present purposes, at issue was whether upon the true construction of the legislation under which the Committee took the place of the Authority and assumed all its existing liabilities and obligations, it became legally responsible for a breach of a duty of care to Mr Crimmins occurring before the Committee was established. [38]  McHugh J (with whom Gleeson CJ agreed) construed this provision in the following way: The context of the words “liabilities and obligations” in s 14 (b) suggests that they should be given the widest possible reading. That context includes the substitution of the respondent for the Authority as the controlling waterfront authority, the vesting of the Authority’s rights and property in the respondent, and the imposing of a liability on the respondent to perform the Authority’s duties. It makes it inherently likely that the words “liabilities and obligations … that existed immediately before” were intended to make the respondent liable for discharging the consequences of any existing act or omission which could ground a legal action against the Authority. It would be surprising if the legislature intended that the liabilities of the respondent on the handover date were to be any less than those of the Authority if it had continued in existence. It seems most unlikely that the legislature could have intended to deprive people of rights that they would have had if the role of the Authority had not been taken over by the respondent. A statutory provision should not be given a construction that leads to an unjust or capricious result in cases appearing to come within its terms unless “the statutory language is intractable. … The language of s 14 is not “intractable”. Given the evident object of s 14, I see no reason for giving the words “liabilities and obligations” a narrow meaning. The case would be different if the respondent was to be liable only for causes of action “that existed immediately before the expiration of that period.” But the legislature has chosen a more ambiguous term. That ambiguity should be resolved in a way that protects, rather than destroys, potential rights. It should therefore be given an interpretation which protects the rights which the plaintiff would have had against the Authority but for the legislative re-organisation of the industry. [39]  The position here is rather different than it was in Yarra City Council and Crimmins. Unlike those cases, this case is not concerned with preserving accrued or contingent personal legal rights, responsibilities, or remedies, but rather it is concerned with the discipline of legal practitioners. In Crimmins, Gaudron J considered the evident purpose of the legislation was to “ensure that persons who had a claim on the Authority in respect of unperformed duties and undischarged liabilities and obligations could … look to the Committee for their performance and discharge”.27 Adopting this language to Yarra City Council, the evident purpose of the relevant legislation therein was to ensure that contingent liability to landholders suffering pollution incurred by the Richmond Council was transferred to the Yarra City Council. In contrast, no such evident purpose emerges here. ... [42]  When one considers the entire context of the transitional provisions, it becomes apparent that these deal exclusively with ex-disciplinary subjects. Were it intended for broader application, one would expect clearer language in clause 16, and the use of words such as “duties” and “obligations” and for instance, or alternatively, clearer language such as that seen in Crimmins, for example “the Commissioner is, by force of this section, liable to perform all the duties and to discharge all the liabilities and obligations of the Board that existed immediately before the expiration of …”. Such expressions were not employed in the transfer of functions from the Board to the Commissioner. This is in contrast to s 7(1) of the Legal Practitioners Act 1981 which provided such a mechanism in respect of the Law Society: The society formerly known as the “Law Society of South Australia Incorporated” continues in existence as a body corporate under the name The Law Society of South Australia."

[F. B1.4.3.5] Amendment to Corporations Act 2001 (Cth) - Definition of Liability to include prospective and contingent liabilities - Issue seemingly settled by amendments to Corporations Act 2001 (Cth): see Corporations Act 2001 (Cth) s 9 'liability'; Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 (Cth) s 27 - since 20 October 2023. See especially, Natasha Burn and Benjamin Wong, 'The Treasury Laws Amendment (2023 Law Improvement Package No 1) Act and s 601AG of the Corporations Act — implication on insurers’ liability for latent diseases' (2024) 38(10) Australian Insurance Law Bulletin 133-137 (co-authored with Natasha Burn). (text)

[F. B1.5]: 7 March Archive: <https://perma.cc/8P45-QFUF>. 

[F.B1.6] Inter-Relationship between overlapping rights created by Commonwealth and State statute - assumed both sets oof rights available concurrently: "On 4 November 2020, Sydney Trains brought separate proceedings in the District Court against Argo, the Lloyd’s underwriters and another insurer. The proceedings insofar as they were against the other insurer were dismissed by consent by orders filed on 24 June 2021. Sydney Trains advanced claims in tort and contract. It included a claim for statutory contribution under s 5 of the Law Reform (Miscellaneous Provisions) Act 1946, on the basis that Infrastruction was a tortfeasor which would also have been liable for the personal injury suffered by Ms Michael, and Argo stood in its shoes, both because of s 601AG and also because of the Civil Liability (Third Party Claims Against Insurers) Act, s 4(3). So far as I can see, the inter-relationship between the new overlapping rights created by Commonwealth and State statute following the deregistration of an insured company has not been explored in any case, and it has been assumed that both sets of rights are available concurrently: see for example Synergy Scaffolding Services Pty Ltd v Alelaimat [2023] NSWCA 213 at [10] and [43]. There is no occasion to consider the slightly different rights, available upon a grant of leave, under State law, with the automatic entitlement conferred by s 601AG. That is not merely because of an absence of argument, but because Sydney Trains was refused leave to proceed with its claim under the Civil Liability (Third Party Claims Against Insurers) Act pursuant to s 5(3) because the claim was brought outside the two year limitation defence for claims of statutory contribution in s 26(1)(a) of the Limitation Act 1969 (NSW): Sydney Trains v Argo Syndicate AMA 1200 [2021] NSWDC 685. That period ran from the date judgment was entered in the District Court, as opposed to when that judgment was varied in the Court of Appeal, and so Sydney Trains’ decision to commence a few days before the second anniversary of the variation of the judgment in this Court was too late. Section 26(2)(a) of the Limitation Act addresses this situation in terms. It provides that where the plaintiff is liable by reason of a judgment, the date that cause of action accrues is the date the judgment is given “whether or not, in the case of a judgment, the judgment is afterwards varied as to quantum of damages” (the ancestry of that provision is considered in Aer Lingus plc v Gildacroft Ltd [2006] EWCA Civ 4; [2006] 1 WLR 1173). Sydney Trains did not seek leave to appeal from that decision, nor did its eventual appeal as of right extend to that earlier decision (cf Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478; [2002] HCA 22 at [6]-[8]).": Sydney Trains v Argo Syndicate AMA 1200 [2024] NSWCA 101, [34]-[36] (Leeming JA). 

[F.C] s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW): 

• See eg, Stuart v Manning Retail Pty Ltd [2024] NSWSC 1158.

• Franklin v Coal Mines Insurance Ltd & Ors [2024] NSWDDT 11. 

• Eg, "...  On 20 June 2018, the solicitors for the plaintiff, Mills Oakley, issued a letter of demand directly to the defendant as the public liability insurer for SSE. This was done pursuant to s 51 of the Insurance Contracts Act 1984 (NSW). Mills Oakley alleged that the plaintiff was entitled to a complete contractual indemnity pursuant to Cl 5 of a Hire Agreement and/or s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).": Sutherland Shire Council v SportsCover Australia Pty Ltd on behalf of Certain Underwriters at Lloyds [2020] NSWSC 525, [8].

[G] Co-Insureds and "Innocent Co-Insureds":

[G1] Insureds - Third Party Beneficiaries:

• "Insured" is given its ordinary meaning under the Insurance Contracts Act 1984 (Cth). "Insured" is relevantly given expression in Wadsley v City Mutual Life Assurance Society Ltd [1971] VR 140 to mean “a person who makes a contract of insurance with an insurer”.

• A “third party beneficiary” is defined under section 11 of the Act, namely, “third party beneficiary, under a contract of insurance, means a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends”.

[G2] "Innocent" Co-Insured: 

• The “innocent insured” doctrine developed by various US jurisdictions (eg, Illinois) is foreign to Australian law: see Matthews below; MMI General Insurance Ltd v Baktoo & Anor [2000] NSWCA 70.

• Section 48 of the Insurance Contracts Act 1984 (Cth): the insurer is entitled to defend an action by the third-party beneficiary as if it were an action brought by the Insured, and on grounds that an Insurer would have against the Insured, the effect of which is that an innocent third-party beneficiary cannot quarantine itself from disentitling conduct of the Insured. If the conduct of the Insured disentitles the relevant Insured from coverage, the Insurer is entitled to decline coverage to a third-party beneficiary. 

• For commentary, see:

> Alan Cameron and Nancy Milne, Review of the Insurance Contracts Act 1984 (Cth): Final Report on Second Stage Provisions other than Section 54 (Treasury, Australian Government, 2004) chapter 9 <https://treasury.gov.au/sites/default/files/2022-08/p2004-review-insurance-contracts-act-1984-final-report_1.pdf>. 

> 'WEstjustice submission on the operation and effectiveness of the 2014 General Insurance Code of Practice' (28 April 2017) <https://www.westjustice.org.au/cms_uploads/docs/westjustice-submission-to-the-general-insurance-cop-review.pdf>; 

> 'Named Insured v Interested Party' (Surewise) <https://surewise.com.au/wp-content/uploads/2019/01/TS07_Named_Insured_v_Interested_Party_CV_1118_final_clean_copy.pdf>. 

> ** Christopher J Rodd, 'Fraudulent claims and the rights of the innocent co-insured' (1997) 9(1) Australian Insurance Law Journal 38 <https://search.informit.org/doi/abs/10.3316/agis_archive.19980575>. (TEXT)

> (1989) Australian Construction Law Newsletter 11-12 <http://www.austlii.edu.au/au/journals/AUConstrLawNlr/1989/89.pdf>. 

> Neil Campbell, ‘Wilful Misconduct, Fraud and the Innocent Co-Insured’ [2000] New Zealand Law Review 263.

> Fred Hawke, 'Managing the Risks of Insurance' (2003) 22 Australian Resources and Energy Law Journal 168 <https://classic.austlii.edu.au/au/journals/AURELawJl/2003/47.pdf>. 

> John van de Poll, 'Burning Down the House: Joint Insurance and the Liability of the Innocent Co-Insured' (19 July 2013) <https://www.holmanwebb.com.au/blog/167/burning-down-the-house-joint-insurance-and-the-liability-of-the-innocent-co-insured>, archived at <https://archive.is/lTsBX>. 

> Lanshan Pty Ltd v F3 Enterprises Pty Ltd [2024] VSCA 59: "[84]  Furthermore, although not specifically raised in submissions on the appeal, it also appears to us that there could potentially be some uncertainty about the legal significance of the applicant’s status as an ‘interested party’, as recorded on the policy. Even accepting that the applicant is not, strictly, a party to the contract for the purposes of the common law doctrine of privity of contract, there are exceptions to this doctrine.34 For example, a court may infer that the benefit of a contractual promise is held on trust for a third party.35 Significantly, s 48 of the Insurance Contracts Act1984 (Cth) (having undergone important amendments in 2013)36 has, at all relevant times, extended insurance coverage to persons specified, or referred to, in a contract of general insurance, by name or otherwise, as a person to whom the cover extended, even if the person was not a party. Whether s 48 or any common law exception could apply may also have necessitated the adducing of further evidence so as to examine the precise relationship and intentions of the parties to the insurance policy. Proper consideration of these issues would certainly have necessitated far more attention by way of submissions and reference to legislation and authority than either the judge or this Court was favoured with."

> Carter & Anor v Mackey Motels Pty Ltd [2024] QCA 68: "[66]  The appellants’ submissions on grounds 2.1 and 2.2 canvass issues in relation to the insurance policies that were taken out by the respondent prior to May 2011, which named both the respondent and the appellants. The appellants complain about the “removal of cover” in respect of their interest that was protected by the building insurance. They do not address how a lessee’s interest in premises may be protected by the terms of a policy, the Insurance Contracts Act 1984 (Cth), s 48, or the general law,11 by a policy taken out by the lessor in respect of the premises in which the lessor is the only named insured. They address the differences, including cost differences, between the earlier policies taken out by the respondent and the insurance taken out by the respondent after May 2011. This is a distraction from the issue raised by ground 2.1. That issue does not concern differences between policies effected by the respondent in different years, or reasons for not naming the appellants in policies taken out after 2011."

[G2.1] Interplay between sections 28 and 48 of the Act: fraud of co-insured:

• Section 28 of the Act provides that an Insurer may avoid a contract of insurance where a relevant failure occurs, and the insurer would not have entered into the contract if the relevant failure did not occur, and the relevant failure was fraudulent.

• Section 27AA of the Act defines a relevant failure to mean “a failure by the insured to comply with the duty of disclosure; or a misrepresentation made by the insured to the insurer before the contract was entered into”.

• In Advance NSW Insurance Pty Ltd v Matthews (1989) 166 CLR 606, the High Court of Australia held that the operation of section 28 relevantly extends to the failure of a co-insured. In Matthews, the High Court explained (at 616-9): "It is natural to read the reference in that sub-section to “an insured” as a reference to each and every insured when the context is one in which the statute sets out to impose a duty to disclose material facts to an insurer. As Samuels JA noted in the Court of Appeal, the insurer has an interest in the individual history and claims record of each person who seeks insurance with the insurer. It would not harmonize with this context or with the existence of the duty of utmost good faith imposed by ss 13 and 14 to read s 21 as creating only a joint duty to disclose, that is, a duty to disclose limited to the joint acts and omissions of the co-insured." This legal position is likely to remain good law post-Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) amendments to the wording of section 28 of the Act.

[H] Strangers / Third Party

[H1] Right to declaration of indemnification: "These passages of Agusta and Jaken Properties support the proposition that in the present case Omaya Investments (as the old trustee of the Bechara Family Trust) has a right of indemnity against the Trust Properties held by BSM (as the new trustee of the Bechara Family Trust) by way of equitable charge or lien, which claim should be made against BSM and takes priority over any claims to those assets of the beneficiaries of the Bechara Family Trust. They also make clear that Omaya Investments could seek a judicial sale of the Trust Properties and the appointment of a receiver to discharge any liability to the Owners Corporation which might be found in these proceedings and obtain an interlocutory injunction to prevent the transfer of the Trust Properties in the interim. While the Owners Corporation has no direct resort to the Trust Properties, if it obtains judgment against Omaya Investments it may assert a claim against BSM by way of subrogation of Omaya Investment’s right of indemnity as the former trustee of the Bechara Family Trust. In this way, the Owners Corporation has a real interest in the right of indemnification which Omaya Investments may exercise against BSM in respect of the Trust Properties. Adopting the types of considerations which are referred to in CGU Insurance at [68]–[69] (that the declaration would be binding as between the litigants and prevent relitigation), that gave a stranger to an insurance contract standing to seek a declaration of the right of indemnification under that contract as between the insurer and the insured, I do not think that the claim for a declaration of the right of indemnification of Omaya Investments against BSM in the summons and list statement can be regarded as having such a high degree of certainty that it falls within the General Steel test. It is not “so obviously untenable that it cannot possibly succeed”; “manifestly groundless”; “so manifestly faulty that it does not admit of argument”. It does not “disclos[e] a case which the Court is satisfied cannot succeed”. Nor is this a case where “under no possibility can there be a good cause of action” or where it is “manifest that to allow [the pleadings] to stand would involve useless expense”. It is also not a claim which should be struck out. The list statement contains the allegations of material facts with sufficient clarity to allow BSM to understand the claim which is made against it. Whether the Owners Corporation is entitled to such a declaration is plainly an issue which should be decided after the trial of these proceedings.": The Owners – Strata Plan No. 82089 v Omaya Holding Pty Ltd [2024] NSWSC 992, [93]-[96] (McGrath J). 

> See also, strangers right to enforce a trust in Civil Liability. 

[7 March 2024 archive of page]: <https://perma.cc/GZ9M-SVGJ>.

[1 July 2024 archive of page]: <https://perma.cc/3544-UTX6>.   

[28 August 2024 archive of page]: <https://archive.md/6AORu>.

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