Can an insurer insist on a deed of indemnity from a builder/developer when granting building warranty insurance? In this case, Allianz agreed to issue home building insurance to Avcon Constructions only if the directors of Avcon executed deeds of indemnity in its favour. When a claim was brought under the policy for building defects, Allianz settled the claim and brought proceedings against the directors to enforce the indemnity and recover the amount of the settlement sum plus legal costs and interest.

The court awarded Allianz $1.8 million, rejecting the directors’ argument that the insistence on the deeds of indemnity was unconscionable conduct under Trade Practices Act 1974 (Cth) ss 51AA or 51AC. The deeds were held to be reasonably necessary to protect the commercial interests of Allianz in circumstances where it was faced with an insurance application from an inexperienced builder/developer, and where there was evidence that the insistence was based on reasonable financial concerns. The decision contains a useful discussion of the concept of unconscionable conduct, as well as the Home Building Act 1989 (NSW). It indicates that where an insurer requires a deed of indemnity before it will issue insurance, an inequality of bargaining power between the parties will not necessarily make the insurer’s conduct unconscionable.

An appeal against this decision was dismissed (see Vitale v Allianz Australia Insurance Limited [2014] NSWCA 358).

You can access the reasons for judgment here.