A Useful Lesson On Multi-Coverage Policies From The “Land Down Under”
A Useful Lesson On Multi-Coverage Policies From The “Land Down Under”09.04.2018
It is not every day that I would write about a court decision from an appellate court in New South Wales (a State in Australia where Sydney is located). However, insurance companies are more and more combining coverages to meet the needs of professional policyholders, whether it be for example a policy that provides general liability and professional liability coverages, or an errors & omissions policy that also provides cyber liability coverage. A recent decision from the New South Wales Court of Appeal (the highest Court in that State) provides some useful guidance for the professional that purchases such a policy and the insurance agent or broker that sells it.
In Pacific International Insurance v. Walsh, a building inspector purchased an insurance policy that provided professional indemnity and public (general) liability coverage. The building inspector issued a report for the plaintiff in connection with the purchase of a family home, and was sued for bodily injury claims sustained when the plaintiff’s daughter fell due to an allegedly defective balcony rail. The inspection company filed a cross claim against its insurer for indemnity with respect to the plaintiff’s claims.
Not uncommon, the public liability portion of the policy insured for “Personal Injury or Property Damage occurring in connection with the Business Activities”, but excluded cover for claims arising out of the insured’s negligence in providing professional advice or services. Meanwhile, the professional indemnity policy part provided cover for claims arising out of actual or alleged breach of professional duty in connection with the Business Activities but excluded cover for claims arising out of or in any way connected with any personal injury and property damage. “Business Activities” was defined in an Endorsement as including a Pre-Purchase Building Inspection and Building Inspection Report. As you can expect, the insurer Pacific argued that the exclusion clauses in each policy applied to exclude cover for the claim.
The NSW Court of Appeals reversed the decision of the trial Court below, and rejected the insurer’s efforts to deny coverage concluding that (i) the commercial purpose of the combined policy was to provide cover to the insured in relation to his normal business activities; and, (ii) the need to construe the combined policy as a whole is consistent with that commercial purpose. Specifically, the Appellate Court concluded that applying both exclusions would contradict the purpose of the combined policy, which was to provide the defendant with insurance against liabilities incurred as a result of performance of its normal business activities. In those circumstances, it would be “troubling” if cover was not available.
This conclusion is not from a proverbial “Kangaroo Court” and there are many jurisdictions in the United States that will similarly be disinclined to construe a policy literally if that will defeat the commercial purpose of the policy. There are however just as many Courts that will look at the plain language of the insurance contract to support a declination of coverage. The lesson learned from this is that the professional looking to purchase and the insurance intermediary looking to procure such a combined policy look to close any gaps in coverage or other limitations that may. Such an analysis should go beyond the insuring and exclusionary language as combing coverage parts could also, for example, impact available limit of liability if both coverage are tied to one policy limit (instead of separate limits for each coverage).