Litigation between Optus and Attradius Credit Insurance NV has given rise to a number of reported judgments.
Optus made a claim under its trade credit policy after some of its major customers went broke, owing Optus over $60M. The insurer reduced its liability for the claim to nil pursuant to section 28(3) of the Insurance Contracts Act on the basis that the insurer would not have granted cover if Optus had given truthful and complete answers in the proposal. The relevant answers concerned the credit-worthiness of one of Optus’ customers.
Section 28(3) allows an insurer (which has not avoided the policy) to reduce its liability for a claim to the amount that would place the insurer in the position in which it would have been if the failure to disclose had not occurred.
The trial judge found in favour of the insurer. Optus appealed on the basis that the insurer had only called its most senior decision-maker to give evidence, and not also the employees from lower down the chain of command who would have had input into the final decision.
The NSW Court of Appeal rejected Optus’ argument:
“It was not incumbent upon [the insurer] to prove each step that would have been taken within its organisation in the hypothetical circumstance that section 28(3) of the Insurance Contracts Act required to be addressed. Section 28(3) does not specify any particular mode of proof that need be adopted by the insurer. It is sufficient for it to prove on the balance of probabilities what the outcome would have been in the hypothetical circumstance. [The insurer] did this.”
Prepaid Services Pty Ltd v Atradius Credit Insurance (2015).
In order to prove that an insurer would not have accepted a risk if proper disclosure had occurred, no particular kind of proof is required such as calling every person involved in making the decision to give evidence. It is sufficient if the evidence adduced by the insurer proves on the balance of probabilities what the outcome would have been if, hypothetically, proper disclosure had occurred.