Professional Indemnity: Cover For Co-Insureds

The reversal of the first instance decision in Brit Syndicates and others v Italaudit SpA and another highlights the dangers of ambiguous policy wording, as well as the difficulty of avoiding it.

Facts

Brit wrote a professional indemnity insurance policy for the organisation of accountancy firms practicing under the name Grant Thornton, which, at the time, included the Italian member firm now known as Italaudit SpA ("GT Italy"). Under Extension 3 of the policy, Grant Thornton International ("GTI"), the not-for-profit umbrella corporation which manages the organisation, was included as an Assured Firm solely in respect of claims made against it "arising from claims made against a member firm of [GTI] insured by the terms and conditions of this policy".

A class action suit was brought in the USA against Grant Thornton Italy and GTI arising out of an audit carried out by GT Italy of a subsidiary of Parmalat Finanziaria, SpA. GTI's liability was said to arise as an entity said to be in control of GT Italy.

Brit avoided the policy as against GT Italy on the grounds of misrepresentation and/or non-disclosure. It was not disputed that this was valid. However, Brit also asserted that the consequence of avoidance was that GT Italy was not at any time "a member firm of GTI insured by the terms and conditions of this policy", and so it followed that GTI was also not entitled to be indemnified under the policy. Brit brought proceedings seeking a declaration to this effect.

Issue

The question at issue was whether the words "insured by the terms and conditions of the policy" in Exclusion 3 was simply descriptive of the member firms listed in the Schedule (in which case GTI's status was not altered by avoidance of the policy), or whether they qualified the prior word "claimed" and meant "entitled to an indemnity" or "validly insured" under the policy.

Decision

At first instance, the court held that the wording in question was descriptive, and GTI was granted summary judgment. The judge said that he saw no reason why the composite nature of the insurance should not extend to GTI when it fulfilled the stated criteria and thought that, in principle, GTI should not then be affected by the conduct of other assureds of which it was ignorant. This conclusion avoided the uncertainty which would arise if cover for GTI was dependent on the conduct of a member firm and on whether the policy responded to that member firm (which would of course often be in...