Facing the Facts: What Circumstances Should Be Notified to Your Insurer?

From time to time, a policyholder may become aware of facts which might – at a later time – give rise to a claim against it. It is important to notify the insurer of such facts to ensure any later claim that does arise from those facts can be covered (and not excluded under a later policy).

But when will notice be deemed sufficient, and indeed, what constitutes a “fact” capable of giving rise to a claim?

These issues were central to two recent Federal Court decisions:

They follow on from the decisions in Kauter ([2020] NSWSC 359 and [2021] NSWCA 136) which have been widely debated in the industry.

While the cases are of some assistance in clarifying circumstance notification issues, they also show that there is no unanimity on what is a “fact” which may give rise to a claim.

Claims-made policies provide indemnity for claims (typically a written demand for compensation, or a formal proceeding) made by a third party against the insured within the policy period. Unlike occurrence-based policies, coverage does not depend on when the underlying conduct (ie, the act or omission which resulted in the claim) occurred. Typically, directors’ and officers’ insurance, professional indemnity insurance and some aspects of cyber insurance will be written on a claims-made basis.

Under Section 40(3) of the Insurance Contracts Act 1984, the indemnity provided under claims-made policies extends to claims made after the expiry of a policy where the policyholder had notified the insurer of “facts that might give rise to a claim”. An equivalent contractual right to notify circumstances is often also provided in such policies

Section 40(3) requires that notice of the relevant facts which might give rise to a claim must be given in writing and “as soon as was reasonably practicable after the insured became aware”. Further guidance regarding the process for giving notice was provided by Justice Lee in Uniting Church, who held that notice may be given:

The principles regarding what constitutes a “fact” had been most recently set out by the NSW Court of Appeal in Kauter ([2021] NSWCA 136), which was referred to extensively in both Uniting Church and MS Amlin. In that case, the NSW Court of Appeal concluded that the asserted facts:

Justice Lee and Justice Jackman, in Uniting Church and MS Amlin, respectively, considered the first of these principles as it relates to expert opinion.

In Uniting Church, the insured hired a private investigator and provided his reports, in part, to the insurer. Having regard to the approach adopted in Kauter, Justice Lee held that the opinion of a professional investigator might include a notification of facts but was not itself capable of constituting a “fact”.

The claims in MS Amlin followed an apartment fire, a report into which had been provided by the insured to the insurer. Justice Jackman disagreed with the reasoning of Justice Lee in Uniting Church, stating that the principle in Kauter sought to exclude “bare belief or opinion” in relation to a possible claim. That did not, according to Justice Jackman, exclude expert opinion from constituting possible “facts” which may form part of a notification under Section 40(3).

These recent decisions highlight that it is vital to consider and draft notifications of circumstances very carefully. It is important to be clear on what the potential exposures arising from a set of circumstances may be, and to appropriately notify the insurer of those circumstances.

Ultimately, however, the information that a policyholder can provide to an insurer will depend on what is available. For policyholders, this requires active monitoring of what facts may form the basis of a future claim, and careful drafting of what is notified to the insurer.