19 February 2025:
The Full Court of the Federal Court recently delivered its judgment in Uniting Church in Australia Property Trust (UCPT) v Allianz Australia Insurance [2025].
The Court ruled that Allianz Australia Insurance (Allianz) was correct to deny coverage for claims related to historical sexual abuse at Knox Grammar School (Knox). More importantly, however, the Court determined in obiter that the ‘prior known circumstances’ exclusion in policies issued by Allianz to the Uniting Church in Australia (UCA) was void by operation of s 52 of the Insurance Contracts Act 1984 (Cth) (ICA).
Background facts
Allianz issued insurance policies to the Uniting Church from 1999 to 2011 which were said to be responsive to claims for sexual abuse. The key issue in both the primary decision and on appeal was whether Allianz had the knowledge of investigation reports relating to potential instances of historical sexual abuse at Knox. The most significant report, commissioned by Knox in 2004, was referred to as “LKA2”.
Although prior sexual abuse claims involving a specific teacher had been reported to and paid by Allianz, the issue at hand was whether coverage was available for claims made by other students regarding different teachers. A blanket notification of the potential for these additional claims was made in 2009, but Allianz disputed it. This was because, in 2004, Knox had commissioned LKA2, which highlighted the possibility of broader sexual abuse claims. However, the contents of LKA2 were not disclosed to the UC or Allianz at the time.
The court needed to determine, first, whether a blanket notification was valid under section 40(3) of the ICA, which required notice to be given “… as soon as reasonably practicable after the insured became aware of those facts.” Second, if the notification was valid, the Court needed to consider whether coverage was available.
The decision
The Court stated that LKA2 contained “red flags” and “… drew the reader’s attention to highly questionable conduct of other staff and warned in clear terms of the prospect of further claims relating to a pattern of alleged and some sustained behaviour from the 1980s and early 1990s …“.
In doing so, the Court determined that LKA2 “… sufficiently revealed materials which might have been reported to Allianz to trigger s40(3)” and then clarified that, had LKA2 been promptly reported under section 40(3) of the ICA when it was first commissioned, it would have ensured that coverage was available for all later claims made by former students.
However, the Court also determined that UCA had not notified various facts and circumstances which gave rise to claims “as soon as practicable” and within the policy period at the time when it first became aware of the facts. In the absence of a valid notification for the purpose of section 40(3) of the ICA during the relevant policy period, the Court decided that Allianz was entitled to deny indemnity in respect of claims first made after it ceased to be on risk for UCPT.
On the question of whether the prior known circumstances exclusion in the policies of insurance was valid, the court was split, with the majority holding that an exclusion was void by reason of section 52 of the ICA, which states:
“Where a provision of a contract of insurance… proports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this act, the provision is void” (emphasis added).
In lengthy reasons, the majority reasoned that “… in effect [the exclusion] transforms what is a matter of disclosure (what the [Allianz] knows that bears upon the decision by [Allianz] whether to accept the risks to be insured) into a general exclusion from cover in all instances. Its effect is to substantially exclude the application of the duty of disclosure provisions to the policy. For those reasons [the exclusion] is void by operation of s 52 [of the Act]”.
Implications of the decision
In the future, insurers will, it seems, no longer be able to use a prior known circumstance exclusions as the basis to deny or restrict coverage; instead, an insurer’s only recourse may be to prove a breach of an insured’s duty of disclosure.
A fully copy of the decision in Uniting Church in Australia Property Trust (UCPT) v Allianz Australia Insurance [2025] can be accessed here.