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[2021] QSC 347
In this significant case, Bradley J was asked to interpret an ambiguous exemption clause in a professional indemnity policy. The policy was a composite policy that applied to both the applicant and its employee. In resolving the ambiguity in favour of the applicant, his Honour provided helpful guidance on the principles for interpreting such clauses, particularly where there is a composite insurance policy.
Bradley J
16 December 2021
The applicant had a professional indemnity insurance policy (Policy) between 1 July 2013 and 31 August 2014 with the respondents, who are underwriters at Lloyd’s of London. [3]–[5]. In 2013, Mr Bonnett, one of the applicant’s authorised representatives, gave advice to some clients that they invest in Millinium Capital Managers Limited, an entity not in the applicant’s approved product list. [17]–[18]. This advice caused the clients to suffer financial loss. [17]. The clients commenced proceedings, alleging that the applicant and Mr Bonnett were negligent. [17]. These proceedings were settled out of court and the applicant made a claim for an indemnity under the Policy for the settlement sum and associated legal costs of the proceedings. [17]–[21].
Under the Policy, the applicant is insured “in respect of any civil liability resulting from any breach of professional duty… in its conduct of its professional business”. [33]. Under the terms of its Australian Financial Services Licence (AFSL), the applicant was also responsible for the conduct of its representatives, including Mr Bonnett. [34]–[35]. Under cl 3.3 of the Policy, the applicant was insured for claims against it arising from the conduct of any of its authorised representatives. [36]. Mr Bonnett was independently insured under the Policy as an employee of the applicant in respect of any claim made against him for breach of professional duty in providing financial product advice. [37].
Bradley J considered that these features of the Policy meant that the applicant had a separate interest in the insurance cover from Mr Bonnett. [38]. As such, his Honour considered it to be a “composite policy”, such that the rights and obligations in respect of each insured can be exercised independently. [24]–[25], [38].
His Honour also accepted the following principles for interpreting insurance policies: [43]–[45]:
- Insurance policies should be given a “businesslike interpretation”;
- Construing an insurance policy “requires consideration of the language used, the commercial circumstances it addresses, and the objects it is intended to secure”; and
- An interpretation which gives “congruent operation to the various components of the whole Policy” should be favoured”.
However, his Honour held that these principles must still operate within the constraints of the language adopted by underwriters, although the “use of standard policy wording and insured-specific endorsements might indicate the factual context is more significant for construction of the endorsements than for the standard policy wording”. [46].
At issue in the proceedings is cl 7.20(a) of the Policy, which provides: [16]:
“WE will not cover the INSURED, including for DEFENCE COSTS or other loss in respect of:
…
7.20 Approved Produce and Product Disclosure
Any CLAIM or liability directly or indirectly based upon attributable to or in consequence of any:
(a) Financial products or instruments not contained in the INSURED’S approved product list at the time the advice was given;”
Bradley J considered that a critical issue in interpreting cl 7.20(a) was the fact it does not expressly identify whether it excludes coverage of both an insured entity for the conduct of its employees and an insured employee for their own conduct. [47]. Of some relevance is that the clause fell within a composite policy, and so must be capable of operating where there are multiple insureds, each with different insurable interests. [48]. Accordingly, the “advice” spoken of in cl 7.20(a) depends upon who is insured: in the case of the applicant, it will extend both to advice given directly by it, and that given by its representatives, including authorised representatives and employees. [49]. Conversely, the exclusion in cl 7.20(a) only applies to an employee in respect of advice which they give. [49].
Bradley J found that the exclusion in cl 7.20(a) applies to any claim by Mr Bonnett as the advice he gave was to invest in an entity which was not in the approved product list. [50]. The critical question was whether or not the exclusion should also apply to the applicant for its statutory liability for Mr Bonnett’s conduct. [50].
Bradley J noted that insurance policies such as this should be construed contra proferentem – that is, the underwriters bear the onus of proving that an exclusion clause applies where it is ambiguous. [52]–[54]. Accordingly, his Honour concluded that cl 7.20(a) should be interpreted in favour of the applicant. [55]. This conclusion both allows the contract to serve its commercial purpose and accords with the object of the Policy to provide cover to each of the insured. [56]. This interpretation is consistent with one of the endorsements to the Policy, inserting a new cl 7.22 exempting claims arising from financial services provided by a representative not covered by an AFSL. [58]–[59]. It follows that the exclusion did not apply to the applicant.
In the event, Bradley J accepted the applicant’s submissions and made the declarations sought by the applicant. [61].
M Paterson