Federal Court of Australia provides clarity on the operation of section 40(3) of the ICA: a review of Uniting Church and MS Amlin

Two recent decisions have reaffirmed P&S Kauter Investments Pty Ltd v Arch Underwriting at Lloyd’s Ltd [2021] NSWCA 136 (Kauter) and on the whole further clarified the operation of section 40(3) of the Insurance Contracts Act 1984 (ICA) and what information an insured should ideally provide for a notification of a circumstance to be valid.

Key takeaways

The decisions have confirmed:

A notification of facts and circumstances do not need to be given in a single document – it can be supplemented and it is important to consider all notifications together.
For a notification of facts and circumstances to be valid, it does not have to identify the potential claimant(s).
Section 40(3) does not preclude the notification of a “problem” described in general terms (i.e. a bulk notification), provided that the “problem” constitutes a notification of facts which might give rise to a claim.

However, the decisions also created some uncertainty: Lee J (Uniting Church) and Jackson J (Ms Amlin) disagree as to whether an ‘expert’ opinion can be considered as a “fact”. Lee J does not consider that it does, concluding that the meaning of “facts” is of an objective nature and matter as opposed to a matter of belief or opinion. Jackson J, on the other hand, found that an ‘expert’ opinion can be considered as “facts” that might give rise to a claim for the purpose of s. 40(3) ICA.

Background

Uniting Church

This proceeding relates to historic third party claims of sexual and physical abuse claims against the Uniting Church. The Uniting Church had the benefit of various professional indemnity insurance policies, with continuous cover, between 1999 and 2011 and had made four bulk notifications of facts and circumstances, relating to the alleged sexual and physical abuse.

The Uniting Church issued proceedings contending that it has made valid notifications pursuant to s.40(3) of the ICA. It sought (a) an indemnity in respect of various settlements with third party claimants and (b) a declaration that indemnity is available for any relevant future third party claims (known and unknown).

We have provided a substantive summary of the background facts and the decision here.

MS Amlin

The facts

LU Simon Builders Pty Ltd and LU Simon Builders (Management) Pty Ltd (LU Simon) built “Lacrosse Apartments”, a residential high-rise building in the Docklands area of Melbourne, which caught fire in November 2014 partly as a result of combustible cladding material. LU Simon also built a 36-storey building called Atlantis Towers in Melbourne.

In the interim:

Metropolitan Fire Brigade (MFB) and Municipal Building Surveyor for the City of Melbourne (MSB) investigated the Lacrosse Apartments fire, and concluded that the APC fitted (Alucobest) did not comply with the Building Code of Australia; and
The Victorian Building Authority (VBA) also investigated LU Simon (amongst other construction professionals) to understand whether the non-compliant external cladding had been “used elsewhere”.

Two notifications were ultimately made in May 2015.

Notification 1

On 5 May 2015 LU Simon notified a “potential Claim” attaching:

A newspaper article from The Age dated 28 April 2015, which referred to:
- a fire at the Lacrosse Apartments on 25 November 2014;
- “an investigation into building practices and paving the way for an expensive class action”;
- an investigation into LU Simon and the building surveyor by VBA for the use of combustible cladding on the Lacrosse Apartments after the MFB commented it was untested and had “contributed to the spread of the fire”.
- LU Simon managing director commenting that the aluminium composite panels (ACP) on the Lacrosse Apartments had been widely used in Australia for decades but accepted, in 2010, when the building was commissioned, no such product passed the test for “combustibility”.
A document called “Lacrosse Apartments – Docklands”, which stated, amongst others that no claims had been made; but the reason for notifying insurers is that (i) there had been some discussion by media outlets that the spread of the fire was due to the types of materials used on the façade of the building; and (ii) there is discussion by the MFB that the product had not been tested to AS1530.1 1994 and “perhaps was not the most appropriate cladding for use in this project”.

Notification 2

On 14 May 2015 a further “Potential Claim” was notified which attached (amongst others) a copy of MFB’s report (“Post Incident Analysis Report” into the Lacrosse fire), which indicated that no ACP products had passed the test for combustibility. The report also included links to four media reports which referred to building audits by the VBA and also enclosed a report by MSB. MSB concluded that the fire at the Lacrosse Apartments raised a number of questions relating to “the external wall cladding system used and whether it has been approved and accredited”.

LU Simon faced three sets of proceedings, commenced between 19 November 2019 and 29 November 2020, for alleged breaches concerning the use of ACP, which was combustible and not fire-resistant, as cladding in the construction of Atlantis Towers (Atlantis Towers Claims).

In reliance on notifications made in May 2015, LU Simon sought indemnity under the professional indemnity policy for the period 30 June 2014 to 30 June 2015 (2014/15 Policy) pursuant to s.40(3) of the ICA. Excess Layer Insurers disputed the validity of the notification and sought a declaration that cover under the 2014/15 Policy is not available in respect of Atlantis Towers Claims.

The Judgments

In Uniting Church, Lee J found, by virtue of s.40(3) of the ICA and in construing the notifications in the context of the surrounding circumstances, various bulk notifications were sufficient to conclude that the Claims arise from those facts and circumstances notified and that the Uniting Church was entitled to indemnity. We understand the decision is under appeal.

In Ms Amlin, Jackman J found that the 2015 Notifications “were sufficient to notify the Insurers of the general problem concerning ACP products in high-rise buildings” (see [53]) and “there is a clear causal connection between the investigation conducted by the VBA which was reported upon in the Notifications, and the progression to the Atlantis [Tower] Claims” (see [54]). LU Simon had therefore given notice to the insurers of facts and circumstances before 30 June 2015 that gave rise to the Atlantis Tower Claims within the meaning of s.40(3) of the ICA.

In considering the validity of the notifications, both Lee J in Uniting Church and Jackman J in MS Amlin endorsed the findings in Kauter concerning s.40(3) of the ICA.

Kauter at [31]-[33]

“there must be a sufficient correspondence between the facts notified as facts “that might give rise to a claim” and a claim subsequently made for the latter to be identified as “the” or a claim arising or resulting from those facts;
it is not necessary that the notified facts identify the likely claimant or claimants;
the notification may be of a problem which of itself may give rise to a claim or claims by persons or entities having particular characteristics, although the quantum of such claims and the identity of the claimants may not be known at the date of notification;
the requirement that the notification be of “facts” indicates that s 40(3) is concerned with the notification of objective matters that bear on the possibility of a claim being made, rather than matters of belief or opinion as to that possibility;
a fact will be one which “might give rise to a claim” if, alone or taken with other notified facts, it is reasonably to be regarded as having that character; and
the reference to the possibility of a “claim”, rather than of a liability, encompasses claims which may not have significant prospects of success, and thus the notified facts could include an event which, in common experience, is followed by the making of claims notwithstanding that those claims may have modest or limited prospects of success.”

Findings regarding s.40(3) of the ICA

Specifically, their Honours clarified the operation of section 40(3) of the ICA:

Lee J in Uniting Church

An insured must give the insurer notice: (i) of facts, in writing, that might give rise to a claim against the insured. The notice can be given in multiple written communications to the insurer that will be considered collectively; and (ii) “as soon as was reasonably practicable” after the insured first became aware of those facts and before the insurance cover has expired.
The assessment of whether there is “sufficient correspondence” between the facts notified to the insurer that are likely give rise to a claim, and a claim subsequently made or arising from those facts will involve considering the context of the notification and in particular the characteristics of the relevant facts, without the benefit of hindsight.
It is not necessary for a notification of facts to name potential claimants. Equally, naming potential claimants does not limit the notification to those identified.
The term “facts” is not dependent on the prospects of that claim’s success. However, it must be more than mere possibilities.
S.40(3) of the ICA does not preclude the notification of a “problem” described in general terms (i.e. a bulk notification), provided that the “problem” constitutes a notification of facts which might give rise to a claim.

Jackman J in MS Amlin

A notification does not need to be given in a single document.[i]
It is not necessary that the insured or its agent have the intention to give a notice of facts that might give rise to a Claim for the notification to be valid.[ii]
It is not necessary for the notification to identify the potential claimant(s).[iii]
It is not necessary that words such as “Potential Claim” be used.[iv]

Uncertainty remains

However, their Honours disagreed on one aspect of what amounts to a fact capable of being notified pursuant to s.40(3) of the ICA:

Lee J found while the opinion of an ‘expert’ may carry with it a notification of facts which might give rise to a claim, the opinion itself is not capable of constituting a “fact” within the meaning of s.40(3) of the ICA. Lee J said the meaning of “facts” is of an objective nature and matter as opposed to a matter of belief or opinion. Thus Lee J did not consider that reports by investigators into the alleged abuse were notifiable facts.
Jackman J however does not consider the conclusion in Kauter, that the notification of “facts” is concerned with the notification of “objective matters that bear on the possibility of a claim being made, rather than matters of belief or opinion as to that possibility”, limits what could constitute a fact so as not to include an opinion given by an expert. Jackman J concluded the fact that an opinion has been given by a person with appropriate expertise, such as a public authority, is itself a fact, commenting in this case: “In circumstances where that opinion is given by a person in a position of public authority, such as the MFB or the MBS, the publication of that opinion may well be a most important fact that might itself give rise to a claim” (at [48]).

Implications of the decisions

As insurers and insureds alike will know, whether a notification of facts and circumstances is valid heavily depends on the facts of each case. However, amongst the key takeaways from the decisions in Uniting Church and MS Amlin is the importance of (a) the timing of notifications (i.e. to be made as soon as possible) and (b) the detail in such notifications. It is also clear that bulk notification remains valid even if the extent of the ‘problem’ is not known at the time the notification is made.

The decisions are also a reminder to insurers of the importance of considering the notification in the context of the documents being provided at the time (to include any attachments and those accessible via a hyperlink).

Noting that Jackman J’s conclusion with regard to whether an opinion of an ‘expert’ may itself be a fact capable of being notified pursuant to s.40(3) of the ICA is the opposite to that of Lee J in Uniting Church, some uncertainty will remain. Until such time as the matter is clarified, insurers should also take into account, when considering the validity of a notification of facts and circumstances, any ‘expert’ opinions included in the notification, whether they are opinions of local authority bodies such as in MS Amlin or other ‘experts’ such as those contracted by an insured or a third party.

This article was co-authored to by Mel Laurie, Paralegal.