In a recent decision of the New South Wales Court of Appeal, the Court refused to allow an insurer to rely on a 'Personal Injury' exclusion clause in the Professional Indemnity wording of a combined Professional Indemnity and Public & General Liability Policy to deny indemnity to its insured.
The decision emphasises the need to apply a 'common sense' and commercial approach when interpreting insurance policies and provides some helpful guidance on the interaction between endorsements and general conditions.
Complete Building Inspections Services Pty Ltd (CBIS) was engaged by Ms Doosey to provide a pre-purchase inspection report on a family home. Mr Walsh provided a report which stated that the overall condition of the building was "considered structurally sound and in a fair condition", the "incidence of major defects" was "low" and the "incidence of minor defects" was "typical". In relation to the building's balcony, the report found that the timber frame, posts and decking appeared to be "secure, structurally adequate and in a fair/good condition".
Ms Doosey relied upon the report and purchased the building. Shortly after moving in to the home, Ms Doosey's child was playing on the balcony when it gave way, causing the child to fall over two metres onto the concrete pavement. Ms Doosey commenced two separate proceedings, on her own behalf and on behalf of her daughter, against CBIS and Mr Walsh alleging negligence in the provision of the pre-purchase inspection report. The Court accepted that Ms Doosey had suffered mental harm as a result of the accident, and found that both her and her daughter's injuries had been caused by the negligence of CBIS and Mr Walsh.
Walsh and CBIS's insurer, Pacific International Insurance Co Ltd (Pacific), declined to indemnify Walsh and CBIS. Walsh and CBIS successfully cross-claimed against Pacific with the District Court finding that the Public & General Liability Policy responded to this claim.
Pacific appealed this decision.
On appeal, Pacific argued that no cover was available to Walsh and CBIS under the Policy because:
- the Professional Indemnity Policy provided cover for claims arising out of an actual or alleged breach of an insured's professional duty in connection with the insured's Business Activities however, the Policy contained an exclusion for claims arising out of, or in any way connected to personal injury and property damage; and
- the Public & General Liability Policy provided cover for "personal injury or property damage occurring in connection with Business Activities" but excluded claims arising out of an insured's negligent provision of professional advice or service.
An endorsement to the Policy defined 'Business Activities' to include the provision of pre-purchase inspection reports. The endorsement also required the pre-purchase reports to contain certain information and advice.
The New South Wales Court of Appeal dismissed Pacific's appeal finding that if the policies were considered as a whole, and the exclusions in each policy were applied, it would defeat the commercial purpose of the policies.
Further, the Court noted that it would be a troubling conclusion if an endorsement which expressly defined an insured's Business Activities as providing pre-purchase reports, required an insured to include in those reports particular advice, but then refused to cover personal injury arising from that advice.
The Court also held that regard must be had to the language of the policy. In this instance, the insuring clause of the Public and General Liability Policy commenced with the words "Subject to the terms of this Policy..." and "Policy" was defined to include the schedule and any endorsements. The Court noted that the phrase "subject to" establishes a hierarchy of provisions and where there is a conflict between provisions, the dominant provision will apply. In this case, the endorsement prevailed to provide cover.
The Court of Appeal's decision is a good reminder that the Courts will consider the overall commercial intent of the particular insurance policy and attempt to interpret the policy in a way that ensures that the cover purchased by the insured is not illusory.
The Court's decision also serves to illustrate that when provisions of a policy conflict with each other, reference must be had to the policy wording, in particular the use of phrasing which creates a "hierarchy of provisions".