Federal Court gives guidance on bulk notifications of defective cladding claims

We traverse the intricacies of “claims made” insurance policies in our fundamentals series here. In summary, these policies respond to facts, matters and circumstances giving rise to a “claim” that are first known and notified during the relevant period of insurance. However, issues may arise where the facts, matters and circumstances are insufficient for them to be “deemed” as notified in the period of insurance. We discuss what is sufficient in our article “What is a Circumstance giving rise to a Claim”. Therein we also discuss the statutory protection provided to policyholders under s40(3) of the Insurance Contracts Act 1984 (Cth) (ICA).

Further clarification is now provided as to the application of the ICA following the decision of MS Amlin Corporate Member Limited v LU Simon Builders Pty Ltd [2023] FCA 581.

In that case the Federal Court provided guidance on when an opinion may constitute a notifiable “fact” for the purposes of invoking s 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA).  The Court also followed the approach recently taken in Uniting Church v Allianz Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited [2023] FCA 190, which accepted that the notification of a “wider” or “general” problem was sufficient for the purposes of a valid s 40(3) notification.

The case before the Court involved a question of whether LU Simon Builders Pty Ltd and LU Simon Builders (Management) Pty Ltd’s (LU Simon) notification relating to combustible cladding provided to insurers[1] in 2015, was sufficient to invoke s 40(3) of the ICA and prohibit insurers from declining cover to the insured for proceedings known as the Atlantis claims that were commenced in a later period of insurance.

Insurers argued that s 40(3) was not triggered because LU Simon’s notice did not sufficiently outline the facts that gave rise to the Atlantis claims on the basis that it was limited to the Lacrosse Building fire. Conversely, LU Simon argued that s 40(3) was triggered because it had sent insurers a number of emails within the relevant policy period which notified “facts” that related to the wider problem of combustible cladding, comprising of news articles and reports prepared by Municipal Building Surveyor for the City of Melbourne (MBS) and Metropolitan Fire Brigade (MFB). These reports addressed the wider problem concerning the use of unsafe ACP products on buildings in Australia, in particular, by the MBS Report pointing to issues with ACP product accreditation generally and the MFB Report commenting on the overall lack of compliance of ACPs in relation to their combustibility.

The Court held that LU Simon had provided valid notifications to insurers for two key reasons. Firstly, because the material notified to the insurers included certain opinions expressed in reports by public authorities with relevant expertise, which constituted “facts”. Secondly, the notification was not confined to the Lacrosse building because they included materials which provided evidence of a wider problem concerning the use combustible cladding used in high-rise buildings in Australia.

In outlining the rationale for the first reason, the Court provided a further explanation of Meagher JA’s statement in P&S Kauter Investments Pty Ltd v Arch Underwriting at Lloyd’s Ltd [2021] NSWCA 136 that “the requirement that the notification be of “facts” indicates that s 40(3) is concerned with the notification of objective matters that bear on the possibility of a claim being made, rather than matters of belief or opinion as to that possibility“. On this point, the Court clarified that the purpose of Meagher JA’s statement was to emphasise that an opinion given by an expert with appropriate expertise of itself can constitute a “fact” for the purposes of a valid notification under s 40(3) of the ICA. In making this observation, the Court respectfully declined to accept the reasoning of Lee J in Uniting Church v Allianz who found that an opinion is not itself capable of constituting a fact within the meaning of s 40(3).

With respect to the second reason, it is apparent that the Court continued to follow the approach taken by Lee J in Uniting Church v Allianz [374]-[376], which accepted that the notification of a “wider” or “general” problem was sufficient for the purposes of a valid s 40(3) notification.

This decision offers valuable insight to both insureds and insurers as to the operation of the s 40(3) of the ICA and how the section may apply to bulk notifications issued to insurers with respect to the prevalent issue of claims arising from the use of combustible cladding.

[1] MS Amlin Corporate Member Limited and Brit UW Limited as the sole corporate capital provider of Lloyd’s Syndicate 2987 for the 2015 Year of Account.