REFORMING INSURANCE LAW: - Law Commission

the risk and is purely administrative: there is no reason to deny the assured coverage for breach
in such circumstances. 337 If the policy is facultative, so that a risk must be both offered by the
assured and accepted by the insurers, failure by the assured to notify is in effect failure by the
assured to make an offer to the insurers so that no contract in respect of the risk in question could
ever have come into existence. This cannot be an omission at all: if it were, the law would be
saying that an assured is entitled to recover from insurers to whom he failed to put a proposal.
The difficult case is that of the facultative obligatory contract under which the assured has the
option but not the obligation to notify a risk, and if he does so then the insurers are bound by it.
Failure to notify in such a case is probably to be construed as an omission so that a later
notification is permitted. The English courts have held that the cut off date for a notification is
the date on which the assured became aware of the loss, 338 as the assured would otherwise be
betting on the race after it had been run. This outcome is obviously right, and could be
implemented by a statutory provision which stated that an option to create an insurance cannot
be exercised once the loss has occurred or is known by the assured to have occurred. 339 It may be
that the 1984 Act is as things stand to be construed in this way. In Kelly v New Zealand
Insurance Co Ltd 340 the assured had an option to extend their cover by declaring specified items
to the insurers: their failure to do so was held to be outside s 54 because it was “inaction” rather
than “omission”. That reasoning clearly can no longer stand in the light of the abolition of that
distinction in Antico v Heath Fielding Australia Pty Ltd 341 and FAI General Insurance Co Ltd v
Australian Hospital Care Pty Ltd 342 but it must surely be right that an assured cannot choose to
opt into cover by paying additional premium after a loss has occurred.
7.12 The liability insurance tangle. The confusing case law on this matter has gradually settled
down. 343 The majority of the High Court of Australia in FAI General Insurance Co Ltd v
Australian Hospital Care Pty Ltd 344 confirmed that an omission for the purposes of s 54 includes
a failure by the assured to exercise a right, choice or liberty which he enjoys under a contract of
insurance and is not restricted to obligations. The position is now as follows. 345
(1) If the policy permits the assured to notify circumstances which may give rise to a
loss during the currency of the policy, and the assured fails to do so, this is an
omission falling within s 54(1) which is capable of being excused to the extent
337
Cf Glencore International AG v Ryan, The Beursgracht [2002] Lloyd’s Rep IR 335, which shows that English
law can reach this conclusion as long as the obligation to notify is not a condition precedent.
338
Cf Glencore International AG v Alpina [2003] 1 Lloyd’s Rep 1, which raises the possibility that the relevant date
is the date of the loss whether or not the assured is aware of it.
339
A deliberate decision not to notify in advance of the loss, coupled with an actual notification after the loss, would
doubtless be regarded as breach by the assured of his duty of utmost good faith as set out in s 13 of the 1984 Act.
340
(1996) 9 ANZ Ins Cas 61-317
341
(1997) 188 CLR 652.
342
(2001) 204 CLR 641.
343
CA & MEC McInally Nominees Ptd Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 11 ANZ Ins Cas 61-507;
Gosford City Council v GIO General Ltd (2002) 12 ANZ Ins Cas 61-527.
344
[2001] HCA 38.
345
Claims made and notified policies are not used in England, so the ruling in East End Real Estate Pty Ltd v C E
Heath Casualty & General Insurance Ltd (1992) 25 NSWLR 400 that a failure to notify within the policy period
could be excused by s 54 is of no relevance.
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