Warning: This article contains details about sexual abuse which may be upsetting for some readers. Reader discretion is advised.
A religious organisation operating a school was held to be entitled to indemnity by operation of section 40(3) of the Insurance Contracts Act 1984 (Cth) after making a series of notifications and bulk notifications in relation to historical abuse at its school.
The insured made a number of bulk and other notifications to its insurer in relation to facts that might give rise to historical sexual abuse claims at one of its schools. Numerous claims for historical abuse were later made by former students at the school and the insured made a claim on its policies. The insurer declined indemnity. The insured claimed it was entitled to coverage from its insurer on the basis that it notified the insurer of facts that might give rise to claims within the meaning of s40(3) of the Insurance Contracts Act 1984 (Cth) (Act). The Court agreed and held that s40(3) had been engaged with respect to the relevant policies.
In issue
- The question for the Court was whether, by operation of s40(3), the insured’s policies were engaged as a result of its notifications. The most contentious issue in the proceeding was whether or not the notifications were given as soon as was reasonably practicable.
The background
The insured, the Uniting Church in Australia Property Trust (NSW) (UCPT), was continuously insured by Allianz under professional indemnity policies from 31 March 1999 to 31 March 2011 (the Period). The UCPT operated a school at the relevant time (the School).
On 20 November 2003, allegations of grooming in the 1980s, but not sexual abuse, were raised by the mother of a former student against a teacher at the School. UCPT’s insurer, Allianz, was notified of those facts. The School also engaged an investigator soon after the allegations were made. This investigation uncovered further allegations of grooming and abuse that were made against the teacher in the 1980s. The investigator concluded that the teacher groomed a former student ‘in the sexual abuse context’ and included reference to historical allegations that had been made by students against the teacher. UCPT did not notify Allianz of the investigation or provide it with copies of the investigator’s reports or materials until 2013.
In the 2008/2009 policy year several current and former teachers of the School were arrested by NSW police. UCPT notified Allianz that the teachers that had been arrested and also made several ‘bulk notifications’ in which it listed numerous former students and specified that they were likely to bring claims relating to psychiatric injury and/or physical injury against the School. As at the date of the hearing, 53 claimants had made claims against UCPT in relation to historical abuse at the School.
Until 19 May 2014, Allianz indemnified UCPT with respect to the claims made until that date. However, for the claims made after 19 May 2014, Allianz either declined indemnity or otherwise reserved its rights.
The insuring clause in each of the Policies extended cover to 'any claim or claims first made against the insured during the period of insurance and notified to [Allianz] during the period'. As 'claims made and notified' policies, these clauses were captured by s40(1) of the Act and modified by s40(3), which entitles an insured to indemnity where the insured can demonstrate that it had notified facts that might give rise to that claim before the expiry of cover, despite the claim having been made outside the period of cover.
In order for facts notified under s40(3) to satisfy this section they must have been notified as soon as was reasonably practicable after the insured first became aware of those facts, but before the insurance cover provided by the relevant policy had expired.
Allianz argued that, as a result of the investigator’s reports and materials, UCPT was aware of sexual and physical abuse of former students by former teachers at the School in or around 2004, when the investigator’s second report was furnished to UCPT. Allianz argued that UCPT was not entitled to the benefit of s40(3) in relation to the 2008/2009 policy year as it had failed to notify these facts that might give rise to a claim as soon as was reasonably practicable.
The decision at trial
The Court rejected Allianz’s arguments. It disagreed that the 'problem' of sexual and physical abuse of former students at the School was known in 2004. The Court held that the 'problem' only arose upon a 'concatenation of events' which culminated in the arrest of several former teachers between 2009 and 2011.
The Court held that the investigator’s report and materials did not admit anything more than a bare possibility of a claim because of the absence of a contemporaneous complaint. Further, the Court opined that in 2004, the prospect of any person coming forward with a claim after two decades against the School’s teachers was remote. By contrast, by the 2008/2009 policy period teachers at the School had been arrested, there was widespread media reporting of the arrests and a policy of actively encouraging victims of sexual abuse to come forward.
The Court accepted UCPT’s submission that only during the 2008/2009 policy period did it become aware of a 'problem' that might give rise to claims, at which time UCPT notified Allianz of as soon as was reasonably practicable within the meaning of s40(3).
The Court found that notifications of facts which might give rise to claims within the meaning of s40(3) of the Act in respect of each of the claimants and the potential claimants outlined above were made during the currency of the Policies. The Court determined that UCPT was entitled to declaratory relief providing that indemnity be granted to potential claimants for claims brought arising out of the s40(3) notifications.
Implications for you
The decision touched upon a number of key issues, and we highlight some below.
This decision demonstrates that, in appropriate circumstances, it may be permissible for an insured to notify an insurer of facts that might give rise to a claim over several policy periods, so long as these facts are notified as soon as was reasonably practicable, noting that the Courts will assess the entirety of the facts notified to an insurer in order to resolve whether they possess the quality of ‘facts that may give rise to a claim’. In addition, the insured is not required to incorporate or otherwise refer to facts that may have been notified during an earlier policy period.
This puts the onus on insurers who are on risk for a continuous period to piece together facts that are notified in various policy periods to determine if the facts give rise to a claim later made.
The decision also suggests that where the facts are predominantly historical rumours of abuse and where there is an absence of contemporaneous claims or other factors such as the arrests of the perpetrators, this only amounts to the 'bare possibility' of a claim, not necessarily justifying a s40(3) notification
This decision is also useful for its consideration of so-called 'hornet’s nest' notifications, because, although ultimately not making a final determination on the issue, the Court indicated that the preferable approach in Australia is to follow the reasoning of Meagher AJ in earlier cases that s40(3) does not preclude the notification of a 'problem' provided that the 'problem' constitutes a notification of facts which might give rise to a claim.
Finally, the case is useful for the guidance it provides on the role of a panel solicitor. The insurer’s arguments that the panel solicitor was not authorised to notify facts giving rise to a claim was rejected, including because there is no legal authority for the proposition that such a solicitor requires specific authority to do so, and also because the Policies and Procedures Manual and the Legal Services Agreement both acknowledged the panel solicitor represented the insurer as its agent. As a result, where the panel solicitor received written communications of facts that might give rise to a claim, and where they had the capacity to affect the insurer’s interests, and had a connection with the retainer, the panel solicitor was subject to a corresponding duty to communicate that information to the insurer. Whether it did so or not was of course immaterial, as its knowledge was imputed to the insurer in accordance with agency principles.