Abstract

Construction of Exclusion Generally - Professional Advice or Services

Article

Construction of an Exclusion

If an alternative more benign construction is available, an exclusion will not be so construed as to make a substantial inroad into the main operation of a policy which has been clearly designed to cover the insured against liabilities incurred as a result of performance of its normal business activities. It would defeat the commercial purpose of the contract of indemnity if the wording of the provision were to take away an important part of the basis of the indemnity itself: Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390; Transfill Services (Australia) v Hall (2008) 75 NSWLR 12); Pacific International Insurance Co Ltd v Walsh [2018] NSWCA 9, where an exclusion of liability for personal injury and property damage in a Professional Indemnity policy was found not to be concerned with liability for harm resulting from a third party’s reliance on advice or services provided by the insured in the course of its property inspection business. Such a construction would not deprive the exclusion of any operation as it would exclude cover for harm caused incidentally in the course of the insured’s business.

The UK Supreme Court has said much the same as the High Court of Australia on this subject.  An exclusion is to be construed in the light of the whole insurance contract, having regard to purpose. There is no rule that it is to be construed strictly, as in the case of an exemption clause, unless the circumstances so require: Impact Funding Solutions v IAG Insurance (2017) AC 73 (SC).

Exclusion: Provision of Professional Advice or Services.

In Pacific International Insurance Co Ltd v Walsh (supra), the Court also found that in a Commercial General Liability policy, which was part of a composite policy with the Professional Liability cover referred to above but covering a different entity, an exclusion as to liability directly or indirectly caused by or arising out of or in any way connected with “Your provision of, or failure to provide, any professional advice or services, or any related error or omission” did not apply to liability for personal injury arising out of the conduct of the insured’s building inspection business. The injury was nervous shock suffered by the mother of a child who was injured in the collapse of a balcony, a fault in which had negligently been overlooked by the insured in the performance of its inspection of the building in the course of its business.

 

The following factors led to that construction:

The insuring clause provided for payments to be made for ‘Claims ... for Personal Injury or Property Damage occurring in connection with the Business Activities’, which included the relevant activity.

  Although it was preceded by the qualification, ‘Subject to the terms of this Policy’, and although ‘subject to’ establishes which provision is dominant and which is subservient: Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 514 at 580, however, its operation in the present case was to be determined through the more elaborate contractual provisions on the same issue. If the most important questions of construction involve a conflict between the exclusions within the wording, and the provisions in the Policy Schedule and in the Endorsements, weight is given to the provisions creating a hierarchy between those provisions. “Policy” was defined to include the Schedule and any Endorsements, one of which was in effectual conflict with the exclusion.

The policy provided that, save for special specified cases, neither of which was relevant, where a Special Condition, Exclusion or Definition is in conflict with a General Condition, Exclusion or Definition, then the former will apply. Conditions, exclusions or definitions that were contained in an Endorsement or the Schedule were defined to be Specific Conditions, Exclusions or Definitions, and enjoyed primacy over other conditions, exclusions and definitions. The Building Inspection Endorsement was an Endorsement as defined.

An endorsement required the insured to give certain advice of a professional nature, but the exclusion excluded cover for liability arising from provision of, or failure to provide, any professional advice or services, so long as that occurred in carrying out any Business Activities, which conformed with the description of the exclusion. Thus there was conflict between what was required for cover and the exclusion. Apart from the endorsement’s prevailing over the exclusion, it was also noted that the policy cannot at the same time require advice to be given, and exclude liability for the provision of that advice.

Each construction left works for the exclusions in the Professional Indemnity and General & Public Liability covers.