Insurance – Recent Developments and Future Predictions

Overview

Greenway Chambers’ seminar reviews recent Australian insurance-law decisions and their likely implications. Louise focuses on historical child sexual abuse claims and insurance notification issues; Thomas discusses coverage for commercial settlements and property damage caused by defective products. The session closes with brief audience questions and a comment from moderator Ian about possible further litigation over cladding-related claims.

AA v Trustees of the Roman Catholic Church for the Diocese of Maitland-Newcastle

Louise describes this High Court decision as significant because it overturns the approach in Lepore and because the Court undertook unusually extensive analysis of the facts.

• The earlier rule: In Lepore, the High Court held that a non-delegable duty of care could not extend to harm caused by intentional wrongdoing. Louise says this had a major effect on historical abuse claims, particularly where the alleged abuser was not technically an employee of the organisation being sued.
• The new duty: The majority held that a diocese owed a child a non-delegable duty to ensure reasonable care was taken to protect the child from foreseeable personal injury, including injury caused by intentional torts. The duty may apply where the child comes under the care, control or supervision of the diocese or a priest purportedly carrying out a diocesan function.
• Not strict liability: The duty does not make the organisation automatically liable for a delegate’s actions. Liability depends on a failure by the organisation or its delegate to take reasonable care.
• Basis for the duty: The majority saw features of the relationship between a diocese and a child as comparable to the school–pupil relationship, including the organisation’s control over appointments and protective systems, and the child’s vulnerability and dependence.
• Dissent and limits: Justice Gleeson rejected the comparison with schools. She emphasised that the evidence did not show the same kind of parental entrustment or institutional control in this case, and cautioned that merely creating an opportunity for wrongdoing or access to children should not be enough to establish a non-delegable duty.
• Pleading implications: Justice Gordon’s reasons were presented as guidance for future cases: plaintiffs should plead the scope of the duty and the foreseeable risks with precision, rather than relying on a broad or generalised account.
• Future outlook: Louise expects the law to continue developing. She anticipates careful arguments about the functions given to priests and staff, but doubts that defining those functions will necessarily provide a strong defence in historical abuse cases.

Sayers Property Holdings Pty Ltd v AIG Australia Ltd

Thomas discusses the Victorian Court of Appeal’s decision concerning whether an insured could recover under a management liability policy for a settlement that resolved several commercial disputes at once.

• Background: Sayers and a landowner had arrangements involving a gaming venue, a lease, a land-purchase option and an option for the landowner to acquire shares in Sayers. A dispute followed when the landowner would not proceed with the sale. Its counterclaim included allegations against Sayers and a claim for equitable compensation.
• Settlement and insurance claim: The parties reached a global settlement that included a revised property-purchase price, cancellation of the share option and mutual releases. Sayers sought cover for an amount of about $2 million, representing the increase over the previously agreed purchase price.
• Court of Appeal’s conclusions:
  • The policy’s definition of “claim,” which referred to “compensation or other legal remedy,” was broad enough to include the whole counterclaim—not only the specific equitable-compensation claim.
  • The policy expressly referred to settlements in its definition of “loss.” That supported treating liability arising from the settlement as potentially covered.
  • The reasonableness of a settlement is assessed by reference to the risks the insured would have faced if the third-party claims had proceeded to trial. The insured bears the burden of establishing that the settlement was reasonable.
  • Evidence of the legal advice received at the time, together with the commercial risks facing Sayers, supported the conclusion that the settlement was reasonable.
• Practical lessons: Insurers should state clearly when they intend to distinguish between different categories of loss. Insureds should seek the insurer’s consent before settling and keep evidence that the settlement was reasonable and consistent with the policy.

Insurance Australia Ltd v Capral Ltd

Thomas explains the Full Court of the Federal Court’s decision on whether incorporating a defective product into a larger item of property can cause “property damage” under a liability policy.

• Background: Capral supplied aluminium plate for marine vessels. The plate was incorporated into unfinished vessels but was later found not to meet the required corrosion-resistance standard. Customers removed or replaced it and claimed their resulting costs from Capral.
• Property-damage analysis: The courts considered whether incorporating the defective component physically altered the larger property and impaired its usefulness or value. Relevant considerations identified at first instance included:
  1. Whether the tangible property was physically altered by incorporating the defective product.
  2. Whether the defect meant the product had to be removed.
  3. Whether removal would involve substantial cost.
  4. Whether the property’s usefulness or value immediately after incorporation fell below what it was immediately before.
  5. Whether the customer’s claims were for that resulting loss in usefulness or value.
• Outcome: The Full Court upheld the finding that welding the defective plates into the vessels caused property damage. The vessels could not proceed to market without removal of the plates, and removal or replacement involved substantial cost. The claims were therefore not merely claims for defective goods; they were claims for damage to the vessels.
• Product-recall exclusion: The Court also upheld the conclusion that the exclusion required a causal link between the recall and the loss. That link was absent because the relevant damage occurred before the recall.
• Possible further litigation: The decision may settle the issue in many contexts, but cladding litigation could bring it back before the courts. Ian noted that further developments may depend on the outcome and any appeal in the separate 3A cladding class action, and the later progress of the Fairview proceedings.

The Uniting Church Property Trust (NSW) v Allianz Australia

Louise reviews the Full Court of the Federal Court’s decision concerning insurance for historical abuse claims involving Knox Grammar School. The High Court refused special leave to appeal.

• Corporate knowledge and attribution: A key issue was whether knowledge held by the school—including knowledge reflected in a private investigation report—could be attributed through the relevant organisational structure to the Uniting Church and the people who reported to Allianz. The school was not a separate incorporated legal entity. The courts had to draw inferences from incomplete historical records, in part because no relevant church witnesses explained the reporting procedures.
• Section 40(3) of the Insurance Contracts Act: The provision concerns notification of facts that might give rise to a claim. Louise says the existing approach remains that the test focuses on objective facts and that the threshold for notification is relatively low. A notification of a general problem—a “hornet’s nest”—may be sufficient even if its full scale or consequences are not yet known.
• The investigation report: The report, delivered to the school in 2004, comprised about 1,500 pages. The Court considered that if it had been given to Allianz at that time, it would have notified the insurer of the underlying problem and could have affected the availability of cover for the relevant policy year.
• Prior-known-circumstances exclusion: The Full Court disagreed about whether the policy clause excluding claims connected with circumstances known before the policy began was invalid under section 52 of the Act. Justice Derrington rejected the argument that it impermissibly contracted out of the Act. Justices Macavoy and Colvin considered that, in the circumstances, it conferred additional rights on the insurer and was inconsistent with section 52.
• Unresolved issue: The High Court indicated that the case was not a suitable vehicle for deciding how section 40(3) interacts with section 54, including whether those provisions may provide a remedy for late notification. Louise predicts that the issue may be considered in a future case.

Speakers and Sources Featured

Speakers

• Louise — Presenter on AA, The Uniting Church Property Trust v Allianz, and related historical abuse and notification issues.
• Thomas — Presenter on Sayers v AIG and Insurance Australia v Capral.
• Ian — Moderator and introducer; also comments on the possible future progress of cladding litigation.
• Unidentified audience members — Asked questions during the discussion.

Cases and Legal Sources Discussed

• AA v Trustees of the Roman Catholic Church for the Diocese of Maitland-Newcastle
• Lepore v State of New South Wales
• Bird v DP
• Northern Sandblasting Pty Ltd v Harris
• Commonwealth v Introvigne
• Shokman
• Sayers Property Holdings Pty Ltd v AIG Australia Ltd
• Simic
• Insurance Australia Ltd v Capral Ltd
• Fairview Architectural Pty Ltd proceedings
• The Star Casino cladding decision
• The Uniting Church Property Trust (NSW) v Allianz Australia
• Newcastle City Council v GIO
• PS Counter Pty Ltd v Arch Underwriting
• Europools
• The 3A cladding class action