In Crowden v QBE Crowden sought indemnity under a professional indemnity policy issued by QBE. Crowden had obtained judgment against their IFA in respect of a claim for negligently advising them to purchase investment bonds, which had caused Crowden to suffer substantial losses when the bond issuer became insolvent. Having obtained judgment the IFA also entered into insolvency and Crowden pursued a claim against the IFA’s insurer, QBE, under the Third Party (Rights Against Insurers) Act 1930.
QBE successfully defended the claim by relying on an exclusion in the policy which excluded from cover “any claims, liability, loss, costs or expenses:… arising out of or relating directly or indirectly to the insolvency or bankruptcy of the Insured or any insurance company, building society, bank, investment manager, stockbroker, investment intermediary, or any other business firm or company with whom the Insured has arranged directly or indirectly any insurances, investments or deposits.”
QBE argued that the insolvency of the insured IFA and the bond issuer triggered the exclusions and absolved QBE of its obligation of indemnity. Crowden argued that this clause was inconsistent with the aim of a professional indemnity policy, which is to provide cover for losses caused by the IFA’s negligence, and as an exclusion clause it should be construed narrowly. Crowden relied on long standing principles of contract law (the Canada Steamship principle) that clauses which exclude liability should be construed narrowly and against the interests of the party seeking to rely on the clause.
The court rejected the claimant’s argument and held that the Canada Steamship principle does not apply to insurance policies. Exclusion clauses in insurance policies are not exclusions of “rights which existed prior to or but for the cover afforded by the policy”. Instead, exclusion clauses in an insurance policy are clauses which, when read alongside the insuring clause, define the scope of the risk which is covered under the policy.
The court re-affirmed the Supreme Court’s decision in Impact Funding v Barrington, and held that it is the court’s job to “adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract”.
The court also rejected what it perceived to be an argument by Crowden that the contra proferentem rule (i.e. that ambiguous clauses should be construed against the insured) should apply. The court re-affirmed the Supreme Court’s decision in Impact Funding v Barrington, and held that it is the court’s job to “adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract”. If the court cannot achieve this and there is genuine ambiguity then the court is entitled to adopt the narrower interpretation. In the present case the court held there was no ambiguity in the clause. It was widely drafted and clearly intended to capture a situation where, although negligence by the IFA was the proximate cause of the loss, the insolvency of the bond issuer was also a contributory cause.
For policyholders this case emphasises the importance of reading any policy exclusions carefully when taking out insurance. An insurance policy is typically structured so that there is a widely drafted insuring clause – e.g. offering indemnity against all loss or liability arising from claims for professional negligence – but then set out exclusion clauses which cut back the scope of that clause. It is not uncommon to find multiple exclusions in a policy so while at first blush an insurance contract may appear to offer broad cover, a careful read of the exclusion clauses can reveal that the cover is far more restrictive than one might expect.