What are facts that might give rise to a claim and who needs to know of their existence?

Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8

In Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8, the Full Court of the Federal Court allowed an appeal by Allianz against a decision of Lee J¹ in proceedings brought by the respondent (UCPT) seeking indemnity for historical sexual abuse claims made by former students of Knox Grammar School. Lee J had ordered Allianz to indemnify UCPT for past and future claims.

The Full Court, in two separate judgments, found that UCPT had sufficient knowledge in 2004 of a “problem” such that it was then aware of “facts that might give rise to” the claims that were later made (to use the language of s 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA)), and its failure to notify Allianz as soon as reasonably practicable after becoming aware of that problem prevented it from being indemnified with regard to those claims.

The facts

Allianz issued successive policies of professional indemnity insurance to the Uniting Church in Australia in the period 31 March 1999 to 31 March 2011, providing cover for a range of persons and entities, including the UCPT and Knox. The policies included cover with regard to sexual misconduct claims.

In 2003, the mother of a former student of Knox made a complaint to the headmaster about the conduct of a teacher, Mr Nisbett. The headmaster commissioned an investigation into the complaint, which led to a preliminary report (LKA1). A new headmaster was appointed in early 2004 and he commissioned a further investigation. The resulting report (LKA2) comprised over 1500 pages of material, including transcripts of interviews with students, staff and former staff; school records; and other documents, in addition to a supplementary report on the matters traversed in LKA1. The investigator determined that several sexual misconduct allegations against Mr Nisbett had been sustained on the balance of probabilities. However he also noted that there were a number of serious allegations regarding other staff members and that the school was at risk of litigation in regard to the matters identified in his report. Neither LKA1 or LKA2 were passed on to Allianz at this time.

In 2006, the mother of the former student made an allegation that Mr Nisbett had sexually assaulted her son. Subsequently, a number of former students brought claims relating to historical sexual and physical abuse, to which the UCPT responded. Allianz initially indemnified UCPT for these claims, however from 2014 (after it had obtained a copy of LKA2 and gone off risk) it declined to indemnify on the basis that the relevant insureds had prior awareness of the facts or circumstances likely to give rise to the Knox sexual abuse claims and had not notified those facts or circumstances to Allianz during the relevant policy period.

The decision of the primary judge

The primary judge held that LKA2 did not suggest more than a “bare possibility” of a claim being brought, and that it did not take on a “different hue” until 2006 when the substance of the initial complaint changed. His Honour then held the UCPT notified Allianz of the potential for future claims as soon as was reasonably practicable after it became aware of relevant facts. Further, his Honour found that, because of the structure of the Uniting Church, there could be no attribution of knowledge, or relationship of agent and principal, such that the knowledge of Knox could be said to be the knowledge of the UCPT – meaning the UCPT did not know the relevant facts until around 2009. In relation to a series of “bulk notifications” made by the UCPT from 2009 to 2011, the primary judge held that the description of the likely claimants and the likely perpetrators was sufficient to amount to proper notice under s 40(3) of the ICA so that Allianz was liable to indemnify UCPT for all Knox sexual misconduct claims – even those made after Allianz went off risk. These findings as to knowledge and notification also meant that Allianz could not rely on Exclusion 7(c) in the various policies (which excluded cover for claims arising from prior known facts or circumstances).

The Appeal

Allianz raised 6 grounds of appeal, with the main grounds being:

1. That the primary judge erred in failing to conclude that LKA2 contained facts and circumstances likely to give rise to the claims for which indemnity had been sought;
2. That the primary judge erred in finding the UCPT only became aware of LKA2 in or by 2009 and in failing to find it knew of LKA2 in 2004 or 2006 (on the basis that the knowledge of Knox was the knowledge of the UCPT);
3. That his Honour failed to find that the UCPT had not notified Allianz of the matters revealed by LKA2 as soon as reasonably practicable after it became aware of them, in the manner contemplated by s 40(3) of the ICA, such that its later notifications were therefore ineffective; and
4. That his Honour erred in failing to find that the UCPT’s claims were excluded from cover because of Exclusion 7(c) in the Allianz policies.

Did LKA2 reveal a problem?

The Full Court held that LKA2 was far more significant than the primary judge considered it to be. The report and supporting material demonstrated an escalating pattern of inappropriate conduct by Mr Nisbett and revealed that a number of other teachers and former teachers may have engaged in improper conduct. It also revealed the existence of a school culture where such behaviour could occur and a management approach involving a persistent failure to take appropriate action. These were all matters which could give rise to claims. The report identified the risk to the school as “extreme” and expressly warned that the school could be at risk of claims. The Full Court considered that an expert opinion can be a “fact” for the purposes of s 40(3) of the ICA, but held that even without the opinion of the investigator, the possibility of claims would have been clear to a hypothetical reasonable person reading the report.

The Full Court rejected the UCPT’s submission that the matters raised in LKA2 were mere rumour or innuendo. The Court held that there was a clear risk of claims by former students, and the absence of any allegation of sexual abuse at the time of the report did not diminish the chance of claims eventually being made.

Whose knowledge is relevant where there are multiple insureds?

The UCPT submitted that only its knowledge was relevant for the purposes of s 40(3) and Exclusion 7(c), rather than the knowledge of Knox.

The Full Court held that the UCPT had assumed liability for the relevant claims as a nominal defendant on behalf of Knox, the substantive defendant. Any claim by the UCPT for indemnity was made on the basis of its status as the nominal defendant.

Colvin and McEvoy JJ held that the knowledge of Knox was the knowledge of the UCPT for the purposes of notification of potential claims where the UCPT was liable as a nominal defendant. It was the awareness of Knox, as the institution whose conduct gave rise to the insured liability, that informed the extent of disclosure and notification obligations and it was Knox’s awareness that was required to be notified for the purposes of s 40(3) of the ICA. In the circumstances, where notifications were required by the policy terms to be given to Allianz by the General Secretary of the Synod, the UCPT was burdened with the consequences of the failure by the responsible insured, namely Knox, to inform the General Secretary of the facts in issue. In the alternative, Colvin and McEvoy JJ held that the awareness of facts that might give rise to a claim includes awareness by the person whose actions might give rise to liability on the part of any nominal defendant.

Derrington J found that the Church’s internal reporting procedures; reporting guidelines regarding harassment and sexual abuse; and insurance sweeps prior to policy renewal indicated that it was fully aware of the need for each insured person and entity to ascertain the existence of any claims, or facts which might give rise to claims, so that they could be notified to Allianz. There was no evidence to suggest that the Church believed that the only relevant knowledge was that of the General Secretary or the UCPT. His Honour held that the inevitable conclusion was that a special rule of attribution applied to fix the UCPT with the knowledge of the entity in regard to whose liability it seeks indemnity. As a result, the knowledge of Knox was directly relevant to the claim for indemnity under the policy. In the alternative, Derrington J said, if his finding went beyond what had been put during the hearing, he agreed with Colvin and McEvoy JJ on this issue.

Could the UCPT rely on s 40(3) of the ICA?

What was revealed by LKA2 was sufficient to trigger the availability of the remedy in s 40(3) of the ICA such that, had notice been given to Allianz in the relevant policy period, the policy would have responded to any of the subsequent claims made. The opportunity to notify Allianz of the facts raised in LKA2 for the purpose of s 40(3) of the ICA ceased when the relevant policy expired on 31 March 2005. It was not disputed that no such notification was made at the time. The consequence of this was s 40(3) did not extend the cover to include the claims subsequently made.

Can s 54 of the ICA save a failure to notify under s 40(3)?

The Court unanimously agreed that s 54 of the ICA will not save a failure by an insured to notify an insurer of facts as soon as reasonably practicable under s 40(3). The UCPT was unable to establish that the decision of the NSW Court of Appeal in Gosford City Council v GIO General Ltd² was plainly wrong. Section 54 was held not to extend a policy’s cover where the insured’s claim is unmaintainable because there has been non-compliance with a statutory provision, rather than a policy provision.

Was the exclusion clause valid?

While it did not affect the outcome of the appeal, there was some discussion in the judgment regarding the exclusion clause which will cause concern for insurers and will no doubt be tested in future.

Exclusion 7(c) in the relevant policies is a typical clause which excludes from the scope of cover liabilities for, or arising directly or indirectly from, any claim, fact, circumstance, or occurrence of which the insured was aware before the commencement of the period of insurance.

The Full Court unanimously found that Exclusion 7(c) was not voided by the operation of s 33 of the ICA (which provides that the remedies for non-disclosure of matters before policy inception are set out exclusively in the ICA) but the judges had differing views on the impact of section 52 of the ICA (which causes policy provisions restricting or modifying an insured’s rights under the ICA to be void)

Derrington J held that Exclusion 7(c) does not interfere with the additional cover provided for in s 40(3) of the ICA – clauses like Exclusion 7(c) exclude cover for claims arising from facts known prior to the policy’s inception while s 40(3) applies only to facts that become known during the policy period. His Honour noted the need for a consistent and common approach to “facts which might give rise to a claim” and found that Allianz was entitled to reject all current and future claims for sexual abuse of students at Knox in the period of the 1980s to 2004 as a result of Exclusion 7(c) in the various policies. He found that s 52 of the ICA does not apply to Exclusion 7(c) because the parties are free to contract as they see fit within the ICA’s legislative parameters and the exclusion clause does not affect the operation of the Act.  Colvin and McEvoy JJ accepted that awareness of the contents of LKA2 was awareness for the purpose of Exclusion 7(c), but ultimately found the exclusion clause to be void by operation of s 52 of the ICA. Their Honours held that the clause operates to substantially exclude the application of the duty of disclosure provisions to the policy and the exclusion transforms a matter for disclosure (that is, what the insured knows that bears upon the decision whether to accept the risks to be insured) into a general exclusion from cover in all instances. Colvin and McEvoy JJ noted that if they had determined that the requirements of s 40(3) had been met (noting that their decision that the requirements had not been met disposed of the appeal), then they would not have considered Exclusion 7(c) applied as a result of the operation of s 52.

Was there an estoppel, waiver, election or breach of the duty of utmost good faith?

The Full Court rejected the UCPT’s arguments that, on the basis of any one or more of an estoppel, waiver, election or breach of the duty of utmost good faith, Allianz could not now deny indemnity where, prior to 2014, it had indemnified claims.

The estoppel case was held to be unsustainable: there was a complete absence of evidence as to any representation by Allianz or an assumption of a state of affairs by UCPT; any action taken in reliance on any such representation; any detriment suffered; and any temporal identification as to when detriment was suffered.

With respect to the duty of utmost good faith, the Court noted that Allianz had not sought to recover the substantial amount it had already paid in relation to claims it had earlier indemnified. Allianz acted within its rights consequent on the UCPT’s failure to notify under s 40(3) of the ICA, and the UCPT suffered no prejudice from Allianz’s declinature. There was no failure by Allianz to comply with commercial standards of decency and fairness.

Finally, principles of waiver and election did not justify preventing Allianz from resiling from its former position. Where nothing prevented Allianz from adopting a different course, it could not be said that Allianz had waived its entitlement to do so, nor had it irrevocably made an election not to change course.

Key takeaways for insurers and insureds

• A report prepared by an expert may constitute a fact or facts which may give rise to a claim for the purpose of s 40(3) of the ICA.
• Even where one insured (A) is the nominal defendant for the liability of another insured (B), it is essential that any known facts or circumstances that may give rise to a claim against B are disclosed to an insurer as soon as reasonably practicable after B becomes aware of them. The nominal defendant cannot take any advantage of its lack of knowledge in those circumstances.
• Whilst obiter, prior known claims and circumstances exclusions may be found to be void should they substantially impact upon the ICA’s duty of disclosure provisions.
• There must be some evidence of detriment or prejudice before an insurer will be prohibited from changing its position in relation to, or resiling from, a grant of indemnity on the basis of an estoppel, waiver, election or breach of the utmost duty of good faith.

HWL Ebsworth Lawyers acted for Allianz in the first instance decision and in the appeal.

This article was written by Alistair Little, Partner, Natalee Venegas, Senior Associate and Phoebe Cook, Solicitor.

¹Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited (Liability Judgment) [2023] FCA 190.
² (2003) 56 NSWLR 542.