Calliden is challenging an appeal court decision that two brothel owners whose premises suffered an arson attack were not required to disclose their membership of an outlaw motorcycle gang.

On January 1 2012 The Gentleman’s Club in Canberra was burned in suspicious circumstances. Its co-owner and sole director, Baris Tukel, was a Comanchero sergeant-at-arms.

Calliden refused to pay a $500,000 claim from Mr Tukel and his brother and co-owner Fidel, on the grounds they had failed to disclose their Comanchero association.

In 2015 the NSW Supreme Court found in Calliden’s favour.

But in April this year the Tukels won an appeal on the grounds a reasonable person could not be expected to know whether it was relevant to disclose the bikie association. Calliden has now appealed the decision to the High Court.

NSW Court of Appeal judges said the Tukel brothers could reasonably understand that a company that insured brothels would expect people with criminal connections to be involved in using the premises. Further, a reasonable person might expect that – if it were concerned – the insurer would have asked a question about such associations in its proposal form.

Calliden’s appeal to the High Court proposes a “reasonable person” in its position would not assume those operating a legal brothel would be criminals or associated with criminals.

One important question the case has raised is whether Calliden should have asked upfront whether the brothel owners had any criminal associations.

Andrew Sharpe, Principal at law firm McCabes, says that in this regard the case has far-reaching implications for insurers.

“In the event that Calliden’s appeal is not successful, insurers will be asking serious questions as to whether they need to put more into their proposal form,” he said. “Insurers have been going in a different direction [recently], with more concise proposals for ease of transacting business.”

He says insurers may have to weigh up the costs of asking extra questions and potentially shrinking their pool of insureds.