Insurance broker Horsell International Pty Ltd ran a scheme for members of the Professional Association of Diving Instructors, underwritten by Liberty Mutual Insurance Company. The scheme brochure stated that there was liability cover for boats less than 12 metres long.

A member of the scheme, while using a boat for recreational purposes, collided with another boat. He was at fault and the driver of the other boat was awarded damages for personal injury.

The underwriter refused indemnity on the basis that the accident did not occur in connection with the insured's business of 'scuba diving', and on the basis of an exclusion in respect of liability arising from a 'criminal act or omission' (the insured was charged with dangerous navigation occasioning grievous bodily harm).

The NSW Supreme Court read down the exclusion clause as referring only to intentional criminal acts, so it did not apply. However it also decided that, although the insured had mentioned his diving business to the passengers in his boat, that did not amount to a connection with his business and so his liability did not fall within the operative clause of the policy.

However, the Court went on to decide that the broker owed a duty of care to the insured and had breached it by not warning that cover for liability arising out of the use of the boat was limited to liability arising in connection with the insured's business. Further the broker should have informed the insured that he could get full liability cover by taking out protection and indemnity cover attached to the hull insurance. Rian Lane Pty Ltd v Dive Two Pty Ltd.

'Arising out of the business' is a real limitation on the scope of public liability cover, and the way in which an insured business is described in the policy is a potential trap for brokers.

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