Exclusion Clauses - Crowden v QBE Insurance

Court confirms insurance policy exclusions are not construed narrowly/scope of an insolvency clause

The claimants brought a claim under the Third Parties (Rights against Insurers) Act 1930 against the professional indemnity insurers of their financial adviser. The adviser gave allegedly negligent investment advice in respect of bonds issued by a company which then went into liquidation (and so defaulted on payments due to the claimants).

The insurers applied for summary judgment or strike out on two grounds:

(1) The claim fell within the Insolvency Exclusion in the policy issued to the adviser (and the claimants could have no better claim than the adviser's claim under the policy). The Exclusion excluded any claims or loss "arising out of or relating directly or indirectly to the insolvency of the insured or of any...business...with whom the Insured arranged directly or indirectly any...investments".

The judge, MacDonald Eggers QC, rejected an argument that in order for an insurance exclusion clause to exclude negligence from cover, it should make express reference to negligence. Unlike exemption clauses in ordinary contracts, "The position in respect of insurance contracts is wholly distinguishable in that an exclusion clause in an insurance policy is not designed to exclude, restrict or limit a primary liability on the part of the insurer; instead, it is intended to define the risk which the insurer is prepared to accept by way of the insurance contract. Further, the exclusion clause in an insurance policy does not ordinarily operate to deprive the insured of rights which existed prior to or but for the cover afforded by the Policy". Accordingly, no contra proferentem approach to construction applied.

Furthermore, the language of the exclusion was "relatively clear". The causative effect of the relevant insolvency "need to be as strong or efficient so as to constitute a proximate cause". If a proximate cause was required, the exclusion would not have used both "arising out of" and "relating...to" (the latter phrase might be construed in some instances as only requiring "a mere connection or relation, by way of a common causal history" (although that was not suggested by the parties here). The use of the word "indirectly" strengthened the judge's view. He concluded that here "for the Insolvency Exclusion to apply, it must be specifically accountable as a cause of the claim, liability or loss: in this sense, it must be significant; it must...

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