On 7 February 2025, the Full Court of the Federal Court of Australia (Full Court) delivered judgment in Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8, overturning the March 2023 first instance decision of Justice Lee and allowing Allianz's appeal.
The appeal decision traverses a complex factual background and a number of contentious insurance law matters. In this article, we primarily focus on the material findings of the Full Court on two issues:
- Can a 'notifiable problem' be sufficient to validate bulk notifications of circumstances under s 40(3);
- How Courts might create a special rule of attribution of corporate knowledge among group entities.
The Full Court's commentary and findings on these matters are pertinent to both insurers and insureds and this article provides practical guidance for approaching these issues.
Background
The dispute arose between Uniting Church in Australia Property Trust (NSW) (UCPT) and Allianz Australia Insurance Limited (Allianz) in relation to historical sexual abuse cases which were alleged to have occurred at Knox Grammar School (the School) during the 1980s.
From 1999-2011, Allianz and its predecessor Mercantile Mutual Insurance issued successive policies of insurance to the Uniting Church in Australia (UCA). For ease of reference we refer to the insurance arrangement as the Policy in this article.
UCA is not a legal entity but an amalgam of various groups, creating a corporate group structure. The School existed within the umbrella of the UCA, specifically within the Synod of NSW. Among the UCA's bodies corporate were statutorily incorporated trusts which owned or held the UCA's property for their respective geographical areas, including the UCPT which was the relevant property trust to respond to claims in relation to the School. The composite nature of the Policy was such that all of the entities and individuals within UCA were individually covered by the Policy.
On 20 November 2003, the UCPT received allegations of grooming in the 1980s and notified Allianz of these facts. As outlined in the Full Court's judgment, between 2003 and 2004 the School commissioned an investigator who uncovered further allegations, but evidence indicated that the UCPT did not notify Allianz of the investigation nor provide it with copies of the investigation reports. The particular report which was the subject of contention on appeal was provided to the then headmaster of the School on 7 May 2004 and identified several alleged perpetrators and incidents of sexual and physical misconduct (this report was referred to by the Court as LKA2). LKA2 concluded that on the balance of probabilities, at least one alleged perpetrator had engaged in sexual misconduct with boys at the school.
From 2007, numerous civil claims in respect of historical sexual and physical abuse were brought by former students and parents of the School. In the 2008/09 policy year, several current and former teachers at the School were arrested on the basis of these allegations.
It was not until March 2009 that UCPT made four bulk notifications to Allianz of circumstances which it considered might give rise to claims. UCPT notified Allianz of the possibility of claims against the School in relation to a large number of former students (Bulk Notifications).
Until 19 May 2014, Allianz indemnified the UCPT for these claims but later declined coverage after becoming aware of LKA2. Allianz's central argument was that the Bulk Notifications were ineffective, since the 'problem' of the allegations had been known to the School since the receipt of LKA2 in 2004 but not notified to Allianz.
The Appeal
At first instance, Justice Lee ruled in favour of the UCPT and made declarations to the effect that the UCPT was entitled to be indemnified by Allianz in respect of certain claims or potential claims under certain specified policies.
Allianz appealed on several bases including, for the purposes of this article, whether the primary judge erred in:
- failing to find that LKA2 contained facts and circumstances likely to give rise to a claim, and failing to find that the claims for indemnity arose from those circumstances (Ground 1);
- failing to find that the UCPT became aware of LKA2 only by March 2009, and, further erred by failing to find that it knew of it in 2004 or 2006, on the basis that the knowledge of the School was the knowledge of the UCPT, and the former was aware of the report when it was delivered, or on the basis that the UCPT independently became aware of LKA2 in those time frames (Ground 2);
- on the basis of Ground 2, failing to find that the UCPT had not notified Allianz of the matters revealed by LKA2 as soon as reasonably practicable after it became aware of them within the meaning of s 40(3), with the result that the notifications which were made were ineffective (Ground 3);
- failing to find that the UCPT’s claims were excluded from cover under the policies by reason of Exclusion 7(c) in the Policy (Ground 4).
What is a 'notifiable problem' and what constitutes sufficient notification under section 40(3)?
It has been well established that section 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA) functions, if the relevant integers of the section are met, to convert an insured's notice of circumstances ('facts that might give rise to a claim') into an effective notification of a 'claim' when notified 'as soon as reasonably practicable'. Its job is to cure an insured's failure to notify of a claim within a policy period, which failure could exclude coverage. It is common for section 40(3) to be argued in relation to long-tail claims and litigation where an initial 'problem' arises and is known, but no formal 'claim' as defined by the policy has crystallised. Section 40 as a whole is a remedial provision which courts have found should be construed beneficially to an insured.
On Ground 1, Allianz sought to establish that LKA2 revealed facts which might give rise to a claim, which were not notified by the UCPT. The Court first considered the ruling of the leading Full Court authority P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyds Ltd (Kauter) on the interpretation of a 'notifiable problem':
"The question whether a fact or facts “might give rise to a claim” requires an objective assessment of the likelihood or possibility of a claim or claims. It will be sufficient to engage Insurance Contracts Act, s 40(3) that the notified facts are reasonably to be regarded as giving rise to a realistic possibility of a claim or claims, whether or not the likely claimants or the quantum of such claims are known and notwithstanding that those claims may have modest or limited prospects of success. Accordingly, the notification may be of a “problem” or an event which, in common experience, is followed by the making of claims"
At first instance, Lee J applied Kauter but concluded that LKA2 gave rise only to a "bare possibility" of the making of a claim, which was insufficient to qualify as a fact for the purposes of s 40(3). His Honour ruled that only in the 2008/09 policy period once the NSW Police had made arrests and charged the individuals named in the report, and there was widespread media reporting of the arrests, was there an "immediacy" to the historical complaints which revealed a 'problem' that might give rise to a claim.
However the Court considered the approach of the UK Court of Appeal in Euro Pools Plc v Royal & Sun Alliance Insurance Plc (Euro Pools), among other cases, which considered the question of a 'problem', ruling that:
"A notification need not be limited to particular events. It may extend to something as general as a regulatory warning about a class of business or a concern about work done by a former employee or prior entity. The insured may give a “can of worms” or “hornet’s nest” notification; ie a notification of a problem, the exact scale and consequences of which are not known."
The Court also considered the recent decision of Justice Jackman in MS Amlin Corporate Member Ltd v LU Simon Builders Pty Ltd (MS Amlin), in which his Honour expressly disagreed with the narrow interpretation of Kauter adopted by Lee J at the first instance of this case, ruling that “the opinion of an expert, such as a professional investigator, based on reasoned explanations and substantive evidence, may constitute a ‘fact’ for the purposes of s 40(3)” regardless of whether these findings were published publicly.
Therefore, the Court disagreed with the primary judge on this issue and concluded:
"Though LKA2 did not reveal the identity of the many victims, the authorities to which reference has been made show that such knowledge is not a requirement for s 40(3). It was sufficient that it revealed a “problem” or “hornets’ nest” over an extended period. The characteristics of persons who were likely to make claims were students at the school from the 1980s onwards. In the light of the combined evidence, its quality overall could not be dismissed in such a cavaliere fashion as the school did, and to have done so at the time would have been an exercise of judgement as to the likelihood of claims of a most courageous kind."
Thus the facts contained within LKA2 were deemed by the Court to constitute a 'notifiable problem' for the UCPT. Furthermore, the class of individuals identified by the Court as likely to make claims were students at the school from the 1980s onwards, signalling apparent approval of a broad 'bulk notification' of circumstances being effective under section 40(3), in line with Kauter.
It should be noted that while this issue ultimately went in favour of Allianz (since the UCPT had failed to provide sufficient and timely notification of LKA2) the Court's ruling on this issue is not generally favourable to insurers, as it suggests that insureds might be able to issue broad 'bulk notifications' covering any 'problem' (a term defined far more broadly by the Court in the appeal compared to Lee J at first instance) and consequently resulting in insurers taking on risks which are largely unknown and potentially unquantifiable. This may lead to alterations to the cost of insurance premiums once insurers have fully considered the impact of the Full Court's decision. The issue may also be appealed to the High Court of Australia given the potential ramifications it has in respect of 'shotgun notifications' even where the 'problem' might not give rise to a claim at all.
Special Rule of Attribution — the knowledge of the School was attributable to the UCPT
A distinct but equally fundamental issue in Allianz's appeal was Ground 2 concerning whether the knowledge of the School could be imputed to the UCPT.
At first instance, Lee J found that the School and the UCPT were separate entities and there was nothing in the constituent instrument which deemed the knowledge or awareness of one to be that of another, thus there was no relevant attribution of knowledge and no relationship of principal and agent operating such that the knowledge of persons at the School could be the knowledge of the UCPT.
In approaching this issue, the Full Court first cited Edelman J (in Commonwealth Bank of Australia v Kojic [2016] FCAFC 186) who held that the concept of the “directing mind and will” of a company has been rejected as the sole test for determining the knowledge of a company. Instead, the Full Court suggested a more holistic assessment which takes into account the terms of the policies and construction of the relevant statutory provisions..
In their appeal, Allianz did not attempt to characterise anyone from UCPT as the 'directing mind and will', but instead intended to "formulate a rule that was appropriate for the purposes of s 40(3)." The concept of special rules of attribution was approved in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] AC 500, referring to cases which may arise when the application of the primary rules of attribution and the rules of agency do not produce an answer to attribution. In these circumstances, the Full Court noted that a 'contextual approach' to formulating the relevant rule of attribution is to be applied, and in the statutory context, considering the policy of insurance, since the provisions of the ICA operate on the basis that there is a policy of insurance.
The Full Court considered submissions made by Allianz which sought to impute awareness of facts for the purposes of s 40(3) by reason of what was known by the Headmaster and School Council of the School. In so doing, Allianz relied on UCPT being the owner of the business 'Knox Grammar School' and the holder of the ABN for the activities of the School. Allianz submitted that the School was owned and operated by UCPT and that the then Headmaster of the School was the person responsible for running the School and was the guiding mind and will for the purpose of that aspect of the activities of UCPT. Finally, Allianz relied on pleadings filed by UCPT which purportedly characterised the relationship as between UCPT and the School as being one whereby UCPT conducts the business of the School.
The Court was highly critical of the UCPT's "chameleon-like stance" and "fictional convenience" of asserting that the UCPT has assumed a liability, for which they sought indemnity from Allianz in respect of the claims made against the School, but had no connection with the School's management or operation that would impute it with the knowledge of those who were responsible for the liability arising. Furthermore, the Full Court emphasised that the fact that the policy was of a composite nature was supportive of the attribution of knowledge to UCPT, particularly since the UCA indicated to Allianz that it would make inquiries of each of the insured institutions under the policy for information relating to facts which might give rise to a claim in the form of annual insurance sweeps.
As such, the Full Court ruled that it was appropriate to apply a special rule of attribution such that the UCPT is fixed with the knowledge of those insureds in respect of whose liability it seeks indemnification for. The Full Court emphasised that this rule was not established on the basis that the UCPT had any responsibilities in respect of the day-to-day activities of the School (a responsibility on the School's Council and delegated to the Headmaster) but rather through the structural relationship between the organisations, the policy content, and broader context.
Consequently, Ground 3 was upheld on appeal by the Full Court such that UCPT's failure to notify Allianz of LKA2 in the 2004/05 policy year meant that the benefit of s 40(3) was lost. The Full Court held that if it had been notified, the policy would, subject to the policy sub-limits, have responded to all subsequent claims of sexual abuse. However, the Full Court also noted that the non-triggering of s 40(3) did not alone limit the operative effect of future policies and as such the Full Court considered their terms, in particular Exclusion 7(c).
Operation of Exclusion 7(c) and consistency with sections 33 or 52 of the ICA
Exclusion 7(c) to the Policy provided an exclusion for:
"any Claim, fact, circumstance or occurrence in respect of which notice had been given to the Company or any other insurer under a previous insurance policy or disclosed or communicated to the Company in the proposal or declaration or otherwise before the commencement of the Period of Insurance, or of which the Insured is aware before the commencement of the Period of Insurance, which may give rise to a claim."
On Ground 4, the UCPT submitted that Exclusion 7(c) must be read down or else it would either obliterate or substantially reduce the cover provided by the policies. In essence, the UCPT argued that the known claims, facts, circumstances or occurrences, must point more strongly towards the potential of a claim than that required for the cognate concept in s 40(3).
The Full Court rejected the UCPT's submissions and ruled that section 40(3) of the ICA and Exclusion 7(c) are "complementary in the sense that the first is a necessary mollifier of the latter" such that if an insured gives notice of a relevant fact during the term of the policy, they derive the benefit of the s 40(3) extension to the then current policy, whereas the Exclusion 7(c) excludes cover for claims arising from facts known before the policy's inception. Thus the interpretation of the concept of 'facts which might give rise to a claim' should not be any different for Exclusion 7(c) compared to s 40(3).
Furthermore, the Full Court dismissed the UCPT's arguments that Exclusion 7(c) was inconsistent with either ss 33 or 52 of the ICA. The Full Court upheld the primary judge's findings that the preferable approach of interpreting s 33 is to restrict the remedies for non-disclosure or misrepresentation which impact the validity of the policy itself, rather than the terms which merely restrict the policy's scope. This same reasoning was applied by the Full Court when considering the impact of s 52, as they noted that Exclusion 7(c) did not affect the operation of the ICA.
Can section 54 of the ICA expand the operation of s 40(3)?
The UCPT also advanced the argument that its failure to give notice to Allianz of LKA2 in the year in which it became aware of it pursuant to s 40(3) can be excused by s 54. The Full Court held that s 54 and s 40(3) of the ICA were not to have a "cumulative effect" on a policy of insurance and to do so "would amount to an invitation to engage in judicial legislating" as it would involve a substantial alteration to the statutory preconditions expressed in s 40(3) as to when an extension of cover under a policy will occur. As such, the Full Court rejected these submissions and, in so doing, approved the New South Wales Court of Appeal's findings in Gosford City Council v GIO General Ltd [2003] NSWCA 34.
Application of estoppel, waiver, election or breach of duty of good faith
Finally, the UCPT argued that even if Allianz were correct in relation to all other issues, Allianz remains bound to continue to indemnify the UCPT by reason of an estoppel, waiver, election or breach of the duty of good faith. The substance of these submissions was that since Allianz had previously accepted liability for a number of claims, it had an obligation to continue doing so and was prevented from relying on the UCPT's knowledge of LKA2 for the purposes of s 40(3) or the operation of Exclusion 7(c).
The Full Court criticised the "scattergun manner in which the UCPT's submissions were advanced" and the lack of precision in the UCPT's submissions. The Full Court particularly noted that there was limited evidence of any representations made by the UCPT for an estoppel to have arisen, nor waiver of Allianz's entitlement to change its liability position. Furthermore, there was no such breach by Allianz of the duty of utmost good faith found by the Full Court. Again, in so doing, the Full Court applied the findings of the High Court from Allianz Australia Insurance Ltd v Delor Vue Apartments [2022] HCA 38.
Therefore, the Full Court ruled in favour of Allianz, setting aside the orders of the primary judge and making a declaration that Allianz was not obliged to indemnify UCPT under the Policy.
Implications
This case provides important guidance on the Courts' approach to the scope of circumstances which might give rise to a claim under section 40(3) of the ICA and the efficacy of bulk notifications. The Full Court took a broad approach to its interpretation of the scope of a 'notifiable problem' and the class of potential claimants which may be covered by an effective bulk notification. This case also provides guidance on the Courts' approach to the issue of attribution of knowledge and the factors which will be considered when determining if a special rule of attribution is to be formulated to impute the knowledge of one entity to another.
For policyholders, this case is a cautionary tale that a failure to notify of circumstances which might give rise to a claim can result in the loss of the benefit of section 40(3) and, consequently, the insurer relying on an exclusion in the policy when a claim later arises.
