QBE and CGU were successful in recent decisions which examined the interpretation of policy wordings. Both cases reinforced the importance of ensuring that the words of the policy meet the policyholder's expectations. Representations, explanations and suppositions are not enough.
Davis & Anor v CGU Insurance Limited & Anor [2008] SADC 69
This case concerned claims by the plaintiffs (a husband and wife) in respect of property covered against theft and damage by a CGU Insurance Limited insurance policy.
The plaintiffs purchased a rural waterfront property via a mortgagee sale in December 2001. The area in front of the property was Crown Land. This land included a jetty and a Grundfos pump which were both in place at the time of the purchase.
The plaintiffs insured the property with the first defendant following purchase, with the intention that the jetty and pump would be covered under the policy.
After the sale of the property but before settlement in June 2002, the former owner of the property purported to sell the jetty and pump to a third party. Following settlement, the third party removed the pump and partially dismantled and removed the jetty.
The insurance policy was renewed in December 2002. Before the renewal, both CGU and the second defendant, Bank SA Insurance Agencies (BSAI) confirmed that the jetty and the pump were covered by the policy.
The plaintiffs subsequently claimed indemnity from CGU for loss of the pump and the jetty. The relevant terms of the policy were that the policy would insure the property set out in the Schedule 'if it is destroyed, lost or damaged. It is insured only if you own or are liable for the property'.
In addition the policy stated:
The listed events included theft, malicious damage including vandalism and deliberate or intentional acts.
CGU denied indemnity for the claim, its reasoning being that even if the jetty and/or the pump was damaged or stolen, no obligation to indemnify arose because the plaintiffs were never at any material time the owners of or liable for (within the meaning of the policy) those items. The plaintiffs claimed damages against CGU for breach of the insurance contract.
The judgment
In dismissing the plaintiffs' claim, Justice Burley determined that the expression 'owned ...the property' must be given its ordinary meaning. As to ownership, the plaintiffs had not reasonably established that they were at any material time the owners of the jetty or the pump. There were no dealings between the plaintiffs and the former owner, at the time of the sale, transferring ownership of the jetty to the plaintiffs. Similarly, there were no dealings between the Crown and the plaintiffs transferring ownership. In addition, although the Crown granted the plaintiffs a licence to use land adjoining the property, this could not be said to confer ownership of the pump and jetty onto the plaintiffs. Finally, neither the former licence holder or the original builder of the jetty had conferred ownership on the plaintiffs.
In addition, Justice Burley found that while the plaintiffs may have formed the belief that they were legally responsible for the pump and jetty, the plaintiffs had never been liable for the pump or jetty because they would not have been financially responsible to anyone else for any loss that might have occurred from damage or removal of the property.
Reliance on CGU's confirmation
The plaintiffs relied on their frequent requests to BSAI (as the agent of CGU) to confirm that the pump and jetty were 'covered' by the policy to assert that CGU had accepted liability for these items. However, Justice Burley considered that CGU's confirmation was merely an acknowledgement that the property would be included within the policy as 'domestic property' on the assumption that it was owned by the plaintiffs. By agreeing to include the items in the policy, CGU could not have been said to have accepted that the plaintiffs owned the items or waived the requirement that the plaintiffs must establish ownership of or liability for the goods. Thus, CGU were under no obligation to indemnify the plaintiffs even where the goods had actually been damaged or stolen.
Other causes of action
The plaintiffs also asserted other causes of action against the defendants. Firstly, that the conduct of CGU and BSAI was misleading and therefore constituted a breach of section 52 of the Trade Practices Act 1971 (Cth) and secondly that CGU was estopped from denying indemnity for the claim in these circumstances. Both causes of action were asserted on the basis that the conduct of CGU induced the plaintiffs to believe that the insurance contract covered the loss.
Justice Burley found that neither defendant had caused the plaintiffs to make the assumption that CGU would indemnify them for any loss. The plaintiffs' belief that they would be indemnified did not reasonably arise from the conduct or statements of either of the defendants, particularly as there was no intention on the part of either defendant that the plaintiffs would act on such an assumption.
The Court also found against the plaintiffs' allegation that BSAI breached an implied term of the contract between BSAI and the plaintiffs, that if BSAI was unable to effect the necessary cover, it would inform the plaintiffs. Justice Burley found that in these circumstances by agreeing to include the jetty and the pump as items within the terms of the policy, BSAI could not be said to have accepted that the plaintiffs owned or were liable for the items. As a consequence, BSAI effected the insurance that it was instructed to procure and any requirement to notify the plaintiffs that it was unable to effect the required cover never came into play.
Coment
This case reinforces the importance of the interpretation of the insuring clause in establishing indemnity. It also emphasises the distinction between the interpretation of the insuring clause and representations which may be made by or on behalf of the insurer on what may be 'covered' under the terms of a policy. While an insurer may agree that certain goods and items will be included under the Schedule of items to the policy, this will be at all times subject to those goods and items otherwise coming within the terms of the insuring clause of the contract.
Zang v Minox Securities Pty Ltd: Liu v Minox Securities Pty Ltd [2008] NSWSC 689
The proceedings in this case concerned the activities of Mr Chen, an authorised representative of the defendant Minox Securities Pty Ltd (formerly Quantum Securities Pty Ltd) (Quantum). It was alleged that Mr Chen solicited the plaintiffs and those represented by the plaintiffs to invest in promissory notes of various companies associated with the Westpoint Group known as 'the Mezzanine Companies'. The Mezzanine Companies became subject to a creditor's voluntary winding up.
The two plaintiffs in this case became aware of the existence of certain insurances written by QBE Insurance (Australia) Limited (QBE) and held by Quantum for certain risks relevant to the claim. As a result, the plaintiffs applied to join QBE to the proceedings pursuant to section 6(4) of the Law Reform Miscellaneous Provisions Act 1946 (Cth), claiming that under the insurance contract QBE is liable to indemnify Quantum for any liability to the plaintiffs in this particular case and as a consequence a charge attaches to the insurance moneys that are or may become payable in respect of that liability.
QBE resisted the plaintiffs' application solely on the grounds that there was no arguable case that the relevant policy responded to any liability for damages of Quantum to the plaintiffs and the class for whom they sue.
QBE had issued two policies of insurance during the relevant period, a Professional Indemnity policy and a Financial Institutions policy. Justice Barrett ultimately found that neither of these policies responded to the plaintiffs' claims against Quantum in these proceedings and therefore declined to make the order joining QBE as a defendant.
Professional Indemnity Policy
The relevant insuring clause of the Professional Indemnity policy provided that QBE would indemnify the insured against civil liability for compensation arising from any claim 'as a result of a breach of professional duty in the conduct of the insured's profession (financial planning and insurance broking)'.
The policy contained a Financial Planner's Authorised Representative Endorsement which extended the definition of 'insured' to include 'any person who is during the period of cover an Authorised Representative of the named insurer but only in respect of work performed whilst an Authorised Representative of the named insurer'.
The policy also contained an exclusion (the product list exclusion) which provided that QBE shall not be liable to provide indemnity for any claim against the insured 'arising directly or indirectly based upon, attributable to, or in consequence of an actual or alleged act, error or omission in respect of any financial or investment product that at the time the actual or alleged act, error or omission occurred is not listed on the approved Product List of the entity ...'.
Justice Barrett accepted QBE's contention that the Mezzanine Company promissory notes invested in by the plaintiffs were not included on Quantum's approved product list, and therefore such claims were within the product list exclusion.
The plaintiffs argued that the product list exclusion might not operate to exclude the plaintiffs' claim against Quantum because Mr Chen was arguably not an 'insured' as he was performing work beyond the scope of his authority at the time, and as such was not acting as an 'authorised representative' of Quantum. However, Justice Barrett found that this argument was negated by section 91B of the Corporations Act 2001 (Cth) which confirms that Quantum is responsible for Mr Chen's conduct 'whether or not the representative's conduct is within authority'.
Financial Institutions Policy
Under the terms of the Financial Institutions policy, QBE agreed to indemnify the insured against liability arising out of any claim 'as a result of a breach of professional duty in the conduct of the financial service (Funds Management, Finance Broking, Securities Dealing)'.
The Financial Institutions Policy Schedule contained an endorsement creating an exception for financial planning (the financial planning exclusion).
This endorsement provided:
The plaintiffs argued that at least some of their claims were beyond the scope of the financial planning exclusion, as they related not to the fact that Mr Chen had actively given advice but rather to the fact that he had contravened statutory requirements under the Corporations Act for the procedures to be observed in giving that advice. For example, he had failed to give a client a Product Disclosure Statement in one instance. In addition, it was argued that the claims also related to the alleged failure of Quantum to perform its statutory obligation to supervise and monitor Mr Chen's activities.
Justice Barrett found that the claims against Quantum were at least 'indirectly based' on or 'attributable to' or 'in consequence of' the activities of Mr Chen, including the advice he gave, and that each of the allegations against Mr Chen therefore go ultimately to 'advice' given by him and are within the financial planning exclusion.
As a consequence, his Honour was of the opinion that there could not be any real doubt that the advice of Mr Chen to invest in the Mezzanine Company promissory notes, was advice of the kind that would usually be provided by a financial planner. As such, Justice Barrett, concluded QBE could not be held liable to indemnify Quantum under the terms of the Financial Institutions policy.
Conclusion
The courts will look to the source of the underlying cause of the claim giving rise to the claim for indemnity, rather than merely interpreting the words contained in the exclusion clauses in these types of insurance contracts.
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