POLICYHOLDER INSURANCE HIGHLIGHTS 2020 - In this issue
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
POLICYHOLDER
INSURANCE HIGHLIGHTS
2020
In this issue
01 Introduction
02 Business interruption insurance
for COVID-19 related losses
06 How many deductibles is that?
07 Risk may ‘attach’ prior to the
policy period (even when a
helicopter is not attached!)
08 Voluntary redress payments
binding on insurers
09 The insured “Situation” is not
limited by the insured “Business”
10 Insurer waives its rights goodbye
11 Construction cover is all it's
cracked up to be
14 D&O insurance and class actions
16 Cyber insurance update
18 Contacts – who can help?
19 Market recognition – awards
and accolades
HERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 01
Introduction
Welcome to the sixth edition of Herbert Smith Freehills’ Policyholder Our insurance practice
Insurance Highlights.
Our global insurance and reinsurance
In this publication, we have pulled together the learning opportunities for practice advises insurers, brokers and
insurance policyholders from the most relevant insurance cases and market policyholders on all aspects of insurance
developments over the last 12 months. and reinsurance matters, whether
corporate, regulatory or contentious claims.
Consistent with the trends we identified in previous editions of Policyholder
Insurance Highlights, the key messages this year are: Herbert Smith Freehills’ insurance practice
in Australia is focussed upon representing
1. C
OVID-19 has meant insurance has been front page news and top of mind the interests of our clients as policyholders
for corporate Australia: interruption to Australian (and global) businesses as in major claims.
a result of COVID-19 has been widespread. Perhaps unsurprisingly, there has
been a significant focus amongst policyholders, insurers and brokers on the We work with corporate policyholders on a
response of various ‘non-damage’ coverage extensions in business range of matters including:
interruption insurance policies, as well as associated exclusions. This has
resulted in a series of cases in Australia and the UK – each dealing with a •assisting policyholders with major claims,
different range of issues. Some of these cases have been fast-tracked and including advice on coverage, preparation
decided at first instance, but appeals are ongoing. Policyholders should not of claims submissions, and claims
expect quick resolutions – disputes will continue through 2021 as appeal advocacy to secure payment of the claim
rights are exhausted. However, there have so far been a number of successes using the full range of dispute resolution
for policyholders. As such, policyholders should be seeking advice as to processes;
(a) whether their policies potentially provide coverage; (b) whether existing •advising clients in relation to issues
cases on foot will resolve issues relevant to their coverage; and (c) what steps flowing from critical business events
they should be taking now to preserve or enforce their rights. including environmental incidents;
2. F urther pressure on the Directors’ & Officers’ insurance market: the property damage; personal injury claims;
proliferation of shareholder class actions means ‘Side C’ D&O insurance corporate manslaughter charges and
which covers companies for such claims is becoming increasingly difficult to health and safety investigations;
obtain or prohibitively expensive. The same applies for similar, specific •representing insured directors and
insurance cover for companies conducting capital raisings. Corporates are officers and major corporates in
now giving serious consideration as to the value which is being obtained defending claims covered by their
from this form of risk transfer and what alternatives there may be going insurance policy where they have rights
forward. Significant ongoing D&O losses borne by insurers, together with to nominate their choice of legal
increased claims in other areas (including COVID-19 business interruption) representation; and
and reduced investment returns for insurers, have resulted in the insurance
market continuing to harden across all major lines of business – the •advising clients on insurance and risk in
availability and scope of insurance coverage is generally reducing, and the context of major transactions,
premiums are generally increasing. projects and insolvency.
3. D
elays and disputes continue to affect major insurance claims: as expected We also advise brokers on the full spectrum
as the insurance market hardens and insurers’ profit margins come under of issues that emerge from the role of the
increased pressure, and consistent with the trends we have observed in broker, including defence of professional
recent years, coverage disputes for major claims are on the rise. Our view negligence allegations.
remains that policyholders should engage specialist advisers at an early stage
to assist with claims notifications, preserve legal privilege, engage experts
and advocate claims coverage issues so as to maximise entitlements under
their insurance assets – it is clear that insurers are doing the same. This is Mark Darwin
even more important given the hardening market reduces policyholders’ Partner
ability to push for (or even preserve) broader coverage at renewals. T +61 7 3258 6632
M +61 412 876 427
We hope that you enjoy this year’s edition of Policyholder Insurance mark.darwin@hsf.com
Highlights. Please contact a member of our Insurance team (details at the back
of this publication) if you would like to discuss any of the cases or trends and Guy Narburgh
how they may impact your business in more detail. Special Counsel
T +61 2 9322 4473
M +61 447 393 645
guy.narburgh@hsf.com
02 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
Business interruption insurance for
COVID-19 related losses
The hot-topic in the current insurance •in relation to the various Australian test COVID-19 is not physical damage, so a
market is whether, and to what extent, cases (here); and typical policy will not cover COVID-19
business interruption caused by COVID-19 related losses.
•in relation to the Australian ICA test
is covered by insurance policies. We have
case (here).
been releasing regular updates, available on However, many policies contain a variety of
our website, in relation to the various ‘non-damage’ extension clauses which may
What are the key issues? open up the possibility for a claim. A list of
ongoing test cases on these matters:
Business interruption insurance (as part of examples which might apply appears below.
•in relation to the recently finalised appeal
an ISR policy) covers the loss of profit and While every policy will turn on its own
in the UK FCA test case – in which
increased costs that a policyholder suffers wording, there are generally three main
Herbert Smith Freehills represented the
as a result of insured events. Typically that issues relevant to seeking coverage under a
FCA in successfully advocating the
event or “trigger” for coverage is physical ‘non-damage’ extension:
policyholder’s positions (our most recent
damage to the insured’s business premises.
update available here);
Have the specific requirements of the relevant ‘non-damage’ extension been met? Some guidance may be
obtained from the various test cases being conducted, however not all extensions are part of the test cases already
TRIGGER ISSUE
decided. Further guidance is expected from the Star City Casino case (which was closed by the actions of authorities)
which is due to be heard in late April 2021.
Are there any applicable exclusions? The disease extension is often subject to an exclusion for diseases declared
under the Biosecurity Act and the standard ISR policy contains a general exclusion for physical damage caused by
EXCLUSION
disease (both of which we consider irrelevant to claims under other non-damage extensions but this is to be decided
ISSUE
in the Star City Casino case). Some policies still refer to the now repealed Quarantine Act (which the NSW Court of
Appeal has held is not effective as an exclusion, although this decision is being appealed to the High Court).
Did the trigger cause the loss and what ‘other circumstances’ may be taken into account in demonstrating the
CAUSATION ‘Standard’ turnover which the business would have achieved absent the insured trigger? This issue has been resolved
ISSUE in favour of the policyholders by the UK appeal decision, assuming it is followed by insurers in Australia – which it
should be given that they were happy to follow the now overruled UK decision in the Orient Express Hotels case.
HERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 03
What are the kinds of extensions being relied on?
There are a number of extensions being relied upon. Some examples of the main types of wordings policyholders should be looking for are:
CATEGORY OF EXAMPLE WORDING
EXTENSION
Disease … will cover you for interruption to or interference with your business due to… (b) an outbreak of an infectious or
contagious human disease occurring within a 20 kilometre radius of the Premises…
Prevention of … will cover you for loss in consequence of access to or use of the premises being prevented or hindered by… any
Access action of government due to an emergency which could endanger human life or neighbouring property…
Hybrid …will cover loss arising from closure or evacuation of the whole or part of the premises by order of a competent
government, public or statutory authority as a result of … the outbreak of a notifiable human infectious or contagious
disease occurring within a twenty (20) kilometre radius of the premises.
Civil Authorities The word “Damage” under Section 2 of this Policy is extended to include loss resulting from or caused by any lawfully
constituted authority in connection with or for the purpose of retarding any conflagration or other catastrophe.
Loss of Loss as insured by the Policy resulting from interruption of or interference with the Business:…
Attraction
(b) by the action of any lawfully constituted Authority attempting to avoid or diminish risk to life or property in the
vicinity of such premises,
which shall prevent or hinder the use thereof or access thereto, or which causes a fall in the number of potential
customers attracted to the vicinity of the Premises, whether the premises or property therein shall be damaged or not,
shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises.
Lessons for Policyholders
The key thing that policyholders should keep in mind is that just because a claim has been denied does not mean that they do not
have a claim.
Some basic initial steps that policyholders can be taking include:
a) locating their policy that provides coverage for business interruption (this will often be an ‘Industrial Special Risks’ or ‘ISR’ policy);
b) r eviewing the policy to determine whether it contains any of the ‘non-damage’ extensions or otherwise does not require physical
damage (we are happy to help our clients by looking at your policy free of charge to tell you whether you have such a clause).
Please contact us if you would like to discuss whether you may have a claim.
04 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
What cases are ongoing?
There are a number of different test cases ongoing around the world. The main ones of note for the Australian market are:
CASE ISSUES CONSIDERED STATUS
UK FCA Test Trigger Issue: Application of various On 15 January 2021, the UK Supreme Court (highest court of appeal in the
Case extensions used in the UK. UK) decided 5-0 in favour of policyholders.
Causation Issue. The Court held that the extensions provided cover and the loss covered by the
peril was not to be reduced by reference to what effect the broader pandemic
would have had anyway. Judgment available (here).
ICA Test Case Exclusion Issue: whether exclusions The NSW Court of Appeal decided 5-0 in favour of policyholders
(First) referring to ‘quarantinable diseases under (available here).
the Quarantine Act 1908 (Cth) and
subsequent amendments’ excludes On 16 December 2020, insurers applied for Special Leave to Appeal to the
COVID-19 given that the Quarantine Act High Court (here). A decision on whether they will be granted special leave
was replaced by the Biosecurity Act 2015. could occur within or shortly after Q1 of 2021.
ICA Test Case Issues are not yet finalised, but are said Not yet filed, but the ICA was reported after losing the First test case to be in
(Second) to include proximity (Causation Issue) negotiations to bring a further test case. Our view is that this should not be
and prevention of access (Trigger issue). necessary in light of the 5-0 decision on these issues in the UK FCA appeal.
Star Casino Trigger Issue: tests a Civil Scheduled to be heard on 29 – 30 April 2021. Judgment predicted perhaps
Case Authority clause. mid-2021.
Exclusion Issue: tests general perils This will be an important case for policyholders in Australia to watch as many
exclusion for physical damaged Australian businesses were less affected by COVID19 at or within a vicinity of
occasioned by diseases and whether a their premises but more so affected by the actions taken by authorities to
Biosecurity Act exclusion in a separate respond to the pandemic.
extension affects coverage under the
Civil Authority clause.
Melbourne Exclusion Issue: tests whether an Judgment delivered on 18 December 2020 (available here).
Café Claim exclusion for losses caused by
‘biosecurity emergencies’ declared under Although there were issues with how the separate question was framed, the
the Biosecurity Act 2015 (Cth) applies to Court considered that the exclusion referred to the state of affairs
losses caused by the action taken by underpinning the making of the declaration and therefore did exclude loss
authorities under the Health Act (Vic) in caused by the response to the underlying emergency.
response to the emergency
The policyholder argued that its loss
was not caused by the declaration itself
but only by the actions of the Victorian
Government in response.
HERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 05
06 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
How many deductibles is that?
Rawson Homes Pty Ltd v Allianz Australia Insurance Ltd [2020] NSWSC 1654
Last year’s update included news of the arises from a single event and the
policyholder’s successful appeal on the Insured can obtain cover under more
aggregation of deductibles for a class action than one benefit in this Section, the
Lessons for
which might have comprised numerous Insured will only be required to pay Policyholders
‘Claims’ under a D&O liability policy1. the highest single Deductible The calculation of deductibles can have
applicable regardless of the number of a significant effect on the value of
The issue of multiple or aggregated Deductibles applying to this Section. claims. When preparing a claim, it is
deductibles has been considered again important to carefully consider the
this year, this time in the context of policy wording when approaching
The insurer argued that, reading the policy
hailstorm damage to multiple properties characterisation of the event, the loss
as a ‘coherent and harmonious whole’, the
under construction by the policyholder (a and the claim.
builder was making 122 claims under the
building company).
policy, as the insuring clause related to each
building contract, and therefore 122 separate This case also provides a reminder that
Facts the maxim of contra proferentem
deductibles were payable.
On 18 February 2017, a severe hailstorm (ambiguities will be interpreted
west of Sydney caused damage to The builder argued that only one deductible contrary to the party which prepared
122 partially constructed houses in a was payable on the basis that all claims the document) may still have a role to
development at Kellyville and Rouse Hill. arose out of the hailstorm which was play in the interpretation of insurer
The builder, Kelly Homes, sought “one event or occurrence”. issued standard policy wordings.
indemnity under an annual construction
insurance policy issued by Allianz. Decision
The NSW Supreme Court agreed with the
The insuring clause and definition of
builder that only one deductible was
‘Indemnifiable Event’ each referred to
payable. The starting point was the
individual ‘Insured Contracts’ for individual
provisions dealing with the deductible
properties under construction. However,
which contemplated multiple claims arising
‘Deductible’ was stated in the Schedule to
out of one event. The ‘Application of
be ‘$10,000 Any One Event’ and defined by
Deductible’ clause referred to ‘each event
reference to each ‘event or occurrence’,
giving rise to a claim’, and the deductible
as follows:
was specified for ‘Any One Event’.
‘Deductible’ means the amount of Although ‘event’ was not defined, the Court
money specified in the Schedule for found that as a matter of common sense
each applicable Section or type of and ordinary meaning, the hailstorm could
loss as specified, that the Insured only be considered one event. This
must contribute as the first payment conflicted with the definition of
for all claims arising out of one event ‘Indemnifiable Event’, which related to each
or occurrence. building contract, however that could be
explained by the deliberate use of different
terms: ‘event’ vs ‘Indemnifiable Event’.
Under the basis of settlement, a clause
entitled ‘Application of Deductible’
To the extent Allianz asserted that there
also provided:
was ambiguity in the overall interpretation
of the policy, as it was a standard form
The amount of the Deductible will be insurance contract authored by the insurer,
subtracted from the amount payable any ambiguity had to be resolved in favour
by Us for each event giving rise to a of the insured.
claim under this Section. If a claim
1. Bank of Queensland Ltd v AIG Australia Limited [2019] NSWCA 190
HERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 07
Risk may ‘attach’ prior to the policy period
(even when a helicopter is not attached!)
Swashplate Pty Ltd v Liberty Mutual Insurance Co (2020) 381 ALR 648
Facts arrival of the helicopter at Sunshine Coast While the placement slip specified a ‘Period
Airport (without stipulating when the of Insurance’ commencing on 19 May 2018,
The policyholder purchased a helicopter
insurance ‘attached’). this did not use the language of ‘attaching’,
located in Picayune, Mississippi, and in
so did not prevent the terms of the master
May 2018 arranged to ship the helicopter to
Importantly, the master policy incorporated policy being applied to provide an earlier
Sunshine Coast Airport in Queensland.
the terms of the Institute Cargo Clauses (A) attachment date based on when the
Under a facility master policy arranged by
2009 (ICC(A)), which provided that risk helicopter was loaded and extended for
its broker and issued by Liberty Mutual, the
‘attaches’ when the cargo is first moved for 5 days of ‘Static Cover’ beforehand.
policyholder obtained a placement slip
the purpose of immediate loading for
insuring the transit of the helicopter on the
transit, but also contained in extension In reaching its decision, the Full Court found
terms of the master policy. The helicopter
which provided that: that the commercial purpose of stating a
was found to be damaged on arrival
date in the placement slip was simply so
because it was not sufficiently and suitably
that the insurer could determine whether it
packed and the bracings tying it down in its Coverage is extended to include Static
fell within the one year period of the master
container had broken in transit. Cover for up to 5 days prior to loading.
policy facility, and attaching cover only on
the date stated in the placement slip would
The terms of the master policy excluded
The insurer argued that the risk ‘attached’ be contrary to the express words of the
liability for defective packing ‘prior to the
on the start of the Period of Insurance master policy and deprive the insurance of
attachment of this insurance’. The insurer relied
specified in the placement slip (19 May) and its primary commercial character, being for
on this exclusion to deny indemnity on the
that the relevant packing time was the local risks during the whole of a voyage, rather
basis that the helicopter was packed prior to
time in Mississippi (18 May), so the than merely part of it.
the insurance ‘attaching’. So the key issue
helicopter was packed before the insurance
became when did the insurance “attach”?
‘attached’ and therefore the damage was Given the finding policy coverage began
excluded. The trial judge accepted the earlier than 18 May 2018, it was not
The master policy required Liberty to
insurer’s argument and the necessary to determine which time zone
accept placement slips for ‘risks attaching’
policyholder appealed. applied, however the Court indicated that
during a one–year period that covered the
the local time where the event causing the
transit period. The helicopter was packed
Decision damage (loading) occurred was likely to be
on 18 May 2018 in Mississippi, although in
the relevant time, as the policy provided
Australian time (where the placement slip The Full Federal Court unanimously worldwide coverage.
was arranged) it was 19 May 2018 and overturned the trial judge’s decision, finding
the placement slip stated a ‘Period of that the policy attached 5 days prior to
Insurance’ from 19 May 2018 until the loading because of the Static Cover extension.
Lessons for
Policyholders
This decision is a welcome and
commercially sensible outcome, given
the commercial purpose of such
voyage policies is to insure the entire
period of transit.
However, it is also an important
reminder of the value of ensuring that
insurance coverage is arranged early,
and to be aware of the terms of master
policies, so that if needed appropriate
extensions are included to provide
protection where coverage is needed
for periods prior to policy issuance.
08 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
Voluntary redress payments binding
on insurers
National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 3) [2019] FCA 2139
Facts General Condition 7 required the •the definition of a claim expressly referred
policyholder to obtain the insurer’s consent to a demand ‘which could reasonably result
A review by, what is now, the Financial
prior to entering into any settlement. The in the payment of compensation’.
Conduct Authority (UK) identified issues
term ‘Claim’ was defined to include any
in the way Clydesdale Bank, a former
demands “either for or which could reasonably The Court expressly did not determine
subsidiary of NAB, had sold products
result in the payment of compensation, whether there had been a breach of General
to customers.
damages, or a Restitutionary Order…” Condition 7 (or whether such a breach could
be remedied by s54 of the Insurance Contracts
Following an internal review into the way
Decision Act 1984 (Cth)). The Court simply noted that
products had been sold, NAB chose to
the requirement to obtain the insurers’
make a series of redress payments to a The Court noted that liability insurance
consent prior to settlement did not change
number of its customers. These payments compensates a policyholder for damage
the Court’s interpretation of ‘Civil Liability’.
were made by way of settlement which the insured must pay to a third party.
agreements entered into voluntarily by the In other words, generally, for coverage
bank in circumstances where no court under a liability policy to be triggered there
process proved liability on its part. must be proof of an underlying legal liability Lessons for
to the third party. Policyholders
The bank, represented by Herbert Smith
The decision is a win for policyholders.
Freehills, sought to claim for these payments A settlement voluntarily entered into creates
However, it also demonstrates the
and associated legal costs – totalling over a liability to the third party, but does not
complexity of the law in relation to
£357 million – under its civil liability prove that there would have been a liability
when a settlement will or will not bind
insurance. Insurers and reinsurers denied had the settlement not been entered into. As
an insurer. A policyholder who is
liability alleging that the voluntary payments such, proof of a settlement alone is,
considering entering into a settlement
were not covered as the policy required generally, not enough to trigger coverage
without the consent of their insurer
proof of an underlying legal liability, for under a liability policy, unless the insurer has
should be mindful of this complexity. It
which in this case there had been no finding breached or repudiated the policy prior to
may even be that repudiation of the
or even proceedings commenced. the settlement (in which case there is plenty
contract of insurance (and suing for
of authority to establish that a reasonable
damages for breach rather than
The dispute turned on the construction of a settlement will establish the liability of the
indemnity under the policy) is the
number of terms in the policy, but primarily insurer in a claim for damages).
preferable course of action.
in issue was the construction of ‘Civil
Liability’ which was covered by the policy, The critical question in this case was
These issues are particularly relevant
the meaning of which included: whether the particular definition of ‘Civil
given the recent increase in class
Liability’ in this policy required proof of an
(a) a legally enforceable obligation to a third action claims and high profile litigation
underlying liability, or allowed just proof of
party for compensation, damages, legal where it is often undesirable for
a settlement?
costs or a Restitutionary Order in policyholders to hand over conduct of
accordance with an award of a court or their defence to insurers. It is vital for
The Court held that the broad drafting of
tribunal by whose jurisdiction the policyholders to know their insurer’s
‘Civil Liability’ and ‘Claim’ did not require
Assured is bound; position prior to entering into a
proof of the underlying liability. This was
settlement and, if the insurer's position
supported by various textual
(b) a legally enforceable obligation to a is not favourable, what the effect of a
considerations, but key to the Court’s
third party for compensation, damages, settlement would be on any insurance
reasoning was that:
legal costs, or a Restitutionary Order claim. Prior to any settlement,
acknowledged (subject always to… •while subsection (a) of the definition of policyholders should therefore seek
General Condition 7…) by an agreement ‘Civil Liability’ required a legally legal advice on whether the settlement
made between the Assured and a third enforceable obligation awarded by a court may prejudice their insurance claim
party in settlement of a Claim; or tribunal, subsection (b) expressly and what steps they can be taking to
permitted a legally enforceable obligation avoid that consequence.
acknowledged by an agreement; andHERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 09
The insured “Situation” is not limited by the
insured “Business”
Oceanview Developments Pty Ltd trading as Darwin River Tavern & Darwin River Supermarket v Allianz
Australia Insurance Ltd trading as Territory Insurance Office [2020] FCA 852
Facts by Oceanview (on Lot 2333) and the which the Insured is responsible, or has
“Situation” as “Lot 2333 and Lot 2445”. assumed responsibility to insure …”.
The policyholder (Oceanview) owned two
adjacent lots in Darwin. It conducted a
The Policy contained the standard Allianz argued that the policy only covered
number of businesses on one lot (Lot 2333)
indemnity clause and definition of “Property damage to property which related to the
including a hotel, supermarket, post office
Insured” as follows (emphasis added): “Business” of the policyholder and not the
and service station. The other (Lot 2445)
damage to the nursery. The policyholder
was leased to a nursery business (not Clause 1.1 – Indemnity for material submitted that the “Property Insured”
conducted by Oceanview). loss and damage: under clause 1.1 of the policy was not
confined or limited to the property related
A fire caused damage to infrastructure on In the event of any physical loss, destruction
to the Business.
both lots. Oceanview lodged a claim for or damage … not otherwise excluded
property damage (to both lots) and business happening during the Period of Insurance at
the Situation to the Property Insured Decision
interruption to its business on Lot 2333
under an Industrial Special Risks (ISR) Policy described in Section 1, the Insurer(s) will, The Court found in favour of the
issued by Allianz. Allianz agreed to cover the subject to the provisions of this policy, policyholder, concluding that the material
damage to Lot 2333 and the consequential including the limitation on the Insurer(s) damage indemnity is not limited only to
BI loss, but not the property damage to the liability, indemnify the Insured in accordance property relating to the Business conducted
nursery on Lot 2445 (no claim was made for with the applicable Basis of Settlement. by Oceanview. It was held that the meaning
the BI loss of the nursery). of “Property Insured” under the indemnity,
Clause 1.2 – Definition of should be determined by construing clauses
The policy schedule which defined the “Property Insured”: 1.1 and 1.2 in the context of the schedule and
Insured, the Business, the Situation, and All real and personal property of every kind policy provisions as a whole in identifying
Declared Values relevantly defined the and description (except as hereinafter the subject of the indemnity.
“Business” as those businesses operation excluded) belonging to the Insured or for
Allsop CJ ruled that the Policy provided
indemnity for “damage not otherwise
excluded, happening at Lots 2333 and 2445
(the Situation) to (all) real and personal
property of every kind and description, except
as excluded, belong to [the insured], or for
which it was responsible or had assumed
responsibility to insure.”
Lessons for
Policyholders
The case illustrates the importance of
clearly and accurately defining the
“Situation” and “Business” and indeed
all material aspects of the coverage to
properly convey the parties' intentions.
If this is done, and the insurer takes a
view on the claim which, viewed
objectively, sits outside these
intentions, a Court should be supportive
of the policyholder's position.10 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
Insurer waives its rights goodbye
Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588
Facts Over the next year, the parties debated the accepted that Allianz would not have
measure of indemnity under the policy, with insured the building), the policyholder’s
In 2014, Delor Vue Apartments, a body
Allianz seeking to deduct the cost of claim succeeded because Allianz had
corporate for 62 Queensland apartments,
repairing the pre–existing defects from the elected to waived this right when it
became aware of a range of defects in the
cost of repairing the cyclone damage. expressly confirmed in the email that the
roof, which it attempted to address over
Agreement could not be reached, insurance policy was to be honoured
subsequent years. In 2017, while the defects
culminating in Allianz making a ‘take–it–or– despite Allianz being aware of non–
had still not been repaired, a new property
leave–it’ settlement offer, in which Allianz disclosure issues.
damage and public liability was taken out
threatened to decline the claim entirely if
with Allianz, although the roofing defects
the offer was not accepted on the basis it Furthermore, Allianz had breached its
and repair works being conducted were
would not have insured the building at all statutory duty to act with utmost good faith
not disclosed.
had the pre–existing defects been disclosed by making a ‘take–it–or–leave–it’ deal which
(exercising its remedy for non–disclosure was not commercially decent or fair in the
Five days after policy inception, Cyclone
under section 28(3) of the Insurance circumstances.
Debbie caused significant damage to the
Contracts Act).
apartment complex including its roof.
The policyholder rejected the offer and Lessons for
The pre–existing defects quickly became
commenced proceedings seeking payment
apparent to Allianz in adjusting the claim,
of its claim, arguing that Allianz had elected
Policyholders
but nevertheless Allianz informed the
to waive its rights in relation to the non– When considering the merits of
policyholder by email that ‘despite the
disclosure and was estopped from reneging pursuing an insurance claim,
non–disclosure issue’ the policy would still
on its email, and further was in breach of its policyholders may also consider
be honoured. Specifically, the email stated:
duty of the utmost good faith. subsequent conduct of the insurer: if
cover was unconditionally promised,
Despite the non–disclosure issue which Decision then the policyholder may have a claim
is present, [Allianz] is pleased to confirm despite what its conduct might have
While the Court held that the policyholder
that we will honour the claim and entitled the insurer to do.
has breached its duty of disclosure and that
provide indemnity to the Body
Allianz would have otherwise been entitled
Corporate, in line with all other relevant
to reduce its liability to nil (as it was
policy terms, conditions and exclusions.HERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 11
Construction cover is all it's cracked up
to be
Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty
Markets [2020] FCA 1493
Background Claim for an occurrence outside Icon had also argued that s 54 of the
the insurance period Insurance Contracts Act operated to forgive its
Icon is a construction company which built
omission to notify the insurer that it required
the Opal Tower at Sydney Olympic Park, Liberty issued Icon with a series of coverage for the Defects Liability Period.
with practical completion being achieved on successive and identical 12 month contracts
8 August 2018. A 12 month defect liability of third party liability insurance, arranged
Decision
period then commenced. via its broker, to insure against the risks of
construction. The policy provided for Icon The Court held that s 54 did not apply to
A few months later (and within the defects to notify the insurer of the time period of the circumstances where cover did not exist in
liability period), major cracks were observed project, from which the insurer would the first place – rather, s 54 only operates
across three floors in certain wall panels calculate the insurance premium. to remedy defects to trigger cover which
and floor slabs and residents had to be already exists. However, the Court held
evacuated. A class action was commenced Icon’s contract with Sydney Olympic Park that the Liberty policy should be rectified
by the residents against Sydney Olympic Authority required it to rectify all defects for such that it included cover for the defects
Park Authority which cross–claimed against a period of 12 months after the date of liability period. Despite this, the Court was
Icon. Icon was liable for a total of $31m in practical completion (defects liability period). prepared to accept evidence of the policy
rectification and alternative accommodation holder’s representatives that they and the
costs and legal fees. Icon’s notification to its insurer merely insurers representatives had always
referred to the estimated project period and intended to cover the defects liability
Icon claimed indemnity for its liability from did not mention the defects liability period. period under the contract.
its insurers, Liberty and QBE. It ultimately
succeeded against both, even though the The occurrence of the cracking which gave The Court was persuaded that all four
claims did not at first glance appear to be rise to the claim happened after the parties involved in the negotiation, Icon and
covered by either policy. estimated project period, but during the Liberty, and also Icon’s broker and Liberty’s
defects liability period. representative, had the relevant intention12 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
and allowed the rectification claim. in this instance only related to carpets,
Specifically, Lee J held that: stoves, cooktops, air conditioning units and
the like installed in the building.
•on the basis of agency principles, Icon’s
broker’s intentions could be attributed to
Icon and Liberty’s representative’s
Decision
intentions could be attributed to Liberty. The Court rejected that argument. It held
that the ordinary meaning of the term must
•Liberty did not offer any evidence from its
depend on the subject matter in connection
representative, so the judge held that he
with which it is used and that:
was entitled to draw the inference from
this that the evidence from the insurer’s
representative would not have assisted “[i]n the context of an insurance
Liberty’s case. policy issued to a construction
company which delivers large–scale
Interpretation of terms in the building projects, it is hard to imagine
context of the insurance – a what other product or thing, besides a
“building” can be a product building, would be erected such to fall
within the meaning of the definition”.
Icon also lodged an alternative claim under
its product liability policy with QBE, which
was current when the cracks were
identified. Under that policy, QBE was Lessons for
obliged to indemnify Icon for any legal
liability incurred during the insurance period
Policyholders
as a result of an occurrence in connection Policyholders should question adverse
with one of Icon’s products. decisions on coverage which do not
accord with what they believe was
“Product” was defined as: intended by the policy. Even if on its face
it appears that the policy may not
respond, it pays to consider the issues in
… any product or thing (including
more detail. It is another example of the
containers packaging or labelling)
Court applying a common sense
sold, supplied, erected, repaired,
approach in favour of the commercial
altered, treated, installed, processed,
purpose of the party taking out
grown, manufactured, assembled,
insurance cover.
tested, serviced, hired out, stored,
transported or distributed by the
Please note that an appeal has been
Insured including any container
filed against this decision.
thereof (after such goods and/or
products cease to be in the possession
and/or under the control of the
Insured) in the course of the Insured’s
Business in or from Territorial Limits,
including liability arising out of the
Competition and Consumer Act 2010
or similar legislation.
QBE denied that the building erected by
Icon was a “product”. It argued that the
ordinary meaning of “product” did not
include a building, and that Icon’s productsHERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 13
14 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
D&O insurance and class actions
Once again, D&O insurance (and related regarding the regulation of funders and or the breach of continuous disclosure
products such as Public Offering of plaintiff lawyers (including fees and obligations is concerned with the
Securities Insurance) have been front and commissions), competing class actions and vindication of rights and entitlements that
centre in the context of the class action the continuous disclosure regime itself. inhere in potential investors before they
landscape during the course of last year. become members of the company;
Time will tell as to whether some or all of
•In any event, the power should not
Parliamentary Inquiry these measures will be adopted, and what
be exercised in favour of the
impact they may have on class action risk
Last year’s Parliamentary Joint Committee applicants because:
and D&O insurance premiums.
Inquiry into Litigation Funding and the
• Ardent was solvent and based on the
Regulation of the Class Action Industry
Access to insurance policies financial statements provided, it was
included focus on the impact shareholder
not possible to conclude that Ardent’s
class actions in Australia have had on the The importance of insurance in the context
net assets did not cover the extent of
D&O insurance market. of class actions is reflected in two cases
the claims;
handed down this year regarding plaintiff
In a submission from Marsh, it expressed a access to a defendant’s insurance policies. • even if Ardent’s assets would not have
view that the combination of securities class covered the claims, it was too early to
actions and litigation funders have created Ardent shareholder class action1 require access to insurance documents
an unprecedented and unsustainable shift (that being a step perhaps more
In the shareholder class action against
in the D&O insurance market based on its appropriately taken during settlement
Ardent, after learning of Ardent’s
local and global experience and empirical approval); and
deteriorating economic position
data, with serious implications for corporate
(exacerbated by the impact of COVID–19), • effectively, the application was made for
Australia and the Australian economy. The
the applicants sought an order under s 247A the benefit of all group members, which
submission referred to average increases in
of the Corporations Act for inspection of included parties that were no longer
premium for the ASX200 in 2019 of 118%
Ardent’s books (including insurance shareholders of Ardent. Ordering
with extreme cases at a staggering 600%,
policies) by a member of the company. inspection would have therefore
with no signs of these increases slowing. In
Inspection in this case was said to facilitate benefited non–members in a way that
addition, Marsh identified a number of
the efficient resolution of proceedings, was not intended by s 247A.
major insurers withdrawing from the D&O
including by facilitating proper mediation,
market (including Allianz, Vero and various Davantage vehicle warranty
and be necessary to meet concerns Ardent
Lloyd’s Syndicates) or reducing their class action2
would be unable to meet a judgment. In
exposure to the D&O market, putting
addition, the litigation funding agreement
increased pressure on capacity available for During the class action, the applicant learnt
was contingent on obtaining copies of
policyholders to transfer their D&O risk. that Davantage had insufficient assets to
Ardent’s insurance policies, so inspection of
meet the claim totalling $47 million, and
the policies was necessary for the
The report delivered by the Committee in sought an order from the Court to inspect
continuance of the class action.
December 2020 concludes that concerns Davantage’s insurance documents under
that the current regulatory settings for class s 33ZF of the Federal Court of Australia Act
Derrington J refused the inspection on a
actions are not appropriate and are 1976 (Cth) (FCA) for the purposes of:
number of bases:
affecting fair and equitable outcomes for •determining whether the class action was
class members are “well–founded”. In light •the purpose for which inspection was
commercially viable;
of these concerns, the Committee sets out sought was a claim connected with their
31 recommendations directed at restoring rights and entitlements as potential •facilitating mediation and settlement,
the original intent of the regime: delivering investors in Ardent, not as Ardent including by identifying criteria for a
reasonable, proportionate and fair access to shareholders/members (as required by settlement approval under s 33V of the
justice in the best interests of group the section). This is because a claim FCA; and
members. These include recommendations based on misleading or deceptive conduct
1. Ingram as trustee for the Ingram Superannuation Fund v Ardent Leisure Limited [2020] FCA 130.
2. Evans v Davantage Group Pty Ltd (No 2) [2020] FCA 473.HERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 15
•assessing whether action should be taken typically provides cover for a plaintiff’s provide adequate security, in this case the
against Davantage’s insurers under the exposure to adverse costs awards (and Judge was concerned that:
Civil Liability (Third Party Claims Against includes provisions for meeting orders for
•the deed of indemnity was drafted in a
Insurers) Act 2017 (NSW). security for costs). The trend over recent
way such that AmTrust’s promise to pay
years has been for ATE insurers to provide
was highly conditioned by reference to
Beach J formed the view that the Court did deeds of indemnity in satisfaction of
multiple clauses including with reference
have the power to make the inspection requests for security for costs, and for this
to particular steps required to establish
order under s 23 of the FCA (the Court’s to be accepted by both defendants and the
the plaintiff’s legal liability to pay costs in
general power provision), but that he should Courts as an acceptable form of security.
a particular amount – it was not in truth
not exercise his discretion to make that The adoption of this practice followed the
an unconditional undertaking to pay; and
order. His key reasons were: rejection by the Federal Court of the
existence of an ATE policy as being, in •there remained a real potential to involve
•the status quo is that insurance
and of itself, sufficient security for a the defendants in further proceedings to
documents are not discoverable if they
defendant’s costs. 3 establish AmTrust’s liability and then to
are not relevant to the determination of a
enforce a judgment against AmTrust.
fact in issue, save for specific exceptions
This practice may be re–visited in light of Considerations of delay and cost are
with respect to actual insolvency, and that
the Queensland Supreme Court’s decision relevant to evaluation of whether the
no provision of the FCA justified
in Equititrust Limited v Tucker.4 proposed security would involve
departure from this position.
unacceptable disadvantage to the
•the High Court’s approach to s 33ZF(1) in While this did not involve a class action, the defendants and whether the proposed
Brewster as to the scope of the s 33ZF(1) Court rejected a litigation funder’s proposal security is appropriate or sufficient.
(as “supplementary” or “gap–filling”) to provide security by way of deed of
similarly did not permit a departure from indemnity with insurer AmTrust and instead The Court was also not persuaded by the
the conventional position and the required that security be by payment into funder’s threat to decline to provide security
achieving of a “just outcome” in that court, or into a solicitors’ trust account, or in in a different form and to terminate the
section is not to be viewed solely from the the form of a bank guarantee. funding agreement – “being unwilling is not
perspective of the applicant and group the same as being unable”.
members; the court must do justice Some of the key considerations regarding
having regard to the position of all parties. the adequacy of security are that:
•the plaintiff bears a ‘practical onus’ of
Beach J also rejected the applicant’s
establishing that the proposed security is
attempt to rely on a purported action under
adequate and does not impose an
the Civil Liability (Third Party Claims Against
‘unacceptable disadvantage’ on the
Insurers) Act 2017 (NSW) as the basis for an
defendant; and
inspection order in this case. There was no
suggestion that Davantage would not •in order to be adequate, the proposed
challenge its insurers’ denial of liability and, security must satisfy the protective object
in any event, the appropriate mechanism for of a security for costs order, namely to
uncovering the policies in an action by the provide a fund or asset against which a
applicant against the insurers was successful defendant can readily enforce
preliminary discovery in a separate case. an order for costs against the plaintiff.
After the Event (ATE) insurance In Equitrust, while Justice Bond accepted
that there are examples of cases in which a
The other form of insurance which Court has been satisfied that a deed of
commonly arises in class action litigation is indemnity (provided by AmTrust) does
‘after the event’ insurance. ATE insurance
3. Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited [2017] FCA 699.
4. [2020] QSC 269.16 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
Cyber insurance update
Losses from cyber attacks continue to grow and screen printing business, under its ‘Social engineering’ email fraud
worldwide, highlighting the significant risks general businessowners’ insurance policy,
Email scams where fraudsters impersonate
to policyholders in recovery, especially which provided that the insurer:
suppliers to direct legitimate invoice
under general property damage or business
payments to compromised bank accounts
interruption policies without specialist
will pay for direct physical loss of continue to present risk to business. Careful
cyber insurance coverage.
or damage to Covered Property at review of policy wordings is required to
the premises determine whether these losses are covered
Claims by Merck & Co and Mondelez
as a cyber attack or excluded because they
against their insurers, arising from the
are simply the result of employees being
NotPetya cyber attack originating in An endorsement defined ‘Covered
duped and voluntarily transferring fund
Ukraine in 2017, are ongoing, with insurers Property’ to include:
without the fraudsters hacking into
relying upon ‘act of war’ or ‘hostile or
a) Electronic data processing, recording or the system.
warlike action’ to exclude coverage for the
storage media such as films, tapes, discs,
malware which intelligence reports suggest
drums or cells; Two recent North American cases highlight
was launched by the Russian government
the need for specific coverage to deal with
(or its actors) against the Ukraine. b) Data stored on such media
this risk. In both Mississippi Silicon Holdings
LLC v AXIS Insurance Co 440 F.Supp.3d 575
Litigation over so–called ‘silent cyber’ The business was the victim of a
(N.D.Miss. 2020) and Future Electronics Inc
coverage – which refers to potential ransomware attack, which locked up parts
(Distribution) Pte Ltd v Chubb Insurance Co of
coverage for cyber attacks under general of its design and art data, resulted in
Canada [2020] QCCS 3042, insureds were
policies that do not expressly insure against significant slowdown of its systems once
unable to recover under ‘Computer Transfer
cyber risks but do not expressly exclude it remediated, and left its systems vulnerable
Fraud’ or ‘Funds Transfer Fraud’ coverage for
either – has continued to grow around the to re–infection by the malware.
similar schemes whereby legitimate invoice
world, although not so much in Australia at
The Court rejected the insurer’s argument payments were misdirected when unwitting
this stage. Here is a round–up of the
that there was no ‘physical loss or damage employees were duped by unknown
important developments.
to’ the computer system because it could fraudsters masquerading as suppliers.
Ransomware: National Ink still be operated. It ruled that loss of
In each case, coverage was available under
& Stitch efficiency and reliability of the system was
a specific ‘Social Engineering Fraud’ clause,
sufficient to constitute insured damage, in
The United States District Court for however this was restricted by an
addition to the lost data and software.
Maryland recently granted summary insufficiently high sublimit.
judgment in favour of an insured embroideryHERBERT SMITH FREEHILLS POLICYHOLDER INSURANCE HIGHLIGHTS 2020 17
In Mississippi Silicon, the Computer Transfer a ransomware attack, and then immediately
Fraud provision required the fraudulent sought injunctions requiring the operators
entry of information into the insured’s of the Bitcoin exchange to freeze the
Lessons for
computer system to ‘directly’ cause the accounts in which the Bitcoin was held, and Policyholders
loss. However, as the fraudsters did not to disclose the identity of the holders of the The uncertainty around how insurance
enter the information into the computer account. The injunctions were granted. policies will respond to cyber attacks
system (rather, unwitting employees did), continues, leading insurers to continue
coverage was not available. Similarly, the Although the legal issues in the case to tighten up policy wording to remove
Funds Transfer Fraud provision required a concerned whether Bitcoin could be ‘silent cyber’ risks from coverage under
payment direction to a bank issued without characterised as legal ‘property’ for the general policies.
the insured’s knowledge, but in this case purposes of granting the injunction, the
like many others the insured did in fact case serves as a reminder of the potential The implications remain the same – it is
know of the instruction because the benefits of specific and clear insurance important to obtain specific cover for
employee was duped into issuing the coverage that enables timely acceptance of ransomware, malware and cyber
incorrect payment instruction. indemnity by an insurer and a speedier attacks if that is a risk a policyholder
recovery from a cyber attack. wishes to mitigate. Relying on general
In Future Electronics, Funds Transfer Fraud property insurance or fraud policies will
coverage was denied for similar reasons. not always be enough.
For Computer Transfer Fraud, this required
the ‘taking’ of funds by the fraudster: but as Clearly there is a need for advice from
the funds were transferred by the insured, an expert in this field when ransomware
albeit incorrectly, coverage was unavailable. demands are received, and businesses
ought to have a crisis plan prepared and
Cryptocurrency as property rehearsed in advance of such attacks
In AA v Persons unknown [2020] 4 WLR 35, occurring. A specialist cyber insurance
the High Court of England and Wales policy may provide the necessary
considered an application by an anonymised expertise, provided it is not undermined
insurer against unknown ransomware by standard exclusions (such as ‘acts of
fraudsters and the operators of a Bitcoin war’) which may result in difficult
exchange. The insurer had, on behalf of an disputes caused by the active
insured, paid a ransom in Bitcoin to secure involvement of certain nations in state–
reinstatement of the insured’s systems after sponsored cyber attacks.18 POLICYHOLDER INSURANCE HIGHLIGHTS 2020 HERBERT SMITH FREEHILLS
Contacts – who can help?
Insurance team
Australia Asia
Mark Darwin Gareth Thomas
Partner Partner
T +61 7 3258 6632 T +852 2101 4025
mark.darwin@hsf.com gareth.thomas@hsf.com
Peter Holloway United Kingdom
Partner Paul Lewis
T +61 3 9288 1693 Partner
peter.holloway@hsf.com T +44 20 7466 2138
paul.lewis@hsf.com
Ruth Overington
Partner EMEA/Latin America
T +61 3 9288 1946
Paulino Fajardo
ruth.overington@hsf.com
Partner
T +34 91 423 4110
Guy Narburgh paulino.fajardo@hsf.com
Special Counsel
T +61 2 9322 4473
Jonathan Ripley-Evans
guy.narburgh@hsf.com
Director
T +27 10 500 2690
Philip Hopley jonathan.ripley-evants@hsf.com
Special Counsel
T +61 2 9225 5988
philip.hopley@hsf.com
Additional contributors
Andrew Ryan Travis Gooding, Rebecca Bennett,
Executive Counsel James Rigby, Ganur Maynard
T +61 8 9211 7965
andrew.ryan@hsf.com
Anne Hoffmann
Senior Associate
T +61 2 9225 5561
anne.hoffmann@hsf.comYou can also read
