The company's broker had negotiated the one-month extension to the policy when it was experiencing difficulty in placing the cover with other underwriters. The broker had not told the insurer that it would not be invited to be a renewal insurer after the extension period.

When the company notified the insurer of a major claim during the extension period, the insurer declined to indemnify on the basis that it would have refused to grant an extension to the policy if it had been disclosed that it was not going to be invited to be a renewal insurer.

According to the Insurance Contracts Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that the insured knows, or a reasonable person could be expected to know, to be relevant to the decision of the insurer whether to accept the risk.

The company initially unsuccessfully argued that this was a commercial matter, and not relevant to the decision of the insurer whether to accept the risk.

However, the High Court found that the information was not relevant and that the counter argument would allow the Act to be used as a "charter for avoiding of claims by insurers".

Further complex debate is likely about the definitions of "commercial" and "accepting the risk". Contact your solicitor if you would like to discuss these matters.

Reproduced from In Touch With The Law, published by the Law Society of NSW