All Class Insurance Brokers v Chubb Insurance Australia

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All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited (No 2) [2021] FCA 782 (Allsop CJ) 9 July 2021

All Class had gone into liquidation after its only director and shareholder had been found to have misused money held in trust. Some of the money had apparently been used to address shortfalls in the company's accounts, some had been used for the director's own purposes. Allsop CJ concluded the majority had been used for the company's purposes. That was to be significant.

One of the interesting questions raised in the proceeding was whether the company was bound by the duty of disclosure as a party to the proceeding. This was because the insurance had been arranged by the Steadfast Group, of which the company was a member and shareholder. Allsop CJ held that the company was a party to the contract because Steadfast had been acting as its, amongst other insured members', agent in entering into the insurance contract.

Other issues such as the company's submission the insurer had waived the duty of disclosure as a result of s21(3) of the Insurance Contracts Act or because of the definition of 'discovered' contained in the contract were quickly dismissed.

The most substantive issue was whether the company's sole director and shareholder's knowledge could be imputed to the company for the duty of disclosure. Allsop CJ held that context was the key to whose knowledge could be attributed to the company in the circumstances. In this case, the relevant context was the company's recourse to insurance covering losses it incurred from employee's theft. Where the same officer or employee knew of the theft or fraud (because they were the culprit) and was the only person capable of being seen as the company's directing mind and will, the answer was obvious: the director's knowledge was the company's. It was a no-brainer.

The only win the company had was in its submission that the director was an employee for the purposes of the insurance contract. But this did not get it over the line because of its fraudulent non-disclosure.