ARC Capital Partners Ltd v Brit Syndicates Ltd and another [29.01.16]
Insurers’ defence to a claim for indemnity by an investment manager failed in circumstances where the retroactive date clause was worded broadly enough to capture acts or omissions that had either a direct or an indirect causal link to the investment manager’s liability.
Coverage issues concerning professional indemnity insurance policies frequently occupy court time. There have been recurring themes – the scope of notifications, compliance with notification provisions and the aggregation of multiple claims. The most recent – exclusions for wrongful acts occurring prior to cover incepting – illustrates the ongoing care needed when negotiating and drafting policy wordings. The consequences of claims made against policies that are subject to a retroactive date can be far-reaching.
ARC’s policy provided that Brit (the insurers):
“shall not indemnify the Assured against any claim and or claims arising from or in any way involving any act, error, or omissions committed or alleged to have been committed prior to 5th June 2009.”
Claims had been made against ARC in 2014, which alleged that wrongful acts had occurred in 2010 in the context of a relationship that began life in 2008 between the third party claimant and insured. The principal issue before the Court was whether the claim “in any way involved” pre-June 2009 acts, errors or omissions. On a narrow view of the scope of the exclusion (advanced by ARC) it did not; on a wider view (advanced by the insurers) it did.
Sitting in the Commercial Court, Mr Justice Cooke held the claim was not excluded from cover. Cooke J concluded that:
- Acts, errors or omissions “in any way involving” did not meant acts, errors or omissions that had “any connection of any kind with the past history”. To do otherwise would mean excluding a claim on the basis that its historical context included transactions predating 5 June 2009, irrespective of whether they were wrongful and/or gave rise to liability. As such, the words “arising from” would be devoid of any meaning.
- There must be a direct or indirect casual connection between the acts, errors or omission and the claim or liability alleged before the exclusion can apply. The fact that the professional relationship had commenced in 2008 was irrelevant. The events occurring prior to 5 June 2009 did not, in any direct or indirect causative sense, lead to ARC’s liability.
- The retroactive date clause had to be read in the context of the insuring clause. The insuring clause insured against loss from claims for “wrongful acts”. The only “wrongful acts” occurring before 5 June 2009 that could have a causative effect did not give rise to liability.
One of the dangers inherent in changing insurers is that a fair presentation of the risk may cause the incoming insurer to offer terms subject to a retroactive date exclusion. Such terms intend to prevent the new insurer from having to deal with claims that have their origin in events that have occurred already and are considered an unacceptable risk. The Commercial Court’s decision shows just how careful underwriters need to be when drafting a retroactive date exclusion in order to achieve their objectives. Similarly, care is required when parties look to agree extensions to insurance policies.
When an insured changes insurer, disputes as to which policy responds when a claim is made after a policy has lapsed, but from circumstances notified during the currency of the policy, are a common occurrence: the protagonists being the former insurer to whose policy the notification was made and the new insurer to whose policy the claim has been referred. The insured is often, therefore, placed in a difficult position (save where the new policy is tainted by a material non-disclosure), being required to carefully consider whether to change insurers.
As insurers and brokers will know, words used by an insured when notifying circumstances that might give rise to a claim can, with the benefit of hindsight, be open to different interpretations. An insured’s actual knowledge is crucial in determining the scope of a notification (an insured cannot notify what they do not know) and there must be a causal connection between the circumstances notified and the claim that is actually made. This case, therefore, helpfully reinforces that a coincidental connection is insufficient. Accordingly, it is increasingly difficult for generalised or precautionary notifications to attach to a policy that has lapsed.