Crowden & Anor v QBE Insurance (Europe) Ltd

An insurance exclusion must be construed as part of the policy defining the scope of cover. Rules applicable to exemption clauses, including an automatic contra proferentem approach, do not apply wholesale. Where the wording is clear, it must be applied. Where genuine ambiguity would remove most of the intended cover, a narrower and commercially sensible construction may be appropriate.

An exclusion referring to claims arising out of or relating directly or indirectly to insolvency may require a significant causal connection, short of proximate cause. It can apply to liability arising from investments arranged by an insured financial adviser for customers, and insolvency need not involve a formal insolvency process.

The claimants, trustees and beneficiaries of a self-administered pension scheme, obtained judgment against their financial adviser, Target Financial Management Ltd, for negligent investment advice concerning the Keydata Bond and the Meteor Plan. Target was in liquidation and the claimants pursued QBE, Target’s professional indemnity insurer, under the Third Parties (Rights against Insurers) Act 1930.

QBE sought summary judgment or strike out under CPR rules 24.2(a)(i) and 3.4(2)(a). It relied on an insolvency exclusion in the policy and argued that the claimants had assigned their rights against Target to the Financial Services Compensation Scheme. The central issues were the construction and application of the exclusion and whether the assignment issues could be resolved summarily.

1. Summary judgment. Under CPR rule 24.2(a)(i), the court may determine a short point of law or contractual construction summarily where the evidence is sufficient and the parties have had a proper opportunity to address it. The claimant must have no realistic prospect of success and there must be no other compelling reason for trial.
2. Construction of insurance exclusions. An insurance exclusion defines the risk accepted by the insurer and is not ordinarily an exemption clause relieving a party from primary liability. The court must construe the policy as a whole, in its factual and commercial context. The Canada Steamship principles and an automatic contra proferentem approach therefore do not apply as general rules. A narrower construction may nevertheless be adopted where there is genuine ambiguity and the broader construction would defeat most of the intended cover.
3. Insolvency Exclusion. The wording excluded claims, liability, loss, costs and expenses arising out of or relating directly or indirectly to the insolvency of an institution with which Target had arranged an investment. The words “directly or indirectly” contemplated a causal connection less stringent than proximate cause, but insolvency had to be a significant contributing factor rather than mere historical background. “Insolvency” bore its ordinary commercial meaning and was not confined to a formal insolvency process. The exclusion was not limited to non-negligent conduct or to investments arranged for Target’s own account.
4. Application. The insolvency of Keydata and SLS caused the Keydata losses, and Lehman’s insolvency caused the Meteor losses. The exclusion therefore removed both liabilities from cover. The regulatory background did not alter the clear contractual wording.
5. Assignment and established liability. The court declined to determine summarily the nature and extent of the assignments to the FSCS, whether reassignment had occurred or could be treated as having occurred, and related abuse-of-process issues. A judgment against the insured establishes liability for insurance purposes, but an insurer may ordinarily challenge whether liability in fact existed and whether it fell within cover, unless bound by the policy or by privity to the earlier proceedings.
6. Disposition. QBE’s application succeeded on the Insolvency Exclusion. The claimants had no real prospect of succeeding under the policy. The court indicated that summary judgment dismissing the claim would follow, subject to hearing counsel on the precise orders.