A refurbishment contract entered into by the insured led to arbitration which the insured settled without the insurer’s authority on the basis of a ‘cap and collar’, capping the award if the claimant was successful and agreeing to a payment of USD2 million if the claim failed.

The claim failed and the insured claimed the USD2 million it owed from its liability insurers.

The insurance claim failed because the right to indemnity under the policy only arose upon the liability of the insured being established by a judgment, arbitration award or agreement.

The agreement in this matter was only provisional and depended on the outcome of the award. The amount paid was not an amount determined but the agreed collar. There was therefore no ‘occurrence’.

The insured had not established legal liability to the third party for USD2 million independently of the cap and collar agreement.

The insured also failed because the claim was excluded by the professional advice exclusion and because it had not fulfilled the condition precedent requiring notification of claims or circumstances that may give rise to a claim. The insured proceeded with the arbitration for more than two years before claiming an indemnity from its insurer.

[The case is Weir Services Australia (Pty) Ltd v Axa Corporate Solutions Assurance [2017] NSWSC 259]