The Federal Court of Australia recently handed down the decision of Lee J in proceedings brought by an insured in relation to the denial of indemnity by Allianz for multiple claims arising from circumstances of ongoing investigations into historical sexual abuse of children that were notified in various ways throughout a 12-year period.
Central to the Court’s finding that Allianz was required to grant indemnity was the question of whether valid notice had been given under s 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA or the Act), by various communications of the problem, subsequent communications purporting to notify additional claims and emails identifying claimants in “bulk”. In the course of its 202 page judgment, the Court effectively extended the ambit of what constitutes a valid notification for the purposes of s 40(3), in turn extending the indemnity risk to insurers.
Though the Court also considered issues relating to exclusion clauses, estoppel, waiver and the duty of utmost good faith, this article is concerned with the effect of the judgment on the scope of valid notifications under s 40(3).
The case concerned a claim under professional indemnity insurance policies issued by Allianz relating to historic claims by former students of sexual abuse by former teachers and other employees of Knox Grammar School (KGS), operated by the applicant, the Uniting Church in Australia Property Trust (UCPT).
The UCPT relied on multiple notifications of the issue that were given to Allianz throughout the continuous cover period of 1999-2011, including four “bulk notifications” of claimant/potential claimant names given in 2009, 2010 and 2011 and a notification regarding an alleged perpetrator that was given in February 2011.
Initially, Allianz indemnified the UCPT under the policies for twelve claims made, with the last claim being accepted in September 2012, as well as in respect of all claims of sexual and physical abuse relating to alleged perpetrators that were notified by way of claims or circumstances during the period up to May 2014. In managing the matter, Allianz engaged a solicitor to act for both Insurer and Insured in respect of the claimants and potential claims made.
Allianz first denied indemnity in March 2014 on the basis that: (1) the claim arose from matters that were known to the UCPT prior to the period of insurance cover, which were facts, circumstances or occurrences that could give rise to a claim and were relevant to Allianz’s decision whether to accept the risk; and (2) the UCPT breached its duty of disclosure, entitling Allianz to reduce its liability to nil.
Proceedings were issued by the UCPT seeking declarations of indemnity under the policies. Allianz contended that the UCPT had breached its duty of disclosure and that it was entitled to rely on an exclusion in the policy to deny indemnity.
Notification or Not: s 40(3)
At the crux of the dispute was the validity of various notices of facts which might give rise to a claim for the purposes of s 40(3) of the ICA.
Section 40(3) of the Act entitles an insured to indemnity where, despite the claim having been made outside the period of cover, the insured can demonstrate that it had notified facts that might give rise to that claim before the expiry of cover. Determining whether a fact might give rise to a claim requires an objective assessment of whether that fact, considered in context along with other notified facts, suggests more than a bare possibility of a claim being made.
Allianz’s contentions as to the notifications concerned the validity of notifying in “bulk” by lists of names. It argued that describing a problem or circumstance could not constitute notification of facts that might give rise to claims, and that because initial reports and investigations were made early in the piece the subsequent notifications were not made as soon as reasonably practicable.
The Court’s Finding: Valid Notification of a “Problem” in “Bulk” under s 40(3)
The Court found that, by operation of s 40(3), the policies were engaged and the UCPT was entitled to indemnity, despite the relevant claims having been made outside the period of cover.
Lee J considered the bulk notifications of fact against the background of the ongoing police investigations and the history of prior notifications concerning the “problem” of sexual abuse against multiple former students by multiple former teachers of KGS. Objectively understood, these facts were of a character which might give rise to potential claims for psychiatric and/or physical injury. Subsequent “bulk” notifications were viewed as supplementing those made earlier in alerting Allianz to features regarding the magnitude of the “problem” at KGS.
Relevant matters that his Honour considered in determining that notifications were made as soon as reasonably practicable included the historical context of the claims, arrests and media reports of the issue and the shift in attitudes towards complaints of institutional sexual abuse over time. For example, between the time that the “problem” arose, and a subsequent notification was given in 2006, the complaints had morphed into allegations of sexual assault. This served to ‘imbue’ the reports and materials from 2004 ‘with a different hue’, meaning that as and when matters arose in respect of the complaint they were found to have been notified as soon as reasonably practicable.
Lee J also found that a solicitor engaged in the matter, such as Ms Blacker of Gadens who was engaged by Allianz, could give (on behalf of the Insured) and receive (on behalf of the Insurer) notifications under s 40(3). Should this occur, the Insurer will be ascribed to have knowledge of such notifications.
New Scope of Validity – Notifications to Insurers
This case represents a change to the scope of s 40(3). From the Court’s judgment arises an increase in the risk of liability of insurers for claims arising from circumstances, problems or issues notified.
The resulting legal position is now that a notification of facts may be in the form of a “problem” described in general terms which in common experience might lead to claims, such as by persons or entities bearing particular characteristics – in this case, students who may have been subject to sexual or physical abuse by KGS staff. This holds true for subsequent claims provided there is ‘sufficient correspondence’ between the facts notified and the matters from which the claims arise, meaning that Courts may consider multiple communications that purport to notify facts collectively.
Lee J provided the following comments that both Insurers and Insureds should keep in mind in evaluating whether correspondence constitutes a valid notification under s 40(3) :
“No notification can be considered in a vacuum, and it is a matter of fact and degree in each case as to whether the quality of facts notified are sufficient to enliven the subsection, which must be informed by an eye attuned for context and historical dealings between the insured and insurer.”
The Court’s decision has confirmed and clarified the test of the required form and contents of a valid notification of fact and, in particular, the legal standard for blanket notification.
Citing findings in recent jurisprudence,  the judgment affirmed that notification of facts or circumstances under s 40(3) does not necessarily need to identify likely claimants or quantum, could be of claims which may not have significant prospects of success and may be in the form of notifying a “problem” from which claims may arise.
Through better defining the ambit of s 40(3), the NSWCA may have resultantly expanded the scope of liability for Insurers with respect to notification of issues or problems described in general terms in communications with an insured.
Insurers should also be cognisant of communications with claimants, insureds or solicitors engaged with respect to matters, as notifications can take the form of multiple written communications and can be given by an agent of the insured and/or to an agent of the insurer (such as a matter solicitor engaged by an insurer).
However, bounds remain to s 40(3). A notification is unlikely to be valid if it is a ‘bare possibility’ of a claim or if it is conditional upon other eventualities (making the “fact” nothing more than a potential possibility). For example, a notification that is merely a statement of opinion that does not expose any underlying facts that might give rise to a claim also will not be valid.
Key Takeaways – Implications for Insurers and Insureds
- Notifications of a “problem” (or “can of worms”) by communicating a state of affairs can attract the protection of s 40(3) of the Act.
- Bulk notifications could prove valid even if the scale of the “problem” is not known at the time the bulk notification is made. A Court will consider the notification against the background at the time (including media reports).
- Claims notified under s 40(3) in general terms or as a “problem” may render Insurer liable to indemnify future potential claims in respect of known and unknown claimants under the same circumstances. Claims arising from such “problem” notifications or those given in “bulk” will fall into the policy year in which the bulk notification was given.
- Notifications may be given to and received by an Insured’s agent, such as a solicitor engaged in respect of the matter. This will be determined by the scope of the retainer. Insurers and their panel solicitors should check the terms of their retainer/s to determine whether receiving a notification under s 40(3) is within its scope.
Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited (Liability Judgment)  FCA 190 at .
 See, for example, Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited (Liability Judgment)  FCA 190 at , , citing DIF III – Global Co-Investment Fund LP v DIF Capital Partners Ltd  NSWCA 124; P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyd’s Ltd  NSWCA 136; (2021) 105 NSWLR 110.
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