The body corporate for a villa complex on Hamilton Island has lost its bid to use an after-the-event insurance policy as security for costs in legal action against IAG.

Great Barrier Reef Yacht Club Villas is suing IAG and building company Paynters over allegedly defective repairs following Cyclone Debbie in 2017. The cost of rectification work is estimated at more than $15 million.

Last year, IAG and Paynters successfully applied to the Queensland Supreme Court for a security order for costs.

The court ordered the villa group pay into the court $437,549 as security for the insurer and $863,898 as security for Paynters.

The money was not paid within the 28 days ordered and the villa owners applied to the court for a variation to the order so the insurance policy could be accepted as security instead of cash.

UK after-the-event and litigation insurance specialist Litica arranged the cover, which was underwritten by Lloyd’s, and Litica provided an anti-avoidance endorsement.  

The policy was incepted in May, but neither IAG nor Paynters agreed to the arrangement.

Handing down his decision this month, Justice Tom Sullivan said the security order last year called for actual money to be paid into the court.

It seemed “improbable” that the court registrar would accept anything short of the equivalent of cash.

IAG and Paynters argued a court would prefer security in a form that could be accessed within the jurisdiction with minimum risk, including the risk of cost and delay.

Justice Sullivan said the original costs order was made after a two-day contested hearing, and the order dealt with both the amount and form of security.

A director of the body corporate said he did not know about after-the-event cover until after the order was made, but Justice Sullivan said the body corporate could have found out about the insurance earlier. 

See the ruling here. 

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