Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

The Bank argued that the exclusion clause lacked sufficient precision insofar as it failed to identify what was required by the words ‘arising out of, based upon or attributable to’ . It argued that what was required was a ‘non-coincidental nexus between the proscribed conduct and the loss’ , which, it submitted, could not be established in this case. In the alternative, the Bank argued that the loss, in fact, arose out of the administration of the loans, not the making of the loans themselves, and so the ‘carve out’ in clause 3.9 was triggered. The insurer successfully resisted a declaratory determination concerning its obligation to indemnify the Bank by arguing that to do so would involve proceeding based on the allegations made in the pleadings, which had not been proven or accepted by either party as facts that were true or binding on them. In this regard, the insurer relied on Bass v Perpetual Trustee Company Limited, 548 in which it was held that it was central to the purpose of a judicial determination that it ‘includes a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy.’ 549

In that case, the High Court stated that if a declaration is made not based on the facts either as found or agreed between the parties, it will be purely hypothetical and:

‘… at best … do no more than declare that the law dictates a particular result when certain facts in the material pleadings are established. Also, if “the relevant facts” are not identified and the existence of some of them is apparently in dispute, the answers … may be of no use at all to the parties and may even mislead them as to their rights.’ 550

Justice Jackson agreed with that statement of principle and held that the:

‘… proper application of the principles in Bass leads to the conclusion in the present case that a declaration as to the operation and application of cl 3.9 to the claim in the Doyle proceedings for Loss under the policy should not be made because the declaration would be hypothetical.’ 551 With respect to whether there was any obligation on the insurer to advance defence costs in circumstances in which it had declined indemnity on the grounds that the loss was not covered, the Bank argued that the obligation to advance defence costs crystallised upon the lodgement of a qualifying claim. The Bank also argued that the insurer’s reliance on exclusion 3.9 did not excuse it from its obligation to extend defence costs in circumstances in which the exclusion clause only referred to the insurer not being liable to make payment for ‘Loss’ in certain circumstances and did not refer to and exclude a separate obligation to provide ‘Defence Costs’ . Justice Jackson undertook a comprehensive analysis of the state of the law concerning the obligation to advance defence costs in circumstances in which indemnity was denied. His Honour referred to Wilkie v Gordian Runoff Limited, 552 in which the insurer denied indemnity for both the claim and defence costs, predicated on the fraud exclusion in the policy. He noted that the High Court had held in that case that to permit the insurer to avoid the obligation of advancing defence costs in circumstances in which it relied on the fraud exclusion, there was a requirement to establish the fraud before invoking the exclusion. So it was held that there was an obligation to advance defence costs pending a determination of the fraud claim.

548 (1999) 198 CLR 334. 549 Ibid 355. 550 Ibid 357. 551 Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2012] QSC 319 [40]. 552 (2005) 221 CLR 522.

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