05/05/10 Article 1004 - Insurance
Known Circumstances And Disclosure
Insurance update – Directors and Officers
Recent worldwide economic developments have precipitated the collapse of a number of corporations and Australia has not been immune, with the likes of ABC Learning. D & O Policies are ‘claims made’ or ‘claims made and notified’ policies, meaning that a failure to notify insurers of a claim, or of circumstances that might give rise to a claim may result in the policy not responding to these or subsequent claims.
Some useful recent cases has provided guidance on circumstances where insureds should be notifying their insurer of claims or particularly, circumstances that may give rise to a claim. The following can be taken from those decisions:
- even if the insured cannot identify the legal basis for a potential claim, so long as an insured is aware of the relevant fact, situation or circumstance which might give rise to a claim it may provide and rely upon any notification it has given of those facts; and
- prior to the end of the policy, careful consideration should be given to whether there are any circumstances that might give rise to claims and if there are, appropriate notification should be provided. The need to do so is reinforced where renewal policies contain ‘Known Circumstances’ exclusions which can be drafted broadly.
These same considerations apply to professional indemnity insurance and so you should make sure that at each renewal, you have carefully considered any potential circumstances that could lead to a claim under your PI or D&O covers.
Non-disclosure
In many respects, the issue of disclosure is closely linked to notification insofar as when claims are made, insurers will carefully review whether the insured may have known and failed, prior to policy inception, to disclose the circumstances that ultimately gave rise to the claim. In a recent decision of Green v CGU [2008] NSWSC the court said that under the Insurance Contracts Act, an insured seeking insurance is required to disclose to its insurer all matters known by the insured, that the insured knows or that a reasonable person in the circumstances of the insured could be expected to know, may be relevant to the decision of the insurer whether to issue a policy and, if so, the terms on which the policy is issued. A failure to comply with this obligation may allow the insurer to refuse to extend indemnity on subsequent claims or even to avoid the insurance contract altogether. It is important to make sure that proposals and renewals are considered in detail and it is better generally to provide more than less. If you are unsure, you can ask your broker or obtain some legal advice on whether the matter should be disclosed.
Retention of Title Clauses in sale of goods contracts
Generally ownership in goods sold is deemed to be transferred upon delivery of the goods to the buyer notwithstanding whether the purchase price has been paid in full or not. Clauses in agreements can amend this deeming provision to suit the seller’s particular needs. They are generally referred to as Retention of Titles clauses and are particularly useful when selling goods in cases where a purchaser has become insolvent before paying the seller for the goods, but has the goods in its possession. Generally, the seller would not be able to recover the sale price, or any balance of it, if the corporate buyer becomes insolvent (other than as any other creditor in the liquidation of the buyer). In these circumstances, as the goods are considered to be the property of the buyer and not the seller, the seller would become the buyer’s unsecured creditor.
To provide protection to a seller, it has become increasingly common for the seller to insert a condition into a contract of sale stating that the property in the goods sold is retained by the seller until the full price has been paid. If the buyer does become insolvent or fails to pay, the seller can rely on those contractual provisions and “rescue” their goods. The clauses can also be extended to operate favourably in a number of other ways such as:
- The property in the goods is not to pass to the buyer until the buyer pays all moneys owing to the seller and not just the purchase price;
- The seller is to retain the property in the goods where the buyer re-sells the goods to any sub-buyer;
- The seller is to obtain title to the proceeds of any on-sale by the buyer;
- The seller is to obtain title to any new product which the goods supplied become part of until the buyer’s indebtedness to the seller is fully discharged.
The effectiveness of the retention of title clauses depends heavily upon the precise wording of such clauses, therefore care must be taken to have them professionally drafted. |
