In Crowden v QBE, Crowden sought an indemnity under a professional indemnity policy issued by QBE. QBE successfully defended the claim based on an exclusion under the policy. This case serves as a useful reminder for insurers, brokers and policyholders of the importance of understanding the scope of insurance cover and the impact of exclusions on a contract of insurance.
Crowden issued a claim for negligence against their financial adviser, which centred on advice related to the purchase of investment bonds. Crowden suffered a loss when the bond issuer became insolvent. Crowden recovered part of its loss from the Financial Services Compensation Scheme and obtained judgment against their financial adviser for the majority of the balance. When the financial adviser also entered insolvency, Crowden pursued the financial adviser’s professional indemnity insurers, QBE, directly under the Third Party (Rights Against Insurers) Act 1930.
- The claim fell within the insolvency exclusion under 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.”
- Crowden’s right to make a claim against its financial adviser had been assigned to the Financial Services Compensation Scheme and Crowden therefore had no cause of action.
The judge, MacDonald Eggers QC, held that QBE was entitled to summary judgment on the basis of the policy exclusion.
The judge rejected Crowden’s arguments that the exclusion clause:
- Should be construed narrowly and in accordance with the contra proferentem rule (that unambiguous clauses should be construed against the interests of the party seeking to rely on the clause).
- Was inconsistent with the purpose of the professional indemnity policy on the basis that it did not make express reference to negligence.
The judge held that the contra proferentem rule does not apply to insurance contracts as:
“… an exclusion clause in an insurance policy is not designed to exclude, restrict or limit a primary liability on the part of the insurer; instead, it is intended to define the risk which the insurer is prepared to accept”.
The court reaffirmed the Supreme Court’s decision in Impact Funding Ltd v Barrington Support Service Ltd. It 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”, that is, the contra proferentem rule does not automatically apply and each exclusion should be considered in a commercially sensitive way in the context of the scope of cover. The court held that the policy wording was relatively clear and, although widely drafted, it was not ambiguous and did not leave the policyholder without substantial cover.
The judge did not express a view on assignment on the basis that he did not have enough information about the arrangement with the Financial Services Compensation Scheme. However, the judge did state that it would be difficult to see how the Financial Services Compensation Scheme should be given an assignment of all of Crowden’s rights in respect of the full loss, particularly when it only provided an indemnity for part of the loss.
This case is a useful reminder of the importance of understanding the scope of insurance cover.
For policyholders, the case emphasises the importance of considering in detail what insurance product is required and ensuring that the chosen contract of insurance covers business needs. Exclusion clauses carve out scope of cover and need to be considered carefully in the context of the insuring clause.
In this case, Crowden did seek to argue that a change in policy wording from the previous year had not been brought to the policyholder’s attention and should not apply. However, the judge held that the court was entitled to assume that the parties to a contract of insurance had read and understood the terms and conditions. In this regard, the case highlights the role of insurance brokers, particularly now that the Insurance Act is in force. It is fundamental that brokers establish in full what the policyholder requires, and makes sure that the terms and conditions of the policy, and their implications, are understood and communicated to the policyholder. It is not for the insurer to warn the policyholder of policy conditions; this rests with the broker.
For insurers, this case confirms that exclusion clauses will not necessarily be construed narrowly and will instead be interpreted to define the risk covered by the policy. It is therefore important that insurers consider carefully the product they are offering and the intention for the scope of cover.
As a final comment, this case also highlights the importance of a claimant establishing early on what funds may be available for recovery. In this case, the claimant was faced with an insolvent defendant and recourse against the professional indemnity insurer was the next obvious route. In this situation, the policy terms are fundamental and it is sensible for a claimant to consider in the early stages of a claim whether it is worth incurring the costs of pursing the action, and whether there is indeed, an avenue for recovery.