Creation and scope of policy

The decision of the Victoria Supreme Court in Leading Synthetics Pty Ltd v Adroit Insurance Group Pty Ltd [2011] VSC 467 deals with a number of points of interest both generally and in relation to credit policies. The general issues are whether a contract existed and whether it had been brought about by non-disclosure; the specific point was whether a policy came into effect where the customer whose account was protected was in debt at that stage.

Leading Synthetics: the facts

LS was the supplier of synthetic resins to customers who used it to manufacture plastic containers. One of the customers was Signum Specialities Pty Ltd (SSPL). In 2007 and 2008 SSPL purchased resins from LS on terms that payment would be made within 60 days. In the event SSPL defaulted and was placed into liquidation in November 2008, at the time owing LS some AUS$2,265,000. LS sought to recover policy limits of AUS$800,000 from Atradius Credit Insurance NV (ACI), credit insurers. ACI denied that there was any binding agreement with LS. The circumstances of the putative placement were that in 2007 LS had instructed the defendant brokers, Adroit Insurance Group Pty Ltd (AIGP), to place insurance against the risk that SSPL might default. All of the terms of the policy were settled by 28 April 2008, on which date it was agreed that cover would commence on 1 April 2008. However, shortly before the agreement, ACI had sent LS a document entitled ‘Indication of Terms’. This stated that: ‘These terms are provided without commitment on the part of [ACI] until such time we provide you with written confirmation that we are on risk for your transaction and agree to issue a policy.’