Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW)
[2025] FCAFC 8
•7 February 2025
FEDERAL COURT OF AUSTRALIA
Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8
Appeal from: Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited (Liability Judgment) [2023] FCA 190 File number: NSD 405 of 2023 Judgment of: DERRINGTON, COLVIN AND MCEVOY JJ Date of judgment: 7 February 2025 Catchwords: INSURANCE – liability insurance – composite policy held by Uniting Church of Australia covering all entities, persons and associations within it – cover sought in respect of liability to students of Knox Grammar School for sexual abuse by teachers – policies did not extend to cover claims arising from facts and circumstances of which the insured was aware prior to inception – Headmaster and School Council aware of investigator’s report identifying sexual abuse of students over many years and culture of paedophilic conduct amongst several teachers prior to inception of policies – whether policies cover subsequent claims made by former students against school
INSURANCE – facts and circumstances that might give rise to a claim – report obtained by insured disclose history of repeated sexual abuse of students by a particular teacher and instances of sexual abuse by a number of other teachers – report also identified relatively unchecked culture of paedophilic conduct by teachers and insufficient response when misconduct was detected – subsequent claims made by students against school for sexual abuse by teachers – report disclosed facts in the nature of a “problem”, “hornets’ nest” or “can of worms” – subsequent claims arose out of facts disclosed by report
INSURANCE – attribution of knowledge – composite policy of insurance with severed indemnity – policy in respect of all entities, persons and associations within large church organization – church uses single legal entity as “nominal defendant” to defend claims against any person or entity within organization – nominal defendant made claim on insurer for indemnity of claim made in respect of liability of another church entity – whether other entity’s knowledge of prior claims relevant to operation of policy terms or for the purposes of s 40(3) of the Insurance Contracts Act 1984 (Cth) – knowledge of insured whose liability is sought to be indemnified relevant for purposes of policy terms – or knowledge of that insured is attributed to nominal defendant claiming on insurer – claims for indemnity not within cover because claims arose from pre-inception knowledge of facts or circumstances from which claims arose
INSURANCE – s 40(3) of the Insurance Contracts Act – whether notification given to insurer of facts which might give rise to claim “as soon as reasonably practicable” after insured aware of them – insured aware of fact or circumstances some years prior to claims being made – investigator’s report disclosed relevant problem from which subsequent claims arose – subsequent notification of investigator’s report to insurer being too late to trigger extension of cover under s 40(3)
INSURANCE – whether clause that limits cover to claims which do not arise from facts or circumstances which were known to insured prior to the policy’s inception is void by reason of s 33 of the Insurance Contracts Act – whether any right arose in the insurer to decline indemnity because claim is not within cover – whether, if such right existed, right arose “in respect of a failure by the insured to disclose a matter” – policy clause did not operate in respect of any failure to disclose – whether exclusion clause limiting scope of cover inconsistent with s 52 of the Insurance Contracts Act – clause not inconsistent with either s 33 or s 52
INSURANCE – whether scope of operation of s 40(3) of the Insurance Contract Act extended by operation of s 54 of the Insurance Contracts Act – whether operation of s 40(3) within meaning of “effect of a contract of insurance” as term used in s 54 – s 40(3) not within scope of s 54 because it is does not have effect as a part of the contract of insurance
INSURANCE – application of estoppel, waiver, election or breach of duty of good faith – claims in this respect without merit – insufficient evidence adduced of any representation or reliance – no lack of good faith established
Legislation: Acts Interpretation Act 1901 (Cth)
Insurance Contracts Act 1984 (Cth) ss 13, 21, 22, 27AA, 28, 33, 40, 52, 54
Uniting Church in Australia Act 1977 (NSW)
Cases cited: Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606
All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited (No 2) [2021] FCA 782
Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 277 CLR 445
Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2021) 287 FCR 388
Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151
Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652
Arab Bank plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262
Australian Competition and Consumer Commission v BlueScope Steel Limited (No 5) [2022] FCA 1475
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560
Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147
Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2019) 272 FCR 170
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485
Avant Insurance Ltd v Burnie [2021] NSWCA 272
Bilta (UK) Ltd (in liq) v Nazir (No 2) [2016] AC 1
Blatch v Archer (1774) 1 Cowp 63
CA & MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2009] 2 Qd R 1
CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1
Clark v Avant Insurance Ltd [2022] NSWCA 175
Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421
Darshn v Avant Insurance Ltd (2021) 154 ACSR 1
DIF III — Global Co-Investment Fund L.P v DIF Capital Partners Limited [2020] NSWCA 124
Director General, Department of Education and Training v MT (2006) 67 NSWLR 237
Einfeld v HIH Casualty and General Insurance Limited (1999) 10 ANZ Insurance Cases ¶61-450
Euro Pools Plc v Royal & Sun Alliance Insurance Plc [2019] Lloyd’s Rep IR 595
FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Fitzgerald, in the matter of Temp Holdings Pty Ltd (In Liq) v Tully [2024] FCA 391
Fitzpatrick v Job & Job t/as Jobs Engineering (2007) 14 ANZ Insurance Cases ¶61-731
Fox v Percy (2003) 214 CLR 118
GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd [2019] FCA 97
Gosford City Council v GIO General Ltd (2003) 56 NSWLR 542
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Guild Insurance Ltd v Hepburn [2014] NSWCA 400
HLB Kidsons (a firm) v Lloyd’s Underwriters [2009] Lloyd’s Rep IR 178
Johnson v Triple C Furniture & Electrical Pty Ltd [2012] 2 Qd R 337
Jones v Dunkel (1959) 101 CLR 298
Kajima UK Engineering Ltd v Underwriter Insurance Co Ltd [2008] EWHC 83 (TCC)
Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673
Macquarie Underwriting Pty Ltd v Permanent Custodians Ltd (2007) 240 ALR 519
Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458
Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500
Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713
MS Amlin Corporate Member Ltd v LU Simon Builders Pty Ltd [2023] FCA 581
Nationwide News Pty Ltd v Naidu (2007) 71 NSWLR 471
Newcastle City Council v GIO General Ltd (1997) 191 CLR 85
P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyds Ltd (2021) 105 NSWLR 110
Pech v Tilgals (1994) 28 ATR 197
Permanent Trustee Australia Limited v FAI General Insurance Company Limited (in liq) (2003) 214 CLR 514
Permanent Trustee Australia v FAI General InsuranceCo Ltd (1998) 44 NSWLR 186
Porter v GIO Australia Ltd (2003) 12 ANZ Insurance Cases ¶61-573
R v Commercial Industrial Construction Group Pty Ltd (2006) 14 VR 321
Re FAI General Insurance Company Limited v Fletcher Construction Australia Limited (1998) 10 ANZ Insurance Cases ¶61-403
Rothschild Assurance plc v Collyear [1999] Lloyd’s Rep IR 6
South Australian Housing Trust v State Government Insurance Commission (1989) 51 SASR 1
Stolberg v Pearl Assurance Co Ltd [1971] 19 DLR (3d) 343
Tesco Stores Ltd v Brent London Borough Council [1993] 1 WLR 1037
The Commonwealth v Verwayen (1990) 170 CLR 394
The Lady Gwendolen [1965] P 294
Tosich v Tasman Investment Management Limited [2008] FCA 377
Trustees of the Roman Catholic Church for the Archdiocese of Sydney v Ellis (2007) 70 NSWLR 565
Vero Insurance Ltd v Power Technologies Pty Ltd (2007) 14 ANZ Insurance Cases ¶61-745
Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance (2018) 20 ANZ Insurance Cases ¶62-175
Zurich Australian Insurance Limited v CIMIC Group Limited [2024] NSWCA 229
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 869 Date of hearing: 13 – 16 November 2023 Counsel for the Appellant: Mr JAC Potts SC with Mr JC Conde Solicitor for the Appellant: HWL Ebsworth Lawyers Counsel for the Respondent: Mr DL Williams SC with Mr P Mann and Mr ND Riordan Solicitor for the Respondent: Clayton Utz ORDERS
NSD 405 of 2023 BETWEEN: ALLIANZ AUSTRALIA INSURANCE LIMITED ACN 000 122 850
Appellant
AND: UNITING CHURCH OF AUSTRALIA PROPERTY TRUST (NSW)
Respondent
ORDER MADE BY:
DERRINGTON, COLVIN AND MCEVOY JJ
DATE OF ORDER:
7 FEBRUARY 2025
THE COURT ORDERS THAT:
1.The appeal be allowed.
2.Paragraphs 3 – 21 of the declarations and orders made by the primary judge on 12 April 2023 in NSD 1144 of 2019 be set aside and, in their place, it be ordered that the proceedings otherwise be dismissed.
3.The respondent pay the appellant’s costs of the appeal.
4.The parties are to be heard on the question of costs before the primary judge.
5.The appellant is to file any material and submissions (limited to 5 pages) on which it relies on the question of costs before the primary judge within 14 days from the date of these orders.
6.The respondent is to file any material and submissions (limited to 5 pages) on which it relies on the question of costs before the primary judge within 21 days from the date of these orders.
7.The appellant is to file any material and submissions in reply (limited to 3 pages) within 28 days from the date of these orders.
8.Subject to further order, the question of costs before the primary judge be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
INTRODUCTION
The nature of the appeal
The circumstances behind, and the arguments associated with, this appeal are of such a nature that it is desirable to provide a preliminary and fulsome introduction that will, unfortunately, result in some repetition in the explanation of the reasons for the decision. Nevertheless, it is the best approach.
Between 31 March 1999 and 31 March 2011, Allianz Australia Insurance Limited (Allianz) (or its predecessor, Mercantile Mutual Insurance (MMI)) issued successive policies of insurance to the Uniting Church in Australia (UCA). The UCA is not itself a legal entity, but an amalgam of a variety of numerous groups, associations, synods, assemblies, committees, councils, bodies corporate and individuals, all of which were individually covered by the policies. Amongst the bodies corporate are statutorily incorporated trusts referred to as “Property Trusts” which, for their respective geographical areas, own or hold the UCA’s property. For present purposes, they included the Uniting Church in Australia Property Trust (NSW) (UCPT), which is the respondent to the appeal.
Knox Grammar School (Knox) is a school within the umbrella of the UCA and, specifically, within the Synod of New South Wales. Those who were responsible for the school’s management, operation and administration, being the members of the School Council and the successive Headmasters, were also within the scope of the expression, “Insureds”, in the successive policies.
From about 2007, civil claims in respect of historical sexual and physical abuse were brought by numerous former Knox students or by the parents of former students. Though having no discernible part in the management, administration or operation of Knox, the UCPT responded to those claims, engaged in settlement negotiations, and resolved a number of them. It made substantial payments for those settlements and, consequently, sought indemnity from Allianz under the policies. Initially, Allianz accepted that its policies responded to the UCPT’s losses and, over time, it paid substantial sums by way of indemnification. Subsequently, it determined that, in the events which had occurred, the liability for claims arising from the sexual abuse of boys at Knox was not entitled to indemnity under its policies. It had concluded that, prior to the inception of the policies, the relevant insureds were aware of the facts or circumstances from which the claims arose with the consequence that they were beyond the policies’ cover. It further asserted that no notice of those facts or circumstances had been given during any policy period with the result being that s 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA) did not operate to extend cover to subsequently made claims. In particular, it contended that, on or about 1 May 2013, it discovered, for the first time, the extent of the prior awareness on the part of the relevant insureds of facts likely to give rise to the sexual abuse claims. It therefore declined all further requests for indemnity. It has not sought, and does not seek, to recover the amounts which it has previously paid though, on its case, it had no obligation to pay them.
Central to the appeal is one of two investigative reports prepared by Mr Grahame Wilson, a licensed private investigator with LKA Risk Services Pty Ltd, into the possible sexual abuse of boys at Knox by a teacher, Mr Adrian Nisbett. Mr Wilson had a long employment history in educational institutions, following which he had held a government position as the director of child protection investigation, where he led a team of investigators. He clearly had expertise in the area of investigating the sexual abuse of children.
On 7 May 2004, he provided a report (LKA2) to the then Headmaster of Knox, Mr John Weeks. It was detailed, extensive and addressed matters that had been raised following an initial investigation undertaken by him late in the previous year, also in respect of allegations made against Mr Nisbett. Following the receipt of the initial report (LKA1) from this first investigation, Mr Weeks became aware of additional allegations relating to Mr Nisbett’s conduct in and from 1986. As a result, Mr Wilson was engaged to investigate those additional allegations.
It will be necessary, in due course, to refer extensively to the content of LKA2 and what it would have revealed to a reasonable reader in Mr Weeks’ position at the time. It is accepted by the UCPT that it was read by Mr Weeks in full at the time it was received. At this stage, it is sufficient to observe that it contained references to alleged incidents of inappropriate behaviour of a sexual nature towards students at Knox by Mr Nisbett as well as by a number of other teachers. It also contains information about the extent to which a former Headmaster of Knox had been aware of allegations of that type of conduct.
In brief, Allianz contends that on receipt of LKA2, the relevant insureds under the policies became aware of the facts from which the claims subsequently made against the school by former students could reasonably be said to have arisen. It says that none of the insureds under the policies took the opportunity provided by s 40(3) of the ICA to give it notice of LKA2 or its content to Allianz, which would have extended cover under the relevant extant policy to the claims which were subsequently made. It further contends that the former students’ claims are not within the scope of later policies because those insureds were aware of facts or circumstances which may have given rise to those claims.
In the proceedings below, the UCPT sought orders that it was entitled to indemnity under several of the successive policies in respect of amounts which it has paid by way of settlement of claims, and declarations that it was covered under the later policies for claims by others who had been identified as potential claimants.
These claims were substantially upheld. The primary judge granted declarations to the effect that Allianz is required to indemnify the UCPT for the claims arising from sexual or physical assault by former teachers of Knox. Their breadth reflects the range of the primary judge’s findings as to the notification of claims by the UCPT.
Allianz now appeals the primary judge’s orders and declarations. In addition to opposing the appeal, the UCPT contends, by a notice of contention, that the reasoning of the primary judge should be upheld on several additional grounds.
A need for confidentiality
In order to maintain a degree of confidentiality for the victims of the sexual abuse, certain anonymising cyphers were used before the primary judge. Those who had made claims were identified by using the abbreviation “TPC” (third-party claimant), and those who had been identified as potential claimants were identified using the abbreviation “PTPC” (potential third-party claimant). Some of the staff members of Knox who were alleged to be perpetrators of the abuse were identified using the abbreviation “AP” (alleged perpetrator). The same terminology is adopted in these reasons, noting that in some respects the confidentiality orders relevant to the appeal are not as broad as those of the primary judge.
The evidence before the primary judge and on appeal
The trial was conducted by reference to agreed documents and a statement of agreed facts. No witness gave evidence at the hearing. The reason for that was not made clear on appeal, though as many of the factual issues occurred between 15 and 20 years ago, it may be that the relevant witnesses were no longer able to give evidence or were unable to recall the circumstances satisfactorily. As matters transpired, several important contestable facts arose, and their resolution can be achieved only by drawing inferences from the documents in the voluminous record. In this respect, there being no question of the credibility of witnesses, this Court is in the same position as the primary judge to assess the value of the documentary evidence and to draw inferences. Nevertheless, as these reasons disclose, the available documentary evidence is far from complete and, in some instances, attempts to draw inferences from the smattering of facts revealed by the tendered documents can descend into little more than impermissible guesswork. This is particularly true in relation to identifying the functions and relationships of the many different relevant entities, associations, and persons within the UCA.
A central issue in the appeal
As the appeal progressed over four days of hearing, one matter of prominence was the precise nature of the UCPT’s position as both the respondent to the claims brought by the former students and as the claimed insured under the policies. It has been the defendant in many of the proceedings brought by former pupils and, as mentioned, it has engaged in those actions, has negotiated the settlement of many, and has paid the amounts of the settlements. Given those facts, it might come as a surprise that the effect of its submissions was that it had no involvement whatsoever in the school’s management, operation or administration, that those who did were not its agents, and that their knowledge was not attributable to it. Ultimately, on that basis, there was no legally logical basis on which it was liable to the former students for the harm inflicted upon them. It would have owed them no relevant duty, either directly or indirectly, whilst they attended Knox. Conversely, those who were liable to the students were the members of the School Council at the relevant times, and perhaps the school’s Headmasters. More broadly, the liability might have extended to the members of the Synod, though that is far from certain. In any event, for the purposes of any claim or litigation, the UCPT was presented by the UCA as the entity which was presumptively liable in respect of the claims, and it acted as the relevant defendant in the several proceedings. Its use as a form of “nominal defendant” in this fashion was permitted under the UCA’s constitution, even though the question of whether that would bind third parties is debateable, to say the least.
There may well have been many practical reasons for UCPT’s acceptance of the role of the relevant defendant in any claim by a former student, not in the least being that it would prevent the individual members of the School Council and the Headmasters from being directly exposed to litigation, and that the UCPT had the financial capacity to meet any liabilities so incurred. It appears that, whilst it was still prepared to cover the claims, Allianz accepted these arrangements for the purposes of dealing with them as they were made. From its perspective, the UCPT, the School Council and its members, as well as the relevant Headmasters, were all insureds under the policies, such that the identity of the defendant in any litigation was inconsequential. But this convenient fiction for that purpose cannot fix the facts in ways they are not in order to use the fiction for a different purpose entirely, that is, to render the UCPT the covered party for a liability it did not have in order to determine the issue of the insured’s pre-inception knowledge of facts which might give rise to a claim.
The issue presently under consideration is Allianz’s obligation to indemnify in respect of the third parties’ claims and, specifically, whether that obligation is avoided by reason of the awareness, prior to the relevant policies’ inception, of the relevant insured entities of the facts or circumstances which gave rise to the claims. At this point, the use of the UCPT as the nominal defendant in respect of the liability of one or more other persons within the UCA, and as the putative insured, becomes rather more than problematic. In order to succeed, the UCPT must establish that it was the insured that was liable in respect of a claim to which the cover applied.
Ultimately, its position was effectively as follows. Although neither it nor its servants or agents had any involvement in the management, administration, and operation of Knox, by the UCA’s constitution, it was entitled to substitute itself as the relevant defendant in order to be sued by anyone affected by a maladministration at the school. It further says that it was similarly entitled to claim under the policies of insurance in respect of the liability of those who were responsible for any harm caused.
In that latter respect, however, it further asserted that, because neither it nor its privies were aware of facts or circumstances of that maladministration which might adversely impact the policy coverage in respect of these claims, its entitlement to indemnification is unaffected. Specifically, it says that its rights are untainted by the pre-inception knowledge of those who were involved in the school’s management, administration, and operation, and who were responsible for the liabilities which arose.
The effect of this is that, even if the members of the School Council and the Headmasters would be precluded, by reason of their prior knowledge, from obtaining indemnity in respect of their liability for the claims, the UCPT is entitled to indemnity in respect of that same liability if it assumed responsibility for it.
It is apt to observe that this articulation of the UCPT’s position does not reflect the form of its submissions, but it is an accurate characterisation of their substance and effect.
THE PRIMARY JUDGE’S REASONS
Overview
It is necessary to set out in some detail the substance of the primary judge’s reasons. In doing so it is relevant to note that the issues on appeal, whilst derived from those which were debated at first instance, were advanced with substantially different emphasis. Issues, which before the primary judge attracted relatively little attention by the parties, became the subject of greater focus on appeal. For instance, before this Court, substantial reliance was placed on the Headmaster of Knox’s receiving LKA2 on or about 7 May 2004, and its being tabled at a School Council meeting on 16 June 2004. Indeed, the Court was addressed at considerable length as to the contents of LKA2, which articulated the existence of paedophilic activity on the part of certain teachers at Knox over an extended period.
In the first paragraph of the primary judge’s reasons, the UCPT is identified as “the insured” in respect of claims relating to historical sex abuse at Knox. Of a fashion, that statement was not incorrect. However, as has been touched upon above, and as these reasons will demonstrate, its status as the insured for the indemnification in respect of these claims was artificial. Although being covered as an insured in respect of its liability under the 12 successive policies granted by Allianz, it was but one of the numerous legal entities and individuals within the scope of the UCA’s vast operations to whom cover was generally provided. Moreover, whilst under the UCA’s constitution, it was permitted to act as the defendant in litigation touching the Church or any agency of the Church. Absent the agreement between it and other parties, it had no legal liability for the sexual abuse of students at Knox.
During the appeal, the UCPT’s counsel asserted that it was its assumption of responsibility for the liability of other entities within the UCA which rendered it liable for the claims of Knox’s former students. Whilst the UCPT may have put itself forward to any potential claimants that it would stand as the proper defendant in any proceedings, that did not automatically mean that it was liable for the purposes of its own cover under the policies of insurance. On the contrary, if it had assumed responsibility for the liability of other entities within the UCA organisation, any claim it made on Allianz for indemnity would be in respect of the liability of those other entities and subject to the same limitations that affected the insureds who were, in fact, liable. That distinction was not adequately maintained before the primary judge, even though it is pivotal to the central issue in the appeal.
The substantive reasons of the primary judge
It is not necessary to address all the findings and considerations in the learned primary judge’s extensive and articulate reasons for judgment, as many are not relevant to the issues on appeal. Nevertheless, the inclusion of some brief consideration of them is appropriate.
In his exegesis setting out the background of the matter, including the structure of the UCA, his Honour addressed the nature of the UCPT. At [27], in relation to the several property trusts within the UCA, he observed that there was one in most states and territories. He said that:
27Importantly, the property trusts are the legal entities to sue, or be sued on behalf of, the Synods or any agency of the UCA, or in relation to trust property.
That conclusion is, with respect, correct so far as it goes, but it is not the complete picture since the UCA’s constitution does not alter the rights of third parties. In any case in which a third party suffered injury at the hands of any of the UCA’s agencies, they may commence proceedings against the entities or persons responsible for their loss. Such persons are not bound by the UCA’s constitution to sue the UCPT. In addition, a third party who is sued by the UCPT in respect of a claim vested in one of the Church’s other entities may validly assert that no claim is maintainable against them. They are also not bound by the terms of the agreements between the members of the Church.
In Section B.4 of his reasons, the primary judge assayed at length the investigations which occurred from 2003 consequent upon an allegation having been made against Mr Nisbett, who was then a long serving master at the school. As has been mentioned above, though the initial investigative report, LKA1, identified some questionable behaviour by him in relation to a student, it concluded that no relevant offence had been detected; but a further report (LKA2) was commissioned into his conduct. His Honour outlined the course of that second investigation, the delivery of the report, the further allegations made against other teachers at the school, and the subsequent arrest of a number of them. Over time, many were charged with multiple offences in relation to sexual abuse of students at the school.
In 2006, significant claims against Knox began to emerge, and his Honour identified the occasions on which subsequent notification of claims or potential claims were given by the UCA to Allianz. From that followed his consideration of the actions commenced against Knox and the manner in which they were handled by Ms Wendy Blacker of the legal firm, Gadens, which acted on behalf of both Allianz and the UCA in respect of those actions. Her role became significant to his Honour’s conclusions.
Although he concluded (at [152]) that on 7 March 2007, Gadens was retained on behalf of Allianz and the UCPT, it appears that it was initially instructed to act on behalf of Allianz and “The Uniting Church in Australia”. It was not until 19 June 2007 that the UCPT was identified in the evidence as being the relevant insured for the purposes of the claims. There is, however, no evidence as to why it was substituted as the recognised insured. On the material then available to the insurer, the identity of which of the group of insureds was appropriately covered was inconsequential.
His Honour then considered Allianz’s agreement to indemnify in respect of several claims by third parties, followed by its subsequent declinature which occurred at or around the time that the UCPT sought to provide further details of potential claims in relation to historic sex abuse of students at the school for the purposes of s 40(3) of the ICA (which, henceforth, will simply be referred to as “s 40(3)”).
His Honour then considered the factual and legal issues arising for determination. The first was the timing of any engagement of s 40(3) to the policies. The issue concerned the occasion on which the UCPT gave to Allianz notice of the issues arising from LKA2. Relevantly, his Honour concluded that the solicitor, Ms Blacker, was Allianz’s agent for receiving notification of facts which might give rise to claims, that she received LKA2 in April 2007, and that this constituted sufficient notice to Allianz of the report and of its contents for the purposes of s 40(3). At the very least, at around that time she gave advice to Allianz which made some, although not detailed, mention of LKA2.
His Honour also concluded that, despite the contents of LKA2, the facts in it did not become significant until the first complainant, TPC1, altered the substance of his allegations in 2006 to include a claim that he had been sexually abused by Mr Nisbett. From the correspondence passing between the parties in early 2007, his Honour (at [401]) found that the existence of LKA2 and its content about Mr Nisbett’s sexually assaulting multiple students was effectively notified to Allianz. He had earlier concluded (at [391]) that when TPC1 made a complaint of sexual assault by Mr Nisbett in December 2006, LKA2 took on a different hue, with the result that, despite Knox having received the report in June 2004, it became relevant only subsequently, so that it and its contents were notified to Allianz “as soon as reasonably practicable” after the insured became aware of it for the purposes of s 40(3).
In this analysis, it is noticeable that the primary judge appeared to be concerned (at [395] – [398]) with the knowledge of Mr John Oldmeadow who was the Executive Director of the Board of Education of the UCA NSW Synod at the time and acting in that capacity. However, it is not immediately apparent why Mr Oldmeadow’s knowledge was relevant to any particular issue. He was not identified as a person whose knowledge was attributable to any of the particular insureds for the purposes of the operation of the policies.
His Honour also referred (at [396]) to a Mr Scott Driscoll as a person who was from the UCPT, though the source of that conclusion is not stated. A submission to that effect appears in the UCPT’s submissions at trial, but evidence on that issue is absent. In the course of the appeal, Mr Driscoll was identified by Mr Williams SC, counsel for the UCPT, as a member of “Uniting Resources” which was a non-legal entity that was separate and distinct from the UCPT. The material also reveals that Mr Driscoll was, at some time, the insurance manager for the NSW Synod. Ultimately, however, there was no submission that his knowledge was relevant to any issue.
Otherwise, his Honour held that LKA2 was shown to Ms Blacker on 10 April 2007, for the purposes of allowing her to prepare an advice on liability and quantum in relation to TPC1’s claim. Her first letter of advice was sent in June 2007, though it was finalised only in November of that year. His Honour held (at [428]) that by that time, the events which followed the making of a formal claim by TPC1, “placed the historical information in the 2004 LKA Reports and Materials in a different light”, and that the information contained in it, in the context of the events which had happened, revealed the existence of a “problem” concerning Mr Nisbett’s conduct that was inherently likely to give rise to further claims. He concluded (at [430]) that this “problem” was notified to Allianz by Ms Blacker’s letters of advice in June and November 2007.
Though his finding that Ms Blacker was Allianz’s agent for receiving notification of facts for the purposes of s 40(3) was not challenged on appeal, there is some tension between it and the conclusions reached in relation to the notification issue. If Ms Blacker was the agent to receive notification of facts, the notification to Allianz of LKA2 must be when the facts were revealed to her, rather than when she subsequently notified them to Allianz.
In his reasons, his Honour held that a “concatenation of events” followed from TPC1’s formal claim of sexual assault and that coloured the substance of LKA2, though that appeared to have occurred by the time that LKA2 was inspected by Ms Blacker in April 2007.
On his Honour’s approach, no further unification of facts was necessary to activate the revelatory quality of LKA2 such that the “problem” identified in it was revealed in the 2007/2008 policy period, and all subsequent relevant claims involving Mr Nisbett would be indemnified under that policy. The consequence was that whatever relevant problems were revealed by LKA2, the notice of them given in June 2007 to Allianz was as soon as reasonably practicable, despite the report having been received by the school in 2004.
His Honour subsequently addressed (at [444]) the issue of certain “bulk notifications” which were made by the UCPT from about March 2009. They sought to give notice of the possibility of claims against the school in relation to a large number of former students. A submission had been made that they were ineffective because the “problem” of the allegations of sexual abuse by teachers at the school had been known to the insured since the receipt of LKA2 in 2004. That was rejected for a number of reasons, including those referred to above.
The first was that the foundation for making the bulk notification had not arisen until the circumstances had developed in which a number of the alleged perpetrators had been arrested, and media reports of those events and the possible crimes committed had occurred. It was held (at [455]) that the notifications concerned “allegations of historical sexual abuse against multiple former students by multiple former teachers of [Knox]”, which “were of a character which, objectively understood, might give rise to claims for psychiatric injury and/or physical injury arising from physical assault, sexual assault, trespass to person, breach of fiduciary duty and negligence”; and that those matters, apparently, were not matters that the earlier known facts had revealed. His Honour also accepted (at [456]) the UCPT’s submission that, in the circumstances, the description of the likely claimants was sufficiently clear for the purposes of a notice under s 40(3), and the relevant class of potential claimants was described by reference to their characteristic of being former students of Knox. It was also held (at [459]) that the UCPT was not aware of the “problem” until the end of 2006, because the relevant facts had not come to the attention of Mr Oldmeadow until about that time or shortly afterwards. That interpretation of his Honour’s reasoning is reached by a consideration of his Honour’s reference (at [459]) to the reasons earlier set out at [391] to [401]. However, again, there was no evidence of why Mr Oldmeadow’s knowledge was attributable to the UCPT.
The second reason for upholding the validity of the bulk notifications was that the content of LKA2 when received in 2004 gave rise to only a “bare possibility” of a claim because, as at that time, no substantive complaint had been made. His Honour held that by itself, LKA2 did not reveal facts which might give rise to a claim.
These conclusions were important in the context of the appeal and give rise to two questions:
(a)First, was the relevant insured aware of LKA2 and its contents in 2004?
(b)Secondly, did LKA2 by itself disclose the existence of a “problem” of the sexual abuse of multiple boys at Knox by a number of teachers?
As will be seen, Allianz’s contention on the appeal is that both questions should have been answered in the affirmative.
In the result, his Honour held (at [464]) that for the purposes of s 40(3) in March 2009, the purported bulk notifications were efficacious to extend the operation of the policy, during the currency of which the notifications were made, to cover subsequent claims which arose from the facts and circumstances notified.
He then considered (at [456] – [489]) further notifications which were subsequently made in relation to a number of other teachers from the school, and a subsequent bulk notification on 31 March 2010. These become relevant in relation to the ascribing of any claims to particular policies on the assumption that it remained open to the UCPT to give notice of relevant facts in order to obtain the benefit of the extension of cover provided by s 40(3).
From [558] onwards, his Honour addressed the issue of the disputed operation of, inter alia, exclusion clause 7 of the policies which excluded cover in respect of known prior circumstances (Exclusion 7). In the first instance, he held that the operation of Exclusion 7 was not affected by either s 33 or s 52 of the ICA. He then addressed the question of whether the UCPT had relevant knowledge of matters or occurrences which might give rise to a claim.
At [600] of his reasons, he noted that Allianz had submitted that the UCPT claimed as the insured in relation to the liabilities arising from the claims made against the school by former pupils. It relied on the facts that the UCPT was the owner of all of the property including the ABN for the school, held the business name of “Knox Grammar School”, had accepted responsibility for the liability of the wrongs committed by the teachers at the school and had satisfied all claims and potential claims against Knox, and had given discovery of the school’s documents. In this context, his Honour set out part of the submissions made by Mr Potts SC on behalf of Allianz on this issue. They are referred to later in these reasons, but it is noted that specific reference was made to the UCPT’s suing Allianz “for indemnity for liabilities incurred by Knox Grammar School in operating as a school”. As it is concluded on this appeal, that was an accurate description of the UCPT’s claim as against Allianz.
On this issue, his Honour observed (at [601]) that the difficulty with Allianz’s submission was that the policy was a composite one which provides cover to multiple insureds who do not carry on their own business “including, among others, ‘voluntary workers’, ‘committee members’, ‘counsellors’”. He added the following at [604]:
604In any event, as noted earlier in these reasons (at [35]), cl 4.9.1 of the Assembly Regulations provides that the UCPT is the proper defendant in any action against the UCA or its institutions. It would be within the UCPT’s own business to meet claims that it was directed to meet by the Synod in respect of any litigated matter involving the UCA or its various institutions. I am unable to see how any rule of attribution could justify, on that basis and in the context of relations with its insurer, the knowledge or awareness of representatives of KGS being imputed to the UCPT.
For the reasons which appear later, these conclusions should not be accepted. However, it should be immediately observed that the submissions made to his Honour on this issue were neither as refined nor developed as they were when made on the appeal. That is said without criticism of counsel: it is merely the natural consequence of the process of distillation which occurs through the trial process and the primary judge’s analysis and consideration. It is necessary only to observe that, as in the present circumstances, when one insured (A) interposes itself to assume responsibility for another insured’s (B’s) liability to a third party, and then seeks indemnity under the policy which covers them both, to the extent to which that is even possible, A must necessarily also assume or ensure the performance of B’s obligations and liabilities to both the third-party claimant and the insurer. It is inconceivable that A could successfully deny liability to the third party on the basis that it owed no duty to them, and it would be equally incongruous for it to claim that its right to indemnity, if any, was not subject to B’s obligations vis-à-vis the insurer.
The matter progressed before the primary judge with a focus on whether the UCPT had actual or constructive notice of the facts which might have given rise to a claim, rather than whether it was necessarily fixed with the knowledge of the insured (liable at the time to the claimant) in whose stead it sought indemnification. Nevertheless, the primary judge rejected a submission that the UCPT had admitted that the knowledge of Knox was attributable to it. That submission had relied upon the UCPT’s statements in the defences which it had filed in several actions commenced by former pupils, wherein it had admitted that it owed “a duty of care to the students attending [Knox], including the plaintiff, to take reasonable care to protect the students against foreseeable risk of injury while the students, including the plaintiff, were on [Knox]’s premises during the hours when [Knox] was open for attendance”. Allianz also submitted that the UCPT had admitted in paragraph 5(c) of a relevant defence that the Knox Headmaster “was responsible for implementing policy and the day to day management of the first defendant”. Other alleged admissions were to the effect that the UCPT was vicariously liable for the acts and omissions of the Headmaster of Knox and the staff in the course of their employment. A paragraph in the UCPT’s defence to the claim brought by TPC12 had stated:
For the purpose of this Defence only, insofar as there is any finding of liability on the part of the School as a result of the School’s acts or omissions, or the acts or omissions of others that the School is found vicariously liable for, the first defendant admits that such liability rests with the first defendant.
The primary judge (at [609] – [610]) rejected the above as constituting admissions by the UCPT as to the truth of the statements on the ground that they were made in a pleading and that they were issues of law. There is difficulty with that conclusion as is discussed below. For present purposes it needs to be observed only that the UCPT’s statements in its defences as to its responsibility for the conduct of the school, the Headmaster or others, were fundamental to its assumption of their liability for the third-party claims and to its claims for indemnity under the policies. Indeed, it is improbable that it might attract the liability for other entities in the UCA organisation by admitting its responsibility for their liability in respect of their breaches of duties owed to the third parties, but then deny such connections or responsibilities when seeking indemnification from the insurer for that liability.
His Honour also rejected (at [611] – [664]) the submission that the evidence revealed that the UCPT received LKA2 much earlier than 2007 and, perhaps as early as June 2004. This necessitated a factual inquiry into the events which had occurred over an extended period of time. The substance of Allianz’s submissions was that, given the gravity of the contents of LKA2 and the rigorous reporting procedures which the UCA had in place, including the occurrence of regular “insurance sweeps”, as well as the history at the school where the need for reporting of sexual abuse was emphasised, it could be inferred that the school’s Headmaster would have notified the relevant persons in the UCA of LKA2. The identity of the relevant recipient of information for the purposes of dealings with the insurer, was unclear. It may have been Mr Steve Piening, the UCA’s Insurance Manager, or the General Secretary of the Synod, whomever that may have been. This was ultimately rejected on the basis that, in 2009, Mr Dwane Feehely who was a member of the Property and Finance Board (also called “Uniting Resources”) and who had replaced Mr Piening, indicated that he had not then seen a copy of LKA2 and that one should be obtained. His Honour also relied on Mr Oldmeadow’s assertion that he had not, as at that time, seen the report. His Honour concluded that only Ms Blacker had seen it in 2007, and that Mr Oldmeadow and others from the UCA had not seen it until sometime later in 2009.
In relation to the question of the possible attribution to the UCPT of the knowledge held by the entities in the UCA agencies, his Honour observed the following at [667]:
667From both a functional and structural perspective, having regard to that overview, it is tolerably clear that Uniting Resources was (and remains) the entity within the UCA with immediate responsibility for the obtaining of insurance on behalf of the UCA. The Uniting Resources Board is ultimately accountable to, and subject to the oversight of, the Synod: see UCA Constitution, cl 32. The general secretary of the Synod acts, in substance, as the chief executive officer of the Synod and each of the executive directors of the Boards is accountable to the general secretary: see Synod by-laws, cl N3.24.3. The Synod, in turn, is accountable only to the Assembly: UCA Constitution, cll 31, 32 and 38. None of the UCA, Assembly, the Synod, KGS or the KGS council is a legal entity having a separate legal personality.
It is relevant that, like the others referred to in that paragraph, Uniting Resources is also not a legal entity. It was merely a board of members which had designated responsibilities, though the identities of its constituent members from time-to-time were unclear. Further, it did not seem to be any part of either parties’ case that the knowledge of Uniting Resources was operatively relevant to the UCPT’s rights and obligations under the policy.
At [669] to [670], his Honour found that the description of the insured, as it appeared in the quotation slips and underwriting submissions, as well as the structure of the UCA and the relationship between the various insureds, was well known to Allianz when it accepted the risk on terms which included Condition 1 (a clause concerning the notification of claims). That structure reflected a delineation between the UCA and the UCPT on the one hand, and Knox on the other, which was reflected in the way in which Allianz, the UCA, the UCPT and Knox conducted themselves during the relevant period.
From this, it is apparent that his Honour considered that Knox and the UCPT were separate entities and, as his Honour stated (at [671]), there was nothing in the constituent instruments by which the entities were administered that deemed the knowledge or awareness of one to be that of another. It followed, so his Honour found (at [672]), that there was no relevant attribution of knowledge and no relationship of principal and agent operating such that the knowledge of persons at Knox could be the knowledge of the UCPT. From that conclusion, it might be thought that it was the UCPT’s knowledge that was relevant to the operation of s 40(3) or Exclusion 7 in relation to the claims for indemnity. If that were so, however, it is unfortunate that the identity of the guiding mind and will of the UCPT was not revealed. In a case which, on one view, turns on the knowledge of the UCPT at particular times, it is more than unusual that there was no evidence of the individuals whose knowledge was that of the UCPT, or could be attributed to it. That seemed to be a consequence of the manner in which the matter was argued before the primary judge.
In Section G of his reasons, his Honour considered the issues of estoppel, waiver, election and utmost good faith, though they were rendered moot by his earlier conclusions. In relation to these, he addressed the issues which arose from the then recent decision in Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 277 CLR 445 (Allianz v Delor Vue), which had considered each of those doctrines. He concluded (at [688] – [691]) that the effect of that decision was that the relevant matter to be addressed in the case before him was estoppel, and that an essential requirement for the successful invocation of an estoppel was the identification of relevant detriment. However, in the circumstances, his Honour determined (at [692]) not to make any findings on that issue.
Finally, his Honour indicated that he would make declarations in accordance with his reasons after the parties had an opportunity to make further submissions.
The primary judge’s orders
Subsequently, on 12 April 2023, his Honour made declarations to the effect that the UCPT was entitled to indemnity in respect of certain claims or potential claims under certain specified policies.
The first set of declarations related to notification of the claim made by PTPC1, concerning the sexual abuse of him and other boys in the 1970s. They are not the subject of any appeal and the possibility of that claim being made was held to have been notified during the 1999/2000 policy.
The second group of declarations related to the claims made by TPC1 against Mr Nisbett. His Honour declared that notice in relation to that claim was given during the 2003/2004 policy and that Allianz was liable to indemnify the UCPT in respect of TPC1’s claim.
In relation to claims by other students who alleged sexual abuse by Mr Nisbett, it was declared that notice was given for the purposes of s 40(3) during the 2007/2008 policy which was as soon as reasonably practicable after the UCPT became aware of them, and, as a consequence, Allianz was required to indemnify in respect of those claims, being ones made by TPC2, TPC7, TPC8, TPC9, TPC10, TPC12, TPC14, TPC20, TPC23, TPC27, TPC32, TPC34, TPC35, TPC36, TPC41, TPC45, TPC48, TPC50, TPC51 and TPC53.
His Honour also declared that the notification by the UCPT in 2007 covered any future claim against it by any former student in respect of loss suffered by reason of sexual misconduct of Mr Nisbett. It was further declared that Allianz was required to indemnify it in relation to any such claim made.
The declarations made in paragraphs 9 to 12 of his Honour’s orders were in respect of claims against the UCPT made by persons who were the victims of sexual abuse by two teachers, Mr Craig Treloar and Mr Barrie Stewart. The specifically identified claimants were TPC4, TPC5, TPC6, TPC11, TPC13, TPC15, TPC16, TPC17, TPC18, TPC19, TPC21, TPC24, TPC25, TPC26, TPC28, TPC30, TPC37, TPC38, TPC39, TPC40, TPC43, TPC44, TPC47, TPC49 and TPC52. The declarations included as yet unmade claims by others who were abused by those teachers. Allianz was found to have been notified of such claims during the 2008/2009 policy periods by correspondence and bulk notifications and was liable to indemnify in respect of all such claims.
The declarations made in paragraphs 13 to 16 deal similarly with claims arising from the conduct of Mr Damien Vance, Mr Roger James, Mr Bruce Barratt and other alleged perpetrators, of which there were 15 in total.
The primary judge made further declarations as to the efficacy of certain bulk notifications made by the UCPT. He also made certain negative declarations to the effect that Allianz was not entitled to decline to indemnify the UCPT in reliance on, inter alia, Exclusion 7 or the contents of LKA1 or LKA2.
THE GROUNDS OF APPEAL AND RELEVANT ISSUES
Six grounds appear in the notice of appeal. The first is to the effect that the primary judge erred in failing to conclude that LKA2 contained facts and circumstances likely to give rise to a claim, and from which the claims for which indemnity was sought arose.
The second is that his Honour erred in failing to find that the UCPT became aware of LKA2 only by on or about 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 Knox 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.
A consequential ground is that his Honour failed 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.
The fourth ground asserts that the primary judge erred in failing to find that the UCPT’s claims were excluded from cover under the policies by reason of Exclusion 7.
The fifth ground cavils with the finding that in June and November 2007, Ms Blacker gave notice to Allianz on behalf of the UCPT of facts for the purposes of s 40(3) in respect of all claims involving Mr Nisbett.
The final ground, which is in the alternative to grounds one to five, is that the primary judge erred in finding that the UCPT gave notice of facts and circumstances for the purpose of s 40(3) in the policy periods which he did, and that he should have found that notice was given in different policy periods.
The essential point of these grounds is that the UCPT became aware of LKA2 in 2004, with the dual consequence that it was unable to rely upon s 40(3) in 2007 or thereafter as any notification of it was too late and that any claims made in subsequent policy periods were beyond the scope of the relevant policy as a consequence of the insured’s prior knowledge.
Some of those grounds overlap to a not insignificant degree and the myriad matters which they raise can be divided into nine issues, which can broadly be summarised as follows:
(1)What were the facts revealed by LKA2 and, to the extent that they were ones which might give rise to a claim or claims for the purpose of s 40(3), what was the extent of those claims?
(2)Can the knowledge of Mr Weeks, as the then Headmaster of Knox, or of some other person or persons, of the facts revealed by LKA2, be attributed to the UCPT for the purposes of s 40(3)?
(3)Did the primary judge err in failing to find, for the purposes of s 40(3), that the UCPT was aware of the contents of LKA2 in or around 2006 or 2007?
(4)Does Allianz’s conduct, in both its dealings with the UCPT and the manner in which the trial occurred, preclude it from advancing the case which it seeks to make on appeal?
(5)Having regard to the answers to issues 1 to 4, does LKA2 limit the scope of the UCPT’s right to indemnity under s 40(3)?
(6)Should the primary judge have found that the information in LKA2 and the associated materials recorded a claim, fact, circumstance or occurrence that may give rise to a claim for the purposes of Exclusion 7(c)?
(7) If the answer to issue 6 is yes, is Exclusion 7(c) void for inconsistency with the ICA?
(8)Does s 54 of the ICA apply so as to excuse a failure to comply with the requirement in s 40(3) to notify the insurer as soon as practicable after the insured becomes aware of facts that might give rise to a claim?
(9)Finally, if by reason of the answers to the above issues the primary judge was in error, do any of the principles of estoppel, utmost good faith, waiver or election mean that Allianz cannot rely upon any failure to notify matters in LKA2?
Even this taxonomy of issues does not prevent some considerable overlap between them. That is particularly so in relation to the separate operations of s 40(3) and Exclusion 7 of the policies. The issues surrounding those matters turn upon the content of LKA2 and what it revealed. In the case of s 40(3), if LKA2 revealed a fact or facts which might give rise to a claim or claims against the insured, and notice of that fact or those facts were not given to Allianz during the policy period in which the insured became aware of them, the cover will not be extended to accommodate any subsequent resulting claims.
Similarly, subclause (c) of Exclusion 7 excludes cover in respect of any claim which arises from any claim, fact, circumstance or occurrence of which the insured was aware, prior to the relevant policy’s inception, which might give rise to a claim. Therefore, if the claims of former students arose from the claims, facts, circumstances or occurrences in LKA2 and the insured knew of such matters in the 2004/2005 year, cover in respect of them will be excluded under subsequent policies.
Much turns on what was revealed by LKA2. In that respect, the UCPT conceded that it had been read from cover to cover by Knox’s former Headmaster, Mr Weeks, when it was received, although that is a natural assumption in any event. The consequence of his becoming aware of its contents and particularly whether his knowledge can be attributed to that of the UCPT is discussed below.
THE POLICY TERMS
Before turning to a consideration of the grounds of appeal it is appropriate to set out the relevant policy terms.
Although the issues in this appeal are relatively generic across the 12-year period of insurance (being from 31 March 1999 to 31 March 2011), it is relevant that the policy wording differed from time to time.
The policies in each relevant year were entitled, “Malpractice Liability Insurance”, “Professional Indemnity Insurance”, or some variation of that. Generally, the insured was defined as, specifically, “The Uniting Church in Australia including:-” and, thereafter, reference was made to the several property trusts for the respective States or Territories, as well as other associations such as the Uniting Church Council of Mission Trust Association, the United Theological College, and the Uniting Church in Australia, National Assembly. On other occasions the additional insureds were initially identified as “The Uniting Church in Australia, Synods of” and reference was then made to the several states and to the Northern Territory.
In some policies there followed a general description of other entities within the scope of the word “Insureds”. On one occasion the reference read as follows:
… and including all those entities listed in the directories of The Uniting Church in Australia; Synod of Victoria and Tasmania, The Synod of New South Wales and the ACT, and the Northern Synod, and all other entities under the Uniting Church's effective management control or for which the Uniting Church is responsible and all their subsidiary and related corporations as defined in the Corporations Act 2001 (including those acquired during the Period of Insurance) for their respective rights and interests …
In the “Annexure A Endorsements” to the policies, cover was extended to the entities and persons who act in the performance of their duties in the businesses or activities of the Church. Though the wording of this part of the definition differed across the years, it was often in broad terms such as “constituent, related and affiliated bodies, institutions, associations or entities, now or hereafter formed by or on behalf of the Insured” as well as “educational services facilities or activities”. The extension of cover to non-legal entities is indicative of an intention to ensure cover for all persons and groups within the UCA.
Despite the differences as between the policies with respect to their descriptions of the insureds, they were all broad and sought to include the numerous entities, associations and persons across Australia which were within the umbrella of the UCA.
Each of the policies was composite and the word “Insured” was to be construed as applying to each party comprising “the Insured”, and in the same manner as if that party were the only party named as the insured. In that respect, after the extensions of the identified “Insureds” the following wording appeared:
PROVIDED THAT in relation to the foregoing
1. Such person(s) shall comply with and be subject to the Terms, Conditions, Exceptions, Provisions and Memoranda of this Policy insofar as they can apply.
2. Where the “Insured” is comprised of more than one party the words “the Insured” shall be considered as applying to each party comprising the Insured in the same manner as if that party were the only party named herein as the Insured.
3. Nothing contained in this definition or Provisos 1 or 2 shall operate to increase the Company’s Limit of Liability.
(Emphasis in original).
There is no reason to think that, by reason of the above clause, Exclusion 7(c) would not apply individually to each of the insureds in relation to the cover afforded to them or, similarly, that s 40(3) would not apply to them to the extent to which relevant information was given to Allianz in relation to circumstances of which they became aware during a policy period. That is the natural effect of the severance clause which treats each insured as a separate insured.
The insuring clause in the 2005/2006 policy provided:
Allianz Australia Insurance Limited (A.C.N 000 122 850) (hereinafter called the Company) hereby agrees, subject to payment of the premium specified in the Schedule and subject to the terms of this policy, to indemnify the Insured up to the Limit of Indemnity against all sums which the Insured shall become legally liable to pay as a result of any claim or claims first made against the Insured during the Period of Insurance and notified to the Company during the period for breach of professional duty arising out of any negligence whether by way of act, error or omission on the part of the Insured, in the conduct of the Insured’s Profession as specified in the Schedule.
(Emphasis added)
Similarly, although the precise terms of the insuring clause differed slightly from year to year, those variations made no relevant difference for the purposes of the issues on appeal.
It is undoubted that the insuring clause promises indemnity with respect to each insured in respect of their personal liability “for breach of professional duty arising out of any negligence whether by act, error or omission on the part of the Insured …”. On the analysis discussed previously, subject to any feature to the contrary, this would prima facie indemnify each of the members of the School Council and the Headmasters in relation to any claims by former students founded on that insured’s breach of professional duty by that insured party. It would not, however, cover the UCPT in relation to claims on another insured such as these, based upon such a breach by another insured, for the promise is expressly limited to cover the liability of the particular insured for a breach “on the part of the Insured”.
The claims notification requirements of the policies over the years were usually contained in Condition 1, and though there were significant variations in relation to them, it is unfortunate that the parties tended to treat them as being somewhat generic. Helpfully, the learned primary judge set out the variations of this clause in his reasons for judgment at [59] – [62].
He noted that, for the 1999/2000, 2000/2001 and 2001/2002 policy periods, Condition 1 was in the following terms:
Upon the making of a claim against the Insured, or the making of any allegation or the discovery of any circumstance which indicates the possibility of a claim arising, the Insured shall notify the Company in writing immediately and shall provide to the company whatever information relating to the claim or possible claim is in the Insured’s possession.
If during the Period of Insurance the Insured becomes aware of any circumstance which may subsequently give rise to a claim against the Insured and during the Period of Insurance gives written notice to the Company of such circumstance, any claim which may subsequently be made against the Insured arising out of that circumstance shall be deemed for the purposes of this policy to have been made during the Period of Insurance.
For the purpose of this condition only, “the Insured” shall mean “the General Secretary of the Synod”.
In the 2002/2003 and 2003/2004 policy periods, the clause was slightly modified and read:
Upon the making of a claim against the Insured, or the making of any allegation or the discovery of any circumstance which indicates the possibility of a claim arising, the Insured shall notify the Company in writing immediately and shall provide to the Company whatever information relating to the claim or possible claim is in the Insured’s possession.
For the purpose of this condition only, “the Insured” shall mean “the General Secretary of the Synod”.
Conversely, in the 2004/2005 policy period, the clause was in the following terms:
Upon the making of a Claim against the Insured, the Insured shall notify the Company in writing as soon as practicable after the Claim is made and shall provide to the Company whatever information relating to the Claim that is in the Insured’s possession.
For the purposes of this clause only, “the Insured” shall mean “the General Secretary of the Synod”.
The clause was again modified in the following year, being the 2005/2006 policy period, where it read:
Upon the making of a claim against the Insured, the Insured shall notify the Company in writing as soon as practicable after the Claim is made but during the period of insurance and shall provide to the Company whatever information relating to the Claim that is in the Insured’s possession.
For the purposes of this clause only, “the Insured” shall mean “the General Secretary of the Synod”.
(Emphasis in original).
It was submitted that Condition 1 assisted the UCPT’s submission that the only knowledge relevant to the operation of s 40(3) and Exclusion 7(c) was that of the General Secretary of the Synod. That should be rejected and, indeed, it is evident on closer consideration that the opposite is true.
The several iterations of Condition 1 are inherently ambiguous. If read literally, they would apply only where claims were made against, or the possibility of a claim arose against, the General Secretary. On no view would that have been intended. This is an example of the poor drafting of insurance policies that has attracted courts’ criticism from time to time. It is a basic feature of a “claims made and notified” trigger of cover, associated with an extension as to possible claims, and as such, it has to be inclusive of all insureds. It is not reasonably possible to draw any implication from it that may be relevant to this matter.
Condition 1 might be understood to mean that, whenever a claim is made or is considered possible against any of the entities covered by the policy, it is the General Secretary of the relevant Synod who is to give Allianz notice of it. Such a provision has the advantage of the notification of claims being funnelled through the one point of contact within the particular Synod, which avoids difficulties which might arise if every insured possibly involved were to notify. This may also have been to the administrative benefit of Allianz. So much is not unexpected in the context of a composite policy which provides cover for an exceptionally large single organisation composed of a diffuse group of multiple insureds.
To the extent to which the clauses refer to the giving of notification of potential claims by the General Secretary in the 1999/2000 to the 2003/2004 policy periods, they confer an obvious benefit on Allianz in relation to any extension of the policy coverage under s 40(3). By limiting it to one person or office, the scope for any disputation as to whether notice had been given would be substantially diminished. There is no need to consider whether that limitation is unenforceable or ineffective by reason of its possible inconsistency with the broad wording of s 40(3).
Importantly, the clauses have nothing to say about the knowledge of the insureds under the policy or its attribution.
Despite the submissions to the contrary, until the end of the 2003/2004 policy period, they had two functions. First, they made provision for the notification of claims which were made against any of the insureds under the policy in accordance with the trigger of cover and, secondly, they made provision for the giving of notice of any potential claims as similarly provided by s 40(3). That duality was abandoned in the 2004/2005 policy, when its only function was the former. The effect of s 40(3) made the contractual extension redundant. If anything, the change in the wording of Condition 1 suggests that the parties intended the subsequent policies to operate differently, with the obligation for the notification of facts which might give rise to a claim falling on each insured or, at least, not necessarily funnelled through the General Secretary.
These clauses do not suggest any intention to negate the specific statement in the proviso to the definition of “the Insured”, that all of the insureds were subject to the terms, conditions and memorandum of the policy. That would include Exclusion 7, which read (subject to variations in particular years):
This Policy does not cover any Claim for any liability for or arising directly or indirectly from:
…
7. Prior Claims & Circumstances
any Claim, fact, circumstance or occurrence;
a. in respect of which notice has been given to the Company or any other insurer under a previous insurance policy, or
b. disclosed or communicated to the Company in the proposal or declaration or otherwise before the commencement of the Period of Insurance, or
c. of which the Insured is aware before the commencement of the Period of Insurance, which may give rise to a claim.
This exclusion is independent of and shall not affect the Company’s other rights regarding misrepresentation and non-disclosure;
This clause, and particularly subclause (c), applies to each insured and limits the scope of the coverage to which they are separately entitled under the policy. Whatever may have been the protocol for notification to the insurer of potential claims or facts which might give rise to a claim, that could not extend each insured’s cover.
ISSUE 1 – FACTS REVEALED BY LKA2
Whether a fact known by an insured has the characteristic that it is one that may give rise to a claim is necessarily determined by a consideration of it in its context. This approach was relied upon by the primary judge and after its application to the facts before him, the substance of his conclusions was that LKA2, by itself, was benign in that the facts revealed were not of a nature that might give rise to a claim. Rather, he found it was only being the subsequent making of claims against Knox by former students and the arrest of some teachers for child sexual abuse, that LKA2 acquired a different “hue”. His Honour found that this lately acquired complexion revealed the existence of a problem at the school of the sexual abuse of students by Mr Nisbett.
Allianz submits that no such metamorphosis of the facts contained in LKA2 was required and that, as the facts appeared in the report, they were sufficient to objectively indicate the possibility that claims might be made against one or more of the insureds under the policies of insurance by a former student or students in relation to the sexual abuse which they had suffered.
The context in which LKA2 was commissioned
The import of LKA2 and what it revealed needs to be assessed in the context of the production and presentation to the Headmaster of Knox of the initial report, being LKA1.
Its commissioning arose following a complaint made against Mr Nisbett by the mother of a former student, TPC1, on 20 November 2003 to Knox’s then Headmaster. The boy’s mother alleged that, on the last day of his attendance at Knox, Mr Nisbett had taken him to his own house for dinner and had offered him alcohol, cigarettes, and a hug. The boy, who had been in a distressed or vulnerable state at that time as the result of his parents’ separation, had returned home after the encounter with Mr Nisbett, and was somewhat traumatised by the experience.
The Headmaster had made a very detailed note of his conversation with the child’s mother, and immediately made contact with the Association of Independent Schools. Following that he commissioned an external investigation through LKA Risk Services Pty Ltd, of which Mr Wilson was its principal. At around this time, Mr Wilson had advised the Headmaster to contact the State Ombudsman and the Commission for Children and Young People about the complaint, which he did.
For the purposes of this initial investigation, Mr Wilson was able to interview only Mr Nisbett who made certain admissions about his encounter with TPC1. The report, LKA1, was delivered on 4 December 2003. In it, Mr Wilson found that Mr Nisbett’s conduct in relation to TPC1 constituted unprofessional behaviour requiring disciplinary action, but did not constitute child abuse.
There is a sufficiently clear inference that the Headmaster’s purpose in obtaining the report was to ascertain whether TPC1 had been sexually abused by Mr Nisbett and that was, naturally enough, also the concern of LKA1. So much is confirmed by the inclusion in the report of a section of a document from the New South Wales Ombudsman entitled, “Child Protection: Responding to Allegations of Child Abuse Against Employees”. It identified what was then, and still is, regarded as the three stages of grooming, namely:
(1)Building trust – spending special time with the child, giving gifts, showing special favours, allowing the child to over step rules etc.
(2)Testing of boundaries – undressing in front of the child, allowing the child to sit on the lap, talking about sex, accidental touching of genitals etc.
(3)Engaging in sexual activity – this activity generally increases in severity over time.
The conduct in each stage is regarded as “grooming” where it involves a pattern of behaviour, though obviously it increases in severity through the stages.
Certainly, the material surrounding the commissioning of LKA1, and the report itself demonstrated a heightened awareness by Knox’s Headmaster of the possibility that some sexual abuse of students might have occurred.
Despite LKA1’s conclusion, the Headmaster caused it to be delivered to the UCA’s “manager, risk insurance group”, Mr Piening, who forwarded it to the UCA’s insurance broker, Marsh Insurance Brokers (Marsh), which, in turn, reported it to Allianz. Subsequently, Marsh sent two memos to Allianz about the matter and, ultimately, they were regarded by the primary judge as sufficient notification under s 40(3) that a claim may be made by TPC1. Such a claim was subsequently made by TPC1, who commenced proceedings in 2006 alleging that Mr Nisbett had sexually assaulted him on that occasion in 2003.
Pausing here, LKA1 had been commissioned by reason of the school’s concern that the sexual abuse of a boy might have occurred. Importantly, its receipt prompted its notification to the school’s insurer and it was accepted by the primary judge as revealing facts which might give rise to a claim for damages as a result of the occasioning of sexual abuse. Whilst that finding is not challenged, it puts into perspective the much more revealing subsequent report which was found not to have disclosed any fact from which a claim might be made.
In early 2004, a new Headmaster of Knox was appointed, being Mr Weeks, who, being aware of LKA1 and after being informed by senior staff of allegations or rumours of the sexual abuse of boys by Mr Nisbett dating back to the 1980s, instructed Mr Wilson to undertake a further investigation regarding all such matters.
From the commencement of that investigation, Mr Wilson identified that the potential victims of abuse went well beyond TPC1. He also received information indicating that there was a risk that inappropriate sexual behaviour towards boys by a number of other teachers had been occurring over many years. It was not surprising that, as between the school (Mr Piening) and its insurance broker (Mr Dennis), the risk of litigation in relation to that abuse was a topic of discussion at this time.
In the course of this second investigation, Mr Wilson’s attention was specifically drawn to the activities of certain other teachers, including Mr Vance, Mr Christopher Fotis and Mr Treloar. Although the investigation was not directed at those other teachers, information about them emerged incidentally. Nonetheless, on 30 March 2004, Mr Wilson sought the staff files of Mr Vance and Mr Fotis, and later sought copies of the files of Mr Treloar.
The investigation into Mr Nisbett’s conduct was undertaken over a period of months and, on this occasion, numerous people were interviewed including former headmasters, former and current teachers, staff at Knox and former students.
Mr Wilson produced his second report, LKA2, on 7 May 2004 and provided it to Mr Weeks that same day.
The content of LKA2
LKA2 and its associated material constituted a physically and informationally substantial document. A copy was provided to the Court in the course of the appeal. It is contained in two lever arch files of paper with printing on each side. The text of Mr Wilson’s written report is 19 pages, and much of the remainder of the documents were obtained in the course of the investigation. Importantly, they include transcripts of interviews with many people and numerous other documents.
The text of the report
In his report Mr Wilson notes that, at the time of his initial investigation for the purposes of LKA1, he had not been made aware of the allegations concerning Mr Nisbett’s conduct dating back to around 1986, which might have constituted grooming. He also records that he had ascertained that an investigation concerning Mr Nisbett’s conduct had been carried out in 1986 by a staff member at the school (who, for these proceedings, was given the cypher PTPC39) and, on a report’s being made to the then Headmaster, Mr Nisbett was removed from his position as a boarding house master. For reasons which are not known, he was subsequently reinstated, albeit in charge of a different house.
The report then summarises the evidence sourced from the several witnesses, which included the following:
(a)Allegations made by three other students from the 1990s to a former school administrator about inappropriate conduct by Mr Nisbett.
(b)The person referred to as PTPC39, was of no doubt that there was a pattern of his questionable behaviour towards several students, which would be characterised as grooming. He had not, however, received any allegations of sexual activity.
(c)A former teacher at the school had knowledge of rumours from numerous students over a number of years of dubious practices of a sexual nature by Mr Nisbett, but he was not aware of any actual evidence to support them. Although he had heard these rumours regularly, he took no action because no boy came to him directly.
(d)Another former teacher was aware of an incident involving Mr Nisbett in 1986 in a photography darkroom at the school when a boy was allegedly sexually assaulted, as well as general rumours about his conduct over a number of years.
(e)One former boarding house master recalled an incident when Mr Nisbett had touched the belt of a boy which had made the boy uncomfortable.
(f)A former student, who presented as a creditable witness, gave evidence of inappropriate touching by Mr Nisbett when they were in the photographic darkroom of the school.
As has been explained, in the peculiar instance where the liability of the insured is as a nominal defendant, the facts that might give rise to a claim against that insured are the facts that might give rise to a claim against the substantive defendant.
Having regard to the language used ('facts that might give rise to a claim') and the purpose of the provision, where the insured is covered for liability as a nominal defendant (as is the case with UCPT) it is awareness of the insured of the facts that might give rise to a claim against the substantive defendant that is relevant.
Issue (3): If no to (2), did the primary judge err in failing to find, for the purposes of applying s 40(3), that UCPT was aware of the contents of LKA2?
As we have determined Issue (2) in the affirmative, Issue (3) does not arise. However, we will deal briefly with the alternative raised by Issue (3). It is a challenge to factual findings by the primary judge as to what may be concluded concerning the actual awareness of UCPT.
As to the knowledge of officers of UCPT, Allianz contended, in the alternative, that it should be inferred that the officers of the Synod of the Uniting Church in New South Wales were aware of LKA2 before it was provided to the Ombudsman as part of the statutory reporting process that was undertaken by Knox. It was alleged that UCPT was 'thereby' informed of LKA2 by 30 January 2006 at the latest and the primary judge was in error in not so finding.
The case advanced by Allianz before the primary judge was that UCPT had received LKA2: PJ[611]. The primary judge did not accept that claim. The case for Allianz on appeal was that it should be inferred that LKA2 was provided to senior officers within the Synod and thereby to UCPT. It put the same matters that were relied upon before the primary judge.
We are not persuaded that the reasoning of the primary judge as to when senior officers within the Uniting Church came to be aware of LKA2 was in error. Those findings were to the effect that as at 2009, those officers had not seen LKA2: PJ[657]. There is the further problem that Allianz does not demonstrate how any such knowledge would be knowledge of UCPT. It says that it is hampered in that regard by the extent of its knowledge of the internal operations of the Uniting Church. However, it was able to press for disclosure as to such matters if they were considered important. It allowed the course whereby the proceedings before the primary judge were conducted on the documents. It could have required such matters to be addressed by evidence from witnesses who could have been cross-examined.
Issue (4): Before the primary judge, was the case for Allianz pleaded and conducted in a way that foreclosed the case that it seeks to advance on appeal concerning the significance of the contents of LKA2?
As Derrington J has explained, UCPT complained that the approach that Allianz was taking was inconsistent with its approach during the currency of the policies. It sought to attribute the change of position of Allianz to its commercial unhappiness with the fact that UCPT did not continue to insure with Allianz. We agree with Derrington J, for the reasons his Honour gives, that these submissions were relevant, if at all, solely to questions of estoppel, waiver and good faith.
As to the claim by UCPT that the case as now advanced was not put to the primary judge, the position is that the case as now presented was advanced in the written closing submissions before the primary judge, bearing in mind that the case proceeded on documents without any oral evidence. Allianz provided a comparison between its submissions before the primary judge and those advanced on appeal and they demonstrate that, in substance, the points now made were made before his Honour.
Further, there appears to have been some concern raised before the primary judge as to whether that aspect of the case went beyond particulars provided by Allianz. In that regard the primary judge made clear that he was not willing to have that aspect determined on the basis of a procedural point. His Honour made clear that UCPT would be allowed to reopen and to make further oral submissions if they considered that course to be necessary in order to deal with those submissions. UCPT did not do so and filed very detailed written submissions.
As to the contents of LKA2, the primary judge indicated to the parties that he proposed to read the whole of those materials given their significance and he was given a folder in hard copy for that purpose. A hard copy in the same form was provided to each member of the Court on appeal.
In those circumstances, the case advanced by Allianz on appeal as to the significance of the contents of LKA2 was not foreclosed.
Issue (5): Having regard to the answers to (1) to (4), should the primary judge have found that UCPT could not rely upon the benefit of s 40(3) to the extent of all or some (and if so, which) of the claims found to have been notified in policy years after 31 March 2004?
As we have explained, the contents of LKA2 were such that a notification of its terms would have covered all of the claims notified in subsequent policy years. Therefore, any notification of facts that might give rise to claims that was given in subsequent policy years would not have been made as soon as reasonably practicable after there was awareness of those facts for the purposes of the statutory extension provision in s 40(3). It follows that as to all such claims there could be no statutory extension to include those claims in subsequent policy years.
Put another way, an insured who is aware of relevant facts that might give rise to a claim before entering into a claims made or claims made and notified policy of insurance, cannot then notify those facts during the term of a successive policy and obtain the benefit of the statutory extension under the successive policy. So much was accepted by senior counsel for UCPT in the course of oral submissions on the appeal.
Accordingly, as it was the statutory extension that was the fulcrum of the claim advanced by UCPT before the primary judge, subject to the resolution of Issue (6), Allianz must succeed in its appeal.
Issue (6): Does s 54 of the Insurance Contracts Act apply to a failure to notify as soon as reasonably practicable after the insured becomes aware of facts that might give rise to a claim?
We agree with Derrington J that s 54 of the Insurance Contracts Act does not apply to a failure to notify such that it may be called in aid in some way to give rise to the statutory extension provided for by s 40(3) in those instances where the insured has failed to notify as soon as reasonably practicable after becoming aware of facts that might give rise to a claim.
Issue (7): Should the primary judge have found that LKA2 recorded a fact, circumstance or occurrence that may give rise to a claim for the purposes of Exclusion 7c?
In the successive claims made policies entered into between the Uniting Church and Allianz for insurance cover from and after 31 March 2005 there was an exclusion (Exclusion 7c) for 'any Claim, fact, circumstance or occurrence … of which the Insured is aware before the commencement of the Period of Insurance, which may give rise to a claim'.
For UCPT it was emphasised that construing the terms of s 40(3) was not the same as construing Exclusion 7c. Further, in construing the exclusion in the policy, it was necessary to have regard to its character as an exclusion.
Substantially for reasons given by Derrington J, awareness of the contents of LKA2 was awareness of a fact, circumstance or occurrence for the purposes of Exclusion 7c. Therefore, on the terms of the successive policies, notifications made during the policy period for any of those policies were for coverage that was excluded unless Issue (8) is determined favourably to UCPT. We would reach that conclusion even if the standard of awareness for the purposes of Exclusion 7c was said to be higher than for s 40(3) by reason of the use of the word 'may' instead of 'might' when describing the degree of likelihood required.
Issue (8)(a): If yes to (7), is the operation of Exclusion 7c limited by the terms of s 33 of the Insurance Contracts Act to instances specified in s 28 on the basis that it specifies the extent of the insurer's right in respect of breach of the duty of disclosure imposed by s 21?
Broadly speaking, s 21(1) of the Insurance Contracts Act provides that, subject to the Act, an insured has a duty to disclose to the insurer before the relevant contract of insurance is entered into every matter that is known to the insured that is relevant to acceptance by the insurer of the risk. Further, before a contract of insurance is entered into, the insurer must inform the insured of the general nature and effect of the duty of disclosure: s 22(1). These provisions are concerned with what the parties must do before entering into a contract of insurance.
Section 28 provides:
(1)This section applies if a relevant failure occurs in relation to a contract of general insurance, but does not apply if the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the failure had not occurred.
(2)If the relevant failure was fraudulent, the insurer may avoid the contract.
(3)If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the relevant failure had not occurred.
A failure by the insured to comply with the duty of disclosure is a 'relevant failure': s 27AA.
It may be observed that s 28 is concerned with qualifying the right of an insurer who has entered into a contract of general insurance to 'avoid the contract'. Its terms must be construed having regard to s 33 (which is in the same Division as s 28). It has been quoted but we repeat it here for ease of reference. It provides:
The provisions of this Division are exclusive of any right that the insurer has otherwise than under this Act in respect of a failure by the insured to disclose a matter to the insurer before the contract was entered into and in respect of a misrepresentation or incorrect statement.
Therefore, the effect of s 28 read with s 33 when applied to a non-fraudulent breach by the insured of the duty of disclosure is that the only remedy that the insurer has is that provided for by s 28(3). It adjusts the extent of the insurer's liability by accounting for any actual prejudice to the insurer arising out of the non-disclosure.
In the context of a fraudulent failure to disclose past claims history, in Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606, the statutory scheme was described in the following terms at 615 (Mason CJ, Dawson, Toohey and Gaudron JJ):
The evident intention of the legislature is to replace the antecedent common law regulating non-disclosure, misrepresentations and incorrect statements by insured persons before entry into a contract with the provisions of Pt IV. To that extent Pt IV is a statutory code which replaces the common law. Accordingly, the circumstances in which it is legitimate to resort to the antecedent common law for the purpose of interpreting the statute are extremely limited …
However, Exclusion 7c is not, in terms, concerned with the duty of disclosure, misrepresentation or incorrect statements. It is concerned with whether the cover will extend to cover risks known to the Insured at the time the policy is arranged.
As the reasoning of Derrington J explains, there is a relevant conceptual distinction between a policy term that deals with the duty of disclosure and a policy term that defines the extent of the cover to be afforded to the insured. Significantly, s 21, s 22 and s 28 assume that the risk that is to be assumed by the insurer under the policy (that is the extent of proposed cover) is known. The extent of the disclosure obligation is determined by what is relevant to a decision by the insurer whether to provide insurance cover for the risk. Therefore, those provisions are drafted on the basis that they engage with a proposed policy of insurance in which the extent of cover is described.
As is further explained by Derrington J, by long established practice (in existence at the time of enactment of the Insurance Contracts Act) policies of insurance have defined the extent of cover by a general description of risk with specified exceptions. Accordingly, it may be expected that a policy of insurance would define the covered risk in that way and the statutory provisions should be considered in the context of that well established aspect of insurance practice.
A description of cover as excluding instances where there had been a breach of the duty of disclosure would not be a description of an exception. It would not define a type of risk that the insured was willing to cover. It would, instead, seek to confer a right to limit that cover if the insured had failed to disclose those matters that were required to be disclosed by the duty of disclosure. It would impose a condition the operation of which depended upon the extent of disclosure. Put another way, the extent of cover would be dependent upon the extent of disclosure. A provision of that kind would result in a form of circularity when it came to the application of the provisions in the Insurance Contracts Act dealing with the duty of disclosure. In our view, it would be caught by s 33 because it would confer a right upon the insurer 'otherwise than under [the] Act in respect of a failure by the insured to disclose a matter to the insurer before the contract was entered into'. The Act contemplates that performance of the duty of disclosure is to be adjudged by reference to the risk being assumed. If the risk being assumed is defined by reference to whether the duty of disclosure has been performed then the regime by which the rights of an insured for failure to perform that duty are specified in the Act would be frustrated. Accordingly, specification of risk in that way is to be disregarded for the purposes of applying those provisions.
However, the contentious exclusion in the present case is not of that character. Exclusion 7c removes from cover claims, facts, circumstances or occurrences that are known to the Insured. An exclusion of that kind does not depend upon whether there has been performance of the duty of disclosure. It is an exclusion that operates whether or not there is disclosure prior to entry into the contract of insurance of the matters of which the Insured is aware. As Derrington J has explained, it is a form of provision that is a true exclusion because its terms are consistent with the nature of insurance. Policies of insurance provide cover for risks, not for fortuities that are known or risks that are already manifest. The exclusion of risks of that kind is consistent with delimiting the extent of cover rather than conferring a right upon the insurer in the event of a breach of the duty of non-disclosure.
Otherwise, we agree with the reasoning of Derrington J to the effect that s 33 does not affect the operation of Exclusion 7c.
The position contended for by UCPT has been found to be arguable: Macquarie Underwriting Pty Ltd v Permanent Custodians Limited [2007] FCAFC 60. So much must be accepted. However, the point now falls to be determined. For reasons that have been given, the contentions advanced for UCPT should not be accepted.
Issue (8)(b): If yes to (7), is Exclusion 7c void for inconsistency with the Insurance Contracts Act by operation of s 52?
By separate contention, UCPT relies upon s 52(1). It provides:
Where a provision of a contract of insurance (including a provision that is not set out in the contract but is incorporated in the contract by another provision of the contract) purports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act, the provision is void.
It is appropriate to focus upon that aspect of the statutory provision which makes void a provision in a contract of insurance which has 'the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act' (emphasis added).
The case for UCPT was that Exclusion 7c had the effect of excluding, restricting or modifying the operation of the provisions of the Act in relation to non-disclosure and did so to the prejudice of UCPT. It claims that its failure to disclose LKA2 prior to entry into successive policies would have been regulated by the provisions of the Act in relation to breach of the duty of disclosure if Exclusion 7c had not been included.
An effect of Exclusion 7c is that it confines the coverage under the policy to an extent that is dependent upon the awareness of the Insured before the commencement of cover of facts, circumstances or occurrences that may give rise to a claim. If that exclusion were not in the policy then a failure by UCPT to disclose those facts before entering into the policy would engage s 28. If that were so, in order to be able to deny all liability to UCPT, Allianz would need to demonstrate that it would not have insured if it had known about the fact that by reason of the contents of LKA2 and the circumstances in which it was prepared, UCPT was aware of facts that may give rise to the breadth of claims that were subsequently notified. In that regard, as has been explained by Derrington J, UCPT sought to make much of the fact that Allianz did not proceed with a defence based upon alleged non-disclosure.
In our view, it is significant for present purposes that the Insurance Contracts Act requires cover to be extended in the manner provided for by s 40(3). In consequence every claims made policy in Australia covers facts that might give rise to a claim if they are notified during the policy period. Therefore, at least to that extent, the legislature has required insurers to extend cover to which they had not agreed. They are also unable to avoid the policy even where there has been non-fraudulent non-disclosure in relation to a contract of general insurance. Instead, insurers must provide the extent of cover to which they would have agreed had they known. These are significant and intended inroads into the extent to which an insurer can define by the policy terms the extent of cover.
Further, in order to prevent the effect of these (and other provisions) being undermined by carefully drafted policy provisions, the Act has a 'contracting out' prohibition that extends to provisions in a contract of insurance that have the effect of excluding, restricting or modifying the operation of those provisions.
If an insurer is able to include a provision which, in substance, makes any failure to disclose a fact that might give rise to a claim of which the insured is aware at the time of entry into the policy a matter that means there is no cover under the policy for such claims then that will exclude or restrict the operation of the disclosure provisions. It will mean that conduct which would otherwise be a failure to perform the duty of disclosure will instead become a matter that results in exclusion from cover. Whilst the two matters are conceptually distinct for the purpose of insurance arrangements it does not mean that, for the purposes of s 52, a provision expressed as an exclusion from cover is outside the scope of provisions to which s 52 applies because they have the requisite effect.
In our view, it is significant that Exclusion 7c operates by reference to a very broad description of any 'fact, circumstance or occurrence … of which the Insured is aware before the commencement of the Period of Insurance, which may give rise to claim' (emphasis added). It is addressing the state of knowledge of the Insured before entering into the policy as to a very wide range of matters that would otherwise be matters that would be the subject of the duty of disclosure.
Further, the effect of Exclusion 7c is that the duty of disclosure does not apply to those matters, because they become matters that are not covered. There is no need to disclose matters which do not bear upon the risk that is to be insured. However, the essential nature of the risks that are covered by the policy are the same. That is to say, it will still cover the kinds of fortuities that are described in terms that do not resort to the state of knowledge of the insured as to whether there are facts of which it is aware that may give rise to them.
In effect, Exclusion 7c transforms what is a matter for disclosure (what the insured knows that bears upon the decision by the insured whether to accept the risks to be insured) into a general exclusion from cover in all instances. Its effect is to substantially exclude the application of the duty of disclosure provisions to the policy. For those reasons, Exclusion 7c is void by operation of s 52.
Of course, if there is disclosure of facts that might give rise to a claim, as there would need to be, then the insurer may decide to expressly exclude the disclosed matter. To do so would be to include a provision that was consistent with the provisions of the Act in relation to the duty of disclosure. If there was a failure to disclose and the insurer would have declined cover then there will be no liability on the part of the insurer to pay.
As Derrington J has exposed, this outcome is a balancing of the interests of the insurer and insured that favours the insured. It requires an insurer in such cases to establish that it would not have extended cover or the extent to which it would have excluded cover if it had known of the non-disclosed matters at the time of entry into the policy. But, in our respectful view, that is not a reason to reject UCPT's contentions as to s 52. That is because it is to do no more than identify the consequence of implementing a policy objective that is manifest in the non-disclosure provisions. The contracting out provision in s 52 is designed to ensure that measures are not taken to avoid that intended operation of the Act.
For those reasons, had we determined that the requirements of s 40(3) had been met such that the relevant policies were engaged then, applying s 52 of the Insurance Contracts Act, we would not have concluded that Exclusion 7c applied to exclude that coverage.
As has been mentioned, Allianz does not raise any issue as to the claims made during the term of the policies for which it has agreed to provide indemnity. For that reason, the issue is whether, by operation of s 40(3), the notification of facts that might give rise to a claim during the period of the policies means that the coverage extends to claims brought after UCPT replaced its insurance cover. For reasons that have been given, s 40(3) does not apply because notification did not occur as soon as was reasonably practicable.
Issue (9): If by reason of the answers to the above issues the primary judge was in error as to any of the findings as to notifications, do principles of estoppel, waiver or utmost good faith mean that Allianz cannot rely upon any failure to notify matters in LKA2?
Given the conclusion that we have reached as to Exclusion 7c, Issue (9) only arises insofar as it was advanced by UCPT as a basis for a claim that Allianz is prevented from contending that the notifications were ineffective for the purposes of s 40(3) of the Insurance Contracts Act. However, if we are wrong in the conclusion we have reached about the application of s 52 to Exclusion 7c, then there is also an issue as to whether Allianz is prevented from relying upon the exclusion.
In either case, substantially for the reasons given by Derrington J, we agree that Issue (9) must be decided in the negative with one qualification. In part, his Honour's reasoning proceeds on the basis that UCPT's states of mind were unlikely to be relevant. We have taken a different view to Derrington J as to that aspect. However, making due allowance for that difference between us, his Honour's reasoning explains cogently why, on either of our approaches, Allianz has not demonstrated any basis upon which its alternative claims based upon principles of estoppel, waiver or utmost good faith must succeed.
We would add that the course adopted by UCPT of seeking to advance its appeal by seeking to incorporate large parts of very long written submissions before the primary judge is one that should not be adopted without leave of the appeal court to do so. On an appeal the parties must formulate submissions that address the issues on appeal. Closing submissions at trial are formulated for a judge who has had the conduct of all issues and is expected to address all of them. Appeal judges do not repeat that process.
In the present case, the primary judge did not address in any detail the claims advanced by UCPT as to estoppel, waiver and good faith. UCPT invited this Court to deal with those claims, in effect, unaided in any significant way. If procedural directions were required in order to enable that to be done then they should have been sought. The difficulties that arise have been traversed by Derrington J. In the circumstances, the case as advanced can only be addressed in the terms in which it was explained in the course of the appeal. It is not for this Court on appeal to go back and try and extract from the very substantial materials before the primary judge some further understanding of how the case was articulated.
Issue (10): If the primary judge was in error as to the finding that claims by current or former students arising from sexual misconduct by Mr Nisbett were notified as soon as reasonably practicable in the policy year to 31 March 2008, should the primary judge have found that such claims were notified during the policy year to 31 March 2007?
UCPT contended that if the primary judge had been in error in finding that LKA2 disclosed no more than the bare possibility of a claim and should have found that LKA2 did contain facts that might give rise to claims of sexual misconduct, then those facts were limited to claims by two of the claimants identified as TPC2 and PTPC3.
For reasons that have been given, the matters disclosed by LKA2 were not so confined. Therefore, Issue (10) must be determined in the negative.
Issue (11): If there is coverage for UCPT for the 'problem' then save for individual claims for which Allianz raises no issue on the appeal, is that coverage only under the policy for the year ended 31 March 2009?
Given the conclusions we have reached as to other issues, Issue (11) does not arise. However, we will deal with it briefly. To do so, it is necessary to assume (contrary to the reasoning already expressed) that the facts of which a reasonable reader would become aware from reading LKA2 at the time it was provided to Mr Weeks of Knox and in the context in which it was obtained were not facts that might give rise to a claim. On that assumption, failure to notify them to the insurer in the policy year ending 31 March 2005 would not be a failure to notify as soon as practicable. Nor would those matters fall within Exclusion 7c. Consequently, coverage could arise under later policies when further factual matters became known to Knox.
Further, for the purposes of the appeal grounds advanced by Allianz which give rise to Issue (11), Allianz does not challenge the findings of fact as to what was known by UCPT. It challenges the legal characterisation of the conclusions that should be reached based on those findings.
On the unchallenged findings of the primary judge, Ms Blacker (acting for UCPT, Knox and Allianz) attended Knox in the course of the 2007-2008 policy year and inspected LKA2. Ms Blacker was found to be the means by which the contents of LKA2 were notified to Allianz at that time. So, by 31 March 2008, there was no issue that insured and insurer were aware of the contents of LKA2.
Therefore, as the primary judge recognised, the contents of LKA2 would be part of the store of knowledge that Mr Weeks and the school council members would possess when considering the significance of any further facts of which they became aware.
The primary judge was of the view that subsequent facts came to the attention of relevant officers over time such that the field of possible claims expanded over time. We have explained the course of that reasoning earlier in these reasons.
His Honour drew a distinction between the 2008-2009 policy period and later policy periods on the basis that the awareness of the extent of the problem increased over that period: PJ[461]‑[538]. In particular, his Honour viewed the problem in the 2008-2009 year as being 'largely confined' to three teachers who were arrested in February 2009: PJ[466]. One of those teachers was Mr Nisbett. The primary judge found that claims based upon conduct by Mr Nisbett had been notified under earlier policies and that aspect does not appear to be in dispute. That is to say, Allianz raises no issue as to those claims in the appeal. However, there were two others who were arrested, Mr Treloar and Mr Stewart. Media reports at the time referred to the police having called for more alleged victims and their families to come forward as they investigated expanding allegations of paedophilia at Knox. As to those developments, the primary judge found (at [461]):
No longer were the allegations purely historical in nature and distilled in a confidential report. The arrests and the media reporting of their subject matter gave an immediacy to the historical complaints contained in the LKA Reports and Materials. To the extent necessary, I accept the UCPT's submission that only at that point did it become a 'problem' that might give rise to claims, which the UCPT notified Allianz of as soon as was reasonably practicable within the meaning of s 40(3).
His Honour then reasoned that it was important 'not to approach the consideration of these matters ahistorically or with hindsight bias': at PJ[463]. His Honour continued:
The mere fact that a complainant did not come forward at a time when attitudes towards the institutional abuse of children were somewhat different is explicable. From an institutional perspective, this shift in attitudes might also explain changes in the suggested remedial response taken by schools when faced with allegations that certain teachers or staff sexually abused students. Seen in this light, it is not difficult to imagine the response to the contents of the LKA Reports and Materials being very different today, compared to the years 2003-2004. The objective question of characterisation that the terms of s 40(3) pose necessitates a consideration of such context.
Respectfully, we do not agree. As we have explained, by 2003-2004 Knox was subject to express statutory obligations concerning allegations of sexual abuse of students in their care. Concerns as to the seriousness of the historical allegations as to conduct by Mr Nisbett were what prompted Mr Weeks to engage Mr Wilson. The materials in evidence disclosed that schools were informed of the nature of grooming behaviour and its insidious nature. No doubt public awareness of the consequences for those who had been abused and growing evidence of the extent of the problem within institutions gave rise, over time, to increased public pressure for a national response. However, that is not to say that in 2003-2004 a person reading LKA2 would not have understood that it was pointing to a problem that involved more than three teachers and a few students.
Ultimately, the finding by the primary judge as to the extent of awareness and notification in the 2008-2009 policy year was as follows (at [464]):
For these reasons, the first and second bulk notifications were effective for the purposes of s 40(3) as notifications of facts that might give rise to claims against the UCPT by those claimants who were expressly identified in the letters and who later advanced claims against the UCPT for loss arising from sexual or physical assault by former teachers of KGS; and by any other claimants sharing the particular characteristics identified in the letters, namely, former students of KGS who suffered loss arising from sexual or physical assault by Treloar or Stewart.
Respectfully, the arrest of three teachers would have caused any reasonable person with responsibility for the affairs of the school, who was also aware of the contents of LKA2 to conclude that there was a distinct possibility that the 'problem' extended beyond those three teachers. Indeed, the 'bulk notifications' to which the primary judge referred in the above passage were not couched in language that confined their terms in the manner expressed by his Honour. They were much more broadly expressed. Before his Honour a contention had been advanced that they lacked the requisite specificity as to facts to constitute notification for the purposes of s 40(3) (an unattractive submission rejected by the primary judge and not pressed on appeal).
Having regard to aspects of LKA2 to which reference has already been made in these reasons when considered in the context of the dramatic events that unfolded in early 2009, it is difficult to see why increasing public awareness might be a reason why a person in the position of Mr Weeks and the school council members with their particular responsibilities and statutory reporting obligations would reach the view that the problem might be confined to conduct by the three teachers who, by that point in time had been arrested. That is especially so in a context where the police investigations were ongoing and requests had been made for the school to provide information concerning more than 70 named persons (referred to in the bulk notifications).
As to the following policy year, the primary judge reached the following conclusion as to facts properly notified for the purposes of that year (at PJ[500]):
It follows that the third bulk notification was effective as constituting a notification of facts that might give rise to claims against the UCPT by those claimants who were expressly identified in the list of names and who later advanced claims against the UCPT for loss arising from sexual or physical assault by former teachers of KGS; and by any other claimants sharing the particular characteristics of those persons identified in the list of names, namely, former students of KGS, who suffered loss arising from sexual or physical assault by former teachers of KGS. Allianz was on notice of facts which disclosed a problem which might give rise to claims against the UCPT in respect of any former students who were the victims of sexual or physical abuse perpetrated by any other AP (including Vance, James and Barratt).
That is to say, his Honour accepted that there had been a general form of notification. For reasons that have been given, on the assumptions made for the purposes of Issue (11), the notifications in the 2008-2009 policy year covered all such claims. Therefore, again on the assumptions, there was a statutory extension under s 40(3) of the Insurance Contracts Act to cover those claims as well as those found by the primary judge to have been notified in the 2008-2009 years.
Accordingly, making the assumptions to which we have referred, were it necessary to have decided Issue (11), we would have determined that Issue in the affirmative.
Conclusion and relief
It follows that we agree with Derrington J that the appeal should be upheld. The orders of the learned primary judge should be set aside to the extent sought. Allianz is entitled to the costs of the appeal. As to the costs of the hearing before the primary judge we would provide an opportunity for UCPT to make any submissions in writing as to why it should not be ordered to pay Allianz's costs of those proceedings. If no submissions are filed there should be an order to that effect. If submissions are filed, Allianz should have an opportunity to respond and that issue should be determined on the papers.
I certify that the preceding two hundred and eighty-eight (288) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Colvin and McEvoy. Associate:
Dated: 7 February 2025
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