Insurance Law Monthly

It has for many years been the practice for arbitration clauses in insurance policies to draw a distinction between quantum disputes (which are to be arbitrated) and liability disputes (which are to go to court). In one sense every dispute under an insurance policy is a quantum dispute, in that it inevitably affects how much - if anything - will ultimately be paid by the insurers.

The decision of Jagot J in the Australian Federal Court in FKP Commercial Developments Pty Ltd v Zurich Australian Insurance Ltd [2022] FCA 862 addressed the relationship between a mechanism for the allocation of any claims against the assured between insured and uninsured loss and the provisions of the policy for the advance payment of defence costs. There was a further, and ultimately determinative, question of whether the claims against the assured were based on the provision of professional services so as to fall within the scope of cover.

In England, the principle of utmost good faith is not an implied contractual term but rather informs the actual agreement between the parties and their conduct in carrying it out. In Catlin Australia Pty Ltd v Diamond World Jewellers Pty Ltd [2022] NSWCA 282 the New South Wales Court of Appeal has upheld the first instance decision of Schmidt J in [2021] NSWSC 1431, which discussed at length how utmost good faith can affect both parties in the claims process. The appeal was largely based on procedural matters and the manner in which the case had been argued.

In Newcastle Resources Pty Ltd v Certain Underwriters at Lloyd's [2022] NSWSC 1485 Stevenson J addressed some important issues on the construction of a defence costs clause which provided cover for insured claims only. The key question was whether the claims were insured, but that gave rise in turn to questions of allocation of defence costs and advance payment where the amount of defence costs was tied to the ultimate liability of the insurers for the claims against the assured.