Australia is a federation of states and territories bound together by the Australian Constitution. It has an overarching federal system of government with its own courts, although each state and territory within the federation has its own government and courts system.

Like most countries that formed part of the British Empire, Australia’s government is modeled on the Westminster system, and an independent judiciary is a central hallmark. Australia’s legal framework was also inherited from English common law.

Insurance and reinsurance law are no different, although there have been statutory and regulatory modifications, including the enactment of the Insurance Contracts Act 1984 (Cth) (ICA) and the Corporations Act 2001 (Cth). The ICA aims to strike a fair balance between the interests of insureds, insurers and other members of the public, and to ensure that provisions in insurance contracts and the practices of insurers in relation to such contracts operate fairly.

The Australian insurance industry continues to grapple with many evolving challenges and opportunities, such as:

• the softening market and increased competition from new entrants;
• the heightened focus and enforcement by the corporate regulator (ASIC) and the prudential regulator (APRA) in relation to misconduct and governance issues; in particular, ASIC has become very active in prosecuting greenwashing claims and other misleading conduct;
• the challenging economic environment, including stubbornly high inflation, which, in turn, contributes to claims inflation for insurers;
• the prevalence of concussion and other head-injury claims, as well as historical abuse claims; and
• the increasing frequency and severity of data-breach and cyber-related claims, which show no sign of abating and will generate new risk exposures beyond traditional cyber-related losses; coupled with proposed reforms to privacy laws, this will continue to generate significant claims activity.

This article provides a snapshot of some key issues and the likely trends and developments facing industry participants and various lines of business.

Directors and Officers, Professional Indemnity and Financial Institutions

Class actions

Class actions remain an ever-present challenge for financial lines insurers when pricing and considering risks and managing the subsequent fallout.

While the rate of new side C filings has slowed, class actions are an enduring risk in the Australian litigation landscape. As an example, three securities class actions against Evolution Mining, Domino’s Pizza and Wisetech were filed in the second half of 2024. Financial institutions and superannuation funds also remain a favoured target of class action promoters. Otherwise, the current scorecard of those securities class actions which have gone to judgment in Australia stands at 5–0 in favour of defendants and their insurers, although two of those matters (CBA and Worley) are subject to extant appeals. Our experience suggests that there has been something of a cultural shift in the willingness of the big corporates to defend large-scale Side C claims. This development should push plaintiff law firms and litigation funders into new areas such as ESG, climate, cyber and privacy/data breaches. The latter should be facilitated by proposed reforms to privacy laws in Australia announced by the Federal Government including a new statutory tort of serious invasions of privacy.

Solicitors’ fund orders (not dissimilar to a contingency fee) have been held permissible by the Full Court of the Federal Court of Australia in the Blue Sky litigation. The availability of such orders is likely to be another driver for new class action filings in the Federal Court. New South Wales is likely to remain an unattractive jurisdiction for new class action filings, given that certain authorities prohibit pre-mediation class closure and related orders, unlike other jurisdictions. However, in November 2024, the High Court of Australia heard an appeal in the Lendlease class action as to whether the New South Wales Supreme Court has the power to make such orders. Judgment remained reserved as at late November 2024. The filing of competing class actions is still an issue; while this increases costs and delays, the Courts now generally make orders that require a defendant to defend one action only.

D&O

Australian businesses are seeking to navigate a challenging economic environment, and this is likely to generate more corporate collapses, especially in the construction, retail and hospitality sectors. These economic pressures should lead to more insolvent trading claims, as well as pre-litigation investigations and examinations of D&Os (and, for that matter, professional advisers). 

Our experience indicates that the regulators are deploying all the tools at their disposal to investigate and prosecute D&O and other corporate misconduct, including with respect to greenwashing and cyber security. This shows no signs of abating, and, if anything, the trend will continue for some time. It is also not uncommon for a third-party claim to follow a successful prosecution, often in cases where the defendant has made admissions in the prosecution which then form the basis of the third-party civil proceedings.

Along with ESG-related concerns, actions relating to “AI washing” may feature more prominently as businesses play catch-up with the new technology and seek to promote their AI credentials to the market. AI will also pose new risk-management challenges for boards and executives, including with respect to privacy, copyright and confidentiality issues. On this point, while the subject matter of regulatory investigations/prosecutions and third-party claims may change, broadly speaking, the nature of the obligations remains the same – ie, a company and its D&Os should not misrepresent the facts, and should not express an opinion unless it is reasonably based.

As companies are under financial strain and fail to meet their tax liabilities, the Australian Taxation Office is issuing more and more penalty notices to directors which require them to personally pay those unsettled amounts. This is one area to watch, as some D&O policies provide cover for such liabilities, which arguably poses a moral hazard risk.

Professional indemnity

In the professional indemnity arena, financial-services providers (including financial planners) and their insurers remain frustrated with the external dispute resolution process of the Australian Financial Complaints Authority. In addition, the recently established Compensation Scheme of Last Resort (CSLR) has caused significant headaches for the financial services industry. The CSLR has been established to pay compensation to claimants in AFCA in circumstances where an award has not been paid by an AFCA Member.

The CSLR is subrogated to the right of recovery against the AFCA member (or liquidator). The CSLR is funded by a levy on each relevant industry subsector capped at AUD20 million per year. However, due to catastrophic losses arising from the Dixon Advisory failure totalling approximately AUD135 million, it seems clear that the levy of financial advisors will breach the subsector cap significantly for the next levy period, causing real commercial strain to the sector.

The construction industry remains a significant area of concern. It is still the epicentre of insolvency activity in Australia as the long-standing effects of inflation on fixed-price construction contracts continue to cause pain. Anticipated latent problems arising from these unprofitable projects are creating concern.

Otherwise, it is expected that professional indemnity claims will continue to be filed at the usual rate, but with a particular emphasis on advisers of failed companies and insolvency practitioners in the context of the global and national economic headwinds.

Cyber matters

This year has seen the long-awaited introduction to Federal Parliament of the of the next tranche of reforms to the Privacy Act. The most substantial reforms to be introduced by the proposed amendments are the creation of a new statutory tort for the serious invasion of privacy and a new criminal offence of “doxing”.

In relation to the new statutory tort, an individual may sue for a serious invasion of privacy where that person had a reasonable expectation of such. A plaintiff will need to establish, as a necessary element of the cause of action, that there has been an invasion of privacy either by intrusion upon the plaintiff’s seclusion or the misuse of information that related to the plaintiff and that the intrusion was serious. The plaintiff will not need to establish harm to establish the seriousness of the intrusion, but the Court will be entitled to consider “the degree of any offence, distress or harm to dignity that the invasion was likely to cause…”.

However, there is a reasonably high threshold for plaintiffs to cross: they will need to establish that there has been an element of fault on behalf of the defendant (ie, that that the misuse of the information was intentional or reckless rather than merely negligent). The largest data breaches in Australia, including Optus and Medibank, have involved breaches by hackers enabled by negligent failures at the target. There may be avenues available to plaintiffs to pursue actions for accidental disclosures where the data-handling process of the disclosing entity can be described as reckless.

Finally, a Court will have flexibility in relation to the remedies awarded, which could include awards for non-economic loss and an apology. There is a cap for non-economic loss of AUD478,550 or the maximum damages available for non-economic loss in defamation. This will overcome a problem that has confronted claimants who have not previously been able to identify an economic loss but have not been able to access compensation for emotional distress in claims for breach of confidence or contract.

The Bill also proposed to introduce the criminal offence of “doxing”, which is the release of an individual’s personal data in a way that enables them to be identified, contacted or located. Personal data is defined to include an individual’s name, photograph or other image, telephone number, email address or residential or work address. The Bill introduces two offences: i) the publication of personal data in a way that a reasonable person would consider menacing or harassing (with a maximum sentence of six years’ imprisonment); and ii) a further offence whereby a person or group is targeted due to race, religion, gender, sexual orientation, intersex status, disability, nationality or ethnic origin (with a maximum sentence of seven years’ imprisonment).

Otherwise, the costly implications of data breaches continue without any clear indication as to how victims of data breaches can be best placed to recover compensation, while the companies at the centre of the breaches bear the extraordinary cost burden of defending multiple actions. Medibank and Optus face consumer class actions in the Federal Court in addition to representative (or class action-type) complaints made to the Office of the Australian Information Commissioner (OAIC). In addition, Optus is now the subject of a civil penalties proceeding brought against it by the Australian Communications and Media Authority for failing to protect the confidentiality of the personally identifiable information of its customers.

There has been a rapid increase in the number of businesses taking up cyber-insurance. At the same time, premiums have stabilised and, in some cases, a fall in premium rates has occurred, particularly on excess layers. Nonetheless insurers continue to undertake stringent underwriting analysis, including, at times, the employment of third-party cybersecurity consultants to test the durability of a prospective insured’s systems.

Liability

Historical abuse and worker-to-worker claims continue to dominate the liability landscape in Australia, driving claims costs. The past year has seen significant intervention by the country’s highest court, the High Court of Australia, in these areas.

Vicarious liability

The High Court was called upon to consider the scope of the doctrine of vicarious liability (a form of strict liability whereby a defendant is attributed with the liability of another, despite the defendant being free of fault), and, particularly, whether vicarious liability can apply to relationships “akin” to employment.

The High Court emphatically rejected any extension of the scope of the doctrine beyond employment in finding that a relationship akin to employment between the Catholic Church and a parish priest, not employed by the Church, was not sufficient to impose a finding of vicarious liability.

This decision puts Australia at odds with the developed common law in both Canada and the UK and has, in the historical abuse context, led to demands for legislative reform to remove what is a significant bar to access to justice (more pragmatically, a fund for compensation) for victims. Whether the legislatures of each State and Territory of Australia will respond is questionable, given the Commonwealth Royal Commission into Institutional Responses to Child Sexual Abuse recommended relevant changes to the law occur only prospectively (not retrospectively), and legislation implementing changes to that effect (albeit differing between some States and Territories) already exists.

Permanent stay of proceedings

There has been considerable litigation this past year involving institutional bodies seeking to permanently stay historical abuse matters on the basis that the passage of time means there can be no fair trial.

The High Court considered this important issue in three instances. In doing so, it clarified that the abolition of limitation periods in Australia in historical abuse cases has not altered the long-standing principles (known as the Moubarak principles) by which applications of this nature should be considered. The abolition of limitation periods may inform the analysis, as claims can – and should – now be expected to be brought many years after relevant events. The passage of time will not (without more) enliven the courts’ power to grant a stay.

The lack of defendant success in seeking a permanent stay – in all three decisions given by the High Court the defendants either failed outright, or substantially failed – suggests that, even where historical abuse claims are made decades after the alleged events, a permanent stay will only be granted in the most exceptional circumstances. The high burden rests with defendants.

The coming year

In the coming year, defendants and their insurers may see a clarification of the law surrounding non-delegable duty (a personal duty/direct duty owed to ensure that reasonable care is taken). Observations made by the High Court in a number of cases suggest that it may be unlikely to overturn the current position (identified in New South Wales v Lepore) that a non-delegable duty does not extend to the prevention of intentional criminal conduct by a third party.

Key decisions

• Bird v DP [2024] HCA 41 – the relationship between a priest and a Church Diocese akin to employment did not give rise to the imposition of vicarious liability for abuse committed by that priest.
• GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32; Willmot v Queensland [2024] HCA 42; and RC v The Salvation Army (Western Australia) Property Trust [2024] HCA 43 – the permanent stay of a proceeding is fact specific, and will only be granted in the most exceptional of circumstances, with the passage of time accompanying historical abuse claims (now unencumbered by limitation periods) alone not a reason to grant a stay.
• Bishop of Wagga Wagga v TJ (a pseudonym) [2024] VSCA 262 – the Court of Appeal in Victoria reduced an award of general damages from AUD1.1 million to AUD550,000, and reduced exemplary damages from AUD1.3 million to nil, reining back expectations for damages assessments in Victoria.

Property and product

The cost of property claims involving damage to buildings sees no sign of decreasing, tied, in significant part, to labour shortages. The collapse of numerous mid-to-large scale building companies has also driven up claim costs, and has led to claims being made directly against insurers (statute makes provision for such direct claims). Claims inflation remains a problem with both first- and third-party (liability) insurance claims.

Cladding claims continue to present in all Australian jurisdictions against builders and others involved in the selection and approval of the use of flammable building protection. This is due, in part, to the lag between the identification and then rectification of the cladding issue. Additionally, there has a notable new party to claims in Victoria; with the State of Victoria joining litigation to recover money provided by it to owners and occupiers to address non-compliance.

In product liability, a number of legislative changes came into effect in November 2023, increasing the penalties for businesses that use unfair contract terms in standard form contracts between consumers and businesses. It is yet to be seen how these changes will impact product liability claims in Australia. It is worth noting that the Australian Competition and Consumer Commission (ACCC) released its safety priorities for 2024-25 which included a focus on product safety for young children (furniture, infant sleep products, baby bottles), product safety online, sustainability and maintaining product safety, emerging technology in consumer products and improving product-safety data. These safety priorities might be a good indicator to underwriters as to where claims could arise. Plaintiff law firms often commence product liability claims for consumers (or even class actions) arising out of media identification of product issues by the ACCC.

Related decisions

• The High Court recently handed down Mallonland Pty Ltd v Adanta Seeds Pty [2024] HCA 25. The court affirmed a previous ruling that a distributor’s disclaimer effectively limited liability for pure economic loss. The case involved a class action by farmers regarding sorghum seeds contaminated with shattercane (grass) in the Supreme Court of Queensland.
• In Western Australia, the Court of Appeal in Summit Rural (WA) Pty Limited v Lenane Holdings Pty Ltd [2024] WASCA 122 found the appellant lessee of heavy machinery liable for fire damage. There was a contractual requirement for the master key to be turned off each night, which isolated the battery in the machine. The Court found that leaving the master key on was a breach which led to a foreseeable risk of damage.