The devil’s in the detail – Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2012] QSC 319

Bank of Queensland Ltd (BOQ) held a FinancialGuard Professional Services Insurance policy (the policy) with Chartis Australia Insurance Ltd (Chartis). BOQ made a claim on the policy after proceedings were commenced against it by a third party for breaches of the Australian Securities and Investments Commission Act 2001 (Cth), Fair Trading Act 1989 (Qld) and Trade Practices Act 1974 (Cth) (the third party claim).

Chartis declined to indemnify BOQ on the basis that exclusion clause 3.9 was enlivened. Exclusion clause 3.9 stated that Chartis:

‘shall not be liable to make any payment for Loss arising out of, based upon or attributable to any actual or alleged:

i) loan, lease or extension of credit except to the extent such Claim arises out of a Wrongful Act in the administration of such loan, lease or extension of credit; or
ii) collection, foreclosure, or repossession in connection with any actual or alleged loan, lease or extension of credit.’

BOQ challenged Chartis’ declinature and asserted that, in any event, it was still entitled to indemnity for ‘Defence Costs’. BOQ asserted that this was because exclusion clause 3.9 only stated that Chartis would not be liable to pay in respect of ‘Loss’; the exclusion made no reference to ‘Defence Costs’.

BOQ subsequently applied to the Supreme Court of Queensland seeking, amongst other things, a declaration that on the proper construction of the policy, it was entitled to be indemnified for its ‘Defence Costs’ associated with the third party claim.

The decision

In refusing to make a declaration on the proper construction of the policy, Justice Jackson relied upon the decision of Bass v Perpetual Trustee Co Ltd [1999] HCA 9. His Honour noted that it was inappropriate to make a determination about BOQ’s entitlement to indemnity for its ‘Defence Costs’ by applying the law to facts which were neither agreed to by the parties nor determined by reference to the evidence in the case.

Justice Jackson ultimately held that if exclusion clause 3.9 applied to BOQ’s claim for ‘Loss’, and Chartis denied indemnity, it was not required to pay ‘Defence Costs’ because:

1. The language of the insuring clause stipulated that the insurer would pay ‘Loss and Defence Costs’ resulting from any qualifying claim;
2. It would be an unlikely commercial result if the insurer was required to pay ‘Defence Costs’ for a claim which was not otherwise covered by the policy because of an exclusion clause;
3. With the exception of the opening words to the exclusion clauses (namely, the reference only to insurer’s liability to pay for ‘Loss’), neither the subject matter of the policy nor the text supported a construction that involved dealing with liability for ‘Loss’ and ‘Defence Costs’ differently; and
4. Such an interpretation would render the interpretation of other clauses in the policy inconsistent.

In reaching his ultimate decision, Justice Jackson noted that the preferred construction of the policy was the one that gave a business like interpretation. However, given that the ordinary expectations of hypothetical reasonable businessmen were not particularly helpful in the circumstances, His Honour preferred to closely consider the contractual text and its operation in particular circumstances.

Implications

The decision of Bank of Queensland Ltd v Chartis Australia Insurance Limited highlights the importance of ensuring insurance policy wordings are carefully drafted.

The significant costs incurred, and time involved, in litigating policy interpretation issues could be avoided if insurers adopted unambiguous terms and paid meticulous detail to the drafting of policies from the outset.

There is often a lot at stake for an insured when they are declined insurance cover. Minimising the guess work associated with the interpretation of insurance policy wordings would provide some level of comfort to an insured and help the contracting parties to know where they stand.

If you would like further information on these issues, please our team on 07 3231 2444.