Federal Court Rules on Duty of Disclosure in Tempo Holidays Insurance Case

The Federal Court of Australia has handed down a judgment in the case of Fitzgerald in the Matter of Tempo Holidays Pty Ltd in liq v Tully Berkley Insurance Australia [2024] FCA 391, which considered the application of the duty of disclosure in insurance contracts. The case involved Tempo Holidays, part of the Cox Kings travel group, which went into administration in 2019.

The liquidator of Tempo Holidays commenced proceedings against director Patrick Tully for insolvent trading and breach of directors' duties. The liquidator also sought indemnity from Berkley Insurance Australia (BIA) under Tempo's Management Liability Policy.

The court found that Tempo had breached its duty of disclosure to BIA prior to the policy's inception. If BIA had been aware of the relevant matters, it would not have accepted the risk. As a result, the court dismissed the liquidator's claim against BIA, finding that the plaintiffs had not established the reasonableness of the settlement with Tully.

Why this matters: The case highlights the importance of the duty of disclosure in insurance contracts and the consequences of failing to disclose material information to insurers. It functions as a prompt for businesses to ensure they fully comply with disclosure obligations when obtaining insurance coverage.

The judgment provides clarity on the application of the duty of disclosure in the context of management liability policies and the implications for liquidators seeking indemnity from insurers. It emphasizes the need for full and accurate disclosure to enable insurers to properly assess and price the risk they are undertaking.

Key Takeaways

• Federal Court ruled Tempo Holidays breached duty of disclosure to insurer BIA.
• Liquidator's claim against BIA for indemnity under policy was dismissed.
• Court found Tempo's non-disclosure prevented BIA from properly assessing the risk.
• Case highlights importance of full disclosure to insurers when obtaining coverage.
• Judgment provides clarity on duty of disclosure in management liability policies.