Australia: Insurance - Professional Indemnity - Exclusion Relating To Known Claims And Known Circumstances

Last Updated: 21 August 2008
Article by Clive Curwood

CGU Insurance Limited -v- Porthouse [2008] HCA 30

Gummow, Kirby, Heydon, Crennan and Kiefel JJ

In Brief

  • Professional Indemnity Insurance.
  • The response to a question in a proposal requiring disclosure of any circumstance which a reasonable person in the insured's professional position would have thought might result in an allegation of a liability that might be covered by the policy must be judged objectively to determine whether a hypothetical reasonable person in the same professional position of the insured ("standing in his shoes") would have thought that there was a reasonable (not a fanciful or remote) possibility (not a certainty) of an allegation being made.
  • The disclosure must be of "allegations" and therefore does not require insured to make a judgement as to whether the claim is likely to be successful.

Background Circumstances

  • A barrister was found liable to a personal injury plaintiff client (who had sustained injury performing community service whilst on parole) because he wrongly advised that the plaintiff's claim was not covered by the Workers Compensation Act.
  • The Crimes (Administration of Sentences) Act 1999 provided that the relevant provisions of the Workers Compensation Act applied to any award of damages in respect of personal injury incurred while involved in community service work.
  • On 27 November 2001 amendments to the Workers Compensation Act came into effect which prohibited the awarding of damages unless the injury resulted in a degree of permanent impairment that was at least 15%. This amendment applied to proceedings commenced on or after 21 November 2001. This proposed amendment had become well known in New South Wales prior to November 2001.
  • It was not contested that the plaintiff's injury was serious but not a 15% impairment. He would have been able to prosecute a claim for damages under the law prior to November 2001 but, so it was found, could not do so thereafter.
  • The barrister gave advice in June 2001 and on 26 November 2001 was instructed to draft a Statement of Claim. He did so on 6 December 2001 and it was filed on 11 December 2001.
  • In November 2002 the solicitors for the defendant wrote to the solicitors for the plaintiff advising that the injury did not reach the 15% threshold required by the 2001 amendment.
  • The plaintiff's case proceeded firstly to arbitration (4/11/02) and then to a re-hearing before a judge of the District Court (29/8/03). Both decisions were in favour of the plaintiff and an award of damages was made on the basis that the plaintiff's claim was covered by the provisions of the Workers Compensation Act as it stood prior to the 2001 amendments. The defendant appealed and on 27/8/04 the Court of Appeal set aside this judgment and awarded judgment for the defendant on the basis that the 2001 amendments applied.
  • In March 2005 the plaintiff commenced proceedings against the solicitor and barrister. The barrister's insurer denied liability to indemnify and was added to the proceedings by cross-claim.

The Policy

  • The insurance policy indemnified the insured for the period from 30 June 2004 to 30 June 2005 for civil liability to any third party which is incurred by the insured in the conduct of his business as a barrister. The information given by the insured in the proposal was included in the policy (by its terms) and was therefore part of the contract of insurance.
  • The policy contained an exclusion which, summarised relevantly for present purposes, is as follows:

" We do not cover any of the following Claims (or losses);

6.1 Known Claims and Known Circumstances:

(a) ...]

(b) Claims (or losses) arising from a Known Circumstance, or

(c) Claims (or losses) directly or indirectly based upon, attributable to or in consequence of any such Known Circumstance or Known Claims (or losses). "

  • The term "Known Circumstance" was defined in the policy as follows: " Any fact, situation or circumstance which:

(a)An Insured knew before this Policy began; or

(b) A reasonable person in the Insured's professional position would have thought, before this Policy began, might result in someone making an allegation against an Insured in respect of a liability, that might be covered by this Policy. "

  • The proposal was completed on 20/5/04. A question in the proposal asked:

"Are you aware of any circumstances, which could result in any Claim or Disciplinary Proceedings being made against you?"

  • The respondent answered "no".
  • The proposal contained a statement that the policy did not provide cover in relation to "facts or circumstances (of) which you first became aware prior to the period of cover, and which (you) knew or ought reasonably to have known had the potential to give rise to a claim under this policy."

District Court Decision

  • The District Court found that the barrister did not know before the policy began, any fact which might result in someone making an allegation against him. Accordingly, the District Court found that the first limb of the definition of "Known Circumstance" that related to the exclusion did not apply. This finding was not subsequently challenged.
  • The District Court further found that a reasonable person in the position of the barrister would not have thought that a claim would be made against him having regard to the barrister's state of mind at the relevant time. The District Court ordered that the insurer indemnify the barrister.

Appeal to Court of Appeal

  • The Court of Appeal dismissed the insurer's appeal by majority. The issue argued before the Court of Appeal was whether the District Court judge erred by considering the subjective state of mind of the barrister when construing and applying the second limb of the definition of "Known Circumstance".
  • Hodgson JA considered that the question of what a reasonable person in the barrister's professional position would have thought before the policy began could be approached by considering what the actual insured did think and asking if this was unreasonable.
  • Young CJ in Eq took the view that whilst the relevant test was objective he considered that how people in the relevant industry are accustomed to act forms part of the material to be considered when making an objective assessment. He concluded that in his view a reasonable person in the barrister's professional position would not have thought that the plaintiff might make an allegation against him in respect of a liability covered by the policy.

High Court Appeal

  • The appeal was allowed – the insurer was successful.
  • The court considered the proper construction of the term "a reasonable person in the insured's professional position." It pointed out that this imposed an objective test of knowledge similar to that found in s 21 (1) (b) Insurance Contracts Act. The court stated that the second "limb" of the policy condition was directed, not to the state of mind of the insured, but to the state of mind of the reasonable person in the same professional position as the insured. It was that hypothetical person's conclusion as to the possibility of an allegation being made which needed to be ascertained.
  • The phrase described a hypothetical reasonable person with the experience and knowledge of the insured (that is the professional knowledge) coupled with the capacity of such a reasonable person to draw a conclusion as to the possibility of someone making an allegation against the insured.
  • Section 11.12 (b) of the policy sets an objective standard, with the modification that the insured's professional experience and the insured's knowledge of facts and circumstances are imputed to "a reasonable person in the insured's professional position".
  • An enquiry about what a reasonable person "would have thought" enquires about real (not remote or fanciful) possibilities but not certainties. When applying s 11.12 (b) it is not wrong to take into account what the insured thought, as a piece of possibly relevant evidence, but the standard described in s 11.12 (b) is an objective standard, and a question of fact to be determined independently of the insured's state of mind.
  • The inferences to be drawn from the undisputed facts and circumstances known by the insured in the case were so obvious that the court is able to evaluate for itself the correct application of this objective standard. The court said that given the nature and objects of the policy there could be no real doubt that a reasonable barrister (unable to practise without a policy of professional indemnity insurance), who knew of the potential effect of his client's case of the 2001 amendment to the Workers Compensation Act, and who knew of the pending appeal and of his role in creating his client's problem, would have thought that there was a real possibility that an allegation might be made in respect of a liability which might be covered by the policy.


  • Proposals and policies similarly worded entitle an underwriter to challenge what the insured states to have been his state of mind as to possible claims by testing whether a hypothetical reasonable insured in the same professional position, i.e., standing in the shoes of the insured, would have thought as to possible claims.
  • The disclosure required is circumstances of allegations likely to be made and is not confined to claims that necessarily are likely to succeed.
  • The likelihood of an allegation/claim which might result in a claim must be a real possibility. On the one hand it need not be fanciful or remote, but on the other hand it need not be a certainty.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.