In Insurable Interest Issue 29 we reported on a decision by the NSW Supreme Court in which an insurance broker was found liable for failing to properly inform the insured that its ‘Professional Liability Policy’ did not cover acts that were not carried out in connection with the insured’s business.

The insured operated a scuba diving business and while its director was navigating one of its vessels on a recreational boating trip, it collided with a fishing boat driven by the plaintiff. The plaintiff suffered injuries and was awarded common law damages against the insured and its director. The insured’s director pleaded guilty to the offence of dangerous navigation occasioning grievous bodily harm.

The Court of Appeal upheld the findings of the trial judge and determined that:

  1. Although the director of the insured was convicted of dangerous navigation occasioning grievous bodily harm, the insurer was not able to rely on the ‘criminal act or omission’ exclusion, which applied only to intentional criminal acts.
  2. The insurer was, however, entitled to deny indemnity to the insured on the basis that the act that gave rise to liability did not occur in connection with the insured’s business. By including the phrase ‘in connection with the insured’s business,’ the policy clearly intended a dichotomy between private and business activities. The fact that an employee of the insured was driving a vessel ordinarily used in the insured’s business did not create a sufficient connection between a recreational boating trip and the insured’s business.
  3. The broker was negligent in not making it clear to the insured that its policy did not cover liability arising from recreational activities not engaged in as part of its business. As the evidence suggested that had the insured been properly advised it would have taken out a different policy, the broker was liable to the insured.
Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA368
‘In connection with the insured’s business’ is always a trap for brokers.
 
Insurers should be aware that unless specifically worded otherwise, ‘criminal act or omission’ exclusions will likely apply only to intentional criminal acts.