The question of whether section 33 and/or section 52 of the Insurance Contracts Act 1984 (Cth) (s33, s52 and ICA) operate to effectively void ‘prior known circumstances‘ exclusions is not a new question. It has been debated and disagreed over for a long time.
Prior known circumstances exclusions are ubiquitous in claims made policies. s33 and s52 have been in place for over 40 years. The point has been argued in prior cases, and has been the subject of conflicting judicial and academic opinions.
A recent decision on the question
The Full Federal Court recently picked up and examined the question in Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW)1 (UCAPT case).
The Full Court was unanimous that s33 would not void a prior known circumstances exclusion. That element of the question now appears settled.
However, Justices Colvin and McEvoy observed that if they had been required to make a determination to resolve the litigation (which they were not), then, in their view, s52 would apply to void the prior known circumstances exclusion in issue2.
The third member of the Full Court, Derrington J, did not draw a distinction between s33 and s52, holding that neither section operated to void the relevant prior known circumstances exclusion3. Similarly, at trial in the UCAPT case, Lee J concluded after a detailed and careful analysis that “the [ICA] does not operate to render [prior known circumstances] exclusions…void or unenforceable“4.
The result is that this question, in relation to s52 at least, remains unsettled.
Practical impact
In my view, Colvin and McEvoy JJ’s judgment does not stand for the proposition that all prior known circumstances exclusions are void by application of s52, for all purposes and at all times.
Importantly, in my view, there is no scope for s52 to void the operation of an exclusion triggered by prior facts or claims which are notified to the relevant Insurer 5.
To the extent that s52 operates to void prior known circumstances exclusions (and that question is not settled), in my view, it could only do so in respect of something which was in substance a “relevant failure” (within the meaning of that term in the ICA -ie. a non-disclosure or actionable precontractual misrepresentation)6.
In most practical claims situations, that renders the question moot.
s33 and s52
s33 provides that an Insurers’ remedies arising from a relevant failure, are limited to the rights set out in section 28 of the ICA:
The provisions of this Division [Div 3 – sections 27AA-33] are exclusive of any right that the insurer has otherwise than under this Act in respect of a failure by the insured to disclose a matter to the insurer before the contract was entered into and in respect of a misrepresentation or incorrect statement.
s52 prohibits contracting out of the ICA:
(1) Where a provision of a contract of insurance…purports to exclude, restrict or modify or would…have [that] effect…to the prejudice of a person other than the insurer, the operation of this Act, the provision is void.
A bit of history – the competing positions
In 1994, Dunford J in the New South Wales Supreme Court7 rejected an Insured’s pleading that s52 operated to void a prior known circumstances exclusion, observing:
[a prior known circumstances exclusion] is not concerned with non disclosure; the claims specified are excluded from the cover whether the circumstances are disclosed or not, and accordingly the provisions of s28 are not excluded or modified by the clause.
Four years later, the battle lines were clearly defined when Hodgson CJ (also in the New South Wales Supreme Court)8, observed (although in relation to s33, not s52, and unfortunately without referring to Dunford J’s decision):
If the [prior known circumstances exclusion] clause had the effect of excluding liability for something which was in substance a non-disclosure, then I think s33 would in any event prevent the…clause excluding liability.
I have highlighted the words above as they are important. I will come back to them.
Despite the arguments being clearly set out 25 years ago, resolution has remained elusive. Hodgson CJ’s decision was appealed, but the Court of Appeal and High Court judgments did not refer to the issue. There have been skirmishes between the opposing camps and fleeting references to the issue in several subsequent judgments, but there was no clear Appellate Court ratio to conclusively settle the issue.
In 2018, former New South Wales Supreme Court Justice, Joe Campbell KC wrote a very detailed article on the point, apparently motivated by research undertaken for a successful challenge to a declined personal travel claim9. The article provided strong and reasoned backing to the ‘void’ camp. Dr Ian Enright and Rob Merkin KC, editing Sutton, pitch their tent in the ‘not void’ camp10, whilst Messrs. Kelly and Ball lend the considerable weight of their opinion to the ‘voids’11. Derrington and Ashton tell us: “if [a prior known circumstances] exclusion is present, the issue of non-disclosure as to the relevant potential claim is irrelevant” but then add: “except that s33 of the [ICA] might have the effect of preventing [the exclusion’s] operation in respect of what is non-disclosure in substance”12. Peter Mann, who appeared as Counsel in the UCAPT case, identified the issue in relation to both s33 and s52 in the 9th edition of his authoritative book, noting that the issue is not settled13.
Unfortunately, despite the issue being referred to in cases and textbooks, when the ICA was significantly amended in 2013 and 2021, amongst other things in relation to the duty of disclosure, there was no amendment to or Parliamentary guidance on the ambit of s33 or s52.
This debate and uncertainty does not help Insureds or Insurers.
In the UCAPT case, battle between the opposing camps was unequivocally joined. Although ultimately, the validity of the claims in the UCAPT case, like so many before it, were ultimately decided on other grounds.
The UCAPT case – s33 and s52 question
The UCAPT case comprised a factually complex series of claims across several claims-made policy years. The appellate decision is notable for several reasons and is examined in detail in a recent article by HWLE’s Alistair Little.
In this article, I am only looking at the Court’s consideration of s33 and s52.
On s33, Derrington, Colvin and McEvoy JJ expressed unanimous views, which aligned Dunford J’s 1994 dicta set out above:
The legal reality of [prior known circumstances exclusion] clauses…is that they are neither concerned with the duty of disclosure nor the failure to disclose facts and, moreover, their operation is not conditioned upon either…
Per Derrington J at [458]
[Prior known circumstances exclusion clauses are] not, in terms, concerned with the duty of disclosure, misrepresentation or incorrect statements. They are concerned with whether the cover will extend to cover risks known to the insured at the time the policy is arranged..[and are] consistent with delimiting the extent of cover rather than conferring a right upon the insurer in the event of a breach of the duty of non disclosure.Per Colvin and McEvoy JJ at [828] and [832]
Justice Derrington applied this reasoning to both s33 and s52.
Justices Colvin and McEvoy drew a distinction between the wording of s33 and s52 and in relation to the application of s52, reasoned that:
- whereas s33 would not operate to avoid the prior known circumstances exclusion, because the exclusion clause did not confer “a right” upon Insurers (“rights” being the focus of the prohibition in s33);
- “the effect” of prior known circumstance exclusions is that the duty of disclosure does not apply to ‘known circumstances’ because claims which later arise from those circumstances become matters which are not covered by reason of the exclusion14. s52 is concerned with “effect” and:
[prior known circumstances exclusions] transform…what is a matter for disclosure [ie. an Insured’s knowledge of circumstances which may give rise to a claim] into a general exclusion from cover in all instances [effectively] to substantially exclude the application of the duty of disclosure provisions to the policy. For those reasons, the exclusion is void by operation of 5215.
Delineating the scope of cover through exclusions to avoid ‘stacking’ limits
Derrington J quoted Derrington and Ashton16 to highlight a core ‘purpose’ of prior known circumstances exclusions, succinctly stating a significant commercial issue:
[Prior known circumstances exclusions] avoid…stacking the limits of successive policies to cover essentially the same or very closely related claims17.
Derrington J identified that despite the ICA’s “intervention into the relationship between insureds and the insurer, the parties are free to contract as they see fit within its legislative parameters“18 and citing Sutton, concluded that a prior known circumstances exclusion “is merely one which defines the risks for which the insurer is prepared to offer cover“19.
Another example of a clause which “defines the [accepted] risk” in a claims made policy, is a ‘continuous cover’ clause. Continuous cover clauses are common. They effectively amount to an agreement between Insurer and Insured to allocate claims into a specific insured policy year upon certain conditions, where an Insured has not notified facts which may give rise to a claim in an earlier insured policy year when the Insured first became aware of them. There was no discussion in the UCAPT case about how such clauses affect this debate (if they do so at all).
Does section 40 of the ICA affect the position – or – at least give us a strong interpretative guide to s52?
To solve the ‘problem’ of ‘claims made cover’ from an Insured’s perspective (ie. facts giving rise to a later claim not triggering insurance cover), the ALRC Report No 20 1982, which laid the foundation for the ICA, proposed the mechanism in section 40 of the ICA20 (s40). The idea being that providing Insureds with a statutory right to notify “facts that might give rise to a claim” was the best way to balance the rights of Insureds and Insurers in relation to that issue.
Derrington J correctly noted that there is nothing in the ALRC report to suggest that “s33 [or s52 was] intended to reduce an insurer’s ability to limit the risks which it is prepared to accept and to which an insured agrees when entering the policy”21. It is arguable that the statutory mechanism in s40 was intended to be an exclusive answer to this issue and there is no scope for the broader, “void” interpretation’ of s52.
Section 40(3) of the ICA, explained in more detail at this link, (s40(3)) comprises the remedial provision proposed by the ALRC allowing an Insured to trigger cover by notifying “facts which might give rise to a claim“. Importantly, s40(3) includes a requirement that the Insured must make that notification “as soon as practicable” in order to obtain the relevant statutory protection. Given what s40 was intended by the ALRC to do, there is a tension between the requirement upon an Insured to exercise the statutory right in s40(3) “as soon as practicable” and a construction of s52 which sees s52 void a prior known circumstances exclusion in a subsequent policy in respect of those circumstances.
There is also sub-section 40(2)(b) of the ICA (s40(2)(b)). Not a lot has been written about s40(2)(b)
s40(2)(b) provides that if a contract of insurance does not provide cover in relation to events that occurred before the contract is entered into, the insurer must clearly inform the Insured in writing that the contract does not provide such cover. Implicit in that is an acceptance of the uncontentious point that Insurers are not effectively compelled to provide cover for events that occurred before the contract was entered into, whether disclosed or not.
Both Lee J at first instance in the UCAPT case and Derrington J indicated that the general scheme of s40 was inconsistent with a broad reading of s52:
Section 40(3) would be rendered inutile if [prior known circumstances] exclusion clauses…are rendered void or unenforceable under ss 33 or 52 of the Act, given that attempts to exclude claims from prior known circumstances would, in the scheme of the Act, always be [in]effective22.
Per Lee J
Section 40(3) and [a prior known circumstances exclusion] are, in effect, complementary in the sense that the first is a necessary mollifier of the latter…[s40(3) and the exclusion work together in] …successively renewed “claims made” policies to prevent undesirable gaps in coverage23.
Per Derrington J
There is a reasonable argument that the scheme of s40, including:
- the “as soon as practicable” requirement in s40(3); and
- the implicit acknowledgement in s40(2)(b) that a claims made cover is not required by the ICA to extend to events occurring prior to inception,
is inconsistent with a reading of s52 as voiding prior known circumstances exclusions, which Insureds are free to negotiate upon prior to policy inception.
Limits on any expansive construction of s52
In my view, there are two important limits on the ‘void’ argument.
Prior notified circumstances
In the words of Derrington J, prior known circumstances exclusions trigger by reference to “known facts and circumstances with the potential for a claim, whether they were disclosed or not“24. Dunford J made the same point in the passage quoted at the beginning of this article.
If circumstances are disclosed to the Insurer prior to policy inception, the applicable triggering exclusion will usually have the heading ‘prior notified circumstances‘, and is often in addition to a separate exclusion for ‘prior known circumstances‘. However, this is not universal.
I think it is important to point out that Colvin and McEvoy JJ’s reasoning in relation to s52 would not apply to claims arising from circumstances which are notified to the insurer prior to inception. In such cases, there is no question of the effect of the exclusion being to exclude or modify the non-disclosure/misrepresentation provisions he ICA, which is what s52 prohibits.
This limitation is important in relation to Insurers’ legitimate business interest in preventing claims from ‘stacking’ across future policy years and it put this aspect of the UCAPT case into important perspective.
Degree of knowledge by Insured necessary to trigger prior known circumstances exclusions
In relation to prior known circumstances exclusions, the Australian case law makes it clear that such clauses, however drafted, will be interpreted as requiring that the insured to have more than a mere knowledge of the relevant facts, matters or circumstances; but must also to have appreciated the possibility of those matters leading to a claim25. That is a fair position, as otherwise such clauses would exclude ‘everything’ and effectively impose a blanket ‘retro inception’ condition on cover.
In the UCAPT case, there was no notification of “facts” in ‘policy year 1’ and the Full Court found a relevant awareness of the risk of a claim26 prior to the inception of later policies. To use Hodgson CJ’s expression highlighted at the opening of this article, in the UCAPT case the Full Court was considering the impact of s52 on a prior known circumstances exclusion in relation to “something which was in substance a non-disclosure“27. This is practically important in the context of ‘real world’ claims examples.
Bringing these ‘limitations’ together
In my view, it is fair to read Colvin and McEvoy JJ’s dicta as not potentially avoiding all prior known circumstances exclusion clauses in all situations. Rather, if s52 impinges exclusion clauses at all, s52 can only operate on “something which was in substance a non-disclosure [or pre contractual misrepresentation]” – a “relevant failure”, to use the language of the ICA.
The corollary is that if the Insured makes disclosure, Division 3 of the ICA has no application to that matter and there cannot be any argument as to potential contracting out of the “effect of” Div 3 of the ICA, which is what s52 prohibits.
Viewed in that light, an expansive reading of s52 is not ‘the end of the world’ for Insurers or carte blanche for Insureds to withhold critical facts relevant to Insurers’ decision to accept and price risk.
Conclusion
If the ‘void camp’ is ultimately vindicated by binding Appellate Court authority, in my view, it could only be on the relatively narrow basis that a prior known circumstances exclusion will only be void in relation to something which was in substance a relevant failure.
I do not see scope of this argument to impact the validity of exclusions which trigger by reference to facts notified to an Insurer prior to the commencement of cover. This would be the case whether the relevant exclusion is a generic policy term, or a specific endorsement drafted to exclude specific notified facts.
These qualifications significantly narrow the practical application of the expansive interpretation of s52. If I am correct in my analysis, in most practical claims situations, the question of the validity of any prior known circumstances exclusion will be moot, as it will be subsumed by an analysis of whether there has been a relevant failure.
In the circumstances, until the position is resolved by binding Appellate Court ratio, I expect that:
- Insureds will continue to notify facts which may give rise to claims as soon as practicable – and to maintain internal management and notification protocols to effect this; and
- Insurers will continue to run both non-disclosure/ misrepresentation and contractual exclusion defences in factual situations where both potentially arise, and increase their focus on excluding claims arising from disclosed circumstances in the underwriting process whether by standard exclusions for claims arising from facts disclosed in the underwriting process prior to policy inception or by specific endorsement (and maintaining evidence of such practices), so as to bolster their prospects in ‘innocent’ non-disclosure disputes.
To misquote Tolkien, I expect that: life in the world will go on much as it has in this past age: full of its comings and goings, scarcely aware of the existence of this point. Although I am also mindful of what happened after Gandalf spoke those words – and so I suggest that Insurers and Insureds monitor the issue for judicial developments and stick to the best practices set out above.
This article was written by Andrew Gray, Partner.
1 [2025] FCAFC 8
2 At [847].
3 At [462].
4 Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited [2023] FCA 190 at [584]. Although His Honour expressly noted that his observations were not required to determine the issues in dispute at [559] and [584].
5 Most claims made policies will contain exclusions for claims arising from ‘prior known circumstances’ and ‘prior notified circumstances’. Sometimes in separate clauses with separate headings, sometimes in a single exclusion clause. The ‘void argument’, explained following, does not apply to ‘prior notified circumstances’ exclusions – which is a key underwriting concern.
6 See s27AA of the ICA.
7 Pech v Tilgals (1994) 28 ATR 197 at 211–2. In Pech, the issue arose on a cross-claim by an accountant-defendant against his insurer in a professional negligence claim. From the report, it seems that the Insurer did not assert a breach of s21, but instead successfully relied upon a prior known circumstances exclusion.
8 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 at 254
9 Unenforceable Exclusions in Travel Insurance [2018] 29 Insurance Law Journal 71
10Sutton on Insurance Law (Lawbook Co, 4th ed, 2015) at 644 – 646.
11 Kelly and Ball Principles of Insurance Law at [14.0170] and [2.0320.35].
12 Derrington and Ashton The Law of Liability Insurance (3rd ed, 2013) at page 1897. There is an error in the learned authors’ citation of the Act, but their point is clear.
13Mann’s Annotated Insurance Law (9th Ed) at [33.20] and [52.40].
14 At [843].
15 At [844].
16 At [403]. Those not from Queensland can do a Google search to understand how the extended Derrington Family fit together – suffice to say that His Honour was not quoting his own work.
17 Derrington and Ashton The Law of Liability Insurance (3rd ed, 2013) pages 1877 – 1878, referring to US academic and judicial authorities.
18 At 455].
19 At [459], Sutton op cit at [6.1180].
20 Australian Law Reform Commission, Insurance Contracts, Report No 20 (1982) at [265]
21 At [434].
22 Per Lee J [583].
23 Per Derrington J at [398].
24 At [432].
25 CGU Insurance Ltd v Porthouse [2008] HCA 30 et al. The drafting of the given clause will affect the degree to which the requisite test for this knowledge is subjective or objective. But the requirement that there be some appreciation by the Insured of the possibility of a claim is important and relevant to this debate,
26 Derrington, Colvin and McEvoy JJ all found that there was no cover in prior years because there had been no notice or no notice as soon as practicable as required by s40(3). Although the Insured did argue that s54 could operate to cure that failure – see this link for more detail on that.
27 In the UCAPT case, the question was moot because the insuring clause of the later policy was not triggered due to there being no claim and, in the circumstances found by the Full Court, no triggering of s40(3). However, at trial, Lee J found a different degree of knowledge in relation to the prior facts.
