All News tagged: indemnity

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Insurer not liable for dishonest conduct in deregistered company

Case note: Smart v AAI Ltd; JRK Realty Pty Ltd v AAI Ltd [2015] NSWSC 392

Claim against insurer – Claim against deregistered company – Professional indemnity case

Background

Over the course of five months Mr Nathan Smart and JRK Realty Pty Ltd (the Plaintiffs) transferred $267,000 in a number of transactions to Q1 Financial Services Pty Ltd (Q1).  Q1 was a finance broker.  The Plaintiffs were persuaded to transfer the money by Q1’s general manager, Mr Damian Lynch (Lynch).  Lynch told them that the money would be used to make loans to clients and represented to the Plaintiffs that the loans would return interest at a rate of 3% per month.  However, Lynch misappropriated the funds.

Q1 was wound up and deregistered. Q1 held an insurance policy underwritten by AAI Ltd, formerly known as Vero Insurance Ltd (Vero), at the time of the transactions.  The Plaintiffs brought proceedings directly against Vero under section 601AG of the Corporations Act 2001 (Cth) (the Act).

Issue

The issue for determination was whether, on the facts of the case, Vero was required to meet the Plaintiffs’ claims by operation of section 601AG of the Act.

Findings

Justice Beech-Jones made the following findings in a judgment delivered on 22 May 2015, dismissing the Plaintiffs’ claims:

  1. the Plaintiffs did not make a ‘claim’ against Q1 during the period of insurance and so the insuring clause of the policy was not engaged.
  2. the liability of Q1 was excluded from cover because it arose directly or indirectly from a liability that Q1 assumed ‘outside the normal course of the Professional Services’ as defined in the policy.  In making this finding, the Court accepted the evidence of banker, Mr Dennis Roams for Vero who said, ‘… once Q1 approached Mr Smart and JRK for funds and received funds from Mr Smart and JRK, in my opinion Q1 ceased to be acting as a mortgage broker and/or finance broker. This was not a usual method of disbursing loan funds. In my experience lenders generally provide loan funds directly to borrowers and not to mortgage or finance brokers.’
  3. Q1’s liability was not covered because of an exclusion clause in the policy concerning dishonest and fraudulent acts of the insured. Although, there was a write back to this clause for the dishonest or fraudulent acts of Q1’s employees, it was not engaged because Lynch was an employee of Q1

The Plaintiffs were ordered to pay Vero’s costs.

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Kate DenningInsurer not liable for dishonest conduct in deregistered company
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Managing indemnity disputes after Highway Hauliers

Managing indemnity disputes after Highway Hauliers

Matthew Maxwell v Highway Hauliers – Exclusion Clause Examples – Exclusion Clauses Australia – Exclusion Clauses Negligence – Insurance Contracts Act – Exclusion Clauses Common Law – Exclusion Clauses Common Law – Exclusion Clauses Australian Contract Law 

Case note: Inglis v Sweeney [2015] WADC 34

This was a judgment of the District Court of Western Australia on a preliminary question of law in a personal injury case.

Issue

The issue to be determined was whether an Allianz Sure Cover Plus home insurance policy (Allianz Policy) required Allianz to indemnify its insureds for their liability to the Defendants.

Facts

The Plaintiff, Ms Georgia Inglis (Georgia) (aged 10) alleges that she was run over by a ride-on lawnmower operated by the First Defendant, Mr Stephen Sweeney (Stephen) (aged 11).

Georgia is the daughter of Mr Stuart Inglis and Mrs Linda Inglis (Georgia’s parents).  Mr Stuart Inglis owned the ride-on lawnmower.  Georgia lived with her parents.  Georgia’s parents were named insureds under the Allianz Policy.

It is alleged that on 17 October 2004, Mr James Inglis (James) (aged 12), Georgia’s brother, rode the lawnmower from Georgia’s parents’ house, to the Second and Third Defendants’ house.  The Second and Third Defendants are the parents of Stephen.

Stephen ran over Georgia in a game that involved Georgia being towing behind Stephen on the ride-on lawnmower.  Georgia brought claims against the Defendants.  The Defendants brought claims against Mr Stuart Inglis and Georgia’s brother, James (the Third Parties).  The Third Parties brought a claim against Allianz, seeking indemnity under the Allianz Policy.  Allianz refused indemnity on the basis that the claim by the Third Parties fell within the exclusion under the Allianz Policy because Georgia was a person who normally lived with the insureds.

Allianz Policy

Insuring clause

The Allianz Policy contained the following clause relating to cover for injury to other people:

‘… We will cover your legal liability for payment of compensation in respect of:

  • death, bodily injury or illness…’

Exclusion clause

The Allianz Policy contained an exclusion clause which read:

‘What you are not covered for:

1. We will not cover your legal liability for: …

b. injury to any person who normally lives with you, or damage to their property;’

Findings

The Court found:

  1. The Defendants’ claim against the Third Parties was a claim ‘in respect of’ bodily injury. Because of this, the Defendants’ claim against the Third Parties fell within the scope of the Allianz Policy.
  2. Georgia was a person who normally lived with the insureds, for the purposes of the exclusion clause.
  3. The relevant act for the purposes of section 54 of the Insurance Contracts Act 1984 (Cth) (ICA) was that at the time the accident occurred, Georgia was living with her parents.  This act could not be regarded as being capable of causing or contributing to a loss.
  4. The exclusion clause did not operate to exclude the Defendants’ claim.  The Defendants’ claim was not a claim for the Third Parties legal liability ‘for… injury to any person who normally lives with you.  Rather, it was for a legal liability to contribute towards the Defendants’ liability to Georgia.
  5. Section 54(1) of the ICA applies in respect of the claim.

Managing indemnity disputes

Parties involved in indemnity disputes like this, may consider making application to the Court for determination of whether section 54(1) of the ICA applies to a claim.

If an indemnity dispute can be decided as a preliminary issue, then one party’s trial costs may be avoided altogether, leaving the remaining parties to the claim to focus on settlement negotiations or, the main issues in dispute.

However, the decision to make application to the Court will depend upon a number of factors, including whether a set of facts can be agreed between the parties.

BOOK A FREE CONSULTATION for advice and information about an insurance coverage dispute by calling (07) 3067 3025 or contact us online.

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Kate DenningManaging indemnity disputes after Highway Hauliers
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InDefence covers legal and technical issues in a general way. Changes in circumstances or the law may affect the completeness or accuracy of the information published. InDefence is not designed to express opinions on specific cases, to provide legal advice or to establish a relationship of client and lawyer between Denning Insurance Law and the reader, or any third party. No person should act or refrain from acting solely on the basis of this publication. You should seek legal advice particular to your circumstances before taking action on any issue dealt with in this blog.