In Trustees Executors Limited v QBE Insurance (International)
Limited (HC Auckland, CIV 2009-404-1165), the High Court was asked
to interpret the Securities Exclusion in QBE's policy. This
decision is a good example of the High Court applying the plain and
ordinary meaning of words and not artificially reading down an
Trustees Executors Limited (TEL) provided
investment administration services and mortgage lending as part of
its business. TEL managed the TOWER Mortgage Plus Fund (the
In 2007, 16 loans made by the Fund were in default. These loans
were made outside the approved loan criteria agreed between TOWER
and TEL. TEL agreed with TOWER that it would make good any losses
by investors as a result of the unauthorised lending.
TEL had a Professional Indemnity Policy
(Policy) with QBE. TEL made a claim against this
Policy for the settlement sums paid or to be paid to TOWER. QBE
said that the Policy did not cover this liability because of the
Securities Exclusion in the Policy.
The Securities Exclusion provided that there was no cover for:
'any Claim or Claims arising from or contributed to by
depreciation (or failure to appreciate) in value of any
investments, including but not limited to, property, shares,
securities, commodities, currencies, options and futures or
derivative transactions, or as a result of any actual or alleged
misrepresentation, advice, guarantee or warranty provided by or on
behalf of the insured as to the performance or characteristics of
any such investments.'
TEL sought a declaratory judgment that the Securities Exclusion
did not apply to the facts of this case.
The dispute was primarily about the meaning of the word
'depreciation' (or failure to appreciate) in the exclusion
TEL said that this phrase refers only to a loss of an investment
caused by market fluctuations or as a result of a mixture of market
fluctuations and negligence by the insured. QBE said the relevant
words cover any loss in the value of investments including any loss
arising from the negligence or contractual breach of the insured
whether together with, or independent of, a loss caused by market
In its interpretation, the High Court noted that the words of a
contract should have their ordinary meaning, unless the context
clearly requires otherwise. The High Court also noted that in
relation to exclusion clauses:
The onus of establishing that an exclusion clause applies is on
Exclusion clauses should be narrowly construed.
Ambiguities are generally to be construed against the insurer
if they have drafted the Policy.
The High Court was satisfied that:
The ordinary meaning of 'depreciation' is a loss of, or
diminution in, value.
There is nothing in the context of the Securities Exclusion in
which the word appears or in the insurance contract itself or in
commercial common sense which requires a different meaning.
The word 'depreciation' (or failing to appreciate) does
not have any special meaning in an insurance contract or in the
context of the Policy.
Applying the technical accounting definition of depreciation
There was nothing unusual about a policy like this that covers
all of the insured's (TEL's) business, not just the lending
activity, and for the Policy to exclude indemnity for loss of value
of investments, however caused. As the mortgage lending activity
was only a small proportion of TEL's business, the application
of the exclusion did not result in the policy lacking business
The Securities Exclusion clause applied to exclude TEL's
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).