By: Thomas Cavanagh and Gina Groskops

Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8

At a glance

• The Full Federal Court has overturned the decision of Justice Lee¹ and confirmed that Allianz Australia Insurance Limited (Allianz) was entitled to decline indemnity to Uniting Church in Australia Property Trust (NSW) (UCPT) for numerous claims involving historical sexual abuse occurring at Knox Grammar School.
• The Full Court determined that UCPT had not notified various facts and circumstances which gave rise to the claims “as soon as practicable” and within the policy period at the time when UCPT first became aware of those facts. In the absence of a valid notification for the purpose of section 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA) during the relevant policy period, the Court determined that Allianz was entitled to deny indemnity in respect of claims first made after it ceased to be on risk for UCPT.
• In what we expect we will be seriously considered dicta, in a 2:1 majority (Derrington J dissenting) the Court determined that the prior circumstances exclusion in the policies was void by operation of s52 of the ICA. This decision may impact the ability of insurers to solely rely on prior circumstances exclusions generally.
• While likely factually dependent, the decision will no doubt pave the way for insureds to object to any sole reliance by insurers on their prior circumstances exclusions in denying indemnity. We consider that insurers, at least for the short term, should be hesitant to rely solely on a prior circumstances exclusion, particularly where there may also be a remedy for non-disclosure.

The Proceedings

Between 31 March 1999 and 31 March 2011, Allianz issued policies of insurance to the Uniting Church in Australia (UCA). Amongst the amalgam of insureds, were the various persons involved in the operation of Knox Grammar School (Knox) and UCPT.

The central fact in issue in the primary decision and on appeal was the relevant knowledge of investigation reports into potential instances of historical sexual report at Knox. The most relevant report was commissioned by Knox in 2004 and known in both proceedings as LKA2.

At trial, Lee J had determined that LKA2 was not a relevant fact or circumstance likely to give rise to a claim on its own. It was not until an underlying claim was first made which painted the findings in LKA2 in a particular light that give LKA2 the relevant characteristics sufficient for s40(3) of the ICA. Lee J therefore determined that the matters contained in LKA2 had been validly notified in 2007.

The Appeal

Was LKA2 a relevant fact or circumstance?

Allianz’s primary contention on appeal was that LKA2 contained facts and circumstances that might give rise to claims for the purpose of s40(3) but had not been notified as soon as practicable given it was first received by Knox in 2004.

Contrary to the finding of the primary judge that matters revealed in LKA2 gave rise to no more than a “bare possibility” that a claim might be made, the Full Court determined that LKA2 “sufficiently revealed materials which might have been reported to Allianz to trigger s40(3).”² 

In doing do, the Full Court reaffirmed the numerous authorities on the requirements of a notification under s40(3) including:

• details of exact specificity of every potential claim is not required,
• it is sufficient that the information contained in the notification reveals the existence of a “problem” without the true extent of the problem being understood³, and
• matters of expert opinion can be facts for the purpose of s40(3)⁴.

As a result, the Full Court explained that if LKA2 had been promptly notified under s 40(3) when it was initially commissioned, it would have had the effect that the claimed cover for all subsequent claims by former students would have been available.

Consequent upon its finding that LKA2 itself contained relevant facts and circumstances, the Full Court was required to consider whether UCPT had knowledge of the matters contained within LKA2 by reason of the Headmaster of Knox having read the entire report in 2004.

Derrington J dismissed any notion that an insured can assume the liability of another insured for whatever practical reason it chooses to do so but then attempt to avoid any knowledge or awareness of facts known by the proper defendant insured. The Court considered that in circumstances where UCPT was acting as the nominal defendant in respect of the claims made, it is fixed with the knowledge of the entity against whom the claims might ordinarily be made (i.e. relevant persons at Knox or the School Council). In doing so, the Court also noted that the suggestion by UCPT that its entitlement to cover as nominal defendant was unaffected by the knowledge of LKA2 of the actual relevant potential defendants, was “the antithesis of the inherent nature of insurance.”⁵

s40(3) and s54

The Full Court also considered a re-agitation of the argument made in Gosford City Council v Gio General Ltd⁶ (Gosford v GIO) that a failure to notify circumstances in accordance with s40(3) may be excused by s54 of the ICA.

Derrington J (with whom Covin and McEvoy JJ agreed) followed the reasoning of the High Court in Gosford v GIO in determining that s54 did not relieve a failure by an insured to notify circumstances pursuant to s40(3) even if the insured could demonstrate awareness of those circumstances at the relevant time. In summarising that position, her Honour noted that “…s54 applies only where the policy operates in a way that the insured [sic] may refuse to pay the claim. It has no application where the non-compliance with a statutory provision rather than the policy renders the insured’s claim unmaintainable.”⁷

Prior Circumstances Exclusions

The major area of disagreement amongst their Honours concerned the argument by UCPT that exclusion 7(c) of the relevant policies was void by operation of either s33 or s52 of the ICA. Those sections provide, respectively, that:

• the provisions of Division 3 of Part A of the ICA are exclusive of any right an insurer has under the ICA for a failure by an insured to disclose a matter prior to inception of the policy (Section 33), and
• parties to a policy cannot contract out of the ICA (Section 52).

UCPT argued that either Section 33 or Section 52, or both, meant that the prior circumstances exclusion at exclusion 7(c) of the relevant policies was void. The substance of UCPT’s position was that a prior circumstances exclusion created an additional remedy to the insurer for the failure by the insured to disclose a matter (which was contrary to Section 33) and otherwise restricted or modified the operation of the ICA for the purpose of Section 52.

In considering each section separately, their Honours agreed that a prior circumstances exclusion did not provide any additional remedy for non-disclosure and was otherwise not concerned with non-disclosure at all. Rather, a prior circumstances exclusion was concerned with the limitation of the risks for which the insurer was prepared to cover through the policy. It was not relevant to the operation of a prior circumstances exclusion that the insured failed to disclose any matter to the insurer. Their Honours therefore agreed that Section 33 did not impact Exclusion 7(c) of the relevant policies.

Derrington J similarly determined that Section 52 was not relevant as the prior circumstances exclusion “did not affect the operation of the ICA”. McEvoy and Colvin JJ disagreed and considered that the effect of the prior circumstances exclusion was to exclude, restrict, or otherwise modify the operation of the ICA with respect to non-disclosure. In doing so, their Honours opined that in the absence of Exclusion 7(c), the failure by UCPT to disclose LKA2 would engage s28 of the ICA and Allianz would be subject to the restrictions in the section in respect of its ability to deny cover.

Their Honours’ reasons highlight the relevance of the other provisions of the ICA which limit the extent to which an insurer can define the extent of cover through policy terms. The terms of s40(3) and s28 require an insurer to extend cover to matters which they had not agreed and otherwise restrict an insurer’s ability to avoid the policy for a failure to disclose matters. Their Honours concluded that the prior circumstances exclusion:

“… transforms what is a matter for disclosure (what the insured knows that bears upon the decision by the insured [sic] whether to accept the risks to be insured) into a general exclusion from cover in all instances. Its effect is to exclude the application of the duty of disclosure provisions of the policy”.⁸

Colvin and McEvoy reasoned that s52 could still apply notwithstanding that the disclosure obligations and a prior known circumstances exclusion were conceptually different. What was relevant was that the prior circumstances exclusion had the effect of excluding, restricting or otherwise modifying the disclosure provisions of the ICA.

WK Consideration

The determination by McEvoy & Colvin JJ has significant implications for insurers generally as it may spell the end of prior circumstances exclusions, at least in their most commonplace form. That being said, we consider that their Honour’s conclusion in relation to the operation of s52 of the ICA may have been impacted by the obvious disclosable nature of LKA2 and is fact specific to the circumstances of this case.

As insurers will know, not all facts and circumstances which ultimately give rise to claims, will rise to matters which an insured was required to disclose pursuant to s21 of the ICA. Further, distinct from the circumstances of this decision, not all insureds under a policy owe a duty of disclosure to the insurer – e.g. subsidiaries and some insured persons.

We therefore consider that their Honours’ statement at [844] may be limited to those circumstances where the relevant insured:

• owed a duty of disclosure under s21 of the ICA, and
• both knew of the relevant circumstances prior to inception of the policy and that those circumstances might give rise to a claim (or that the circumstances were otherwise required to be disclosed).

Outside of the above circumstances, the rationale behind their Honour’s decision arguably does not apply. That is, their Honours’ reasoning, in our view, assumes that the relevant matter that triggers a prior known circumstances exclusion was required to be disclosed pursuant to s21 prior to inception of the policy. As alluded to by her Honour Peden J in CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999, not all circumstances which can be notified in prior policy years would have made a difference to the Insurer’s decision to provide cover.⁹

In the absence of that criteria being met, it is harder to see how the effect of a prior circumstances exclusion is to exclude, restrict or otherwise modify the ICA with respect to non-disclosure.

Further, as with any decision concerning policy wording, their Honour’s reasoning is likely contingent on the actual wording of the prior circumstances exclusion. Arguably, the decision of the majority would not apply where the relevant exclusion did not require any awareness on the part of the insured that the circumstances might give rise to a claim or otherwise ought to have been disclosed.

Their Honours’ reasoning requires that the relevant fact or circumstance be a matter for disclosure. If insurers were to amend their prior circumstances exclusions to require only knowledge of the relevant fact or circumstance itself (and not any consideration of whether it might give rise to a claim), in our view such an exclusion would not fall afoul of s52 in the way in which their Honour’s have suggested.

Implications for insureds and insurers

We consider that the majority’s decision in relation to s52 of the ICA has conflated facts and circumstances which ultimately give rise to claims with matters that are required to be disclosed. Practical experience suggests that those two concepts are not always the same.

That being said, where an insurer seeks to rely on a prior circumstances exclusion in the alternative or instead of any remedy for non-disclosure, the decision suggests that the Court will find the exclusion void by operation of s52.

A particular issue may arise where an insurer has agreed to waive any rights for innocent non-disclosure in the policy. The effect of this decision is that in those circumstances the insurer may find itself without remedy at all for matters that the insured was aware of prior to inception of the policy and which ought to have been disclosed. Similarly, insurers may lose the benefits available through continuous cover without a prior circumstances exclusion, as the mechanism by which continuous cover is available in most circumstances falls away.

We expect that the matter will end up on appeal to the High Court. However, while the decision remains binding insurers should consider:

• curtailing sole reliance on prior circumstances exclusions in declining indemnity, unless:
  • the matter can be distinguished on the facts or the wording of the exclusion clause, and
  • the exclusion does not require that the insured knew the relevant facts might give rise to a claim,
• whether the commercial benefit to insurers in agreeing to waive innocent non-disclosure is diminished if prior circumstances exclusions are void,
• the commercial impact of any deviation from the conventional wording of a prior circumstances exclusion to a more punitive prior exclusion which does not in any way mirror the requirements of s21 of the ICA.

The case otherwise continues to provide good reference point for the general requirements of s40(3) of the ICA and the importance for insureds to promptly notify matters to insurers.