Zurich Australian Insurance Limited v CIMIC Group Limited

In Zurich Australian Insurance Limited v CIMIC Group Limited, the New South Wales Court of Appeal considered appeals and cross-appeals concerning a dispute over Directors and Officers (D&O) liability insurance policies. The central issue involved whether Leighton (now CIMIC Group Limited) had breached its duty of disclosure under the *Insurance Contracts Act 1984* (Cth) by failing to disclose an internal file note detailing concerns about payments to a nominated subcontractor in Iraq when seeking D&O insurance for the 2011 financial year. The insurers argued that this non-disclosure entitled them to reduce their liability to nil.

The Court was required to determine several key legal questions. Firstly, whether the "Iraq File Note," which recorded a senior executive's concerns about the true value of work performed under a contract and the nature of payments to a nominated subcontractor, constituted a material non-disclosure or misrepresentation to the insurers for the 2011 policies, thereby engaging section 21 of the *Insurance Contracts Act 1984*. Secondly, the Court had to consider whether, assuming a breach of disclosure, the insurers were entitled to reduce their liability to nil under section 28(3) of the Act. Thirdly, the Court examined whether specific clauses within the D&O policies, namely clauses 5.3 and 7.1, precluded the insurers from relying on section 28 of the Act, and whether clause 5.3(ii) operated to limit the liability under the 2011 policies by reference to the limits of previous years' policies. Finally, the Court addressed issues of equitable contribution between insurers and the procedural fairness of the primary judge's conduct.

The Court of Appeal allowed some appeals and dismissed others, setting aside previous orders. It found that while there was a breach of the duty of disclosure, the insurers were not entitled to reduce their liability to nil under section 28(3) of the *Insurance Contracts Act 1984*. The Court also determined that certain policy clauses did not preclude the insurers from reducing their liability, but that the limit of liability under the 2011 policies was not to be reduced by amounts paid under previous policies. The Court dismissed CIMIC's further amended summons and AIG's cross-claim against Berkley, with directions given for consent orders regarding costs or written submissions on contested costs.