Insurance Contracts - No Need To Construe Exclusion Clauses Narrowly

Under the Third Party (Rights Against Insurers) Act 2010 (and the Third Party (Rights against Insurers) Act 1930 for liabilities and insolvency events occurring before 1 August 2016) a third party can claim directly against the insurer when the insured has incurred a liability to the third party and the insured has become insolvent.

The third party cannot, however, have any enhanced rights. It cannot be in a better position than the insured and any claim the third party makes will be subject to the same policy terms and conditions as a claim by the insured would have been.

In the case of Crowden and Crowden v QBE Insurance (Europe) Ltd [2017] the court provided some clear guidance on how exclusion clauses should be interpreted in an insurance contract - confirming again that any exclusion clause that would operate to extinguish a claim by the Insured would consequently operate to extinguish a claim by the third party.

Background

The claimants (the third parties (TP) in the claim against insurers) engaged the services of a financial adviser to provide investment advice. That investment advice was negligent. TP commenced legal proceedings and obtained judgment against the Insured in respect of the negligent investment advice received. The insured subsequently entered into liquidation and TP issued proceedings against QBE, claiming an indemnity under the insured's professional indemnity insurance (the policy).

QBE applied for summary judgment dismissing the claim, or an order striking out the claim. In the first instance they asserted they had no liability to the insured, as a result of an 'Insolvency Exclusion' contained in the policy. On that basis they had no liability to TP either.

QBE also asserted that the claimants had no right to bring the claim in any event - their rights having been assigned to the Financial Services Compensation Scheme (FSCS), from whom TP had received some compensation towards the losses they had suffered as a result of the negligent advice from the Insured.

The Insolvency Exclusion

The Insolvency Exclusion provided that QBE had no liability in relation to and claims or loss "arising out of or relating directly or indirectly to the insolvency or bankruptcy of the Insured... or any other business... with whom the Insured has arranged directly or indirectly any insurances, investments or deposits...".

QBE argued that the Insolvency Exclusion would apply to a claim made by the insured, and it therefore applied to the...