A Problem, Potential Claimants and the Possibility of a Claim: The Australian Federal Court examines what constitutes a valid notification by an insured
Earlier this year, the Federal Court in Australia handed down an important decision on the application of a notification of circumstances by insureds to their insurers.
The case arose from a long-running dispute between the Uniting Church in Australia Property Trust (Uniting) and its insurer, Allianz Australia Limited (Alllianz). Uniting had held insurance with Allianz from 1999 to 2011.
In the years 2003, 2008 and 2009, Uniting made four ‘bulk’ notifications of circumstances to Allianz of facts relating to allegations of historical abuse that occurred at a school governed by Uniting. Prior to their policy with Allianz lapsing, brokers for Uniting issued a notification that there were “likely to be claims relating to: psychiatric injury and/or physical injury arising from physical assault, sexual assault, trespass to person, breach of fiduciary duty and/or negligence”. Potential claimants included those whose identities were not yet known, and who might come forward at some point in the future making allegations of abuse.
Allianz declined indemnity (or otherwise reserved its rights) for claims made by Uniting, due to issues it perceived with the nature of Uniting’s notifications. Following the declinature of indemnity, Uniting commenced proceedings against Allianz, seeking an order that indemnity be granted. In assessing Uniting’s Claim, the Court considered a number of issues, but most pertinently, it considered the operation of section 40(3) of the Insurance Contracts Act, which deals with notifications by insureds.
Uniting argued that the facts they provided to Allianz in their notifications of circumstances which might give rise to a claim were sufficient, and they had notified Allianz as soon as it was practicable to do so. Uniting’s position was that section 40(3) was intended to operate in a manner that enabled insureds to notify an insurer of a ‘problem’ that may give rise to a claim.
On the other hand, Allianz argued that Uniting could not rely upon an “accumulation of facts” notified to Allianz prior to the inception of the period of insurance of the policy in question. Further, Allianz argued that Uniting was aware of the abuse allegations prior to when they notified Allianz, and as they had not notified Allianz as soon as it was reasonably practicable, they should not be entitled to the benefit of section 40(3).
The key question for the Court was therefore whether notifying an Insurer of a ‘problem’ or ‘state of affairs’ would be deemed to be a valid notification for the purposes of section 40(3). The Court noted that section 40(3) had two limbs which must be satisfied:
- an insured must provide to the insurer notice of facts that may give rise to a claim, and
- an insured must do this as soon as it is reasonably practicable after they have become aware of the facts.
Consequently, the Court determined that section 40(3) requires sufficient connection between the facts notified and the claim subsequently made. However, it was immaterial that the notification was in general terms, or that it lacked the identify of the claimant or the potential quantum of any claim. As a result, the Court held that under section 40(3), an insured may notify an insurer of a ‘problem’, as long as the ‘problem’ can be considered to be a notification of facts that may give rise to a claim.
In reaching this conclusion, the Court did touch on the ‘hornet’s nest’ principle that operates in the UK, where an insured may provide a valid notification by simply communicating a ‘state of affairs.
However, the Court did not provide a definitive position on the issue, as it deemed that Uniting’s notifications were otherwise valid.
In Summary
The key takeaway from the decision is that a ‘bulk’ notification could be considered a valid notification, even if the details or scale of the ‘problem’ being notified are not known. It remains to be seen how other courts will engage with the decision and whether there will be further analysis of the ‘hornet’s nest’ principle by Australian Courts, although it seems likely that this is only the beginning of judicial engagement on the issue of what constitutes a valid notification by an insured in Australia.
Case: Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd (Liability Judgment) [2023] FCA 190
