Boardroom Briefing | September 2020
LIFTING THE LID: AN INSURED’S NON-DISCLOSURE AND AN INSURER’S BACKTRACK
Nevertheless, this recent case shows that the insurer can forfeit its entitlement in responding to the non-disclosure to the benefit of the insured. An understanding of both an insured’s disclosure obligations and an insurer’s response to indemnity is one of the flashpoints of your broker’s role.
UNDER THE LID Cyclone Debbie caused major damage to the insured’s building and the insured had not disclosed building defects to its insurer. Allianz became aware of the defects, but it undertook to pay out the claim “despite the non-disclosure issue” and advised that it was “pleased to confirm that we will honour the claim and provide indemnity”. Allianz, in assessing the claim, identified covered and uncovered damage leading to a disagreement between the insurer and insured which eventually resulted in Allianz making a “take it or leave it” settlement offer or it would deny responsibility on the basis of the non-disclosure of the pre-existing defects.
OPENING THE LID: The insured sought an order from the Federal Court that the insurer could not reduce its liability under the policy because it had made a promise to honour it. Allianz argued that it didn’t have to pay out because it was entitled to reduce its liability to nil for non-disclosure under sec 28 Insurance Contracts Act.
The Judge agreed that there had been non-disclosure by the insured but Allianz was not allowed to renege on its position to pay because that would leave the insured in a financially detrimental position having made decisions on the basis that the policy would be honoured. Allianz’s decision to resile from its earlier position on indemnity with a “take it or leave it” offer was “unjust, unreasonable and unfair” by reference to standards of decent commercial behaviour and breached the insurer’s duty of utmost good faith (sec 13 of the Insurance Contracts Act). Perhaps if new information had come to the insurer’s attention, the Court would have been less inclined to find Allianz estopped from denying the claim.
IN BRIEF: This case highlights the roles of insured and insurer, in providing disclosure and acknowledging that disclosure, respectively. Your Lockton broker understands the importance of formulating full disclosure to your insurer and the implications of an insurer’s confirmation of cover, which is underpinned by its duty of utmost good faith. It also showcases the importance of scrutinizing an insurer’s denial of indemnity; a vital part of your broker’s tool kit. The decision is on appeal.
Delor Vue Apartments CTS 39788 v Allianz Aust Insurance Ltd (no.2) FCA 588