LM Investment Management Ltd (LM), the insured, loaned money to Bellpac to acquire a coal mine. The loan was guaranteed by a Mr Wong. LM later appointed receivers and managers to Bellpac, which subsequently went into liquidation. LM commenced court proceedings against Mr Wong to recover under the guarantee. Mr Wong filed a Response in which he argued that his liability under the guarantee ought to be discharged or reduced because LM was, through the conduct of the receivers, responsible for the mine being sold at a gross undervalue.

LM’s insurers argued that they were not obliged to indemnify LM in relation to the Response. The Court agreed, concluding that the Response simply raised an equitable defence of set-off against LM’s claim under the guarantee, and so was not a ‘claim for any civil liability’ and had not been ’brought against’ anyone within the meaning of the insuring clauses of the policies. Further, the words ‘arising from’ in the insuring clause implied that there must be a causal connection between the ‘Loss’ and the ‘Claim’. Here, the Response could not be linked to any loss for which LM could be found liable in the proceedings.

You can access the reasons for judgment here.