Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

Who is not an insured for disclosure purposes? Section 48(1) of the ICA provides that a third-party beneficiary under a contract of general insurance has a right to recover from the insurer any loss suffered, even though that third party is not a party to the insurance contract.

Further, section 48(2)(a) provides that, subject to the contract, a third-party beneficiary has, in relation to their claim, the same obligations as a third party would have if it were the insured.

In CE Health Casualty & General Insurance Ltd v Grey, it was, however, held by Clarke JA (to which Meagher JA agreed):

‘What is clear from [s 21 and 28 of the ICA] is that the obligation to disclose, and not to make misrepresentations, is cast upon a person intending to enter into a contract of insurance and the consequences of non-compliance are visited only upon persons who actually enter into such a contract. What is of greater importance is the fact that there is no obligation to disclose, or not misrepresent, before a contract is entered into, imposed upon a person entitled to recover the amount of a loss pursuant to s 48(1) …’ 487

Accordingly, a third-party beneficiary under section 48 is not required to comply with the disclosure obligations in section 21 of the ICA.

When will a ‘matter’ be ‘known’ to an insured? An understanding of section 21(1) requires an understanding of what will constitute a ‘ matter ’ and when a matter will be ‘ known ’ to an insured. In that regard, a ‘matter’ is generally a fact, 488 although in some cases it may be an opinion held by the insured. In that regard, it was held in Prepaid Services Pty Ltd v Atradius Credit Insurance NV that: ‘The fact that an opinion is held is something that may be known and an insurer may be influenced in its decision to accept a risk, or as to the terms on which it will do so, by the fact that an opinion is held … Whether an opinion is relevant to the insurer’s decision to accept the risk or as to the terms on which it will do so, will depend, among other things, upon the subject matter of the opinion, the identity of the person holding it, the facts or premises upon which it is based and whether those facts or premises are true or believed by the insurer to be true.’ 489 In Permanent Trustee Australia Ltd v FAI General Insurance Company (in liq), 490 it was held that ‘the word “knows” is a strong word. It means considerably more than “believes” or “suspects” or even “strongly suspects”’. 491

487 (1993) 32 NSWLR 25, 46. 488 Enright WIB & Merkin RM, Sutton on Insurance Law (Thompson Reuters (Professional) Australia Limited 4th edition, 2015), 526.

489 (2013) 302 ALR 732, 756. 490 (2003) 214 CLR 514, 531. 491 Ibid 480.

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