Twenty seven insurance companies and Lloyd's syndicates
(most based in the UK and key players in the financial
institution's market) have successfully defended proceedings
commenced by Towry Law plc and others (Towry Law)
in the Supreme Court of NSW. The case concerned the construction of
a financial institution's policy issued to Towry Law's
parent company for the period 1999 to 2003 - the policy was written
under a Jumbo lineslip.
The parent company acquired Towry Law during the policy period
on 3 August 2001. Towry Law sought indemnity under the professional
indemnity section of the policy for over AUD100 million paid to
investors under a Hong Kong compensation scheme as a result of
alleged mis-selling by Towry Law of a number of funds to its
clients. Underwriters denied indemnity to Towry Law on the basis of
a retroactive date which applied under the policy to subsidiaries
acquired during the policy period (the retroactive date being the
date of acquisition). The effect of the retroactive date was to
exclude a large portion of the loss as most of the clients invested
in the funds prior to the retroactive date of 3 August 2001.
Putting the issue very simply, Towry Law argued that a
retroactive date did not apply to the professional indemnity
section on the basis that the term "Retroactive Date" was
capitalised in the General Conditions (specifically General
Condition 12B which related to acquisitions) but was not
specifically referred to in the professional indemnity section.
There was a dispute between the parties as to the construction of
the policy and in its defence Underwriters also argued, in the
alternative, rectification and estoppel. In a judgment handed down
on 19 December last year, Underwriters succeeded on all three
bases: construction, rectification and estoppel (see Towry Law
v Chubb Insurance & Ors  NSWSC 1352).
Towry Law conceded prior to the hearing that the evidence of the
lead underwriter could in effect be relied upon by the rest of the
market for the rectification and estoppel arguments. Without this
concession Underwriters may have had to call every single
underwriter to give evidence.
Although the outcome depended on the specific facts of this
case, it is an interesting case as an Australian Court was required
to examine in detail a policy written out of London and had to
grapple with the idiosyncrasies of the London market.
McDougall J accepted Underwriters' evidence as to the
industry meaning of the term "retroactive date"
in that it was a phrase used to limit cover such that the insurance
policy did not cover claims arising out of circumstances that
occurred before the specified date. The Judge also acknowledged
that the commercial purpose of including a retroactive date for
subsidiaries acquired during the policy period and automatically
covered was to limit Underwriters' exposure in circumstances
where they did not have any underwriting information in which to
make a decision or assess the risk of the new subsidiary. Finally
McDougall J recognised that there was a greater need to have
retroactive protection in 'long tail' cover such as
professional indemnity cover, compared to 'short tail'
cover such as bond.
Deacons acted for Underwriters in the defence of these
proceedings so if anyone would like further information or a copy
of the judgment please let us know. We are currently waiting to see
if Towry Law appeals the judgment.
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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.
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