Arbitration in Australia

In Westport Insurance Corporation and Ors v Gordian Runoff Ltd [2011] HCA 37 arbitrators ruled that reinsurers were liable to the reinsured in that the losses fell within the scope of a reinsurance treaty. An appeal from that decision has, over a period of years, filtered up to the High Court of Australia, which has by a majority overturned the original award on a number of grounds, including error of law and failure by the arbitrators to give adequate reasons.

Westport: the contracts

Gordian wrote both professional indemnity and directors’ and officers’ (D&O) liability insurance in Australia. The policies were, in accordance with the practice in Australia, written on a claims made and notified basis, so that cover applied where a claim was made against the assured, and notified by the assured to the insurers, in the policy period. The claim had to relate to a wrongful act committed by the assured after the ‘retroactive date’ as specified in the policy. One of the policies written by Gordian (in conjunction with a Lloyd’s Syndicate) was in favour of FAI Insurance. In the latter part of 1998 FAI was taken over by Winterthur, and FAI’s broker negotiated a run-off policy with Gordian, under which Gordian would for a claims made and notified period of seven years indemnify FAI for all claims arising out of wrongful acts committed before 31 May 1999. Accordingly, claims made and notified up to 31 May 2006 were insured. The run-off policy was entered into on 23 December 1998 and attached on 1 January 2000.