Multimillion dollar legal battle highlights policy disclosure problems

Multimillion dollar legal battle highlights policy disclosure problems | Insurance Business

Multimillion dollar legal battle highlights policy disclosure problems
An ongoing multimillion dollar legal battle between an insurer and insured over a rejected claim has highlighted the importance of brokers stressing to their clients the importance of providing accurate information.

The case of Prepaid Services vs Atradius in which trade credit insurer Atradius declined to pay Prepaid Services’ claim due to non-disclosure is said to be one of the largest trade credit insurance cases that Australia has witnessed, involving a $62m loss.

Atradius declined to pay Prepaid Service’s trade credit insurance claim on the basis that it had failed to properly disclose information related to the company and if it had done so, Atradius would never had provided cover in the first place.  As a secondary point, Atradius also argued that Prepaid had been fraudulent regarding the disclosures.

Although a broker did not intermediate the policy, Ray Giblett, partner at Norton Rose Fulbright, told Insurance Business that a broker may have been able to provide some guidance on how to answer the questions and can remind clients of the accuracy and importance of information.

However, he added that in this case, there is little a broker could do. “The broker would not know if the figures provided were correct.  It was primarily the accuracy of the answers provided that was in issue."

The case highlights the need for insureds to be diligent in the accuracy of their answers. “It can be difficult for insureds to challenge an insurer’s assertion that it would not have written the policy on any terms.  It’s difficult because you cannot propose endless hypotheticals as to what would or would not have happened. The court in this instance drew a line and adopted a limited view as to what could be raised to question the underwriting decision.”

At the initial hearing of the case in 2012, Justice McDougall of the NSW Supreme Court of Justice ruled Atradius was entitled to reject the policy due to fraudulent representations, and even if the representations were not fraudulent, Atradius could still reduce its liability to nil.

Prepaid Services appealed the decision to the Court of Appeal which asked McDougall to reconsider the case. In doing so, earlier this year, McDougall stuck to his original ruling. Prepaid Servcies is appealing the decision to the High Court. If it wins, it may appeal the issue of fraud.

Norton Rose's Giblett urged insurers to have detailed underwriting procedures in place to back up their allegations that if certain disclosures were made about a risk they would never have insured it in the first place.