A Cautionary Tale: How Hand Sanitiser Can Sterilize Your Insurance Cover!

Key background facts

The first plaintiff, Sphere Healthcare Pty Ltd was part of the Aunew group of companies (Aunew Group) and Sphere had been manufacturing therapeutic goods for years at a factory which it leased from Yes Family Pty Ltd, itself a member of the Aunew Group (YF).

Allianz Australia Insurance Limited had been on-risk for Sphere’s ISR program between 2010 and 2019; cover was cancelled in October 2019 when Sphere went into administration (and was subsequently acquired by the Aunew Group in late 2019).

As at late January 2020, Sphere was keen to manufacture hand steriliser during the COVID-19 pandemic and planned to import a large quantity of ethanol from China.

In parallel, Aunew Group was working with three brokers to source ISR insurance cover for the Aunew Group. Aunew Group’s WA broker approached Allianz for ISR cover for Sphere. On 20 March 2020, Allianz wrote ISR insurance cover for Sphere, having been assured by the broker that there was “no change in business activity” (First Policy). However, Aunew Group changed broker (based in NSW) which ultimately resulted in Allianz issuing another ISR policy on 25 March 2020 by which the limit of indemnity was the same as that of the First Policy, but which: named Sphere and YF as insureds, and included a number of new/different policy terms; of significance are those referred to as “Condition 1” below (Second Policy). The Court found that the Second Policy was accepted on 31 March 2020.

Sphere then imported 60,000 litres of ethanol from Shanghai. 304 drums worth of that ethanol were not stored in Sphere’s dangerous goods storage area at the factory and were instead stored in an old dispatch area near to pallets of cardboard.  On 9 July 2020, a fire started near the cardboard. Ultimately, the fire brigade was unable to cut-off the fire from those drums of ethanol and the entire factory was lost.

Allianz subsequently learned that Sphere had been manufacturing hand sanitiser and had poorly stored large quantities of ethanol at the factory, and declined cover under the First and Second Policies. Sphere and YF commenced proceedings against Allianz in the Federal Court of Australia seeking a declaration that they were entitled to indemnity under the Second Policy, relying upon Conditions 1 and 2 of that policy.

Issues at trial

Relevantly for the purposes of this article, the issues at trial included:

1. When did Sphere’s duty of disclosure end?
2. Did the insurer waive any requirement for Sphere to comply with its duty of disclosure, either under: an “unintended and/or inadvertent” non-disclosure condition of the Second Policy (Condition 1), or s 21(2)(d) of the Insurance Contracts Act 1984 (Cth) (Act)?
3. If not, did Sphere comply with the duty of disclosure?
4. Is the insurer’s liability reduced to nil, either under ss 28 or 54 of the Act?

Decision

The central question was whether Sphere had to disclose its hand sanitiser plans and proposed ethanol procurement before the relevant contract of insurance was entered into. Justice Rees of the Supreme Court of New South Wales held that it did. Although cover was originally bound on 20 March 2020, the later policy documentation issued through Allianz’s NSW team did not merely tidy up administration; it changed the named insureds, business description, deductibles, sub-limits and endorsements (including endorsements on which the plaintiffs themselves later relied).

Rees J made the following findings in relation to each of the above 4 corresponding issues:

1. Whilst Sphere contended that its duty of disclosure ended on 20 March 2020 (when cover was bound under the First Policy), the Court found that in circumstances where:
   

   the effect of section 11(9) of the Act, applied to the facts of the case, was that the Second Policy constituted a variation of the First Policy; Sphere and YF sought to rely upon Conditions 1 and 2 to defeat Allianz’s defence under section 28(3) of the Act (which would otherwise allow Allianz to reduce its liability under the policy due to pre-contractual misrepresentations) - which Conditions did not appear in the First Policy and represented material changes to that policy; and having regard to the practical effect of Condition 1, Sphere was obliged to tell Allianz whether it was giving up little or a great deal by writing cover subject to that condition;  Sphere’s duty of disclosure persisted up to the formation of the Second Policy on 31 March 2020.

2. The effect of the language of Condition 1 was that Sphere needed to prove that its non-disclosure was unintended and/or inadvertent in order to bring themselves within the protection afforded to it by Condition 1. Sphere and YF failed to lead any such evidence with the result that Condition 1 was inapplicable. 
   In relation to section 21(2)(d) of the Act, Sphere argued that Allianz waived any duty of disclosure owed to it on and from 20 March 2020 by not asking any underwriting questions of Sphere’s NSW broker after the First Policy came into effect. The Court accepted a submission by Allianz that Sphere’s argument would only have force if Allianz had been put on enquiry about some particular matter; in this case, Alliance had been expressly told, before entry into the First Policy, that Sphere’s business activity had not changed. Critically, the Court also rejected a more general submission by Sphere to the effect that the more that an insurer investigates a particular risk before writing cover for that risk (Allianz investigated the factory on several occasions before 2020), the less an insured is required to disclose matters pertaining to that risk unless squarely asked. The Court found that an insurer’s investigations were most likely conducted against the backdrop of Sphere’s duty of disclosure, rather than in waiver of that duty. 
3. Sphere did not comply with its duty of disclosure. The Court found that Sphere had, by 31 March 2020, made a decision, and had taken positive steps in the execution of that decision, to import large quantities of ethanol to manufacture hand sanitiser. It was therefore found to not matter that Sphere had not actually imported or placed an order for bulk ethanol until 3 April 2020. Instead, the Court found that a reasonable person in Sphere’s position would have known by no later than 31 March 2020 that it had decided make a new product, the main ingredient of which was an inflammable liquid – ethanol; and that decision and intended future conduct would be material to Allianz’s decision whether to write cover for Sphere (and, if so, on what terms).
4. The Court accepted that Allianz’s underwriting evidence demonstrated that Allianz’s relevant:
   

   risk investigator, Mr Iordanou, would have advised Allianz against accepting the risk in any event following an inspection of the factory in or after March 2020; and underwriter would have considered the fact that the volume of ethanol being imported by Sphere exceeded its dangerous goods storage area capacity, and the fact that Sphere had no plan for safely storing that volume of ethanol, would have resulted in Allianz declining to provide cover for the factory.

In reaching this finding, the Court undertook a forensic consideration of Allianz’s contemporaneous underwriting notes on its Teamwork platform, the experience and expertise of its relevant investigators and underwriters, and Allianz’s documentary and oral evidence as to its underwriting guidelines and processes.  

Importantly, Sphere failed to call any witnesses to give evidence. The Court found that, notwithstanding that the onus of proof was on the insurer to prove its defences to the claim for indemnity vis a vis sections 21 and 28 of the Act, that did not prevent the Court from drawing an adverse inference against an insured for failing to call witnesses on particular issues even when the insured does not bear the onus of proof in relation to those issues, provided that there was evidence in favour of each of the facts in issue required to be proved by Allianz (which there was in this case). Accordingly, in circumstances where the Court was persuaded by Allianz’s evidence of the factual matters relevant to its defence pursuant to sections 21 and 28 of the Act, it drew an adverse inference against Sphere and YF for their failure to call evidence regarding the factual matters relevant to those sections of the Act.

Key takeaways

The decision is a strong reminder that disclosure obligations are assessed by substance, not by labels or internal optimism about a project still being “in progress”. Where an insured has made a real commercial decision, taken implementation steps, and is pursuing procurement critical to that plan, the matter may be disclosable even before production has formally commenced. The case also shows that later changes to policy wording can extend disclosure obligations if they amount to a true variation or replacement of the original contract.

From insurers’ perspective, the most obvious point to make is that the decision confirms the relatively high evidentiary bar that an insurer must meet where it relies upon sections 21 and 28 of the Act to decline cover for a claim. In this case, Allianz’s contemporaneous record-keeping, as well as the cogency of its internal guidelines and the persuasiveness and thoroughness of its witnesses, meant that its denial of indemnity to Sphere’s and YF’s was well founded. It is interesting that the Court did not take the opportunity to consider section 13 of the Act (good faith requirements) having regard to the nature of the factual findings made concerning the conduct of Sphere and its related bodies corporate in March and April 2020.

The decision highlights the risks for insureds that adopt a loose approach towards pre-inception disclosure, and creates a risk for insureds that adopt a strategy of simply putting an insurer to its proof, rather than putting forward positive evidence in response to an insurer’s case pursuant to sections 21 and 2 of the Act. 

Finally, the decision is noteworthy in that it confirms that where (commonplace) inadvertent non-disclosure and alteration of risk clauses are carefully drawn, they can effectively shift the onus of proof to insureds rather than insurers, notwithstanding the wider basis for declinature (and concomitant onus of proof).

Ultimately, the decision here reflects the Court’s apparent impression of the facts - that Aunew outsmarted itself in its extensive efforts to secure the lowest insurance premium possible for its risks.

N.B. There were also issues as to the construction of a policy condition concerning the relevant “officer” for the purposes of alteration of risk, and whether the First Policy had been cancelled (arising from the change in brokers between 20 and 25 March 2020, and a backdated authority in favour of the new broker). Those issues is outside the scope of this article. Of course, please contact us should with wish to discuss that aspect of this case in any further detail.

Originally published 22/06/2026.

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.