FAI General Insurance v Aust Hospital Care

FAI General Insurance Co Ltd (FAI) and Aust Hospital Care Pty Ltd (AHC) were parties to litigation concerning a dispute over indemnity. The case was heard by the High Court of Australia.

The central legal issue before the High Court was whether AHC was entitled to indemnity from FAI under a professional indemnity insurance policy for certain retrospective claims made against AHC. This involved determining the proper construction of the policy wording, particularly in relation to the definition of "claim" and the application of a "prior notice" exclusion clause.

The High Court considered the principles of contractual interpretation, emphasising that the meaning of the policy should be determined by reference to the ordinary meaning of the words used, read in their context and against the background of the factual matrix. The Court analysed the timing of the "claim" for the purposes of the policy, distinguishing between the notification of a potential problem and the formal assertion of a legal right or demand for compensation. The Court found that the policy required a formal claim to be made, not merely an awareness of a potential claim or a notification of circumstances that might give rise to a claim. The Court also examined the "prior notice" exclusion, concluding that it applied where FAI had previously been notified of circumstances that were substantially the same as those giving rise to the later claim, even if the specific claimant was different.

The High Court allowed the appeal, finding that AHC was not entitled to indemnity from FAI for the retrospective claims in question.