Cassidy v Leslie [2010] NSWSC 742 illustrates the importance of clear and unambiguous definitions in any “claims made” or “claims made and notified” policy, and serves as a reminder that any ambiguity in an insurance policy may be interpreted against the insurers.

Background

In January 2008, Eric Leslie (Leslie) provided a valuation report to Dimitra Cassidy as Trustee of the Cassidy Family Trust (the plaintiff) in respect of a property.  The valuation report expressed Leslie’s opinion that the market value of the property was $1.5 million.  As a result of that valuation, the plaintiff loaned $900,000 to Professional Management Services (WA) Pty Limited (PMS) and secured the loan by way of a mortgage over the property.  Upon default by PMS the plaintiff took possession and sold the property at public auction for $350,000.

On 11 April 2008, Leslie received an email from the plaintiff’s solicitor (the email) stating that the valuation may be flawed and placing Leslie on notice that an insurable event may occur if the property did not provide sufficient funds at auction to repay the loan.  Leslie did not notify his insurer, Calliden, of the email or its contents within the period of insurance.

The plaintiff initiated proceedings against Leslie on the basis that the valuation was “grossly in excess of the true value of the land.”

Leslie made a cross-claim against his insurer, which had insured Leslie under a Professional Indemnity Valuers Scheme Insurance Policy.

Relevant questions

The Court was concerned with the following two questions:

(i) did the email of 11 April 2008 constitute a covered “Claim” within the terms of the insurance policy?

(ii) if the answer to (i) is “yes”, was the insurer entitled to deny indemnity to Leslie on the basis that the Claim was not notified to it within the period of the policy?

Key terms of the Policy

“Claim” was defined in the policy to include “a written assertion of a right to or a demand for compensation.” 

Clause 2.1 of the policy provided that the insurer would indemnify the Insured (Leslie) for legal liability arising from any “Claim” which was first made against the Insured (Leslie) and notified to the insurer within the period of insurance. 

Question (i)

In relation to question (i), Leslie submitted that because the parties had created their own definition of “Claim”, the case law dealing with the meaning of “claim” under the general law would provide limited assistance.  Leslie also submitted that the terms of the email were clear in stating that a claim would be made in the event of a shortfall on the sale of the property, and the email clearly asserted a right to compensation. 

The insurer submitted that, to satisfy the policy definition of “Claim”, what had to be asserted was an existing right to compensation.  Because no loss had occurred at the date of the email and there was no certainty as to future loss, the insurer argued that no covered “Claim” had been made as any assertion in the email was contingent upon loss actually occurring. 

Question (ii)

In relation to question (ii), Leslie submitted that s 54 of the Insurance Contracts Act 1984 (Cth) prevented the insurer from denying the claim for indemnity, despite Leslie’s failure to notify the insurer during the period of insurance of the plaintiff’s Claim.  Section 54 provides that, where an insurance contract allows the insurer to refuse to pay a claim because of an act (or omission) of the insured or some other person, the insurer may not refuse to pay the claim by reason only of that act (or omission), but the insurer’s liability is reduced by the amount the insurer’s interests are prejudiced as a result of that act (or omission).  Leslie argued that s 54 applied to prevent the insurer from denying the claim for indemnity as Leslie’s failure to notify his insurer of the email did not prejudice the insurer’s interests at all. 

As the insurer agreed with Leslie and conceded that, if question (i) were answered in the affirmative, s 54 of the Insurance Contracts Act 1984 (Cth) would excuse Leslie’s failure to notify the plaintiff’s Claim to his insurer and not affect the entitlement to indemnity, the Court made no comment on this issue.

Conclusions of the Court

The issue before the Court was, therefore, whether the email of 11 April 2008 constituted “a written assertion of a right to or a demand for compensation.” 

The Court answered “yes” to question (i), agreeing with Leslie that a “Claim” as defined in the policy had been made.  The Court stated that (on the basis of the principles of contra proferentem) there was no justification for inserting the word “existing” before “right to … compensation”.  To the extent of any ambiguity, the Court said it should interpret the policy definition of “Claim” in favour of the Insured as it was the insurer’s policy and it should have included an “existing” right to compensation if that is what it intended.  The Court held that a reference to “right” could include a right to compensation that was contingent or conditional.

Implications

Clearly, it is important to ensure that the definition of “Claim” is clear and unambiguous in any “claims made” or “claims made and notified” policy.  A policy which define the term “Claim” by reference to an assertion of a right to compensation will expose the insurer to third party claims where the extent of the loss is not yet known.

This decision serves as a reminder that an ambiguity in an insurance policy may be interpreted against the insurer and, as such, insurers (and insureds) should examine their insurance policies carefully to ensure that they contain as little ambiguity as possible.