In issue

Whether liability insurance policies extend to provide cover for ‘Loss’ resulting from non-monetary relief.

The background

After resolving a commercial dispute that had been the subject of litigation, Sayers Property Holdings Pty Ltd (Sayers) claimed an amount of $1,971,604 from its insurer, AIG Australia Ltd (AIG), under a management liability insurance policy (Policy). AIG rejected Sayers claim under the Policy, which gave rise to these proceedings.

Primary proceeding

In 2010, Sayers and Di Dio Nominees Pty Ltd (Di Dio) entered into a development agreement for a property in Tarneit, Victoria (Property), which was owned by Di Dio. As part of the agreement:

1. Di Dio granted Sayers an option to purchase the Property after 3 years, under which Sayers would have issued shares to Di Dio giving it a 10 per cent interest in Sayers, and
2. the parties entered into a lease agreement.

Sayers subsequently developed the Property, at a cost of $5,350,140. Sayers alleged it had exercised the option to purchase the Property in 2015.

On 13 February 2017, Sayers commenced proceedings against Di Dio seeking specific performance of a contract for the sale of the Property owned by Di Dio.

Di Dio counterclaimed seeking, amongst other things, to set aside the existing agreement for lease, the option to acquire the Property and any contract for the sale of the Property to Sayers and/or, in the alternative, equitable compensation on the basis that Di Dio’s accountant and adviser had failed to disclose that he was also a director and 20 per cent shareholder of Sayers, breaching his fiduciary duties and otherwise engaging in unconscionable conduct.

On 25 November 2019, the parties settled the primary proceeding in which Sayers agreed to purchase the Property from Di Dio for $11 million, instead of the previously agreed exercise price of $8,925,140 (i.e. a difference of $1,971,604).

Insurance claim

Sayers subsequently made a claim under the Policy for $1,971,604, representing the difference between the settlement price and the previously agreed exercise price.

The decision turned on two definitions in the Policy, namely ‘Claim’ and ‘Loss’. ‘Claim’ was relevantly defined by the Policy as:

‘a civil, regulatory, mediation, administrative or arbitration proceeding, including a counter-claim, seeking compensation or other legal remedy’.

‘Loss’ was defined by the Policy as:

‘any amount the Insured is legally liable to pay resulting from a Claim made against the Insured, including… awards of costs or settlements.’

AIG rejected Sayers’ claim on the basis that its settlement with Di Dio reflected a commercial renegotiation of the price paid for the Property on a commercial basis, and was therefore not a ‘Loss’ as defined by the Policy.

The decision at first instance

Sayers commenced proceedings against AIG in the Supreme Court of Victoria alleging that the settlement amount was an amount which Sayers was legally liable to pay under the terms of settlement, representing compensation payable to Di Dio for the claims it made against Sayers in the counterclaim, and that it was not merely a commercial renegotiation of the purchase price for the Property but a reasonable settlement of the claims against Sayers.

The issues in dispute between the parties were:

1. did the obligation to pay the increased purchase price of $11 million agreed in the terms of settlement ‘result from’ Di Dio’s counterclaim against Sayers for equitable compensation, and
2. if so, was the claimed amount a reasonable settlement of the claim for equitable compensation made by Di Dio in the counterclaim?

The trial judge found that the $11 million agreed in the terms of settlement could not be said to have ‘resulted from’ Di Dio’s counterclaim against Sayers for equitable compensation, concluding that:

1. [the] increased purchase price for the Property was part of a global or ‘all in’ commercial agreement negotiated between the parties which effected a rearrangement of their legal, financial and property interests as well as the resolution of the litigation between them, and
2. it was not open to conclude that the increased purchase price was a fair and reasonable settlement of the monetary claim made by Di Dio for equitable compensation by Sayers in circumstances where it was not directly linked with the claim for equitable compensation. There was little, if any, nexus between the claim by Di Dio against Sayers for equitable compensation and the increased purchase price paid by Sayers to ensure that it obtained all of the benefits that it received under the terms of settlement. It was not possible for the Court to allocate or apportion the purchase price of the Property amongst all of the different legal and commercial benefits that Sayers had obtained.

The decision on appeal

In allowing the appeal, the Court of Appeal found that Sayer’s liability to pay the settlement amount fell within the meaning of ‘Loss’ under the Policy.

The Court of Appeal identified that the key issue in dispute was 'whether the expression in the definition of ‘Claim’, namely ‘counterclaim ... seeking compensation or other legal remedy’, extends to claims of a non-monetary character'.

AIG submitted that the definition of ‘Claim’ could not extend non-monetary claims, such as the setting aside of transactions.

The Court of Appeal, preferring Sayers’ interpretation, held that the phrase ‘compensation or other legal remedy’ suggested a broadening of the definition of ‘Claim’, and extended to claims to both monetary and non-monetary claims, such that the entirety of Di Dio’s counterclaim fell within the definition of a ‘Claim’.

Further, the Court of Appeal stated that the express reference to ‘settlements’ in the definition of ‘Loss’ confirmed that liability resulting from a settlement is insurable under the Policy.

Finally, the Court of Appeal held that the settlement of $1,971,604 was reasonable in the circumstances, noting that:

1. Sayers acquired the Property for $11 million when the Property was then valued at $11.9 million
2. Sayers had incurred $5,350,140 in building and construction costs to develop the Property, expenditure that was at risk as a result of the counterclaim, and
3. Sayers was exposed to the risk of paying interest and Di Dios’s legal costs, together with its own costs, totaling at least $1 million.

Implications for you

One would usually understand a liability insurance policy to cover an amount of damages payable to a third party. The analysis by the Court of Appeal in this case is well worth a careful review as it sets out how a broad definition of ‘Claim’ / ‘Loss’ may be applied to provide indemnity in instances where one may think none available.

Sayers Property Holdings Pty Ltd & Anor v AIG Australia Ltd [2024] VSC 139 (27 March 2024)

Sayers Property Holdings Pty Ltd v AIG Australia Ltd [2025] VSCA 294 (28 November 2025)