Upcoming Mallesons seminarsHolders of claims-made and notified insurance policies.
What do you need to do?Ensure you notify of all circumstances prior to the expiry of your policy period.
Travis Toemoe
Senior Associate
Peter Stockdale
Partner
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Partner
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Sydney
Robyn Chalmers
Guidance on notification of circumstances clauses in claims-made insurance policies - 31 October 2008
The decision of CGU Insurance v Corrections Corporation of Australia Staff Superannuation (2008) FCAFC 173, provides some important guidance to insurers and policy owners alike on the operation of notification of circumstances clauses in claims-made insurance policies. In short, the court refused to narrowly construe the requirement for notification provided in accordance with such clauses.
The salient facts of the case are as follows. CGU provided professional risks insurance to CCAS which relevantly responded to claims made by a third party during the period of insurance against CCAS, its directors, officers, etc. The CGU policy contained a notification of circumstances clause whereby if CCAS became aware of circumstances that may give rise to a claim and notified CGU of such circumstances, then should a claim subsequently be made arising from the notified circumstances, the policy would respond notwithstanding that the claim might have been brought outside the indemnity period.
In late 2000, a concern arose within CCAS as to whether sufficient assets could be liquidated to enable payments to be made to members. In November 2000, CCAS provided notification of circumstances to CGU relating to potential liquidity problems. CCAS ultimately failed in 2001, and in 2002 various members brought claims against CCAS.
CCAS sought indemnity from CGU but CGU declined to indemnify as it maintained that the members’ claims were brought outside of the indemnity period and did not arise out of circumstances notified during the indemnity period. CCAS therefore cross-claimed against CGU and at first instance, CCAS were found to have provided suitable notification of circumstances and hence were entitled to indemnity from CGU.
CGU appealed on a number of grounds but of most relevance here was its appeal concerning whether appropriate notification of circumstances had been provided. CGU submitted “that, although [CCAS] may have been aware of a fact, situation or circumstance that might have given rise to a claim, they were not aware of the fact, situation or circumstance that gave rise to the claim that was eventually made” (emphasis added).
Justices Moore, Finn and Jessup were not persuaded by CGU’s submission and held that there was no reason why CCAS “need have had any particular claim in mind when they were aware, during the period of insurance, of the fact, situation or circumstance in question”.
Their Honours further found that the purpose of a notification of circumstances clause would be defeated “if it were necessary not only for [CCAS] to be aware of the relevant fact, situation or circumstance, but also to be conscious of the legal basis upon which they might be held to account which is later found to correspond with a claim actually made”.
The above findings are of particular importance to holders of claims-made policies as they reinforce the importance of providing notification to insurers of circumstances that might give rise to future claims during the policy period. Policyholders should ensure that prior to the end of the policy, careful consideration is given to whether there are any circumstances that might give rise to claims. If any such circumstances are identified, notification ought be provided to insurers before the policy expires so that reliance might be placed on the circumstances notified clause should a claim subsequently arise.