Received a notification of facts or circumstances? A valid section 40(3) ICA notification may be in the details

A recent decision by Justice Jackman in the Federal Court of Australia affirms that notification of facts concerning a “wide problem” can be made under s40(3) of the Insurance Contracts Act, and highlights that the notification is in the details – including hyperlinked newspaper articles, opinions given by persons of expertise, and underwriting documents.

MS Amlin Corporate Member Ltd v LU Simon Builders Pty Ltd [2023] FCA 581 is one of few recent Australian authorities on “hornets’ nest” notifications. David Lee and Stephanie Weeks acted for the broker of LU Simon Builders Pty Ltd and LU Simon Builders (Management) Pty Ltd (Insureds), and consider the case in further detail.

Background

This case concerns the notification of the “Atlantis Claims”, being three separate claims by owners of various parts of the Atlantis Tower in Melbourne. That building was built by the Insureds using aluminium/polyethylene composite panels (or ACPs), the costs of replacing which were claimed from the Insureds.

The Atlantis Claims came about after investigation by the Metropolitan Fire Brigade (MFB) and the Municipal Building Surveyor for the City of Melbourne (MBS) into a fire on 25 November 2014 at the Lacrosse Tower in Docklands, which was also built by the Insureds. The investigation concluded that the ACPs fitted onto the Lacrosse Tower (Alucobest) did not comply with the Building Code of Australia (BCA), and had contributed to the rapid spread of the fire.

The Victorian Building Authority (VBA) subsequently commenced an investigation, including into the conduct of the Insureds. As part of that investigation, the VBA audited about 170 high-rise buildings in Melbourne. The VBA found that the ACPs on the Atlantis Tower (Alcotex) were combustible, and Building Orders were subsequently issued requiring its replacement.

Excess Layer Insurers disputed that they were notified of facts that gave rise to the Atlantis Claims in the sense completed by s40(3) prior to the expiry of the Insureds’ 2014/15 Policies. All other parties contended that notification was made.

The s40(3) notifications

The Insureds relied on two notifications made on 5 May 2015 and 14 May 2015, neither of which identified the Atlantis Towers, or the brand of ACP (Alcotex) used in its construction.

The first notification was comprised of an email, a document headed “Lacrosse Apartments – Docklands” and an article from The Age. The article pointed to a wide problem by referring to an “investigation into the buildings practices” of the Insureds by the VBA, which would try to identify whether non-compliant ACP’s had been “used elsewhere.” The notification also included commentary from the Insureds that ACPs had been widely used in Australia for decades with “no like product [passing] the test for combustibility,” and stated that there were discussions of a class action by the owners and residents of the Lacrosse Apartments.

The second notification included an email and a report by the MFB entitled “Post Incident Analysis Report” in relation to the Lacrosse Tower (MFB Report). The MFB Report stated that the MFB was not aware of any competitor ACP products (to Alucobest) which satisfied combustibility tests, and expressed a strongly held opinion by the MFB that ACPs without appropriate accreditation and certificates of conformity represent an unacceptable fire safety risk, and there was a need to prevent similar incidents (to that at Lacrosse Apartments). The MFB Report also hyperlinked to four media reports, one of which referred to the VBA audit and said that it revealed a pattern of poor compliance with regulations and that “buildings may be a risk to occupants in a fire situation.”

Judgment

His Honour found that the Insureds provided their insurers with a s40(3) notification of facts and circumstances that gave rise to the Atlantis Claims. Relevantly, he held that the Insureds’ notifications identified a “wider problem” than just an investigation into Alucobest ACPs on the Lacrosse Apartments. That problem concerned “the use of non-compliant and unsafe [ACPs] on other buildings in Australia^[1] … for LU Simon generally and the buildings which it had constructed” and other builders who had used ACPs.^[2]

When taken together with the Insureds’ disclosure in its proposal form that 100% of its work related to high rise buildings (with no other activities undertaken in the past), the Insureds conveyed a real and tangible risk to their insurers that they would face claims to rectify the ACPs used on its building projects.^[3] With the VBA having subsequently identified the ACPs on the Atlantis Tower as non-compliant with the BCA, and claims commenced against the Insureds for rectification costs, there was a sufficient correspondence between the notifications and the Atlantis Claims.^[4]

In arriving at his decision, Justice Jackman relied on the principles concerning the construction of s40(3) in P&S Kauter Investments Pty Ltd v Arch Underwriting at Lloyd’s Ltd [2021] NSWCA 136, and accepted that notification need not be given in a single document, and that the giver of notice need not have an intention to give notice of facts that may give rise to a claim under s40(3) (Avant Insurance Ltd v Darshn [2022] FCA 48).

In divergence with the Federal Court’s decision in Uniting Church v Allianz,^[5] His Honour concluded that opinions expressed by public authorities (i.e. the MFB) with appropriate expertise amount to “facts” for the purpose of s 40(3) ICA.^[6]

His Honour also accepted that hyperlinked documents contained in a notification form part of the notification itself, observing that “the task of clicking on a hyperlink is not significantly more demanding than turning a physical page,” provided it was to a specific page or document.

Key Takeaways

While the outcome is heavily based on the factual circumstances of the case, it does demonstrate that the “notification is in the details,” and is a timely reminder to insurance industry professionals to carefully consider the facts and circumstances of a notification.

The judgment emphasises the importance of insurers reviewing notifications in their entirety (including any media reports or publications) and considering them in the context of all the documents and information made available to underwriters. The task is to identify, based on the ordinary and natural meaning of the words contained in the notification documents,^[7] the nature of the claim, potential claim or notified problem.

Insurers should be careful to review any materials which are hyperlinked in the notification documents and consider whether opinions expressed in notification documents are held by suitably qualified experts. This may include opinions held by the insured (or its employees) where they themselves are sufficiently qualified to provide that opinion, as those may later form “facts” that gave rise to a claim for the purpose of s40(3).

The judgment also demonstrates the importance of brokers continuing to make detailed notifications to insurers as soon as possible. Consideration should be given to whether any ancillary information in the form of newspaper articles, qualified opinions or industry reports can usefully supplement the substantive notification. 

[1] Ibid [16].
[2] Ibid [52].
[3] Ibid [17].
[4] Ibid [53]-[54].
[5] Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Ltd [2023] FCA 190.
[6] MS Amlin Corporate Member Limited v LU Simon Builders Pty Ltd [2023] FCA 581 at [48]-[50], [52].
[7] Ibid [16].