Amlin Corporate Member Ltd v Austcorp Project No 20 Pty Ltd  FCAFC 78
- In dismissing an application for leave to appeal, the Full Federal Court of Australia affirmed the decision of the primary judge that a Commercial List Response (the Response) filed in the Supreme Court of New South Wales prior to the inception of two policies of professional indemnity insurance, was not a “Claim” for the purposes of those policies.
- In doing so, the Full Court was required to determine whether the Response was a ‘particular defined species of Claim’ that fell within the operative clause of the relevant contracts of insurance. The decision confirms that when attempting to determine the intention of the insuring clause a Court will review the specific terms and definitions contained in the clause insofar as they shed light on its meaning and resolve any ambiguities.
- The decision is a useful reminder that the insuring clause is critical, and that policy definitions must be interpreted in light of that clause. The definitions supplement the insuring clause by completing the description of its extension and limitations.
- The decision also emphasises that the insuring clause itself contains inherent limitations in the form of expressions used to define the cover, such as ‘for any civil liability’ and ‘brought against’, which have meanings which predicate that the cover does not extend beyond what is meant by such words.
Setting the Stage
Austcorp Project No 20 Pty Ltd and Compromise Creditors Management Pty Limited (the plaintiffs), brought proceedings (the substantive proceeding) against a number of parties including LM Investment Management Ltd (in Liq) (LM) arising out of the acquisition in 2003 by Bellpac Pty Ltd (Bellpac) of the assets of a coal mine in Bellambi, New South Wales. Mr Wong was the guarantor of the loan from LM to Bellpac (the guarantee). In December 2011, Mr Wong filed and served the Response. The allegations contained in the Response arose from the same factual matrix as in the substantive proceeding.
Mr Wong contended that the guarantee was discharged by reason of the matters alleged in the Response, or alternatively any liability under the guarantee should be reduced by reason that LM was knowingly concerned or involved in breaches of duty in exercising the power of sale over the coal mine. Further, LM was said to be knowingly concerned in breaches committed by the mortgagee and receivers.
In the substantive proceeding, the plaintiffs applied to join LM’s professional indemnity insurers, Amlin Corporate Member Ltd and Market Capital Limited (the insurers). The two relevant policies were incepted on 31 July 2012, that is, after the Response was filed and served. The insurers argued that the policies do not respond to the claim made by the plaintiffs against LM in the substantive proceeding.
The intention of the joinder was to avoid multiplicity of proceedings by resolving any issue of indemnity under the policies. However, the primary judge, Jacobson J, concluded that the insurers should be joined to the proceedings, but subject to the condition that the policy construction issues be determined as a separate question (and as a separate proceeding, citation  FCA 44).
What’s in a “Claim”? Answering the Separate Question at First Instance
The construction issues (heard by Jacobson J) arose because the insurers contended that the “Claim” asserted by the plaintiffs against LM was first made in the Response filed in the year prior to the “Period of Insurance” in the policies issued by the insurers. Thus, the insurers contended that the claim was not first made during the Period of Insurance and the policies would not respond in the event that the plaintiffs succeed against LM in the substantive proceeding.
However, the plaintiffs contended that the Response was not a “Claim”, as defined in the policies. The essential question therefore concerned the relationship between the “Claim” made in the Response and the “Claim” advanced by the plaintiffs in the substantive proceeding. A central issue was whether the “Loss” suffered by LM, in the event the plaintiffs succeed against it, arose from the Claim made against LM in the Response.
In making his findings, Jacobson J, identified the relevant question as not simply whether the Response was a “Claim” but whether the Response was a “Claim” that fell within the insuring clause. Jacobson J held that the Response did not constitute a “Claim” for the purposes of the insuring clause for three reasons:
- It did not claim damages or compensation (and so did not meet the definition of “Loss”).
- It was not “brought against” LM; and
- It did not give rise to “Defence Costs and Expenses”.
An Unappealing Act
The Full Federal Court led by Gleeson J (with Allsop CJ and Middleton J agreeing) granted the insurers leave to appeal as the interlocutory decision had a ‘significant impact on the future conduct of the case’, in that, if the insurers succeeded, the proceedings against them would be dismissed.
Ultimately, Gleeson J agreed with the primary judge’s conclusion that the Response was not a claim that falls within the insuring clause, however, her Honour expressed her reasons slightly differently. We will deal with each issue addressed by the Court, in turn, as follows.
Is the Response a “Claim”?
Relevantly, the definition of “Claim” within the policies included “any suit, civil or third party proceeding, counter-claim or arbitration proceeding brought against You alleging a Wrongful Act”. The insurers maintained the Response was a “counter-claim” for the purposes of that definition, particularly as the Response alleged breaches of duty that gave rise to an equitable set-off.
To the extent that the Response pleads an equitable set-off, the Court considered it relevant to determine “the true nature of that claim”. In doing so, Gleeson J approved existing precedent that an equitable set-off could be better described as an equitable defence. Her Honour considered this interpretation as congruent with the nature of the policy. Gleeson J opined that the inclusion of “counter-claim” in the definition of “Claim” is directed to the possibility that the insured may suffer a liability to a third party by reason of a counter-claim. Thus, the Court found that the language of the definition of “Claim” did not require the “artificial construction” proposed by the insurers.
Gleeson J also agreed with the primary judge that even if the Response could be properly described as a “counter-claim” to the extent that it asserts a liability on behalf of LM, it was not “brought against” LM in the “ordinary sense”.
Are any losses LM may incur losses “arising from” the Response?
The insurers complained that the primary judge erred in not considering whether, and in not finding that, the loss that LM would suffer from success by the plaintiffs in the substantive proceeding would arise from the Response. If no such finding was made, then the Response did not defeat the operation of the insuring clause in relation to the claims in those proceedings.
The Full Court found that the primary judge had only dealt with this question peripherally. In her reasons, Gleeson J stated that the expression “arising from” denotes a causal link between the “Loss” and the “Claim”. Her Honour concluded that there was no causal link between the Response and the losses claimed in these proceedings because LM could not be found liable for those losses in the proceeding in which the Response was filed. Accordingly, the Court found the claims in the proceedings are not claims “arising from” the Response.
Was the Response a claim “for any civil liability”?
To fall within the insuring clause, the insurers had to establish that the Response was a “Claim for any civil liability”. With reference to relevant case law, Gleeson J commenced her analysis by referring to two competing meanings of “liable”, being liable by reason of the entry of judgment, and responsible in law. For the purposes of this proceeding, her Honour stated that the significance of the requirement that a “Claim” be “for any civil liability” is that it must seek the establishment by judgment of responsibility in law.
The case put by the insurers was that the Response included a claim for civil liability because it asserted a liability against LM which was a civil liability. However, Gleeson J had no trouble in finding that the Response was not a claim for any civil liability. Amongst other reasons, her Honour opined that, to the extent the Response did assert a liability on the part of LM to account to Bellpac, that assertion was made in support of the existence of an equitable defence and did not involve or require the establishment by judgment of LM’s responsibilities in law to Bellpac.
In light of the above findings, the Full Court concluded that the primary judge answered the separate question correctly and dismissed the insurers appeal.
Lessons from Losses
- The decision is a reminder that every significant term used in the insuring clause to describe the cover is a form of limitation in that the circumstances of the loss must comply with the defined terms before the cover is triggered. The terms of the insuring clause are delineated so the cover does not extend beyond what is described by such expressions of them.
- The Full Court makes clear that if the ‘true nature of a claim’ is reasonably consistent with the character of the insuring clause contained in the policy, the self-protection which the insurer writes into its policy will be afforded due recognition by the courts.
- The decision further highlights that the insuring clause sets the limits of cover within which the other provisions are to be read. Any influences that may modify the relationship of the parties exclusively within the framework of the cover will not apply to anything outside the cover.