Stealth Enterprises Pty Ltd t/as The Gentlemen's Club v Calliden Insurance Limited

The appeal in *Stealth Enterprises Pty Ltd t/as The Gentlemen's Club v Calliden Insurance Limited* concerned a dispute over an insurance claim for property damage resulting from a fire. The appellant, Stealth Enterprises, sought to recover under a renewed property and liability insurance policy issued by the respondent, Calliden Insurance. The premises were used as a brothel, and at the time of renewal, the appellant's sole director and manager were members of the Comancheros bikie gang. This association was not disclosed to the insurer. Additionally, the registration of the brothel under the *Prostitution Act 1992* (ACT) had lapsed due to a failure to lodge an annual notice, a fact the appellant may or may not have been aware of.

The primary legal issues before the court were whether the appellant had breached its duty of disclosure under section 21(1)(b) of the *Insurance Contracts Act 1984* (Cth) by failing to disclose the association of its director and manager with the Comancheros bikie gang, and whether the lapsed brothel registration was a material fact that should have been disclosed. Crucially, the court had to determine, pursuant to section 28(3) of the *Insurance Contracts Act*, whether the insurer would not have been on risk at the time of the fire had full disclosure been made.

The court reasoned that a reasonable person in the appellant's position would have known that the association of its director and manager with a bikie gang was relevant to the insurer's decision to underwrite the risk. This association was considered a material fact that ought to have been disclosed. Furthermore, the court found that the lapsed registration of the brothel was also a material fact that should have been disclosed. Applying section 28(3) of the *Insurance Contracts Act*, the court concluded that had the insurer been aware of these undisclosed facts, it would not have been on risk at the time of the fire.

Consequently, the appeal was allowed, and the previous judgment for the respondent was set aside. The court ordered judgment for the appellant against the respondent in the sum of $500,000, along with costs of the proceedings at first instance and the appeal. The parties were directed to confer on the amount of interest payable, with provision for written submissions if agreement could not be reached.