Professional Liability Guide

CHAPTER 10 – DEFENCE COSTS

‘The insurer shall not be liable to make any payment for Loss:

Lender’s liability

Arising out of, based upon or attributable to any actual or alleged:

i) Loan, lease or extension of credit except to the extent that such Claim arises out of a Wrongful Act in the administration of such loan, lease or extension of credit; or ii) Collection, foreclosure or repossession in connection with any actual or alleged loan, lease or extension of credit.’

With respect to the advancement of defence costs, clause 6.6 of the policy provided:

‘Except to the extent that the Insurer has denied indemnity for any Claim, the Insurer shall advance Defence Costs in excess of the retention, if applicable, promptly after sufficiently detailed invoices for those costs are received by the Insurer. The Insurer may not refuse to advance Defence Costs by reason only that the Insurer considers that conduct referred to in the “wrongdoing” exclusion has occurred, until such time as there is an admission by the Insured, or, a judgment, award or other finding by a court, tribunal or other trader with jurisdiction to finally determine the matter (including the outcome of any appeal in relation to such judgment, award or other finding) which establishes the foregoing.”’

The indemnity obligation on the insurer was expressed in cl 1 of the policy in the following terms:

“The Insurer shall pay on behalf of each Insured all Loss and Defence Costs resulting from any Claim first made during the Policy Period for any Wrongful Act.”

Clause 2.20 of the policy defined ‘Wrongful Act’ as including:

‘Act or error or breach of duty or omission or conduct (including misleading or deceptive conduct) committed or attempted or allegedly committed or attempted by or of the Insured …

Without limiting its scope, Wrongful Act includes:

a) Breach of contract for the provision of Professional Services (notwithstanding exclusion clause 3.2); b) Breach of any state or territory fair trading legislation; c) Breach of the Trade Practices Act 1975 (Cth) (as amended)

…

j) Breach of the Australian Securities and Investments Commission Act 2001 (Cth) (as amended).’

In justifying its denial of indemnity, in particular its refusal to advance defence costs, the insurer argued that the ‘loss’ the subject of the claim arose out of was based on or attributable to the actual or alleged loans made by the Bank to the Doyles and, therefore, fell within exclusion clause 3.9.

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© Carter Newell 2023