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Insurance non-disclosure – The Importance of what an Insurer knows

In 2017, the Supreme Court considered a dispute about whether an insurer had to pay out a claim in circumstances where it alleged its insured had failed to disclose relevant matters in its proposal.

The (very brief) facts were that the insured was a company that operated a petrol station. Its insurance policy did not cover any liability arising from gradual pollution. In June 2013, a sewer near the petrol station exploded and it was ultimately determined the explosion was caused by a sudden petrol leak. The company carried out both repairs and preventative work; and then claimed on its policy. The insurer declined cover.

There were a number of issues in the case, but one related to an alleged failure by the company to disclose relevant information in its proposal for insurance. The insurer’s argument on non-disclosure focused on some environment engineering reports commissioned before the policy was written (and which the company had) that indicated there had been historical and gradual pollution from the petrol station. The insurer argued this should have been disclosed in the company’s proposal and that a failure to do so meant it was not obliged to pay.

The court held that because the policy covered (only) sudden and identifiable pollution; rather than gradual pollution, it was not reasonable for the insured to have to disclose reports about gradual pollution to the insurer. Further, and importantly, the court held that an insurer in the business of underwriting petrol stations risks would in any event have known that all petrol stations are susceptible to the risk of gradual underground contamination.

The insurer’s defence failed and it was obliged to pay out on the claim – but only for the remedial works as the court held preventative works which were not covered by the policy.

The case illustrates an often overlooked point in insurance claims; namely that where non-disclosure is in issue, it is always important to look at what might be expected to be “general knowledge” for an insurer operating in a particular market segment. Its pre-existing knowledge of the market segment may overcome any complaint of non-disclosure: Amashaw Pty Ltd v Market Form Managing Agency Limited [2017] NSWSC 612.

Liability limited by a scheme approved under the Professional Standard Legislation

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