The Full Court of the Federal Court has considered the disclosure obligations of a person who is noted on a policy but who did not take out the cover. Basically, there are none.
American Home Assurance issued a professional indemnity policy to Company A. Company B – a subsidiary of Company A – was noted as an insured in an endorsement on the policy.
Company B ran into trouble for giving financial advice about derivatives when not licensed to do so. It sought indemnity under the policy, but the insurer declined on the basis that it had not been disclosed by Company B that it would be dealing in derivatives.
The Court unanimously confirmed Company B’s entitlement to claim, because it was noted on the policy (see section 48 of the Insurance Contracts Act), but also decided that it had no obligation of disclosure because it was not ‘an insured’ for the purpose of section 21 of the Act. So the insurer had to provide indemnity.
American Home Assurance Company v Local Government Financial Services Pty Ltd
Underwriters are frequently asked by brokers to note the interest of another party on a policy. They should think carefully before doing so, because they may be taking on an additional and different or unknown risk, often for no extra premium.