The difficulty with proving fraudelent non-disclosure

Readers may recall our previous entry in July 2012 on the decision of Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2012] NSWSC 608. In that case, the Supreme Court of NSW held that the insurer was entitled to avoid a trade credit insurance policy (pursuant to section 28(2) of the Insurance Contracts Act 1984 (Cth)) due to fraudulent misrepresentation by the insured. However, in Prepaid Services Pty Ltd & Ors v Atradius Credit Insurance NV [2013] NSWCA 252, the NSW Court of Appeal found otherwise.

The NSW Court of Appeal noted that, in order to establish fraudulent misrepresentation, it must be proven that the representor had no honest belief in the truth of the representation in the sense in which they intended it to be understood. It was not sufficient to demonstrate that, on an objective assessment, the relevant conduct was careless, excessively lax or reckless. The relevant test was whether the representor’s state of mind was one of conscious indifference as to the truth or falsity of the representations. The court held that the evidence was not sufficient to establish this threshold, such that the insurer was not entitled to avoid the policy.

The question of whether the insurer could alternatively rely on section 28(3) of the Insurance Contracts Act 1984 (Cth) to reduce its liability was remitted to the primary judge for further hearing. The Insurance Flashlight team will monitor and keep you informed of further developments.

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