High Court rules on application of exclusion clauses in insurance contracts

In Timothy Crowden & Carol Crowden v QBE Insurance (Europe) Ltd (2017) EWHC 2596 (Comm) the claimants suffered significant economic loss after receiving advice from a financial advisor insured by QBE. The claimants were advised to purchase a secure income bond and a growth plan which was linked to Lehman Brothers’ securities. The claimants suffered loss when both the issuer of the bond and Lehman Brothers subsequently went into administration.

The claimants secured default judgment against the insured for £197,700 which led to the insured going into liquidation itself. The claimants brought an action against QBE under Third Parties (Rights against Insurers) Act 1930, however in a summary judgment application QBE’s principal argument was that the exclusion clause in the professional indemnity insurance policy relating to insolvency covered the insolvency of the investment provider or issuer, as well as that of the insured.

The exclusion clause was drafted as follows:

“This Insured section excludes and does not cover any claims, liability, loss, costs or expenses: …

2.4.17 Insolvency

arising out of or relating directly or indirectly to the insolvency or bankruptcy of the Insured or of any insurance company, building society, bank, investment manager, stockbroker, investment intermediary, or any other business, firm or company with whom the Insured has arranged directly or indirectly any insurances, investments or deposits …”

 It was held by Peter MacDonald Eggers QC that, “the position in respect of insurance contracts is wholly distinguishable [from simple commercial contracts] in that an exclusion clause in an insurance policy is not designed to exclude, restrict or limit a primary liability on the part of the insurer; instead, it is intended to define the risk which the insurer is prepared to accept by way of the insurance contract. Further, the exclusion clause in an insurance policy does not ordinarily operate to deprive the insured of rights which existed prior to or but for the cover afforded by the Policy.” As such, it was held to be inappropriate to apply contra preferentum in the first instance, or automatically favour a narrow construction of the relevant clause, unless the argued construction presented genuine ambiguity and/or deprived the insured of most of the cover under the policy.

He went on to hold that QBE’s interpretation of the clause’s construction was correct – the exclusion clause applied to the insolvency of the investment provider or issuer where that insolvency was a cause of the relevant claim. This corresponded with the plain English meaning of the clause, and it also made commercial sense in the context of an insurance agreement in the midst of a turbulent economy. Furthermore, this broad interpretation of the exclusion clause did not leave the insured without substantial insurance or rob the policy of any meaningful cover.

Accordingly, QBE’s summary judgment application was granted and the exclusion clause applied such that QBE were not liable to indemnify the insured under the terms of the policy.

By David Kendall, assisted by Ben Sharrock.

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