In ordinary (i.e. non-insurance) contract law, there is a general principle that clauses which try to exclude liability for negligence will be interpreted narrowly. Such an exclusion clause will be upheld by the court if it expressly and unambiguously excludes liability for negligence. If it doesn’t, then the court will go on to analyse whether the words used nonetheless make it clear that the parties intended to exclude liability for negligence. If the court concludes that it is doubtful the wording is wide enough, the term will be construed against the party that imposed it.
Does that doctrine apply to exclusions in insurance contracts? That was the issue for the Commercial Court in Crowden v QBE Insurance (Europe) Ltd.
The claimants brought a claim against the defendant professional indemnity insurer, QBE, seeking an indemnity in respect of the insured financial adviser’s liability to them for negligent investment advice concerning two financial instruments. The insured had gone into liquidation so the claimants sued QBE directly under the relevant third party rights legislation. The PI policy contained a clause excluding claims, liability, costs or expenses “arising out of or relating directly or indirectly to the insolvency or bankruptcy of the Insured or any…other business, firm or company with whom the Insured has arranged directly or indirectly any insurance, investments or deposits”. The Commercial Court, in allowing (in part) QBE’s application for summary judgment, held that the clause applied to exclude the financial adviser’s liability to the claimants in respect of the advice given. In line with last year’s Supreme Court decision in Impact Funding v Barrington, it held that the principles of construction applicable to exclusion clauses in non-insurance contracts were not to be adopted in the interpretation of insurance exclusions. That was because insurance exclusions are designed to define the scope of cover which the insurance policy is intended to afford and therefore the court should not automatically apply a narrow approach. Where, however, a clause is genuinely ambiguous, and the effect of a wider construction would be to exclude most or all of the insurance cover, the court should opt for the narrower construction.