Is failing to disclose you are a member of an outlaw Bikie Gang relevant to an Insurance Claim? The New South Wales Supreme Court says “Yes”.
In Stealth Enterprises Pty Limited trading as The Gentleman’s Club v Calliden Insurance Limited [2015] NSWSC 1270, a Canberra Brothel’s insurance claim for damages as a result of a fire has been rejected after it was found the brothel had connections to a bikie gang and failed to disclose these connections.
The Facts
A company, Stealth Enterprises Australia Pty Ltd (‘Stealth Enterprises’), owned and operated a brothel in ACT, which traded as The Gentleman’s Club. The brothel’s premises was insured for fire and business interruption under a policy with insurer, Calliden Insurance Ltd (‘Calliden’). A fire on 1 January 2012 resulted in damage to the premises and the brothel ceasing to trade.
Calliden denied the claim in two parts:
- Stealth Enterprises had failed to disclose that the sole director and the manager were members of the Comancheros bikie gang; and
- The brothel was no longer registered under the Prostitution Act 1992 (ACT).
There was no allegation of fraud by Stealth Enterprises in the above non-disclosures.
Disclosure Obligations
The onus fell on Calliden to establish the non-disclosure under sections 21 and 28 of the Insurance Contracts Act 1984 (Cth).
On the evidence, the Court was satisfied:
- Membership of the Comancheros was relevant to Calliden’s decision to accept the risk of insuring the brothel;
- Had Stealth Enterprises disclosed its association with the bikie gang, Calliden would not have issued or renewed the policy; and
- Had Stealth Enterprise disclosed the lapse of the registration under the Prostitution Act 1992 (ACT), Calliden would not have renewed the policy.
With respect to the relevance of the Comancheros membership, the Court found the test is one of reasonableness as established in CGU Insurance Limited v Porthouse [2008] HCA 30 at [53]:
“A test of disclosure, which operates by reference to both the insured’s actual knowledge and the knowledge of a reasonable person in the same circumstances, is calculated to balance the insured’s duty to disclose and the insurer’s right to information. The insurer is protected against claims where the insured’s disclosure is inadequate because the insured is unreasonable, idiosyncratic or obtuse and the insured is protected from exclusion from cover, provided he or she does not fall below the standard of a reasonable person in the same position.”
The evidence given by Calliden established that membership of the Comancheros gave rise to risks relevant to Calliden’s decision to insure. At the time of inception of the policy, it was a matter of common knowledge that the Comancheros was a bikie gang, known to engage in activities that may result in property damage or personal injury.
The Court was satisfied that a reasonable person could be expected to know that membership of the Comancheros was relevant to Calliden’s decision to accept the risk of insuring the brothel.
The Result
It was found that if Stealth Enterprises had disclosed:
- its association with the Comancheros, and/or
- its non-renewal of the brothel licence,
Calliden would not have issued or renewed the policy.
In the circumstances, the Court allowed Calliden to reduce its liability to nil pursuant to section 28(3) of the Insurance Contracts Act 1984 (Cth).
The Court held that Calliden had validly denied Stealth Enterprises’ claim.
