Crowden v QBE Insurance (Europe) Limited  EWHC 2597 (Comm)
The approach to clauses limiting or excluding insurers’ liability adopted by the Supreme Court in Impact Funding Solutions v Barrington Support Services  UKSC 57;  AC 73 has been followed in the recent decision at first instance in Crowden v QBE Insurance (Europe) Ltd  EWHC 2597 (Comm). The defendant insurers successfully applied for summary judgment dismissing a claim against them pursuant to the Third Parties (Rights against Insurers) Act 1930.
The first ground was that insurers could rely upon the following clause:
“This Insured section excludes and does not 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 of 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 …”
The claim against the insured was for advising the claimants to invest in two financial instruments, both of which had become insolvent.
The claimants argued that the clause did not exclude liability for negligent advice and for a restricted construction of it. They also argued that it was inconsistent with the scope of professional indemnity insurance which the insured was obliged to maintain under the relevant provisions of the FSA Handbook.
The judge, Peter MacDonald Eggers QC held that the approach to the construction of exemption clauses set out in Canada Steamship Lines Ltd v The King  AC 192, 208 did not apply to contracts of insurance where exclusion clauses define the risk, rather than exclude or limit a primary liability. An exclusion clause in an insurance policy does not “ordinarily operate to deprive the insured of rights which existed prior to or but for the cover afforded by the Policy“.
Nor did he consider that a wholesale approach of contra proferentem was appropriate, citing from the judgments of Lord Hodge and Lord Toulson in the Impact Fundingcase.
Rather the court should “adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract”. Only in cases of genuine ambiguity would the court be entitled to adopt the narrower construction of an exclusion clause.
The clause in question was not ambiguous and the words “arising out of or relating directly or indirectly” showed that the insolvency need not be the proximate cause, albeit that it still had to be a significant and “stand out as a contributing factor” to the claim or loss. While the scope of the clause was wide, it did not deprive the insurance policy of all practical effect. And, it was for the financial adviser to obtain the insurance required by the FSA Handbook; insurers were not obliged to provide it.
This decision shows how courts will approach arguments that exclusion clauses in insurance policies should be constructed restrictively. Insureds and their brokers would be well advised to read such clauses carefully before agreeing to them.