Like any insurance claim, you need to check the policy wording carefully.
In BOQ Ltd v Chartis Aust Insurance Ltd [2012] QSC 319 BOQ sought a declaration that its claims made professional services liability insurance policy with Chartis covered its liability arising out of legal action against it by ASIC and borrowers in the Federal Court relating to Storm Financial (which is ongoing) and the costs of defending the claim.
BOQ is being sued under the ASIC Act, the Queensland Fair Trading Act and the Trade Practices Act for unconscionable conduct in respect of loans and as a linked credit provider.
BOQ’s agent notified Chartis of the claims against BOQ. In response Chartis denied liability and refused to give an advance for legal costs as the claims were not covered by the policy.
The Queensland Supreme Court decided not to grant the declaration. The decision was based on the judge’s interpretation of conflicting policy wording.
UPDATE July 2013: BOQ’s appeal dismissed.
The policy provided insurance for Lenders’ liability “arising out of, based upon or attributable to any actual or alleged:
(i) loan, lease or extension of credit except to the extent 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.”
But the policy excluded liability for losses arising from wrongdoing by the insured. The policy stated that the exclusion only applies if the wrongdoing is established by a judgment against the insured or an admission by the insured. That has not yet occurred.
Chartis also argued that the breaches of contract relied upon were not acts in the administration of any of the loans because they were acts which occurred before either the relevant loan contract or loan was made and an act “in the administration” of a loan means an act in the management of a loan which has been made.
Although the policy did not specifically exclude liability for legal costs arising from defending actions for wrongdoing, the judge decided that was the consistent result. In those circumstances, the insurer was not obliged to advance defence costs until the insurer’s denial of indemnity is determined to be wrong as between the insurer and insured.
