Malamit (a project manager) and its directors were insured under a claims-made professional indemnity policy, and was sued in negligence by a related company. The policy defined “claim” as particular proceedings brought by a “third party against the Insured”, and excluded claims “by, on behalf of, or for the benefit of any insured, subsidiary, or family member of the insured.”

A director and shareholder of Malamit was also sole director and a shareholder of the trustee of the claimant, Treetops, a unit trust. That director-shareholder and his family also held shares in the corporate unit-holders of the trust.

The insurer successfully argued at first instance that the claimant was not a “third party”, as defined, and so the claim was not covered, and that the claimant was a subsidiary of the insured, and so any claim by it would be excluded.

In partially reversing this, the New South Wales Court of Appeal held1 that the policy should be read on the basis that exclusions removed existing cover, namely if a claim is not covered, there is no need to exclude it, and so the trustee’s claim against a named insured was brought by a “third party”, as required. However, the third party’s claim was excluded because it was brought “by” a subsidiary of the director-shareholder.