In some situations non-disclosure affects insurance coverage and an insurer may refuse a claim. Failure to disclose to an insurer was one of the key issues in The Owners – Strata Plan No 55682 v W. R. Berkley Insurance (Europe), PLC & Ors [2020] NSWDC 758.
In 2014, a fire broke out in an apartment block in Byron Bay. The Owners Corporation was insured and made a claim on the policy. Unfortunately, the claim was denied on the basis that the Owners Corporation did not comply with its statutory duty of disclosure of informing the underwriting agent that one of the lots was occupied by the Nomads Motorcycle Club and used as the clubhouse for the North Coast Chapter of the club.
The Court found that the Nomads’ occupancy was relevant to the insurer’s decision to accept the risk of providing insurance to the Owners Corporation. As such, the non-disclosure of this fact resulted in the insurer avoiding the policy.
The Court found that although a director of the Owners Corporation’s insurance broker had likely said to an employed underwriter of the underwriting agent that a ‘social club’ and ‘local bike club’ was in occupation, they did not disclose to her that it was the Nomads. The Nomads’ occupation was a matter that was, for the purposes of s 21(1) of the Insurance Contracts Act 1984 (Cth), known by a reasonable person in the circumstances, to be relevant to the decision of the insurer to accept the risk and required disclosure.
If the insurer had been in breach of the contract for insurance, it would have been liable to pay the Owners Corporation the sum of $748,571.41 (being the cost of rebuilding, loss of rent (which was capped on what was recovered by the individual lot owners under the policy), and consequential loss for breach of the policy). As the insurer was not liable, the Owners Corporation would have had to fund the repairs if not for the Court’s finding that the Owners Corporation’s insurance broker had a duty to disclose and by not doing so they were negligent and in breach of the implied term of the retainer to exercise reasonable care and skill, which caused the Owners Corporation’s loss or damage.
Ultimately the broker, its director and the AFS licencee were held jointly liable in damages only in respect of the consequences of the Owners Corporation not having an enforceable policy, amounting to $538,347.41 (being the cost of rebuilding and the capped loss of rent) with the Owners Corporation left to fund the remaining costs.
The lesson for an Owners Corporation to take away from this case is to ensure that it clearly discloses to its insurers, in writing, any matter that may affect the policy, and to keep all correspondence relating to this together with the books and records of the scheme.
Authors: Jasmin H.Singh and Allison Benson