Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

The factual issues to be considered are often technical and complex, making it sometimes difficult to say with certainty whether a prior known circumstances exclusion will apply. The application of such an exclusion to a prior known claim is less problematic.

Insured versus insured (related parties) exclusion As its name suggests, this type of exclusion excludes any loss arising from a claim made by an insured against another insured. That situation may arise where, for example: ƒ multiple companies or natural people are named insureds in the policy schedule and there is a dispute between those parties; or ƒ a subsidiary of an insured company commences a claim against the named insured in the policy schedule. The application of such an exclusion in the professional indemnity context was considered in Liberty International Underwriters v The Salisbury Group Pty Ltd (in Liq) & Ors, where cover was excluded for: a) one Insured against another Insured; b) a Subsidiary of the Named Insured against another Insured; c) any current or former spouse or partner, parent, child or sibling of any Insured against another Insured; or d) any entity the Insured has a financial interest in. e) any legal entity who has control directly or indirectly of more than 50% of the Named Insured’s equity or control of the board.’ 523 Ian Weaver (an authorised representative of The Salisbury Group) provided financial advice to Treadstone Developments. Mr Weaver’s wife and son were directors of Treadstone, all three of his sons were shareholders of Treadstone, and Treadstone was the trustee for the Weaver Family Trust, of which Mr Weaver, his wife and sons were beneficiaries. Treadstone (as trustee of the Weaver Family Trust) commenced proceedings against The Salisbury Group and Mr Weaver over the financial advice provided. The Salisbury Group and Mr Weaver (in their capacity as insureds) sought indemnity under their professional indemnity policy, and the insurer sought to deny indemnity by relying on the related entities exclusion clause set out above. ‘a Claim made by or on behalf of:

Having regard to the specific trust documents and deed, it was held that:

ƒ Treadstone brought the proceedings in its own right as trustee of the Weaver Family Trust. It did not do so, as a matter of fact or law, in any representative capacity or as the agent on behalf of the beneficiaries of the trust; 524 and ƒ the beneficiaries of the discretionary trust were not considered to have a ‘financial interest’ in the trust (because the distribution of trust income or capital was at the absolute discretion of the trustee).

523 (2014) 13 ASTLR 206, 210. 524 Ibid 218.

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