Great Barrier Reef Yacht Club Villas Pty Ltd v Insurance Australia Limited [2025] QSC 256 delivers a sharp lesson on the limits of after-the-event insurance as security for costs in major insurance litigation.
When a cyclone battered Hamilton Island, the Great Barrier Reef Yacht Club Villas Pty Ltd – acting as a body corporate for a villa complex - turned to its insurer, Insurance Australia Limited, for help. The insurer arranged for Paynters Pty Ltd to perform repairs, but the plaintiff later alleged that the work was defective, sparking a legal battle.
As the litigation advanced, the Supreme Court of Queensland ordered the plaintiff to provide security for costs: $437,549 for Insurance Australia Limited and $863,898 for Paynters Pty Ltd, to cover potential legal expenses up to mediation. The court’s order was clear – pay the sums into court or offer another form of security acceptable to the registrar. The plaintiff, lacking its own assets, argued it could raise the money by levying the villa owners, but the court was not convinced.
After the order, the plaintiff discovered after-the-event (ATE) insurance was available in Australia and secured a policy underwritten by Lloyd’s Syndicates, with an anti-avoidance endorsement. The plaintiff then returned to court, seeking approval to use this policy as security for costs, arguing that it was a practical alternative to cash or a bank guarantee.
Justice Sullivan was not persuaded. The court found that ATE insurance, even with an anti-avoidance endorsement, did not meet the standard for security for costs set by the original order. The judge pointed out that such policies had been available in the market for some time, and the plaintiff could have discovered and proposed this option before the initial hearing. The court emphasized that parties must make all reasonable inquiries and present all viable alternatives at the outset, not after the fact.
The judgment also highlighted the risks inherent in relying on insurance policies as security. The ATE policy in question could be terminated by the insurer before mediation, raising uncertainty and potential disputes. The court noted that this could lead to additional litigation and further delays - outcomes the security for costs regime is designed to prevent.
In the end, the application to substitute the ATE insurance policy as security for costs was dismissed. The court’s message was clear: when it comes to security for costs in complex insurance litigation, cash – or its equivalent – remains king. The decision underscores the importance of certainty, finality, and thorough preparation in high-stakes insurance disputes.
For insurance professionals, this ruling is a wake-up call. It signals that while innovative insurance products like ATE policies may have a role in litigation funding, they will not easily displace traditional forms of security for costs in Australian courts. Insurers, brokers, and claims managers should take note: the courts will scrutinize not just the existence of coverage, but also its reliability, timing, and the diligence of those seeking to rely on it.
