Brit Syndicates Ltd & Ors v Italaudit SPA & Anor

Where an insurance extension covers claims against an umbrella organisation arising from claims against a member firm, words describing the member firm as insured may identify the type of claim or firm to which the extension applies. They need not make cover dependent on the member firm’s continuing entitlement to an indemnity.

Construction depends on the policy wording and commercial context. Avoidance of a policy for non-disclosure does not require the court to treat ordinary descriptive language as though historical facts had literally been erased. A breach of warranty presupposes an existing contract and ordinarily discharges the insurer from liability from the breach, rather than avoiding the contract ab initio.

The claimant insurers sought declarations concerning the effect of avoiding the insurance of GT Italy, a member firm of the Grant Thornton organisation, and alternatively its breach of warranty. The second defendant, Grant Thornton International, applied for summary judgment seeking an indemnity under Extension 3 of a professional indemnity policy. The extension included GTI as an assured firm in respect of claims against it arising from claims against a member firm insured by the policy.

It was accepted for the application that the claims against GTI arose from claims against GT Italy, that GT Italy was named in the policy, and that its cover had been avoided or discharged for breach of warranty. The central issue was whether the reference to a member firm being insured was descriptive of the relevant claim or made GTI’s cover dependent on effective cover remaining available to GT Italy.

1. Summary judgment. GTI was entitled to summary judgment. The insurers’ application was dismissed.
2. Construction of Extension 3. The words providing cover for GTI in respect of claims arising from claims against a member firm insured by the policy were descriptive. They identified the relevant kind of claim and member firm. They did not make GTI’s cover conditional on the member firm’s continuing entitlement to an indemnity.
3. The construction gave commercial substance to the extension and was consistent with the policy’s composite character. GTI was separately insured as an assured firm when the stated criteria were met. It should not be affected by the conduct of another assured of which it was ignorant. The contrary construction would create uncertainty because the availability of cover for GTI would depend on disputed questions concerning the member firm’s conduct and the policy’s response to it.
4. Effect of avoidance. Authorities describing avoidance as retrospective and restitutionary did not determine the meaning of Extension 3. A contract avoided ab initio is not to be treated literally as though the past could be erased. Until avoidance, GT Italy had in fact been a member firm and was insured in ordinary language.
5. Breach of warranty. A warranty presupposes an existing insurance contract. Under Bank of Nova Scotia v Hellenic Mutual [1992] 1 AC 233, non-fulfilment of a warranty discharges the insurer from liability from the date of breach; it does not avoid the contract ab initio. The insurers’ case therefore had to depend on non-disclosure if it was to succeed.
6. The court rejected the attempt to make the construction of ordinary descriptive words depend on the restitutionary consequences of avoidance. The insurers’ application was dismissed, and GTI obtained the judgment sought. Ancillary matters were reserved for agreement or further hearing.