The High Cout of Australia recently dismissed an application by the Uniting Church in Australia Property Trust (NSW) (UCPT) for special leave to appeal the Full Court of the Federal Court's judgment in Allianz Australia Insurance Ltd v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8 (Appeal Judgment), meaning that there is likely to be continued uncertainty on the validity and application of 'prior known circumstances' exclusions in the Australian insurance market, at least until the issue is revisited again by an appellate court.
We previously reported on the Appeal Judgment in our earlier note.
We look at the implications of this decision generally, and for insurers, brokers and insureds.
Background
The primary proceedings arise out of an action brought by UCPT in 2023 to seek cover from Allianz under professional indemnity and malpractice liability policies for historical sexual abuse claims instituted by former students of Knox Grammar School, following a blanket notification of potential claims given to Allianz in 2009.
At first instance, Lee J of the Federal Court of Australia found in favour of UCPT and held that Allianz was liable to indemnify UCPT for past and future claims.
The decision was overturned on appeal by the Full Court of the Federal Court, which held, among other things, that the 'LKA2 report' (an internal investigation report on school related sexual abuse delivered to the headmaster in 2004) established that UCPT had sufficient knowledge of 'a problem' at Knox Grammar School that objectively might give rise to claims of historical sexual abuse for the purposes of section 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA).
Despite this knowledge, UCPT did not notify Allianz of this 'as soon as was reasonably practicable' and before expiry of the period of insurance for the policy in place when the LKA2 report was first received. This meant that UCPT could not rely on section 40(3) of the ICA to argue that the later claims arose out of facts notified in accordance with that section and, in turn, Allianz was not prevented from refusing to indemnify UCPT merely because the claims were made after expiry of the policy.
Although it was not necessary to ultimately dispose of the appeal in Allianz's favour, the Full Court also considered Allianz's additional ground of declinature based on a form of 'prior known circumstances' exclusion in the policies (Exclusion), which Allianz claimed operated to exclude cover even if the notification had been validly made (which Allianz denied).The Full Court unanimously found that, on its terms, the Exclusion applied.However, a majority (Colvin and McEvoy JJ) of the Full Court held that the Exclusion was rendered void by section 52 of the Insurance Contracts Act 1984 (Cth) (ICA). Derrington J issued a detailed dissenting judgment on this point.
Interestingly, Allianz had abandoned its defence of non-disclosure under sections 21 and 28 of the ICA at the first instance hearing.
Special Leave application
UCPT applied for special leave to appeal the Appeal Judgment to the High Court of Australia.
The key issues raised by UCPT on its application were:
- The remedy in section 40(3) of the ICA can be triggered by notifications across successive policy years if new and different 'concrete' facts not originally known or capable of being known in an earlier policy period become known (and are notified) in a later policy period. Specifically, UCPT submitted that the protection of section 40(3) still existed for newer, more specific facts which emerged in later years relating to the general problem at Knox Grammar of sexual abuse (of which UCPT were initially made aware through the LKA2 report in 2004).
- Section 54(1) of the ICA is capable of remedying a failure to notify facts under section 40(3) of the ICA. That is, UCPT sought to reopen the issue determined in Gosford City Council v GIO General Limited (2003) 56 NSWLR 543, which has generally been considered settled for some time.
Allianz submitted in response:
- The comprehensive 2004 LKA2 report was sufficient to put UCPT on notice of a longstanding problem at Knox and the specific allegations and persons identified in later policy years were, in substance, already encompassed by the problems known in 2004, and therefore not 'new' for the purposes of section 40(3) of the ICA.
- Settled case law clearly establishes that section 54 of the ICA cannot operate to cure a failure to provide timely notification under section 40(3) of the ICA in the absence of a deeming clause in the policy; section 40(3) is a standalone statutory precondition to cover, of which an Insured is entitled to avail itself.It is not a contractual condition and does not arise as an 'effect of a contract of insurance' for the purposes of section 54.
Validity of the Exclusion
As the issue of the validity of the Exclusion had been decided by the majority in UCPT's favour in the Appeal Judgment, the issue was not raised in its application for special leave to appeal.It was raised by Allianz in its notice of contention for consideration in the event that special leave was granted.
Decision
Gageler CJ, Gordon and Jagot JJ all concluded that the case was not a suitable vehicle for considering the question concerning the application of section 40(3) of the ICA, and the insufficient prospects of success on the question of section 54(1) rendered granting special leave to appeal on these grounds unjustified. In respect of UCPT's submission that section 54(1) should be capable of remedying failure to notify under section 40(3), Chief Justice Gageler stated at the hearing that UCPT was asking the High Court to "disturb authority of about twenty years" and Justice Gordon stated that it would affect "the drafting of a number of policies across the insurance industry based upon [the High Court's] decision".
Implications
The High Court's dismissal of UCPT's application for special leave means that the Appeal Judgment will remain good law in Australia unless and until it is considered in subsequent decisions.That means, consistent with longstanding practice in the insurance market in Australia, section 54(1) of the ICA is not capable of being applied to remedy late notification made under section 40(3) of the ICA.
As to the future of 'prior known circumstances' exclusions in Australia, the position will remain as set out in the Appeal Judgment, which we considered previously.
In summary:
- The Appeal Judgment gives rise to uncertainty around the validity of 'prior known circumstances' exclusions in liability policies in Australia.
- The majority's decision on this point in the Appeal Judgment was not necessary to dispose of the appeal in Allianz's favour, however the issue was argued in full and it was the subject of consideration in both the majority and dissenting judgments. Those are likely to be relevant factors in future cases where a like issue falls to be considered, particularly by judges acting at first instance.
- The majority's decision applied section 52 of the ICA to void the Exclusion. There may be distinguishing facts in other cases where the 'prior known circumstances' exclusions do not traverse the same subject matter as the duty of disclosure under section 21 of the ICA. This will need to be considered in claims assessment on a case-by-case basis.
- From a practical perspective, insurers may need to consider whether they assess non-disclosure when forming a position on the application of any 'prior known circumstances' exclusions. Further, insurers may need to review whether their continuous cover extensions operate as intended in light of the Appeal Judgment.
- The majority's decision in the Appeal Judgment does not concern the exclusion of claims made or intimated against an insured before a policy is entered into, claims excluded by a retroactive date, or the exclusion of claims arising from matters notified under earlier policies. Exclusions concerning these topics are often situated together with exclusions aimed at prior known circumstances that might give rise to claims. It is important not to conflate those exclusions when assessing claims.
Insurers will need to ensure that their underwriting procedures and policies accommodate this development, including consideration of the process and procedures for the exclusion of specific matters notified before a policy is entered into. That will be particularly important where underwriting evidence may be required to decline claims that would previously have been assumed to be excluded by 'prior known circumstances' exclusions .
From the perspective of brokers and insureds, the judgment stresses the importance of prompt and full notification of facts and circumstances that might give rise to a claim.
Finally, while each claim will fall to be assessed on its facts and the precise policy in issue, insurers may wish to consider implementing an internal position on the application of their 'prior known circumstances' exclusions , to ensure consistency and fairness in claims assessment and handling.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
