Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2016] FCAFC 15

The Full Court recently handed down a very interesting decision on the construction of contracts of insurance generally in Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2016] FCAFC 15 (19 February 2016).  

Allsop CJ and Gleeson J rejected (at [25]) the submission of the Insurer that as the policy was an indemnity insurance policy, the insurance policy should be construed as a contract of indemnity.  Such a construction would have the result that in case of any doubt as to the proper construction of an insuring clause, the doubt should be resolved in favour of the insurers.  Beach J concurred with the analysis of Allsop CJ and Gleeson J on this point commenting (at [77]):

"Special rules of interpretation developed for the benefit of those who agree to indemnify a creditor against the credit risk of a debtor, who have been in various ways “the object of some favour both at law and in equity” (In re Sherry; London and County Banking Co v Terry (1884) 25 Ch D 692 at 703 per the Earl of Selborne LC), have little to do with policies of indemnity insurance.  In the latter case, the indemnifier is in a quite different category.  It is engaging in the business of providing indemnities.  It is doing so for reward, calculated in part by reference to the risk assessment of whether the relevant contingent event will occur.  Moreover, the indemnified in the latter case is in a quite different situation to the indemnified in the former case.  Different risk allocations are involved, although superficially each situation involves an indemnity contract."

Allsop CJ and Gleeson J further confirmed the principles of interpretation of commercial contracts apply to contracts of insurance ([42]),  noting especially at [42]:

"To refer to “social” purpose (where relevant) is not to detach the process of interpretation and construction from the objective enquiry as to the meaning of a document regulating the private rights of the parties.  It is to identify the reality that in some circumstances a policy of insurance as a commercial document will find its place in some aspect of the organisation of society through the rights and obligations thereby created by it.  That place or purpose will have its weight in the description of meaning to the words in question."

On that point, Beach J commented that he would prefer to use the language of "commercial purpose" in contrast to the language of "social purpose" (at [76]).

The appellants succeeded in seeking cover for negligent financial planning advice which had been provided by the insured financial planner, in relation to products which were not on the financial planner's approved products list.