Moltoni Corp v QBD Insurance

Moltoni Corporation Pty Ltd (Moltoni) and QBE Insurance (Australia) Ltd (QBE) were the parties involved in this appeal to the High Court of Australia. The dispute concerned the interpretation of a professional indemnity insurance policy and whether QBE was liable to indemnify Moltoni for a settlement sum paid to a third party, Mr. Anthony John Davies. Moltoni had sought indemnity from QBE following a claim brought against it by Mr. Davies, which Moltoni had settled without QBE's consent. QBE denied liability, asserting that Moltoni had breached a condition of the policy by settling the claim without its prior written approval.

The central legal issue before the High Court was whether Moltoni's settlement with Mr. Davies, entered into without QBE's prior written consent, vitiated QBE's obligation to indemnify Moltoni under the professional indemnity policy. This required the Court to consider the proper construction of the policy wording, particularly the clause requiring consent to settlement, and its effect on the insurer's liability. The Court also had to determine whether the settlement, if found to be a breach, was so fundamental as to relieve QBE of its indemnity obligations entirely.

The High Court, by majority, held that the clause requiring the insured to obtain the insurer's consent before settling a claim did not operate as a condition precedent to the insurer's liability to indemnify. Instead, the Court reasoned that the clause was a condition subsequent, meaning that a breach by the insured would only relieve the insurer of its liability if the insurer could demonstrate that the breach had caused it prejudice. In this instance, QBE had failed to establish any prejudice arising from Moltoni's settlement with Mr. Davies. Consequently, the Court found that QBE remained liable to indemnify Moltoni for the settlement sum. The appeal was allowed.